Opposition Brief — Montana Board of Investments v. Deutsch Bank Securities, Inc.

No. 06- 291

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SUPREME COURT. U.S

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Supreme Court of the United States

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MONTANA BOARD OF INVESTMENTS.

Petitioner

DEUTSCHE BANK SECURITIES, INC..

Respondent.

On Petition For A Writ of Certivrari

lo The New York State Court of Appe als

BRIEF IN OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI

Larry H. Krantz

Counsel of Record

Wendy Gerstmann

KRANTZ & BERMAN LLP

Attorneys for Respondent

757 Third Avenue, 25th Floor

New York, New York 10017

212-661-0009

Nove prdre r 6. IO06

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QUESTION PRESENTED

Whether this Court should disregard principles of stare

decisis and grant certiorari for the purpose of overruling its

decision in Nevada vy. Hall, when that decision has been

relied upon by this Court, lower courts and contracting

parties since it was decided in 1979, and in that time no

decision of any court has challenged the soundness of its

holding or urged its overruling?

RULE 29.6 STATEMENT

The following are the corporate parents of Deutsche

Bank Securities Inc., a nongovernmental corporate party:

Deutsche Bank AG, Taunus Corporation, and DB U:S.

Financial Markets Holding Corporation.

iil

TABLE OF CONTENTS

QUESTION PRESENTED

RULES 29.6 STATEMENT

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TABLE OF AU TRIUFRITEES 0.0 ccccsccvenctssscers

PRELIMINARY STATEMENT

STATEMENT OF THE CASE

REASONS FOR DENYING THE PETITION.....

I. THE NEW YORK COURT OF APPEALS APPLIED

SETTLED AND CORRECTLY DECIDED PRECEDENT

FROM THIS COURT WHEN IT DISMISSED

MBOI’S SOVEREIGN IMMUNITY DEFENSE......

MBOI Is ILL-SUITED TO SEEK REVIEW OF HALL’S

HOLDING BECAUSE IT KNEW THAT IT WAS NOT

IMMUNE FROM Suit IN NEW YORK WHEN IT

PROJECTED ITSELF THERE TO ENTER INTO THIS

WHOLLY COMMERCIAL CONTRACT

. THis COURT HAS REPEATEDLY ACKNOWLEDGED

AND RELIED UPON ITS HOLDING IN HALL, AND

PETITIONER CITES NO SUBSEQUENT OPINION OF

THis COURT—OR OF ANY OTHER COURT—THAT

HAS CHALLENGED THE CONTINUING VITALITY,

WISDOM OR WORKABILITY OF HALL ...........

1V

PETITIONER HAS SET FORTH NO COMPELLING

REASON TO SET ASIDE STARE DECISIS..........

THE ARGUMENT OF THE AMICI CONCERNING

THE SCHOONER CASE SHOULD BE REJECTED ...

CONCLUSION

Vv

TABLE OF AUTHO®?ITIES

Page

Alden v. Maine, 527 U.S. 706 (1999) : passim

Arizona v. Rumsey, 467 U.S. 203 (1984)

Burger King Corp. v. Rudzewicz,

471 U.S. 462 (1985)

Burnet v. Coronado Oil & Gas Co.,

AS BOE OED G i659 0c PEN Kier tea

Crair v. Brookdale Hospital Medical Ctr.,

94 N.Y.2d 524, 728 N.E.2d 974,

707 N.Y.S.2d 375 (2000)

Ehrlich-Bober v. University of Houston,

49 N.Y.2d 574, 404 N.E.2d 726,

427 N.Y.S.2d 604 (1980)

Federal Maritime Commission v. South

Carolina State Ports Authority,

535 U.S. 743 (2002)

Franchise Tax Board of California v. Hyatt,

538 U.S. 488 (2003) passim

Georgia v. Chattanooga, 264 U.S. 472 (1924) .... 15, n.3

Harris v. United States, 536 U.S. 545 (2002)

Hilton v. South Carolina Pub Rys. Comm'n,

502 U.S. 197 (1991)

Keystone, Inc. v. Triad Sys. Corp.,

292 Mont. 229, 971 P.2d 1240 (1998)

McDonnell v. State of Illinois, 163 N.J. 298,

748 A.2d 1105 (N.J. 2000) (per curiam),

cert. denied, Illinois v. McDonnell,

513 U.S. 819 (2000)

Nevada v. Hall, 440 U.S. 410 (1979)

Nevada Department of Human Resources v. Hibbs,

538 U.S. 721 (2003)

Pacific Employers Ins. Co. v. Industrial Accident Co.

v. Industrial Accident Comm'n of California,

306 U.S. 493 (1939)

Payne v. Tennessee, 501 U.S. 808 (1991)

Randall v. Sorrell, _. U.S. _., 126 S.Ct. 2479,

164 L.Ed. 482 (2006)

Salomon Bros., Inc. v. West Virginia State Bd. of

Investments, 152 Misc.2d 289, 575 N.Y.S.2d

993 (NY Sup.), aff'd, 168 A.D.2d 384, 563

N.Y.S.2d 714 (N.Y. App. Div. 1990)

Sam v. Sam, 139 N.M. 474, 134 P.3d 761

RRP Rie Bnet PN Anas Aen aAb EDA we

Shepard v. United States, 544 U.S. 13 (2005)

The Schooner Exchange v. McFaddon,

11 U.S. 116, 7 Cranch116 (1812)

United States v. International Business Machines

Mee Ls Be | eee

Constitution, Statutes and Rules:

U.S. Supreme Court Rule 10

U.S. Supreme Court Rule 14(a)

Montana Cons. Art. II, Section 18

Mont. R. Civ. Pro. 56

Mont. Code Ann. § 18-1-404

Mont. Code Ann. § 18-1-401

Mont. Code Ann. § 18-1-41]

Other Authorities:

John M. Rogers, Applying the International Law

of Sovereign Immunity to the States of the

Union, 1981 Duke L.J. 449

PRELIMINAKY SLAIEMENI

More than twenty five years ago, in Nevada v. Hall, 440

U.S. 410 (1979), this Court resolved an important question

of interstate relations and squarely held that the United

States Constitution does not confer immunity on States in

the courts of their sister States. Rather, the Court held that

respect between States is governed by the principle of

interstate comity.

The Montana Board of Investments (“MBOI”). a sub-

division of the State of Montana, now asks this Court to

overrule Hal/ and radically rewrite the law of interstate

sovereign immunity to require that one State must yield to

a demand for immunity by a sister State. MBOI seeks this

extraordinary relief in order to set aside a determination by

the New York State Court of Appeals that MBOI—while

acting in a purely commercial capacity as a seller of secu-

rities—breached its written contract with Respondent, a

New York financial services company.

MBOI’s Petition should be rejected because:

(1) MBOI’s claim that it enjoys absolute immunity from

suit in the courts of a sister State was squarely and cor-

rectly rejected by this Court more than 25 years ago in

Nevada v. Hall, wherein this Court held that such a rule

was not implicit in the Constitution and would be an

affront to the sovereignty of the forum State;

(2) MBOL is ill-suited to seek reversal of Hall's holding

because it was well-aware that it was not immune from suit

in New York when it voluntarily projected itself into that

State as a commercial actor and breached a contract with

Respondent, and this Court should not retroactively alter

tine lC2al A2SSUTLIPLIONIS UNUCLIyiiZ tlic paitivd VCvlitiavtuai

relationship;

(3) Hall’s continued vitality is clear because this Court

has restated and relied upon the holding in Ha// multiple

times in the past twenty five years—including just three

years ago in Franchise Tax Board of California v. Hyatt,

538 U.S. 488 (2003)—and Petitioner cites no opinion of

this Court or any other court questioning the continued

validity or wisdom of Hal/;

(4) MBOI has not provided any compelling reason to

cast aside the stare decisis effect of Hall; and

(5) Hall has been relied upon by the business communi-

ty and States for over twenty five years in entering into

contractual relationships, such as the one at issue in this

case, and that reliance should not be disturbed.

Accordingly, we respectfully submit that MBOI’s peti-

tion for certiorari should be denied.

STATEMENT OF THE CASE

1. While MBOI has made much of this case, it is a sim-

ple breach of contract action. Specifically, MBOI is an

agency of the State of Mentana charged with investing and

managing state funds, including purchasing and selling

securities. App. 42-43. MBO! manages over $1 billion in

funds and regularly engages in multi-million dollar securi-

ties transactions. MBO! deals directly with various finan-

cial institutions and brokerage firms located in New York,

New York. App. 5, n.2.

