Opposition Brief — California State Board of Equalization v. McDonnell Douglas Corp.

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Supreme Court, U.S.

F I LE D

JUN 11 1933

No. 92-1803 |

OEEICR Of Tie i ¥

In and for the Second Appellate District, Division One

a eeeecerearrens ne tone

IN THE |

Suprenve Court of the United States

OCTOBER TERM, 1992

STATE BOARD OF EQUALIZATION OF THE

STATE OF CALIFORNIA,

Petitioner,

McCDONNELL DOUGLAS CORPORATION,

Respondent.

Petition for Writ of Certiorari to the

Court of Appeal of the State of California

RESPONDENT’S BRIEF IN OPPOSITION

IRWIN GOLDBLOOM

Counsel of Record

ALBERT R. RODRIGUEZ

ROBERT D. CROCKETT

LATHAM & WATKINS

1001 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 637-2200

Counsel for Respondent

WILSON - Eras PRINTING Co.. INc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Do goods lose their protection as protected exports

under the Import-Export Clause of the United States Con-

stitution (art.-I, § 10, cl. 2), and thereby become subject

to a State’s sales tax, if the buyer detains the goods at

the international border in the State for less than 48 hours

to transfer the goods from U.S. to Mexican common —

carriers solely to accommodate U.S. and Mexican trans-

portation laws?

(i)

TABLE OF CONTENTS

Page

I EN go) iv

UI I RMN cc sens ecacncennctnencnsnscescesece 1

a cenidebuneibantntndinnsasunes 3

I. NO IMPORTANT QUESTION OF FEDERAL

a csenasiumauetabsaasecnononn 3

Il. THE CALIFORNIA INTERMEDIATE

COURT’S DECISION DOES NOT CONFLICT

WITH THIS COURT’S PRIOR DECISIONS... 5

CONCLUSION

(iii)

TABLE OF AUTHORITIES

CASES Page

A.G. Spalding & Bros. v. Edwards, 262 U.S. 66

RID acssstingackintnn Soccer earn... 6, 7,8

Brown v. Houston, 114 U.S. 622 (1885) 00. 7

Carson Petroleum Co. v. Vial, 279 U.S. 95 (1929).. 6

Coe v. Town of Errol, 116 U.S. 517 (1886) ............ 4,7,8

Connell Rice & Sugar Co. v. County of Yolo, 569

A RS RE eee ee 8

Department of Revenue of Washington v. Associa-

tion of Washington Stevedoring Cos., 435 U.S.

RE REE DRS en tn tec ees a 8

Empresa Siderurgica, S.A. v. County of Merced,

ee ea sckel pk cetiedhtca edehecieseien 4,7,8

Gough Industries, Inc. v. State Bd. of Equalization,

51 Cal. 2d 746, cert. denied, 359 U.S. 1011

EINE itchnacicdbeniahuss nautica ondaclacesoldcnihéscamntograathemecataiceel ci 8

Itel Containers International Corp. v. Huddleston,

BR ae: I I cs csca cn:ssecneeouncapsoreciancaenaionnennen 8

Joy Oil Co. v. State Tax Commission of Michigan,

RE I Ie IIE ohibctisscciivcstinacdicsncacenteckeciepanetebmaitaniics 7

Kosydar v. National Cash Register Co., 417 U.S.

Ds I ar 7

Louisiana Land & Exploration Co. v. Pilot Petro-

leum Corp., 900 F.2d 816, cert. denied, 498 U.S.

ie RR AEN AN ALL OR TL a OE 8

Michelin Tire Corp. v. Wages, 423 U.S. 276, reh.

denied, 424 U.S. 985 (1976) .................................. 9

Richfield Oil Corp. v. State Board of Equalization,

i I I ec coencceercerncncs 4,5,6,7,8

United States v. Johnston, 268 U.S. 220 (1925)... 4

OTHER AUTHORITIES

Ari ices UR ig re accccneetnamctanens 4

Tri Mies Ny hg Te IG ls I i vcenckcseecssceetemecescasnnnrcctccnece i

A: a aa eacaaencen 1

IN THE

Supreme Court of the United States

OcTOBER TERM, 1992

No. 92-1803

STATE BOARD OF EQUALIZATION OF THE

STATE OF CALIFORNIA,

™ Petitioner,

McDONNELL DOUGLAS CORPORATION,

Respondent.

