author: Mr. Justice Blackmun

text:
    MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. v. WARE
    No. 72-312.
    Argued October 9-10, 1973
    Decided December 4, 1973

      Blackmun, J., delivered the opinion of the Court, in which all Members joined, except Stewart, J., who took no part in the decision of the case.

      William H. Orrick, Jr., argued the cause for petitioner. With him on the briefs was W. Reece Bader.

      Joseph C. Barton argued the cause for respondent. With him on the brief was Thomas E. Feeney

        Solicitor General Bork, Gerald P. Norton, David Berber, and Richard E. Nathan filed a brief for the United States as amicus curiae urging affirmance.

   Mr. Justice Blackmun

delivered the opinion of the Court.

This case presents the question whether certain rules of the New York Stock Exchange, promulgated as self-regulating measures pursuant to § 6 of the Securities Exchange Act of 1934, 48 Stat. 885, 15 U. S. C. § 78f, and a broker’s employee’s pledge to abide by those rules, preempt avenues of wage relief otherwise available to the employee under state law. The California Court of Appeal answered this in the negative. 24 Cal. App. 3d 35, 100 Cal. Rptr. 791 (1972). Because of the significance of the question in the area pf federal-state relations, we granted certiorari. 410 U. S. 908 (1973).

I

Respondent, David Ware, in July 1958 entered the employ of petitioner Merrill Lynch, Pierce, Fenner & Smith, Inc., a New York corporation, as a registered representative or “account executive” in the petitioner’s San Francisco office. Ware worked there continuously until March 1969 when he voluntarily terminated that relationship and accepted a similar position in San Francisco with one of Merrill Lynch’s competitors.

Merrill Lynch is a broker-dealer in securities and is a member-corporation of the New York Stock Exchange. Since prior to 1958, the firm has had a noncontributory Profit-Sharing Plan for its employees in the United States. Under the Plan an employee may have allocated to his account both vested and unvested units, as therein described. Article 11 of the Plan relates to “Forfeiture of Benefits” upon the happening of specified events. One such event is competitive activity:

“11.1 A Participant who, in the determination of the Committee, voluntarily terminates his employment with the Corporation or provokes his termination and engages in an occupation which is, in the determination of the Committee, competitive with the Corporation, or any affiliate or subsidiary thereof, shall forfeit all rights to any benefits otherwise due or to become due from the Trust Fund with respect to units credited for fiscal years subsequent to the fiscal year ended December 30, 1960.”

The Committee referred to is provided for by the Plan’s Art. 1. It has not less than five nor more than nine persons (not necessarily employees) appointed by Merrill Lynch and serving “at the pleasure of the Corporation.” Article 1.2 states that the Committee “shall administer the Plan” and “shall determine any questions arising in the administration, interpretation and application of the Plan, which determination shall be conclusive and binding on all persons.”

At the time Ware terminated his employment with Merrill Lynch in March 1969, both vested and unvested units were allocated to his account. Upon his departure, the Committee, pursuant to Art. 11.1, determined that Ware, by entering competitive employment, had forfeited all rights to benefits due or to become due him under the Plan.

In January 1970 Ware filed this class action in California state court against Merrill Lynch and the members of the Committee. The class purported to consist of Ware and all other similarly situated former Merrill Lynch employees in California. . Declaratory relief was sought to the effect that Art. 11.1 was “unlawful and void under applicable California law,” and that the defendants were obligated to pay all vested units credited from December 30, 1960, to the date of termination of employment.

Although the statute was not cited in the complaint, the parties appear to agree that the suit rested principally on § 16600 of the California Business and Professions Code. This reads:

“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

In its answer, Merrill Lynch alleged that the provisions of Art. 11.1 were a reasonable restraint on competition under the laws of New York or of the United States; that, pursuant to Art. 22.1 of the Plan, it was to be construed according to the laws of New York; that under New York law Art. 11.1 is lawful, valid, and enforceable; that a condition of Ware’s employment with Merrill Lynch was approval by the New York Stock Exchange; that Ware, at the time of his employment in 1958, executed a written application, on an Exchange form, for approval of his employment as a registered representative, as required by the Exchange’s Rule 345 (a)(1); that by ¶ 30 (j) of that form Ware agreed that any controversy with a member arising out of the termination of his employment would be settled by arbitration at the instance of any party; that the Exchange approved the application; that Ware’s sole remedy was arbitration; and that a declaration that Art. 11.1 was invalid under the laws of California would cause Merrill Lynch to discriminate in the administration of the Plan and would deprive it of due process of law.

Merrill Lynch, invoking § 1281.2 of the California Code of Civil Procedure, petitioned the state court for an order directing arbitration pursuant to the above-quoted ¶ 30 (j) and Ware’s pledge, contained in his application for approval of employment, that he would "abide by the Constitution and Rules of the Board of Governors of the New York Stock Exchange” and that he submitted himself “to the jurisdiction of such Exchange.”

Ware opposed arbitration on the grounds that no contract to arbitrate existed between him and Merrill Lynch ; that if an agreement to this effect existed, it was a contract of adhesion; and that, since § 16600 made the forfeiture provision illegal under California law, it was not arbitrable.

The state trial court, by minute order, denied the petition to compel arbitration.

Merrill Lynch then appealed. The California Court of Appeal held that a written agreement to arbitrate did exist; that the Exchange form was “a contractual agreement”; and that the “approval and registration by Merrill Lynch made the application a contract between the parties.” 24 Cal. App. 3d, at 40-41, 100 Cal. Rptr., at 795-796. The court went on to hold, however, that the forfeiture clause was invalid and unenforceable under California law, when applied to California residents, as being in restraint of trade. Id., at 42-43, 100 Cal. Rptr., at 796-797. Cited as supporting authorities were Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 20 Cal. App. 3d 668, 97 Cal. Rptr. 811 (1971), where the same forfeiture clause was held ineffective under California law, but where the court also held that an enforceable agreement to arbitrate existed, and Muggill v. Reuben H. Donnelley Corp., 62 Cal. 2d 239, 398 P. 2d 147 (1965).

Finally, the Court of Appeal, while taking note of California’s “strong public policy” favoring arbitration, held that Merrill Lynch’s contributions under its Profit-Sharing Plan were wages, within the meaning of §§ 200 and 229 of the California Labor Code, and that § 229 gave Ware “the right to bring his claim in court in spite of any agreement to arbitrate.” 24 Cal. App. 3d, at 43-44, 100 Cal. Rptr., at 797-798. Merrill Lynch’s petition for hearing by the Supreme Court of California was denied without opinion. See 24 Cal. App. 3d, at 45.

II

The broad issue thus presented to us is the extent to which authority delegated under a federal regulatory statute pre-empts state law. Specifically, we are concerned with the questions (a) whether, in the context of the present case, § 229 of the California Labor Code, which would preclude compulsory arbitration of wage disputes, is ineffective under the Supremacy Clause; (b) whether § 16600 of the California Business and Professions Code unduly interferes with federal regulation of the securities industry; and (c) whether the California legislation unconstitutionally burdens interstate commerce.

In order to resolve these questions, we think it necessary to review the principles of stock exchange preemption delineated in this Court’s decision a decade ago in Silver v. New York Stock Exchange, 373 U. S. 341 (1963), and to examine the geneses of the federal Act and of the California statute.

A. In Silver the Court considered whether, and to what extent, the federal antitrust laws apply to securities exchanges regulated by the 1934 Act. It held that the mere passage of the Act did not effect, pro tanto, a repeal of the federal antitrust laws, but that particular instances of exchange regulation that fall within the scope and purposes of the Act may be justified and will be upheld against antitrust challenge. Id., at 357-361. With respect to the specific question there presented, it was clear that the New York Stock Exchange had exercised its “tremendous economic power,” id., at 361, against two nonmembers by discontinuing their direct-wire telephone connections with members of the Exchange without notice, hearing, or statement of reasons. It was the Court's view, under the circumstances, that procedural guarantees were necessary in order to protect against the possibility of proscribed antitrust practices and to provide the “extremely beneficial effect in keeping exchange action from straying into areas wholly foreign to the purposes of the Securities Exchange Act.” Id., at 362. See also, Ricci v. Chicago Mercantile Exchange, 409 U. S. 289, 300-301 (1973).

In contrast with Silver, we are not confronted here with conflicting federal regulatory schemes. The present controversy concerns the interrelationship between statutes adopted, respectively, by the Federal Government and a State. The analytical framework of Silver is instructive, nonetheless. There the Court reviewed carefully the securities exchange regulatory scheme that Congress had adopted in order to identify the character and purposes of the Act and the extent to which instances of exchange self-regulation were necessary to the furtherance of congressional aims and objectives. 373 U. S., at 349-361. It was mindful, also, of the purposes behind the conflicting statutes which, in that case, were the antitrust laws. So here, we may not overlook the body of law relating to the sensitive interrelationship between statutes adopted by the separate, yet coordinate, federal and state sovereignties. Our analysis is also to be tempered by the conviction that the proper approach is to reconcile “the operation of both statutory schemes with one another rather than holding one completely ousted.” Id., at 357. The principle that emerged from Silver, and the premise upon which the Court based its judgment, was that conflicting law, absent repealing or exclusivity provisions, should be pre-empted by exchange self-regulation “only to the extent necessary to protect the achievement of the aims of the Securities Exchange Act.” Id., at 361.

