author: Mr. Justice Fortas Mb. Justice Stewart,

text:
    NORTHEASTERN PENNSYLVANIA NATIONAL BANK & TRUST CO., EXECUTOR v. UNITED STATES.
    No. 637.
    Argued March 20, 1967.
    Decided May 22, 1967.

      Milton I. Baldinger argued the cause for petitioner. With him on the brief was Donald J. Fendrick.

      Richard C. Pugh argued the cause for the United States. With him on the brief were Solicitor General Marshall, Assistant Attorney General Rogovin, Robert N. Anderson and Albert J. Beveridge III.

   Mr. Justice Fortas

delivered the opinion of the Court.

The issue in this case is whether a bequest in trust providing for the monthly payment to decedent’s widow of a fixed amount can qualify for the estate tax marital deduction under § 2056 (b)(5) of the Internal Revenue Code of 1954, 26 U. S. C. § 2056 (b)(5). That section allows a marital deduction from a decedent’s adjusted gross estate of up to one-half the value of the estate in respect to specified interests which pass to the surviving spouse. Among the interests which qualify is one in which the surviving spouse “is entitled for life to . . . all the income from a specific portion [of the trust property], payable annually or at more frequent intervals, with power in the surviving spouse to appoint . . . such specific portion . ...”

At the date of decedent’s death, the value of the trust corpus created by his will was $69,246. The will provided that his widow should receive $300 per month until decedent’s youngest child reached 18, and $350 per month thereafter. If the trust income were insufficient, corpus could be invaded to make the specified payments; if income exceeded the monthly amount, it was to be accumulated. The widow was given power to appoint the entire corpus by will.

On decedent’s estate tax return, his executor reported an adjusted gross estate of $199,760. The executor claimed the maximum marital deduction of one-half the gross estate, $99,875, on the ground that qualified interests passing to the wife exceeded that amount. The value of the property which passed to the widow outright was $41,751. To this the executor added the full value of the trust, $69,246. The Commissioner, however, determined that the trust did not qualify for the marital deduction because the widow’s right to the income of the trust was not expressed as a “fractional or percentile share” of the total trust income, as the Treasury Regulation, § 20.2056 (b)-5 (c), requires. Accordingly, the Commissioner reduced the amount of the allowable deduction to $41,751. The resulting deficiency in estate tax was paid, a claim for refund was disallowed, the executor sued in District Court for refund, and the District Judge gave summary judgment for the executor. On appeal, the Court of Appeals for the Third Circuit, sitting en banc, reversed, with three judges dissenting. Because of an acknowledged conflict between the decision of the Third Circuit in this case and that of the Seventh Circuit in United States v. Citizens National Bank of Evansville, 359 F. 2d 817, petition for certiorari pending, No. 488, October Term, 1966, we granted certiorari. 385 U. S. 967. We reverse.

The basis for the Commissioner’s disallowance lay in Treasury Regulation § 20.2056 (b)-5 (c). This inters pretative Regulation purports to define “specific portion” as it is used in §2056 (b)(5) of the Code: “A partial interest in property is not treated as a specific portion of the entire interest unless the rights of the surviving spouse in income . . . constitute a fractional or percentile share of a property interest . . . .” The Regulation specifically provides that “if the annual income of the spouse is limited to a specific sum . . . the interest is not a deductible interest.” If this Regulation properly implements the Code, the trust in this case plainly fails to qualify for the marital deduction. We hold, however, that in the context of this case the Regulation improperly restricts the scope of the congressionally granted deduction.

In the District Court, the executor initially claimed that the entire trust qualified for the marital deduction simply because, at the time of trial, the corpus had not yet produced an income in excess of $300 per month, and that the widow was therefore entitled “to all the income from the entire interest.” The District Court rejected this contention, observing that the income from the corpus could exceed $300 per month, and in that event the excess would have to be accumulated. The executor’s alternative claim, which the District Court accepted, was that the “specific portion” of the trust corpus whose income would amount to $300 per month could be computed, and a deduction allowed for that amount.

Resolution of the question in this case, whether a qualifying “specific portion” can be computed from the monthly stipend specified in a decedent’s will, is essentially a matter of discovering the intent of Congress. The general history of the marital deduction is well known. See United States v. Stapf, 375 U. S. 118, 128 (1963). The deduction was enacted in 1948, and the underlying purpose was to equalize the incidence of the estate tax in community property and common-law jurisdictions. Under a community property system a surviving spouse takes outright ownership of half of the community property, which therefore is not ificluded in the deceased spouse’s estate. The marital deduction allows transfer of up to one-half of noncommunity property to the surviving spouse free of the estate tax. Congress, however, allowed the deduction even when the interest transferred is less than the outright ownership which community property affords. In “recognition of one of the customary modes of transfer of property in common-law States,” the 1948 statute provided that a bequest in trust, with the surviving spouse “entitled for life to all the income from the corpus of the trust, payable annually or at more frequent intervals, with power . . . to appoint the entire corpus” would qualify for the deduction.

The 1948 legislation required that the bequest in trust entitle the surviving spouse to “all the income” from the trust corpus, and grant a power to appoint the “entire corpus.” These requirements were held by several lower courts to disqualify for the deduction a single trust in which the surviving spouse was granted a right to receive half (for example) of the income and to appoint half of the corpus. Since there was no good reason to require a testator to create two separate trusts — one for his wife, the other for his children, for example — Congress in 1954 revised the marital deduction provision of the statute to allow the deduction where a decedent gives his surviving spouse “all the income from the entire interest, or all the income from a specific portion thereof” and a power to “appoint the entire interest, or such specific portion.” The House Report on this change states that “The bill makes it clear that ... a right to income plus a general power of appointment over only an undivided part of the property will qualify that part of the property for the marital deduction.” The Senate Report contains identical language. There is no indication in the legislative history of the change from which one could conclude that Congress — in using the words “all the income from a specific portion” in the statute, or the equivalent words “a right to income . . . over ... an undivided part” in the committee reports — intended that the deduction afforded would be defeated merely because the “specific portion” or the “undivided part” was not expressed by the testator in terms of a “fractional or percentile share” of the whole corpus.