Petition for Writ of Certiorari to the

Court of Appeal of the State of California

In and for the Second Appellate District, Division One

RESPONDENT’S BRIEF IN OPPOSITION

Respondent McDonnell Douglas Corporation (‘“MDC”’)?

respectfully requests that this Court deny the Petition for

Writ of Certiorari seeking review of the judgment and

opinion of the California Court of Appeal, Second Appel-

late District, after the California Supreme Court denied

review on February 11, 1993.

STATEMENT OF CASE?

Aeromexico, the Mexican national airline, operated

from Mexico City an international fleet of aircraft manu-

factured by MDC. (App. to Pet. for Cert. at B5, B6.)

1 Pursuant to Rule 29.1, MDC discloses Finnish American Inter-

national Trade, Inc. as its only corporate parent, subsidiary (other

than wholly-owned subsidiaries) or affiliate.

2 Pursuant to Rule 15 of this Court, Respondent states that it

does not agree with the Petitioner’s abbreviated Statement of

Case.

Aeromexico purchased aircraft parts from MDC to main-

tain and service its fleet only at Mexico City. From

Mexico City, Aeromexico placed orders with MDC for

the parts, showing Mexico City as the destination, and

stating that the parts were “FOR EXPORT TO MEX-

ICO.” (App. to Pet. for Cert. at B6.)

MDC delivered all the parts F.O.B. Long Beach, Cali-

fornia, to United States common carrier trucks. Title

passed to Aeromexico upon delivery to the common car-

riers. MDC and Aeromexico used surface trucks because

Aeromexico’s DC-9 aircraft were too small to handle the

parts. (/d.)

Due to prohibitions of U.S. and Mexican laws, ex-

porters using surface transport typically transfer goods

from U.S. common carriers to Mexican carriers on the

U.S. side of the border. This transfer occurs at “freight

forwarders.” (J/d.)

Aeromexico used AM MEX International as its freight

forwarder at the international border, San Ysidro, Cali-

fornia, to make the truck transfers to Mexican trucks.

Aeromexico used AM MEX’s expertise in U.S. and Mexi-

can customs regulations and fees. Aeromexico depended

on AM MEX’s relationship with both countries’ custom

officials. Aeromexico stationed employees at San Ysidro

to oversee the transfers. No person, neither freight for-

warder nor Aeromexico employee, inspected, repackaged,

or opened the packaged parts while at San Ysidro. The

parts spent less than 48 hours at San Ysidro during the

transfer operation. All parts had been previously pack-

aged and conditioned for export. Without exception,

every one of 8,000 shipments went to Mexico City. (App.

to Pet. for Cert. at B6, B7, B18, B19.)

Aeromexico had no use for the parts at San Ysidro.

(App. to Pet. for Cert. B19.) There was no likelihood

that the parts would be diverted. They were not diverted.

Aeromexico could not install the parts in California.

Aeromexico had no maintenance or landing facilities at

San Ysidro. (App. to Pet. for Cert. at B6, B19.)

On July 3, 1985, the Petitioner assessed a $639,889

deficiency of sales and use tax and interest on the delivery

of parts by MDC to Aeromexico. (App. to Pet. for Cert.

at B7.) MDC brought an action to recover taxes. A Cali-

fornia trial court rendered judgment against MDC on

July 29, 1991. (App. A to Pet. for Cert.) A California

Court of Appeal reversed, ordering judgment for MDC.

(App. to Pet. for Cert. at B20.) On February 11, 1993,

the California Supreme Court denied without comment

the Petitioner’s petition for review.

