|United States v. Winstar Corp. et al. (95-865), 518 U.S. 839 (1996). |
[ Souter ]
[ Breyer ]
[ Rehnquist ]
[ Scalia ]
UNITED STATES, PETITIONER v. WINSTAR
CORPORATION et al.
on writ of certiorari to the united states court of appeals for the federal circuit
The plurality's opinion works sweeping changes in two related areas of the law dealing with Government contracts. It drastically reduces the scope of the unmistakability doctrine, shrouding the residue with clouds of uncertainty, and it limits the sovereign acts doctrine so that it will have virtually no future application. I respectfully dissent.
The plurality properly recognizes that the unmistakability doctrine is a "special rule" of Government contracting which provides, in essence, a "canon of contract construction that surrenders of sovereign authority must appear in unmistakable terms." Ante, at 19. Exercises of the sovereign authority include of course the power to tax and, relevant to this case, the authority to regulate.
The most recent opinion of this Court dealing with the unmistakability doctrine is United States v. Cherokee Nation of Okla., 480 U.S. 700 (1987). That case quoted language from Bowen v. Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41 (1986), which
relied on Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 148 (1982), and Merrion, in turn, quoted the much earlier case of St. Louis v. United Railways Co., 210 U.S. 266 (1908). St. Louis involved an agreement by the city to grant street railway companies use and occupancy of the streets, in exchange for specified consideration which included an annual license fee of $25 for each car used. Id., at 272. When the city later passed an ordinance amending the license tax and imposing an additional tax based on the number of passengers riding each car, the railway companies challenged that amendment as a violation of the Contracts Clause. The Court there said that such a governmental power to tax resides in the city "unless this right has been specifically surrendered in terms which admit of no other reasonable interpretation." Id., at 280.
Merrion, supra, was similar, but involved the sovereignty of an Indian Tribe. The Tribe had allowed oil companies to extract oil and natural gas deposits on the reservation land in exchange for the usual cash bonus, royalties, and rents to the Tribe. The Court found that, in so contracting, the Tribe had not surrendered its power to impose subsequently a severance tax on that production. Merrion explains that "[w]ithout regard to its source [--be it Federal, State, local Government, or Indian--] sovereign power, even when unexercised, is an enduring presence that governs all contracts subject to the sovereign's jurisdiction, and will remain intact unless surrendered in unmistakable terms." 455 U. S., at 148.
Next, Bowen, supra, addressed Congress' repeal of a law that had once allowed States which contracted to bring their employees into the Federal Social Security System, to terminate that agreement and their participation upon due notice. Bowen, therefore, considered not the imposition of a tax as St. Louis and Merrion, but an amendment to a statutory provision that existed as a background rule when and under which the contracts were formed--much like this case. The Bowen Court repeated the quoted language from Merrion, and reminded that "contractual arrangements, including those to which a sovereign itself is a party, `remain subject to subsequent legislation' by the sovereign." Bowen, supra, at 52 (quoting Merrion, supra, at 147).
Finally, we have Cherokee Nation, supra, in which the Court applied the unmistakability doctrine to a treaty, rather than a typical contract. Under the treaty the United States had granted to an Indian tribe fee simple title to a riverbed. The Tribe claimed that the United States had not reserved its navigational servitude and hence that the Government's construction of a navigational channel that destroyed the riverbed's mineral interests was a taking under the Fifth Amendment without just compensation. The Court ruled that the treaty had not provided the Tribe an exemption from the navigational servitude, quoting from Bowen and Merrion the statement that "[s]uch a waiver of sovereign authority will not be implied, but instead must be ` "surrendered in unmistakable terms." ' " Cherokee Nation, supra, at 707.
These cases have stood until now for the well understood proposition just quoted above--a waiver of sovereign authority will not be implied, but instead must be surrendered in unmistakable terms. Today, however, the plurality drastically limits the circumstances under which the doctrine will apply by drawing a distinction never before seen in our caselaw. The plurality tells us the unmistakability doctrine will apply where a plaintiff either seeks injunctive relief to hold the Government to its alleged surrender of sovereign authority (which generally means granting the plaintiff an exemption to the changed law), or seeks a damage award which would be "the equivalent of" such an injunction or exemption. Ante, at 40. But the doctrine will not apply where a plaintiff seeks an award for damage caused by the exercise of that sovereign authority. We are told that if the alleged agreement is not one to bind the Government to refrain from exercising regulatory authority, but is one to shift the risk of a change in regulatory rules, the unmistakability doctrine does not apply. And, perhaps more remarkable, the plurality tells us that the Government will virtually always have assumed this risk in the regulatory context, by operation of law. Ante, at 29, 68.
