United States v. Texas

PETITIONER:United States et al.
RESPONDENT:Texas et al.
LOCATION:City Council of Hialeah

DOCKET NO.: 91-1729
DECIDED BY: Rehnquist Court (1991-1993)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 507 US 529 (1993)
ARGUED: Mar 01, 1993
DECIDED: Apr 05, 1993

James C. Todd – on behalf of the Respondents
Thomas G. Hungar – on behalf of the Petitioners

Facts of the case


Audio Transcription for Oral Argument – March 01, 1993 in United States v. Texas

William H. Rehnquist:

We’ll hear argument first this morning in No. 91-1729, United States v. Texas.

Mr. Hungar.

Thomas G. Hungar:

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

This case involves the question whether the United States retains its long-standing common law right to collect prejudgment interest on debts owed by state and local governments.

The case arises in the context of the Federal Food Stamp Program.

Under that program the United States distributes food stamps to participating states for issuance to eligible individuals.

States like Texas that choose to distribute food stamps through the mail are contractually liable to the United States for a portion of the value of the food stamps that are lost or stolen in the mail.

In 1986 and 1987 the United States asserted claims against Texas amounting to over $400,000 for losses arising out of the State’s issuance of food stamps in the mail.

Both the district court and the court of appeals upheld the validity of those claims, but the court of appeals also held that the United States was not entitled to collect prejudgment interest on the State’s debts.

We submit that the court of appeals erred in reaching that conclusion.

As this Court has repeatedly indicated, an award of prejudgment interest is in keeping with fundamental principles of fairness and equity and serves to insure that neither party to a dispute benefits or suffers from a delay in payment.

For those reasons the right of the United States to collect prejudgment interest from the states and from local governments has long been recognized as a matter of Federal common law.

Respondents argue that Congress intentionally abrogated that long-standing common law right when it enacted the Debt Collection Act of 1982, but the language and purpose of that act and traditional canons of statutory construction require rejection of respondents’ argument.

The language of the Debt Collection Act does not address the question at issue in this case.

The act says only that states are not persons for purposes of the mandatory prejudgment interest and delinquency penalty provisions of 31 U.S.C. section 3717.

Standing alone, that exclusion from the scope of section 3717 does not suggest that Congress intended to go further and to abrogate the existing common law remedy.

The common law remedy is discretionary and flexible and allows courts to weigh the interests of the state better in determining whether and to what extent to award prejudgment interest.

Anthony M. Kennedy:

If the state had just refused to pay, Mr. Hungar, and the United States had sued the state, which was not the case here, would it have had a choice to proceed under the Federal common law or under the Debt Collection Act, or does the Debt Collection Act not provide some substantial cause of action?

Thomas G. Hungar:

In this case the United States would not have had the choice to proceed under the Debt Collection Act because the Debt Collection Act’s prejudgment interest remedy expressly excludes the states.

Anthony M. Kennedy:

I mean for the substantive amount owed, for the principal amount owed.

Thomas G. Hungar:

Well, the Debt Collection Act doesn’t create a cause of action.

It just, it sets forth certain remedies and certain specific contexts for the Federal Government’s debt collection efforts.

It’s not even a comprehensive scheme in that respect.

Anthony M. Kennedy:

All right, so there’s no substantive liability under… substantive cause of action created under the Debt Collection Act?

Thomas G. Hungar:

Well, where the… that’s correct.

Anthony M. Kennedy:

For the principal sum.

Thomas G. Hungar:

That’s correct, Your Honor.

The substantive cause of action comes from the Food Stamp Act.

Anthony M. Kennedy:

Would the… and is that the common law cause of action that the United States would proceed under in this hypothetical case where the United States is initiating the suit?

Would the United States then have a choice to say well, we’ll proceed under the statutory cause of action or under the Federal common law, or are they the same thing?

Thomas G. Hungar:

Well, if we’re referring to the Federal common, the Federal cause of action, which is a different question than the remedy for prejudgment interest in our view, the cause of action… I am sure the United States would have a cause of action that could either be viewed as an implied right of action under the Food Stamp Act or as the more general Federal cause of action for money had and received, which is at issue in the United States against California case.

But in either event we would submit that prejudgment interest would be available under the separate remedial rule that this Court has repeatedly affirmed, which is that where a sum of money is owing to the United States prejudgment interest is generally available, depending on the equities of the particular situation.

Anthony M. Kennedy:

So if in the hypothetical case you had proceeded under the statutory authority to collect the money, the Debt Collection Act is still not applicable insofar as prejudgment interest is concerned?

Thomas G. Hungar:

In this context, yes, Your Honor, because this would be an action against a state and states are excluded from the scope of section 3717.

David H. Souter:

Mr. Hungar, in cases in which the common law remedy is applied, when does the interest run from?

Is it the date of the complaint?

Thomas G. Hungar:

Again, Your Honor, because the common law remedy is flexible and discretionary, that is up to the court.

David H. Souter:

Could the court assess it as of a date earlier than the date of the complaint?

Thomas G. Hungar:

We believe it could, Your Honor, but it might, depending on the equities of the particular situation, if there had been some undue delay perhaps then it would be inequitable to impose liability prior to that date.

The court could determine that the date of the complaint would be the first date from which interest would accrue.

I would think the general rule, though, would be that interest begins accruing once the debt is liquidated and owing.

David H. Souter:

Now, there’s no discretion under the act, I take it?

Thomas G. Hungar:

That’s correct, Your Honor.

There’s no discretion in the court.

Agencies have some limited discretion, assuming they have promulgated regulations to that effect.

David H. Souter:

So that the State of Texas I take it then in your view is wrong in what it said in its brief on, I think it was on page 12, that what the Government is asking for here in fact is the same interest remedy that it would have had under the act.

It’s not the same kind of remedy, I take it.

Thomas G. Hungar:

That’s exactly right, Your Honor.

The common law remedy is quite distinct and different from the statutory remedy.

The statutory remedy is mandatory.

It requires courts to impose prejudgment interest at a specified mandatory minimum statutory rate, which is not true of the common law.