2. Respondent Deutsche Bank Securities Inc. (“DBSI”)

is a corporation with headquarters located in New York. It

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securities for its own account and on behalf of its clients.

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3. In March 2002, MBOI and DBSI entered into a series

of negotiations regarding the sale and purchase of Pennzoil

bonds. App. 2-3. The negotiations were conducted in real-

time via instant messaging over the Bloomberg message

system. As a result of those negotiations, MBOI agreed to

sell and deliver to DBSI $15 million in Pennzoil Bonds.

4. The following day, MBOI informed DBSI that it was

going to “break the trade” and would not deliver the bonds

to DBSI. App. 2-3. MBOI reneged on the trade based on

the groundless accusation that DBSI must have traded on

inside information, because of a merger announcement

regarding Pennzoil made shortly after the trade.

5. When MBOI persisted in its refusal to perform its part

of the bargain, DBSI filed a single count civil complaint

against MBOI in New York Supreme Court alleging a

breach of contract claim. App. 3. DBSI’s Complaint

alleged damages of approximately $1.6 million. MBOI

asserted a number of affirmative defenses including lack

of personal jurisdiction, insider trading, sovereign immu-

nity and comity. App. 74-79.

6. On the issue of sovereign immunity, MBOI conceded

that it had waived any such immunity 1n breach of contract

cases, see Montana Code 18-1-404, but contended that it

had done so only to the extent that such suits were brought

in the Montana State courts, based on a venue limitation

statute enacted along with Montana’s statutory waiver of

sovereign immunity. See Montana Codel8-1-401.' The

' Montana Consolidated Code section 18-1-404 provides, in part:

“(1)(a) The state of Montana ts liable in respect to any contract entered

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court determined that MBOI was not subject to personal

jurisdiction in New York and granted judgment in favor of

MBOI. App. 29-36.

7. On DBSI’s appeal, the New York Appellate Division

for the First Department unanimously reveised the trial

court and held that MBOL was subject to personal jurisdic-

tion in New York. App. 14-24. The First Department also

rejected MBOI’s defenses of insider trading, comity and

sovereign immunity and entered judgment on liability in

favor of DBSI.

8. On MBOI’s appeal, the New York Court of Appeals

affirmed the decision of the First Department and rejected

MBOI’s defenses. App. 1-13. The New York Court of

Appeals recognized that the transaction at issue in this

case was both centered in New York and wholly commer-

cial in nature because (a) MBOI sold $15 million par value

of bonds to DBSI knowing that DBSI was a large financial

institution located in New York; (b) MBOI willingly and

purposefully projected itself into New York by virtue of its

electronic communications to enter New York’s commer-

cial arena; and (c)} the injury was sustained in New York.

The Court further held that MBOI intentionally projected

itself into New York to take advantage of New York’s

unique commercial resources, and thus, should be

into in the same manner and to the same extent as a private individual

under like circumstances, except the state of Montana is not liable for

punitive damages.” Mont. Code Ann. § 18-1-404. Section 18-1-401,

provides: “The district courts of the state of Montana shall have exclu-

sive Original jurisdiction to hear, determine, and render judgment on

any claim or dispute arising out of any express contract entered into

with the state of Montana or any agency, board, or officer thereof.”

Mont. Code Ann. § 18-1-401.

amenable to suit in New York. App. 4-7. It also gave bind-

ing effect to this Court’s opinion in Hal/ and rejected

MBOI’s sovereign immunity defense. App. 6. It then

engaged in a comity analysis and deterimined that applying

Montana’s venue statute (requiring breach of contract

cases against Montana be filed in Montana) would offend

New York’s interests in providing ar say forum to redress

injuries “from a commercial transaction in which another

state, or its agent, has knowingly projected itself into New

York to take advantage of [its] financial markets.” /d.

9. MBOI seeks a writ of certiorari from this Court on the

sole question of whether this Court should overrule its

decision in Nevada v. Hall, 440 U.S. 410 (1979), and hold

that New York must yield its sovereignty to a sister State’s

demand for immunity, and thus, that New York does not

have the authority to redress an injury within its borders.

The Petition should be denied.

6

REASONS FOR DENYING THE PETITION

THE NEW YORK Court? OF APPEALS APPLIED SETTLED

AND CORRECTLY DECIDED PRECEDENT FROM THIS

COURT WHEN IT DISMISSED MBOI’S SOVEREIGN

IMMUNITY DEFENSE

MBOI concedes, as it must, that its defense of sovereign

immunity is squarely foreclosed by this Court’s decision in

Nevada v. Hall, 440 U.S. 410 (1979). Pet. at pp. 7, 20. In

Hail, this Court determined that there was no implicit or

explicit constitutional authority to support the notion that

one sovereign State must yield to a demand for sovereign

immunity from a co-equal sovereign State. Indeed, the

Hall Court found that to require such yield'ng—as a mat-

ter of right rather than comity—-would constitute an

infringement on the sovereignty of the forum State. This

reasoning holds true today.

In Hall, a plaintiff who had been injured in California in

a collision with a car driven by an employee of the Uni-

versity of Nevada, sued the University in a California

court. The State of Nevada argued (as MBOI does here)

that pursuant to its statute waiving sovereign immunity,

the University could only be sued 1n a Nevada State court,

or at the very least, that California must honor Nevada’s

statutory limits on liability. Ha//, 440 U.S. at 414. On

review, this Court, in a 6-3 opinion, rejected Nevada’s

demand for sovereign immunity and permitted the suit to

proceed in California.

The Hal/ Court recognized that the question of whether

a State may claim immunity from suit in the courts of

another State was an issue of first impression, and demand-

ed a careful review of the United States Constitution. /d.

7

Both the majority and the dissent in Ha// noted that while

a State was immune from suit in its own Court, because a

claim of immunity in a sister State “necessarily implicates

the power of and authority of a second sovereign{,] its

source must be found either in an agreement, express or

implied, between the two sovereigns, or in the voluntary

decision of the second to respect the dignity of the first as

a matter of comity.” /d. at 416; /d. at 429 (Blackmun, J.,

dissenting) (agreeing that there must be a constitutional

source for Nevada’s immunity and that nothing in the

explicit text of the Constitution provided for interstate

immunity). Both the majority and the dissent in Hall

agreed that the question of interstate sovereign immunity

was “not expressly answered by any provision of the Con-

stitution.” /d. at 414. This did not end the inquiry, howev-

er, because Nevada pressed its argument that there was an

implicit rule of interstate sovereign immunity based on the

common understanding that no sovereign is amenable to

suit without its consent. The Ha// Court searched in vein

for such an implicit rule but found none. /d. at 421, 425.

Specifically, the Ha// Court held that nothing “in Art. II]

authorizing the judicial power of the United States, or in

the Eleventh Amendment limitation on that power, provide

any basis, explicit or implicit, for this Court to impose lim-

its on the powers of California exercised in this case,” and

further held that the Constitution’s Full Faith and Credit

Clause did not require California to enforce Nevada’s laws

in violation of its own public policy. Jd. at 420-24. The

Court concluded that the Constitution “does not confer sov-

ereign immunity on States in the courts of sister states” and

that if a federal court—even the United States Supreme

Court—forced a state to defer to the laws of another state

8

“that holding would constitute the real intrusion on the

sovereignty of the States.” /d. at 426-27.

Justices Blackmun, Rehnquist and Chief Justice Burger

dissented. Principally, Justice Blackmun lamented that the

Court painted with too broad a brush by not restricting

jurisdiction to suits arising out of conduct within the forum

state, and all of the dissenting Justices argued that inter-

state sovereign immunity was implicit in the constitution-

al plan and an essential component of federalism. /d. at

430, 437.

MBOI concedes that Ha// remains binding today, that

the New York Court of Appeals was obligated to apply

Hall in this case, and that it correctly did so when it held

that MBOI was not constitutionally immune from suit in

the courts of New York for a breach of contract committed

in New York. Thus, MBOI does not meet any of the enu-

merated considerations for the granting of certiorari set

forth in Supreme Court Rule 10.” Rather, it argues that this

Court should nonetheless grant certiorari for the purpose

of overruling Hall. We respectfully submit that there is no

compelling reason to revisit Ha//, let alone to overrule it.

