Reply Brief — Kay v. United States

Supreme Court brief1938

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Text

“INDEX.

_ Suazzer Iwvex.

Point I—New siete raised for the first tind by the

.Government: (a) That Counts 5 and 15 may be

sustained under Sectiem,35 of the Criminal .Code

and (b) That ph.

plea ef guilty was withdrawn is in effect a judg-

ment consent—cannot be considered; and if

Counts 5 and 15 may not be sustained under

Section.35 of the Criminal Code because it

_* the Home tenets Kean Act.....:..:....

' 3. Since ent did not object to with-

drawal gf sled of guilty as to Count 12, it is

now, nak and hesides for appeal pur-

poses a plea of guilty fs the equivalent of ©

a verdict t by OE oc cua has ane e et

- Point 1—The twa penal sections of the Home Own- |

”. ers’ Loan Act.cannot stand if general act falls, and ©

. the petitioner may attack the general provisions

"and is not estopped by any act of hers from attack-

:.- = CORR Cl Deere ae tener aa

z . Penal sections not separable, if main act in-

OE wie coe SORE peri Oe ry FPP:

2. As main provisions affect the petitioner, she

_.. &© may contest their validity................

_ -3. Petitioner not ‘estopped from challenging

Se > au bas be a a ee a es

"Point I1I—That, the Government can protect against

‘fraud and exploitation does not justify the same

wide and general protective devices and punish-

_ ments where fraud and explditation do not exist. .

Point IV—Since the H.-0. L. ¢. has already fore-

1 closed or started foreclosure i in 15% to 20% ofits

—2697 t}

Count 12, to which a

ider , must be rejected...:-...°.......... |

a + New points cannot be considered.’ oie, ,

. differs materially from ‘Section 1467 (a) of -

etre Se a

- loans, it can hardly be treated as an agency for the

- **protection of home ownership”’ or of ‘‘charity’’,

and a private enterprise does not cease heing pri-

vate ‘because it produces some benefits . .

Conclusion: airs EEA aa ry er eee

TaBLE oF CaskEs CITED.

Hina Ins. Go. v. Hyde, 275 U. 8. 440.0... 2.202600...

Ayers v. Newark; 49 N. J. L. 170............-. Jerse,

Booth Fisheries v. Industrial Commission, 271 U.S.

ne a Reena cle Ce wail dss ik shed oe

~ Buck v. Kuykendall, 267 U. S. eee :

—_ v. Commonwealth Improvement Co., 287 U. *

er a i ag hag op AR

Daniels v: Tearney, 102 U. S. ee as

Eliason.v. Wilborn, 281 U.S. 4570: 0-220... Pu

Escoe v. Zerbst, 295 U. S. 490:...... Sey er ete "

Farmers Guide Co. v. Prairie Co., 293 U. S. 268°.

Gartee ©, Fem; Bre WU. MyGen... ee ke

Hatch-v. Reardon, 204 U. §. 152. ....: ee rete pera

Heald v. District of mbia, 259 U.8.114.°.......

Hunt v. State, 186 Ind. 644............... Pore mei

Ingles v. People, 90 Colo. 51:..... SE et Ome

Interstate Commerce Commission v. American Ry..

Express Co., 265 U: 8. 475......3..0...... ae

Jannett v. Windham, 109 Fla. 129... Paes vorenae

Jeffrey Mfg. Co. v. Blagg, 235 U.S. 571......... oe

Jordan, Ex parte, $4 U.S. 248........... stay.

Kachnic v. United States, 53 F. (2d) 312... 2...

Kluéczek v. State, 115 N. J: L. 105. ees, ee

_ Langer v. United States, 76 F. (3a) 817. ee

. Langnes v: Green, 282 U.S. 531.. LS INGE ed apr

Lynch v. United States, 292 U. 8S. 571. Pana

= v. Umted States, 80 F. (2d) 672........ ee

tf v. Bingaman; 298 U.S. 407............0.....

- Nashviile, etc. R. R. v. United States, 113.U. S. 261

Newark v. Central R. R., 267 U.S. 377............ 2

c R..R. v. Ketchum, i. epee

| Raibg@Coal Co. v. Ohio Industrial —, 236

_U. 8. 338 POEM QE i RR Lk tr RO Sore ae

Page

_ \ Roberto v. United States, 60 F. (2d) 774. :.. Pea rae

‘ Smith v. Kansas City Title Co., 259 U.S.180..... Ss 19

a ONS oO a aa

Rosenthal v. N. Y., 226 U. S. 260..

Spirou v. United States, 24 F. (2d) 796......--..--

State v. Board of, Police Commissioners, 56 N. J. ae ae

Eh RRR ce ae eee .. 1

State v. Collins, 225 Mo. 633...... ier Tero Mires 1

State v. Stone, 46 La. Ann. Died See Pg tar ara Ee

‘Stelos Co. v. Hosiery, Corp., 295 U.S. 237. .....--- » 2

St. Louis Co. v. Prendergast Co., 260 U. 8. 409...... 12

United States v. Babbitt, 104 U.S. 767... ,

United States v. Berman, 88 F. (98) 646........----

United States v. Harding, 81 F. 8 ees |

_ United States v. McDonal&,.10 Fed. Supp. re

United States v. Schor, % ed. Supp. 399......... .