Congress’ intent to afford a liberal “estate-splitting” possibility to married couples, where the deductible half of the decedent’s estate would ultimately — if not consumed — be taxable in the estate of the survivor, is unmistakable. Indeed, in § 93 of the Technical Amendments Act of 1958, 72 Stat. 1668, Congress made “The more realistic rules of the 1954 Code” apply retroactively to the original enactment of the marital deduction in 1948, and opened the statute of- limitations to allow refunds or credits for overpayments. Plainly such a provision should not be construed so as to impose unwarranted restrictions upon the availability of the deduction. Yet the Government insists that even where there are well-established principles for computing the principal required to produce the monthly stipend provided for in a trust, a “specific portion” cannot be determined in that way. The “specific portion” must, the Government urges, be expressed in the trust as a fractional or percentile share of the total corpus. The spouse of a testator whose will provides for a specific monthly stipend is deprived of any benefit from the marital deduction, according to the Government’s view. But we can find no warrant for that narrow view, in common sense or in the statute and its history.

The Government puts most of its reliance upon a phrase which occurred once in the legislative history of the 1948 enactment. The Senate Report stated that the marital deduction would be available “where the surviving spouse, by reason of her [sic] right to the income and a power of appointment, is the virtual owner of the property.” The Government’s argument is that the deduction was intended only in cases where the equivalent of the outright ownership of a community property State was granted, and that this is what the Senate Report meant by the words “virtual owner.” Actually, however, the words were not used in that context at all. The section of the Report from which those words derive deals with the rule that, with minor exceptions, the marital deduction does not apply where any person other than the surviving spouse has any power over the income or corpus of the trust. It is in this sense that the Report described the surviving spouse as a “virtual owner.” Hence, the Government’s argument that only a grant of the income from a fractional or percentile share subjects the surviving spouse to the vagaries and fluctuations of the economic performance of the corpus in the way an outright owner would be, is simply irrelevant. There is no indication whatsoever that Congress intended the deduction to be available only in such a situation, nor is there any apparent connection between the purposes of the deduction and such a limitation on its availability. Compare Gelb v. Commissioner, 298 F. 2d 544, 550-551 (C. A. 2d Cir. 1962). Obviously Congress did not intend the deduction to be available only with respect to interests equivalent to outright ownership, or trusts would not have been permitted to qualify at all.

The Court of Appeals advanced a somewhat different argument in support of the Government’s conclusion. Without relying upon the validity of the Regulation, the Court of Appeals maintained that a “specific portion” can be found only where there is an acceptable method of computing it, and that no such method is available in a case of the present sort. The Court of Appeals noted that the computation must produce the “ratio between the maximum monthly income [producible by the whole corpus] and the monthly stipend [provided for in the trust].” 363 F. 2d 476, 484. The following example was given:

“If the investment factors involved were constant and it could be determined that the maximum income that could be produced from the corpus in a month was, for example, $500 then the relationship between the $300 monthly stipend and the $500 maximum income would define 'specific portion’ for marital deduction purposes, i. e.:
“$300 being % of $500 then % of $69,245.85 would be the 'specific portion’ of the trust corpus from which the surviving spouse would be entitled to the entire income of $300 monthly under maximum production circumstances.
“Though in reality it might take the entire corpus to produce the monthly stipend, or even the necessity to invade corpus might be present, nevertheless ... it could be said, after computing the theoretical maximum income, that the surviving spouse’s income interest of $300 monthly represented the investment of % of the corpus. ‘Specific portion’ would then be accurately defined for marital deduction purposes.” (Italics in original.) 363 F. 2d, at 484, n. 17.

The Court of Appeals concluded, however, that the computation could not be made because “[t]he market conditions for purposes of investment are unknown” and, therefore, there are no constant investment factors to use in computing the maximum possible monthly income of the whole corpus. 363 F. 2d, at 484.

It is with this latter conclusion that we disagree. To be sure, perfect prediction of realistic future rates of return is not possible. However, the use of projected rates of return in the administration of the federal tax laws is hardly an innovation. Cf. Gelb v. Commissioner, 298 F. 2d 544, 551, n. 7 (C. A. 2d Cir. 1962). It should not be a difficult matter to settle on a rate of return available to a trustee under reasonable investment conditions, which could be used to compute the “specific portion” of the corpus whose income is equal to the monthly stipend provided for in the trust. As the Court of Appeals for the Second Circuit observed in Gelb, supra, “the use of actuarial tables for dealing with estate tax problems has been so widespread and of such long standing that we cannot assume Congress would have balked at it here; the United States is in business with enough different taxpayers so that the law of averages has ample opportunity to work.” 298 F. 2d, at 551-552.

The Government concedes, as it must, that application of a projected rate of return to determine the “specific portion” of the trust corpus whose income is equal to the monthly stipend allotted will not result in any of the combined marital estate escaping ultimate taxation in either the decedent’s or the surviving spouse’s estate. The Government argues, however, that if analogous actuarial methods were used to compute as a fixed dollar amount the “specific portion” as to which a qualifying power of appointment is given, where the power in fact granted extends to the whole corpus but the corpus is subject to measurable invasions for the benefit, for example, of a child, the result, in some cases, would be to enable substantial avoidance of estate tax. Whether, properly viewed, the Government’s claim holds true, and, if so, what effect that should have upon the qualification of such a trust, is a difficult matter. Needless to say, nothing we hold in this opinion has reference to that quite different problem, which is not before us. Cf. Gelb v. Commissioner, supra.

The District Court used an annuity-valuation approach to compute the “specific portion.” This was incorrect. The question, as the Court of Appeals recognized, is to determine the amount of the corpus required to produce the fixed monthly stipend, not to compute the present value of the right to monthly payments over an actuarially computed life expectancy. Accordingly, we reverse and remand for further proceedings in conformity with this opinion.

Reversed and remanded.

