source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    TRANS WORLD AIRLINES, INC. v. INDEPENDENT FEDERATION OF FLIGHT ATTENDANTS
    No. 86-1650.
    Argued January 12, 1988
    Decided March 2, 1988

      Murray Gartner argued the cause for petitioner. With him on the briefs were Paul E. Donnelly, Mark A. Buck-stein, and Michael A. Katz.

      Steven A. Fehr argued the cause for respondent. With him on the brief were William A. Jolley, Doyle R. Pryor, and Scott A. Raisher.

      Briefs of amici curiae urging reversal were filed for the Crossover Flight Attendants by Mark P. Johnson; and for Some Working TWA Flight Attendants by Robert F. Gore, Rossie D. Alston, Jr., and Rex H. Reed.

        Marsha Berzon, William Mahoney, John Clarke, Jr., and Laurence Gold filed a brief for the American Federation of Labor and Congress of Industrial Organizations et al. as amici curiae urging affirmance.

   Per Curiam.

The judgment of the Court of Appeals for the Eighth Circuit is affirmed by an equally divided Court.

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


author: Justice Brennan Justice Scalia,

text:
    K MART CORP. v. CARTIER, INC., et al.
    No. 86-495.
    Argued October 6, 1987
    Decided March 7, 1988

      Brennan, J., delivered the opinion of the Court, in which White, Marshall, Blackmun, and Stevens, JJ., joined. Scalia, J., filed a dissenting opinion, in which Rehnquist, C. J., and O’Connor, J., joined, post, p. 191. Kennedy, J., took no part in the consideration or decision of the case.

      Deputy Solicitor General Cohen argued the cause for petitioners in No. 86-625. With him on the briefs were Solicitor General Fried, Assistant Attorney General Willard, Deputy Assistant Attorney General Spears, Jeffrey P. Minear, David M. Cohen, and Robert V. Zener. Robert W. Steele argued the cause for petitioners in Nos. 86-495 and 86-624. With him on the briefs for petitioner in No. 86-495 were Robert E. Hebda and James C. Tuttle. Nathan Lewin and Jamie S. Gorelick filed briefs for petitioner in No. 86-624.

      William H. Allen argued the cause for respondents. With him on the brief were Eugene A. ' Ludwig • and Scott D. Gilbert.

       Together with No. 86-624, 4.7th Street Photo, Inc. v. Coalition to Preserve the Integrity of American Trademarks et al., and No. 86-625, United States et al. v. Coalition to Preserve the Integrity of American Trademarks et al., also on certiorari to the same court.

      Briefs of amici curiae urging reversal were filed for the State of Washington by Kenneth O. Eikenberry, Attorney General, and John G. Hennen, Senior Assistant Attorney General; for the American Free Trade Association by Stephen Kurzman, Robert Ullman, and Steven R. Trost; for the Consumers Union of U. S., Inc., by Alan Mark Silbergeld; for Darby Dental Supply Co. et al. by Robert V. Marrow; for the National Association of Catalog Showroom Merchandisers by Richard B. Kelly and Thomas P. Mohen; for the National Mass Retailing Institute by William D. Coston and Robert J. Verdisco; and for Progress Trading Co. by William F. Sondericker, Robert L. Hoegle, and Frank W. Gaines, Jr.

      Briefs of amici curiae urging affirmance were filed for American Cyanamid Co. et al. by David Ladd and Thomas W. Kirby; for the American Intellectual Property Law Association, Inc., by Neil A. Smith; for Duracell Inc. by James N. Bierman, Jay N. Varón, and Sheila McDonald Gill; for Lever Brothers Co. by Robert P. Devlin; for the Motor Vehicle Manufacturers Association of the United States, Inc., by William H. Crabtree; for the United States Trademark Association by Marie V. Driscoll; and for Yamaha International Corp. et al. by Robert E. Wagner and Robert E. Browne.

        Harold C. Wegner, Barry E. Bretschneider, Donald R. Dinan, Charles F. Schill, and Albert P. Halluin filed a brief for Cetus Corp. as amicus curiae.

   Justice Brennan

delivered the opinion of the Court.

A “gray-market” good is a foreign-manufactured good bearing a valid United States trademark, which is imported without the consent of the United States trademark owner. This action presents the issues whether a federal district court has jurisdiction to hear a challenge to the Secretary of the Treasury’s regulation permitting the importation of certain gray-market goods, 19 CFR § 133.21 (1987), and, if so, whether the regulation is a reasonable agency interpretation of § 526(a) of the Tariff Act of 1930 (1930 Tariff Act), 46 Stat. 741, as amended, 19 U. S. C. § 1526.

I

Section 526(a) of the 1930 Tariff Act prohibits importing

“into the United States any merchandise of foreign manufacture if such merchandise . . . bears a trademark owned by a citizen of, or by a corporation or association created or organized within, the United States, and registered in the Patent and Trademark Office by a person domiciled in the United States . . . , unless written consent of the owner of such trademark is produced at the time of making entry.” 19 U. S. C. § 1526(a).

The Customs Service regulation that implements § 526(a) does not prohibit importation of gray-market goods where the foreign manufacturer is affiliated with the United States trademark owner or has received the owner’s authorization to use its trademark. The regulation provides generally that “[f]oreign-made articles bearing a trademark identical with one owned and recorded by a citizen of the United States or a corporation or association created or organized within the United States are subject to seizure and forfeiture as prohibited importations.” 19 CFR § 133.21(b) (1987). But the regulation furnishes a “common-control” exception from the ban, permitting the entry of gray-market goods manufactured abroad by the trademark owner or its affiliate:

“(c) Restrictions not applicable. The restrictions . . . do not apply to imported articles when:
“(1) Both the foreign and the U. S. trademark or trade name are owned by the same person or business entity; [or]
“(2) The foreign and domestic trademark or trade name owners are parent and subsidiary companies or are otherwise subject to common ownership or control. . . .”

The Customs Service regulation further provides an “authorized-use” exception, which permits importation of gray-market goods where

“(3) [t]he articles of foreign manufacture bear a recorded trademark or trade name applied under authorization of the U. S. owner . . . .” 19 CFR § 133.21(c) (1987).

Respondent Coalition to Preserve the Integrity of American Trademarks, an association of United States trademark owners, and two of its members (all three collectively referred to as COPIAT) brought suit in the United States District Court for the District of Columbia, seeking both a declaration that the Customs Service regulation is invalid and an injunction against its enforcement. Specifically, COPIAT asserted that the common-control and authorized-use exceptions are inconsistent with both § 526(a) of the 1930 Tariff Act, and §42 of the Lanham Trade-Mark Act, 15 U. S. C. § 1124, which prohibits the importation of goods bearing marks that “copy or simulate” United States trademarks. Petitioners K mart Corporation and 47th Street Photo, Inc., intervened as defendants.

After rejecting 47th Street Photo’s motion to dismiss on the ground that the Court of International Trade had exclusive jurisdiction over the case, the District Court upheld the Customs Service regulation against both challenges. 598 F. Supp. 844 (1984). The Court of Appeals affirmed the District Court’s jurisdictional ruling but reversed on the merits. 252 U. S. App. D. C. 342, 790 F. 2d 903 (1986) (hereinafter COPIAT). We granted certiorari, 479 U. S. 1005 (1986), to resolve conflicts among the Courts of Appeals on both the jurisdictional issue, compare Vivitar Corp. v. United States, 761 F. 2d 1552, 1557-1560 (CA Fed. 1985), aff’g 593 F. Supp. 420 (Ct. Int’l Trade 1984), cert. denied, 474 U. S. 1055 (1986), with Olympus Corp. v. United States, 792 F. 2d 315, 317-319 (CA2 1986), aff’g 627 F. Supp. 911 (EDNY 1985), cert. pending, No. 86-757; and COPIAT, supra, at 344-346, 790 F. 2d, at 905-907, and the merits, compare Vivitar Corp., supra, at 1560-1571, and Olympus Corp., supra, at 319-322, with COPIAT, supra, at 346-355, 790 F. 2d, at 907-916. We now affirm the Court of Appeals’ conclusion that the District Court had jurisdiction, and restore these cases to the calendar for reargument on the merits.