The first problem with the plurality's formulation is a practical one. How do we know whether "the award of damages" will be "the equivalent of [an] exemption," ante, at 40, before we assess the damages? In this case, for example, "there has been no demonstration that awarding damages for breach would be tantamount" to an exemption to the regulatory change, ante, at 41; and there has been no demonstration to the contrary either. Thus we do not know in this very case whether the award of damages would "amount to" an injunction, ante, at 43. If it did, under the plurality's theory, the unmistakability doctrine would apply, and that application may preclude respondents' claim.
But even if we could solve that problem by determining the damages before liability, and by finding the award to be some amount other than the cost of an exemption, we would still be left with a wholly unsatisfactory distinction. Few, if any, of the plaintiffs in the unmistakability doctrine cases would have insisted on an injunction, exemption, or their damage equivalent, if they had known they could have avoided the doctrine by claiming the Government had agreed to assume the risk, and asking for an award of damages for breaching that implied agreement. It is impossible to know the monetary difference between such awards and, as the plurality suggests, the award for a breach of the risk shifting agreement may even be more generous.
The plurality's newly minted distinction is not only untenable, but is contrary to our decisions in Cherokee Nation and Bowen. The Cherokee Nation sought damages and compensation for harm resulting from the Government's navigational servitude. Cherokee Nation, 480 U. S., at 701. Indeed, one of the Tribe's arguments, upheld by the Court of Appeals, was that the United States could exercise its navigational servitude under the treaty, but that the Tribe had a right to compensation for any diminution in the value of its riverbed property.
Likewise, some of the plaintiffs in Bowen sought damages. They sought just compensation for the revocation of their alleged contractual right to terminate the employees' participation in the Social Security Program. The District Court in the decision which we reviewed in fact commented, as this Court reported, that it found that the " `only rational compensation would be reimbursement by the United States to the State or public agencies, of the amount of money they currently pay to the United States for their participation.' " Bowen, 477 U. S., at 51 (quoting Public Agencies Opposed to Social Security Entrapment v. Heckler, 613 F. Supp. 558, 575 (ED Cal. 1985)). It was only because the District Court concluded that awarding this "measure of damages" was contradictory to the will of Congress, that the court refrained from making such an award and instead simply declared the statutory amendment unconstitutional. 477 U. S., at 51. Neither Cherokee Nation nor Bowen hinted that the unmistakability doctrines applied in their case because the damages remedy sought "amount[ed] to" an injunction. Ante, at 43.
In St. Louis, supra, the plaintiff railway companies did seek to enjoin the enforcement of the tax by the city, and perhaps that case fits neatly within the plurality's scaled down version of the unmistakability doctrine. But sophisticated lawyers in the future, litigating a claim exactly like the one in St. Louis, need only claim that the sovereign implicitly agreed not to change their tax treatment, and request damages for breach of that agreement. There will presumably be no unmistakability doctrine to contend with, and they will be in the same position as if they had successfully enjoined the tax. Such a result has an Alice in Wonderland aspect to it, which suggests the distinction upon which it is based is a fallacious one.
The plurality justifies its novel departure from existing law by noting that the contracts involved in the present case--unlike those in Merrion, Bowen, and Cherokee Nation--"do not purport to bind the Congress from enacting regulatory measures." Ante, at 41. But that is precisely what the unmistakability doctrine, as a canon of construction, is designed to determine: Did the contract surrender the authority to enact or amend regulatory measures as to the contracting party? If the sovereign did surrender its power unequivocally, and the sovereign breached that agreement to surrender, then and only then would the issue of remedy for that breach arise.
The second reason the plurality advances for its limitation on the unmistakability doctrine is that if it were applied to all actions for damages, it would impair the Government's ability to enter into contracts. But the law is well established that Congress may not simply abrogate a statutory provision obligating performance without breaching the contract and rendering itself liable for damages. See Lynch v. United States, 292 U.S. 571, 580 (1934); Bowen, supra, at 209. Equally well established, however, is that the sovereign does not shed its sovereign powers just because it contracts. See Providence Bank v. Billings, 4 Pet. 514, 565 (1830). The Government's contracting authority has survived from the beginning of the Nation with no diminution in bidders, so far as I am aware, without the curtailment of the unmistakability doctrine announced today.