United States v. Solder, ed. Supp. 944.......-.. :

Virginian Ry. v. Federation, 300 U.S. 515...... Pr Oe

» Wall v. Parrott, Silver & Copper Co., 244 U.. 8. 407. :

Zellerbach Co. v. Helvering, 293 i 2: Se

Sratutes CITED.

-Criminal Code, Section 35:......--+---- eeee oe

Home Owners’ Loan Act, Section 1467(a)...--- 4,9, 16,17

, ae

rpbrewowowoonn

: Oy

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1937

Ne 61

GERTRUDE KAY, ALIAS GERTRUDE KLEIN,

Petitioner, |

: Vs.

THE UNITED STATES OF AMERICA.

ON WRIT OF CERTIORARI TO THE UNITED STATES CIRCUIT COURT OF

' APPEALS FOR THE SECOND CIRCUIT.

‘PETITIONER'S REPLY BRIEF.

Pornt I. °

New points raised for the first time - the Government:

(a) That Counts 5 and 15 may be sustained under Section

35 of the Criminal Code and (b) That judgment on Count

12,.to which a plea of guilty was withdrawn is in effect a

judgment by consent—cannot be considered; and if consid-

ered, must‘be rejected.

1. Tou Powts Cannot be Considered. 4

‘ While the Government in its brief repeatedly estante that

the petitioner is estopped to make certain claims (p. 59)

9 -

and expressly argues that she cannot make a new point—

‘‘No such question, we submit, may Dew be raised’’ (p. 40),

no such restrictions apparently control the Government!

- Fortunately, the very cases which the Government cites -

ur support of ‘the right to present new points prove that they.

are not applicable to a criminal case. In an action involving .

the validity and infringement of a patent, the defendants

might have urged a point as to nal daced against

them in the Circuit Cour? of Appeals, without applying for ©

a cross writ of certiorari (Stelos Co. v. Hosiery Corps, 295

U. S. 237); in an admiralty suit to limit liability, a ground

rejected in the Circuit Court may be urged by respondent

- to sustain the judgment in the Supreme Court (Langnes v.

Green, 282 U. S. 531); and substantially the same ‘ruling:

was made in a case involving an order of the -Interstate

- Commerce Commission v. American Ry. Express Co., 265

U.S. 475. So in a procéeding under the Anti Trust Law,

the respondents could ip es thé judgment below, al-

though given on untenable gtounds, is right and should be.

affirmed. Farmers Guide Co. v. Prairie Co., 293 U. S. 268. °

Besides, in other cases, cited in the Government’s brief,

more nearly resembling the situation in this appeal, this

Court has refused to consider points not considered in the

courts below. In Zellerbach Co. v. H elvering, 293 U. 8. 172,

p. 182, the Court said: | |

“*No such point was considered by -the Court below,

nor was it suggested either.in the petition For cer-

tiorari or in any résponse thereto.. Review by this

‘Court will be limited accordingly’. ee

The same policy was purSwed in Lynch v. U. §., 292 U. S.

571, 588. The alleged defect that the suit.was not brought

within the period allowed by law was not reviewed because

it was not pleaded nor brought to the attention of the courts

, .%

| below nor by the solicitor seals to the attention of. the ot

Supreme Court when opposing the petition for a writ of ©

gertiorari. And in Burnet v. Commonwealth Improvement

Cc., 287.U. S. 415, where the Board of Tax Appeals ex-

pressed no opinion as tothe. Commissioner’s method ‘of

reckoning, and where the anne relied entirely on

another point, on which alone the Circuit Court ruled, the

Supreme Court would not undertake to determine what was

~ not considered below. 3

. This restriction ‘on the rev viow of new points has been

equally applied to defendants. ‘In Rosenthal v..N. Y¥., 226

U. S. 260, 272, when the defendant tried to invoke for the

first time the prohibitions against ex-post facto a" _ .

Court replied :

‘Tt is sufficient to say. that no such sacha appears to

have been raised in the Court below, although it might

have been raised by an application for rehearing. Nor

is any such point covered by the assignments of error

in this Court.”’ ° | a

eases. But its dttempt is not successful.. If the penal sec-

The ef attempts to get over the hurdle of these

tions are declared invalid, it argues, there will be no new.

trial under these invalid penal sections. That is. obvious.

And equally obvious ‘is the fact that, if the Government’s

contention be true that the petitioner has’ violated Section

35 of the Criminal.Code, she may be — for the viola-

tion of that separate “and distinct section. That a grand

jury may ‘refuse to aril does not change the orderly char-

acter of such a procedure under which a, defendant is to

what to expect and what he must defend, and under which

no new rabbits may be unexpectedly pulled out of the hat

at the very end of the journey. 1 :

- Cs ee

iene 2. Counts 5

and. 15:May Not be Sustained under Section

35 of the Criminal Code Because it Differs Materially

from Seg ion 1467 (a) of the Home Owners’ Loan Act.

