Reply Brief — International Business Machines Corp. v. United States

No. 00-482 OFFICE OF THE CLERK

IN THE

Supreme Court of the United States

INTERNATIONAL BUSINESS MACHINES CORP.,

Petitioner,

Vv.

UNITED STATES OF AMERICA,

Respondent.

On Petition For A Writ Of Certiorari To The

United States Court Of Appeals

For The Federal Circuit

REPLY BRIEF FOR THE PETITIONER

SUSAN G. BRADEN

Counsel of Record

WILLIAM D. OUTMAN, Il

KEVIN M. O’BRIEN

TERESA A. GLEASON

MICHAEL E. MURPHY

Baker & McKenzie

815 Connecticut Avenue, N.W.

Washington, D.C. 20006

(202) 452-7075

Counsel for Petitioner

Balmar Legal Publishing Services, Washington, DC (202) 682-9829

i

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES....... ii

REPLY ARGUMENT. aaiicoiaidaaes

ii

TABLE OF AUTHORITIES

CASES: Page

American Nat’l Bank & Trust Co. of Chicago v. Haroco,

Bae, SS Chas Be CF) ersceereensescecnntntaeeemelibcaninaanstsaainan 7

Christianson v. Colt Indus. Operating Corp., 486 U.S.

BE CONE sk inh ss cssasigiicine tacddateedangniaseencatmaidanhpebiemebmmeamadaiaaaas 2

First English Evangelical Lutheran Church of

Glendale v. County of Los Angeles, 482 U.S. 304

CROC CP sssicssrsnsnisierarisisibicbe eatisieiseitiseaniahbaaniisaasaaanaua ania 7

Granfinanciera, S.A. v. Norberg, 492 U.S. 33 (1989)............ 7

International Business Machines Corp. v. United States,

— BRA Sb SGT COG. Cie, FID) accscnsinecesssnsincscritaysnsnsis passim

Library of Congress v. Shaw, 478 U.S. 310 (1986)....... passim

Lucas v. South Carolina Coastal Council, 505 U.S. 1003

CRIED sinaicsioscsninienisticcnutervoiaiicanisassndahieneaadcialidiaaaliimumnan tai 7

Marbury v. Madison, 5 U.S. 137 (1803)...........::cccessseeeseeeeees 7

Mazer v. Stein, 347 U.S. 201 (1954).............csccccsssssescsseseceeenes 7

McGoldrick v. Compagnie Generale Transatlantique,

309 U.S. 430 (1940)........ & ssaisasenndbeseieicanlilaiibaabiaaidalamaadia taka 7

Smyth v. United States, 302 U.S. 329 (1937)..........cesceeeeeeeeeees 6

Stone v. Powell, 428 U.S. 465 (1976) .sssesessssssssesssssssssseeeneses 7

United States v. Louisiana, 446 U.S. 253 (1980).................... 6

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

CRIED innsnnsvieviedcibiespnmickianesieganieljoeiisiiiianiaiemeesenaninialien passim

STATUTORY PROVISIONS:

USC 0 401-O a passim

BO USL. F PISA seiisinsomsvinecinaniain scshccbcaslinagaagtcalnaaiia 3

eB Lincecca, te mt ERE a CTE 3

en get eg, | OE NERE Sie REET passim

CONGRESSIONAL REPORTS:

Annual Report To Congress On The | Status Of The

Harbor Maintenance Trust Fund For Fiscal Year 1998

(Dec. 1999) (Selected Portions) .0.........-ccccccsssssssoseececeeeee. 3,4

OTHER AUTHORITIES:

Charles Alan Wright, Law of Federal Courts (5* ed.

ee innconnuidaesksincesvtbadanchdsssuactacoepecteiee Ms tek keg coca 4,5

Charles Alan Wright, Arthur R. Miller & Edwin A.

Cooper, Federal Practice and Procedure (1981) and

i i 2

Restatement (Second) of Judgments (1982)..0.........cccccccccoceeess 5

eee Sn 5

No. 00-482

IN THE

Supreme Court of the United States

INTERNATIONAL BUSINESS MACHINES CORP.,

Petitioner,

Vv.

UNITED STATES OF AMERICA,

Respondent.