The difficulty caused by the plurality's departure from existing law is best shown by its own analysis of the contracts presently before us. The plurality tells us first that "[n]othing in the documentation or the circumstances of these transactions purported to bar the Government from changing the way in which it regulated the thrift industry." Ante, at 28. But, the plurality agrees with the finding of the Federal Circuit, that " `[t]he Bank Board and the FSLIC were contractually bound to recognize the supervisory goodwill and the amortization periods reflected' in the agreements between the parties." Ibid. [n.*] From this finding, the plurality goes on to say that "we read this promise as the law of contracts has always treated promises to provide something beyond the promisor's absolute control, that is, as a promise to insure the promisee against loss arising from the promised condition's nonoccurrence." Ibid. Then, in a footnote, the plurality concedes that "[t]o be sure, each side could have eliminated any serious contest about the correctness of their interpretive positions by using clearer language." Ante, at 28, n. 15.
But if there is a "serious contest" about the correctness of their interpretive positions, surely the unmistakability doctrine--a canon of construction--has a role to play in resolving that contest. And the plurality's reading of additional terms into the contract so that the contract contains an unstated, additional promise to insure the promisee against loss arising from the promised condition's nonoccurrence seems the very essence of a promise implied in law, which is not even actionable under the Tucker Act, rather than a promise implied in fact, which is. See Hercules v. United States, 516 U. S. ___, ___ (1996).
At any rate, the unmistakability doctrine never comes into play, according to the plurality, because we cannot know whether the damages which could be recovered in later proceedings would be akin to a rebate of a tax, and therefore the "equivalent of" an injunction. This approach tosses to the winds any idea of the unmistakability doctrine as a canon of construction; if a canon of construction cannot come into play until the contract has first been interpreted as to liability by an appellate court, and remanded for computation of damages, it is no canon of construction at all.
The plurality's search for some unifying theme for somewhat similar cases from Fletcher v. Peck, 6 Cranch 87, in 1810, to the present day is an interesting intellectual exercise, but its practical fruit is inedible.
The plurality also makes major changes in the existing sovereign acts doctrine which render the doctrine a shell. The plurality formally acknowledges the classic statement of the doctrine in Horowitz v. United States, 267 U.S. 458 (1925), quoting: " `[i]t has long been held by the Court of Claims that the United States when sued as a contractor cannot be held liable for an obstruction of the performance of the particular contract resulting from its public and general acts as a sovereign.' " Ante, at 53 (quoting Horowitz, supra, at 461). The plurality says that this statement cannot be taken at face value, however, because it reads "the essential point" of Horowitz to be "to put the Government in the same position that it would have enjoyed as a private contractor." Ante, at 51; see also ante, at 54 (Horowitz emphasized "the need to treat the government as contractor the same as a private party"). But neither Horowitz, nor the Court of Claims cases upon which it relies, confine themselves to so narrow a rule. As the quotations from them in the plurality's opinion show, the early cases emphasized the dual roles of Government, as contractor and as sovereign. See, e.g., Deming v. United States, 1 Ct. Cl. 190, 191 (1865) ("The United States as a contractor are not responsible for the United States as a lawgiver"). By minimizing the role of lawgiver and expanding the role as private contractor, the plurality has thus casually, but improperly, reworked the sovereign acts doctrine.
The plurality further cuts into the sovereign acts doctrine by defining the "public and general" nature of an act as depending on the Government's motive for enacting it. The new test is to differentiate between "regulatory legislation that is relatively free of government self interest" and "statutes tainted by a governmental object of self relief." Ante, at 58. We are then elevated to a higher jurisprudential level by reference to the general philosophical principles enunciated in Hurtado v. California, 110 U.S. 516, 535-536 (1884), that "[l]aw . . . must be not a special rule for a particular person or a particular case, but. . .`the general law . . .' so `that every citizen shall hold his life, liberty, property and immunities under the protection of the general rules which govern society.' " Surely this marks a bold, if not brash, innovation in the heretofore somewhat mundane law of Government contracts; that law is now to be seasoned by an opinion holding that the Due Process Clause of the Fourteenth Amendment did not make applicable to the States the requirement that a criminal proceeding be initiated by indictment of a grand jury.