Mb. Justice Stewart,

whom Mr. Justice Black and Mr. Justice Harlan join, dissenting.

“Resolution of the question in this case, whether a qualifying 'specific portion’ can be computed from the monthly stipend specified in a decedent’s will, is,” says the Court, “essentially a matter of discovering the intent of Congress.” Ante, p. 219. Substituting “exclusively” for “essentially,” I entirely agree with the Court’s statement of the case. “The deduction was enacted in 1948, and the underlying purpose was to equalize the incidence of the estate tax in community property and common-law jurisdictions.” Ante, p. 219. Again I agree. But I must differ with the Court in its determination that the intent of Congress leads to the result the Court today reaches. For allowing the trust before us to qualify for the marital deduction will inevitably lead to the ironic and unjustified result of giving common-law jurisdictions more favorable tax treatment than community property States.

The Court holds that the widow in this case had an interest in “all the income from a specific portion” of the trust because the stream of payments to her could be capitalized by the use of assumed interest rates. This capitalized sum is then said to constitute the “specific portion” which qualifies for the marital deduction. A corollary of the Court’s theory is that a trust which gave the widow the right to the income from a fixed amount (in dollars) of corpus and the right to appoint the entire corpus would support a marital deduction. But if such a bequest qualifies, then one which limits her power of appointment to only that amount of corpus with respect to which she has income rights will also qualify for the marital deduction. For under the statute, the survivor must have only the right to “all the income from a specific portion . . . with power in the surviving spouse to appoint . . . such specific portion.” (Emphasis added.) The way in which such an estate allows a tax avoidance scheme not available to a community-property couple can be easily illustrated.

Assume a trust estate of $200,000, with the widow receiving the right to the income from $100,000 of its corpus and a power of appointment over that $100,000, and the children of the testator receiving income from the balance of the corpus during the widow’s life, their remainders to vest when she dies. Now suppose that when the widow dies the trust corpus has doubled in value to $400,000. The wife’s power of appointment over $100,000 applies only to make $100,000 taxable to her estate. The remaining $300,000 passes tax free to the children. Contrast the situation in a community property State. The wife’s 50% interest in the community property places $200,000 of the expanded assets in her estate and taxable as such; only $200,000, therefore, passes directly to the children. Thus, the Court’s interpretation of “specific portion” affords common-law estates a significant tax advantage that community property dispositions cannot obtain.

By changing “specific portion” from the fractional share, which is both described in the Treasury Regulation and used as the basis for community property ownership, into a lump sum bearing no constant relation to the corpus, the Court allows capital appreciation to be transferred from the wife’s to the children’s interest in the estate without any tax consequence. Thus, today’s decision is directly opposed to what we have previously recognized as the purpose of the marital deduction:

“The purpose ... is only to permit a married couple’s property to be taxed in two stages and not to allow a tax-exempt transfer of wealth into succeeding generations. Thus the marital deduction is generally restricted to the transfer of property interests that will be includible in the surviving spouse’s gross estate.” United States v. Stapf, 375 U. S. 118, 128.

The reference in the legislative history of the 1948 Act to the wife’s “virtual owner [ship]” of the interest qualifying for the deduction is explained by the purpose discerned in Stapf, supra. For only if she is the “virtual owner,” will the wife’s interest appreciate with the rest of the trust. Similarly, the congressional committee reports, in limiting their examples of “specific portions” to fractional shares, manifest an understanding that no tax avoidance was to be allowed via the marital deduction. In no other manner could Congress have “equalize[d] the incidence of the estate tax in community property and common-law jurisdictions,” as the Court so aptly puts it.

In ruling as it does today the Court not only frustrates the basic purposes of the marital deduction, it also ignores or brushes aside guideposts for deciding tax cases that have been carefully established in prior decisions of this Court. Thus, a 10-year-old interpretation of the statute contained in the Treasury Regulations is held invalid, although we have consistently given great weight to those regulations in the interpretation of tax statutes. See, e. g., United States v. Stapf, 375 U. S. 118, 127, n. 11.

Of even greater importance is the sharp change of attitude toward the marital deduction which today’s decision heralds. The Treasury’s interpretation of “specific portion” is held invalid because “Congress’ intent [was] to afford a liberal ‘estate-splitting’ possibility.” This finding of “liberalism” in the marital deduction leads the Court to reason that “[p]lainly such a provision should not be construed so as to impose unwarranted restrictions upon the availability of the deduction.” Ante, p. 221. But we have previously construed the marital deduction to mean what it says and have not discerned a liberal intent that allows us to write new words into the statute, as the Court does here in changing “specific portion” to “ascertainable amount.” For example, in Jackson v. United States, 376 U. S. 503, 510, eight members of the Court, speaking through Mb. Justice White, declared that “the marital deduction . . . was knowingly hedged with limitations” by Congress, and “ [t] o the extent it was thought desirable to modify the rigors of [such limitations], exceptions . . . were written into the Code.” Thus, the lesson announced in Jackson, but ignored today, was that “[c]ourts should hesitate to provide [other exceptions] by straying so far from the statutory language.” Cf. Meyer v. United States, 364 U. S. 410. One looks in vain through the Jackson, Meyer, and Stapf opinions, supra, for the roots of the liberalism which the Court today finds bursting forth from the marital deduction.

With this change in approach, uncertainty is now introduced into one of the areas of the law where long-range reliance upon the meaning of a statute is essential. Estate planners and tax lawyers are technicians schooled to view the marital deduction as a tightly drawn, precise provision. They are now shown a totally new statute that is to be construed in the manner of a workman’s compensation act. See Jackson v. Lykes Bros. S. S. Co., 386 U. S. 731. Such a construction will hardly promote “[t]he achievement of the purposes of the marital deduction [which] is dependent to a great degree upon the careful drafting of wills.” Jackson v. United States, 376 U. S., at 511.

Believing today’s decision to be at odds with the statutory purpose and the consistent interpretation of the marital deduction, I respectfully dissent.