ARGUMENT

There is neither an important question of federal law

nor any conflict with prior decisions of this Court. With-

out comment, the California Supreme Court denied re-

view of the Petitioner’s State petition for review, un-

doubtedly because this Court’s prior decisions articulate

adequate guidance to state taxing authorities.

I. NO IMPORTANT QUESTION OF FEDERAL LAW

EXISTS

As the California Court of Appeal stated, “there was

no conflict in the evidence [and] the decisive facts are

undisputed.” (App. to Pet. for Cert. at B10.) The parties

also agreed as to the rule of law. (App. to Pet. for Cert.

at B12.) The California Court of Appeal was left only to

weigh and sift complicated but uncontroverted facts and

apply the uncontroverted law to the facts. “Applying

these principles to the facts before us; we conclude that

MDC’s Aeromexico parts sales were tax-exempt exports.”

(App. to Pet. for Cert. at B18.) The California Court of

Appeal looked at the contents of documents indicating

an intention to export, and examined the manner Aero-

mexico took title, the reasons for using freight forwarders,

the purpose for the border delay, the likelihood of diver-

sion, Aeromexico’s lack of alternative uses at the border.

and other facts. (App. to Pet. for Cert. at B18-19.)

Regarding the rule of law, the parties “correctly agree”

that

“goods do not cease to be part of the general mass

of property in the state, subject, as such, to its juris-

diction, and to taxation in the usual way, until they

have been shipped, or entered with a common carrier

for transportation to another state, or have been

started upon such transportation in a continuous

route or journey.”

(App. to Pet. for Cert. at B12, citing Coe v. Town of

Errol, 116 U.S. 517, 527 (1886) (Commerce Clause

decision *).)

“Under that test, it is not enough that there is an

intent to export, or a plan which contemplates expor-

tation or an integrated series of events which will end

with it... . The tax immunity runs to the process of

exportation and the transactions and documents em-

braced in it... . It is the entrance of the articles into

the export stream that marks the start of the process of

- exportation. Then there is certainty that the goods

are headed for their foreign destination and will not

be diverted to domestic use.”

(App. to Pet. for Cert. at B13, citing Empresa Siderur-

gica, S.A. v. County of Merced, 337 U.S. 154, 157

(1949).)

The law is neither unsettled nor in conflict. The Peti-

tioner lost nearly identical issues of fact and law before

this Court in Richfield Oil Corp. v. State Board of Equali-

zation, 329 U.S. 69 (1946), which invalidated a Cali-

fornia sales tax upon oil briefly detained at the California

border. The Petitioner now hopes to reargue its loss

almost fifty years later. There is no reason to overrule

Richfield, and this Court previously has stated that “[wl]e

do not grant a certiorari to review evidence and discuss

specific facts.” United States v. Johnston, 268 U.S. 220,

227 (1925). Where, as here, the facts and law are not

3“(T)}he meaning of ‘export’ is the same under’ the Commerce

Clause and the Import-Export Clause. Empresa Siderurgica, S.A.

v. County of Merced, 227 U.S. 154, 156 n.2 (1949). The Commerce

Clause is article I, section 9, clause 5 of the United States Constitu-

tion: “No tax or duty shall be laid on articles exported from any

State.”

in dispute, no federal interest would compel this Court to

apply complicated facts to determine a result different

from the California Court of Appeal’s decision.

II. THE CALIFORNIA INTERMEDIATE COURT’S

DECISION DOES NOT CONFLICT WITH THIS

COURT’S PRIOR DECISIONS

The Petitioner would have this Court believe that

a taxpayer automatically loses constitutional protection

against levies on exports if goods are interrupted or de-

tained within the State where the export begins its physi-

cal movement: “No cited case holds that a solely intra-

State movement of goods provides constitutional immunity

from taxation.” (Pet. for Cert. at 9.) The Petitioner, how-

ever, does not account for this Court’s Import-Export

Clause decisions examining brief intrastate interruptions.