It requires collection of processing fees and delinquency penalties in appropriate cases, which is not true of the common law.

It applies to more debts or more obligations than does the common law remedy.

And the biggest distinction is the fact of course that the statute is mandatory on the courts, the common law has discretion.

David H. Souter:

Do you see the common law remedy as essentially a discretionary judicial remedy as distinct from something which is implicit in a contractual relationship?

I assume the answer is yes, it’s a judicial remedy.

There’s nothing contractual about it.

Thomas G. Hungar:

That’s correct, Your Honor, and I think prejudgment, although this case doesn’t present that question, I think that prejudgment interest could be available under the common law even beyond a purely contractual relationship if it were appropriate.

Sandra Day O’Connor:

Mr. Hungar… I’m sorry.

If you’re correct, Mr. Hungar, and there still exists this common law right to recover prejudgment interest, are any of the State’s other arguments open for consideration on remand?

Thomas G. Hungar:

Well, the State has argued in this Court that the plain statement rule announced by this Court in Pennhurst would bar application of prejudgment interest.

Sandra Day O’Connor:

Well, I think they have also made arguments that go to, that are equitable in nature, I suppose, the fact that the Government’s own agent stole food stamps and things of that sort.

Thomas G. Hungar:

That’s correct, Your Honor.

To the extent the State is arguing that even if prejudgment interest is appropriate an award of prejudgment interest should not be awarded in this case, and it’s not clear to what extent the State is making that argument, but certainly to the extent the State is making that argument that would be a valid consideration on remand in determining whether prejudgment interest is available.

The legislative history of the act–

Antonin Scalia:

Mr. Hungar, before you get to the legislative history–


–I suppose the best argument for the other side, it’s really a sort of inclusio unius est exclusio alterius argument, and why doesn’t it make a lot of sense?

Why, can you explain to us why it would, why the Government would want to establish these new rules that are apparently fairer and more efficient for all other interests but somehow not for interests owing by the states?

It seems to me much more likely that they were simply saying no interest from the states, you just don’t get it, and where you get interest these are the fair and efficient rules for getting it.

Thomas G. Hungar:

–Well, I’m sure that the private debtors who have now been subjected to section 3717 would disagree with your characterization that section 3717 is fairer than the common law.

Under the common law their equitable defenses could be considered.

Under section 3717 they cannot.

The courts must impose prejudgment interest at, according to the legislative history, at rates typically higher than were imposed under the common law.

Antonin Scalia:

Well, they think that’s fair to the Government.

Thomas G. Hungar:

That’s correct, but the Government–

Antonin Scalia:

You don’t mean Congress passed this not thinking it was fair?

Thomas G. Hungar:

–Congress was attempting to enhance the Federal Government’s abilities to collect debts as against those entities covered by the act, but Congress could well have determined that it would be inappropriate, for example, to impose on state and local governments the delinquency penalties and the processing fees that are mandated by section 3717 in addition to the statutory minimum rate of interest.

Congress could also well have determined that it would be appropriate to leave state and local governments subject to the flexible common law remedy under which the courts are permitted to weigh the interests of the state debtor in determining whether in the particular case an award of interest is appropriate.

None of that is possible under the statute, so it’s entirely conceivable that Congress wanted to leave the states subject to the common law rather than imposing the stricter and harsher provisions of section 3717.

And that’s the most natural, in our view that’s the most natural reading of the language.

It’s sort of an odd and round about way to achieve a formal, an affirmative abrogation of the existing law simply to exclude state and local governments from the scope of a non-comprehensive limited statute, which is what the Debt Collection Act was.

The Debt Collection Act was not a comprehensive scheme designed to answer all questions that might arise with respect to the Government’s debt collection efforts.

It addresses a few discrete areas in an attempt, as the statute itself says, to enhance the Federal Government’s debt collection efforts.

Antonin Scalia:

And specifically doesn’t address whether a cause of action exists.

Thomas G. Hungar:

That’s… it does not, that’s correct, Your Honor.

The cause of action, the Debt Collection Act assumes that some other statute or some other–

Antonin Scalia:

No, I mean for prejudgment interest.

Thomas G. Hungar:

–As against the states, that’s correct.

Antonin Scalia:

As against anybody.

Antonin Scalia:

It doesn’t address the–

Thomas G. Hungar:

Well, I’m not sure whether it would be denominated to cause of action, but it certainly mandates that a prejudgment interest remedy in the context of private debtors but does not address the question of the existence or non-existence of a prejudgment interest remedy in the context of state debtors.

But at the very least the statutory language is equally susceptible to interpretation.

Even if it’s equally reasonable, which we think it’s not, to read the statute in the way that the State does, it’s certainly reasonable to read it in the way we do.

If Congress had in fact intended to leave the law with respect to the states alone, a perfectly reasonable and rational way of achieving that result is to say this statute doesn’t apply to the states, because the general presumption in all areas is, and specifically when we’re talking about the common law, is that when Congress doesn’t legislate with respect to that particular question it leaves the state of the law as it was.

And that’s all we’re saying happened in this case.

The legislative history of the act provides no support for a contrary conclusion.

In fact, as I have noted, that Congress expressly stated in its statutory preamble that the purpose of the act was to provide additional remedies to assist the Federal Government in collecting its debts.

It would be extremely odd to construe a statute intended to assist the Federal Government and enhance its debt collection efforts in a manner that would cut back on existing remedies against a certain class of debtors.

Anthony M. Kennedy:

–What is the meaning in 4 C.F.R. 102.13 subparagraph (2) on debts which are not subject to 31 U.S.C. 3717?

It says however agencies are authorized to assess interest and related charges on debts which are not subject to 31 U.S.C. 3717.

Is that a way of saying debts owed by state or local governments, or is that–

Thomas G. Hungar:

Yes, Your Honor.

Anthony M. Kennedy:

–Is that all it includes?

Thomas G. Hungar:

The section 3701(c) exempts state and local governments and Federal agencies.