       The section reads, in full:
      “(5) Life estate with power of appointment in surviving spouse.— In the case of an interest in property passing from the decedent, if his surviving spouse is entitled for life to all the income from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the surviving spouse to appoint the entire interest, or such specific portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each ease the power is exercisable in favor of others), and with no power in any other person to appoint any part of the interest, or such specific portion, to any person other than the surviving spouse—
      “(A) the interest or such portion thereof so passing shall, for purposes of subsection (a), be considered as passing to the surviving spouse, and
      “(B) no part of the interest so passing shall, for purposes of paragraph (1)(A), be considered as passing to any person other than the surviving spouse.
      “This paragraph shall apply only if such power in the surviving spouse to appoint the entire interest, or such specific portion thereof, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.”

       The trustee was also given discretion to invade up to $1,500 of corpus in the event of the widow’s illness or financial emergency. The relevant part of the will is as follows:
      “ITEM 6. I give, devise and bequeath one-half (%) of all the rest, residue and remainder of my estate, whatsoever and wheresoever the same be, both real and personal, to which I may be entitled, or which I may have power to dispose of at the time of my death, unto my Trustee hereinafter named and designated, to have and to hold the same in trust, nevertheless, as hereinafter provided.
      “(a) I direct my Trustee to pay out of the said income and corpus of the said estate unto my wife, Beatrice O. Young, the sum of Three Hundred Dollars ($300.00) per month for and during the period until my youngest child reaches the age of eighteen years, and thereafter I direct my Trustee to pay to my wife, Beatrice O. Young, the sum of Three Hundred Fifty Dollars ($350.00) per month for and during the rest of her natural life.
      “(b) If my wife survives me, she shall have the power, exercisable by Will, to appoint to her estate, or to others, any or all of the principal remaining at the time of her death. If my wife fails to appoint the entire principal to her estate or to others as above authorized, then upon her death (or if she predeceases me, then upon my death) any principal remaining at that time shall be paid over to my children on the same terms and conditions as under Item 7 of this my Will.”

       In the Citizens National Bank ease, decedent directed the trustee to pay the surviving wife $200 per month for the two years following his death, and thereafter $300 per month; the widow was the sole beneficiary. The District Director disallowed that part of the executor-bank’s claim to an estate tax marital deduction based upon the trust, and the bank sued for a refund. The District Court held in favor of the bank, and computed the allowable deduction by capitalizing the $200 monthly stipend at an assumed 3%% rate of return. The Court of Appeals affirmed, one judge dissenting.
      The decision of the Court of Appeals for the Third Circuit in the present case is also in apparent conflict with a decision of the Court of Appeals for the Second Circuit in Gelb v. Commissioner, 298 F. 2d 544 (1962) (Friendly, J.). The surviving widow in Gelb was entitled to all the income from the trust. The trustees (of which the wife was one) were empowered to invade corpus up to $5,000 per year for the education and support of testator’s youngest daughter, the payments to be made to the wife. The Court of Appeals held that the present worth of the maximum amount payable to the daughter could be computed actuarially, taking into account the joint expectancy of the widow and daughter, and could then be deducted from the total trust corpus to arrive at the “specific portion” as to which the widow was given a power of appointment. The Court of Appeals observed that “Congress spoke of a ‘specific portion,’ not of a ‘fractional or percentile share ...,’” 298 F. 2d, at 550-551, and disapproved the Regulation “insofar as it would limit a ‘specific portion’ to ‘a fractional or percentile share.’ ” 298 F. 2d, at 551.

       The relevant part of the Regulation is as follows:
      ■'(e) Definition of ‘specific portion.’ A partial interest in property is not treated as a specific portion of the entire interest unless the rights of the surviving spouse in income and as to the power constitute a fractional or percentile share of a property interest so that such interest or share in the surviving spouse reflects its proportionate share of the increment or decline in the whole of the property interest to which the income rights and the power relate. Thus, if the right of the spouse to income and the power extend to one-half or a specified percentage of the property, or the equivalent, the interest is considered as a specific portion. On the other hand, if the annual income of the spouse is limited to a specific sum, or if she has a power to appoint only a specific sum out of a larger fund, the interest is not a deductible interest.”

       Because the marital deduction is computed as of the date of the deceased spouse’s death, Jackson v. United States, 376 U. S. 503, 508 (1964), the parties are agreed that the monthly stipend to be considered is $300 per month, not $350 per month.

       S. Rep. No. 1013, 80th Cong., 2d Sess. (1948), p. 28.

       Internal Revenue Code of 1939, § 812 (e) (1) (F), as added by § 361 of the Revenue Act of 1948, c. 168, 62 Stat. 118.

       See, e. g., Estate of Shedd v. Commissioner, 237 F. 2d 345 (C. A. 9th Cir.), cert. denied, 352 U. S. 1024 (1957); Estate of Sweet v. Commissioner, 234 F. 2d 401 (C. A. 10th Cir.), cert. denied, 352 U. S. 878 (1956). See also S. Rep. No. 1983, 85th Cong., 2d Sess., (1958), pp. 240-241.

       H. R. Rep. No. 1337, 83d Cong., 2d Sess. (1954), p. 92.

       S. Rep. No. 1622, 83d Cong., 2d Sess. (1954), p. 125.

       To be sure, the two reports do give an example of the simplest kind of trust covered by the change: “For example, if the decedent in his will provided for the creation of a trust under the terms of which the income from one-half of the trust property is payable to this surviving spouse with uncontrolled power in the spouse to appoint such one-half of the trust property by will, such interest will qualify . . . .” Reports, supra, nn. 9 and 10, at A319, 475, respectively. Obviously this example was not intended to limit the meaning of the new language.

       S. Rep. No. 1983, 85th Cong., 2d Sess. (1958), p. 107.

       S. Rep. No. 1013, 80th Cong., 2d Sess., pt. 2 (1948), p. 16.

       Cf. Note, 19 Stan. L. Rev. 468, 470-472 (1967).