II

Only petitioner 47th Street Photo contends that we lack jurisdiction over this litigation. Both the general federal-question provision, 28 U. S. C. § 1331, and the specific provision regarding actions “arising under any Act of Congress relating to . . . trade-marks,” § 1338(a), would, standing alone, vest the district courts with jurisdiction over this action. The District Court would be divested of jurisdiction, however, if this action fell within one of several specific grants of exclusive jurisdiction to the Court of International Trade. Petitioner propounds two theories in support of its claim that exclusive jurisdiction lies in the Court of International Trade. We reject both.

A

Petitioner’s first theory is that § 526(a) imposes an “embarg[o]” within the meaning of 28 U. S. C. § 1581(i)(3), which grants the Court of International Trade exclusive jurisdiction over suits against the Government arising out of federal laws that provide for “embargoes or other quantitative restrictions on the importation of merchandise for reasons other than the protection of the public health or safety . . . .” The Court of Appeals rejected that theory on the ground that “Section 1581(i)(3) only extends to quotas and embargoes arising out of trade policy, the sort of measures that have traditionally limited the importation of shoes, textiles, automobiles, and the like.” COPIAT, supra, at 346, 790 F. 2d, at 907. We agree with the Court of Appeals that § 526(a) is not an “embargo,” but reach that conclusion on different reasoning.

(1)

An embargo is a “[government order prohibiting commercial trade with individuals or businesses of other nations.” Black’s Law Dictionary 468 (5th ed. 1979). It is “[a] policy which prevents goods from entering a nation” and which “may be imposed on a product or on an individual country.” J. Berenyi, The Modern American Business Dictionary 103 (1982). To be sure, embargoes, like those that the Court of Appeals enumerated, often implement trade policy. But (even assuming that the exclusion of foreign-manufactured goods bearing United States trademarks cannot fairly be said to implement trade policy) trade policy is not the sole, nor perhaps even the primary, purpose served by embargoes. The Government typically imposes embargoes to protect public health, see, e. g., 21 U. S. C. § 381 (adulterated, misbranded, or unapproved foods, drugs, and cosmetics); safety, see, e. g., 15 U. S. C. § 1397 (motor vehicles that do not conform to federal safety standards); or morality, see, e. g., 19 U. S. C. § 1305 (obscene pictures, lottery tickets, and articles for causing unlawful abortion), or to further interests relating to foreign affairs, see, e. g., 22 U. S. C. § 2370(a) (embargo on Cuba); law enforcement, see, e. g., 15 U. S. C. §§ 1241-1244 (switchblade knives); or ecology, see, e. g., 19 CFR § 12.60 (1987) (fur-seal or sea-otter skins).

We have discovered no evidence that Congress intended to constrain the ordinary meaning of the word “embargoes” to mean “embargoes that are grounded in trade policy.” To the contrary, had Congress so intended, it would have been quite unnecessary to exclude expressly from the Court of International Trade’s jurisdiction, as Congress did, embargoes that are for the “protection of the public health or safety,” 28 U. S. C. § 1581(i)(3), or that prohibit the importation of certain “immoral articles,” see § 1581(j) (excluding suits arising out of 19 U. S. C. § 1305, which prohibits importation of a panoply of “immoral articles”).

(2)

Although we reject the Court of Appeals’ analysis, we nevertheless agree with its conclusion that § 526(a) does not impose an embargo. As the above-quoted definitions suggest, the ordinary meaning of “embargo,” and the meaning that Congress apparently adopted in the statutory language “embargoes or other quantitative restrictions,” is a govern-mentally imposed quantitative restriction — of zero — on the importation of merchandise.

An importation prohibition is not an embargo if rather than reflecting a governmental restriction on the quantity of a particular product that will enter, it merely provides a mechanism by which a private party might, at its own option, enlist the Government’s aid in restricting the quantity of imports in order to enforce a private right. Suppose, for example, that a domestic producer grants a foreign distributor exclusive distribution rights abroad, and that a provision of the contract, captioned “Importation prohibited,” bars the foreign distributor from competing for domestic sales. If the foreign distributor nevertheless brazenly imports into the United States, the domestic manufacturer may invoke any of a number of contract remedies — including monetary or injunctive relief in court — to enforce its private right. A court-issued injunction is, technically, a “[g]overnment order prohibiting commercial trade.” Yet one could no more deem the private party’s enforcement of its “Importation prohibition” an “embargo” than deem damages for its breach a “tarif[f], dut[y], fe[e] or other ta[x] on the importation of merchandise,” 28 U. S. C. § 1581(i)(2). The private party, not the Government, by deciding whether and how to exercise its private right, determines the quantity of any particular product that can be imported.

Section 526(a)’s “Importation prohibition” is of the same type. Trademark law, like contract law, confers private rights, which are themselves rights of exclusion. It grants the trademark owner a bundle of such rights, one of which is the right to enlist the Customs Service’s aid to bar foreign-made goods bearing that trademark. See 71 Cong. Rec. 3871 (1929) (remarks of Sen. George) (§ 526(a) “undoubtedly had its origin not in an effort to exclude merchandise bearing a trade-mark, but for the purpose of protecting the interest of the owner of the trade-mark who had gone to the trouble of registering it”); 62 Cong. Rec. 11603 (1922) (remarks of Sen. Sutherland) (§ 526(a) is designed to “protec[t] the property rights of American citizens who have purchased trade-marks from foreigners”). Thus, § 526(a) — like the court-issued injunction enforcing a contractual “Importation prohibition”— is very different from an embargo. It does not set a govern-mentally determined quantitative limit on the entry of, or foreign trafficking in, any particular product: The owner of the trademark can import to its heart’s content, and will usually do so until the market is content; and any other importer may also import a particular foreign-manufactured trademarked good ad infinitum, if it acquires the trademark owner’s consent to import. Nor does the Government have any control over the extent or the nature of § 526(a)’s prohibition. The trademark owner has sole authority to decide that all products bearing its trademark will enter or that none will, and to decide what entity may import them, under what conditions, and for what purpose. There is no reason to suppose that Congress would have intended to distort the term “embargo” beyond its ordinary meaning to encompass a provision that merely grants particular trademark owners a private property right — whose enforcement is entirely in the owners’, not the Government’s, control — to exclude intrabrand competition from abroad.

Justice Scalia’s conclusion that § 526(a) falls within the “ordinary meaning” of “embargo,” post, at 196, follows from a rather extraordinary definition of the term as any governmental “import regulation that takes the form of a governmental prohibition on imports, regardless of. . . its ultimate purpose,” post, at 195 (emphasis added). As the court-enforced contractual prohibition illustrates, not every governmental importation prohibition is an embargo. To hold otherwise would yield applications of the term “embargo” that are unnatural, to say the least. For example, the prohibitory nature of regulations providing that the “importation into the United States of milk and cream is prohibited” except by a permitholder, 19 CFR § 12.7(a) (1987) (emphasis added), and that “Customs officers shall not permit the importation of any milk or cream that is not tagged in accordance with [applicable] regulations,” § 12.7(b) (emphasis added), would convert licensing and tagging requirements into embargoes on unlicensed or improperly tagged dairy products. Similarly, a requirement that certain meat products be inspected prior to importation would magically become an embargo of uninspected (but not necessarily tainted) meat when Congress uses a formulation like “meat. . . products shall not be released from Customs custody prior to inspection,” § 12.8 (emphasis added). This sampling of import regulations demonstrates that Justice Scalia’s departure from ordinary meaning, much more than our adherence to it, would “leave [§ 526(a)] to drift on the currents of lawyerly invention,” post, at 196.

(3)

Contrary to petitioner’s contentions, our adherence to the ordinary meaning of “embargo” is not at all inconsistent with the purposes of the Customs Courts Act of 1980, Pub. L. 96-417, 94 Stat. 1727, which enacted the jurisdictional provision. Congress intended, first and foremost, to remedy the confusion over the division of jurisdiction between the Customs Court (now the Court of International Trade) and the district courts and to “ensure . . . uniformity in the judicial decisionmaking process.” See H. R. Rep. No. 96-1235, p. 20 (1980). But Congress did not commit to the Court of International Trade’s exclusive jurisdiction every suit against the Government challenging customs-related laws and regulations. Had Congress wished to do so it could have expressed such an intent much more clearly and simply by, for example, conveying to the specialized court “exclusive jurisdiction . . . over all civil actions against the [Government] directly affecting imports,” S. 2857, 95th Cong., 2d Sess. (1978), or over “all civil actions against the [Government] which arise directly from import transactions and which arise under the Tariff Act of 1930 [or any one of several specified trade statutes],” S. 1654, 96th Cong., 1st Sess. (1979); see also H. R. 6394, 96th Cong., 2d Sess. (1980).