I believe a separate provision of the C.F.R. exempts Federal agencies from the entire Federal claims collection standard, so in effect I think that’s correct.

There may be other exemptions… I’m sorry, let me amend that.

There are–

Anthony M. Kennedy:

That’s the regulation at 4a of your brief, and I’m just not sure what debts are included in the phrase debts which are not subject to 3717.

Thomas G. Hungar:

–Your Honor, let me amend my previous answer.

They omitted from that, that excerpt that we have reproduced there because it isn’t at issue, directly at issue in this case, other provisions, other exemptions from section 3717.

In particular 4 C.F.R. 102.13(i) states that the provisions of 31 U.S.C. 3717 do not apply to debts owed by state and local governments, to debts arising under contracts entered into before the Debt Collection Act was created, to debts arising under certain specific statutes such as the Internal Revenue Code, and so forth.

So there are, in addition to state and local government debts there are other debts that are not subject to the Debt Collection Act.

Anthony M. Kennedy:

Well, it says they are just not subject to 3717.

Thomas G. Hungar:

That’s correct.

In our view states and local governments are not subject to any of the provisions of the Debt Collection Act, although of course they are subject to other provisions of Federal law having to do with debt collection.

But the Debt Collection Act was merely a sort of haphazard collection of a few additional remedies that Congress wanted to give the Federal Government.

The only remedies that would have had any application to the states were administrative offset and prejudgment interest, and Congress excluded the states from those sections.

None of the other provisions of the act have any, appear to have any application to the states at all.

Respondents in their brief cite 31 U.S.C. section 3714, which provides an administrative offset against the states in limited contexts, but that is not part of the Debt Collection Act.

Thomas G. Hungar:

That was enacted as part of the act of March 25, 1870 and has been on the books for over 100 years and has nothing whatsoever to do with the Debt Collection Act.

As Respondents themselves say in their brief, Congress was not trying to deal with the problem of state and local government debtors in enacting the Debt Collection Act, it was focused on a different problem.

So it would be particularly unlikely that even though it was focused on a different set of problems it nonetheless went out of its way and intended to abrogate the common law in the context that it was not even addressing.

John Paul Stevens:

Mr. Hungar, when you call our attention to the regulation, wouldn’t it have been natural for Congress if they meant what you say to have done exactly what the author of the regulations did, at the end of subsection (c) to say however, agencies are authorized to continue to apply the common law rule?

Thomas G. Hungar:

No, Your Honor, because Congress is understood to legislate against the backdrop of traditional canons of statutory construction, and one of those traditional canons is that Congress will not be deemed to have changed the law and in particular will not be deemed to have abrogated existing and long-standing common law rules.

John Paul Stevens:

You must admit though it would have been rather clearer had they done that.

Thomas G. Hungar:


We would not be here if they had done that, but the point is the rules of statutory construction consistently followed by this Court show that Congress doesn’t have to do that.

The rule cuts the other way.

Congress has to give some express indication, not necessarily in the text, but somewhere, of its intention to achieve the opposite result or it will be deemed to have left the law as it was.

John Paul Stevens:

Is there a case like this one where your rule applied to preserving a common law rule when a new statute has been, replace the general scheme of things?

Thomas G. Hungar:

Mobil Oil against Higginbotham is perhaps an analogous statute.

In that case, that case involved the Death on the High Seas Act.

And in the context, in cases where the Death on the High Seas Act applied the Court held in Mobil Oil that it abrogated the common law.

You couldn’t have a different remedy–

John Paul Stevens:

But it didn’t create a new remedy is what that did.

That didn’t abrogate any remedy, the statute there, any preexisting remedy.

Thomas G. Hungar:

–Well, with respect, Your Honor, the Federal common law does, it did not originally but I believe in 1970 in the marine case, or perhaps earlier, but in any event at some point the Court did determine that the Federal maritime law did create a cause of action for wrongful death.

John Paul Stevens:

But that’s your strongest case, is it?

Thomas G. Hungar:

Well, if I may explain, Justice Stevens, the Death on the High Seas Act contains an express exception for cases arising in state territorial waters, but it applies on the high seas.

And in the Mobil Oil case the Court said where the act applies, where it creates a remedy and a legal standard that applies, the common law remedy does not apply.

You can’t have a different result under the common law than you would under the statute.

But where the act does not apply, that is in state territorial waters, you can have a Federal common law cause of action.

Because the act doesn’t apply there, therefore Congress has not abrogated the common law.

We think that’s exactly what has happened in this case.

The act applies to private parties, and in that context therefore Congress has spoken and the Federal common law does not exist.

But the act does not apply to the states and therefore the state, the common law continues to exist in that context.

And respondents have pointed to no case in which the only evidence of congressional intent to abrogate the common law was the fact that Congress had chosen not to apply the statute in that context.

There is no case from this Court that stands for that proposition, and it would be quite an extension for this Court to say that merely by declining, merely by deciding not to legislate in a particular area Congress has thereby determined to abrogate the existing law in that area.

And we submit that would, that that is not an appropriate way to resolve this case.

David H. Souter:

Mr. Hungar, does the regulation that we have just been discussing have a mistake in it in its statement that agencies are authorized to assess interest as they would have been able to do with the common law?

Because I thought you told me that that was a judicial remedy, so that the agencies wouldn’t be assessing it, they would simply be asking a court for it if they won their legal actions for collection.

And yet this seems, this definitely says that the agencies can assess.

Is that a mistake?

Thomas G. Hungar:

Well, it’s certainly correct that agencies do not have the authority under the common law to require states to pay a particular rate of interest in a particular case.

That decision is up to the courts.

The agencies can–

David H. Souter:

Well, that means they have to go to courts for enforcement just as they have to go to courts to enforce the underlying debt in the first place.

Thomas G. Hungar:

–That’s correct.

David H. Souter:

But the regulation seems to say that, subject to whatever enforcement discretion a court may have, the agency has the common law authority to create an obligation, and I didn’t think that’s what you were saying before.