Accordingly, the Petition should be denied.

> Generally, this Court will grant a petition for certiorari from a

State’s highest court only where that court has “decided an important

federal question in a way that conflicts with the decisions of another

state court of last resort or of a United States court of appeal,” or “has

decided an important question of federal law that has not been, but

should be settled by this Court, or has decided an important federal

question in a way that conflicts with relevant decisions of this Court.”

Sup. Ct. R. 10.

9

MBOI Is ILL-SUITED TO SEEK REVIEW OF HALL’S

HOLDING BECAUSE IT KNEW THAT IT WAS NOT

IMMUNE FROM SUIT IN NEW YORK WHEN IT

PROJECTED ITSELF THERE TO ENTER INTO THIS

WHOLLY COMMERCIAL CONTRACT

It strains credulity that MBOI would seek certiorari to

avoid the jurisdiction of the New York courts in a contract

dispute where the State of Montana voluntarily entered

into a substantial commercial transaction with a New York

firm, projected itself into New York to effectuate that

transaction, and then breached that contract causing injury

in New York. At the time of its actions, MBOI knew full

well that it had no immunity from suit in New York. Hav-

ing chosen to enter New York as a purely commercial

actor, rather than an immune sovereign, MBOI is ill-suited

now to seek a sea change in the law of interstate sovereign

immunity. Indeed, such a change would have the unfair

effect of altering retroactively the legal assumptions

underlying the parties’ contractual relationship.

Specifically, by the time that MBOI entered into this

transaction in 2002, Ha// had been the settled law of this

country for over twenty years, and the New York Court of

Appeals already had occasion to give full force to Hall and

consider and deny the defenses of immunity and comity in

a strikingly similar situation. See Ehrlich-Bober & Co. v.

University of Houston, 49 N.Y.2d 574, 581, 427 N.Y.S.2d

604, 404 N.E.2d 726 (1980) (no sovereign immunity or

comity afforded to the University of Houston which had

engaged in a purely commercial securities transaction with

a New York brokerage house). Notwithstanding this clari-

ty in the law, MBOI ventured outside of its borders and

entered into this sizable commercial transaction.

10

Given MBOI’s voluntary, wholly commercial conduct in

the State of New York, we respectfully submit that this

contract case is a poor vehicle for reconsideration of Neva-

da v. Hail. Indeed, any decision by this Court to overrule

Hall, and then to apply such a new legal rule to the con-

tract formed in this case, would of necessity alter the legal

assumptions underlying the parties’ contractual relation-

ship, which assumptions were based upon the then-appli-

cable rule of law. Such a result would be unfair and

unwarranted in this pure breach of contract action. Fur-

thermore, such a retroactive change would impair count-

less government contracts by altering the venues and

remedies available to various parties with contracts to pro-

vide goods and services to the States. For this reason

alone, certiorari should be denied.

For two additional reasons, this case presents an inap-

propriate vehicle through which to reconsider Ha//. First,

since MBOI concedes that Montana has fully waived its

sovereign immunity for breach of contract claims brought

against it there, see supra fn. 1, the question herein pre-

sented is strictly one of venue—hardly a compelling State

interest. Indeed, even in Hal/, the objecting State was

asserting not only a venue limitation under State law, but a

substantive limitation on liability as well. See Hall, 440

U.S. at 414. Second, granting certiorari would require this

Court to resolve complex issues of Montana State law con-

cerning the extent of Montana’s Constitutional and statu-

tory waivers of immunity, and whether those waivers

apply to a suit brought in the Courts of the State of New

York. See Mont. Const. Art. il, Section 18 (“The state,

counties, cities, towns, and all other local governmental

entities shall have no immunity from suit for injury to a

1]

person or property, except as may be specifically provided

by law by a 2/3 vote of each house of the legislature.”);

and Montana Code Sections18-1-404 (unconditional waiv-

er of sovereign immunity) and 18-1-401 (venue limitation

in actions against the State). These issues were not reached

below because MBOI’s sovereign immunity defense was

clearly foreclosed by Nevada v. Hall.

For all of these reasons, certiorari should be denied.

1iJ. THiS COURT HAS REPEATEDLY ACKNOWLEDGED AND

RELIED UPON ITS HOLDING IN HALL, AND PETITION-

ER CITES NO SUBSEQUENT OPINION OF THIS

COURT—OR OF ANY OTHER COURT—THAT HAS

CHALLENGED THE CONTINUING VITALITY, WISDOM

OR WORKABILITY OF HALL

Hall was correctly decided and remains good law today.

In fact, in the over twenty-five years since this Court

decided Hal/, this Court has repeatedly acknowledged its

holding in Hal/ and Petitioner cites no opinion of this

Court—or any other Federal court or State court—which

has challenged or even called Ha// into question. Rather,

on several occasions in the last twenty-five years, this

Court has restated and relied upon its holding in Hal/, and

State cases have applied Hal/l’s holding on sovereign

immunity without protest or criticism.

Specifically, in Alden v. Maine, 527 U.S. 706 (1999),

this Court addressed a fundamentally different question

regarding federal-state relations, but expressly acknowl-

edged and endorsed the holding in Ha//. In Alden, this

Court considered whether Congress could require the

States to permit a federal claim under the Fair Labor Stan-

12

dards Act to be pressed against the State in State court. This

Court held that a State’s sovereign immunity protected it

from such federal intrusion. The A/den Court, however,

quoted with approval Ha//’s sharp distinction between a

State’s immunity from suit in its own courts, and a State’s

immunity from suit in the courts of another-sovereign, and

held that the explanation favoring immunity within a

State’s own Court did not inform the latter situation, stat-

ing:

[B]ut [this explanation] affords no support for

a claim of immunity in another sovereign’s

courts. Such a claim necessarily implicates the

power and authority of a second sovereign; its

source must be found either in an agreement,

express or implied, between the two sovereigns,

or in the voluntary decision of the second to

respect the dignity of the first as a matter of

comity.

Since we determined the Constitution did not

reflect an agreement between the States to

respect the sovereign immunity of one another,

California was free to determine whether it

would respect Nevada’s sovereignty as a matter

of comity.

Alden, 527 U.S. at 738 (quoting Ha//, 440 U.S. at 416)

(internal quotations and citations omitted).

Foreshadowing MBOI’s argument here, the A/den Court

also distinguished “a State’s immunity from suit in federal

court from its immunity in the courts of other States.” /d.

at 738-739. The A/den Court expressly rejected the notion

that its analysis in A/den undermined its holding in Hall,

13

and held that there was no inherent conflict between

Alden’s recognition of an implicit constitutional limit on

the federal government’s intrusion on the State’s sover-

eignty, and Ha//’s reluctance to find such a constitutional

limit on a forum State’s ability to redress an injury from a

sister State. The A/den Court held:

Our reluctance to find an implied constitution-

al limit on the power of the States [in Ha//] can-

not be construed, furthermore, to support an

analogous reluctance to find implied constitu-

tional limits on the power of the Federal Govern-

ment. The Constitution, after all, treats the

powers of the States differently from the powers

of the Federal Government.

*

Our decision in Ha// thus does not support the

argument urged by petitioners here. The decision

addressed neither Congress’ power to Subject

States to private suits nor the States’ immunity

from suit in their own courts. In fact, the distinc-

tion drawn between a sovereign’s immunity in its

own courts and its immunity in the courts of

another sovereign, as well as the reasoning on

which this distinction was based, are consistent

with, and even support, the proposition urged by

respondent here—that the Constitution reserves

to the States a constitutional immunity from pri-

vate suits in their own courts which cannot be

abrogated by Congress.

Alden, at 739-740 (internal citations and quotations omit-

ted, and emphasis added). Thus. in 1999, the A/den Court

14

found Hal/ to be consistent and supportive of its recent

sovereign immunity jurisprudence.

In addition, just three years ago in Franchise Tax Board

of California v. Hyatt, 538 U.S. 488 (2003), this Court—in

a unanimous decision—applied Ha// and rejected the invi-

tation of amici States to overrule Hall. In Hyatt, a Nevada

resident sued the California taxing authority—in Neva-

da—for negligent and intentional torts committed in Neva-

da. Under principles of comity, the Nevada Supreme Court

dismissed the negligence based claims but refused to grant

California immunity for the intentional torts committed

within Nevada.