B. The Securities Exchange Act of 1934, as amended, 15 U. S. C. §§ 78a to 78hh-l, “regulates securities markets and the business of securities brokers and dealers.” Report of Special Study of Securities Markets of the Securities and Exchange Commission, H. R. Doc. No. 95, pt. 1, 88th Cong., 1st Sess., 3 (1963). Two types of regulation are reflected in the Act. Some provisions impose direct requirements and prohibitions. Among these are mandatory exchange registration, restrictions on broker and dealer borrowing, and the prohibition of manipulative or deceptive practices. Other provisions are flexible and rely on the technique of self-regulation to achieve their objectives. Ibid. Supervised self-regulation, although consonant with the traditional private governance of exchanges, allows the Government to monitor exchange business in the public interest. Me. Justice Douglas, when he was Chairman of the Securities and Exchange Commission, observed that this permits the exchanges to “take the leadership with Government playing a residual role. Government would keep the shotgun, so to speak, behind the door, loaded, well oiled, cleaned, ready for use but with the hope it would never have to be used.” W. Douglas, Democracy and Finance 82 (J. Allen ed. 1940).

The Act provides for stock exchanges to be registered by the Commission. § 6, 15 U. S. C. § 78f. It outlaws securities transactions conducted on unregistered exchanges. § 5, 15 U. S. C. § 78e. It conditions registration on a showing that the exchange has rules that are “just and adequate to insure fair dealing and to protect investors.” § 6 (d), 15 U. S. C. §78f(d). An exchange seeking registration must also meet other requirements. It must agree “to enforce so far as is within its powers compliance by its members” with the Act and the Commission’s rules and regulations thereunder. §6 (a)(1), 15 U. S. C. § 78f (a)(1). It must include in its rules a provision for the disciplining of a member “for conduct or proceeding inconsistent with just and equitable principles of trade.” §6(b), 15 U. S. C. § 78f (b). And it must supply to the Commission copies of its constitution, articles of incorporation, and bylaws, and such data or other information as the Commission may require “as being necessary or appropriate in the public interest or for the protection of investors.” § 6 (a)(3) and (2), 15 U. S. C. § 78f (a) (3) and (2).

The Commission’s direct authority with respect to exchange self-regulation is supervisory. Apart from its responsibilities in registering exchanges, the Commission may “alter or supplement” the rules of an exchange if such action is “necessary or appropriate for the protection of investors or to insure fair dealing in securities traded in upon such exchange or to insure fair administration of such exchange.” § 19 (b), 15 U. S. C. § 78s (b). This authority, however, relates to 12 designated subject areas and “similar matters.” Ibid. As a consequence, some exchange rules are not subject to direct Commission scrutiny, In re Rules of the New York Stock Exchange, 10 S. E. C. 270, 294 (1941), and, instead, if they do not operate contrary to the interests of insuring fair dealing and protecting investors, would kindle no federal curiosity and would serve no identifiable public purpose. It is to be noted, moreover, that the Commission has exercised its direct supervisory power sparingly. Securities Industry Study, Report of the Subcommittee on Securities, Committee on Banking, Housing .and Urban Affairs, S. Doc. No. 93-13, p. 180 (1973).

Apart from registration and direct Commission supervision, the only other qualification on exchange autonomy is the statutory requirement that any rules promulgated and enforced by an exchange not be “inconsistent with this [Act] and the rules and regulations thereunder and the applicable laws of the State in which it is located.” §6(c), 15 U. S. C. §78f (c).

From this review of relevant portions of the Act, it is apparent that Congress accorded maximum scope to self-regulation, and reposed powers in the Commission “to be exercised as needed but in such manner as to allow maximum initiative and responsibility to the self-regulators.” Report of the Special Study, supra, pt. 4, p. 726. In the words of the Senate Report issued at the time of enactment,

“Thus the initiative and responsibility for promulgating regulations pertaining to the administration of their ordinary affairs remain with the exchanges themselves. It is only where they fail adequately to provide protection to investors that the Commission is authorized to step in and compel them to do so.” S. Rep. No. 792, 73d Cong., 2d Sess., 13 (1934).

It is thus clear that the congressional aim in supervised self-regulation is to insure fair dealing and to protect investors from harmful or unfair trading practices. To the extent that any exchange rule or practice contravenes this policy, or any authorized rule or regulation under the Act, the rule may be subject to appropriate federal regulatory supervision or action. Correspondingly, any rule or practice not germane to fair dealing or investor protection would not appear to fall under the shadow of the federal umbrella; it is, instead, subject to applicable state law.

C. On the other side are the California statutes. By the addition of § 229 to its Labor Code in 1959 California codified for the wage earner, with the solitary collective-bargaining-agreement exception, a right of action to recover due and unpaid wages from his employer, regardless of the existence of any private agreement to arbitrate. Selected 1959 Code Legislation, 34 Cal. St. B. J. 581, 706-707. This was due, apparently, to the legislature’s desire to protect the worker from the exploitative employer who would demand that a prospective employee sign away in advance his right to resort to the judicial system for redress of an employment grievance. The statute’s legislative history is sparse, but the exception carved out for collective-bargaining disputes provides the obvious conclusion that it was the individual, nonunion, and otherwise unprotected wage earner who was the intended beneficiary of the State’s grace in providing this remedy. This conclusion is fortified by the fact that § 200 (a) of the Code defines “wages” broadly to include “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” And the California court itself has noted “the established policy ... of protecting and promoting” the right, “ ‘favored’ in the law,” of the wage earner “to all wages lawfully accrued to him.” City of Ukiah v. Fones, 64 Cal. 2d 104, 108, 410 P. 2d 369, 371 (1966). It may be, too, that the legislature felt that arbitration was a less than adequate protection against awarding the wage earner something short of what was due compensation. In any event, there is the harder substance of California case law. In Local 659 v. Color Corp. of America, 47 Cal. 2d 189, 302 P. 2d 294 (1956), decided prior to the addition of § 229 to the Labor Code, the court held that the then § 1280 of the State’s Code of Civil Procedure, providing for the enforcement of an arbitration clause in a contract and characterizing it as “irrevocable,” was subject to waiver or mutual rescission. The statute provided that arbitration was required “save upon such grounds as exist at law or in equity for the revocation of any contract.” California, thus, does not exclude a remedy available at law or in equity for the revocation of any contract that happens to contain an arbitration clause.

This conclusion as to the broad and liberal intendment of § 229 is reinforced by the Court of Appeal’s observation in the present case, 24 Cal. App. 3d, at 44-45, 100 Cal. Rptr., at 798, that the State’s Arbitration Act, revised in 1961, embraced no attempt to change the right of action first accorded the wage earner only two years earlier in 1959. The record is clear, moreover, that legislative attention was drawn in 1961 to § 229. The California Senate was asked to reconsider its unanimous vote in favor of the Arbitration Act on the ground that there was legislative uncertainty as to its effect upon § 229. 2 Journal of the Senate 2215-2218 (May 4, 1961). The motion to reconsider was later waived, and the bill was transmitted to the Assembly. Id., at 2287 (May 8, 1961). Thus, the Senate had in mind the rights accorded wage earners by § 229, and those rights were placed in focus with the “historical friendliness of California to the institution of arbitration.” Feldman, Arbitration Modernized — The New California Arbitration Act, 34 So. Calif. L. Rev. 413, 414 (1961). Section 229 thus survived subsequent legislative scrutiny and has now manifested itself as an important state policy through interpretation by the California courts.

One might also consider, as the respondent suggests here, the California antitrust policies embodied in § 16600 of the Business and Professions Code, quoted, supra, at 121. This statute has been in effect for many years and is well entrenched in case law and in commentary. We need not pursue in depth the policy considerations supporting this statute because, in our judgment, § 16600, standing alone and apart from § 229, under existing case law, would not provide the necessary support to uphold a challenge to arbitration. Our inclination in this respect is buttressed by the different results reached by the California Court of Appeal in this case and in Frame, supra, respectively. In Frame, the court decided that the “strong [California] public policy” against restraining one from engaging in a lawful business foreclosed the application of the more permissive New York law to the forfeiture provision of the profit-sharing plan. Although California public policy thus served to nullify the contract’s forfeiture provision, arbitration, nonetheless, was not precluded. By way of contrast, the present case provoked a claim under § 229, in addition to Ware’s reliance on § 16600, in the face of Merrill Lynch’s motion to compel arbitration. The California court declared again that the forfeiture clause was invalid but, in addition, held that the arbitration clause was unenforceable, relying on § 16600 and § 229, respectively. With this analysis of the state statutes made by the California court, we rest on that court’s interpretation of state law and do not, and in fact cannot, disturb its determination that under those statutes arbitration will lie in the one instance but not in the other.

With this background, we turn to specific arguments advanced by the petitioner here.