On page the Government’s brief cites a number of

ses to the @fect that the endorsement | on the margin of

the indictment \onstitutes no part of the’ indictment, does

not add to or weaken the legal force of its averments, and

if it properly. charges an offense under the laws of the

United States, that is sufficient to sustain it, although the

representative of ‘the United States may have supposed

that the offense charged was covered by a different statute.

But the substance of the ruling in these cases is that

where, the facts, alleged show a violation of several sections’

and the indictment’ does not-specify the section under which

it is drawn—except possibly by indorsement on the margin

or caption—then the indictment, particularly on demurrer,

will be upheld if there is any statute which can sustain it.

In our case, the very language of Section 1467 (a) of the

Home Owners’ Loan Act, as to false statements, is followed

in Counts 5 and 15 of the indictment; the very act as

amended in“April 27, 1934 is mentioned; and at the end the

precise title and section of the United ‘States Code is set

forth. Clearly, where a specific statute is so definitely ear-

marked, no other statute can be substituted in its place.

And mo the palpable injustice which would be done

to the pe

Section 35 gf the Criminal Code. Before its amendment in

1934, intent to cheat, swindle or defraud the United States

_ or any Corporation in which the United States was a stock-

_ holder was an essential element of the charge under Sec-

tion 35 of the Criminal Code. In Count 15, under Section.

1467 (a) of the Home Owners’ Loan Act, there is no such

allegation and no such provision in the section itself. Nor,

is that all. Under,Counts 6 and 16 of the indictment, Sec-.

oner if Count 15 were to be sustained under ~~

ee : ate a

E sa 338, Title 18, U. S. C. the petitioner was charged -with

—

attempting to use the mail and the false statements to de-

fraud the‘H. O. L. C. and the homeowners. While the mail-

ing was proven, both these counts charging fraud were ©

. dismissed by the Government on its own motion at the end

of its ease. In short, the evidence proved that the petitioner .

was_not a cheat and a fraud dnd that she had not made the

false statements to swindle anybody.

She may still have made, the incorrect or false statements

to influence the action of the Home Owners Loan Corpora-

tion, but, there was no intent to cheat and defraud. That

“decisive fact has been established by a full trial., After the

Government by its own motion to dismiss counts 6 and 16.

~ has conceded that the petitioner did not make either state-

ement with a fraudulent purpose, it would certainly be ‘a

denial of every concept of a fair trial to permit it to shift

her conviction to a statute branding the,petitioner as a_

, cheat, a swindler anda fraud. Surely, even the Govern-

ment should be estopped from perpetrating such a wrong. »

The: Government endéavors to justify its course by say- |

ing that the misstatement might inflate the loan and de-

fault be made more likely (Br. 31). Such an argument

overlooks completely the practical conduct of the business

of appraisal by the Home Owners’ Loan Corporation. The

precise, amount to be given a second mortgagee played no

part in its appraisal or loan. Other independent factors _

" * determined that issue completely. - aut a }

- And while Sec. 35 of the Criminal Code was ary in

1934 by omitting the phrase-as to cheating, swindling and

defrauding, that would not sustain Count 5, ‘also based on |

another misstatement by the petitioner as to the amount :

due on a second mortgage. There is no allegation about the

purpoke to influence the action of the Home Owners’ Loan

Corporation i in Section 35 of the Criminal Code. And in

as '

: |

eet

ount 5, there is no allegation that: it involves a matter.

within the jurisdietion of the Home Owners’ Loan Corpo-:

ration. If indicted under Seétion 35 of the Criminal Code,

the defendant could challenge ‘the jurisdiction. And there

is no allegation in Count 5, that the U. S. is a stockholder. of

any corporation. Only by omitting essential allegations of

Count 5, as to purposé¢, and by rewriting a new count with

several of the essential allegations contained i in Section 35

of the Criminal Code, could you ei the present indiet-

ment under this new section. f

And if this impossible f¢at could be performgd, the his-

‘Yory and meaning of Sectibn 35 of the Crimingl ‘Code, de-.

spite the amendment, indicate that. it Jeals ith matters ~

requiring a pecuniary loss, which sharply di i i

from the section of the Home Owners’ Loan oe

__ 8. Since the Government Did Not Object to With frawal ae

Plea of Guilty as to Count 12, it is Now Estopped, and

Besides for Appeal Purposes a Plea of Guilty is the

Equivalent ofa Verdict byaJury. »

The wisdom of not permitting the Government to spring

new points in this Court is again convincingly estaplished |

in the. matter of the withdrawal of the plea of guilty as to ~

Count 12. As the Government did not object, the recor®

naturally does not disclose thacircumstances justifying’ the

withdrawal, the comment of the judge that the defendant

was not at fault, and thatthe lapse of time was due to the

-court’s own action in adjourning the sentence beyond the ~

ten day period. The Government acquiesced.in the Court’s

decision, proceeded to trifil, obtained a conviction and it

ghould be absolutely estopped from spaagrerieads its own egn-

duct and acting as if there had been no trial. at

- The cases mentioned by the Government do not-sustain

its claim that thé ten day rule as to the withdrawal of pleas

of guilty is mandatory under all.circumstances. Ex parte

Jordan, 94 U. 8. 248, relates to the allowance of an appeal.