On Petition For A Writ Of Certiorari To The

United States Court Of Appeals

For The Federal Circuit

REPLY BRIEF FOR THE PETITIONER

The Government responds to the statutory component of

the first question presented,’ by arguing that petitioner is not

entitled to receive interest under 28 U.S.C. § 2411 because

that statute does not “directly and unambiguously provide for

an award of interest for customs assessments.” Brief In

Opposition (“Br. In Opp.”) at 5. This Court, however,

directly, unambiguously, and unanimously determined in

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

(1998) that the Harbor Maintenance Tax, 26 U.S.C. §§ 4461-

4462 (““HMT’”), was not a “customs assessment,” but a “tax

The first question presented has three components: Whether the

court of appeals misconstrued 26 U.S.C. § 4462(f)(3) in light of the

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

(1998), the preclusive effect of the final judgment entered thereunder, and

the “constitutional requirements” exception to the “no-interest” rule noted

in Library of Congress v. Shaw, 478 U.S. 310 (1986).

as ynmn npn engees 4?

2

on exports in operation as well as nomenclature ... despite

the label Congress has put on it[.]” Jd. at 367 (emphasis

added). And, that tax was held to be unconstitutional. Jd. at

370. Since 28 U.S.C. § 2411 requires that federal courts

award interest on fax refunds and complies with the

restrictions of 26 U.S.C. § 4462(f)(3), the United States Court

of International Trade (“CIT’’) entered an order implementing

this Court’s decision in United States Shoe Corp. by awarding

petitioner both a refund of the monies paid under the HMT on

exports and interest on those payments. App. 35a.

By failing to accord deference to this Court’s prior ruling

that the HMT on exports was a tax, the United States Court of

Appeals for the Federal Circuit (“Federal Circuit”) ignored

long established rules “developed to maintain consistency and

avoid reconsideration of matters once decided during the

course of a single continuing lawsuit.” Charles Alan Wright,

Arthur R. Miller & Edwin A. Cooper, Federal Practice and

Procedure § 4478 (1981); Christianson v. Colt Indus.

Operating Corp., 486 U.S. 800, 815 (1988) (citations omitted)

(The law-of-the-case doctrine is a “rule of law, that [a]

decision should continue to govern the same issues in

subsequent stages in the same case.” This rule of practice

* As a matter of law, the instant case is a continuation of the same

action previously before this Court in United States Shoe Corp. After this

Court issued its March 31, 1998 decision, the CIT was advised that the

plaintiff in United States Shoe Corp. was not in a position to litigate its

claim for the payment of interest on the HMT export refunds required as a

result of the Court’s decision in United States Shoe Corp. The CIT then

entered a judgment on June 17, 1998 with the consent of all parties,

wherein the record and all prior orders in United States Shoe Corp. were

“deemed filed” in International Business Machines Corp. v. United States.

App. 35a. This judgment also awarded petitioner a refund of the HMT

paid on exports together with interest pursuant to 28 U.S.C. § 2411.

The Government correctly notes that the CIT also entered a similar

judgment on June 26, 1998 in United States Shoe Corp. (Supp. App. 58a),

from which the Government filed a notice of appeal in the Federal Circuit

on August 7, 1998. Br. In. Opp. at 3, note 1. United States Shoe, however,

filed a motion in the Federal Circuit to stay any further briefing until the

3

promotes the finality and efficiency of the judicial process by

‘protecting against the agitation of settled issues.’”’).

_ The Court’s decision in United States Shoe Corp. settled

that the HMT is a tax and because that tax is a tax on exports,

it is unconstitutional, which necessarily required the CIT to

remedy the constitutional harm imposed making petitioner

whole by refunding the monies paid pursuant to the HMT on

exports and interest earned on those monies. A federal court

has no discretion under 28 U.S.C. § 2411 concerning the

award of interest. (“{I]nterest shall be allowed.”) App. 43a.

(emphasis added). Moreover, since 28 U.S.C. § 2411 is

outside the scope of Subtitle F and does not in any respect

regulate “the administration and enforcement of internal

revenue taxes” the CIT’s award of interest under 28 U.S.C. §

proceedings in the instant case were concluded, which was granted. Supp.