On certiorari, this Court unanimously affirmed the

Nevada Supreme Court by applying the controlling author-

ity of Hall and holding that (a) “[t]he State of Nevada 1s

undoubtedly ‘competent to legislate’ with respect to the

subject matter of the alleged intentional torts [t]here,

which, it is claimed, have injured one of its citizens within

its borders,” (b) “the Constitution does not confer sovereign

mmunity on States in the courts of sister States,” and

(c) Nevada’s claim of greater sovereign interest because it

was fulfilling its tax function in California was not a rea-

son to diverge from Ha// because such a rule “would ele-

vate California’s sovereignty interests above those of

Nevada. ...” Hyatt, 538 U.S. at 498. Therefore, far from

undermining the continuing vitality of Hal/, the Hyatt

Court unanimously relied upon its earlier holding in Hal/

that States are co-equal sovereigns which cannot be forced

to honor a sister State’s plea for immunity, because doing

so would of necessity diminish the forum State’s sovereign

interest in providing full redress for injuries within its bor-

ders. Significantly, Justice Rehnquist, the author of the

LS

dissent in Hal/ upon which MBOI principally relies, joined

the unanimous decision in Hyatt.

Moreover, in 2000, this Court denied a certiorari peti-

tion from Illinois making the same arguments as does

MBOI!I. See McDonnell v. State of Illinois, 163 N.J. 298,

748 A.2d 1105 (N.J. 2000) (per curiam) (request for sov-

ereign immunity and comity did not bar suit against IIli-

nois in New Jersey court), cert. denied, Iilinois v.

McDonnell, 531 U.S. 819 (2000) (denying petition for cer-

tiorari by the State of IHinois, which had argued that A/den

undermined Ha//).

In sum, MBO! has not identified a single opinion of this

Court that has questioned the continuing vitality of Hall,

nor has !t pointed to a single decision of any other Federal

or State court that has called the wisdom or workability of

Hall into question. Rather, in the over twenty five years

since Hall was decided, this Court has embraced and relied

upon the essential holding of Ha// and has categorically

distinguished sovereign immunity cases involving federal

forums or federal statutes from the decidedly different

issue of sovereign immunity in sister States. Because Ha//

remains good law and MBOI has not presented any com-

pelling reason to revisit that decision, we respectfully sub-

mit that the petition for certiorari should be denied.*

Moreover, Hal/ is consistent with other decisions from this

Court adidressing the interstate relationship. See Pacific Emplovers Ins.

Co. v. Industrial Accident Co. v. Industrial Accident Commission of

California, 306 U.S. 493, 501 (1939) (holding in conflicts of law con-

text that “to the extent that California is required to give full faith and

credit to the conflicting Massachusetts statute it must be denied the

right to apply in its own courts its own statute, constitutionally enacted

in pursuance of its polity to provide compensation for employees

injured in their employment within the state ... and it must remit him

16

LV. PETITIONER HAS SET FORTH NO COMPELLING

REASON TO SET ASIDE STARE DECISIS

Principles of stare decisis alone should compel this

Court to deny MBOI’s Petition. Stare decisis 1s the “basic

legal principle commanding judicial respect for a court’s

earlier decisions and their rules of law.” Randall v. Sorrell,

__ U.S. __, 126 S.Ct. 2479, 2484, 164 L.Ed. 482 (2006).

“Time and time again, this Court has recognized that the

doctrine of stare decisis is of fundamental importance to

the rule of law,” see Hilton v. South Carolina Pub. Rys.

Comm'n, 502 U.S. 197, 202 (1991) (internal quotations

and citations omitted), and that “the rule of law demands

that adhering to our prior case law be the norm.” Randail,

126 S.Ct. at 2489; see also Harris v. United States, 536

U.S. 545, 556-57 (2002) (plurality opinion) (citing numer-

ous Cases).

to Massachusetts to secure the administrative remedy which that state

has provided. We cannot say that the full faith and credit clause goes so

far.”); Georgia v. Chattanooga, 264 U.S. 472 (1924) (a State’s eminent

domain power can be exercised over a sister State’s property in the

forum state in part because “[h]aving acquired land in another state for

the purpose of using it in a private capacity, Georgia can claim no sov-

ereign immunity or privilege in respect of its expropriation”).

Hall is also consistent with the undisputed notion that New York has

a manifest interest in exercising jurisdiction over non-residents who

cause harm in New York. Burger King Corp. v. Rudzewicz, 471 U.S.

462, 473 (1985) (each state has a “’manifest interest’ in providing its

residents with a convenient forum for redressing injuries inflicted by

out-of-state actors”). Indeed, Montana itself recognizes a “fundamen-

tal” public policy of protecting “Montana residents from having to lit-

igate outside of Montana,” Kevstone, Inc. v. Triad Svs. Corp., 292

Mont. 229, 97] P.2d 1240 (1998). and provides for long-arm jurisdic-

lion over non-residents, Mont. R. Civ. Proc. 4B.

17

Departure from precedent—even in constitutional

cases—is exceptional, and requires “special” or “compel-

ling” justification.” Hilton, 502 U.S. at 202; Arizona v.

Rumsey, 467 U.S. 203, 212 (1984). Stare decisis is the

expected and preferred course because it “promotes the

evenhanded, predictable, and consistent development of

legal principles, fosters reliance on judicial decisions and

contributes to the actual and perceived integrity of the

judicial process.” United States v. International Business

Machines Corp., 517 U.S. 843, 856 (1996) (quoting Payne

v. Tennessee, 501) U.S. 808, 827 (1991)).

These principics are “at their acme” and should be most

stringently applied in cases involving matters on which

parties rely on this Court’s precedent in their business

dealings, i.e., cases involving “contract and property

rights.” Payne v. Tennessee, 501 U.S. 808, 828 (1991). See

also Burnet v. Coronado Oil & Gas Co., 285 U.S. 393,

405-411 (1932) (Brandeis, J., dissenting). In the contract

arena, a stable and predictable body of law is essential for

parties to negotiate on an even playing field and ultimate-

ly receive the benefit of their bargained for transactions.4

Stare decisis is also at its peak where the effects of the

Court's decision can be undone by legislative deed, and the

Court may be guided by the absence of such action years

after a ground-breaking decision. Shepard v. United States,

544 U.S. 13, 23 (2005).

* It defies logic how MBOI refers to the holding in Hail as a “pro-

cedural rule” warranting less deference under stare decisis. In its sub-

stantive discussions, MBOI posits that the rule in Ha// is of grave

constitutional importance to our system of federalism as well as to each

State’s inherent sovereign rights—a far cry from a “procedural” rule as

it claims in its discussion of stare decisis.

18

MBOI’s attempt to avoid stare decisis in this case fails.

As discussed below (a) public and private parties have

relied on Hail for over twenty five years, (b) subsequent

case law has not rendered Hail a “legal outlier” or “legal

anomaly” or otherwise “undermined its basic legal princi-

ples,” as MBOI suggests, and (c) Ha/l/ has not proved

unworkable. Thus, there is simply no reason to disregard

the principle of stare decisis and revisit Hall.

In contrast to MBOI’s claims, Ha// has provided a reli-

able and stable rule of law that has become part of the fab-

ric of this Court’s—and lower courts’—sovereign

immunity jurisprudence. Private parties and States have

equally understood the implications of Ha// and for more

than twenty five years they have managed their affairs in

accordance with Ha//. Granting certiorari to reconsider

Hall would dramatically undermine the considerable

reliance that States, individuals and corporations have

placed upon it in drafting contracts. As this Court held in

Hilton, “We should accord weight to this continued accept-

ance of our earlier holding. Stare decisis has added force

when the legislature, in the public sphere, and citizens, in

the private realm, have acted in reliance on a previous

decision, for in this instance overruling the decision would

dislodge settled rights and expectations or require an

extensive legislative response. This is so in the case before

us.” Hilton, 502 U.S. at 202 (holding that stare decisis

counseled against overruling a 28-year old interpretation

of a federal statute where numerous parties and courts had

relied upon that definition and Congress had not respond-

ed to It).

