Reply Brief — Sacramento Municipal Utility District v. United States

No. 01-1020 MAY 6 2002 |}

Supreme Court of the Anited States

SACRAMENTO MUNICIPAL UTILITY DISTRICT,

Petitioner,

¥.

UNITED STATES OF AMERICA,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

REPLY BRIEF FOR PETITIONER

Of Counsel: PNNIS G. LYONS

Couasel of Record

MELVIN C. GARBOW

HOWARD N. CAYNE

MARY GABRIELLE SPRAGUE

EDWARD H. SISSON

STEVEN M. COHN

SACRAMENTO MUNICIPAL

UTILITY DISTRICT

Sacramento, California

ARNOLD & PORTER S. JNATEL SIMMONS

Washington, D.C. 555 Twelfth Street, N.W.

New York, New York Washington, D.C. 20004

(202) 942-5000

KENT A. YALOWITZ

399 Park Avenue

New York, New York 10022

Attorneys for Petitioner,

Sacramento Municipal

May 2002 Utility District

OSRICTGRSASASE, UPA an = ROTHER) Gehan RYE ELDER ANE AIA ES Fh a ERS aE RANE TE LE EES

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 — WASHINGTON, D.C. 20001

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PARTIES TO THE PROCEEDING BELOW

The only parties to this case are Sacramento Municipal

Utility District and the United States of America. However,

somewhat similar cases were also decided the same day by

the Court of Appeals involving as plaintiffs Maine Yankee

Atomic Power Co., Omaha Public Utility District, and

Commonwealth Edison Co.

RULE 29.6 LIST

SMUD is a governmental subdivision of the State of

California. It is not a “nongovernmental corporation” or a

corporation of any sort.

(i)

TABLE OF CONTENTS

PARTIES TO THE PROCEEDING BELOW...............

ITNT silica aut cescecacidetustiaicatsiadiientaelenintaaenanon

I

2

6.

. The Polluter Can Collect from Its Customers to

Remediate the Polluter’s Pollution.......................

. The Customer as Facilitator ..........cccccccceccccccccceceeee

When Is a Tax Not a Tax? ..............0cccceccccccceeccoee

. The Opportunity for Further Analysis of the

Constitutional Provisions Relating to Retro-

BSS EAE Oe RRR

The Winstar Doctrine Further Confused...............

TTS TiLiinoaci a cde deedensasgndeucadodeieneniiannies

(iii)

iV

TABLE OF AUTHORITIES

CASES Page

Armstrong v. United States, 364 U.S. 40 (1960) ... 3

Eastern Enterprises v. Apfel, 524 U.S. 498

Cae sbrvcarsesdhceserhieesipcenaaisdisraptichibieabalpeaacaiaeaaascainieds 1,4,7

Hanover Shoe, Inc. v. United States, 392 U.S.

MEE CPD iicissecidnancciaidedsenaintasbimaiacsinasannieniatse 4

Illinois Brick Co. v. Illinois, 437 U.S. 720

1 gf Tne AE Oe NO SORE SN OTC 4

John J. Kirlin, Inc. v. United States, 827 F.2d

er Se FT tiie 9

Landgraf v. USI Film Products, 511 U.S. 244

CPI sdisvcsiciiaseesdinthabeshinienticeadideacnbuinaasaeletaanenaeeia 10

Mulholland vy. United States, 361 F.2d 237 (Ct.