App. 61a. For the convenience of the Court, both of these orders are

reprinted in a supplemental appendix following the text of this brief.

Petitioner assumes that the Government raised the technical pendency

of its appeal in United States Shoe Corp. to suggest that docket has vitality

in the Federal Circuit. The principles of finality and repose that should

have been raised to bar the Government from appealing the CIT’s 1995

judgment and preclude the Federal Circuit from asserting jurisdiction over

the Government’s appeal of the CIT’s award of interest will bar the

Government if it attempts to continue to pursue that appeal.

* The Government does not dispute that over 7,000 taxpayers will be

affected by the disposition of this case where millions of dollars are at

stake because the Government violated the Constitution and seeks to

benefit financially from its offense. Presumably those taxpapyers are to

take solace in being advised that “The money placed in the [HMT] Fund,

and interest earned on those monies, may be withdrawn only by

appropriation for specified purposes.” Brief In Opp. at 7 note 3 citing 26

U.S.C. § 9505(b), (c). 26 U.S.C. § 9505(b), however, speaks only to

“amounts equivalent to the taxes received” not interest earned thereunder

and 26 U.S.C. § 9505(c) speaks only to “amounts available . . . for making

expenditures.” Therefore, no apparent appropriations constraints are

contained in 26 U.S.C. § 9505(b), and under 26 U.S.C. § 9505(c), it is far

from clear that interest earned on monies paid into the HMT Fund have

been “withdrawn only by appropriations for specified purposes,” since the

most recent Annual Report to Congress on the Status of the HMT Fund

States: “the . . . (interest actually collected) is available for transfer from

Pr ee

4

2411 did not contravene 26 U.S.C. § 4462(f)(3) as the Federal

Circuit erroneously held.

The Government also argues that the Court should not

grant a writ regarding the jurisdictional component of the first

question presented. The Government contends that petitioner

is barred from asserting the preclusive effect of the CIT’s

December 4, 1995 final judgment because petitioner did not

raise this issue in the most recent Federal Circuit proceedings.

Br. In. Opp. at 7-9. Petitioner does not deny that it did not

raise this issue. Nor does petitioner deny that all parties

stipulated in the CIT that the instant action should be

designated as a “test case” to allow the Government the

opportunity to appeal the CIT’s award of interest under 28

U.S.C. § 2411. Pet. 35a.

As a matter of law, however, the preclusive effect of a

final judgment is a threshold question concerning the

jurisdiction of a federal court, which may not be governed by

stipulation of the parties nor waived by a court. See Charles

Alan Wright, Law of Federal Courts, 28 (5" ed. 1994) (“[{T]he

parties cannot confer on a federal court jurisdiction that has

not been vested in the court by the Constitution and Congress.

The parties cannot waive lack of jurisdiction. ... The court,

whether trial or appellate, is obligated to notice want of

jurisdiction on its own motion, and it may well happen that

the party who has invoked the jurisdiction of the federal court

will challenge the jurisdiction . . . at a late stage of the

proceedings after it has lost on the merits.”) (citations

omitted) (emphasis added). To be sure, petitioner has raised

this issue belatedly, but it has appropriately requested that the

Court grant certiorari to permit briefing on this determinative

the fund and is reported by the Treasury Department to the Office of

Management and Budget.” App. 55a (parenthetical in original).

App. 55a, is also the correct appendix reference for the last paragraph

of page 13 of the Petition, rather than 60a, which was a typographical

error.

* Supra note 1.

5

issue. See Sup. Ct. R. 10(a) (certiorari may be granted where

a “United States court of appeals has decided an important

federal question in a way that . . . has so far departed from the

accepted and usual course of judicial proceedings . . . as to

call for an exercise of this Court’s supervisory powers.”).

It is well established that the preclusive effect of a final

judgment includes all claims that were, or could have been,

raised by an appellant. See Charles Alan Wright, Law of

Federal Courts, 562 (5" ed. 1994) (citing Restatement

(Second) of Judgments §§ 22-26 (1982)) (“claim preclusion . . .

requires all grounds upon which a single claim is based to be

asserted and included in one action, on pain of being barred

from separate suit.’”) (emphasis added). Therefore, petitioner

suggests that the Court grant the petition either to remand this

issue for briefing and consideration by the Federal Circuit or

to consider the merits. If the requisite elements of res

judicata are met, the Court has no alternative but to vacate the

decision in International Business Machines Corp. v. United

States, 201 F.3d 1367 (Fed. Cir. 2000).