In rejecting bills that would have implemented such a categorical approach, Congress opted for a scheme that achieved the desired goals of uniformity and clarity by delineating precisely the particular customs-related matters over which the Court of International Trade would have exclusive jurisdiction. Thus, for example, Congress granted the Court of International Trade exclusive jurisdiction over suits relating to “tariffs, duties, fees, or other taxes on the importation of merchandise,” but not if they are for the “raising of revenue.” 28 U. S. C. § 1581(i)(2). Similarly, Congress made no provision for direct review in the Court of International Trade of facial challenges to conditions of entry, such as labeling or marking requirements, see, e. g., 19 CFR §§ 11.6-11.7 (1987) (packaging and marking of distilled spirits, wines, and malt liquors); §§ 11.12-11.12b (labeling of wool, fur, and textile products), and inspection, see, e. g., § 11.1 (inspection of cigars, cigarettes, medicinal preparations, and perfumery); § 12.8 (inspection of meats). Or, to focus more closely on the genre of trade regulation at issue here, no one disputes that Congress declined to grant the Court of International Trade exclusive jurisdiction over import prohibitions relating to “public health and safety” or “immoral articles.” See supra, at 184. By choosing the word “embargoes” over the phrase “importation prohibitions,” Congress likewise declined to grant the Court of International Trade exclusive jurisdiction over importation prohibitions that are not embargoes. To depart from the words Congress chose would infect the courts with the same jurisdictional confusion that Congress intended to cure.

Concededly, Congress did not fully explain its exclusion of certain customs-related matters from the Court of International Trade’s jurisdiction. There is, for example, no obvious reason why Congress declined to grant that court jurisdiction to review challenges to conditions of importation of the type mentioned above. There may likewise be no adequate explanation for Congress’ omission of importation prohibitions that do not fall within the ordinary meaning of “embargoes.” Whatever the reason, however, we disagree with petitioner that the omission is inconsistent with Congress’ intent to “utiliz[e] the specialized expertise of the United States Customs Court and the United States Court of Customs and Patent Appeals . . . .” H. R. Rep. No. 96-1235, supra, at 20. The Customs Court, which the Customs Court Act of 1980 renamed the Court of International Trade, and the Court of Customs and Patent Appeals, which the Federal Courts Improvement Act of 1982 merged with the Court of Claims to form the United States Court of Appeals for the Federal Circuit, had rarely dealt with, much less developed a “specialized expertise” in, trademark law. Nor is there any indication (aside from petitioner’s strained reading of the term “embargo”) that Congress wished the new institutions to acquire expertise in the area in which its predecessors had none.

In sum, the purpose and legislative history of the jurisdictional provision provide no hint that Congress intended to depart from the ordinary meaning of “embargoes.”

B

Petitioner’s second theory for vesting exclusive jurisdiction in the Court of International Trade is more easily rejected. It begins with 28 U. S. C. § 1581(a), which grants “[t]he Court of International Trade . . . exclusive jurisdiction of any civil action commenced to contest the denial of a protest, in whole or in part, under section 515 of the Tariff Act of 1930.” The “protest” referred to in subsection (a) is an administrative remedy available to challenge specified decisions by Customs officers, including a decision ordering “the exclusion of merchandise from entry . . . under any provision of the customs laws.” 19 U. S. C. § 1514(a)(4) (emphasis added). Petitioner acknowledges that the present action is not a protest because it challenges a Customs Service decision to permit the entry of, not to exclude, gray-market goods. It asserts instead that since this suit involves subject matter that would have given rise to a protest had gray-market goods been excluded rather than admitted, the Court of International Trade had exclusive jurisdiction “ ‘as a corollary to protest jurisdiction under 28 U. S. C. § 1581(a).’” Brief for Petitioner 47th Street Photo, Inc. 17 (quoting Vivitar, 761 F. 2d, at 1560). The source of that putative corollary is 28 U. S. C. § 1581(i)(4), which confers on the Court of International Trade jurisdiction over suits against the Government arising out of federal laws pertaining to “administration and enforcement with respect to the matters referred to in [, inter alia,] subsectio[n] (a).”

We agree with the Court of Appeals that § 1581(i)(4) will not bear petitioner’s reading. See also Olympus Corp., 792 F. 2d, at 317-319. The “matte[r] referred to” in § 1581(a) is “the denial of [a] protes[t],” or at the very broadest, “a protest.” Since this suit involves no “protest,” much less a denial of one, it cannot by any stretch of the imagination involve a “law . . . providing for . . . administration and enforcement” of a protest. Id., at 318.

HI

We affirm the Court of Appeals’ conclusion that the District Court had jurisdiction, and restore these cases to the calendar for reargument on the merits.

It is so ordered.

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

Justice Scalia,

with whom

The Chief Justice and Justice O’Connor join, dissenting.

In a Court that selects its docketed cases on the basis of the general importance of the issues they present, jurisdictional questions tend to get short shrift. The central issue in this suit, the so-called “gray-market” issue, which may have immediate and substantial effects on the national economy, has provoked no less than 15 amici briefs; while the jurisdictional question, which could have the undesirable consequence of preventing our immediate resolution of the merits, has been briefed in only 11 pages by petitioners and 6 pages by respondents. Understandably enough, no one, myself included, is eager to conclude that we are powerless to resolve the issue that is this suit’s claim to national attention.

Even so, we must carefully review any question that asks us to determine the limits of a federal court’s power, particularly when, as in this suit, two different sets of courts have concluded that they have exclusive jurisdiction over the subject of the suit. Compare Vivitar Corp. v. United States, 761 F. 2d 1552, 1557-1560 (CA Fed. 1985), cert. denied, 474 U. S. 1055 (1986); with cases below, 252 U. S. App. D. C. 342, 344-346, 790 F. 2d 903, 905-907 (1986); and Olympus Corp. v. United States, 792 F. 2d 315, 317-319 (CA2 1986). Moreover, while the gray-market question is of greater immediate economic importance (though we would soon enough have another occasion to address it), the jurisdictional question, if decided incorrectly, may generate uncertainty and hence litigation into the indefinite future. In my view, the Court’s resolution of this question strains the plain language of the statute, and blurs a clear jurisdictional line that Congress has established.

The Court of International Trade’s exclusive jurisdiction extends to any civil action against the United States, its agencies or officers, “that arises out of any law of the United States providing for . . . embargoes or other quantitative restrictions on the importation of merchandise for reasons other than the protection of the public health or safety.” 28 U. S. C. § 1581(i)(3). The statute does not define “embargo,” and there is no reason to give it anything other than its ordinary meaning. An embargo is “a prohibition imposed by law upon commerce either in general or in one or more of its branches,” Webster’s Third New International Dictionary 738 (1981), a “[gjovernment order prohibiting commercial trade with individuals or businesses of other nations,” Black’s Law Dictionary 468 (5th ed. 1979), an “[authoritative stoppage of foreign commerce or of any special trade,” Funk & Wagnalls New International Dictionary of the English Language 411 (1984).

The present lawsuit challenges a Customs Service regulation, 19 CFR § 133.21(c) (1987), that implements § 526(a) of the Tariff Act of 1930, 19 U. S. C. § 1526(a). That statutory provision, which begins with the caption “(a) Importation prohibited,” excludes from the United States foreign-made merchandise bearing a trademark owned and recorded by a United States citizen or corporation. Section 526(a) is, to borrow language from the Senate debate, “an embargo against any foreign country shipping goods here where an American claims he has a trade-mark upon them.” 62 Cong. Rec. 11603 (1922) (remarks of Sen. Kellogg) (emphasis added). Because this suit against the United States arises out of a law pro viding for an embargo, I would hold that it is within the exclusive jurisdiction of the Court of International Trade.

The Court acknowledges that the term “embargo” means a “governmentally imposed” import prohibition, ante, at 185, but it seems to me that its analysis departs from that truth. Surely § 526(a) prohibits imports, and that prohibition, enacted by Congress and enforced by an executive agency, is surely governmentally imposed. One might argue that the privately invocable exception to § 526(a) causes it not to be an absolute governmental prohibition, and that only absolute governmental prohibitions qualify as embargoes. The Court rightly avoids that line of analysis, however, since many of the provisions commonly regarded as embargoes contain privately invocable exceptions, such as exemptions for certain privately determined uses. See, e. g., 19 U. S. C. A. § 1202, p. 265, Schedule 1, Part 4, Subpart E; 19 CFR §§ 12.80(b)(v), (vi) (1987). But if, despite its privately invocable exception, § 526(a) meets the requirement of being a prohibition, it unquestionably meets the requirement of being a govern-mentally imposed one. Here, as with other embargoes, the availability of a privately invocable exception affects the extent of the prohibition; but the residual prohibition, whatever its extent, is governmental.