Ill

A. Merrill Lynch suggests that Rule 347 (b) of the New York Stock Exchange, set forth in n. 3, supra, falls under the Exchange’s mandate to protect the investing public and to insure just and equitable trade practices. Its contention is that confidence in the industry and in the integrity and ability of its members has been jeopardized by failures of major brokerage houses with consequent substantial losses to the public. Investor confidence would be further undermined, it is said, by protracted litigation between member firms and their employees over disputes that arise out of employment relationships; public airing of every claim of this kind will erode confidence in the market; and arbitration, on the other hand, will internalize these disputes and provide an expeditious and economical method of resolution by arbitrators familiar with industry customs and practices.

As is seen by our discussion above, §§ 6 (d) and 19 (b) of the Act, 15 U. S. C. §§ 78f (d) and 78s (b), establish the measure of congressionally delegated authority for self-regulation in the national interest. Section 6 (d) requires that exchange rules be “just and adequate to insure fair dealing and to protect investors.” Section 19 (b) gives the Commission limited power over certain types of exchange rules “for the protection of investors or to insure fair dealing in securities” or to “insure fair administration” of the exchanges. Measured by these standards, we conclude that the policy arguments advanced by Merrill Lynch do not require pre-emption of contrary state law by Rule 347 (b).

To begin with the obvious, there is nothing in the Act and there is no Commission rule or regulation that specifies arbitration as the favored means of resolving employer-employee disputes. It is also clear that Rule 347 (b) would not be subject to the Commission’s modification or review under § 19 (b). The United States, as amicus, concedes as much, and we conclude, as the Government suggests, that the relationship between compulsory employer-employee arbitration and fair dealing and investor protection is “extremely attenuated and peripheral, if it exists at all.” Brief for the United States 9. Merrill Lynch has not alleged that arbitration will effect fair dealing or result in investor protection. It suggests only that investor confidence not be shaken further by public airing of employer-employee disputes. There is no explanation of why a judicial proceeding, even though public, would undermine investor confidence. It is difficult to understand why muffling a grievance in the cloakroom of arbitration would prevent lessening of confidence in the market. To the contrary, for the generally sophisticated investing public, market confidence may tend to be restored in the light of impartial public court adjudication. Furthermore, it should be apparent that, so far as investor confidence is concerned, compulsory arbitration of an employee-employer grievance is no substitute for direct effective disciplinary action against any abusive exchange practice. Other rules of the Exchange serve this very function. Rule 345 (b), for example, permits the Exchange to disapprove, and thereby to forestall, the employment of any person, and Rule 345 (d) spells out punitive measures for '“conduct inconsistent with just and equitable principles of trade,” or “acts detrimental to the interest or welfare of the Exchange,” or “conduct contrary to an established practice of the Exchange.” These measures, designed to insure fair dealing and to protect investors, are of the kind directly related to the Act's purposes and ordinarily would not be expected to yield to provisions of state law.

B. Rule 347 (b) cannot be categorized, as the petitioner suggests, as part of a need for uniform national regulation. There is no revelation in the Act or in any Commission rule or regulation that nationwide uniformity of an exchange’s housekeeping affairs is necessary or desirable. And Merrill Lynch has not demonstrated that national uniformity in the area of wage claims is vital, in some way, to federal securities policy. Convenience in exchange management may be desirable, but it does not support a plea for uniform application when the rule to be applied is not necessary for the achievement of the national policy objectives reflected in the Act. Indeed, Congress, in the securities field, has not adopted a regulation system wholly apart from and exclusive of state regulation. Cf. Rice v. Santa Fe Elevator Corp., 331 U. S. 218, 234-236 (1947); Campbell v. Hussey, 368 U. S. 297, 302 (1961). Instead, Congress intended to subject the exchanges to state regulation that is not inconsistent with the federal Act. Section 6 (c), 15 U. S. C. § 78f (c), explicitly subjects exchange rules to a requirement of consistency with the Act “and the applicable laws of the State in which [the exchange] is located.” “Where the Government has provided for collaboration the courts should not find conflict.” Union Brokerage Co. v. Jensen, 322 U. S. 202, 209 (1944). And we observed in Silver that the scheme of self-regulation provides in some cases for no agency check on exchange behavior and, therefore, “[s]ome form of review of exchange self-policing, whether by administrative agency or by the courts, is . . . not at all incompatible with the fulfillment of the aims of the Securities Exchange Act.” 373 U. S., at 359.

C. It is also argued that the applicable state laws referred to in § 6 (c) are the laws of the State in which the exchange itself is located. Thus, because the New York Stock Exchange is in the city of New York, it is said that “the applicable laws” are those of New York, and that the California court was in error in not applying New York law that would have compelled arbitration of this dispute and would have validated the forfeiture provision of the Profit-Sharing Plan.

We are not persuaded that this is what Congress intended. Section 6 (c) has no independent existence creating some sort of spurious uniformity of application for all States. It has meaning only in the context of the assertion of a federal interest, and it hinges on our determination that the particular rule be integrally related to or substantially effect the aims and purposes of the Act. It merely requires that any exchange rule adopted outside the context of the Act be consistent with the laws of the State in which the exchange is located.

If the rule is sought to be enforced in another State, normal conflict of laws principles come into play, and the rule’s effect depends on the resolution of that conflict. Were this not so, there would be no purpose behind the choice-of-law clause in the Profit-Sharing Plan itself. More importantly, the uniform application Merrill Lynch’s interpretation of the Act would purportedly foster is seen to be ephemeral when one considers that broker-dealers like petitioner are also members of exchanges located outside New York, and are therefore subject, under the “state of location” theory, to other States’ laws. In effect, we are asked to sacrifice the individual’s expectation of uniform treatment in the State of his residence for uniformity of application of the effect of an exchange’s rules. We decline to do so because we believe that Congress intended that those elements of the old regime of complete self-regulation, that is, those elements not related to the federal objectives, be subject to state law and to established conflicts principles when their application out of State comes into controversy. After all, a stock exchange is organized as an association in accordance with the laws of the State of its location. Any assertion of extraterritorial jurisdiction contends, of course, with the public policy of the State in which this jurisdiction is sought. To ascribe more to § 6 (c) would be contrary to the congressional scheme and to what might be regarded as common sense.

D. Mr. Justice Brennan has stated:

“The principle to be derived from our decisions is that federal regulation of a field of commerce should not be deemed preemptive of state regulatory power in the absence of persuasive reasons — either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.” Florida Lime & Avocado Growers, Inc. v. Paul, 373 U. S. 132, 142 (1963).

In other contexts, pre-emption has been measured by whether the state statute frustrates any part of the purpose of the federal legislation. Colorado Anti-Discrimination Comm’n v. Continental Air Lines, Inc., 372 U. S. 714, 724 (1963); Perez v. Campbell, 402 U. S. 637 (1971); Rice v. Board of Trade, 331 U. S. 247, 253-255 (1947). And only last term Mr. Justice Douglas, in speaking for the Court, observed that while prior.cases on pre-emption “are not precise guidelines,” because each case turns on the peculiarities and special features of the federal regulatory scheme in question,” it is where there is in existence a pervasive and comprehensive scheme of federal regulation that pre-emption follows in order to fulfill the federal statutory purposes. City of Burbank v. Lockheed Air Terminal, Inc., 411 U. S. 624, 638-639 (1973).

In the area of regulation that we are considering here, California has manifested a strong policy of protecting its wage earners from what it regards as undesirable economic pressures affecting the employment relationship. This policy prevails in the absence of interference with the federal regulatory scheme. We find no such interference and we also find in the structure of the Act an intent on the part of Congress that state policies in this area should operate vigorously.

E. It is suggested, finally, that the petitioner’s Profit-Sharing Plan operates on a national level; that it is open to all eligible Merrill Lynch employees in the United States; that the employment of respondent and the class he represents is interstate in nature, as is Merrill Lynch’s business; and that the application of the California statutes would unduly burden interstate commerce.

What has been said above provides the answer to this argument. It is in line with the principle, long established, that the National Government’s power, under the Commerce Clause, to regulate commerce does not exclude all state power of regulation. Southern Pacific Co. v. Arizona, 325 U. S. 761, 766-767 (1945); Brotherhood of Locomotive Firemen & Enginemen v. Chicago, R. I. & P. R. Co., 393 U. S. 129 (1968); Huron Portland Cement Co. v. Detroit, 362 U. S. 440 (1960).

The judgment of the Court of Appeal is affirmed.

It is so ordered.

Mr. Justice Stewart took no part in the decision of this case.

       “22.1 The validity of the Plan or of any of the provisions thereof shall be determined under and shall be construed according to the laws of the State of New York.”

       “Rule 345. (a) No member or member organization shall
      “(1) permit any person to perform regularly the duties customarily performed by a registered representative, unless such person shall have been registered with and is acceptable to the Exchange . . .

       Paragraph 30 (j) of the Exchange form reads:
      “(j) I agree that any controversy between me and any . . . member organization arising out of my employment or the termination of my employment by and with such . . . member organization shall be settled by arbitration, at the instance of any such party in accordance with the Constitution and rules then obtaining of the New York Stock Exchange.”
      Paragraph 30 (d) of the same form reads in part:
      “(d) I have read the Constitution and Rules of the Board of Governors of the New York Stock Exchange and, if approved, I hereby pledge myself to abide by the Constitution and Rules of the Board of Governors of the New York Stock Exchange as the same have been or shall be from time to time amended, and by all rules and regulations adopted pursuant to the Constitution, and by all practices of the Exchange.”
      Rule 347 (b) of the New York Stock Exchange, adopted in April 1958, prior to Ware’s employment, provides:
      “(b) Any controversy between a registered representative and any . . . member organization arising out of the employment or termination of employment of such registered representative by and with such . . . member organization shall be settled by arbitration, at the instance of any such party, in accordance with the arbitration procedure prescribed elsewhere in these rules.”
      It is thus apparent that ¶ 30 (j) of the form follows the language of the Exchange’s Rule 347 (b).