The Government’s opposition to the constitutional

component of the first question and the second’ and third

questions’ presented by the petition arise because the Federal

Circuit justified embarking on a de novo review of the HMT

by invoking the doctrine of sovereign immunity, revisited by

the Court in Library of Congress v. Shaw, 478 U.S. 310

(1986). See International Business Machines Corp., 201 F.3d

b]

The second question presented by the petition is: Whether in

holding the Harbor Maintenance Tax on exports unconstitutional in United

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

recognized that a taking of private property also occurred for which “just

compensation” is required by the Fifth Amendment.

6

The third question presented by the petition is: Whether the

Government’s retention of interest earned on monies collected under the

unconstitutional Harbor Maintenance Tax on exports is a taking of private

Property for which “just compensation” is required by the Fifth

Amendment.

CC

6

at 1372. (“{[W]e are bound by the [“no-interest”] rule [of

Shaw] that the United States is liable for interest only if

Congress has waived sovereign immunity by expressly

consenting to an award of interest.”). Because the Federal

Circuit determined that the doctrine of sovereign immunity

precludes the award of interest on HMT refunds, petitioner’s

Takings Clause claim is now ripe for adjudication. That

doctrine, however, is not applicable where the Takings Clause

has been violated:

Apart from constitutional requirements, in the

absence of specific provision by contract or statute,

or “express consent . . . by Congress,” interest does

not run on a claim against the United States. United

States v. Louisiana, 446 U.S. 253, 264-265 (1980),

quoting Smyth v. United States, 302 U.S. 329, 353

(1937).

Shaw, 478 U.S. at 317 (emphasis added).

Contrary to the Government’s claim, petitioner-appellee

was not compelled to assert constitutional claims defensively

to support the judgment of the CIT. In fact, there was no

reason for petitioner-appellee to raise prematurely

constitutional questions that the CIT had not yet adjudicated.

App. 35a. Indeed, until the Federal Circuit embraced the

doctrine of sovereign immunity to bar the award of interest it

would have been improper for the CIT to consider these

constitutional questions. Moreover, the Federal Circuit's

reliance on Shaw to bar the payment of interest under the

doctrine of sovereign immunity before petitioner's Takings

Clause claim was adjudicated is erroneous as a matter of law

and an abuse of discretion. The Federal Circuit was aware,

not only from the pleadings in the CIT, but from the i

Government’s brief (Br. In Opp. at 3) and rehearing briefs of

petitioner and amici that petitioner’s Takings Clause claim

was still pending at the CIT. Nevertheless, the Federal Circuit

continued to maintain that Shaw allows the Government -to

retain interest earned on monies secured by violating the

United States Constitution. Petitioner is aware of no authority

- —

* =.

7

that condones such greviously offensive conduct. Marbury v.

Madison, 5 U.S. 137, 165 (1803) (stating whether a

sovereign’s action is immune “must always depend on the

nature of that act.”’).

Therefore, it is not surprising that not even one of the

cases cited by the Government precludes this Court’s plenary

review of constitutional questions raised and preserved in the

trial court and for which certiorari properly has been

requested.’ On other occasions, where the Court has been

presented with a record where a constitutional claim was

raised and preserved at trial, as is the case here, either it has

granted the petition for a writ of certiorari and resolved the

question, particularly where the law is unsettled, see, e.g.,

Lucas v. South Carolina Coastal Council, 505 U.S. 1003,

1012 n. 3 (1992) citing First English Evangelical Lutheran

Church of Glendale v. County of Los Angeles, 482 U.S. 304,

312-313 (1987) (certiorari granted where Takings Clause

claims were at issue), or remanded to the lower courts for

further consideration of the constitutional question, without

prejudice to further review by the Court. See, eg.,

McGoldrick, 309 U.S. at 435 (“Upon the remand . . . courts

will be free to decide any Federal question remaining

7

Every case cited by the Government stands only for the principle

that new issues may not be raised beyond the scope of the questions

granted by a petition for certiorari. See Br. In Opp. at 9-10 citing

Granfinanciera, S.A. v. Norberg, 492 U.S. 33, 38-39 (1989) (having

granted certiorari the Court declined to address argument “respondent

failed to raise . . . because the question it poses has not been adequately

brief and argued”); Stone v. Powell, 428 U.S. 465, 481 n.15 (1976)

(declining to address “issue of the substantive scope of the writ [when it]

was not presented in the petition for certiorari”); McGoldrick v.