The Court seeks to set § 526(a) apart from other embargoes with privately invocable exceptions by observing that “rather than reflecting a governmental restriction on the quantity of a particular product that will enter, it merely provides a mechanism by which a private party might, at its own option, enlist the Government’s aid in restricting the quantity of imports in order to enforce a private right.” Ante, at 185. Perhaps it is meant to provide such a mechanism, but that relates not to whether it is a governmental prohibition, but to what the purpose of the governmental prohibition happens to be. It is no more in accord with common usage to say that a provision cannot be an embargo if its purpose is to protect private rights than to say (as did the Court of Appeals in the analysis that the Court readily rejects, ibid., that it cannot be an embargo if its purpose is something other than trade policy. Embargoes are imposed for many different purposes, including sometimes the protection of private rights. Assuredly those which have the latter purpose are different from those that do not, but it is beyond me why that purpose, any more than any other one, would cause them not to be govern-mentally imposed import prohibitions. In my view, for example, the prohibition on the importation of art stolen from a private nonprofit museum, see 19 CFR §§ 12.104-12.104h (1987), is unquestionably an embargo. Moreover, since the lever that the Court is using for its analysis is the prohibition’s asserted lack of “governmental” character, it should make no difference whether the objective of the prohibition is to protect a private “right,” or to protect some other private interest, or the interest of some wowprivate entity other than the Government itself. Thus, on the Court’s analysis there would be excluded from the term “embargo” the prohibition on importing pre-Columbian sculptures or murals, which does not apply if the importer produces a certificate issued by the country of origin stating that the goods were not unlawfully exported. 19 U. S. C. § 2092; 19 CFR § 12.107 (1987). This is simply not in accord with normal understanding.

The Court seeks to establish the inherently “nonembargo” character of a prohibition protecting private property rights by noting that a court injunction enforcing a contractual import prohibition is not an embargo. Ante, at 185. I agree that an injunction is not an embargo, but that conclusion does not follow from the fact that the injunction issued at the instance of a private individual to protect property rights. A court injunction issued at the instance of a Government agency, to prevent importation that was part of a conspiracy in violation of the Sherman Act, would likewise not generally be thought of as an embargo — because the word is normally applied only to prohibitions imposed by the Legislative or Executive Branches of Government.

The short of the matter is that an “embargo” is an import regulation that takes the form of a governmental prohibition on imports, regardless of any exceptions it may contain and regardless of its ultimate purpose — just as quotas, tariffs, and conditions on importation are identifiable forms of import regulation regardless of their exceptions and purposes. The Court points out, ante, at 187, that it may sometimes be difficult to distinguish a condition on importation from a prohibition on importation containing exceptions. That may be true, but since we are agreed that only prohibitions and not conditions come within the meaning of embargo, that ambiguity will have to be grappled with under the Court’s view of things no less than under mine. It is irrelevant to the present issue, unless the existence of one ambiguity within a statute justifies the needless creation of another. Under my analysis, when a provision has been identified as an import prohibition (however difficult that may be — and it is neither difficult nor contested here) that is an end of the matter. Under the Court’s analysis, one must proceed further to examine the exceptions to the prohibition and its purpose.

Today’s decision leaves some doubt as to what prohibitions on importation other than § 526(a) are not governmental, and hence not embargoes, because they benefit private parties and are avoidable by private consent. Even if the Court’s holding can be limited to prohibitions that protect private “rights,” then at least the status of the prohibitions on the importation of goods that infringe trademarks or copyrights is called into question. See 15 U. S. C. § 1124; 17 U. S. C. §§ 601-603. And since, as noted earlier, the purpose of protecting private “rights” (whatever that might mean) is logically no more invalidating than the purpose of protecting private “interests,” or even, more broadly, nongovernmental interests, the status of other import prohibitions is cast in doubt as well.

These uncertainties arise from today’s particular departure from the meaning of “embargo” as “a governmental prohibition on importation.” Much greater, unfortunately, are the uncertainties that arise from today’s acknowledgment of the principle that departure is permissible. Having cast § 526(a) loose from the moorings of its language, we leave it to drift on the currents of lawyerly invention. It remains to be seen what other limitations on the ordinary meaning of “embargo,” no more apparent to the naked mind than the present one, may exist.

       The full text of § 526(a), as codified, 19 U. S. C. § 1526(a), is as follows: “(a) Importation prohibited
      “Except as provided in subsection (d) of this section [an exception added in 1978 for the importation of articles for personal use], it shall be unlawful to import into the United States any merchandise of foreign manufacture if such merchandise, or the label, sign, print, package, wrapper, or receptacle, bears a trademark owned by a citizen of, or by a corporation or association created or organized within, the United States, and registered in the Patent and Trademark Office by a person domiciled in the United States, under the provisions of sections 81 to 109 of title 15, and if a copy of the certificate of registration of such trademark is filed with the Secretary of the Treasury, in the manner provided in section 106 of said title 15, unless written consent of the owner of such trademark is produced at the time of making entry.”

       The Customs Service regulation provides in relevant part:
      “§ 133.21 Restrictions on importations of articles bearing recorded trademarks and trade names.
      “(b) Identical trademark. Foreign-made articles bearing a trademark identical with one owned and recorded by a citizen of the United States or a corporation or association created or organized within the United States are subject to seizure and forfeiture as prohibited importations.
      “(c) Restrictions not applicable. The restrictions set forth in paragraphs (a) and (b) of this section do not apply to imported articles when:
      “(1) Both the foreign and the U. S. trademark or trade name are owned by the same person or business entity;
      “(2) The foreign and domestic trademark or trade name owners are parent and subsidiary companies or are otherwise subject to common ownership or control (see §§ 133.2(d) [defining “common ownership and common control”] and 133.12(d) [providing that application to record trademark must report identity of any affiliate that uses same trade name abroad]);
      “(3) The articles of foreign manufacture bear a recorded trademark or trade name applied under authorization of the U. S. owner;
      “(4) The objectionable mark is removed or obliterated prior to importation in such a manner as to be illegible and incapable of being reconstituted, for example by:
      “(i) Grinding off imprinted trademarks wherever they appear;
      “(ii) Removing and disposing of plates bearing trademark or trade name;
      “(5) The merchandise is imported by the reeordant of the trademark or trade name or his designate;
      “(6) The reeordant gives written consent to an importation of articles otherwise subject to the restrictions set forth in paragraphs (a) and (b) of this section, and such consent is furnished to appropriate Customs officials; or

        “(7) The articles of foreign manufacture bear a recorded trademark and the personal exemption is claimed and allowed under § 148.55 of this chapter.” 19 CFR § 133.21 (1987).

       COPIAT sued the United States, the Secretary of the Treasury, and the Commissioner of Customs.

       For the Lanham Trade-Mark Act claim, COPIAT also invoked a specific provision of that Act conferring to the district courts jurisdiction over all claims arising under the Act. 15 U. S. C. § 1121.

       As relevant here, 28 U. S. C. § 1581 provides:
      “(i) In addition to the jurisdiction conferred upon the Court of International Trade by subsections (a)-(h) of this section and subject to the exception set forth in subsection (j) of this section, the Court of International Trade shall have exclusive jurisdiction of any civil action commenced against the United States, its agencies, or its officers, that arises out of any law of the United States providing for—
      “(1) revenue from imports or tonnage;
      “(2) tariffs, duties, fees, or other taxes on the importation of merchandise for reasons other than the raising of revenue;
      “(3) embargoes or other quantitative restrictions on the importation of merchandise for reasons other than the protection of the public health or safety; or
      “(4) administration and enforcement with respect to the matters referred to in paragraphs (1) — (3) of this subsection and subsections (a)-(h) of this section.
      “(j) The Court of International Trade shall not have jurisdiction of any civil action arising under section 305 of the Tariff Act of 1930.”