Thomas G. Hungar:

We would not read the regulation in that way, Your Honor, and if it were read in that way it would be incorrect.

Federal agencies can, as the Federal agency did in this case, inform the state that they intend to seek prejudgment interest and even, as they did in this case, specify the rate at which they want prejudgment interest to accrue.

And if the case never gets to court, if it’s settled and the state agrees to pay that obligation, well, that’s the end of the matter.

But if the case does get to court obviously it’s up to the district court to select the appropriate rate of interest and indeed to determine whether interest is available.

Antonin Scalia:

That leads into a question that I had, Mr. Hungar.

You argue in your brief, and I suppose you were about to argue it here before you got interrupted, that we should defer to the agency’s interpretation of the statute.

But if we’re talking here about a cause of action, a judicially created cause of action as you have just said for the interest, do we listen to the agencies as to whether, for example, whether there’s a cause of action under the securities law?

We don’t listen to the agencies as to whether there’s a judicial cause of action, so what difference does it make what the agencies think here?

We’re talking about where there’s a cause of action in the courts.

Isn’t that our business?

Thomas G. Hungar:

Well, in the first place, Your Honor, we would not, I would not view the remedy, the prejudgment interest remedy as a cause of action.

It’s more of a remedy tacked onto an existing cause of action.

If… here the Food Stamp Act creates the liability and the right of the United States to recover, and the prejudgment interest remedy merely insures that that liability is in fact paid.

Antonin Scalia:

Well, I don’t care what you want to call it, it’s judicially created.

That’s the point, isn’t it?

Thomas G. Hungar:


Antonin Scalia:

I mean, you have said that.

That has been your argument here.

Thomas G. Hungar:

That’s correct, Your Honor.

In any event, deference to the administrative construction of the statute is appropriate because the question here is not whether prejudgment interest is appropriate in this case or whether the common law prejudgment interest remedy exists.

Thomas G. Hungar:

Those are questions for the court.

The question here is whether Congress, in enacting the Debt Collection Act of 1982, evidenced a congressional intent to abrogate the existing common law remedy.

And that is the issue that the administrative agency has determined in our favor, and we believe that is what is due deference.

William H. Rehnquist:

So what if an agency under the regulation says we think prejudgment interest should occur at the rate of 8 percent from the time they got notice of the debt?

Does the district court, assuming that it says we’re going to follow the common law, does it have to defer to the agency’s recommendation as to the rate of interest or the time?

Thomas G. Hungar:

No, Your Honor, because the agency’s authority to construe the Debt Collection Act is limited once the agency has determined, as the agencies have determined in this case, that the Debt Collection Act does not abrogate the common law.

When proceeding against a state, a Federal agency is by definition proceeding under the common law and under the common law of the courts, not the agency determining whether interest is appropriate and the rate of interest that is appropriate.

So the only, we’re only asking for deference to the administrative determination that the act that the administrative agencies are charged to implement does not abrogate the common law, because that’s not what Congress intended to achieve.

We submit that that is an entirely appropriate arena for–

Antonin Scalia:

But do they implement the act or do the courts implement the act?

You just told us that the courts implement the act.

Thomas G. Hungar:

–No, Your Honor, the courts implement the common law.

The agencies are charged with authority to construe the Debt Collection Act, and in the exercise of that congressionally delegated authority the agencies have determined the scope of the Debt Collection Act, and in their view the Debt Collection Act does not abrogate the common law.

That’s the end of the agencies, of the scope of the agencies’ deference.

But that determination, which is the determination at issue in this case, is entitled to deference.

John Paul Stevens:

May I go back again to the text of the regulation that Justice Souter called your attention to, that they are authorized to assess interest on debts not subject to 3717 to the extent authorized under the common law.

I would have read that to mean to the extent that agencies are authorized under the common law.

Thomas G. Hungar:

Well, any ambiguity that there may be in the regulation is quite clearly resolved by the explanatory statement in the notice of rule making that accompanied the promulgation of that regulation in 1984, which we have discussed that in our opening brief.

The agencies, the General Accounting Office and the Department of Justice, addressed the precise question whether the Debt Collection Act abrogated the Federal common law and concluded that it did not, and that the Federal common law right of prejudgment interest continued to exist in the case of state and local government debtors.

John Paul Stevens:

But if we do read it literally, just looking at this text, to the extent authorized under common law would mean not authorized at all, ergo the regulation would forbid interest.

Thomas G. Hungar:

Well, I’m not sure that it would mean that.

It would mean that the regulation is–

John Paul Stevens:

One would have to know what the agencies were authorized to do under common law to answer it.

Thomas G. Hungar:

–That’s correct.

John Paul Stevens:

We now know under common law agencies have no power just to assess interest willy-nilly, don’t we?

Thomas G. Hungar:

Well, in any event, Your Honor, deference is due not merely to agency regulations but in general to agency interpretations–

John Paul Stevens:

But deference is due if we think Congress delegated to the agency the decision as to whether or not which way to go, and you think there’s something in the statute that suggests Congress wanted the agencies to decide whether the common law rule should survive or not.

It’s rather a strange kind of delegation of decision making.

Thomas G. Hungar:

–Your Honor, the State has not disputed that the agencies possess the authority to implement the provisions of the Debt Collection Act.

31 U.S.C. 3711(e)(2) provides that authority.

Thomas G. Hungar:

The General Accounting Office and the Department of Justice are authorized to promulgate standards–

John Paul Stevens:

But are they authorized to make decisions as to whether the common law rule survives the amendment of the statute or not?

Thomas G. Hungar:

–Agencies routinely in the exercise of delegated power judge and determine the scope of Federal statutes.

John Paul Stevens:

What is your closest case of agency delegation to this one?

Surely it’s a mile away from Chevron, 100 miles away from Chevron.

Thomas G. Hungar:

With respect, Your Honor, we have cited a number of cases in the brief, the K Mart case, the Rust against Sullivan, the National Railroad Passenger Corporation case.

In all of those cases the agencies were determining the scope of the statute.