       An estimated realistic rate of return which a trustee could be expected to obtain under reasonable investment conditions must be used — absent specific restrictions upon the trustee’s investment powers — in order to isolate that “part of the corpus which in [all] . . . reasonable event [s]” will produce no more than the monthly stipend, to paraphrase the court below. 363 F. 2d, at 483.

       The only difference between a trust which gives the wife income from a fixed amount of corpus and the one the Court has before it today is that the former does not require capitalizing a stream of payments into a lump sum, since it defines the sum at the outset. Neither of these trusts would qualify for the marital deduction under current Treasury Regulations:

        “Definition of ‘specific portion.’ A partial interest in property is not treated as a specific portion of the entire interest unless the rights of the surviving spouse . . . constitute a fractional or percentile share of a property interest so that such interest or share . . . reflects its proportionate share of the increment or decline in the whole of the property interest .... [I]f the annual income of the spouse is limited to a specific sum, or if she has a power to appoint only a specific sum out of a larger fund, the interest is not a deductible interest.” Treas. Reg. § 20.2056 (b)-5 (c).

       The Court describes the “specific portion” over which the wife has a power of appointment as involving a “quite different problem” from the question directly before us today. Ante, p. 225. But unless it could be held that “such specific portion” does not refer to “a specific portion” (and I do not see how such a holding is possible), the way in which the Court defines “specific portion” with regard to the survivor’s income rights will inevitably affect the meaning of “specific portion” with regard to the power of appointment.

       Section 2041 of the Internal Revenue Code of 1954.

       S. Rep. No. 1013, 80th. Cong., 2d Sess., pt. 2, p. 16 (1948).

       H. R. Rep. No. 1337, 83d Cong., 2d Sess., p. A319 (1954); S. Rep. No. 1622, 83d Cong., 2d Sess., p. 475 (1954).


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    HOFFA et al. v. UNITED STATES.
    No. 1003.
    Decided May 22, 1967.

      Maurice J. Walsh, Morris A. Shenker, Joseph A. Fanelli, Frank Ragano, George F. Callaghan, Richard E. Gorman, Jacques M. Schiffer and Charles A. Bellows for petitioners.

      Solicitor General Marshall, Assistant Attorney General Vinson, Beatrice Rosenberg and Jerome M. Feit for the United States.
   Per Curiam.

Petitioners were convicted of various counts under a 28-count indictment charging mail and wire fraud, in violation of 18 U. S. C. §§ 1341, 1343, and conspiracy, in violation of 18 U. S. C. § 371. The United States claimed, and the jury apparently found, that petitioners conspired to defraud, and did defraud, the Central States, Southeast and Southwest Areas Pension Fund of the International Brotherhood of Teamsters, with the prime objective of financially rehabilitating Sun Valley, Inc., a real estate enterprise in which certain of the petitioners had important interests. For reasons which follow, we do not reach, one way or the other, any of the contentions urged by petitioners in support of their petition for a writ of certiorari.

In response to the petition, the Solicitor General sua sponte has advised the Court that on December 2, 1963, some six months after the indictment in this case, a conversation between petitioner Burris and one Benjamin Sigelbaum, not a defendant in this prosecution, was overheard by agents of the Federal Bureau of Investigation as a result of electronic eavesdropping. The eavesdropping equipment had been installed in Sigel-baum’s office, by trespass, some 12 months before this conversation, and thereafter had been maintained in operation. We are informed by the Solicitor General that the recorded conversation was concerned both with the proposed transfer to Sigelbaum of Burris’ interest in Sun Valley, and with the conduct of the defense to this prosecution. The Solicitor General has indicated that the contents of the recording were available to government attorneys involved in this prosecution, but adds that the recording was only “peripherally relevant to the charges underlying [Burris’] conviction.” We are, moreover, advised by him that the information obtained through this electronic eavesdropping was not introduced into evidence at trial, that it was never the basis of any investigative lead, and that it was in part already known, through Burris’ own statements, to government attorneys. Unlike the situations in Black v. United States, 385 U. S. 26, and O’Brien v. United States, 386 U. S. 345, there was apparently no direct intrusion here into attorney-client discussions. In these circumstances, we find no “adequate justification,” Black v. United States, supra, at 29, now to require a new trial of Burris or of any of the other petitioners; the more orderly and appropriate procedure is instead to remand the case to the District Court for a hearing, findings, and conclusions on the nature and relevance to these convictions of the recorded conversation, and of any other conversations that may be shown to have been overheard through similar eavesdropping. United States v. Shotwell Mfg. Co., 355 U. S. 233.

We do not accept the Solicitor General’s suggestion that such an inquiry should be confined to the conviction of Burris. We consider it more appropriate that each of these petitioners be provided an opportunity to establish, if he can, that the interception of this particular conversation, or of other conversations, vitiated in some manner his conviction. We do not intend by this to suggest that any or all of the petitioners might, under the circumstances described by the Solicitor General, be entitled to a new trial; we decide only that further proceedings must be held, and findings and conclusions made, to determine the content and pertinence to this case of any such recorded conversations.

Accordingly, we grant the petition for a writ of cer-tiorari as to each of the petitioners, vacate the judgment of the Court of Appeals, and remand the case to the District Court for further proceedings. In such proceedings, the District Court will confine the evidence presented by both sides to that which is material to questions of the content of this and any other electronically eavesdropped conversations, and of the relevance of any such conversations to petitioners’ subsequent convictions. The District Court will make such findings of fact on these questions as may be appropriate in light of the further evidence and of the entire existing record. If the District Court decides, on the basis of such findings, that the conviction of any of the petitioners was not tainted by the use of evidence thus improperly obtained, it will enter new final judgments as to such petitioners based on the existing record as supplemented by its further findings, thereby preserving to all affected parties the right to seek further appropriate appellate review. If, on the other hand, the District Court concludes after such further proceedings that the conviction of any of the petitioners was tainted, it would then become its duty to accord any such petitioner a new trial. See United States v. Shotwell Mfg. Co., supra, at 245-246; see also Shotwell Mfg. Co. v. United States, 371 U. S. 341.