Gis San issaceindcsesnagdecaiiasasieieamanaianiancadelanidinianinnat 9

NationsBank of Texas, N.A. v. United States, 269

Pe BOE Cs Gas BIE Bcicctnsetarenvencccinanetiionnin 8

Trustees of Dartmouth College v. Woodward, 17

US. CO WRG.) FIG CEG IG sicevercotesersvenvscsenesenses 8

United States v. United Shoe Corp., 523 U.S. 360

PUTT aiscienusteisbistbarnesdahiennieaiuaeinuaideducasaadnusiebineiddidedoaie 6

United States v. Winstar Corp., 518 U.S. 839

CE cisnsecisecen dineeuciastdaseniantanadsenducaleauenieneionmmantenn 8,9

Usery v. Turner Eikhorn Mining Co., 428 U.S. 1

CFariiicschsiascvebiocnintisadiumdianinciianidacenmaencnaiate 1,10

Wood v. Lovet, 313 U.S. 362 (1941)...........cceeeeeeees 9

Yankee Atomic Elec. Co. vy. United States, 112

eRe of A |) Renner 9

OTHER AUTHORITIES

Comprehensive Environmental Response, Com-

pensation, and Liabilities Act of 1980

CER RAD, SE LBA. FOS cccesnicnscscscnemnnvontinntes y

V

TABLE OF AUTHORITIES—Continued

Page

Remediation of Uranium and Thorium Proc-

essing Sites, Hearings before Subcom. on

Energy and Power, House Commerce Comm.,

106th Cong., 2d Sess., at 26 (2000) 0.0... cece 7

DOCKETED FILINGS

Government’s Brief in Opposition (“Op.”) ........... passim

SMUD Certiorari Petition (“Pet.”’)............cccccceseceee passim

Commonwealth Edison Certiorari Petition

CI FE Psesancstussnessidintsenssieteedndabieeaading 5, 10

SMUD Joint Appendix in Court of Appeals

[Fides -Piciosiceiteimeniaicagidaseedeteniauabnaslmioaiieeisiidicabadses 2

REPLY BRIEF FOR PETITIONER

The Government’s Brief in Opposition seems to add addi-

tional reasons for granting certiorari, rather than providing

any reason why it should not be granted. The Government

takes certain positions, apparently necessary in its judgment

to justify the decision of the split court below. Those

positions are so extraordinarily broad as to require this

Court’s examination on certiorari.

1. “Hamlet” Without Hamlet.—The Opposition begins

with a truncated overview of EPACT, said to be a

“comprehensive national energy policy,’ which was to

provide “solutions to our nuclear waste and uranium

enrichment problems.” Op. 3. The Government’s description

of EPACT and those “problems” and “solutions” somehow

leaves out the formation of the Enrichment Corporation,

which was to be privatized to “maximize the long-term value

... to the treasury,” ' after being shorn of all liabilities for

pollution that the Government itself created by its negligent

operation of the facilities. Indeed, the Enrichment

Corporation is never mentioned in the Opposition; neither is

there any comment about whether the rules laid down in

retrospectivity cases involving the Government as umpire

between private interests, like Turner Elkhorn and Eastern

Enterprises, are applicable to cases where the retroactive

assessment involves self-dealing on the part of the

Government. The only inference to be drawn is that the

Government is saying that the self-dealing aspects of the case

are to be completely ignored and that the Government can

legislate retrospectivity whenever it is “rational” for it to do

so in its interests. But it is always “rational” to escape your

responsibilities when you can get away with it; so the Gov-

ernment’s standard would leave the Court without moorings

to test the constitutionality of retroactive legislation.

' See the statutory provisions at Pet. 6 n.5.

2

2. The Polluter Can Collect from Its Customers to

Remediate the Polluter’s Pollution——The Government

seems to say that the reason SMUD asserts that the

Government should bear the entire expense of the cleanup of

the Government’s own facilities is because the Government

was the first to make use of uranium processed at the

facilities. Op. 26. While it is true that the Government was

the first user, and for many years the only user, and that its

military needs have required a much higher degree of

enrichment than that necessary to produce boiler fuel (Pet. 3),

that is not the basis of SMUD’s position. The basis is that the

Government owned the facilities, lock, stock and barrel, and

itself ran them, at all pertinent times. It was not necessary

that the facilities produce pollution of themselves and the

surrounding air, water and land, that could not be promptly

remediated. Clearly the new operator of those facilities is

expected to manage the potential for pollution on a current

basis, rather than creating and letting it accumulate for

decades as the Government did as operator. The Government

made a public apology for its behavior.”