“Shall be allowed’’ means ‘‘must be allowed’’. Escoe v.

Zerbst, 295 U. S: 490, construed the phrase—‘‘probationer

shall forthwith be taken. before the Court”’, and decided

that he could not be deprived, of this privilege.

. Besides, -the Government confuses a plea of guilty with

"an ordinary consent judgment in a civil action. A plea of

- guiltyedoes not.prevent’ the defendant from assailing the .

indictment. The courts have repeatedly held that a defend-

ant, after a plea of guilty, is in the same position in respect

to matters reviewable by. appeal as though he had been

found guilty by ferdict of a jury. - Kachmic v. U. S., 53-F.

(2d) 312, 315; Roberto v. U. 8.,60 F. (2d) 774, 775; Spirou

y. U. S., 24 F. (2a) (C. C. A. 2rd) 796, 797. And by im-

plication, while the ‘point was not argued, the same pro-

cedure was followed in Rosenthal v. N. ¥., 226 U. 8. 260.

This Court considered the constitutional points which the

defendant presented, with the exception of a new- point

raised for the first time, although the defendant had pleaded

guilty. - The principle established by these criminal cases

- ernment, Nashville, etc., R. R. v. U. S., 113 U.S. 261, 266;

U.S. v. Babbitt, 104 U. S. 767,'768; and Pacific R. R. v.

Ketchum, 101 U. 8. 289, 295. In substance, they hold that

a decree in equity which appears to have been rendered

ue “4 consent is pt without considering the merits, and

that no errors w8uld be considered which were in law waived

by such consent. |

'. Nor does the criminal ease of U. S. v. Berman, 88 F. (2d)

: | 645, help the Government’s claim. The defendant requested,

- safter conviction and after the suspension of sentence, that

+a fine of $1.00 be imposed, and the Appellate Court decided

_. that he‘ could not complain of the part of the judgment

which he not only consented to, buteactually asked for.

Sa MG SOT ee 2

t a 2

Finally, the undisputed facts proven at the trial show ~

that the petitioner is not guilty of any crime whatsoever 4

under Count 12. If there is any reversible error in this

record it i is the conviction under this Count. The contract

made to adjust payments on the first and second mortgage,

the services rendered, the payment of the $50.00 to the first

mortgagee and the withdrawal of the petitioner from the

- ransaction on June 11, 1934, are established by the tesfi-o

- mony of the Homeowner. At that time, the komeowner was’

not even an applicant for a home loan.’ At the end of the

month—after the petitioner had done what she could and

had’ withdrawn ‘because she could not negotiate success- -

fully for any modificatién with the first mortgagee—the ~

homeowner filed her application for a loan. Where is the

crime? Where is the violation of any law? Should not the

Government itself, where the innocence of a defendant is

conclusively demonstrated, at least as to this count, be the

first to move. for its dismissal rather than to twist-a eon-

—- vietion out of it at all hazard? ~

Port IL. .

The two penal sections of the Home Owners’ Loan Act _

cannot stand, if general act falls, and the petitioner may

attack the general provisions and is not estopped by any

‘act of hers from attacking them.

1. Penal Sections Not Separable, if :Mam Act Invalid.

* The Government attempts valiantly, but unsuccessfully

it seems to the petitioner, to prove that. even though the tree -

falls, the branches may still rest separately in the air, un-

supported by the main trunk. It mentions the separability

clause. But that says in effect, that a branch or clause, if

invalid, may be lopped from the valid trunk. It does not

» 9

3 aig ;

say that you may start to segregate-an act into a variety

of parts regardless of the validity ofsits main system.

. That other statutes may be passed parately to punish

an attempt or a conspiracy to defraud the United States or |

to caiise corrupt administration of certain acts of Congress .

- Gs conceded. And an indictment: under such separate sec:

tions of the Criminal Code may be valid regardless of the

validity of the particular agency involved. Tliat in sub-

stance is a summary of the rulings in the cases cited by the, ¥ * 3

Government. U.S. v. Schor, 13 F. 8. 399; U. S. v. Harding; ~

81 F. (2d) 503; Madden v. U. S., 80 F: (2d) 672; Langer v.

U.S.,76 F. (2d) 817; U.S. v. Solder, 10 F. 8. 944; U. 5. v.