In the K Mart case, for example, the court was, the agency was determining whether the statute allowed or did not allow, that is applied or did not apply to particular importations of gray market goods, and the regulations said that in some cases the statute does apply and forbid it, and in other cases it doesn’t, the statute does not apply.

And the court deferred to that interpretation.

That’s all we’re asking here.

The agencies have determined that the Debt Collection Act does not apply, that Congress did not intend to, in enacting the Debt Collection Act, abrogate the common law, and therefore the scope of the act does not extend to the states.

And that’s the end of the question.

Antonin Scalia:

But in these other cases that you refer to, if the act does apply the agency has some responsibilities, as an agency, as an administrative agency.

Thomas G. Hungar:


Antonin Scalia:

In this case if the act does apply the only consequence is that the court shall pronounce a judgment of a certain sort.

Doesn’t that make a difference?

I mean, this is court’s business, it seems to me, not agencies’ business.

Thomas G. Hungar:

With respect, Your Honor, in the K Mart case, by finding that the act did not apply, it did not forbid the importation of the particular gray market goods at issue, that was the end of the matter.

The goods could be imported.

The statute did not forbid it, and therefore the agency’s duty to exclude it did not exist.

The same is here in the sense that the act does not apply, so… if the agencies had, if the Department of Justice and the General Accounting Office had reached the opposite conclusion and had determined that the act did abrogate the common law, it would have been their duty in implementing the act to instruct Federal agencies not to seek prejudgment interest from the states.

But they reached the opposite conclusion.

Our submission is that that conclusion was reasonable.

I’d like to reserve the remainder of my time for rebuttal.

William H. Rehnquist:

Very well, Mr. Hungar.

Mr. Todd, we’ll hear from you.

James C. Todd:

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

The resolution of this dispute has to begin and return to the observation that the Debt Collection Act unambiguously excludes states from the category of persons from whom a Federal agency may seek to collect a debt.

That’s important for a number of reasons.

First of all, the act does apply to states.

James C. Todd:

It’s only two sections that are taken out and removed as not applying to states.

3701(c) says that for purposes of sections 3716 and 3717 the state is not a person, obviously leaving the state a person for every other section.

So it’s not a case in which Congress has simply chosen not to address the states at all.

Secondly, the Debt Collection Act comprehensively addresses the question of prelitigation debt collection.

In fact what the Debt–

Antonin Scalia:

Mr. Todd, excuse me, before you go further.

How many of those sections that you referred to that the state wasn’t excluded from, how many of those sections are part of the Debt Collection Act?

How many sections other than 3716 and 3717?

James C. Todd:

–Well, all of the others.

An agency still is mandated to seek to collect a debt which the state owes the Federal Government.

There is no doubt about that, and all these other sections deal with the procedures, the safeguards, and so forth.


Antonin Scalia:

And they were all enacted at the same time?

James C. Todd:

–Yes… not all.

Before 1982 there was what was called the Federal Claims Collection Act of 1966, and some of these provisions, some parts of 3701 and 3702, and as Mr. Hungar just mentioned, 3714, were in that preexisting.

What the Debt Collection Act did was greatly expand the scope and really limit the discretion.

One of the most important things it did was to reduce the discretion of Federal agencies as to whether to seek debt, as to when to seek debt, as to how to seek debt collection, and from whom.

Now, it happens that in 3701(c) as to administrative offsets and charging interest, Congress removed discretion altogether from the Federal agencies.

But the… as has been brought out by questioning previously, we have a confusion here of two different points at which interest may be sought.

The Debt Collection Act deals with prelitigation debt collection.

In fact the original caption back in the Federal Claims Collection Act said in order to avoid unnecessary litigation the following procedures are enacted.

In prelitigation assessing interest, asking the state to pay interest, that’s what the states have been removed from.

Now it’s interesting to look at this case and see how this putative common law authority was exercised.

You’ll see in the Joint Appendix, starting around page 6, the notice letters which the Secretary of Agriculture sent, really making a demand on the state.

It calculates a very precise interest, 7.625 percent, and it says that that’s based on regulation 102.11.

102.11 then refers to 102.13, which is the one Mr. Hungar was discussing.

That 102.13 incorporates almost verbatim the provisions of 3717.

What happened in this case was the Secretary of Agriculture treated the Texas Department of Human Services exactly the way the state would have been treated if 3717 had been made by Congress to apply to the states.

So the effect of allowing this putative common law right is to read right back into the prelitigation debt collection process exactly the coverage of the state, local, and Federal government which Congress excluded.

There is nothing–

William H. Rehnquist:

When you say Congress excluded–

James C. Todd:

–Yes, Your Honor.

William H. Rehnquist:

–Congress excluded the states from the application of 3716 and 3717.

James C. Todd:

Yes, Your Honor.

William H. Rehnquist:

And the position of the Government is that leaves the common law remedies in existence as they were before the statute.

James C. Todd:


William H. Rehnquist:

And you say there’s something inconsistent with the Government’s position?

James C. Todd:

Yes, Your Honor.

William H. Rehnquist:

What is it?

James C. Todd:


In that… I don’t know about in, the Government’s position is internally consistent.

I’m saying it’s inconsistent with the scheme that Congress has created.

The common law right, to the extent it attaches, would be first of all if the state refused to pay its obligation at all.

That triggers a, in this case since this is dealing with the Food Stamp Act that would trigger the enforcement provision of the Food Stamp Act which is like just about every other spending clause Federal funds in return for compliance statute.

That is if the Secretary finds that the state is out of compliance with any provision, then the Secretary can do two things, cut off Federal funds or, two, refer it to the Justice Department for an enforcement action.

Now, in that enforcement action the Justice Department retains the right to seek remedies from a Federal court.

But we’re not at that stage–

William H. Rehnquist:

You haven’t yet gotten to the inconsistency, have you?

James C. Todd:

–Well, the inconsistency is in using… the inconsistency I’m talking about is an inconsistency with the exclusion of states from the prelitigation debt collection activity.