Compagnie Generale Transatlantique, 309 U.S. 430, 434-35 (1940)

(record did not disclose whether respondents’ arguments were presented);

American Nat'l Bank & Trust Co. of Chicago v. Haroco, Inc., 473 U.S.

606, 608-607 (1985) (having granted certiorari the Court declined to

address a new question not presented in the petition); Mazer v. Stein, 347

U.S. 201, 206 n.5 (1954) (“We do not reach for constitutional questions

not raised by the parties. ... The fact that the issue was mentioned in

argument does not bring the question properly before us.”’).

8

undecided here which, in conformity with their own

procedure, may be raised for decision there, and the remand

will be without prejudice to the further presentation of any

such question to this Court.”) (emphasis added).

Accordingly, the Court should grant the petition to

consider all three of the questions presented. Regarding the

first question presented, if the Court agrees that the

jurisdictional issue raised concerning the preclusive effect of

the CIT’s 1995 final judgment requires adjudication, it may

remand that issue to the Federal Circuit or reach the merits

and reverse summarily or vacate that court’s decision. In the

alternative, if the Court grants the petition and determines that

its ruling in United States Shoe Corp. that the HMT on

exports is a tax necessarily requires the payment of interest

under 28 U.S.C. § 2411, then the Court should reverse the

decision of the Federal Circuit. On the other hand, if the

Court grants the petition and decides that the Federal Circuit’s

statutory interpretation was correct, then petitioner’s Takings

Clause claim is ripe for adjudication, either by this Court or

the CIT, before it can be determined whether or not the

doctrine of sovereign immunity applies.

If the Court decides to consider and adjudicate the

second question concerning petitioner’s Takings Clause

claim, no further lower court proceedings will be required.

The Government’s sole objection to this question is that it was

not presented first to the Federal Circuit. Br. In Opp. at 7.

Since this question asks the Court to clarify whether its

decision in United States Shoe Corp., 523 U.S. at 369 also

determined that the Takings Clause was violated, it properly

is addressed to this Court so that it may clarify the scope of a

prior judgment.

Finally, if the Court decides to remand initial

consideration of petitioner’s Takings Clause claim to the CIT,

the third question asks the Court to further clarify how the

analysis of a per se taking and a regulatory taking should be

conducted, so that additional appellate litigation about the

appropriate standard of review is not required.

9

The Court should grant the petition for a writ of

certiorari to consider the merits of ail three questions

presented.

Respectfully submitted,

SUSAN G. BRADEN

Counsel of Record

WILLIAM D. OUTMAN, Ii

KEVIN M. O’BRIEN

TERESA A. GLEASON

MICHAEL E. MURPHY

Baker & McKenzie

815 Connecticut Avenue, N.W.

Washington, D.C. 20006

(202) 452-7075

Counsel for Petitioner

Dated: December 15, 2000

Washington, D.C.

58a

UNITED STATES COURT OF INTERNATIONAL

TRADE

JANE A. RESTANI, JUDGE

UNITED STATES SHOE CORPORATION,

Plaintiff,

v.

THE UNITED STATES,

Defendant.

JUDGMENT

Upon consideration of Plaintiff's Motion for an Order

Settling Interest and Costs, defendant’s response thereto, and

all other proceedings had herein; and

WHEREAS, a three-judge panel of this Court entered a

judgment for plaintiff on December 4, 1995, declaring the

Harbor Maintenance Tax as imposed upon merchandise

exported from the United States to be unconstitutional,

enjoining the United States Customs Service from the

assessment and collection of the Harbor Maintenance Tax in

connection with merchandise exported from the United States,

and awarding plaintiff a money judgment in the amount of

$8,281.87, together with interest and costs as provided by

law; and

WHEREAS this Court determined in Slip Op. 96-32

(February 7, 1996) that plaintiff is entitled to interest on the

money judgment awarded in this case, pursuant to 28 U.S.C.