McDonald, 10 F. 8S. 948. |

The existence of these separate statutes against defraud-

_ ing the United States or any agency or corporation in which

it is a stockholder, instead of buftressing. the ‘Government’s.

ee of separability, negatives ‘its vlaim. Knowing

the éxistence of the separate statutes to protect the funds

* of the United States, Congress relied, it could be argued, on-

these separate statutes, which it knew would stand regard-

less of the legal fate of. the particular agency or corpora-

tion. And in addition to these independent statutes, stand-

ing apart on -their own feet, it included’ the- special penal

sections in the Home Owners’ aT. and by their very

_ inclusion indicated that these special penal sections were

“to be coupled with the main act. | eS =.

Admittedly, Congress would not have passed the two

penal sections without the genera} provisions of the Act.

If no H. O. L. C. had been created, there would have. been

-no Section 1467 (a) as to false-statements, and no Section

1467: (e) as to charges. Speculation as to. what Congress

might have intended after the passage of the Act is a novel

suggestion on the part’ of the Government, but it leads into

—— =e

a bog ‘hewn one founders without any hope of establishing

ites - . any definite footing.

Besides the admitted intention of Conitenn before the

| passage, the separability argument does not pass the sec-

. ond test, namely, that the penal sections cannot stand .and

be enforced apart from the Main Act. If there i is no valid

Home Owners” Loan Corporation to be influenced and no

valid corporation to which applicants may go for loans, the

two penal sections, in so far as they prohibit the influencing

the action of this Corporation and the charging for services

to applicants for loans of this corporation, are without

- meaning. .

2. As Main Provisigns Affect the Petitioner, She _ Con- .

b ' test Their Validity. »@ ~

The Government’s concentration on its array of cases

he (Br. 57-59) apparently has made it overlook this. simple

= fact. The petitioner does not dispute- that: under the -

| Railway L&bor Act, the railroad can complain only of the

infringement of its own constitutional immunity, not that

- of the employees; that under -Workmen’ s Compensation

‘~ Act, the employer cannot urge a wrong to the employee;

an owner of automobiles moving in’ caravans whose busi- ©

“4 is properly taxed cannot complain of the ‘imposition

- Qf the tax on.a business which he does not do; companies.

meg just compensation. are not entitled:to aera higher

tes merely because of the plight of less. fortunate com-

etitors ; petitioner who has been excepted from’ a setback ~

ordinance cannot complain of its vagueness ; taxpayer pay

ing a ‘stamp tax on. exclusively local. transactions cannot.

‘allege interference with interstate commerce; “residents of

District’ of Columbia cannot attack tax on the ground that’:

*- it is invalid .as to non-residents; objections to penalties

Sy. cannot: be raised in a: suit not to enforce penalties and

“

generally that one who would strike down a statute must —

show that he is within the, class of persons with respect

to whom the act is unconstitutional and that the alleged

invalid feature injures him. Virginian Ry. v. Federgtion,

> 300 U.S. 515, 558; Jeffrey Mfg. Co. v. Blagg, 235 U. S.

571, 576; Morf v. Bingaman, 298 U. 8; 407,413; Hina Ins.

. Go. v. Hyde, 275 U. 8. 440, 446; Gorieb v. Fox, 274 U. S.

603; Hatch v. Reardon, 204 U. S..152, 160; Heald v. District

_ of Columbia, 259 U. S. 114; Rail Coal Co. v. Ohio Industrial.

Commission, 236 U. S. 338, 350. ee,

While that is nota complete summary, it gives the chief

samples cited by the Government. No argument is needed *-

- to point the difference. | The petitioner is not advancing

- some special discrimination nor, some particular immunity ~

belonging only to a certain group nor some restricted de- .

fect: As to the general provisions of the Act, her attack -

is fundamental and sweeping in its scope. She claims that .

- Congress has no power to create a corporation to conduct

a private enterprise, that such an enterprise invades the .

local rights reserved to the people and the powers reserved -

to the states, and cannot be Supported under the taxing- |

_ for-the-general-welfare clause. . ot

- Such an attack is available to anybody- affected by the:

. Act. The answer of the Government that only the penal

sections touch the petitioner is inadequate. « If the penal

sections, although valid in themselves, should fall because

of the invalidity of the Main Act, it is the invalidity of the

—~. Main Act which will free the petitioner from the liability of

__. going to jail for one year andaday. © conte

3. Petitioner Not Estopped from Challenging Main Act. |

Again, : tlie Government (Br. 60-63) bases its’ Glaim of

‘ estopped on a series of cases which have nothing whatever - -

__. to do with {fis Bppeal., There is no argument possible over.

ce.

cases which hold that: a company commencing a statutory

_ proceeding for the appraisal of their. stock, which is still

pending, waived its right to2assail the validity of the stat-

ute; an employer who voluntarily elects to comé under a

state Workmen’s Compensation Act and accepts its bene-

fits, cannot assail its burdens as unconstitutional; obligors —

_ on bond, staying execution, are estopped to assert invalidity

of statate in subsequent litigation; plaintiff who had con-

nected its premises to sewer cannot contest the validity of.

ep sewer or the validity of the tax; and that it is true that

one cannot in the same proceeding both assail a statute and

-rely upon it nor can one who avails himself of the benefits

conferred by a statute deny its validity. Wall v. Parrott,

Silver & Copper Co., 244 U. S. 407, 411; Booth Fisheries

v. Industrial Commission, 271 U. 8. 208, 211; Daniels v. -

Tearnéy, 102 U.S. 415, 421; St. Louis Co. v. Prendergast

Co., 260 U. 8. 409, 473; Eliason v. Wilborn, 281 U. S. 457.