The Opposition seeks to make the Government’s role as

operator invisible. Thus, the Government never answers the

basic question: since the Government ran the whole enrich-

ment operation as it saw fit, why is any retrospective exaction

that reduces the need to draw on the Government’s general

funds consistent with the Constitution at all? The Govern-

ment says that SMUD should have anticipated that it would

be required to help clean up the pollution in due course, even

years after it ceased doing business with the Government.

The common law of nuisance and CERCLA are cited.

? See Pet. 21 n.19. The SMUD Complaint alleged that the Government

was negligent, grossly negligent, reckless and deliberate in its pollution of

the facilities. J.A. 24-25, 38-39. The Government accepted those asser-

tions by moving to dismiss for failure to state a claim; the Government

escaped discovery as a result. It ill behooves it now to suggest that the

polluted condition of the plants was unavoidable. Op. 17-18.

3

Op. 22-23. There is nothing in the law of nuisance, however,

that says that a party operating a nuisance can collect from its

customers its costs of cleaning up the nuisance tnat it, the

operator, maintained. A slaughterhouse keeper improperly

running an operation that results in unremediated pollution, or

a gasoline station that does the same, cannot retrospectively

collect from its customers over the years a contribution

toward the cleanup costs. Nothing in CERCLA or in the

common law remotely so provides.’ In 1971-81 no one could

reasonably expect that the Government would try to col-

lect from its customers unless tyrannical behavior was to

be assumed.

If we took a schizophrenic view of the Government, and

treat its enactment of EPACT as a sovereign act and its

commercial activities as those of a stranger, we would still

have the result that the clear intent of the statute was to take

away the right of indemnification, or of 100% contribution,

that a totally innocent party would have against a polluter—

assuming that for some obscure reason the innocent party

were held liable, in whole or in part, for the acts of the

polluter. The act of the “sovereign” in deliberately destroy-

ing that right would be a classic taking of legal rights,

compensable under the Takings Clause under Armstrong v.

* CERCLA is irrelevant to this case. First, CERCLA was not enacted

until December 1980, nine years after SMUD started to purchase the

services from the Government and only a few months before it stopped

purchasing. Even then, the full breadth of CERCLA’s liability was not

revealed for several years after enactment, as the Government’s cost

recovery cases worked their way through the federal courts. Second, the

Government does not assert that SMUD could be held liable for cleanup

of the Government’s facilities under CERCLA. SMUD is plainly not a

responsible party under CERCLA. As the owner and operator of the

uranium enrichment facilities, the Government is responsible for the

environmental cleanup under CERCLA. 42 U.S.C. § 9607(a)(1). Rather

than supporting the Circuit’s conclusion that SMUD should have expected

such liability, CERCLA undercuts it. Despite its sweeping breadth, not

even CERCLA goes so far as to make a party in SMUD’s position liable.

4

United States, 364 U.S. 40 (1960). Either way, the Govern-

ment’s role here as sole polluter cannot be ignored any more

than the commercial moneymaking aspects of the EPACT-

established Enrichment Corporation.’

3. The Customer as Facilitator—The Government

contends that the customers of the Government’s commercial

sales of enrichment services ought to pay because they

received “benefits” from the services. That principle would

take us as far as all outdoors. It is a commonplace of

economics that in a free economy all commercial exchanges

take place because the two counterparties each perceive a

benefit to themselves in the exchange. If they did not both

perceive a benefit, there would be no exchange. The

Government thus treats those who are customers of a culpable

party—that did not have a conscientious program of proper

disposal for controlling potentially toxic materials—as facili-

tators of the polluter, appropriately liable not only to the

public, but to the polluter itself to lighten his burden. Thus,

the Government confirms that the examples we gave in the

Petition are completely germane: their theory is that it would

be perfectly constitutional for Congress to assess frequent

* The Government cites the “pass-through” provisions of the statute as

denaturing the retrospective character of the statute, perhaps by spreading

the pain to SMUD’s current customers, themselves innocent. Op. 5. The

Government later seems to say that the pass-through is irrelevant. Op. 15-

16. Further on, the issue comes back to life. Op. 17. Anyhow, the pass-

through provisions do no good for SMUD; its rates are not regulated at

all; and what it feels it must charge, it charges; but like other unregulated

parties, it does so at the risk of losing its customers in one way or another.