MBO] argues primarily that stare decisis should not pre-

clude review here because the view expressed by the

19

majority in Hal/ has since been discredited, and the view

expressed by the dissenting justices in Ha// “has turned out

to be the majority view.” Pet. at 12. Specifically, MBOI

argues that “this Court has abandoned Ha//'s fundamental

premise. The Court's jurisprudence now recognizes that a

State’s immunity from suit without its consent is present in

the constitution as part of the plan of the convention, and

that it continues to exist as a matter of federal constitu-

tional law in all of the contours in which it existed in 1789

.... Pet. at 14. In support of this argument, MBOT relies

principally on the notion that Ha// is irreconcilable with

Alden v. Maine, 527 U.S. 706 (1999) and Federal Maritime

Commission v. South Carolina State Ports Authority, 535

U.S. 743 (2002). These cases, however, do not undermine

Hail, nor do they create any conflict with Hail.

The obvious error in MBOI’s claim that Ha// is irrecon-

cilable with A/den is plain from (a) the fact that the issue

raised in A/den was fundamentally different from the issue

resolved in Ha//, and (b) the A/den Court’s express rejec-

tion of the argument that its opinion was inconsistent with

its holding in Hal/. In Alden, as discussed above in greater

detail, this Court addressed the question of Congressional]

authority to subject a state to liability in that state’s own

courts under the Fatr Labor Standards Act of 1938. The

entirety of the Court’ discussion was directed at the

States ‘immunity from federal intrusion. \n its analysis, the

Alden Court did nothing to undermine the Court's reason-

ing or holding !n Ha// and explicitly acknowledged the sig-

nificant distinction between federal-state relations and

interstate relations. A/den., 527 U.S. at 738. Indeed. as

20

quoted above, the A/den Court expressly held that Ha// and

Alden were consistent with each other.°

Similarly, MBOI fails in its attempt to create conflict

between Ha// and Federal Maritime Commission v. South

Carolina State Ports Authority, 53 U.S. 743 (2002). In that

case, this Court considered the authority of the federal

government to hear suits against a non-consenting State

and the Court’s decision was directed to the question of

sovereign immunity in the context of federal intrusion.

While this Court spoke in terms of a State’s immunity from

suit without its consent, it did so regarding federal-state

relations—a distinctly different context from the interstate

challenge presented here. By again conflating federal-state

relations with the issue presented here—interstate rela-

tions—MBOI relies erroneously on broad statements of

States’ immunity from suit in federal court, which state-

ments do not bear on the issue of interstate sovereign

immunity.

MBOI also argues that stare decisis should not control

here because the comity analysis in Hal/ has produced

“inconsistent decisions” and “mixed results.” Pet. at 21-

22. First, this argument is misplaced since MBOI does not

seek certiorari to review either Ha//’s holding on the issue

of comity, or the New York Court of Appeals’ application

In its attempt to portray a growing body of law advocating

absolute State sovereign immunity, MBOI does not refer to the fact that

even in the constitutionally commanded realm of federal-state rela-

tions, a State's immunity is not absolute because “Congress may, how-

ever, abrogate such immunity in federal! court if it makes its intention

to abrogate unmistakably clear in the language of the statute and acts

pursuant to a valid exercise of its power under § 5 of the Fou teenth

Amendment.” Nevada Department of Human Resources v. Hibbs, 538

U.S. 721, 725 (2003).

of that rule in this case.° See Sup. Ct. R. 14(a) (“Only the

questions set out in the petition, or fairly included therein,

will be considered by this Court”). Second, there can be no

question that other States, as well as New York, have

expressed a healthy regard for requests from sister States

while holding firm to their own public policies regarding

purely commercial transactions. The New York Court of

Appeals in Fhrlich-Bober expressly acknowledged that

immunity may be conferred on sister States in certain

cases, such as “where the interest in question goes to the

very heart of the governmental function.” Ehrlich-Bober &

Co. v. University of Houston, 49 N.Y.2d 574, 580-81, 427

N.Y.S.2d 604, 404 N.E.2d 726 (1980). In the Court of

Appeals’ decision tn this case, the Court relied on its deci-

sion in Ehrlich-Bober and held that:

Here, Montana’s legislation serves essentially

the same purpose as the Texas statute in

Ehrlich-Bober—to limit venue rather than lia-

bility—-and New York’s identified interests

remain at least as compelling today as in 1980.

Thus, we decline to defer to the Montana statute

vesting exclusive jurisdiction in the district

courts of Montana. We continue to hold that

where, as here, a lawsuit arises from a commer-

cial transaction in which another state, or its

agent, has knowingly projected itself into New

York to take advantage of our financial markets,

New York courts should not dismiss the action

a° a matter of comity. When a more fundamen-

° Indeed, the amici curiae expressly state that the comity holding

in Hall “respects and preserves the sovereignty of the States in the con-

stitutional order.” Amici Curiae Br. at p.2, 0.1.

4

22

tal government interest of another jurisdiction is

implicated against a less compelling New York

policy, or where there is no material conflict

between the two, our courts of course remain

open to reasonable deference to the law of

another jurisdiction as a matter of mutual

respect and interstate harmony.

App. 7.

Indeed, New York’s healthy regard for the laws of its

sister States was demonstrated in Crair v. Brookdale Hos-

pital Medical Ctr., 94 N.Y.2d 524, 728 N.E.2d 974, 707

N.Y.S.2d 375 (2000), wherein the New York Court of

Appeals applied the notice of claim law of a sister State. A

similar result was reached in the commercial context in

Salomon Bros., Inc. v. West Virginia State Bd. of Invest-

ments, 152 Misc.2d 289, 575 N.Y.S.2d 993 (NY Sup.),

aff'd, 168 A.D.2d 384, 563 N.Y.S.2d 714 (N.Y. App. Div.

1990), where a New York court dismissed a declaratory

judgment action against the West Virginia State Board of

Investments in favor of the West Virginia forum. Other

States have also displayed a healthy regard for one anoth-

er as this Court suggested in Hal/ and Hyatt. See, e.g., Sam

v. Sam, 139 N.M. 474, 134 P.3d 761 (2006) (in a case of

first impression, Supreme Court applied Ha// to an auto-

mobile accident in New Mexico and recognized that Hal/

encourages States to extend comity when doing so would

not violate the forum State’s public policies, and cited

New York opinions with approval). Indeed, MBOI does

not cite any case in which a court has called upon this

Court to give further direction to the lower courts to guide

their comity analysis, or where the courts have declared

the current situation unworkable or rudderless.

23

Nor is MBOI correct that failure to review and reverse

Hail harms interstate relations. None of the ominous pre-

dictions by the dissenting justices in Ha// or presented by

MBOI have come to fruition in the twenty-five years since

Hall was decided. Specifically, Justice Blackmun was con-

cerned that “States in all likelihood will retaliate against

one another for respectively abolishing the ‘sovereign

immunity’ doctrine[|” and “States’ legal officers will be

required to defend suits in all other States.” Hal/, 440 U.S.

at 429 (Blackmun, J., dissenting). Yet, there have been rel-

atively few cases against a State in the courts of a sister

State and, as discussed above, courts have given careful

consideration to requests for comity and there have been

no reported cases of retaliation between the States. Indeed,

notwithstanding the fact that Nevada lost its request for

sovereign immunity in the California courts in Ha/l/, this

Court in Hyatt commended the Nevada Supreme Court for

“sensitively” applying principles of comity “with a healthy

regard for California’s sovereign status.” Avatt, 538 U.S.

at 499. Nor have States been treated by a sister State’s

court “just as it would any other litigant;” rather, the

admonitions in Ha// and Hyatt have guided courts to con-

sider carefully comity requests from sister States.’ Simi-

MBOI's argument that the New York courts’ disrespect for

MBOI's sovereign status imvited “the kind of unfairness visited on

Montana here by the decisiam of the New York courts to find Montana

liable after, in effect, a 6ench trial by affidavit following incomplete

discovery,” Pet. at p. 23, has no bearing on the issue. The issue of sov-

ereign immunity was briefed by the parties and no further discovery

was sought on this point. Moreover, MBOI's liability was determined

pursuant to a traditional summary judgment process which (a) is not

presented for review here. (b) the propricty of which has been repeat-

edly affirmed by this Court, and (c) is a process to which the State of

Montana has explicitly consented for suits against it in Montana. See

24

larly, Justice Rehnquist’s prediction that “[t}his decision

cannot help but induce some ‘Balkanization’ in state rela-

tionships as States try to isolate assets from foreign judg-

ments and generally reduce their contacts with other

jurisdictions,” Hall, 440 U.S. at 443 (Rehnquist, J., dis-

senting), has not come to pass. To the contrary, States regu-

larly engage in purposeful commercial transactions—such

as in this case—knowing full well that they are not immune

from suit in the courts of a sister State.