The petition for a writ of certiorari is granted, the judgment of the Court of Appeals is vacated, and the case is remanded to the District Court for further proceedings consistent with this opinion.

It is so ordered.

Mr. Justice Black would grant certiorari and set the case for argument. He dissents from the vacation of the judgment of the Court of Appeals and from the remand of the case to the District Court.

Mr. Justice White took no part in the consideration or decision of this case.

       Brief for the United States in Opposition 70.


text:
    KRAKOFF, ADMINISTRATOR v. WEAVER et al.
    No. 1174.
    Decided May 22, 1967.

      Thelma C. Furry for appellant.
   Per Curiam.

The motion to dismiss is granted and the appeal is dismissed for want of jurisdiction. Treating the papers whereon the appeal was taken as a petition for a writ of certiorari, certiorari is denied.


text:
    TENNESSEE ex rel. NEW PROVIDENCE UTILITY DISTRICT et al. v. CITY OF CLARKSVILLE et al.
    No. 1182.
    Decided May 22, 1967.

      W. Raymond Denney and Stanley M. Chernau for appellants.

      Edwin F. Hunt for appellees.
   Per Curiam.

The motion to dismiss is granted and the appeal is dismissed for want of jurisdiction. Treating the papers whereon the appeal was taken as a petition for a writ of certiorari, certiorari is denied.


text:
    WALKER v. WAINWRIGHT, CORRECTIONS DIRECTOR.
    No. 354,
    Misc.
    Decided May 22, 1967.
    Petitioner pro se.

      Earl Faircloth, Attorney General of Florida, and Stanley D. Kupiszewski, Jr., Assistant Attorney General, for respondent.
   Per Curiam.

The motion for leave to proceed in forma pauperis and the petition for a writ of certiorari are granted. The judgment is vacated and the case is remanded to the Supreme Court of Florida for further consideration in light of Anders v. California, 386 U. S. 738.

Mr. Justice Black, Mr. Justice Harlan, and Mr. Justice Stewart are of the opinion that certiorari should be denied.


text:
    CHEWIE v. LOCK, COUNTY ATTORNEY, et al.
    No. 1530,
    Misc.
    Decided May 22, 1967.
   Per Curiam.

The appeal is dismissed for want of jurisdiction.


text:
    MASCUILLI, ADMINISTRATRIX v. UNITED STATES.
    No. 274.
    Decided May 22, 1967.

      Abraham E. Freedman, Milton M. Borowsky and Martin J. Vigderman for petitioner.

      Solicitor General Marshall, Assistant Attorney General Douglas and Alan S. Rosenthal for the United States.
   Per Curiam.

The petition for a writ of certiorari is granted and the judgment is reversed. Mahnich v. Southern S. S. Co., 321 U. S. 96; Crumady v. The Joachim Hendrik Fisser, 358 U. S. 423.

Mr. Justice Harlan, Mr. Justice Stewart, and Mr. Justice White are of the opinion that certiorari should be denied.


text:
    UNITED STATES v. MARSHALL & ILSLEY BANK STOCK CORP. et al.
    No. 1017.
    Decided May 22, 1967.

      Solicitor General Marshall, Assistant Attorney General Turner, Nathan Lewin, Howard E. Shapiro and Herbert G. Schoepke for the United States.

      Maxwell H. Herriott and Louis Quarles for appellees.
   Per Curiam.

The judgment is reversed. Section 1.1 (e) of the Bank Holding Company Act of 1956, as amended, 80 Stat. 241; United States v. First City National Bank of Houston, 386 U. S. 361.


text:
    JULIAN MESSNER, INC., et al. v. SPAHN.
    No. 1154.
    Decided May 22, 1967.

      Selig J. Levitan for appellants.

      Arthur K. Radin for appellee.

      Irwin Karp for Authors League of America, Inc., as amicus curiae.

   Per Curiam.

The motion of the Authors League of America, Inc., for leave to file a brief, as amicus curiae, is granted.

The judgment is vacated and the case is remanded to the Court of Appeals of New York for further consideration in light of Time, Inc. v. Hill, 385 U. S. 374.

The Chief Justice and Mr. Justice Fortas would dismiss the appeal for want of a substantial federal question.


text:
    GREENE v. TEXAS.
    No. 1199.
    Decided May 22, 1967.

      Buck C. Miller for appellant.

      Crawford C. Martin, Attorney General of Texas, George M. Cowden, First Assistant Attorney General, R. L. Lattimore, Howard M. Fender, Robert E. Owen and Lonny F. Zwiener, Assistant Attorneys General, and A. J. Carubbi, Jr., for appellee.
   Per Curiam.

The motion to dismiss is granted and the appeal is dismissed for want of jurisdiction. Treating the papers whereon the appeal was taken as a petition for a writ of certiorari, certiorari is denied.


text:
    BELCHER v. WISCONSIN.
    No. 24,
    Misc.
    Decided May 22, 1967.
    Petitioner pro se.

      Bronson C. La Follette, Attorney General of Wisconsin, and William A. Platz and Warren H. Resh, Assistant Attorneys General, for respondent.
   Per Curiam.

The motion for leave to proceed in forma pauperis and the petition for a writ of certiorari are granted. The judgment is vacated and the case is remanded to the Supreme Court of Wisconsin for further consideration in light of Anders v. California, 386 U. S. 738.

Mr. Justice Black, Mr. Justice Harlan, and Mr. Justice Stewart are of the opinion that certiorari should be denied.


text:
    FRAZIER v. LANE, WARDEN.
    No. 33,
    Misc.
    Decided May 22, 1967.
    Petitioner pro se.

      John J. Dillon, Attorney General of Indiana, and Douglas B. McFadden, Deputy Attorney General, for respondent.
   Per Curiam.

The motion for leave to proceed in forma pauperis and the petition for a writ of certiorari are granted. The judgment is vacated and the case is remanded to the United States Court of Appeals for the Seventh Circuit for further consideration in light of Long v. District Court of Iowa in and for Lee County, 385 U. S. 192.


text:
    BARNETT v. NEVADA.
    No. 48,
    Misc.
    Decided May 22, 1967.
    Petitioner pro se.