The leading antitrust cases universally reject “pass-through” as a defense,

recognizing the invalidity of this argument in economic and legal terms.

Hanover Shoe, Inc. v. United States, 392 U.S. 481 (1968); Illinois Brick

Co. v. Illinois, 437 U.S. 720 (1977). The argument also completely

ignores the deregulation of the electric power industry, and the ability of

many users to obtain power from alternative sources than their local

utility. “Pass-through” cannot cure a constitutional infirmity. Cf. Eastern

Enterprises, 524 U.S. at 531 (indemnity no cure).

5

flyers retrospectively to pay for the bailout of the improvident

airlines (Pet. 22-23); or since no distinction is to be made on

the basis of self-dealing according to the Government, to

retrospectively assess users of the Postal Service in accord-

ance with their mail volumes if the Postal Service suffered a

loss from mismanagement. Under the Government’s view,

the status of the customer or consumer would be a h«zardous

one, constantly at risk for targeted retrospective exactions.”

Such an extreme view requires this Court’s attention.

In an attempt to make the customers a party to the Gov-

ernment operator’s pollution, the Government says that since

“enriched uranium has long been known to be extremely

hazardous,” the customers of the Government’s plants ought

to have realized that “the enrichment process would leave a

need for decontamination.” Op. 17-18. The argument is a

complete non sequitur: SMUD was responsible for the han-

dling of the uranium once it was enriched and delivered to it,

and it performed that task in a blameless fashion. The

“enrichment process would leave a need for decontami-

nation” only if the Government did not take care of the waste

problem as it went along. There was no reason why it could

not; and it presumably expects that the privatized Enrichment

Corporation, now “USEC, Inc.,” will not “leave a need for

decontamination.” The whole argument that “the nuclear

power industry has always been strictly regulated’ tells us

nothing concerning SMUD’s expectations as to whether the

services it bought would be repriced a decade or two later, or

why it should have to answer to the Government, even in

part, for the mishandling of uranium by the Government

when SMUD handled its uranium properly.° The Govern-

> The notion that the customers received “below-market” pricing for

the Government’s services (Op. 21) is without support; the record shows

that when foreign sources were available, creating a market, the

Government quickly lost business. Pet. 5; ComEd Pet. 2-3.

° That an executive of one or more of the larger power companies

expressed satisfaction with what Congress had done, relied to some extent

6

ment treats as “a large, unrecognized social problem” its own

reckless or willful failure to deal currently with a material it

characterized as “long . . . known to be extremely hazardous.”

Op. 21. That was not an “unrecognized social problem”; it

was plain vanilla bad management in failure to clean up

currently and failure to use revenues to pay for current

cleanup—as indeed the statute required (Pet.5 n.4)—and

there was no basis for fobbing any of its consequences off on

parties who were not responsible for it.

4. When Is a Tax Not a Tax?—The Government seems

to concede that what was done here resembles a retrospective

tax—and a “new” one at that —indeed, it seems to justify

what was done here by reference to the taxing power. Op.

16-17. It says that it doesn’t matter because it is used for a

special purpose, and not for general purposes; that makes it

an assessment. Op. 20 n.9. The argument recalls the child’s

notion that the dollar bill it deposits in the local bank will be

kept in a separate drawer for it. Money is money. These

“assessments,” made retrospectively, reduce the need for

conventional prospective taxes (user or broadly based), and

changing their name doesn’t change them from being taxes.

Cf. United States v. United Shoe Corp., 523 U.S. 360 (1998)

(tax on exports claimed to be “harbor maintenance”).