       “§ 1281.2 Order to arbitrate controversy; petition; determination of court
      “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that:
      “(a) The right to compel arbitration has been waived by the petitioner; or
      “(b) Grounds exist for the revocation of the agreement. . . .”

       In Frame, decided only five months earlier, the same California Court of Appeal reversed a trial court’s order denying arbitration and thus seemingly arrived at an ultimate result opposite to that reached in the present case. The court held, 20 Cal. App. 3d 668, 671-673, 97 Cal. Rptr. 811, 813-815, that Frame (like Ware) had made an agreement to arbitrate; that there was no basis for using the doctrine of adhesion to avoid arbitration; that the forfeiture provision of Art. 11.1 was ineffective under § 16600; that the agreement’s provision that New York law was to apply “must not be allowed to defeat” the policy of § 16600; that, however, the entire contract was not necessarily unlawful; and that a
      “latent question exists as to whether the agreements of the parties may be construed as applying only to such permissible subjects of restraint as breaches of confidence and misappropriation of trade secrets. Other questions may be raised as to the time and circumstances of respondent’s employment and the amount of any benefits earned and remaining unpaid. All of these matters, whether they involve questions of law or questions of fact are in the first instance properly subject to arbitration.” 20 Cal. App. 3d, at 673, 97 Cal. Rptr., at 815.
      But no mention was made in Frame of §§ 200 and 229 of the State’s Labor Code, see nn. 6-7, infra, and, as the court later said in this case, 24 Cal. App. 3d 35, 43, 100 Cal. Rptr. 791, 797, “[t]he Frame court did not consider the effect of section 229 of the Labor Code on the arbitration agreement.” Apparently, neither side in Frame sought review by the California Supreme Court.

       “§ 200. Definitions
      “As used in this article: (a) 'Wages’ includes all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.”

       “§229. Actions to enforce payment of wages; effect of arbitration agreements
      “Actions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate. This section shall not apply to claims involving any dispute concerning the interpretation or application of any collective bargaining agreement containing such an arbitration agreement.”
      Section 229 was added to the Code in 1959. Cal. Stats. 1959, c. 1939, p. 4532.

       This approach is supported by decisions extending back to the turn of the century. Florida Lime & Avocado Growers, Inc. v. Paul, 373 U. S. 132, 142 (1963); Huron Portland Cement Co. v. City of Detroit, 362 U. S. 440 (1960); International Assn. of Machinists v. Gonzales, 356 U. S. 617 (1958); Union Brokerage Co. v. Jensen, 322 U. S. 202 (1944); Savage v. Jones, 225 U. S. 501 (1912).

       The first attempt at exchange regulation arose after the panic of 1907 when, in response to public concern over speculation, President Theodore Roosevelt urged Congress to take action. 42 Cong. Rec. 1347, 1349 (1908). Nothing of significance happened, however, until after the 1929 stock market crash. It became apparent that “transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected with a national public interest which makes it necessary to provide for regulation and control of such transactions and of practices and matters related thereto.” Securities Exchange Act of 1934, § 2, 15 U. S. C. § 78b. Self-regulation was adopted as a means of policing the exchanges. The tradition, as has been noted, had been one of self-governance; the financial community was strongly opposed to governmental control of daily exchange business; and the task was deemed to be of such magnitude that Government simply could not regulate effectively every aspect of the industry. Comment, 48 Minn. L. Rev. 597-598 (1964); 2 L. Loss, Securities Regulation 1175-1176 (1961), and 5 id., at 3138-3139 (1969).

       The Commission also has broad rulemaking power under the Act. See, for example, §§ 8, 9, and 11, 15 U. S. C. §§ 78h, 78i, and 78k. No question is presented in this case as to the authority of the Commission to promulgate rules affecting the operation of stock exchanges.

       Section 1280 was repealed and replaced in 1961 to make the saving clause in § 1281 now read, “save upon such grounds as exist for the revocation of any contract.” Cal. Stats. 1961, c. 461, pp. 1540-1541, §§ 1 and 2.

       See citations following § 16600 in West’s Ann. Calif. Bus. & Prof. Code 41 et seq.

       The phrase “just and. equitable trade practices” would be inappropriately used to justify Rule 347 (b). This is because the standard refers to rules adopted pursuant to § 6 (b) of the Act, 15 U. S. C. § 78f (b), providing for the expulsion, suspension, or disciplining of a member “for conduct or proceeding inconsistent with just and equitable principles of trade.” Arbitration is not the type of disciplinary rule that § 6 (b) contemplates.

       As noted, supra, at 129, the Commission’s review power over exchange rules is circumscribed by certain subject matter limitations explicitly enumerated in § 19(b). None of the subject matter categories suggests that the Commission has review authority with respect to a rule requiring arbitration of employer-employee disputes.

       This Court and other federal courts, of course, have endorsed the suitability of arbitration to resolve federally created rights. Wilko v. Swan, 346 U. S. 427, 431 (1953); Coenen v. R. W. Pressprich & Co., 453 F. 2d 1209 (CA2), cert. denied, 406 U. S. 949 (1972). See other cases cited by Mr. Justice White in his dissenting opinion in U. S. Bulk Carriers, Inc. v. Arguelles, 400 U. S. 351, 374-375 (1971). These cases, however, concern situations where a federal act itself has provided for arbitration. Yet in Wilko v. Swan an investor customer’s agreement to arbitrate was held void under § 14 of the Securities Act of 1933, 15 U. S. C. § 77n, notwithstanding the provisions of § 3 of the United States Arbitration Act, 9 U. S. C. § 3. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395 (1967).

       The Act contains other provisions indicating the intent of Congress that state law continues to apply where .the Act itself does not. Thus, §28 (a), 15 U. S. C. § 78bb (a), states that the rights and remedies provided by the Act “shall be in addition to any and all other rights and remedies that may exist at law or in equity.” It further provides that nothing in the Act “shall affect the jurisdiction of the securities commission ... of any State . . . insofar as it does not conflict with the provisions” of the Act “or the rules and-regulations thereunder.” Section 28(b), 15 U. S. C. §78bb(b), provides that nothing in the Act “shall be construed to modify existing law . . . with regard to the binding effect ... of [exchange] action taken ... to settle disputes between its members ... on any person who has agreed to be bound thereby.”


source: Caselaw Access Project

author: Mr. Justice Rehnquist Mr. Justice Brennan,

license: Public Domain

text:
    CUPP, PENITENTIARY SUPERINTENDENT v. NAUGHTEN
    No. 72-1148.
    Argued October 16, 1973
    Decided December 4, 1973
    Rehnquist, J., delivered the opinion of the Court, in which Burger, C. J., and Stewart, White, Blackmun, and Powell, JJ., joined. Brennan, J., filed a dissenting opinion, in which Douglas and Marshall, JJ., joined, post, p. 150.

      John W. Osburn, Solicitor General of Oregon, argued the cause for petitioner. With him on the brief were
      Lee Johnson, Attorney General, and Thomas H. Denney and John H. Clough, Assistant Attorneys General.

      Ross R. Runkel, by appointment of the Court, 412 U. S. 904, argued the cause and filed a brief for respondent.
   Mr. Justice Rehnquist

delivered the opinion of the Court.

Respondent Naughten was tried in an Oregon state court for the crime of armed robbery. The State’s principal evidence consisted of testimony by the owner of the grocery store that respondent had robbed the store at gunpoint and of corroborative testimony by another eyewitness. In addition, two police officers testified that respondent had been found near the scene of the robbery and that the stolen money was located near his car in a neighboring parking lot. A few items of clothing, identified as belonging to respondent, and the stolen money were also introduced. Respondent neither took the stand himself nor called any witnesses to testify in his behalf.

The trial judge charged the jury that respondent was presumed innocent “until guilt is proved beyond a reasonable doubt,” and then continued:

“Every witness is presumed to speak the truth. This presumption may be overcome by the manner in which the witness testifies, by the nature of his or her testimony, by evidence affecting his or her character, interest, or motives, by contradictory evidence, or by a presumption.” App. 16.

The trial judge also instructed the jury as to the State's burden of proof, defining in detail the concept of reasonable doubt; later, at the respondent's request, he gave an additional instruction on the presumption of innocence. The jury returned a verdict of guilty, and respondent was sentenced to a term in the state penitentiary.

The Oregon Court of Appeals affirmed respondent’s conviction, finding that inclusion of the “presumption of truthfulness” instruction in the judge’s charge to the jury was not error. The Supreme Court of Oregon denied a petition for review. His state remedies thus exhausted, respondent sought federal habeas corpus relief in the United States District Court for the District of Oregon, asserting that the presumption-of-truthfulness charge shifted the State’s burden to prove guilt beyond a reasonable doubt and forced respondent instead to prove his innocence. The District Court noted that similar instructions had met with disfavor in the federal courts of appeals, but observed that “[those] cases [did] not involve appeals from State Court convictions.” Recognizing that the instruction was “proper under Oregon law,” the District Court stated:

“In any event, the giving of the instruction did not deprive petitioner of a federally protected constitutional right.”