       Section 526(a) is an unusual (if not a unique) breed of importation prohibition in that it takes all control out of the Government’s hands and puts it in the hands of private parties. The only other importation prohibitions mentioned by the parties or Justice Scalia that might even conceivably match that description are the prohibitions against the importation of goods that infringe trademarks, see 15 U. S. C. § 1124, or copyrights, see 17 U. S. C. §§ 601-603.


author: Justice White

text:
    NORWEST BANK WORTHINGTON et al. v. AHLERS et ux.
    No. 86-958.
    Argued January 12, 1988
    Decided March 7, 1988

      White, J., delivered the opinion of the Court, in which all other Members joined, except Kennedy, J., who took no part in the consideration or decision of the case.

      Gordon B. Conn, Jr., argued the cause for petitioners. With him on the brief were Michael R. Stewart, Dennis M. Ryan, A. Patrick Leighton, and David A. Kastelic.

      William L. Needier argued the cause for respondents. With him on the brief were James C. Truax and Francis E. Stepnowski.

      Briefs of amici curiae urging reversal were filed for the United States by Solicitor General Fried, Assistant Attorney General Willard, Deputy Solicitor General Cohen, and Roy T. Englert, Jr.; for the American Bankers Association by John J. Gill III and Michael F. Crotty; for the American College of Real Estate Lawyers by Robert M. Zinman, Bruce S. Lane, Edward I. Cutler, and David A. Richards; for the American Council of Life Insurance by Phillip E. Stano, Jack H. Blaine, Robert M. Zinman, and Edward J. Zimmerman; and for the Nebraska Bankers Association, Inc., by William B. Brandt.

      A brief of amici curiae urging affirmance was filed for the State of Arkansas et al. by Phillip L. Kunkel and Raymond T. Nimmer, and by the Attorneys General for their respective States as follows: Steve Clark of Arkansas, Joseph I. Lieberman of Connecticut, Thomas J. Miller of Iowa, Neil F. Hartigan of Illinois, David L. Armstrong of Kentucky, Hubert H. Humphrey III of Minnesota, Mike Greely of Montana, Robert M. Spire of Nebraska, Robert Abrams of New York, Nicholas Spaeth of North Dakota, T. Travis Medlock of South Carolina, Roger Tellinghuisen of South Dakota, and Jim Mattox of Texas.

   Justice White

delivered the opinion of the Court.

In this case, the Court of Appeals found that respondents’ promise of future “labor, experience, and expertise” permitted confirmation of their Chapter 11 reorganization plan over the objections of their creditors, even though the plan violated the “absolute priority rule” of the Bankruptcy Code. Because we find this conclusion at odds with the Code and our cases, we reverse.

I — I

Respondents operate a failing family farm in Nobles County, Minnesota. Between 1965 and 1984 they obtained loans from petitioners, securing the loans with their farmland, machinery, crops, livestock, and farm proceeds. In November 1984, respondents defaulted on their loan payments to petitioner Norwest Bank Worthington; at the time, the aggregate loan balance owed the petitioners exceeded $1 million.

Following the default, Norwest filed a replevin action in Minnesota state court seeking possession of the farm equipment respondents had pledged as security. However, two weeks later respondents obtained an automatic stay of the replevin proceedings, when they filed a petition for reorganization under Chapter 11 of the Bankruptcy Code. See 11 U. S. C. § 362(a) (1982 ed. and Supp. IV).

Petitioners filed motions in the Bankruptcy Court for relief from the automatic stay. 11 U. S. C. § 362(d) (1982 ed., Supp. IV). After decisions by the Bankruptcy and the District Courts, these motions were ultimately considered by the Court of Appeals, which prohibited petitioners from repossessing any equipment, pending a determination by the District Court of the probability of success of a reorganization plan to be filed by respondents. App. to Pet. for Cert. A-76 — A-77. On remand, the District Court found respondents’ reorganization plan to be “utter[ly] unfeasibl[e].” Id., at A-86. It therefore affirmed the Bankruptcy Court’s initial decision to grant petitioners relief from the automatic stay.

On appeal, the Court of Appeals reversed. It found that respondents could file a feasible reorganization plan. 794 F. 2d 388, 399 (CA8 1986). Consequently, the Court of Appeals remanded the case with instructions that the Bankruptcy Court entertain and confirm a reorganization plan which comported with an outline suggested in a lengthy appendix to the Eighth Circuit’s opinion. Id., at 408-414.

In reaching this conclusion, the Court of Appeals rejected petitioners’ contention that, because of the “absolute priority rule” in the Bankruptcy Code, 11 U. S. C. § 1129(b)(2)(B)(ii) (1982 ed. and Supp. IV), their legitimate objections to any reorganization plan which allowed respondents to retain an interest in the farm property was sufficient to bar confirmation of such a plan. Petitioners contended that the absolute priority rule prohibited respondents from retaining their equity interest in the farm, which is junior to the creditors’ unsecured claims. But the Court of Appeals, relying on this Court’s decision in Case v. Los Angeles Lumber Products Co., 308 U. S. 106 (1939), held that the absolute priority rule did not bar respondents from retaining their equity interest in the farm if they contributed “money or money’s worth” to the reorganized enterprise. It further concluded that respondents’ “yearly contributions of labor, experience, and expertise” would constitute a contribution of “money or money’s worth,” and therefore would permit confirmation of a reorganization plan over petitioners’ objections. 794 F. 2d, at 402-403. Judge John Gibson, in dissent, criticized the majority’s application of the absolute priority rule and its reading of Los Angeles Lumber as “unprecedented, illogical, and unfair.” 794 F. 2d, at 406. He concluded that the absolute priority rule barred respondents’ retention of an equity interest in the farm over petitioners’ legitimate objections.

After the Eighth Circuit — sharply divided — denied rehearing en banc, id., at 414-415, petitioners sought review by this Court. We granted certiorari to consider the Court of Appeals’ application of the absolute priority rule, 483 U. S. 1004 (1987), and now reverse.

II

As the Court of Appeals stated, the absolute priority rule “provides that a dissenting class of unsecured creditors must be provided for in full before any junior class can receive or retain any property [under a reorganization] plan.” 794 F. 2d, at 401. The rule had its genesis in judicial construction of the undefined requirement of the early bankruptcy statute that reorganization plans be “fair and equitable.” See Northern Pacific R. Co. v. Boyd, 228 U. S. 482, 504-505 (1913); Louisville Trust Co. v. Louisville, N. A. & C. R. Co., 174 U. S. 674, 684 (1899). The rule has since gained express statutory force, and was incorporated into Chapter 11 of the Bankruptcy Code adopted in 1978. See 11 U. S. C. § 1129(b)(2)(B)(ii) (1982 ed., Supp. IV). Under current law, no Chapter 11 reorganization plan can be confirmed over the creditors’ legitimate objections (absent certain conditions not relevant here) if it fails to comply with the absolute priority rule.

There is little doubt that a reorganization plan in which respondents retain an equity interest in the farm is contrary to the absolute priority rule. The Court of Appeals did not suggest otherwise in ruling for respondents, but found that such a plan could be confirmed over petitioners’ objections because of an “exception” or “modification” to -the absolute priority rule recognized in this Court’s cases.

The Court of Appeals relied on the following dicta in Case v. Los Angeles Lumber Products Co., supra, at 121-122:

“It is, of course, clear that there are circumstances under which stockholders may participate in a plan of reorganization of an insolvent debtor. . . .
“[W]e believe that to accord ‘the creditor of his full right of priority against the corporate assets’ where the debtor is insolvent, the stockholder’s participation must be based on a contribution in money or money’s worth, reasonably equivalent in view of all the circumstances to the participation of the stockholder.”

The Court of Appeals found this language applicable to this case, concluding that respondents’ future contributions of “labor, experience, and expertise” in running the farm — because they have “value” and are “measurable” — are “money or money’s worth” within the meaning of Los Angeles Lumber. 794 F. 2d, at 402. We disagree.

Los Angeles Lumber itself rejected an analogous proposition, finding that the promise of the existing shareholders to pledge their “financial standing and influence in the community” and their “continuity of management” to the reorganized enterprise was “[in]adequate consideration” that could not possibly be deemed “money’s worth.” 308 U. S., at 122. No doubt, the efforts promised by the Los Angeles Lumber equity holders — like those of respondents — had “value” and would have been of some benefit to any reorganized enterprise. But ultimately, as the Court said in Los Angeles Lumber, “[t]hey reflect merely vague hopes or possibilities.” Id., at 122-123. The same is true of respondents’ pledge of future labor and management skills.