Regarding goods which have physically moved inside

a State along their foreign journey, several decisions have

held levies to be unconstitutional despite a brief inter-

ruption in the journey within the State of export. As

mentioned previously, this Court has invalidated Cali-

fornia’s application of a sales tax to exports detained at

. the international border. In Richfield Oil Corp. v. State

‘ Board of Equalization, 329 U.S. 69 (1946), this Court

held unconstitutional California’s attempt to levy upon

oil the taxpayer sold to the New Zealand government.

The taxpayer pumped the oil first to harbor storage

tanks, where it was delivered F.O.B. Los Angeles to a

New Zealand naval vessel harbored within California

waters. Id. at 71, 83. This Court held that the test for

application of constitutional protection is “whether the

‘export had begun’”’ at the time the tax accrued. 7d. at

81. Notwithstanding the interruption at the California

border, this Court lo6oked at the “certainty that the

process of exporation has started,” id. at 82-83, and de-

termined that the fact the goods “‘have been delivered to

a common carrier” for the purpose of export is “best”

evidence of export. Jd. Even though the purchaser took

delivery of the oil in California, “there was nothing equiv-

ocal in the transaction which created even a probability

that the oil would be diverted to domestic use.” /d. at 83.

In A.G. Spalding & Bros. v. Edwards, 262 U.S. 66

(1923), a domestic corporation delivered baseball bats

to a New York exporter, which transferred them to an

off-shore carrier. The exporter processed the receipt and

bill of lading and gave directions for packaging. The In-

ternal Revenue Service imposed a war revenue tax on

Spalding, arguing that the transfer from Spalding to the

exporter gave rise to a taxable sale. This Court held the

tax unconstitutional, declaring that the test was whether

“the export [of the goods] must be said to begin.” 7d.

at 69.

The taxing authority in Spalding argued that interrup-

tion in New York could have permitted the exporter to

divert the goods. This Court rejected the argument of

the prospect of diversion:

“There was not the slightest probability of any such

change and it did not occur. The purchase by [the

exporter] was solely for the purpose of the [for-

eign purchaser] and for their account and risk.

Theoretical possibilities may be left out of account.

. . . The overt act of delivering the goods to the

carrier marks the point of distinction. . . .”

Id. at 70 (emphasis added).

In Carson Petroleum Co. v. Vial, 279 U.S. 95 (1929)

(a review of both the Import-Export Clause and the

Commerce Clause), this Court held unconstitutional a

tax upon oil detained in tanks awaiting off-loading to

ocean-going tankers bound for foreign ports. The Court

noted as evidence of the export the lack of any local

market for the oil at the jumping-off point. Jd. at 109.

Similarly, Aeromexico took delivery in California by

a common carrier committed to the export process; there

was Richfield’s “certainty” about the exports. Every single

shipment crossed the border and arrived in Mexico City.

The parts were neither stored nor processed in San

Ysidro. The San Ysidro delay was incident to export,

and to nothing else. The parts served no purpose for

Aeromexico in San Ysidro; they were there only to be

transferred from truck to truck in the course of their trip

to Mexico City. There was no prospect for diversion.

The parts had started their journey at the edge of MDC’s

plant in Long Beach, and nothing diverted or intercepted

them.*

The Petitioner’s cited authorities, which uphold levies,

merely apply the uncontroverted rule of law to facts

different than MDC’s. The Petitioner’s cited cases involve

lengthy delays at the border or delays for purposes other

than export. See Kosydar v. National Cash Register Co.,

417 U.S. 62, 63-64, 69 (1974) (‘machines relevant to

this case were in storage in the Dayton warehouse, await-

ing shipment;” “[t]itle and possession were in [the tax-

payer|;” “there simply had been no movement of the

goods—-no shipment, and no commencement of the proc-

ess of exportation”); Empresa Siderugica, S.A. v. County

of Merced, 337 U.S. 154, 157 (1949) (cement plant

awaiting disassembly for foreign transport; “[o]n the tax

date the movement to foreign shores had neither started

nor been committed”); Joy Oil Co. v. State Tax Com-

mission of Michigan, 337 U.S. 286, 289 (1949) (“fif-

teen-month delay at Dearborn barred immunity of peti-

tioner’s gasoline’); Coe v. Town of Errol, 116 U.S. 517

(1886) (logs at border awaited identification of buyer;

shipment was indefinite); Brown v. Houston, 114 USS.