That partial list of cited cases carry on their face their

distinguishing marks. The petitioner is not a homeowner

who applies for a loan under the Act. She-was in two in-

stances a second mortgagee and usually.a mortgage broker.

As second mortgagee in two cases, upon request of the

H. O. L. C., she offered to release her second ‘mortgage, in -

short to sell a satisfaction piece for a certain amount in

bonds. The’ relation of buyer and seller in an ordinary

business transaction between @ corporation ’and an in- °

dividual is not the availing of a benefit under a statute.

In. order to assert-that a statute provides a benefit for.

a person he must be included within the circle of bene-

ficiaries who may apply for its expected benefits. The only

one who can apply is a certain group of homeowners. They

are the only legal beneficiaries with whom the statute is

. concerned. That in making the loan to the homeowner,,.

the H. O. L. C. sometimes had to do business with second

‘mortgagees and bought certain papers from them does

not make them the recipients of benefits under that statute.

And in criminal cases the principle of estoppel, based at —

best on a shadowy claim of benefits, should be applied with

the utmost strictness. The very cases cited by the Govern-

ment to prove that estoppel is recognized in criminal cases

reveal how limited is the recognition. In the first place,

‘several of the aléged criminal cases, are not criminal at all.

In State v. Board of Police Commissioners, 56 N. J. L. 258,

. the Court ruled that in ouster proceedings, a police ‘commis-

sioner could not attack law creating the board under which

he served. Ayers v. Newark, 49 N. J. L. 170, was a similar

proceeding and upheld the same rule. And in the second

place, cases like State v. Collins, 225 Mo. 633, and. Hunt

v. State, 186 Ind. 644, merely establish the sensible prin-

.. ciple that if a prisoner accepts the terms of parole, he

cannot, when it is revoked, assail its validity. Lie

The tendency to restrict is evident in State v. Stone, 46

La. Ann. 147, 150. Since the defendant had voluntarily

given’ samples of milk, he could not object to the introduc-

tion of proof by the chemist, But the Court added that

consent to a test did not make. legal what may be illegal

in the ordinance under which the proceedings were insti-

tuted and the fine imposed. And Kluczek v. State, 115

N: J. L. 105, holds that objection to jurisdiction over the

person is waived by taking part in a trial on the merits.

The two cases of Ingles v. People, 90 Colo. 51, 56, and

Jannett v. Windham, 109 Fla. 129, 130, cover a very narrow

field. The first holds that.if a defendant complies with the

statute as to an insanity plea, and enters the plea as required,

without objection, he cannot later contest its validity. The

Jannett case, which upheld the validity of the statute on re-

hearing, is of doubtful correctness since it seemed to hold

at first that a lender could not challenge a provision requir-

Sg :

"14

- ing a license because the statute conferred a benefit.in the

form of.an exemption from the usury laws.

Nor do all proceedings under a statute constitute an estop-

_ pel even in civil cases. ‘In Newark v. Central R. R., 267 U.S.

377, 385, the Company applied to board for the approval of ©

its plans for a proposed bridge. When its application was

denied, it was free to insist that such approval was not re-

quired. No element of estoppel was found ih Buck v.

Kuykendall, 267 U. S. 307, 317, where a bus owner applied

for a certificate of convenience, which was denied. The Gov-

ernment attempts to distinguish these cases by arguing that

a license is not a benefit. And if that be so, a sale that never

_ takes place is hardly a very substantial advantage.

- In conclusion, the petitioner as mortgage broker was not

employed by the Home Owners Loan Corporation. She was

_ hired by homeowners to represent them in dealing with vari-

ous mortgagees; she continued her’ ordinary mortgage

activities exactly as before; and in two instances, at the re-

quest of the corporation, offered to sell two satisfaction

pieces to the corporatio~, offers which were never accepted.

Under these circumstances, there can be no estop el on the

theory of benefit or —e oneself of the provisions of

the statute.

oo. — Ti.

That the Government can protect against trend and ex-

ploitation does not justify the same wide and general pro-

tective devices and punishments where fraud and, exploita-

tion do- not. exist.

‘That the United States may ores its finite and its

- beneficiaries or wards from ‘exploitation is admitted.

Where there is a real danger, it may spread a wide net. - In

bonus cases, in war risk insurance cases, wherever the

_ Government provided a fund and the beneficiary received a

substantial sum in cash, the very existence of this money

eee

tempted greedy and clutching hands. In such cases; the

protective net had to be wide, high and very tight. .