The plurality does not tell us, nor do these lofty jurisprudential principles inform us, how we are to decide whether a particular statute is "free of governmental self interest," on the one hand, or "tainted by" a Government objective of "self relief," on the other. In the normal sense of the word, any tax reform bill which tightens or closes tax loopholes is directed to "government self relief," since it is designed to put more money into the public coffers. Be the act ever so general in its reform of the tax laws, it apparently would not be a "sovereign act" allowing the Government to defend against a claim by a taxpayer that he had received an interpretation from the IRS that a particular type of income could continue to be treated in accordance with existing statutes or regulations.
But we are told "self relief" is not, as one might expect, necessarily determined by whether the Government benefited financially from the legislation. For example, in this case the plurality acknowledges that we do not know "the dollar value of the relief the Government would obtain" if respondents had to comply with the modified capital infusion requirements. Ante, at 61. Rather the plurality concludes that FIRREA, the law involved in this case, was "tainted by" self relief based on "the attention" that Congressmen "[gave] to the regulatory contracts prior to passage" of the Act. Ibid.
Indeed, judging from the plurality's use of comments of individual legislators in connection with the enactment of FIRREA, it would appear that the sky is the limit so far as judicial inquiries into the question of whether the statute was "free of governmental self interest" or rather "tainted" by a government objective of "self relief." It is difficult to imagine a more unsettling doctrine to insert into the law of Government contracts. By fusing the roles of the Government as lawgiver and as contractor--exactly what Horowitz warned against doing--the plurality makes some sort of legislative intent critical in deciding these questions. When it enacted FIRREA was the Government interested in saving its own money, or was it interested in preserving the savings of those who had money invested in the failing thrifts?
I think it preferable, rather than either importing great natural law principles or probing legislators' intent to modify the sovereign acts doctrine, to leave that law where it is. Lynch stands for the proposition that the congressional repeal of a statute authorizing the payment of money pursuant to a contractual agreement is a breach of that contract. But, as the term "public and general" implies, a more general regulatory enactment--whether it be the Legal Tender Acts involved in Deming, supra, or the embargo on shipments of silk by freight involved in Horowitz--cannot by its enforcement give rise to contractual liability on the part of the Government.
Judged by these standards, FIRREA was a general regulatory enactment. It is entitled "an act to reform, recapitalize, and consolidate the Federal deposit insurance system, to enhance the regulatory and enforcement powers of federal financial institutions regulatory agencies, and for other purposes." 103 Stat. 183. As the plurality itself explains, "FIRREA made enormous changes in the structure of federal thrift regulation by (1) abolishing FSLIC and transferring its functions to other agencies; (2) creating a new thrift deposit insurance fund under the [FDIC]; (3) replacing the Bank Board with the Office of Thrift Supervision . . . ; and (4) establishing the Resolution Trust Corporation (RTC) to liquidate or otherwise dispose of certain closed thrifts and their assets." Ante, at 15 (emphasis added). The Act occupies 372 pages in the Statutes at Large, and under 12 substantive titles contains more than 150 numbered sections. Among those sections are the ones involved in the present case. Insofar as this comprehensive enactment regulated the use of goodwill, it did so without respect to how closely the savings association was regulated; its provisions dealt with the right of any thrift association, after the date of its enactment, to count intangible assets as capital. See 12 U.S.C. §§ 1464(t)(1)(A), (2), (3), (9). And by these provisions, the capital standards of thrifts were brought into line with those applicable to national banks. See §1464(t)(1)(C). The plurality does not dispute that Congress, through this mammoth legislation, "acted to protect the public." Ante, at 65.
Justice Scalia finds that the unmistakability doctrine does apply to the contracts before us. He explains that when the Government is a contracting party, "it is reasonable to presume . . . that the sovereign does not promise that none of its multifarious sovereign acts . . . will incidentally disable it or the other party from performing," under the contract, "unless the contrary clearly appears." Ante, at 3. In other words, the sovereign's right to take subsequent action continues "unless th[e] right has been specifically surrendered in terms which admit of no other reasonable interpretation." St. Louis, 210 U. S., at 280. Justice Scalia finds that the presumption has been rebutted here; he, like Justice Breyer, finds that the Government had made a promise that its subsequent action would not frustrate the contract. Justice Scalia, however, finds that obligation is contained implicitly within the "promis[e] to regulate . . . in a particular fashion," and the Government's consideration. Ante, at 3-4.