622, 629, 632-33 (1885) (‘The complainants were not

*The Petitioner makes a secondary argument that unless a

“legal obligation” exists to compel export, the goods have not

entered the export stream. The Petitioner ignores the invoices

and a purchase agreement which obligated MDC to export the parts

to Mexico. No reported decision makes “legal obligation” the sine

qua non of “certainty”. Similar arguments were rejected in Spald-

ing, 262 U.S., at 70, and Richfield, 329 U.S., at 80-83 (extensive

analysis of the “certainty” requirement).

exporters; they did not hold the coal at New Orleans

for exportation, but for sale there.’’).

The California Court of Appeal correctly analyzed the

facts of this Court’s prior decisions, and held the goods

protected from levy:

“The goods were delivered into the export stream

and never diverted or delayed, other than for the

border transfer without which they could not have

completed their journey. ... As in... Richfield,

and Spalding, and unlike in Empresa and Coe, Aero-

_ mexico’s clear plan to ship the parts to Mexico City

for its Own use was acted upon and continued unin-

terrupted to completion other than for unavoidable

delays incidental to their journey.”

(App. to Pet. for Cert. at B18-19.)°

The Petitioner’s citation of I/tel Containers Interna-

tional Corp. v. Huddleston, 113 S. Ct. 1095 (1993), is

inapposite as a matter of law. J/tel upheld a “taxation

fall[ing] upon a service distinct from . . . goods and their

value.” 7d. at 1106. As /tel stated: ‘‘[T]he tax here is not

a tax on importation or imported goods, but a tax on a

business transaction occurring within the taxing State... .

[I]t is not levied on the containers themselves or on the

goods being imported in those containers.” /d. As the

California Court of Appeal observed below, citing /tel’s

progenitors, Department of Revenue of Washington v.

Association of Washington Stevedoring Cos., 435 US.

734, 758 (1978) (the Court “permitted taxation of in-

5 There is no conflict in the Circuits or in the States. See Louwisi-

ana Land & Exploration Co. v. Pilot Petroleum Corp., 900 F.2d 816,

821 (5th Cir.), cert. denied, 498 U.S. 897 (1990) (exempt: jet fuel

pumped to foreign tanker in State waters) ; Connell Rice & Sugar

Co. v. County of Yolo, 569 F.2d 514, 518 (9th Cir. 1978) (not

exempt: rice stored and accumulated for inspection at harbor ele-

vators) ; and Gough Industries, Inc. v. State Bd. of Equalization,

51 Cal. 2d 746, 749, cert. denied, 359 U.S. 1011 (1959) (exempt:

electrical parts detained at a freight packer awaiting transfer).

URN

come from services connected to_both imports and ex-

ports”), and Michelin Tire Corp. v. Wages, 423 U.S. 276,

302, reh. denied, 424 U.S. 935 (1976) (‘‘Petitioner’s

tires . . . were no longer in transit. They were stored in

a distribution warehouse from which petitioner conducted

a wholesale operation. . . .”), the “export exemption

still applies to goods in the ‘export stream.’” (App. to

Pet. for Cert. at B13, n.4.) No component of services ex-

isted in MDC’s sales of aircraft parts to Aeromexico.

CONCLUSION

The mere fact that the Aeromexico parts were delayed

for less than 48 hours at San Ysidro, California for the

sole purpose of transport to Mexican trucks does not

defeat constitutional protection. The facts, and the deci-

sion of the California intermediate court, are consistent

with prior decisions of this Court. There is no reason to

grant the Petition. Respondent respectfully requests that

the Petition for a Writ of Certiorari be denied.

Respectfully submitted,