Thus, with the advantage of twenty-five years since Hall

was decided, there has not been a crisis of “interstate retal-

jation that will prove unsettling or upsetting for our feder-

al system,” Hall, 440 U.S. at 427 (Blackmun, J., dissenting),

the States have not been so offended by Ha// that they have

entered into interstate compacts to protect themselves from

jurisdiction in sister States, and States have not ceased

their out-of-state activities. For these reasons, we respect-

fully submit that this Court should deny MBOI’s petition

for certiorari under the doctrine of stare decisis.

Mont. Code Ann. § 18-1-411 (“In any actions under the provisions of

this part, the form of process, writs, pleadings. and motions and the

practice and procedure, together with the right of appeal to the supreme

court of the state of Montana, shall be the same as if the state of Mon-

tana were a private person ....”); Mont. R. Civ. Pro. 56 (providing for

summary judgment).

25

V. THE ARGUMENT OF THE AMICI CONCERNING THE

SCHOONER CASE SHOULD BE REJECTED

Finally, the amici curiae assert that Hall’s critical flaw

is the Court’s reliance on dicta in The Schooner Exchange

v. McFaddon, 11 U.S. 116, 7 Cranch, 116 (1812). This

novel challenge—which is not raised by MBOI and was

not raised by the dissenting justices in Ha// or by any other

opinion of this Court—is without merit.

In Hall, the Court referred to The Schooner Exchange in

which the Supreme Court held that an “American court

could not assert jurisdiction over a vessel in which

Napoleon, the reigning Emperor of France, claimed a sev-

ereign right.” Hal/, 440 U.S. at 416. The Ha// Court noted

that Schooner “makes clear that if California and Nevada

were independent and completely sovereign nations,

Nevada’s claim of immunity from suit in California’s

courts would be answered by reference to the law of Calli-

fornia. ... By rejecting the defense in this very case, how-

ever, the California courts have told us that whatever

California law may have been in the past, it no longer

extends immunity to Nevada as a matter of comity.” Hail/,

440 U.S. at 417-418.

The amici assert that the Court’s reliance on Schooner

was misplaced, arguing that each State is not an independ-

ent sovereign akin to a foreign nation because “the deci-

sions of California’s high court are appcalable to a court

that can require California to conform to interstate rules:

the United States Supreme Court.” Amici Br. at 10-t1. This

distinction, however, does not undermine Ha//’s reliance

on Schooner. Simp!* put, since the Supreme Court found

that there was no consensual or constitutional basis upon

which to require one State to yield to a demand for sover-

26

eign immunity from a co-equal State, and, indeed, that the

Supreme Court could not require California to respect the

immunity demand from Nevada, see Hail, 440 U.S. at 426,

the appealability of such an opinion to the Supreme Court

is not a meaningful distinction to draw. Indeed, the

Supreme Court acknowledged as much in its discussion of

Schooner when it stated:

Were it an independent sovereign, Nevada

might choose to withdraw its money from Cali-

fornia banks, or to readjust its own rules as to

California’s amenability to suit in the Nevada

courts. And it might refuse to allow this judg-

ment to be enforced in its courts. But it could

not, absent California’s consent and absent

whatever protection is conferred by the United

States Constitution, invoke any higher authori-

ty to enforce rules of interstate comity and to

stop California from asserting jurisdiction. For

to do so would be wholly at odds with the sov-

ereignty of California.

Hall, 440 U.S. at 418, n.12 (emphasis added). This coin-

cides with Hall’s express acknowledgement that “[n]oth-

ing in the Federal Constitution authorizes or obligates

this Court to frustrate that policy out of enforced respect

for the sovereignty of Nevada.” /d. at 426.

Moreover, although the amici rely exclusively on Judge

John M. Rogers’ article to support their claim that the

Court's reliance on Schooner was misplaced, the amici fail

to refer the Court to the remainder of Judge Rogers’ article

which makes clear that he agreed with the holding in Hal/

and that any error in the Court’s reliance on Schooner was

not fatal to its holding. Judge Rogers wrote that:

27

The [Hal/] majority appropriately distin-

guished the cases dealing with federal-court

jurisdiction over states from the issue of inter-

state immunity raised by the Nevada v. Hall

facts. The dissents, in contrast, blurred the dis-

tinctions between the two types of immunity

and relicd on the federal-court jurisdiction cases

to argue that the Constitution preserved state

immunity in the courts of other states. A closer

look at the theoretical bases asserted for state

immunity in the federal courts supports the

majority's distinction.

John M. Rogers, App/ving the International Law of Sov-

ereign Immunity to the States of the Union, 1981 Duke

L.J. 449, 461 (emphasis added). Thus, Judge Rogers

found that the Court in Ha// had come to the “proper

judgment.”* /d. at 472. Accordingly, rather than support-

ing the position of the amici, the article relied upon docs

just the opposite. For this reason as well, the Petition

should be denied.

* In reaching this conclusion, Judge Rogers relied in part on an

analogy to international law. He noted that the result in Ha// was sup-

ported by principles of international law because a foreign sovereign

is not immune for claims arising from tortious act/wity (such as in

Hall) or trom “’commercial activity’ having a nexus with the United

States.” /d. at 473-74 (citing 28 U.S.C.A. § 1605(a)(2) of the Foreign

Sovercign Immunities Act). The same analogy to international law

would hold true here, as MBOI was plainly acting m a purely com-

mercial capacity

28

CONCLUSION

For the reasons set forth above, we respectfully request

that this Court deny MBOI’s Petition for certiorari.

Dated: November 6, 2006

Respectfully submitted,

Larry H. Krantz

Counsel of Record

KRANTZ & BERMAN LLP

757-Third Avenue, 25th Floor

New York, New York 10017

Attorneys for Respondent

Wendy E. Gerstmann

Of Counsel

FILED

No. 06-291 NOV 17 2006

CLERK

OFFIGE OFTHE

SUPREME COURT, U.S.

an The

Supreme Court of the Gnited States

4

MONTANA BOARD OF INVESTMENTS,

Petitioner,

V.

DEUTSCHE BANK SECURITIES, INC.,

Respondent.

On Petition For Writ Of Certiorari To The

New York State Court Of Appeals

SJ

REPLY TO BRIEF IN OPPOSITION

MIKE MCGRATH

Attorney General

CHRISTIAN D. TWEETEN

Chief Civil Counsel

Counsel of Record

P.O. Box 201401

Helena, MT 59620-1401

(406) 444-2026

Attorneys for Petitioner

November 17, 2006

COCKLE LAW BRIEF PRINTING CO (800. 225-696

OR CALL COLLECT (402; 342-2831

TABLE OF CONTENTS

REPLY ARGUMENT

Point 1 — The Court has not reaffirmed Hall

Point 2 — MBOI has not waived its immunity claim

Point 3 — Stare Decisis does not compel denial of the

writ

Point 4 — Deutsche’s Schooner Exchange argument

does not support denial

Point 5 ~— This case warrants review

CONCLUSION

TABLE OF AUTHORITIES

CASES

Alden v. Maine, 527 U.S. 706 (1999)

College Savings Bank v. Florida Prepaid Postsecondary

Expense Board, 527 U.S. 666 (1999)

Crair v. Brookdale Hospital Medical Center, 94 N.Y.