But that is hardly what one normally thinks to be "unmistakable terms." Indeed, that promise plus consideration is no different than what Justice Scalia says applies to private parties. Ante, at 3. The Government has "promise[d] to do x in exchange for [respondents] doing y," and in so doing "impliedly promise[d] not to do anything that [would] disable [the Government] from doing x, or disable [respondents] from doing y--so that if either of [the parties'] performances is rendered impossible by such an act on [the Government's] part, [the Government] is not excused from [its] obligation." Ibid. (emphasis added). But more than this is required for Government contracts, as Justice Scalia had seemed to acknowledge.
His point about quid pro quo adds little, for it necessarily assumes that there has been a promise to provide a particular regulatory treatment which cannot be affected by subsequent action, as opposed to a promise to provide that treatment unless and until there is subsequent action. Ante, at 4. But determining which promise the Government has made is precisely what the unmistakability doctrine is designed to determine. If the Government agreed to treat the losses acquired by respondents as supervisory goodwill in the short term, but made no commitment about their regulatory treatment over the long term, respondents still received consideration. Such consideration would be especially valuable to an unhealthy thrift because it would provide "a number of immediate benefits to the acquiring thrift" that would stave off foreclosure. Brief for United States 27.
In addition, Justice Scalia does not himself make the findings necessary for respondents to prevail, but relies on the findings of the trial court and the Court of Appeals for the Federal Circuit with respect to what the Government actually promised. Ante, at 4. But both the trial court and the Court of Appeals held the unmistakability doctrine did not apply here. Therefore, even under Justice Scalia's own premises, these findings are insufficient because they were made under a mistaken view of the applicable law.
Justice Breyer in his separate concurrence follows a different route to the result reached by the plurality. But even under his own view of the law, he omits a necessary step in the reasoning required to hold the Government liable. He says that "the lower courts held that each [respondent] proved the existence of an express promise by the Government to grant them particular regulatory treatment for a period of years." Ante, at 4. But the Government could have made that promise, and not made the further promise to pay respondents in the event that the regulatory regime changed. Justice Breyer concludes that second promise did exist as a matter of fact, but he never makes that finding himself. Instead, he says that the "plurality's careful examination of the circumstances reveals" that the Government did "inten[d] to make a binding promise to hold the thrifts harmless from the effects of future regulation (or legislation)." Ante, at 9. But the plurality's opinion does not treat this as a question of fact at all, as Justice Breyer does, but instead as something which occurs by operation of law.
Justice Breyer relies on this illusory factual finding while at the same time commenting how implausible it would be for the Government to have intended to insure against a change in the law. He notes that "it might seem unlikely" for the Government to make such a promise, ibid., and further comments that because the contracting party is the Government, it may be "far less likely that [the parties] intend[ed] to make a promise that will oblige the Government to hold private parties harmless in the event of a change in the law," ante, at 4.
The short of the matter is that Justice Breyer and Justice Scalia cannot reach their desired result, any more than the plurality can, without changing the status of the Government to just another private party under the law of contracts. But 75 years ago Justice Holmes, speaking for the Court in Rock Island, A. & L. R. Co. v. United States, 254 U.S. 141, 143 (1920), said that "Men must turn square corners when they deal with the Government." The statement was repeated in Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 385 (1947). The wisdom of this principle arises, not from any ancient privileges of the sovereign, but from the necessity of protecting the federal fisc--and the taxpayers who foot the bills--from possible improvidence on the part of the countless Government officials who must be authorized to enter into contracts for the Government.
A moment's reflection suggests that the unmistakability doctrine and the sovereign acts doctrine are not entirely separate principles. To the extent that the unmistakability doctrine is faithfully applied, the cases will be rare in which close and debatable situations under the sovereign acts doctrine are presented. I do not believe that respondents met either of these tests, and I would reverse the judgment of the Court of Appeals for the Federal Circuit outright or remand to that court for reconsideration in light of these tests as I have enunciated them.
* Of course it must be remembered that the Federal Circuit had also said that the unmistakability doctrine does not apply where damages are being sought, an approach that even the plurality cannot expressly endorse.