Viewed from the time of approval of the plan, respondents’ promise of future services is intangible, inalienable, and, in all likelihood, unenforceable. It “has no place in the asset column of the balance sheet of the new [entity].” Los Angeles Lumber, 308 U. S., at 122-123. Unlike “money or money’s worth,” a promise of future services cannot be exchanged in any market for something of value to the creditors today. In fact, no decision of this Court or any Court of Appeals, other than the decision below, has ever found a promise to contribute future labor, management, or expertise sufficient to qualify for the Los Angeles Lumber exception to the absolute priority rule. In short, there is no way to distinguish between the promises respondents proffer here and those of the shareholders in Los Angeles Lumber; neither is an adequate contribution to escape the absolute priority rule.

Respondents suggest that, even if their proposed contributions to the reorganized farm do not fit within the Los Angeles Lumber dicta, they do satisfy some broader exception to the absolute priority rule. Brief for Respondents 23-24. But no such broader exception exists. Even if Congress meant to retain the Los Angeles Lumber exception to the absolute priority rule when it codified the rule in Chapter 11 — a proposition that can be debated, see n. 3, supra — it is clear that Congress had no intention to expand that exception any further. When considering adoption of the current Code, Congress received a proposal by the Bankruptcy Commission to modify the absolute priority rule to permit equity holders to participate in a reorganized enterprise based on their contribution of “continued management. . . essential to the business” or other participation beyond “money or money’s worth.” See H. R. Doc. No. 93-137, pt. 1, pp. 258-259 (1973). This proposal — quite similar to the Court of Appeals’ holding in this case — prompted adverse reactions from numerous sources. Congress ultimately rejected the proposed liberalization of the absolute priority rule and adopted the codification of the rule now found in 11 U. S. C. § 1129(b)(2)(B)(ii) (1982. ed. and Supp. IV). “This [section] codifies the absolute priority rule from the dissenting class on down.” See H. R. Rep. No. 95-595, p. 413 (1977). We think the statutory language and the legislative history of § 1129(b) clearly bar any expansion of any exception to the absolute priority rule beyond that recognized in our cases at the time Congress enacted the 1978 Bankruptcy Code.

In sum, we find no support in the Code or our previous decisions for the Court of Appeals’ application of the absolute priority rule in this case. We conclude that the rule applies here, and respondents’ promise of future labor warrants no exception to its operation.

i — I I — I I — I

Respondents advance two additional arguments seeking to obviate the conclusion mandated by the absolute priority rule.

A

Respondents first advance a variety of “equitable arguments” which, they say, prevent the result we reach today. Respondents contend that the nature of bankruptcy proceedings — namely, their status as proceedings in “equity” — prevents petitioners from inequitably voting in the class of unsecured creditors, and requires that a “fair and equitable” reorganization plan in the best interests of all creditors and debtors be confirmed. See Brief for Respondents 14-16, 23-24. Similarly, the Court of Appeals found it significant that — in its view — respondents’ wholly unsecured creditors (as opposed to petitioners, who have partially secured claims) would fare better under the proposed reorganization plan than if the farm was liquidated. 794 F. 2d, at 402.

The short answer to these arguments is that whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code. The Code provides that undersecured creditors can vote in the class of unsecured creditors, 11 U. S. C. § 506(a), the Code provides that a “fair and equitable” reorganization plan is one which complies with the absolute priority rule, 11 U. S. C. § 1129(b)(2)(B)(ii) (1982 ed. and Supp. IV), and the Code provides that it is up to the creditors — and not the courts — to accept or reject a reorganization plan which fails to provide them adequate protection or fails to honor the absolute priority rule, 11 U. S. C. § 1126 (1982 ed. and Supp. IV).

The Court of Appeals may well have believed that petitioners or other unsecured creditors would be better off if respondents’ reorganization plan was confirmed. But that determination is for the creditors to make in the manner specified by the Code. 11 U. S. C. § 1126(c). Here, the principal creditors entitled to vote in the class of unsecured creditors (i. e., petitioners) objected to the proposed reorganization. This was their prerogative under the Code, and courts applying the Code must effectuate their decision.

B

Respondents further argue that the absolute priority rule has no application in this case, where the property which the junior interest holders wish to retain has no value'to the senior unsecured creditors. In such a case, respondents argue, “the creditors are deprived of nothing if such a so-called ‘interest’ continues in the possession of the reorganized debtor.” Brief for Respondents 19. Here, respondents contend, because the farm has no “going concern” value (apart from their own labor on it), any equity interest they retain in a reorganization of the farm is worthless, and therefore is not “property” under 11 U. S. C. § 1129(b)(2)(B)(ii) (1982 ed. and Supp. IV).

We join with the consensus of authority which has rejected this “no value” theory. Even where debts far exceed the current value of assets, a debtor who retains his equity interest in the enterprise retains “property.” Whether the value is “present or prospective, for dividends or only for purposes of control” a retained equity interest is a property interest to “which the creditors [are] entitled . . . before the stockholders [can] retain it for any purpose whatever.” Northern Pacific R. Co. v. Boyd, 228 U. S., at 508. Indeed, even in a sole proprietorship, where “going concern” value may be minimal, there may still be some value in the control of the enterprise; obviously, also at issue is the interest in potential future profits of a now-insolvent business. See SEC v. Canandaigua Enterprises Corp., 339 F. 2d 14, 21 (CA2 1964) (Friendly, J.). And while the Code itself does not define what “property” means as the term is used in § 1129(b), the relevant legislative history suggests that Congress’ meaning was quite broad. “ ‘[P]roperty’ includes both tangible and intangible property.” See H. R. Rep. No. 95-595, at 413.

Moreover, respondents’ “no value” theory is particularly inapposite in this case. This argument appears not to have been presented to the Eighth Circuit, which implicitly concluded — to the contrary of respondents’ position here — that the equity interest respondents desire to retain has some value. See 794 F. 2d, at 402-403. Even cursory consideration reveals that the respondents’ retained interest under the plan might be “valuable” for one of several reasons. For example, the Court of Appeals provided that respondents would be entitled to a share of any profits earned by the sale of secured property during the reorganization period, id., at

403, and n. 18 —an interest which can hardly be considered “worthless.” And there is great common sense in petitioners’ contention that “obviously, there is some going concern value here, or the parties would not have been litigating over it for the last three years.” Tr. of Oral Arg. 15-16.

Consequently, we think that the interest respondents would retain under any reorganization must be considered “property” under § 1129(b)(2)(B)(ii), and therefore can only be retained pursuant to a plan accepted by their creditors or formulated in compliance with the absolute priority rule. Since neither is true in this case, the Court of Appeals’ judgment for respondents cannot stand.

> I — I

In rejecting respondents’ position, we do not take lightly the concerns which militated the Eighth Circuit towards its result. As a Bankruptcy Judge commented on the Court of Appeals’ decision in this case:

“We understand the motivation behind the majority opinion in Ahlers. Farm bankruptcies are in a state of crisis and we, too, sympathize with the plight of the American farmer. Nevertheless, the solution proposed by the Ahlers majority is contrary to the Bankruptcy Code and a long line of case law.” In re Stegall, 64 B. R. 296, 300 (Bkrtcy. Ct. CD Ill. 1986).

Family farms hold a special place in our Nation’s history and folklore. Respondents and amici paint a grim picture of the problems facing farm families today, and present an eloquent appeal for action on their behalf. Yet relief from current farm woes cannot come from a misconstruction of the applicable bankruptcy laws, but rather, only from action by Congress.

The error of the Court of Appeals’ approach is further revealed by an examination of a measure Congress has recently enacted to cope with these very same concerns, the Family Farmers Bankruptcy Act of 1986, Pub. L. 99-554, §255, 100 Stat. 3105-3114. The Act creates a new Chapter 12 bankruptcy proceeding, under which family farmers can retain an equity interest in their farms while making loan repayments under a reorganization plan. See 11 U. S. C. § 1201 et seq. (1982 ed., Supp. IV).