Ee ee, FEO IN okie Oe BFS (QOOD) ...ccccecervecrevecsorcesceeerecesevess §

Deutsche Bank Securities, Inc. v. Montana Board of

Investments, 7 N.Y. 3d 65, 850 N.E. 2d 1140

(2006)

Federal Maritime Commission v. South Carolina

State Ports Authority, 535 U.S. 743 (2002).................06 2

Franchise Tax Board of California v. Hyatt, 538

U.S. 488 (2003)

Hilton v. South Carolina Public Railways Commission,

502 U.S. 197 (1991)

Illinois v. McDonnell, 531 U.S. 819 (2000)

Legal Services Corp. v. Velazquez, 531 U.S. 533

Nevada v. Hall, 440 U.S. 410 (1979)

Nichols v. United States, 511 U.S. 738 (1994)

Parden v. Terminal Railway of Alabama Docks

Dept., 377 U.S. 184 (1964)

Patterson v. McLean Credit Union, 491 U.S. 164

(1989)

TABLE OF AUTHORITIES — Continued

Pennsylvania v. Union Gas Co., 491 U.S. 1 (1989)

Seminole Tribe v. Florida 517 U.S. 44 (1996)

Teague v. Lane, 489 U.S. 288 (1989)

The Schooner Exchange v. M’Faddon, 11 U.S. (7

Cranch) 116 (1812)

United States v. Carver, 260 U.S. 482 (1923)

United States v. Neifert-White Co., 390 U.S. 228

United States v. Verdugo-Urquidez, 494 U.S. 259

(1990)

RULES

Supreme Court Rule 10

Supreme Court Rule 14(a)

OTHER AUTHORITIES

J. Rogers, Applying the International Law of

Sovereign Immunity to the States of the Union,

1981 Duke L.J. 449 (1981)

REPLY ARGUMENT

The Brief in Opposition is remarkable as much for

what it does not say as for what it does. The Brief does not

suggest that the Court lacks jurisdiction over the Petition,

cf. Petition at 1-2. The Brief does not dispute Petitioner

Montana Board of Investments’ (“MBOI”) showing that

this Court’s decision in Nevada v. Hall, 440 U.S. 410

(1979), rested on the premise that, insofar as the Constitu-

tion is concerned, the sovereign immunity of the states

extended no farther than the Eleventh Amendment, cf.

Petition at 11-12. The Brief does not deny that this prem-

ise has been discarded by the Court in its more recent

jurisprudence, cf. Petition at 14-20.

Thus much of the justification for granting the writ as

shown in the Petition stands unrebutted. As shown below,

the arguments Deutsche does advance are supported by

neither law nor logic.

1. Respondent Deutsche Bank Securities Inc.

(“Deutsche”) reiterates its assertion in the courts below

that this Court has “repeatedly acknowledged and relied

upon its holding in Hall.” Brief in Opposition at 11. The

“repeated acknowledgment and reliance,” according to

Deutsche, occurred in the two decisions MBOI distin-

guishes in the petition, Alden v. Maine, 527 U.S. 706

(1999) and Franchise Tax Board of California v. Hyatt, 538

U.S. 488 (2003), Petition at 16, 26, and in Illinois v.

McDonnell, 531 U.S. 819 (20003, in which Deutsche asserts

the Court denied certiorari in a case in which [Illinois

presented the same question presented here.

In its discussion of Alden, Deutsche knocks down a

straw man. MBOI never asserted that Alden overruled

Hall’s narrow sovereign immunity holding. MBOI argued

a different point — that Alden lays out a constitutional plan

regarding state sovereign immunity that is inconsistent with.

the one that provided the foundation for Hall. A case

stands as precedent for both its narrow holding and for the

underlying reasoning necessary to support it. Seminole

Tribe v. Florida, 517 U.S. 44, 67 (1996) (“When an opinion

issues for the Court, it is not only the result but also those

portions of the opinion necessary to that result by which

we are bound.”) MBOI has demonstrated that the reason-

ing underlying Hall, reasoning that was necessary to the

decision in that case, is fundamentally inconsistent with

the later cases, and Deutsche has failed to show otherwise.

Accordingly, Deutsche’s assertion that the Court “held

that there was no inherent conflict” between Alden and

Hall, Brief in Opposition at 13, proves nothing. Deutsche’s

quotation from Alden in the Brief in Opposition at 13

discloses this Court’s holding that the cases are distin-

guishable. Deutsche concedes this point in the Brief in

Opposition at 19 (“the issue raised in Alden was funda-

mentally different from the issue resolved in Hall.... ”),

in effect supporting MBOI’s argument that Alden cannot

be read as a reaffirmation of Hall. Cf. United States uv.

Neifert-White Co., 390 U.S. 228, 231 (1968) (“[Llanguage in

the Court’s opinion . . . cannot be taken as a decision upon

a point which the facts of the case did not present.”) The

same flaw undercuts Deutsche’s discussion of Federal

Maritime Commission v. South Carolina State Ports

Authority, 535 U.S. 743 (2002), Brief in Opposition at 20.

Deutsche’s treatment of Franchise Tax Board is even

more transparently incorrect. As pointed out in the Peti-

tion at 26, the Court expressly relied on Hall without reex-

amining its soundness because no party had requested the

Court to reconsider Hall. 538 U.S. at 497. It is fundamental

that this Court’s decisions stand as precedent only for

questions properly presented and actually decided. Legal

Services Corp. v. Velazquez, 531 U.S. 533, 557 (2001)

(“Judicial decisions do not stand as binding ‘precedent’ for

points that were not raised, not argued, and hence not

analyzed.”); United States v. Verdugo-Urquidez, 494 U.S.

259, 272 (1990) (“The Court often grants certiorari to

decide particular legal issues while assuming without

deciding the validity of antecedent propositions, ... and

such assumptions ... are not binding in future cases that

directly raise the questions.”)

For its asserted “repeated reaffirmation” argument

Deutsche is thus left to lean on the slenderest of reeds —

the suggestion that the denial of certiorari in McDonnell

should be considered precedent for Hall’s soundness. Brief

in Opposition at 15. The principle that a denial of certio-

rari carries no precedential weight is firmly established.

Teague v. Lane, 489 U.S. 288, 296 (1989), quoting United

States v. Carver, 260 U.S. 482, 490 (1923) (Holmes, J.)

(“[Djenial of a writ of certiorari imports no expression of

opinion upon the merits of the case.”) Deutsche’s reference

to McDonnell thus adds nothing to its argument.

2. Deutsche asserts that MBOI “is ill-suited” to

challenge Hall in this case because “it knew that it was

not immune from suit in New York when it projected itself

there to enter into this wholly commercial contract.” Brief

in Opposition at 9. Deutsche asserts that reconsideration

of Hall in this case would “alter the legal assumption

underlying the parties’ contractual relationship” and

would further “impair countless government contracts by

altering the venues and remedies available to various

parties with contracts to provide goods and services to the

States.” Jd. at 10.

The first problem with these arguments is that they

have no support in the record. Deutsche was awaré from

the outset of this litigation that MBOI asserted its sover-

eign immunity. It nevertheless included no information in

any of the affidavits it filed in the trial court to suggest the

extent to which the parties even considered the availabil-

ity of a New York venue in arriving at their contract.

' Given that Deutsche initiated and concluded the deal

within a matter of less than two hours without any signed

written contract, the suggestion that its conduct was

somehow premised on the ability to sue Montana in New

York is far-fetched.

As far as other contracting parties are concerned,

supporting evidence is similarly lacking. The Court can

take judicial notice that venue provisions are routinely

negotiated in commercial contracts. Since Deutsche

bargained for no such provision here, this case presents no

occasion to decide whether by agreeing to such a clause a

state waives any sovereign immunity it has.

This argument boils down to an assertion that Mon-

tana waived whatever immunity it might have by its

conduct in this case. The argument should be rejected

because it contravenes a fundamental rule in sovereign

immunity cases — that any waivers of state immunity

must be clearly expressed. See College Savings Bank v.

Florida Prepaid Postsecondary Expense Board, 527 U.S.

666, 683-84 (1999) (States may not be held to have con-

structively waived sovereign immunity by “conduct that

the State realistically could choose to abandon, that is

undertaken for profit, that is traditionally performed by

private citizens and corporations, and that otherwise

resembles the behavior of ‘market participants.’”) The

record here is devoid of evidence that could support a

finding that Montana clearly expressed an intention to

waive its immunity by entering into the contract at issue

in this case.

3. Deutsche argues that the Court should deny the

writ out of respect for principles of stare decisis.

a. It first characterizes this case as one involv-

ing “contract and property rights” and asserts that stare

decisis applies most strongly in the context of commercial

transactions because of the asserted reliance by States and

contracting parties on the Hall rule. Brief in Opposition at

17. Deutsche cites this Court’s decision in Hilton v. South

Carolina Public Railways Commission, 502 U.S. 197

(1991). In Hilton the Court refused to disturb one limited

aspect of its prior holding in Parden v. Terminal Railway

of Alabama Docks Dept., 377 U.S. 184 (1964), viz., that

Congress intended the Federal Employer Liability Act and

the Jones Act to create a state court cause of action by

injured workers against a state-owned railroad.