      Harvey Dickerson, Attorney General of Nevada, for respondent.
   Per Curiam.

The motion for leave to proceed in forma pauperis and the petition for a writ of certiorari are granted. The judgment is vacated and the case is remanded to the Supreme Court of Nevada for further consideration in light of Anders v. California, 386 U. S. 738, and Long v. District Court of Iowa in and for Lee County, 385 U. S. 192.


author: Mr. Chief Justice Warren

text:
    FEDERAL TRADE COMMISSION v. UNIVERSAL-RUNDLE CORP.
    No. 101.
    Argued March 13, 1967.
    Decided May 29, 1967.

      Robert S. Rifkind argued the cause for petitioner. With him on the briefs were Solicitor General Marshall, Assistant Attorney General Turner, Howard E. Shapiro, Milton J. Grossman, James Mel. Henderson and W. Risque Harper.

      Frank C. McAleer argued the cause for respondent. With him on the brief was James R. Fruchterman.

   Mr. Chief Justice Warren

delivered the opinion of the Court.

The question presented by this case is whether the Court of Appeals exceeded its authority as a reviewing court by postponing the operation of a Federal Trade Commission cease-and-desist order against respondent until an investigation should be made of alleged industry-wide violations of the price discrimination provisions of the Clayton Act, § 2, 38 Stat. 730, as amended by the Robinson-Patman Act, 49 Stat. 1526, 15 U. S. C. § 13.

Respondent Universal-Rundle produces a full line of china and cast-iron plumbing fixtures which it sells to customers located throughout the United States. In 1960, the Federal Trade Commission issued a complaint charging that for more than three years Universal-Rundle’s sales to some of these customers had been made “at substantially higher prices than the prices at which respondent sells such products of like grade and quality to other purchasers, some of whom are engaged in competition with the less favored purchasers in the resale of such products.” The effect of the discriminations, the complaint alleged, “may be substantially to lessen competition” in violation of § 2 (a.) of the Clayton Act, as amended. In its answer, Universal-Rundle denied the essential allegations of the complaint, and, in addition, asserted as affirmative defenses that such price differentials as may have existed were cost justified or were made “in good faith to meet competition.”

After evidentiary hearings, in which Universal-Rundle made no effort to sustain its affirmative defenses, the Commission found that during 1957 Universal-Rundle had offered “truckload discounts” averaging approximately 10% to all of its customers. Because some of these customers could not afford to purchase in truckload quantities, and thus were unable to avail themselves of the discounts, the Commission held that the offering of the truckload discounts constituted price discrimination within the meaning of § 2 (a) of the Clayton Act, as amended. Since some Universal-Rundle customers who were able to purchase in truckload quantities were found to be in competition with customers unable to take advantage of the discounts, the Commission concluded that Universal-Rundle’s price discrimination had the anticompetitive effect proscribed by § 2 (a). Accordingly, it ordered Universal-Rundle to refrain from:

“Discriminating in price by selling ‘Universal-Rundle’ brand or Universal-Rundle manufactured plumbing fixtures ... of like grade and quality to any purchaser at prices higher than those granted any other purchaser, where such other purchaser competes in fact with the unfavored purchaser in the resale or distribution of such products.”

At no time during the four years in which the complaint was pending did Universal-Rundle offer the Commission any information as to its competitors’ pricing practices or suggest that industry-wide proceedings might be appropriate. But one month after the issuance of the cease-and-desist order, Universal-Rundle petitioned the Commission to stay its cease-and-desist order for a time sufficient “to investigate and institute whatever proceedings are deemed appropriate by the Commission to correct the industry-wide practice by plumbing fixture manufacturers of granting discounts in prices on truckload shipments.” In support of its petition, Universal-Rundle submitted affidavits and documents tending to show: (1) that its principal competitors were offering truckload discounts averaging approximately 18%; (2) that Universal-Rundle’s share of the plumbing fixture market, exclusive of its sales to Sears, Roebuck and Co., was 5.75% whereas the five leading plumbing manufacturing concerns enjoyed market shares of 6 to 32%; and (3) that each of these five competitors had reported profits within the preceding two years whereas Universal-Rundle had sustained substantial losses during each of the preceding three years. In addition, Universal-Rundle submitted an affidavit in which its marketing vice president declared on information and belief that some of Universal-Rundle’s competitors were selling to customers who “may not purchase in truckload quantities.” The vice president further averred:

“That based upon his knowledge of the competitive conditions in this industry, if respondent is not permitted to sell plumbing fixtures with a differential in price as are its competitors on truckload and less than truckload quantities, respondent’s sales of plumbing fixtures under the ‘U/R’ brand will be substantially decreased and lost to its competitors, who continue to offer substantial discounts on truckload shipments. And he is of the further belief [that] the Company may suffer further substantial financial losses if it must be the sole plumbing fixture manufacturer under an order to cease and desist.”

In a unanimous decision denying the petition for the stay, the Commission held that a general allegation that competitors were offering truckload discounts was not a sufficient basis for instituting industry-wide proceedings or for withholding enforcement of the cease-and-desist order. Noting that respondent’s petition appeared to be premised on the contention that truckload discounts had been held to be per se illegal, the Commission wrote, “There is nothing in our decision to support this contention, . . . nor does the order to cease and desist entered against respondent absolutely prohibit it from granting truckload discounts.” While the granting of such discounts may result in price discriminations having proscribed anticompetitive effects, “the practice is not necessarily illegal as indicated in respondent’s petition.” In each case, it must be determined:

“whether the discount creates a price difference, whether the recipient of such a discount is competing at the same functional level with a customer paying a higher price, whether the customer buying in less than truckload quantities is able to avail itself of the truckload discount, and whether the differential is sufficient in the competitive conditions shown to exist to have the requisite anticompetitive effects.”

“Moreover,” the Commission wrote, “the fact that respondent may have incurred losses prior to the issuance of the order does not support the contention that enforcement of the order will cause it financial hardship.”