Substantially all taxes could thus be made retrospective by

creating different categories of expenditure in the Federal

Budget and “assessing” particular groups, based on their past

on by the Government (Op. 4), is irrelevant. SMUD did not authorize any

such statement; ours is not the corporate state of some countries between

the World Wars in which the industry leaders and the dictator ordered

matters for everyone else. In fact, the statements in question were made

after it was evident that Congress was going to impose an even larger

exaction than it did, in an effort to get Congress to decrease the amount it

would “assess.” A person would not lose her right to object to a bill of

attainder by requesting that Congress impose a somewhat less harsh

penalty than what it first considers.

Se ee ee

7

activities, for them.’ Like the Government’s other arguments,

this open-ended assertion underscores the need to grant

certiorari. In plain English, we have here a huge, new, purely

retrospective tax, of an amount and nature which this Court

has never come close to encountering before.

5. The Opportunity for Further Analysis of the

Constitutional Provisions Relating to Retrospective

Legislation.—SMUD’s Petition suggested that this case, with

decades of retrospectivity, a hard-core “taking’—that is,

removing an asset (here money) from the citizen’s pocket and

putting it in the Government’s—and the specificity of the

amount “taken,” afforded a real opportunity to rationalize the

law concerning unconstitutional retrospectivity. Pet. 25-27.

This was said in the light of the Eastern Enterprises decision

in which a majority of the Court could not be obtained, but

where four justices were of the view that the Takings Clause

"In fact, the special “fund” created for the assessment is not

exclusively dedicated to the decontamination of the enrichment sites, but

is also used to pay for the cleanup of thorium and uranium pollution by

Government-contractor mining and milling operations; activities with

which SMUD had no business dealings at all. The Government’s conten-

tion (Op. 24 n.11) that the fund is somehow partitioned, with part of it

used for decontamination of the Government facilities, and the rest used

for cleanup of thorium and uranium mining/milling sites, is simply false.

There is only a single trough, funded in part by the former (like SMUD)

and present nuclear utilities (based solely on pre-October 24, 1992

purchases) and partly by the Government; and both the enrichment and

mining/milling projects are fed from that trough. The thorium-uranium

private interests push in Congress for a larger share of the Fund, and the

DOE pushes back. See, e.g., statement of DOE saying that giving more to

the thorium miners would “mean ... that cleanup at [DOE’s] gaseous

diffusion plants may have to be deferred.” Remediation of Uranium and

Thorium Processing Sites, Hearings before Subcom. on Energy and

Power, House Commerce Comm., 106th Cong., 2d Sess., at 26 (2000).

The provisions of the pertinent statutes (Pet. 105a-107a) contain no

provision for segregation or partitioning of the Fund so that only the

Government’s money is paid to the thorium and uranium millers and

miners; the Government’s suggestion to the contrary is incorrect.

8

was implicated even though what was taken was money (and

not even taken for the Government’s own account). Cases on

the issue of when “money” is “property” within the Takings

Clause seem to be in confusion. Pet. 25-27. Even the Federal

Circuit says that a “retroactive tax can constitute a taking

under the Fifth Amendment.” NationsBank v. United States,

269 F.3d 1332, 1336 (Fed. Cir. 2001). Perhaps it is SMUD’s

common-law right of third-party recovery from the Gov-

ernment as polluter that is being taken; “property” beyond

cavil. See p. 3-4, above. The Government has little to say

about the analytic confusion, other than to cite the cases

which show the disarray which this case affords an

opportunity to resolve. Op. 13-16, 18-19.

6. The Winstar Doctrine Further Confused.—We

suggested that the Court grant certiorari on our Winstar

question (Question No. 2) in order to assure a complete view

of the issues presented by the retrospectivity involved here.

EPACT upset the result contemplated by a fixed-price

contract, and in the case of SMUD and some others similarly

situated, violated a release granted SMUD by the Govern-

ment. See Pet. 5; 27-29. The Government has articulated a

new basis for distinguishing this case from Winstar; a basis

which itself seems to require attention.