The Court of Appeals for the Ninth Circuit reversed. That court, noting that the instruction in question “has been almost universally condemned” and that Naughten had not testified or called witnesses in his own behalf, went on to say:

“Thus, the clear effect of the challenged instruction was to place the burden on Naughten to prove his innocence. This is so repugnant to the American concept that it is offensive to any fair notion of due process of law.” 476 F. 2d 845, 847.

We granted certiorari to consider whether the giving of this instruction in a state criminal trial so offended established notions of due process as to deprive the respondent of a constitutionally fair trial.

Although the presumption-of-truthfulness instruction apparently became increasingly used in federal criminal prosecutions following the publication of Judge Mathes’ Jury Instructions and Forms for Federal Criminal Cases, 27 F. R. D. 39, 67 (1961), the instruction appears to have had quite an independent origin in Oregon practice. The instruction given in Naughten’s trial was directly based on § 44.370 of the Oregon Revised Statutes, a provision first passed in 1862. Only four years ago, the Oregon Supreme Court upheld the validity of the instruction against constitutional attack. State v. Kessler, 254 Ore. 124, 458 P. 2d 432 (1969). At that time the court noted the extensive criticism of similar instructions in the federal courts of appeals and the possible effect of such instructions on the presumption of innocence. Nonetheless, though the court stated that “it might be preferable not to instruct the jury in criminal cases where defendant does not take the stand that a witness is presumed to speak the truth,” it concluded that there was no error in giving the instruction “if accompanied by an explanation of how the presumption can be overcome.” Id., at 128, 458 P. 2d, at 435. The Oregon Court of Appeals followed that holding in affirming respondent's conviction in this case.

The criticism of the instruction by the federal courts has been based on the idea that the instruction may “dilute,” “conflict with,” “seem to collide with,” or “impinge upon” a criminal defendant's presumption of innocence; “clash with” or “shift” the prosecution’s burden of proof; or “interfere” with or “invade” the province of the jury to determine credibility. In fact, in some cases, the courts of appeals have determined that a presumption-of-truthfulness instruction is so undesirable that the defendant may be entitled to a new trial on that ground alone. A reading of these cases, however, indicates that the courts of appeals were primarily concerned with directing inferior courts within the same jurisdiction to refrain from giving the instruction because it was thought confusing, of little positive value to the jury, or simply undesirable. The appellate courts were, in effect, exercising the so-called supervisory power of an appellate court to review proceedings of trial courts and to reverse judgments of such courts which the appellate court concludes were wrong.

Within such a unitary jurisdictional framework the appellate court will, of course, require the trial court to conform to constitutional mandates, but it may likewise require it to follow procedures deemed desirable from the viewpoint of sound judicial practice although in nowise commanded by statute or by the Constitution. Thus even substantial unanimity among federal courts of appeals that the instruction in question ought not to be given in United States district courts within their respective jurisdictions is not, without more, authority for declaring that the giving of the instruction makes a resulting conviction invalid under the Fourteenth Amendment. Before a federal court may overturn a conviction resulting from a state trial ’in which this instruction was used, it must be established not merely that the instruction is undesirable, erroneous, or even “universally condemned,” but that it violated some right which was guaranteed to the defendant by the Fourteenth Amendment.

In determining the effect of this instruction on the validity of respondent’s conviction, we accept at the outset the well-established proposition that a single instruction to a jury may not be judged in artificial isolation, but must be viewed in the context of the overall charge. Boyd v. United States, 271 U. S. 104, 107 (1926). While this does not mean that an instruction by itself may never rise to the level of constitutional error, see Cool v. United States, 409 U. S. 100 (1972), it does recognize that a judgment of conviction is commonly the culmination of a trial which includes testimony of witnesses, argument of counsel, receipt of exhibits in evidence, and instruction of the jury by the judge. Thus not only is the challenged instruction but one of many such instructions, but the process of instruction itself is but one of several components of the trial which may result in the judgment of conviction.

The Court of Appeals in this case stated that the effect of the instruction was to place the burden on respondent to prove his innocence. But the trial court gave, not once but twice, explicit instructions affirming the presumption of innocence and declaring the obligation of the State to prove guilt beyond a reasonable doubt. The Court of Appeals, recognizing that these other instructions had been given, nevertheless declared that “there was no instruction so specifically directed to that under attack as can be said to have effected a cure.” 476 F. 2d, at 847. But we believe this analysis puts the cart before the horse; the question is not whether the trial court failed to isolate and cure a particular ailing instruction, but rather whether the ailing instruction by itself so infected the entire trial that the resulting conviction violates due process.

This Court has recently held that the Due Process Clause requires the State in criminal prosecutions to prove guilt beyond a reasonable doubt. In re Winship, 397 U. S. 358 (1970). In that case the judge, presiding over the trial of a juvenile charged with stealing $112 from a woman’s pocketbook, specifically found that the evidence was sufficient to convict under a “preponderance of the evidence” standard but insufficient to convict under a “beyond a reasonable doubt” standard. Id., at 360 and n. 2. Since the judge found that a New York statute compelled evaluation under the more lenient standard, the defendant was found guilty. This Court reversed, stating that “[t]he reasonable-doubt standard plays a vital role in the American scheme of criminal procedure,” id., at 363, and holding explicitly “that the Due Process Clause protects the accused against conviction except upon proof beyond a reasonable doubt of every fact necessary to constitute the crime with which he is charged.” Id., at 364.

We imply no retreat from the doctrine of Winship when we observe that it was a different case from that before us now. There the trial judge made an express finding that the State was not required to prove guilt beyond a reasonable doubt; in this case the State’s burden of proof was emphasized and re-emphasized in the course of the complete jury instructions. Respondent nevertheless contends that, despite the burden of proof and reasonable-doubt instructions given by the trial court, the charge as to presumption of truthfulness impliedly placed the burden of proof on him. We do not agree.

Certainly the instruction by its language neither shifts the burden of proof nor negates the presumption of innocence accorded under Oregon law. It would be possible perhaps as a matter of abstract logic to contend that any instruction suggesting that the jury should believe the testimony of a witness might in some tangential respect “impinge” upon the right of the defendant to have his guilt proved beyond a reasonable doubt. But instructions bearing on the burden of proof, just as those bearing on the weight to be accorded different types of testimony and other familiar subjects of jury instructions, are in one way or another designed to get the jury off dead center and to give it some guidance by which to evaluate the frequently confusing and conflicting testimony which it has heard. The well-recognized and long-established function of the trial judge to assist the jury by such instructions is not emasculated by such abstract and conjectural. emanations from Winship.

It must be remembered that “review by this Court of state action expressing its notion of what will best further its own security in the administration of criminal justice demands appropriate respect for the deliberative, judgment of a state in so basic an exercise of its jurisdiction.” McNabb v. United States, 318 U. S. 332, 340 (1943). In this case, while the jury was informed about the presumption of truthfulness, it was also specifically instructed to consider the manner of the witness, the nature of the testimony, and any other matter relating to the witness’ possible motivation to speak falsely. It thus remained free to exercise its collective judgment to reject what it did not find trustworthy or plausible. Furthermore, by acknowledging that a witness could be discredited by his own manner or words, the instruction freed respondent from any undue pressure to take the witness stand himself or to call witnesses under the belief that only positive testimony could engender disbelief of the State’s witnesses.

The jury here was charged fully and explicitly about the presumption of innocence and the State’s duty to prove guilt beyond a reasonable doubt. Whatever tangential undercutting of these clearly stated propositions may, as a theoretical matter, have resulted from the giving of the instruction on the presumption of truthfulness is not of constitutional dimension. The giving of that instruction, whether judged in terms of the reasonable-doubt requirement in In re Winship, supra, or of offense against “some principle of justice so rooted in the traditions and conscience of our people as to be ranked as fundamental,” Snyder v. Massachusetts, 291 U. S. 97, 105 (1934), did not render the conviction constitutionally invalid.

Reversed.

Mr. Justice Brennan,

with whom Mr. Justice Douglas and Mr. Justice Marshall join, dissenting.

Respondent was found guilty of armed robbery and assault, after the jury had been charged, in pertinent part, as follows:

“The law provides for certain disputable presumptions which are to be considered as evidence.
“A presumption is a deduction which the law expressly directs to be made from particular facts and is to be considered by you along with the other evidence. However, since these presumptions are disputable presumptions only, they may be out-weighed or equaled by other evidence. Unless out-weighed or equaled, however, they are to be accepted by you as true.
“The law presumes that the defendant is innocent, and this presumption follows the defendant until guilt is proved beyond a reasonable doubt.
“Every witness is presumed to speak the truth. This presumption may be overcome by the manner in which the witness testifies, by the nature of his or her testimony, by evidence affecting his or her character, interest, or motives, by contradictory evidence, or by a presumption.
“Burden of Proof. The burden is upon the State to prove the guilt of the defendant beyond a reasonable doubt.” (Emphasis added.)