Following denial of its petition for a stay, Universal-Run die instituted ■ review proceedings in the Court of Appeals for the Seventh Circuit. Without reaching the merits of the petition to set aside the cease-and-desist order, the court below set aside the Commission’s order denying the stay and remanded the cause with instructions that the Commission conduct an industry investigation. 352 F. 2d 831 (1965). The court conceded that under Moog Industries v. Federal Trade Commission, 355 U. S. 411 (1958), the Federal Trade Commission’s discretionary determination to refuse to stay a cease-and-desist order “should not be overturned in the absence of a patent abuse of discretion.” 355 U. S., at 414. But it considered that Universal-Rundle’s evidentiary offering was sufficient to demonstrate that the refusal to grant the requested stay constituted a patent abuse of discretion. The premises upon which the court below based its conclusion may be briefly restated: (1) “[i] t is apparent,” the court wrote with reference to the evidentiary offering, “that the Commission has directed its attack against a general practice which is prevalent in the industry”; (2) enforcement would lead to the “sacrifice” of one of the “smallest participants” in the industry; and, consequently, (3) approval of the enforcement sanctions would be contrary to the purposes of the Clayton Act since “the giants in the field would be the real benefactors— not the public.”

In Moog Industries v. Federal Trade Commission, supra, we set forth the principles which must govern our review of the action taken by the court below: The decision as to whether to postpone enforcement of a cease-and-desist order “depends on a variety of factors peculiarly within the expert understanding of the Commission.” 355 U. S., at 413. Thus, “although an allegedly illegal practice may appear to be operative throughout an industry, whether such appearances reflect fact” is a question “that call[s] for discretionary determination by the administrative agency.” Ibid. Because these determinations require the specialized experienced judgment of the Commission, they cannot be overturned by the courts “in the absence of a patent abuse of discretion.” 355 U. S., at 414. Consequently, the reviewing court’s inquiry is not whether the evidence adduced in support of a petition for a stay tends to establish certain facts, such as that the industry is engaged in allegedly illegal price discrimination practices; rather, the court’s review must be limited to determining whether the Commission’s evaluation of the merit of the petition for a stay was patently arbitrary and capricious.

Viewed in the light of these principles, the decision below must be reversed. The evidence which Universal-Rundle offered in its petition for a stay is so inconclusive that it cannot be said that the Commission’s evaluation of the evidence, and its consequent refusal to grant the stay, constituted a patent abuse of discretion. Indeed, Universal-Rundle’s evidence does not even support the improper de novo findings which formed the basis for the Court of Appeals’ decision. Universal-Rundle’s truckload discounts were held to be illegal only because the corporation sold fixtures to one group of customers who were unable to purchase in truckload quantities while simultaneously selling fixtures at a discount to another group of customers who were in competition with the nonfavored group. Since the evidence presented in the petition for a stay did not tend to show that the discounts offered by Universal-Rundle’s competitors had such an anticompetitive effect, there was no basis for a conclusion that the practice held illegal by the Commission was prevalent throughout the plumbing industry. Similarly, the unsupported speculation of Universal-Rundle’s vice president as to the pecuniary effect of enforcement of the cease-and-desist order does not provide a sufficient basis for a finding that Universal-Rundle would be “sacrificed” or even that it would suffer substantial financial injury. It follows that Universal-Rundle has failed to demonstrate that enforcement would be contrary to the purposes of the Clayton Act.

We note that even if a petitioner succeeded in demonstrating to the Commission that all of its competitors were engaged in illegal price-discrimination practices identical to its own, and that enforcement of a cease- and-desist order might cause it substantial financial injury, the Commission would not necessarily be obliged to withhold enforcement of the order. As we stated in Moog Industries, 355 U. S., at 413:

“It is clearly within the special competence of the Commission to appraise the adverse effect on competition that might result from postponing a particular order prohibiting continued violations of the law. Furthermore, the Commission alone is empowered to develop that enforcement policy best calculated to achieve the ends contemplated by Congress and to allocate its available funds and personnel in such a way as to execute its policy efficiently and economically.”

On the other hand, as the Moog Industries case also indicates, the Federal Trade Commission does not have unbridled power to institute proceedings which will arbitrarily destroy one of many law violators in an industry. This is not such a case. The Commission’s refusal to withhold enforcement of the cease-and-desist order against respondent was based upon a reasonable evaluation of the merits of the petition for a stay; thus it was not within the scope of the reviewing authority of the court below to overthrow the Commission’s determination. Consequently, we reverse the judgment below, set aside the stay, and remand the cause for further proceedings consistent with this opinion.

It is so ordered.

       The Commission’s opinion is reported in Trade Reg. Rep., 1963-1965 Transfer Binder, ¶ 16,948.

       According to respondent’s petition for a stay, the shares enjoyed by its principal competitors were:

        Percent

      American Radiator & Standard Sanitary Corp. 32
      Kohler Co. 15
      Eljer Division of the Murray Corp. of America. 10
      Crane Co. 9
      Briggs Manufacturing Co. 6
      Rheem Manufacturing Co. 5

       The Commission further noted that “even if a prima facie violation of Section 2 (a) is established, the seller may in each case interpose the statutory defenses to justify the discrimination.” Trade Reg. Rep., 1963-1965 Transfer Binder, ¶ 16,998, at 22,070.

        Ibid.

       We are informed by the parties that after the Commission’s refusal to grant the stay, the respondent presented some evidence to the Commission staff which was relevant to the anticompetitive effects of the discounts offered by two of its competitors. Apparently relying on this evidence, the court below ruled that the Commission was obliged to conduct its own industry investigation and that the pendency of a Department of Justice antitrust investigation of the industry did not relieve the Commission of this responsibility. Since the post-proceeding evidence was not properly before the court below on a petition for review and is not in the record here, we do not reach, and the court below should not have reached, the questions of whether an industry investigation was necessitated by the additional evidence or whether such an investigation would be unnecessary in light of the Department of Justice investigation.