In other words now the Debt Collection Act is the consistent uniform set of rules for how every, and it says every agency of the United States Government is to go about prelitigation, making, assessing interest, making a claim, seeking–

William H. Rehnquist:

You said prelitigation, but certainly it has application considerably beyond prelitigation.

It specifies rates of interest that may be recovered by the Government if it goes to trial.

James C. Todd:



If, let’s say as to a debtor, an obligor, that the Debt Collection Act authorizes a Federal agency to seek repayment from, let’s say a student loan, a student won’t repay a loan, then the agency may assess the interest.

And there is a formula for how they assess it, it has to do with Treasury rates, rates on Treasury notes.

And then if they have to turn it over to the Justice Department and the Justice Department goes to court then they recover not only the interest but there are some other penalties that go along with losing litigation.

What Congress has exempted the states from is this authority to assess interest and to seek to collect, to seek to collect interest as part of the debt collection.

Agencies are, let me repeat, agencies are still, Federal agencies under the statute are still obligated to seek to collect any debt that the State of Texas owes the Federal Government.

So states are not out of this statute altogether.

Anthony M. Kennedy:

Well, if the state had refused to pay and the Government instituted suit, would the Government have a choice to say we’re proceeding under the common law or we’re proceeding under the statute?

And if so would the choice make any difference so far as the Debt Collection Act?

James C. Todd:

The answer to the first question is I don’t think that the Federal Government’s choice would be to proceed under common law.

I think it would be bound to proceed under the specific enforcement provision of the statute, and for the reasons that I want to discuss in detail as to how a statute displaces common law.

Once the Justice Department is in court on behalf of the Federal Government in litigation with the State, it has available under its authority an arsenal of remedies or tools that it can use which hasn’t really been a subject of this litigation thus far.

I think the City of Milwaukee v. Illinois case in ’81, and it sort of was a companion case to Northwestern Airlines v. National Transport Union, are two cases which really clarify and remind litigants of the proper scope of Federal common law when there has been a particular statute.

And I think that’s a good starting point for analysis to then take a look and see what the Debt Collection Act has done.

That case reminded litigants that Federal common law is not like the common law, the body of common law that the state courts by and large have developed.

It’s called common law because judges use a common law type of decision making process, but it’s a limited stop gap measure.

It only arises in the situation where the Federal court needs to make a decision on a question, there is no Federal statute to guide it, and it’s not appropriate to look to state common law.

In those limited instances then the Federal courts can fashion a sort of common law.

But as City of Milwaukee said, as soon as Congress has directly addressed the question covered by the common law, then the need for the common law disappears.

So that begs the question what does it take for Congress to directly address a question.

The decision goes on again, this is really a reminder of what had been the law all along.

It doesn’t have to say expressly by this statute we intend to displace Federal common law.

In fact in none of the briefs in this case, in none of the circuit decisions, there are about 6 circuits that have addressed the question that we’re here talking about today, has anybody cited an example of a statute where Congress has expressly said by this statute Congress hereby abrogates common law.

Now Congress does have to do that sort of thing in other contexts, like for example to abrogate a state’s Eleventh Amendment immunity when it creates a private right of action.

It has to say, and this Court has told Congress it has to say this abrogates Eleventh Amendment immunity.

But it doesn’t have to do that, according to City of Milwaukee and cases since then, when it’s displacing common law.

It doesn’t owe Federal common law the same deference it owes state common law, and it doesn’t take as much as it does to preempt state law under the Interstate Commerce Clause, and yet a number of statutes can preempt state law without saying so.

To look and see whether it has directly addressed the question, this City of Milwaukee, and another helpful case is United States v. Fausto, said you look at the, not only the purpose of the statute but its scope and the structure of its remedial scheme.

Now as to the purpose, obviously 3701(c) is an exception.

It is an exception, so in a sense you can say any time a statute makes an exception, having made a broad across the board rule, any time it comes back and says but we except, we exclude these categories, you can say that’s contrary to the purpose, but it isn’t really in this case.

It’s not at all unusual for Congress to choose to treat one class of debtors differently, governmental parties differently from others.

And what Congress has done in 3701(c) is consciously choose to treat governmental debtors differently from other debtors.

For example, under this Food Stamps Act, if grocer submits food stamps to the Federal Government for reimbursement at face value and the Federal Government delays in repaying, it doesn’t have to pay interest.

It’s very common to find that governments don’t have to pay interest.

What you have as a countervailing incentive, disincentive to the state to unreasonably delay is a unique sort of relationship which state agencies have with their Federal funding agencies that the ordinary debtor doesn’t have to a creditor.

The Texas Department of Human Resources, Services, excuse me, receives Federal funding from Agriculture and Health and Human Services.

Under those funding statutes the Secretary has broad discretion to determine that the state is out of compliance and cut off funds.

James C. Todd:

No state agency wants to engender ill will with the Federal funding agency, so you have some assurance that states are not simply going to default.

The only incentive–

William H. Rehnquist:

Your position, then, Mr. Todd, is that the correct reading of the Debt Collection Act is that the Federal Government is not entitled to claim any interest against the states?

James C. Todd:

–That’s right, in this… they are not entitled to do what the Secretary did here, which is present a demand to the state for interest.

William H. Rehnquist:

That’s quite a remarkable result, isn’t it?

I mean, is there any other situation in which a debtor is not, a creditor is not entitled to any sort of interest?

James C. Todd:

Yes, and it’s typically in a governmental context.

The debt we’re talking about here is a delayed payment, but the obligation–

William H. Rehnquist:

Well, that’s true of lots of debts.

James C. Todd:


Well, typically the Federal Government doesn’t owe interest when it is late in paying funds that it owes, and actually most of the traffic of money is from Federal Government to the states rather than vice-versa, and usually–

William H. Rehnquist:

Well, but when the Federal Government is a grantor and doesn’t pay the grant on time, that’s not quite the same thing as a debt or someone who is the recipient of an overpayment who is obligated to repay it.

I’m asking you for an analogous situation where someone who is clearly a debtor, as one understands that situation from law school, not having to pay any sort of interest on the debt.