The justification for treating people as criminals who

“violated these regulations arose from the obvious danger to

the funds. But making the violation of administrative regu-

lations a criminal act is a very serious business. Where the |

’ peril is very faint or practically non-existent, Congress can-

not invade a broad field of private activity and transform

overnight what was legal into a criminal act. It cannot be-

cause such criminal making power is not reasonably neces-

sary to protect its funds or the Home Owners Loan

Corporation. ° oo

This distinction can be made clearer by comparing the

ordinary bonus case. There the beneficiary.is entitled to

receive a sum in cash. The procedure to obtain the benefit

in cash is usually very simplegand would not justify a sub-

- stantial fee. Still, the existence of the money may induce the

_agent or attorney to overcharge. Congress to protect its.

wards .limits“the permissible charge. It deals with the

beneficiary as the recipient of a fund of money which may be

in serious danger. Now compare the homeowner who: ap-

plies to the Home Owners Loan Corporation. There is no °

money distributed to the homeowner. The H. O. L. C. pays.

off existing encumbrartes. Consequently, since the home-

owner does ‘not receive any cash whatsoever, the danger of

exploitation is eliminated. As to the usual services of ap-

praisal, title search, closing of title, the persons are all em-

ployed and paid by the Corporation. a Ae oe

‘With no money paid to the homeowner and all persons

’ performing all of the usual services employed and paid by

the Corporation, the possibility of exploitation/ was com-:

pletely removed. By these practices, the Corporation ef-

fectively protected itself and the homeowner. Not a penny

of its money was used except ta pay persons employed by it,

~~ ¥o pay the broker. . To make such acts, not of exploitation,

Page

whose fees it fixed, or to pay existing liens or to pay persons

who did iepair work which it approved.

The only remaining field was that of the mortgage broker

hired te reduce first’ and second mortgages or to obtain

modifications of terms’ or stay of foreclosures. Since the.

Home Owners Loan Act did not stay foreclosures nor auto-

matically modify the terms nor reduce the- amounts of

mortgages, this was a field in which the owner was free to

hire whom he pleased. The broker so. hired was not paid by

the H. O. L. C., nor with any funds of the United States. The

homeowner did.not receive a penny for any such purpose or

‘Yer any purpose. The broker so hired could get paid only

by performing some benefit to the owner: For example, the

broker, as the petitioner did, brought about a reduction in

the amount of the mortgages and in those edses she became .

_ entitled to receive compensation from the owner. Some

tangible assistance, some lightening of the owner’s burden,

had to be obtained before the owner in distress would be able

but of considerable benefit to the homeowner, a crime, we

submit, i is beyond the power of Congress. sd

' This is.equally true of Section 1467 (a) ‘as to false state- -

ments. - Where the danger to the funds of tlie United States . |

or the Jending Corporation is considerable, the penalty arm —

should be ready to strike hard. But where there is ng fraud,

as admittedly there was none here, where there is no loss

and no im ent of the security, where the loan does not

depend on any statement in any second mortgagee’s con-

sent and where in practice all such guesses are adjusted at

the closing, what you are confronted with under both sec-

tions is not a criminal matter at all, but a matter of ad-

ministrative regulations. Y ats 7 al

In such situations, the rule de. minimis non cirat lex—. -

which the Government says is not followed in criminal

17. | f

cases—should be followed to avoid the making of crim- .

inals for trifling reasons. That the overstatement of the

balance due in percentages is large does not alter this prin-

| ciple. Tt was a common practice to guess at the balance due

on 2nd mortgages, to guess at the amount due for interest, _

for taxes, and to be on the safe side, the easy thing to do

was to put down either the original amount of the mortgage —-

or some large sum, and then to figure out exactly when the

receipts were produced by the owner at the closing, if it

'- ever reached that point.. It was at that time, that the matter

was taken seriously, and it is from that time only that every-

body concerned should be held to strict account. And if the _

oration wanted second mortgagees to be more accurate

before that time, it should have issued a warning that any

ecuracy in figures might: subject the maker to prosecution.

mortga under Section 1467 (a) and to brokers under ~

Section 1467 (e) no person s ould be treated as a criminal —

for a violation which has resulted in no loss to anyone.

“As to the claim of vagueness, concerning Section 1467 (e),

the Government has pointed out that one count refers to an

act before its amendment in April, 1934. That istrue. But

the count itself refers. to the section as amended. And be-

‘cause of that we have so considered this section. . However,

to avoid any misunderstanding, thé petitioner contends that

1934, and after the amendment, and for the same reasons.

Point IV a ;

_ Since the H. O. L. C. has already foreclosed or Started

foreclosure in 15% to 20%-of its loans, it can hardly be

treated as an agency for the ‘‘Protection of Home Owner-

ship’ or of ‘‘Charity’’, and a private enterprise does not

cease being private because it produces some benefits.