A timely objection was taken to the part instructing upon the presumption of truthfulness. In my view the charge permitted the jury to convict even though the evidence may have failed to establish respondent’s guilt beyond a reasonable doubt, and therefore denied respondent due process of law.

The charge directed the jury to find that the State’s witnesses had spoken the truth, unless the presumption of truthfulness were “overcome” by demeanor, impeachment, or contradictory evidence. This instruction followed an earlier instruction that a presumption could be rebutted by other evidence which “out-weighed or equaled” the presumption, but that otherwise “the law expressly direct[ed]” that a finding be made in accordance with the presumption. Considered together, these instructions clearly required the jury to believe a witness’ testimony until his or her untruthfulness had been demonstrated by evidence making it appear as likely as not that the testimony was false. Since the State’s case rested almost entirely upon the testimony of two eyewitnesses and two police officers, see ante, at 142, and since respondent neither called witnesses nor took the stand himself, the practical effect of the court’s instructions was to convert the State’s burden of proving guilt beyond a reasonable doubt to proving guilt by a preponderance of the evidence.

The reduction of the prosecution’s burden of persuasion to a preponderance clearly conflicts with the Due Process Clause guarantee that an accused shall not be convicted “except upon proof beyond a reasonable doubt of every fact necessary to constitute the crime with which he is charged.” In re Winship, 397 U. S. 358, 364 (1970). In Cool v. United States, 409 U. S. 100 (1972), we held that an “unacceptable risk” existed that the jury might have understood an instruction- — that certain defense testimony could properly be considered if found to be true beyond a reasonable doubt — as requiring that the defense testimony be considered only if believed beyond a reasonable doubt. Id., at 102 n. 3. Over a dissent which asserted that the Court was parsing instructions and engaging in semantical distinctions without considering the trial court’s charge to the jury as a whole, id., at 107-108, the instruction was found “fundamentally inconsistent” with our Winship decision, since a possibility existed that exculpatory testimony — that would have created a reasonable doubt in the minds of the jurors— had been rejected because not believable beyond a reasonable doubt. Id., at 104. Thus, the evil in Cool was the unacceptable risk that jurors would understand the instruction to require that defense testimony be rejected out of hand which, if considered, might have given rise to a reasonable doubt about the defendant’s guilt. Respondent suffered no less a constitutional deprivation when, in unequivocal terms, the jury was instructed to accept the statements of prosecution witnesses as true even though the jurors might have entertained substantial and reasonable doubts about the veracity of the testimony — but not sufficient to conclude that it was as likely as not that the testimony was false.

Moreover, the presumption-of-truthfulness instruction itself is constitutionally defective. In Turner v. United States, 396 U. S. 398 (1970), we approved an inference of “knowledge” from the fact of possessing smuggled heroin, because “'[cjommon sense’ . . . tells us that those who traffic in heroin will inevitably become aware that the product they deal in is smuggled,” id., at 417; at the same time, we rejected the presumption that possession of unstamped cocaine was prima facie evidence that the drug was not purchased in or from the original stamped container, because a “reasonable possibility” existed that the defendant “stole the cocaine himself or obtained it from a stamped package in possession of the actual thief.” Id., at 423-424 (emphasis added). In the instant case, common sense does not dictate that a prosecution witness who has sworn or affirmed to tell the truth will inevitably do so, and there is surely a reasonable possibility that he will fail to do so. Since here no defense witnesses were called, the practical effect of the presumption of truthfulness was to permit the jury to find each and every element of the crimes charged without requiring that the elements be proved beyond a reasonable doubt. The presumption itself thus violates the mandate of Winship that “every fact necessary to constitute the crime” be proved beyond a reasonable doubt. See Barnes v. United States, 412 U. S. 837, 854 (1973) (Brennan, J., dissenting).

Viewed in the context of the overall charge to the jury, the instructions were no less objectionable. To be sure— as had been the case in Cool — the jurors were instructed that guilt must be proved beyond a reasonable doubt. However, they were also directed in effect to ignore certain doubts they might have entertained concerning the credibility of the prosecution's witnesses. Had the instructions concerning the reasonable-doubt standard necessarily contradicted the instructions dealing with the burden of proof needed to overcome the truthfulness presumption, the constitutional objection might have been dissipated. But there is, in my view, an “unacceptable risk” that the jury understood the instructions unambiguously to require that they put to one side certain doubts about the credibility of the testimony they had heard and only then determine whether the evidence supported a finding of guilt beyond a reasonable doubt. I therefore conclude that the instructions are constitutionally infirm.

In this circumstance, the constitutional error inhering in the instruction cannot properly be viewed as harmless beyond a reasonable doubt. See Chapman v. California, 386 U. S. 18, 24 (1967). The reasonable-doubt standard reduces the risk that an error in factfinding could deprive an innocent man of his good name and freedom. See In re Winship, supra, at 363-364. It also impresses the jurors with their solemn responsibility to avoid being misled by suspicion, conjecture, or mere appearance, and to arrive at a state of certainty concerning the proper resolution of the relevant factual issues. Here, the truth-finding function of the jury was invaded and the State's burden of proving guilt beyond a reasonable doubt was diminished. When the reasonable-doubt standard has been thus compromised, it cannot be said beyond doubt that the error “made no contribution to a criminal conviction.” Harrington v. California, 395 U. S. 250, 255 (1969) (dissenting opinion). Rather, such an error so conflicts with an accused's right to a fair trial that the “infraction can never be treated as harmless error.” Chapman v. California, supra, at 23.

       The judge also instructed the jury that respondent did not have to testify and that the jury was to draw no inference of guilt from his failure to do so.

       Alternatively, the District Court held that assuming there had been error of constitutional proportions in the charge, the error was harmless in view of the overwhelming evidence of guilt. Harrington v. California, 395 U. S. 250 (1969). The Court of Appeals, without detailing its reasoning, disagreed, stating that the State had not met its burden of showing that the error was harmless. In view of our disposition of this case, we do not reach that issue.

       476 F. 2d 845, 846 (1972). The court then denied a petition for rehearing by an equally divided vote.

         The court cited nine cases from various federal courts of appeals, all of which had expressed disapproval of the presumption-of-truthfulness instruction. See United States v. Birmingham, 447 F. 2d 1313 (CA10 1971); United States v. Stroble, 431 F. 2d 1273 (CA6 1970); McMillen v. United States, 386 F. 2d 29 (CA1 1967), cert. denied, 390 U. S. 1031 (1968); United States v. Dichiarinte, 385 F. 2d 333 (CA7 1967); United States v. Johnson, 371 F. 2d 800 (CA3 1967); United States v. Persico, 349 F. 2d 6 (CA2 1965). See also United States v. Safley, 408 F. 2d 603 (CA4 1969); Harrison v. United States, 387 F. 2d 614 (CA5 1968); Stone v. United States, 126 U. S. App. D. C. 369, 379 F. 2d 146 (1967) (Burger, J.). None of these cases, however, dealt with review of a state court proceeding.

       Judge Mathes’ original instruction was modified in W. Mathes & E. Devitt, Federal Jury Practice and Instructions § 9.01 (1965), and is not included in E. Devitt & C. Blackmar, Federal Jury Practice and Instructions (2d ed. 1970). See id., vol. 1, § 12.01, and accompanying note.

         See, e. g., United States v. Johnson, supra, at 804; United States v. Stroble, supra, at 1278; United States v. Dichiarinte, supra, at 339; Stone v. United States, supra, at 370, 379 F. 2d at 147.

       See, e. g., United States v. Meisch, 370 F. 2d 768, 774 (CA3 1966); United States v. Birmingham, supra, at 1315.

       See, e. g., United States v. Stroble, supra; United States v. Birmingham, supra.

       See, e. g., United States v. Birmingham, supra. However, the instruction given in Birmingham was somewhat different from the instruction given here. The jury there was told that the presumption of truthfulness controlled “[u]nless and until outweighed by evidence to the contrary.” 447 F. 2d, at 1315. Apparently no additional instruction was given regarding consideration of the manner or nature of the witnesses’ testimony or of the witnesses’ possible motivations to speak falsely. See also Johnson, supra.

       Due to the structuring of the instructions it is conceivable that the jurors would have understood that, since the presumption of innocence could be overcome only by proof of guilt beyond a reasonable doubt, the presumption of truthfulness could likewise be overcome only by evidence of untruthfulness beyond a reasonable doubt. If the instructions were in fact understood in this manner, the ensuing arguments concerning the unconstitutionality of the instructions would follow a fortiori.