The legislative history of the Act makes it clear that one of Congress’ principal concerns in adopting Chapter 12 was the difficulties farmers encountered in seeking to reorganize under Chapter 11. And yet, as respondents concede,- the Court of Appeals’ decision here creates a method of proceeding under Chapter 11 which is far more advantageous to farmers than is Chapter 12. See Brief for Respondents 6-9; Tr. of Oral Arg. 23-25. Thus, given respondents’ reading of Chapter 11, Congress enacted a relief provision in Chapter 12 which is less favorable to its intended beneficiaries than is current law. But in-adopting Chapter 12, Congress thought it was doing just the opposite. “[W]here, as here, Congress adopts a new law . . . [it] normally can be presumed to have had knowledge of the interpretation given to the [old] law.” Lorillard v. Pons, 434 U. S. 575, 581 (1978). We think Congress’ understanding of Chapter 11 and its absolute priority rule — and not respondents’ — is the correct one. We do not believe that Congress created, in Chapter 12, an option for farm reorganizations less accessible to most farmers than current Chapter 11 proceedings.

V

In sum, because we find the decision below to be contrary to the Bankruptcy Code and this Court’s previous cases, the judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

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

       In relevant part, 11 U. S. C. § 1129(b) (1982 ed. and Supp. IV) provides:
      “(1) . . . [T]he court. . . shall confirm the plan ... if the plan ... is fair and equitable ....
      “(2) . .. [T]he condition that a plan be fair and equitable . . . includes the following requirements:
      “(B) With respect to a class of unsecured claims —
      “(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or
      “(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.”
      Petitioners contended, and the Court of Appeals agreed, that they must be treated as unsecured creditors for purpose of any reorganization plan because their claims were substantially undersecured. See 794 F. 2d 388, 399 (CA8 1986); 11 U. S. C. § 506(a). Petitioners further argued, and the Court of Appeals also agreed, that any reorganization plan for respondents could not comply with § 1129(b)(2)(B)(i), because respondents could not possibly provide petitioners with property equal to the allowed amount of their claims. See 794 F. 2d, at 401.
      Thus, the Court of Appeals concluded that respondents’ reorganization plan would have to comply with § 1129(b)(2)(B)(ii) — the codification of the absolute priority rule — in order to be confirmed. Ibid.

       Respondents do not contest this conclusion, but rather, argue (1) that their proposal to retain an equity interest in the farm and equipment is confirmable under an exception to the absolute priority rule, Brief for Respondents 21-25, and (2) that the rule does not (or should not) apply to their reorganization plan for various reasons, id., at 14-21. For reasons we discuss infra, at 204-206, and in Part III, we find these arguments unpersuasive.

       The United States, as amicus curiae, urges us to reverse the Court of Appeals’ ruling and hold that codification of the absolute priority rule has eliminated any “exception” to that rule suggested by Los Angeles Lumber. See Brief for United States as Amicus Curiae 17-23. Relying on the statutory language and the legislative history, the United States argues that the 1978 Bankruptcy Code “dropped the infusion-of-new-capital exception to the absolute priority rule.” Id., at 22.
      We need not reach this question to resolve the instant dispute. As we discuss infra, at 204-206, we think it clear that even if the Los Angeles Lumber exception to the absolute priority rule has survived enactment of the Bankruptcy Code, this exception does not encompass respondents’ promise to contribute their “labor, experience, and expertise” to the reorganized enterprise.
      Thus, our decision today should not be taken as any comment on the continuing vitality of the Los Angeles Lumber exception — a question which has divided the lower courts since passage of the Code in 1978. Compare, e. g., In re Sawmill Hydraulics, Inc., 72 B. R. 454, 456, and n. 1 (Bkrtcy. Ct. CD Ill. 1987), with, e. g., In re Pine Lake Village Apartment Co., 19 B. R. 819, 833 (Bkrtcy. Ct. SDNY 1982). Rather, we simply conclude that even if an “infusion-of~‘money-or-money’s-worth”’ exception to the absolute priority rule has survived the enactment of § 1129(b), respondents’ proposed contribution to the reorganization plan is inadequate to gain the benefit of this exception.

       “[Pjrevious attempts to qualify non-capital equity in the absolute priority context have been unanimously rejected.” Koger & Acconcia, In re Ahlers: Capitalizing on Sweat, 42 J. Mo. Bar 455, 458 (1986). See also 794 F. 2d, at 407 (Gibson, J., dissenting); In re Baugh, 73 B. R. 414, 418 (Bkrtcy. Ct. ED Ark. 1987); In re Pecht, 57 B. R. 137, 139-141 (Bkrtcy. Ct. ED Va. 1986).
      In support of their position, respondents rely extensively on SEC v. United States Realty & Improvement Co., 310 U. S. 434 (1940). See Tr. of Oral Arg. 31-33, 35-37. However, the relevant portion of that case concerned a chapter of the old bankruptcy statutes under which the absolute priority rule did not apply. See SEC v. United States Realty & Improvement Co., supra, at 453-454. Thus, that case is wholly inapposite here.

       See, e. g., Hearings on S. 235 and S. 236 before the Subcommittee on Improvements in Judicial Machinery of the Senate Committee on the Judiciary, 94th Cong., 1st Sess., pt. 2, p. 1044 (1975) (statement of Prof. Vernon Countryman); id., at 710 (statement of Phillip A. Loomis, Jr., Comm’r of the Securities and Exchange Comm’n); Brudney, The Bankruptcy Commission’s Proposed “Modifications” of the Absolute Priority Rule, 48 Am. Bankr. L. J. 305, 336-339 (1974).

       Respondents note that one Bankruptcy Court has accepted the “no value” theory in a case similar to this one. See In re Star City Rebuilders,

        Inc., 62 B. R. 983, 988-989 (WD Va. 1986). But even in so doing, the Bankruptcy Court acknowledged that the bulk of authority was to the contrary. See id., at 989; see also In re Modern Glass Specialists, Inc., 42 B. R. 139, 140-141 (Bkrtcy. Ct. ED Wisc. 1984); In re Huckabee Auto Co., 33 B. R. 132, 141 (Bkrtcy. Ct. MD Ga. 1981); In re Landau Boat Co., 8 B. R. 436, 438-439 (Bkrtcy. Ct. WD Mo. 1981).
      Petitioners contend that the Star City decision is the only one to accept the “no value” theory. See Tr. of Oral Arg. 16. Respondents did not contest this assertion or provide authority to the contrary.

       See Brief for Respondents 8-11; Brief for State of Arkansas et al. as Amici Curiae 1-2.

       Even if current farm problems “justified” a judicial modification of the absolute priority rule along the line of the Court of Appeals’ opinion, not the least of the problems with the decision below is that there is no way to limit it to family farms, or even to small businesses generally. The shareholders of any corporate debtor might be able to evade the absolute priority rule under the Eighth Circuit’s reasoning; such a result surely cannot be squared with the case law or the Code as they are discussed supra.

       Respondents apparently cannot qualify for relief under Chapter 12 because they do not meet the requirements that Congress has adopted in defining what is an eligible “family farm” for purposes of Chapter 12. See Tr. of Oral Arg. 23; 11 U. S. C. § 101(17) (1982 ed., Supp. IV).
      In addition, respondents may be disqualified from filing under Chapter 12 because they had previously filed under Chapter 11. The Bankruptcy Courts are divided on the issue. Compare, e. g., In re Big Dry Angus Ranch, Inc., 69 B. R. 695, 699-701 (Mont. 1987), with, e. g., In re B. A. V., Inc., 68 B. R. 411, 412-413 (Colo. 1986).

       See 132 Cong. Rec. 28592 (1986) (statement of Sen. Thurmond); id., at 28593 (statement of Sen. Grassley). Congress seemed particularly aware of the specific obstacle that the absolute priority rule posed to farm reorganizations. See Anderson, An Analysis of Pending Bills to Provide Family Farm Debtor Relief Under the Bankruptcy Code, reprinted in 132 Cong. Rec. 28593, 28599 (1986).

       “Under this new chapter, it will be easier for a family farmer to confirm a plan of reorganization.” Joint Explanatory Statement of the Committee of Conference, reprinted in 132 Cong. Rec. 28143, 28144 (1986).


author: Justice Marshall

text:
    ARKANSAS BEST CORP. v. COMMISSIONER OF INTERNAL REVENUE
    No. 86-751.
    Argued December 9, 1987
    Decided March 7, 1988

      Marshall, J., delivered the opinion of the Court, in which all other Members joined, except Kennedy, J., who took no part in the consideration or decision of the case.

      Vester T. Hughes, Jr., argued the cause for petitioner. With him on the briefs were David Bryant and Stephen D. Good.

      Alan I. Horowitz argued the cause for respondent. With him on the brief were Solicitor General Fried, Acting Assistant Attorney General Durney, Deputy Solicitor General Lauber, and Michael L. Paup.