§ 2411; and

WHEREAS at the time the Court issued Slip Op. 96-32,

the Government already had noticed an appeal of this case on

February 1, 1996, and Slip Op. 96-32 specifically notes that

59a

“notice of appeal has been filed and the court lacks

jurisdiction to alter the judgment;” and

WHEREAS the December 4, 1995 judgment of the

Court in this case was affirmed by the United States Court of

Appeals for the Federal Circuit on June 3, 1997, in United

States Shoe Corp. v. United States, 114 F.3d 1564 (Fed. Cir.

1997); and

WHEREAS the decision of the United States Court of

Appeals for the Federal Circuit in United States Shoe Corp. v.

United States was affirmed by the Supreme Court of the

United States on March 31, 1998, in United States v. United

States Shoe Corp., 140 L. Ed. 2d 453, 118 S. Ct. 1290 (1988),

which decision is now final; and

WHEREAS the stay of execution of the money judgment

awarded to plaintiff and the effect of the declaratory and

injunctive relief, ordered by the Court on December 4, 1995,

by its terms automatically dissolved upon “the conclusion of

any appellate proceedings”; and

WHEREAS defendant expressly reserves any right

remaining to appeal the award of interest or any costs in this

case;

WHEREAS, the court has previously determined that

costs shall be awarded as provided by law, the court has

discretion to award costs, and plaintiff pursued diligently this

test case of minor principal value; it is hereby

(1) ORDERED that further briefing is not required and

Slip Op. 96-32 is hereby readopted as the opinion of the court

on the issue of interest.

(2) ORDERED that defendant pay plaintiff the

principal amount owing of $8,281.87 within 60 days hereof;

(3) ORDERED that defendant pay plaintiff $403.63 in

costs within 60 days hereof;

(4) ORDERED that defendant pay plaintiff interest on

the aforementioned $8,821.87 principal, calculated under 28

60a

U.S.C. § 2411, and that the payment obligation is stayed until

30 days after the time for appeal expires or appellate

proceedings are complete.

\

/s/

Jane A. Restani

JUDGE

Dated: New York, New York

This 26th day of June, 1998.

6la

UNITED STATES COURT OF APPEALS FOR THE

FEDERAL CIRCUIT

98-1574

UNITED STATES SHOE CORPORATION

Plaintiff-Appellee,

V.

UNITED STATES,

Defendant-Appellant.

98-1590

INTERNATIONAL BUSINESS MACHINES CORP.,

Plaintiff-Appellee,

Vv.

UNITED STATES,

Defendant-Appellant.

- ON MOTION

Before BRYSON, Circuit Judge.

RDER

United States Shoe Corporation moves to stay the

briefing schedule in appeal no. 98-1574 “until 30 days after

the conclusion of all appellate proceedings in International

Business Machines Corp. v. United States, Appeal No.

98-1590 before this Court and any higher Court.” US Shoe

states that the United States does not oppose.

62a

US Shoe states that the Court of International Trade

chose the IBM case as the “test case” to resolve the

government’s liability for interest on refunds of Harbor

Maintenance Tax payments. US Shoe states that the Court of

International Trade also entered judgment, including interest,

in its case following the Supreme Court’s decision in United

States v. United States Shoe Corp., 118 S.Ct. 1290 (1998).

Upon consideration thereof,

IT IS ORDERED THAT:

(1) US Shoe’s motion is granted in part; appeal no. 98-

1574 is stayed, pending this court’s final disposition of appeal

no. 98-1590. Within 21 days of the final disposition of appeal

no. 98-1590, the United States shall provide the court with its

views concerning how appeal no. 98-1574 should proceed.

US Shoe may also notify the court of its views during that

time.

(2) Copies of this order shall be transmitted to the

merits panel assigned to hear appeal no. 98-1590.

December 1, 1998 /s/

William C. Bryson

Circuit Judge

cc: Harvey A. Isaacs, Esq.

Lara Levinson, Esq.

William D. Outman, II, Esq.

NOTE: Pursuant to Fed. Cir. R. 47.6, this order is not citable

as precedent. It is a public order.