       The courts of appeals in every circuit have disapproved of presumption-of-truthfulness instructions and have often expressed their objections in terms of constitutional values. See McMillen v. United States, 386 F. 2d 29 (CA1 1967); United States v. Bilotti, 380 F. 2d 649 (CA2 1967); United States v. Evans, 398 F. 2d 159 (CA3 1968); United States v. Safley, 408 F. 2d 603 (CA4 1969); United States v. Reid, 469 F. 2d 1094 (CA5 1972); United States v. Stroble, 431 F. 2d 1273 (CA6 1970); United States v. Dichiarinte, 385 F. 2d 333 (CA7 1967); United States v. Gray, 464 F. 2d 632 (CA8 1972); the instant case, Naughten v. Cupp, 476 F. 2d 845 (CA9 1972); United States v. Birmingham, 447 F. 2d 1313 (CA10 1971); Stone v. United States, 126 U. S. App. D. C. 369, 379 F. 2d 146 (1967). But the courts have been particularly concerned about the impact that such instructions might have when the defendant has not offered testimony. See United States v. Safley, supra, at 605; United States v. Boone, 401 F. 2d 659, 661 (CA3 1968); United States v. Evans, supra, at 162; United States v. Dichiarinte, supra, at 339; Stone v. United States, supra, at 370, 379 F. 2d, at 147; United States v. Johnson, 371 F. 2d 800, 805 (CA3 1967); United States v. Meisch, 370 F. 2d 768, 774 (CA3 1966). However, even in a situation where the defendant has introduced rebuttal testimony, the impact of the presumption on the parties will be imponderable and not necessarily equal. See McMillen v. United States, supra, at 33.

       The origins of the presumption that witnesses will testify truthfully appear to extend back at least into the 19th century, see
        ante, at 144-145, when it was a widely held belief that a willful violation of the oath would expose the witness “at once to temporal and to eternal punishment.” T. Starkie, Law of Evidence 29 (10th Am. ed. 1876). In addition, at that time many of the common-law rules of incompetency were applied to disqualify individuals from testifying for reasons which today would merely be grounds for impeachment. See generally 9 W. Holdsworth, History of English Law 177-197 (1926); C. McCormick, Evidence, c. 7 (2d ed. 1972). Since that time, the rationale underlying the presumption has been substantially undercut.

       The majority’s reliance on Boyd v. United States, 271 U. S. 104 (1926), ante, at 146-147, is misplaced. There it was found that an “ambiguous” statement in the charge in a criminal case was likely understood in its harmless sense because’ of additional curative instructions. Id., at 107. The disputed instruction, even if erroneous, concerned a question of law under the Harrison Anti-Narcotic Act not of constitutional dimension, and the Court relied on the fact that a proper objection had not been taken to the charge. See id., at 107-108.


author: Me. Justice Douglas

text:
    NORTH DAKOTA STATE BOARD OF PHARMACY v. SNYDER’S DRUG STORES, INC.
    No. 72-1176.
    Argued November 6, 1973
    Decided December 5, 1973
    Douglas, J., delivered the opinion for a unanimous Court.

      A. William Lucas argued the cause and filed briefs for petitioner.

      Mart R. Vogel argued the cause and filed a brief for respondent.

        Arthur B. Hanson, Ralph N. Albright, Jr., and Sidney Waller filed a brief for the American Pharmaceutical Assn, et al. as amici curiae urging reversal.

        Thomas D. Quinn, Jr., and Harold Rosenwald filed a brief for the National Association of Chain Drug Stores, Inc., as amicus curiae urging affirmance.

   Me. Justice Douglas

delivered the opinion of the • Court.

North Dakota passed a statute that requires that the applicant for a permit to operate a pharmacy be “a registered pharmacist in good standing” or “a corporation or association, the majority stock in which is' owned by registered pharmacists in good standing, actively and regularly employed in and responsible for the management, supervision, and operation of such pharmacy.”

Petitioner Board denied a permit to Snyder’s Drug Stores, Inc., because it did not comply with the stock-ownership requirements of the statute, it appearing that all the common stock of Snyder’s was owned by Red Owl Stores and it not being shown if any Red Owl shareholders were pharmacists registered and in good standing in North Dakota. On appeal to the state district court, summary judgment was granted Snyder’s. On appeal to the Supreme Court of North Dakota, that court held that the North Dakota statute was unconstitutional by reason of our decision in 1928 in Liggett Co. v. Baldridge, 278 U. S. 105. That case involved a Pennsylvania statute that required that 100% of the stock of the corporation be owned by pharmacists. The North Dakota statute, however, requires only that a majority of the stock be owned by pharmacists. But the North Dakota Supreme Court held that the difference did not take this case out from under the Liggett case because under both statutes control of the corporation having a pharmacy license had to be in the hands of pharmacists responsible for the management and operation of the pharmacy. That court therefore remanded the case, so that the Board could conduct “an administrative hearing on the application, sans the constitutional issue, pursuant to our Administrative Agencies Practice Act,” 202 N. W. 2d 140, 145 (italics added).

The case is here on a petition for certiorari which we granted, 411 U. S. 947.

I

We are met at the outset with a suggestion that the judgment of the Supreme Court of North Dakota is not “final” within the meaning of 28 U. S. C. § 1257 which restricts our jurisdiction to review state court decisions.

The finality requirement of 28 U. S. C. § 1257, which limits our review of state court judgments, serves several ends: (1) it avoids piecemeal review of state court decisions; (2) it avoids giving advisory opinions in cases where there may be no real “case” or “controversy” in the sense of Art. Ill; (3) it limits review of state court determinations of federal constitutional issues to leave at a minimum federal intrusion in state affairs.

Mr. Justice Frankfurter, writing for the Court in Radio Station WOW v. Johnson, 326 U. S. 120, 124, summarized the requirement by Congress that in appeals from federal district courts as well as in review of state court decisions the judgments be “final”:

“This requirement has the support of considerations generally applicable to good judicial administration. It avoids the mischief of economic waste and of delayed justice. Only in very few situations, where intermediate rulings may carry serious public consequences, has there been a departure from this requirement of finality for federal appellate jurisdiction. This prerequisite to review derives added force when the jurisdiction of this Court is invoked to upset the decision of a State court. Here we are in the realm of potential conflict between the courts of two different governments. And so, ever since 1789, Congress has granted this Court the power to intervene in State litigation only after 'the highest court of a State in which a decision in the suit could be had’ has rendered a 'final judgment or decree.’ § 237 of the Judicial Code, 28 U. S. C. §344 (a). This requirement is not one of those technicalities to be easily scorned. It is an important factor in the smooth working of our federal system.”

But, as he pointed out, this concept of “finality” has a “penumbral area.” Ibid. Speaking for the Court in that case, he held that Nebraska’s ruling on the legality of a radio license issued by the Federal Communications Commission could be reviewed even though the state court had not yet determined the final accounting. He stated: “Of course, where the remaining litigation may raise other federal questions that may later come here ... to allow review of an mtermediate adjudication would offend the decisive objection to fragmentary reviews.” Id., at 127.

Mills v. Alabama, 384 U. S. 214, involved the constitutionality of a state statute in effect making it a crime for a newspaper editor on election day to urge people to vote a certain way on the issues being submitted. The state court held the act did not violate the Federal Constitution and remanded the case for trial. It was argued that the judgment was not “final” for purposes of 28 U. S. C. § 1257. We noted that the point had “a surface plausibility, since it is true the judgment of the State Supreme Court did not literally end the case.” 384 U. S., at 217. We held it “final,” however, because if the Act were constitutional the editor wbuld in reality have no defense. Since conviction seemed likely, we concluded that to deny review at that stage would “result in a completely unnecessary waste of time and energy in judicial systems already troubled by delays due to congested dockets.” Id., at 217-218.

In Hudson Distributors, Inc. v. Eli Lilly & Co., 377 U. S. 386, the question on the merits was whether the requirement of a state act setting minimum retail prices was consonant with federal law. The state court held the state act constitutional under both the State and the Federal Constitutions and remanded the case for further proceedings. In reliance on Curry and on Langdeau we held that the fact that there were to be further proceedings in the state court did not render the state judgment “nonfinal or unappealable within the meaning of 28 U. S. C. § 1257.” Id., at 389 n. 4.

The exceptions noted have a long lineage dating back to Mr. Chief Justice Taney’s opinion in Forgay v. Conrad, 6 How. 201, where the Court held “final” an interlocutory decree requiring a litigant “to deliver up property which he claims,” even though a final accounting has yet to be made. Id., at 205. Unless that interlocutory order was deemed “final,” Mr. Chief Justice Taney pointed out, the “right of appeal is of very little value to him and he may be ruined before he is permitted to avail himself of the right.” Ibid.

It is equally important that we treat the judgment in the instant case as “final,” for we have discovered no way which the licensing authority in North Dakota has of preserving the constitutional question now ripe for decision.

The Board here denied respondent’s application without an evidentiary hearing since the application showed that under the North Dakota Act respondent could in no way qualify for a license. The State Supreme Court held that Act unconstitutional and that thus an applicant failing to meet the requirements of the state statute is nevertheless entitled to consideration for a license. As previously noted, the State Supreme Court, indeed, directed the Board on remand to reconsider the application “sans” the constitutional question.

There were state law questions to be considered on the remand, for the state board had also rested its denial of a permit on the failure of Snyder’s to meet certain structural and safety standards. The Supreme Court remanded for an administrative hearing on those other issues.

If we deny review at this point, respondent has no constitutional barrier to the grant of a license.

The state licensing authority might, of course, after an administrative hearing reinstate its earlier findings that the respondent does not meet the necessary structural and safety standards. If' respondent is denied a license for that reason, the denial will obviously be on a state ground. If respondent is granted a license, the battle over the constitutionality of the new Act will be lost as far as this case is concerned.