James C. Todd:

–It’s rare or non-existent in the usual debtor-creditor, outside the governmental context.

William H. Rehnquist:

In the governmental context where does it exist?

James C. Todd:

The… I’m not sure of all the situations outside the social service area where the Federal Government might be a debtor to the states, but I don’t know of… I think that this is, I think this is the situation that has been created.

I can’t give you an exact amount–

Antonin Scalia:

How about tax refunds, Mr. Todd?

I don’t get interest from the Government on my tax refunds.

I suppose that’s a debt the Government owes me, isn’t it, when I have overpaid my taxes?

James C. Todd:

–Yes, sir.


Antonin Scalia:

I get the money back.

I don’t get interest on it, do I?

James C. Todd:

I would agree that that’s an instance in which a governmental entity does not pay interest and whereas another, someone else who has an obligation to pay somebody back in which there has been an overpayment.

And this is sort of that sort of situation.

Under the Food Stamps Act what the Government is saying is that money has been paid which the Government should not have had to pay, and therefore the State of Texas should refund or reimburse the Federal Government a portion of that money which the Federal Government should not have had to pay.

And so it’s a similar sort of situation.

Congress has chosen, has made a very obvious policy choice that governmental debtors, including… and by the way that 3701(c) includes the United States Government as well, and subchapter 3 of the Debt Collection Act are claims against the United States.

So it runs both ways.

James C. Todd:

As to the deference that would be due to the interpretation by these Federal agencies, I think that the case which answers the question that took place in the dialogue earlier is Securities and Exchange Commission v. the Chenery Corporation, which I think both parties have cited in their briefs.

In that case the SEC wanted to penalize the managers during reorganization of a corporation for having purchased preferred stock in the reorganized corporation.

They relied for that ruling not on their specialized expertise that had been delegated to them by Congress of stock transaction, but the SEC’s understanding of general principles of equity.

What the court said was fine, in the usual situation where an agency’s ruling or decision or interpretation is in an area of law delegated to it by Congress and in which it has specialized expertise we defer, but when the agency is purporting to rely on judicial doctrines, then a court can and should substitute its judgment for the agency.

It’s very clear in this case, in fact the best indication of it is in the Government’s brief.

I think around page 21 they discuss, the comptroller specifically considered whether common law applied and decided that the common laws in force.

Now they’re relying not on something that’s within the specialized expertise of the comptroller general, now what the Government is doing is giving its understanding of when common law retains viability in the face of an explicit statute, and that of course is a matter of judicial doctrine and I think that the same deference would not be due.

If the Government’s reasoning–

Antonin Scalia:

Excuse me.

It’s a matter… I don’t understand your point.

Your point is if it’s a matter of law it can’t be, we don’t owe any deference to agencies?

James C. Todd:

–Well, not just any law.

If it’s a matter of that portion of law which are judicial doctrines, such as principles of equity, such as the general principle of when common law retains it viability.

This is not, for example, like… let’s say if Congress passes a statute controlling the manufacture and distribution of pesticides and the Environmental Protection Agency says this is what we think the statute means as to what is a pesticide, that is obviously within EPA’s expertise.


Antonin Scalia:

What about whether the statute is retroactive?

James C. Todd:

–That’s closer.

Antonin Scalia:

It’s not close at all.

We would defer to EPA.

Of course we would.

James C. Todd:

The EEOC, for example, a number of circuits have deferred to EEOC… when the statute is dealing with that… there you’re talking about whether the agency is asked to give an opinion on whether or not in this specialized area Congress, the remedial purpose of the statute–

Antonin Scalia:

The Government says in this specialized area of debt collection, read 3717.

The head of an executive or legislative agency shall charge a minimum rate of interest, blah, blah, blah.

I mean, the agency heads have to know how to operate.

Are they supposed to charge rates pursuant to the Debt Collection Act or are they supposed to charge rates pursuant to the old common law?

James C. Todd:

–The statute has already told them very expressly that when they get to reading 3717 any place that it says person it doesn’t include state, so their mandate to seek to collect debts owed by the states are covered by the rest of the statute, but they don’t… that doesn’t take, that part doesn’t take constructing the statute, because the statute has already said don’t look inside the statute for interest against states.

So you have to go totally outside the statute to common law.

Now, common law, the Federal common law is a species of law fashioned by the judiciary on what SEC v. Chenery called established judicial doctrines.

And so the agency really in effect is not interpreting the statute, it’s interpreting common law.

Byron R. White:

Mr. Todd, what if the agency, we’re talking the Department of Justice, had decided that the Debt Collection Act does not, cancelled out any liability of the states to pay interest, that it just did away with the common law remedy?

Byron R. White:

Would you think we should owe some deference to their construction there?

I would suppose you would hope we would.

James C. Todd:

Well, I would say that… what I would say is this.

I would think the Court would wind up agreeing with the Department of Justice, not because when in that instance the Department of Justice is dealing with something within its specialized expertise but because they got it right if they had come out–

Byron R. White:

So your answer to my question is no, no deference.

James C. Todd:

–Not as a… right.

My answer to your question is you would not reach the result of concurring as a result of deference.

You would reach the result of concurring because their conclusion–

Byron R. White:

But what if we said it’s a toss up, it’s 50-50.

Here’s the agency, thinks the common law has been repealed.

Would we, should we then give the nod to the agency or not?

James C. Todd:

–If you conclude, and I’ll try to again answer this question–

Byron R. White:

I would think you would just say no.

We do it de novo.

We do it–

James C. Todd:

–On matters of common law and established judicial doctrine, the Court is a much greater–

Byron R. White:

–We’re construing a statute.

James C. Todd:

–Well, but that’s what, the construction of a statute I think stops with 3701(c).

The states are out of it.

And the Government itself doesn’t, is not in here today saying we have authority under the Debt Collection Act to charge this interest.

So they’re not construing the statute.

They’re here to say we have authority under preexisting common law to seek this interest.