The Government claims (following language in Yankee

Atomic) that there can be no breach of a contract if the

contract has been completed. It says that since SMUD’s

contract was fully performed, SMUD could not sue for

breach. Op. 11-12. This notion was rejected over a century

and a half ago in the Dartmouth College case, Trustees

of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518

(1819), and brief reflection is enough to demonstrate its

error.” Indeed, in Winstar itself, the contract was completely

* Neither of the cited cases for this in Yankee Atomic, Kirlin and

Mulholland, says any such thing. Kirlin says that a contractor cannot be

compensated for a “Value Engineering Change Proposal” not used in the

9

performed in a sense: the plaintiffs had acquired the savings

and loan assets and obligations that the Government sold, and

for that the Government had given them the right to use a

certain method of accounting. Why should that right be

different from the right granted SMUD by the release, to be

free of further demands for payment? In each case it could

equally be said that there had been a completed contract. See

Wood v. Lovet, 313 U.S. 362 (1941) (completed sale vitiated

by subsequent action).

Parties can, and sometimes do, breach a contract after it is

“performed.” SMUD and the other Petitioners entered into

fixed-price contracts with the Government and paid what was

due under those contracts. SMUD, and apparently some

others, obtained a release from the Government of all further

obligations regarding their enrichment contracts, which

included pollution provisions. The Government now takes

action that increases the price of its services retrospectively

and violates the release agreement. Just because those agree-

ments were “performed” in the sense that they contemplated

no further affirmative activity on the part of the contracting

parties does not mean that they could not be breached by an

activity (attempting to exact additional monies despite the

contract and the release) which was inconsistent with the

results contemplated by the contract or the release. In that

sense, a contract is always to some extent “incomplete,”

though no further active performance is required

* * * kK €

The reasons for granting certiorari we asserted in the

Petition are stronger than ever. The Government has taken

this Court’s statement of less than a decade ago that “the

presumption against retroactive legislation is deeply rooted in

contractor’s contract; Mulholland says that the statutory time in which to

make claim for reimbursement of unexpected costs runs from the time of

completion of the contract. Nowhere close to the asserted point.

Se

LO

our jurisprudence, and embodies a legal doctrine centuries

older than our republic” (Landgraf v. USI Film Products, 511

U.S. 244, 265 (1994)), and this Court’s statement that it “does

not follow, however, that what Congress can legislate

prospectively it cannot legislate retrospectively,”” and has

morphed them into the proposition that “retroactive economic

legislation enjoys a presumption of validity.” Op. 20. The

retrospective exaction in favor of the Government is, with-

out denial, by the Government, larger than any previously

attempted. Pet. 16-17. The Government is unwilling to

discuss the effect of its self-dealing on the analysis (Pet. 17-

20), continuing to pass off what was done as “economic

regulation.” Op. 20. The ability of the polluting party to

collect contribution from the blameless parties, simply

because they were customers (Pet. 20-23), is presented as a

controlling principle of law. Op. 20-21, 24-25. Even a “new

tax” can be made retrospective for three decades—purely

retrospective, not prospective at all (Pet. 23-25)—if it is

called an “assessment” and if a notional “fund” is created.

Op. 20 n.9. The assertion of these remarkable principles

confirms the need for granting the writ; the Federal Circuit’s

assertion of exclusive jurisdiction over these retrospectivity

cases where the United States is a party (Pet. 28; ComEd

Pet. 10) intensifies that need.

CONCLUSION

For the reasons stated herein and in the Petition, the

Petition for Certiorari should be granted.

° Turner Elkhorn, 428 U.S. at 16.

|

Of Counsel:

STEVEN M. COHN

SACRAMENTO MUNICIPAL

UTILITY DISTRICT

Sacramento, California

ARNOLD & PORTER

Washington, D.C.

New York, New York

May 2002

Respectfully submitted.

DENNIS G. LYONS

Counsel of Record

MELVIN C, GARBOW

HOWARD N. CAYNE

MARY GABRIELLE SPRAGUE

EDWARD H. SISSON

S. JNATEL SIMMONS

555 Twelfth Street, N.W.

Washington, D.C. 20004

(202) 942-5000

KENT A. YALOWITZ

399 Park Avenue

New York, New York 10022

Attorneys for Petitioner,

Sacramento Municipal

Utility District