There are scattered through the Governments. brief

phrases, such as ‘‘the protection of home ownership’’, ‘‘pre-

_ serving its citizens from eviction from their homes”’, ‘‘the

relief of more than a million distressed. home owners’’, and

when such phrases are repeated they are almost self intoxi-

cating. From the Government’s account of the H. O. L. C.,

one would get the impression, to‘apply a statement of Prof.

Robinson, used in another connection (‘‘The Folklore of

Capitalism”’ by Prof.. Arngid, p. 143) that if there had been

no such corporation ‘‘the people would have climbed trees

and thrown coconuts at each other.’’ ~ | |

The petitioner does not wish to belittle ‘the H. O. L. C.

She admits that it is better for a home owner to pay 5%

rather ‘than 6%, and probably better to have a long term

‘contract rather than a short term. But the Corporation

as a legal entity must be judged by what it is empowered

by. law to do and what it does. undgr the law. Nowhere,

for example, is the dread phrase ‘‘foreclosure by ‘the

H..Q. L. C.’’ mentioned in the Government’s brief. Why

lished by the H. O. L. C. itself, that it has foreclosed or —.

started to foreclose between 15% to 20% of its loans? It

has entered deficiency judgments exactly as other mort-

gagees have done. And how many more foreclosures it will

carry through—whether a majority or more—nobady can —

tell. ae erie

Nor is that all. It is a serious question whether the

fumbling and the blunders necessarily made in the organiz-.

ing and administering in a hurry any - large organiza-

tion do not offset most of the benefits it may have conferred.

-For without it, the local instititions and the states -would

have acted and their judgment both as to appraisals, re-

-newals and foreclosures. probably would have been wiser

than those made by agents suddenly catapulted by chance

‘into office. Perhaps there might have been a few more fore-

cldsures, but even that is speculative, and besides it is a

doubtful policy to prolong the agony when foreclosure is

- inevitable, and often this may result in the shifting of owner-

ship to other individuals — deserving and possibly

more enterprising.

And if the balance of benefits aut be a bit more on the

side of the Corporation than the petitioner believes, that

would nat change its essential private character. Every

‘large private enterprise, every large private bank, every

large motor Company, for instance, stabilizes employment,

and by the wages of its thousands of ‘employees keeps up

rental values, promotes home ownership, and might be la-.

+ belled adjuncts of this and that system. Still, they would be

-- private enterprises, and no matter how. ‘wide their circle of

- benefits, their character would not be changed. A big pri-

vate enterprise is just as much a private enterprise as a

small one.

- Until that private caiimagcine: is endowed with public func-

tions as in the Farm Land Bank case (Smith v. Kansas City

Title Co., 255 U. S. 180) it is just a private business of

loaning money on private homes at 5%. The absence of

public powers is not ‘‘too rudimentary a touchstone’’ (Br.

.85) ; their absence means that power has not been conferred

’ and until such power is conferred, the corporation cannot

be treated as if they had been granted. And absence of

power cannot be waived because the private institution is

of benefit to the National banking system nor because our

whole financial system is ‘‘One which is closely and deli-

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cately integrated’’.(Br. 88). Public power, not granted, or

which does not exist, cannot be created by analogies nor by

circles of influence, nor even by the assumed dire necessity

for the creation of such a public agency.

The petitioner stands corrected as to the date the ‘Cor-

poration was authorized to purchase bonds of the Home

Loan Bank. : It was in April 27, 1934, and not in 1935. How-

* ever, that was-merely what any other bank or mortgage

company could do. It was not required nor directed to do

so as in the Farm Land Bank case. It was ngger declared

a fiscal agent or depositary of the United States And there-

for it is not the creafure of the fiscal powers of Congress.

. The basic confusion in the Government’s argument is.that

there is no violation of the 9th and 10th Amendments be-

cause the corporation constitutes ‘‘charity and not duress’’

(Br. 102). If the H. O. L. C. loaning on first mortgages’ at

5% is ‘‘charity’’, what is the Governments definition of a

business contract? Petitioner admits that the contract is —

voluntary. Her-contention is not\hased on coercion, but on .

° money to private individuals on their private homes—and

CS this field cannot be invaded or entered by the ]

ae overnment under the guise of ‘‘general welfare’’.

Nor is it an answér to say that if the United State}

- exercising the general welfare power it cannot be viola ing

‘limits and under which the Federal Government could con-

duct any large private business in the country. It is at this

point that we divide. Petitioner does not believe that the

general welfare clause can be construed as a general power

to ancorporate any large business enterprise to take over

or to invade a field of admittedly private activity. Unless

there. exists some such demarcation, there is no limit to

Federal activity and there is no meaning left: in the words of

the 9th and 10th Amendments and we have not a Federal’ — ;

system but a rapidly emerging totalitarian orte.

For the foregoing reasons, together with those in the

original brief, we respectfully submit that te judgment of

the courts below should be reversed.

W. 8. ‘CULBERTSON, '

- FR. SERRI, ©

_ Attorneys for Petitioner.

poi. re

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