There is no suggestion that “the remaining litigation may raise other federal questions,” Radio Station WOW v. Johnson, 326 U. S., at 127, “such as is true of eminent domain cases.” Ibid. For in those cases the federal constitutional question embraces not only a taking, but a taking on payment of just compensation. A state judgment is not final unless it covers both aspects of that integral problem. See Grays Harbor Co. v. Coats-Fordney Co., 243 U. S. 251, 256.

It would appear that, as & matter of North Dakota procedure, the only way in which the Board could preserve the constitutional issue would be to defy its own State Supreme Court and deny the application on the ground of failure to meet the ownership requirement. The state Administrative Agencies Practice Act provides that: “Any party to any proceeding heard by an administrative agency” may appeal from the decision of the agency. N. D. Cent. Code § 28-32-15. The statute appears to treat the agency as a tribunal and not as a “party” able to appeal its own order.

If the Board thus grants the license in accordance with the State Supreme Court decision and then seeks to appeal its own grant on the basis of the validity of the state ownership requirement, the appeal may well be dismissed and the dismissal would rest on the independent state ground that state procedural law does not provide the agency the right to appeal.

II

Liggett, decided in 1928, belongs to that vintage of decisions which exalted substantive due process by striking down state legislation which a majority of the Court deemed unwise. Liggett has to date not been expressly overruled. We commented on it disparagingly, however, in Daniel v. Family Security Life Ins. Co., 336 U. S. 220, which concerned the constitutionality of a state statute providing that life insurance companies and their agents may not operate an undertaking business and undertakers may not serve as agents for life insurance companies. We noted that Liggett held that it was “clear” that “mere stock ownership in a corporation, owning and operating a drug store, can have no real or substantial relation to the public health; and that the act in question creates an unreasonable and unnecessary restriction upon private business,” 278 U. S., at 113. In Daniel, however, we stated that “a pronounced shift of emphasis since the Liggett case,” 336 U. S., at 225, had deprived the words “unreasonable” and “arbitrary” of the meaning which Liggett ascribed to them. We had indeed held in Lincoln Union v. Northwestern Co., 335 U. S. 525, that a State had power, so far as the Due Process Clause of the Fourteenth Amendment was concerned, to legislate that no person should be denied the opportunity to obtain or retain employment because he was or was not a member of a labor union. After reviewing Nebbia v. New York, 291 U. S. 502, Adair v. United States, 208 U. S. 161, and Coppage v. Kansas, 236 U. S. 1, we said:

“This Court beginning at least as early as 1934, when the Nebbia case was decided, has steadily rejected the due process philosophy enunciated in the Adair-Coppage line of cases. In doing so it has consciously returned closer and closer to the earlier constitutional principle that states have power to legislate against what are found to be injurious practices in their internal commercial and business affairs, so long as their laws do not run afoul of some specific federal constitutional prohibition, or of some valid federal law. . . . Under this constitutional doctrine the due process clause is no longer to be so broadly construed that the Congress and state legislatures are put in a strait jacket when they attempt to suppress business and industrial conditions which they regard as offensive to the public welfare.” 335 U. S., at 536-537.

We reached the same result in Ferguson v. Skrupa, 372 U. S. 726, where we sustained the constitutionality of a state law prohibiting persons other than lawyers from engaging in the business of debt adjusting and debt pooling. We said:

"We conclude that the Kansas Legislature was free to decide for itself that legislation was needed to deal with the business of debt adjusting. Unquestionably, there are arguments showing that the business of debt adjusting has social utility, but such arguments are properly addressed to the legislature, not to us. We refuse to sit as a 'superlegislature to weigh the wisdom of legislation/ and we emphatically refuse to go back to the time when courts used the Due Process Clause 'to strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought.’ Nor are we able or willing to draw lines by calling a law 'prohibitory’ or 'regulatory.’ Whether the legislature takes for its textbook Adam Smith, Herbert Spencer, Lord Keynes, or some other is no concern of ours. The Kansas debt adjusting statute may be wise or unwise. But relief, if any be needed, lies not with us but with the body constituted to pass laws for the State of Kansas.” Id., at 731-732 (footnotes omitted).

The majority of the Court in Liggett for which Mr. Justice Sutherland spoke held that business or property rights could be regulated under the Fourteenth Amendment only if the “legislation bears a real and substantial relation to the public health, safety, morals, or some other phase of the general welfare,” 278 U. S., at 111-112. The majority held the Act governing pharmacies “creates an unreasonable and unnecessary restriction upon private business.” Id., at 113. The opposed view stated by Mr. Justice Holmes, and concurred in by Mr. Justice Brandéis, was:

“A standing criticism of the use of corporations in business is that it causes such business to be owned by people who. do not know anything about it. Argument has not been supposed to be necessary in order to show that the divorce between the power of control and knowledge is an evil. The selling of drugs and poisons calls for knowledge in a high degree, and Pennsylvania after enacting a series of other safeguards has provided that in that matter the divorce shall not be allowed. Of course, notwithstanding the requirement that in corporations hereafter formed all the stockholders shall be licensed pharmacists, it still would be possible for a stockholder to content himself with drawing dividends and to take no hand in the company’s affairs. But obviously he would be more likely to observe the business with an intelligent eye than a casual investor who looked only to the standing of the stock in the market. The Constitution does not make it a condition of preventive legislation that it should work a perfect cure. It is enough if the questioned act has a manifest tendency to cure or at least to make the evil less.” Id., at 114-115.

Those two opposed views of public policy are considerations for the legislative choice. The Liggett case was a creation at war with the earlier constitutional view of legislative power, Munn v. Illinois, 94 U. S. 113, 132, 134, and opposed to our more recent decisions. Olsen v. Nebraska, 313 U. S. 236, 241; Williamson v. Lee Optical Co., 348 U. S. 483, 487-488; Day-Brite Lighting, Inc. v. Missouri, 342 U. S. 421, as well as the Daniel, Lincoln Union, and Ferguson cases already discussed. The Liggett case, being a derelict in the stream of the law, is hereby overruled. We reverse and remand the judgment below and free the courts and agencies of North Dakota from what the State Supreme Court deemed to be the mandate of Liggett.

So ordered.

       N. D. Cent. Code §43-15-35 (5) (Supp. 1973) provides:

        “Requirements for permit to operate pharmacy. — The board shall issue a permit to operate a pharmacy, or a renewal permit, upon satisfactory proof that:
      “5. The applicant for such permit is qualified to conduct the pharmacy, and is a registered pharmacist in good standing or is a partnership, each active member of which is a registered pharmacist in good standing, or a corporation or association, the majority stock in which is owned by registered pharmacists in good standing, actively and regularly employed in and responsible for the management, supervision, and operation of such pharmacy . . .
      “The provision of subsection 5 of this section shall not apply to the holder of a permit on July 1, 1963, if otherwise qualified to conduct the pharmacy, provided that any such permit holder who shall discontinue operations under such permit or fail to renew such permit upon expiration shall not thereafter be exempt from the provisions of such subsection as to such discontinued or lapsed permit. The provisions of subsection 5 of this section shall not apply to hospital pharmacies furnishing service only to patients in such hospital.”

       202 N. W. 2d 140.

       “Final judgments or decrees rendered by the highest court of a State in which a decision could be had, may be reviewed by the Supreme Court . . . .” 28 U. S. C. § 1257.

       We held in Local No. 438 v. Curry, 371 U. S. 542, that a state court judgment which authorized a temporary injunction against picketing because in the court's view the National Labor Relations Board did not have exclusive jurisdiction was "final” for purposes of 28 U. S. C. § 1257. We did not wait until the litigation had been resolved in the state court, as the state court had finally determined its jurisdiction and erroneously so. 371 U. S., at 548.
      In Mercantile National Bank v. Langdeau, 371 U. S. 555, a receiver for a Texas insurance company sued two national banks, and the only question tendered on appeal from the state court concerned the question of venue, viz., in what state court a national bank could be sued. It was argued that the state court judgment was not “final” for purposes of 28 U. S. C. § 1257. We rejected that view, holding the judgment “final” and saying: “[W]e believe that it serves the policy underlying the requirement of finality in 28 U. S. C. § 1257 to determine now in which state court appellants may be tried rather than to subject them, and appellee, to long and complex litigation which may all be for naught if consideration of the preliminary question of venue is postponed until the conclusion of the proceedings.” 371 U. S., at 558.

       In California v. Stewart, 384 U. S. 436, 498-499, in a capital case the State Supreme Court set aside the verdict on a federal constitutional ground and directed that the defendant (respondent) be retried. He moved that we dismiss the State's petition, which we had granted, for lack of a “final” judgment. We noted, however, that if on a retrial he were acquitted, there was no appeal available to the State. We therefore held that the judgment under review was “final” for our purposes. Id., at 498 n. 71.
      In Brady v. Maryland, 373 U. S. 83, the state court had given a defendant post-conviction relief and remanded the case for retrial on the question of punishment. We took the case to determine whether the suppression of evidence by the prosecution entitled the defendant to a retrial on the issue of guilt as well as punishment. We held that the issue of guilt was quite independent of the issue of punishment and that it was time to decide the due process and/or equal protection questions presented by the state decision.