Hilton does not help Deutsche. The Court has shown

no reluctance to reconsider precedent in the sovereign

immunity context when the precedent is fundamentally

flawed, even in cases involving a plaintiff’s commercial

conduct. Subsequent to Hilton the Court overruled what-

ever remained of Parden in College Savings Bank, 527

U.S. at 680; see Alden, 527 U.S. at 732 (Parden’s holding

that Congress subjected states to suit under its Article I

powers overruled in College Savings Bank); see also

Seminole Tribe, 517 U.S. at 66, overruling Pennsylvania v.

Union Gas Co., 491 U.S. 1 (1989). In College Savings Bank,

the Court considered and rejected Deutsche’s argument that

States are somehow less sovereign for immunity purposes

when they engage in commercial or other activities that are

not core sovereign functions. 527 U.S. at 683-84 (“Since

sovereign immunity itself was not traditionally limited by

these factors, and since they have no bearing upon the

voluntariness of the waiver, there is no principled reason

why they should enter into our waiver analysis.”)

Moreover, the aspect of Parden reaffirmed in Hilton

was a matter of statutory interpretation, not a rule of

constitutional law. In statutory interpretation cases stare

decisis principles are at their strongest. Hilton, 502 U.S. at

202, quoting Patterson v. McLean Credit Union, 491 U.S.

164, 172-73 (1989) (“Considerations of stare decisis have

special force in the area of statutory interpretation, for

here, unlike in the context of constitutional interpretation,

the legislative power is implicated, and Congress remains

free to alter what we have done.”) The Hilton Court

observed that numerous state legislatures had exempted

railroad employees from coverage under state workers’

compensation acts, and that overruling this aspect of

Parden would leave state rail workers without a remedy

and require extensive legislative response from the states.

Id. at 202-03.

None of these considerations apply here. Hall’s sover-

eign immunity rule is a matter of constitutional law, not

statutory interpretation. Neither Congress nor the state

legislatures could reverse Hall, and the record contains

nothing to suggest that its overruling would upset any

important reliance interests

b. Deutsche disputes MBOI’s argument that

Hall has spawned significant litigation producing incon-

sistent results. First, Deutsche asserts that MBOI cannot

argue this point because it did not seek review of the lower

courts’ comity holding. Stare decisis analysis unquestiona-

bly has encompassed the inquiry as to whether the rule in

issue has proven difficult to apply. See, e.g., Nichols v.

United States, 511 U.S. 738, 746 (1994) (difficulty in

application of prior ruling “is itself reason for reexamining

fa] decision.”) Thus Deutsche cannot be heard to argue

that the inconsistent application of the Hall sovereign

immunity rule is not “fairly included” within the question

presented in the Petition. Sup. Ct. R. 14(a) (“The state-

ment of any question is deemed to comprise every subsidi-

ary question fairly included therein.”)

In advancing this argument Deutsche misleadingly

suggests that the amicus brief of the Commonwealth of

Virginia conceded that “the comity holding ... ‘respects

and preserves the sovereignty of the States in the consti-

tutional order.’” Brief in Opposition at 21 n. 6, quoting

Brief of the Commonwealth of Virginia et al. at 2 n. 1. In

fact, the amicus brief addressed that comment to a much

narrower portion of Hall, not implicated here, in which the

Court held that the Full Faith and Credit Clause did not

compel Nevada to apply California statutory law in the

litigation of Hall’s claim.

Deutsche next claims that the States in applying Hall

“have expressed a healthy regard for requests from sister

states while holding firm to their own public policies

regarding purely commercial transactions.” Brief in

Opposition at 21. First, the only cases Deutsche cites

regarding the application of the Hall rule to “purely

commercial transactions” are this one and the New York

Court of Appeals decision on which the court below relied.

Second, Deutsche does not dispute that state courts have

not consistently applied Hall’s comity rule with respect to

identifying the relevant state policy to be considered.

Deutsche in effect concedes that even the New York Court

of Appeals has failed in this regard, citing the court’s

decision in Crair v. Brookdale Hospital Medical Center, 94

N.Y. 2d 524, 728 N.E. 2d 974 (2000), in which the Court of

Appeals referred to New York’s limited waiver of sovereign

immunity as the appropriate state policy, in contrast with

this case in which the court ignored New York’s sovereign

immunity policy in favor of an ill-defined court-created

policy favoring the interests of New York financial mar-

kets. Finally, Deutsche asserts that no state has sought

further guidance from this Court as to the comity analysis,

ignoring the Court’s decision three years ago in Franchise

Tax Board, a case in which California sought precisely

such assistance.

Deutsche finally glides past the argument that Hall’s

comity analysis leaves states at each other’s mercy with

respect to the fairness of litigation procedures. In respond-

ing to MBOI’s argument that comity left the New York

courts free to treat MBOI unfairly, Deutsche falsely states

in footnote 7 of the Brief in Opposition that MBOI sought

no further discovery with respect to the summary judg-

ment motion. This is simply an untruth, as both the

majority and dissenting opinions below show. Deutsche

Bank Securities, Inc. v. Montana Board of Investments, 7

N.Y. 3d 65, 74, 850 N.E. 2d 1140 (2006) (holding that “the

Appellate Division did not abuse its discretion in rejecting

MBOI’s request for additional discovery”); id. at 75-77

(Read, J., dissenting) (Appellate Division erred in denying

request for further discovery). Deutsche’s description of

the process below as a “traditional summary judgment

process” rings hollow in light of the limitations on discov-

ery approved by the New York appellate courts, including

their refusal to permit any depositions.

9

But Deutsche misses the real point here. It is unre-

butted that the Hall comity rule lacks workable standards

to guide the discretion of courts in fifty states which have

already shown that they cannot arrive at a consistent

understanding of what the rule requires. Stare decisis

simply does not require reaffirmation of a rule that has

proven flawed in both theory and practice.

4. Deutsche’s argument in response to the amicus

brief of the Commonwealth of Virginia et al. regarding the

Halil Court’s treatment of The Schooner Exchange uv.

M’Faddon, 11 U.S. (7 Cranch) 116 (1812) fails to show

grounds to deny the writ. Virginia argues that the Hall

Court erred in its reliance on The Schooner Exchange

because it improperly analogized the Supreme Court's

recognition of the sovereign immunity of nations, which

must rely solely on comity since it is not commanded by

any higher enforceable law, with the recognition of state

sovereign immunity in a state court, which is always

subject to the commands of the Constitution and enforce-

able by review in this Court. See J. Rogers, Applying the

International Law of Sovereign Immunity to the States of

the Union, 1981 Duke L.J. 449, 465-67 (1981). Deutsche’s

response begs this question, assuming the correctness of

all other aspects of Hall and then asserting in effect ‘hat

the discussion of The Schooner Exchange in Hall is mere

makeweight. MBOI agrees with Virginia’s argument, but

even if Virginia is wrong the petition should be granted to

review Hall in light of its reliance on the now-discredited

proposition that state sovereign immunity lacks a consti-

tutional foundation.

5. Deutsche suggests that the Petition fails to state

grounds for the writ under Supreme Court Rule 10 because

MBOI “concedes” that the courts below were obligated to

a WP's Vie st mer rents meyer eS

10

follow Hall. Brief in Opposition at 8. If this argument

carried any force, the Court could never grant a petition

squarely seeking reconsideration of one of its prior prece-

dents. Rule 10 states that the “character of the reasons the

Court considers” includes the situation in which a lower

court “has decided an important question of federal law

that has not been, but should-be, settled by the this

Court.... ” Forty-two states and the Commonwealth of

Puerto Rico have joined Montana in asking this Court to

reconsider Hall. The question presented in the Petition —

whether Hall’s sovereign immunity holding should be

overruled — is precisely the kind of important unresolved

issue that merits review under the Rule 10 standard.

é

v

CONCLUSION

For the foregoing reasons and those expressed in the

Petition, Petitioner respectfully prays that the writ issue.

Respectfully submitted,

MIKE MCGRATH

Attorney General

CHRISTIAN D. TWEETEN

Chief Civil Counsel

Counsel of Record

P.O. Box 201401

Helena, MT 59620-1401

(406) 444-2026

Attorneys for Petitioner