So the conclusion that results in this regulation 102.13 results from their understanding of the judicially fashioned Federal common law, and particularly since the Federal common law–

William H. Rehnquist:

But an agency would not, is not entitled to opine as to whether the Debt Collection Act left that common law intact?

James C. Todd:

–They are entitled to opine, and I think, and I’ll go so far as to agree with Mr. Hungar that they have some duty here to make a call because they have to give guidance to their clients as to what they should do, but the conclusion of that opining is not due the same deference that it would be if, as in the example I gave, the EPA saying what is a pesticide.

William H. Rehnquist:

Is it due any deference?

James C. Todd:

I think it is due… well, is it due any?

I think the answer to that is yes, it’s due some, and I don’t know how to calibrate it so I can say how you measure weight.

Byron R. White:

Well, if it’s give any deference, in my 50-50 case we give the nod to the agency.

James C. Todd:

If you conclude, Your Honor, if the Court concludes that this is a very, very close call and it’s extremely unclear, and furthermore that this is an agency which has traditionally exercised this common law right, then the deference is greater than what I am suggesting is actually the situation where the statute has been, first where the statute has… first of all comprehensively addressed the situation of prelitigation debt collection, seeking to collect debt.

James C. Todd:

And it’s, I think it’s all encompassing in that regard, as the Court found the Federal Water Pollution Act to be with regard to discharges.

It applies to every Federal agency.

It sets the, it makes every Federal agency have the same policy and the same procedure and give the same priority to seeking to collect debts owed to the United States as every other agency, which was not the situation previously.

So it’s pretty comprehensive in that sphere.

Having occupied that sphere, Congress made a judgment… now, the legislative history won’t tell you the articulated reasons because this was added on the floor of the Senate after the bill came there.

All we have is the post-enactment statement, so we have to… but you can see by the mechanics of the statute they had to, this had to have been deliberate to say, to add a subsection to the definitions section to say that persons in 3716 and 3717 doesn’t include states.

That had to be very conscious.

As to the utility of leaving in place the, quote, discretionary and flexible type of common law interest as some sort of a supplement to the act while removing states from the mandatory provisions, I’ll just return to the point that as a practical matter the agency has applied its putative common law authority to the State of Texas exactly the way 3717 would have been applied.

They have sent the same kind of notice, they have started the interest accruing at the same point, 30 days, and they have used exactly the same formula to compute the rate.

So from our standpoint it’s the same.

It winds up having the same–

Antonin Scalia:

Well, the court doesn’t have to agree with that.

James C. Todd:

–That’s right.

Antonin Scalia:

And the Government has to know something.

I mean, the Government has to bill you something if there is interest owing, right, because it wouldn’t know whether the debt has been fulfilled or not?

James C. Todd:

That would be the way it would, if they have to have, if they have to charge interest I would say that, as I was saying earlier, the one thing that distinguishes the relationship of the Federal recipient agency with the Federal funding agency from other types of creditor-debtor relations is this ongoing relationship that they have and the need that they have to maintain good relations with the… the states are simply not defaulting on their debts, and this is clear from the Senate report 97-378 which both parties have cited.

When you look at what Congress found as to who is deficient and who is not, they’re really not talking about a big problem with states.

States are obviously some part of the problem, but they’re not a big problem.

So Congress could very well decide let’s remove discretion with regard to the states and focus the Federal agencies on going in a more aggressive manner after the debt which the others have owed.

I believe this discussion covers the really major points and major cases.

I would reemphasize–

John Paul Stevens:

May I ask you just one background question I should know, but–

James C. Todd:

–Yes, Your Honor.

John Paul Stevens:

–Prior to West Virginia against the United States had we ever held that a state is liable to the Federal Government for interest?

James C. Todd:

Not explicitly.

From United States v. West Virginia you have to go all the way back to 1939, Board of Commissioners v. the United States.

That was really a suit against a county, and although the United States brought it, the United States through the Bureau of Indian Affairs was really bringing it on behalf of a native American, and really the outcome of that case was based on the fact that really the United States Government’s position there was equivalent to any other individual who was due a tax refund.

So the United States, although it’s implicit if the Federal Government can sue a county, and although they didn’t get interest in Board of Commissioners it apparently was one of their remedies, you might say it’s implicit, but really West Virginia v. United States in 1987 is the first time it was said expressly.

John Paul Stevens:

And that was after the Debt Collection Act was passed.

James C. Todd:


James C. Todd:

It was on, the very last footnote of that decision, 42, says the debt that was being sued upon, the obligation that was being sued upon arose before October 1982 and therefore it just was included.

Thank you very much.

William H. Rehnquist:

Thank you, Mr. Todd.

Mr. Hungar, you have 1 minute remaining.

Thomas G. Hungar:

The State’s burden in this case is to show that a statute expressly intended to enhance the Federal Government’s debt collection efforts.

In fact it had the effect of creating an unprecedented disincentive for an important class of debtors to pay–

John Paul Stevens:

May I ask you if there was a case other than the one that your opponent mentioned before West Virginia which squarely recognized the common law rule that you rely on?

Thomas G. Hungar:

–No, Your Honor, West Virginia was the first such case.

Board of Commissioners said, treated state and local governments in the same breath, but that case involved a local government.

Antonin Scalia:

What had the practice been?

Do you know what the practice had been?

I mean, surely there have been debts owing from the states to the Federal Government in various contexts from day one.

Thomas G. Hungar:

Well, the West Virginia case itself arose in the mid 1970’s.

It didn’t reach the Supreme Court until 1987, but at least in that context the Federal Government had been seeking prejudgment interest from the states prior to the enactment of the Debt Collection Act and prior to the West Virginia case.

That’s how the case came up.

The State argues that the City of Milwaukee case is the most relevant here, but the City of Milwaukee case is entirely distinct from the situation here.

The statute at issue in the City of Milwaukee case provided an express answer to the very question at issue in that case, the effluent limitations that should be imposed on the source of pollution.

Thank you.

William H. Rehnquist:

Thank you, Mr. Hungar.

The case is submitted.