        Thomas Smidt II, Charles L. Saunders, Jr., and A. Jerry Busby filed a brief for Circle K Corp. as amicus curiae urging reversal.
      Briefs of amici curiae were filed for Kraft, Inc., by Don S. Harnack, James L. Malone III, Richard A. Hanson, and Thomas J. McHugh; and for the National Council of Farmer Cooperatives by Arthur E. Bryan, Jr., George W. Benson, and James S. Krzyminski.

   Justice Marshall

delivered the opinion of the Court.

The issue presented in this case is whether capital stock held by petitioner Arkansas Best Corporation (Arkansas Best) is a “capital asset” as defined in § 1221 of the Internal Revenue Code regardless of whether the stock was purchased and held for a business purpose or for an investment purpose.

I

Arkansas Best is a diversified holding company. In 1968 it acquired approximately 65% of the stock of the National Bank of Commerce (Bank) in Dallas, Texas. Between 1969 and 1974, Arkansas Best more than tripled the number of shares it owned in the Bank, although its percentage interest in the Bank remained relatively stable. These acquisitions were prompted principally by the Bank’s need for added capital. Until 1972, the Bank appeared to be prosperous and growing, and the added capital was necessary to accommodate this growth. As the Dallas real estate market declined, however, so too did the financial health of the Bank, which had a heavy concentration of loans in the local real estate industry. In 1972, federal examiners classified the Bank as a problem bank. The infusion of capital after 1972 was prompted by the loan portfolio problems of the bank.

Petitioner sold the bulk of its Bank stock on June 30, 1975, leaving it with only a 14.7% stake in the Bank. On its federal income tax return for 1975, petitioner claimed a deduction for an ordinary loss of $9,995,688 resulting from the sale of the stock. The Commissioner of Internal Revenue disallowed the deduction, finding that the loss from the sale of stock was a capital loss, rather than an ordinary loss, and that it therefore was subject to the capital loss limitations in the Internal Revenue Code.

Arkansas Best challenged the Commissioner’s determination in the United States Tax Court. The Tax Court, relying on cases interpreting Corn Products Refining Co. v. Commissioner, 350 U. S. 46 (1955), held that stock purchased with a substantial investment purpose is a capital asset which, when sold, gives rise to a capital gain or loss, whereas stock purchased and held for a business purpose, without any substantial investment motive, is an ordinary asset whose sale gives rise to ordinary gains or losses. See 83 T. C. 640, 653-654 (1984). The court characterized Arkansas Best’s acquisitions through 1972 as occurring during the Bank’s “‘growth’ phase,” and found that these acquisitions “were motivated primarily by investment purpose and only incidentally by some business purpose.” Id., at 654. The stock acquired during this period therefore constituted a capital asset, which gave rise to a capital loss when sold in 1975. The court determined, however, that the acquisitions after 1972 occurred during the Bank’s “‘problem’ phase,” ibid., and, except for certain minor exceptions, “were made exclusively for business purposes and subsequently held for the same reasons.” Id., at 656. These acquisitions, the court found, were designed to preserve petitioner’s business reputation, because without the added capital the Bank probably would have failed. Id., at 656-657. The loss realized on the sale of this stock was thus held to be an ordinary loss.

The Court of Appeals for the Eighth Circuit reversed the Tax Court’s determination that the loss realized on stock purchased after 1972 was subject to ordinary-loss treatment, holding that all of the Bank stock sold in 1975 was subject to capital-loss treatment. 800 F. 2d 215 (1986). The court reasoned that the Bank stock clearly fell within the general definition of “capital asset” in Internal Revenue Code § 1221, and that the stock did not fall within any of the specific statutory exceptions to this definition. The court concluded that Arkansas Best’s purpose in acquiring and holding the stock was irrelevant to the determination whether the stock was a capital asset. We granted certiorari, 480 U. S. 930, and now affirm.

II

Section 1221 of the Internal Revenue Code defines “capital asset” broadly as “property held by the taxpayer (whether or not connected with his trade or business),” and then excludes five specific classes of property from capital-asset status. In the statute’s present form, the classes of property exempted from the broad definition are (1) “property of a kind which would properly be included in the inventory of the taxpayer”; (2) real property or other depreciable property used in the taxpayer’s trade or business; (3) “a copyright, a literary, musical, or artistic composition,” or similar property; (4) “accounts or notes receivable acquired in the ordinary course of trade or business for services rendered” or from the sale of inventory; and (5) publications of the Federal Government. Arkansas Best acknowledges that the Bank stock falls within the literal definition of “capital asset” in § 1221, and is outside of the statutory exclusions. It asserts, however, that this determination does not end the inquiry. Petitioner argues that in Corn Products Refining Co. v. Commissioner, supra, this Court rejected a literal reading of § 1221, and concluded that assets acquired and sold for ordinary business purposes rather than for investment purposes should be given ordinary-asset treatment. Petitioner’s reading of Corn Products finds much support in the academic literature and in the courts. Unfortunately for petitioner, this broad reading finds no support in the language of § 1221.

In essence, petitioner argues that “property held by the taxpayer (whether or not connected with his trade or business)” does not include property that is acquired and held for a business purpose. In petitioner’s view an asset’s status as “property” thus turns on the motivation behind its acquisition. This motive test, however, is not only nowhere mentioned in § 1221, but it is also in direct conflict with the parenthetical phrase “whether or not connected with his trade or business.” The broad definition of the term “capital asset” explicitly makes irrelevant any consideration of the property’s connection with the taxpayer’s business, whereas petitioner’s rule would make this factor dispositive.

In a related argument, petitioner contends that the five exceptions listed in § 1221 for certain kinds of property are illustrative, rather than exhaustive, and that courts are therefore free to fashion additional exceptions in order to further the general purposes of the capital-asset provisions. The language of the statute refutes petitioner’s construction. Section 1221 provides that “capital asset” means “property held by the taxpayer[,] . . . but does not include” the five classes of property listed as exceptions. We believe this locution signifies that the listed exceptions are exclusive. The body of § 1221 establishes a general definition of the term “capital asset,” and the phrase “does not include” takes out of that broad definition only the classes of property that are specifically mentioned. The legislative history of the capital-asset definition supports this interpretation, see H. R. Rep. No. 704, 73d Cong., 2d Sess., 31 (1934) (“[T]he definition includes all property, except as specifically excluded”); H. R. Rep. No. 1337, 83d Cong., 2d Sess., A273 (1954) (“[A] capital asset is property held by the taxpayer with certain exceptions”), as does the applicable Treasury regulation, see 26 CFR § 1.1221-1(a) (1987) (“The term ‘capital assets’ includes all classes of property not specifically excluded by section 1221”).

Petitioner’s reading of the statute is also in tension with the exceptions listed in § 1221. These exclusions would be largely superfluous if assets acquired primarily or exclusively for business purposes were not capital assets. Inventory, real or depreciable property used in the taxpayer’s trade or business, and accounts or notes receivable acquired in the ordinary course of business, would undoubtedly satisfy such a business-motive test. Yet these exceptions were created by Congress in separate enactments spanning 30 years. Without any express direction from Congress, we are unwilling to read § 1221 in a manner that makes surplusage of these statutory exclusions.

In the end, petitioner places all reliance on its reading of Corn Products Refining Co. v. Commissioner, 350 U. S. 46 (1955) — a reading we believe is too expansive. In Corn Products, the Court considered whether income arising from a taxpayer’s dealings in corn futures was entitled to capital-gains treatment. The taxpayer was a company that converted corn into starches, sugars, and other products. After droughts in the 1930’s caused sharp increases in corn prices, the company began a program of buying corn futures to assure itself an adequate supply of corn and protect against price increases. See id., at 48. The company “would take delivery on such contracts as it found necessary to its manufacturing operations and sell the remainder in early summer if no shortage was imminent. If shortages appeared, however, it sold futures only as it bought spot corn for grinding.” Id., at 48-49. The Court characterized the company’s dealing in corn futures as “hedging.” Id., at 51. As explained by the Court of Appeals in Corn Products, “[h]edging is a method of dealing in commodity futures whereby a person or business protects itself against price fluctuations at the time of delivery of the product which it sells or buys.” 215 F. 2d 513, 515 (CA2 1954). In evaluating the company’s claim that the sales of corn futures resulted in capital gains and losses, this Court stated:

“Nor can we find support for petitioner’s contention that hedging is not within the exclusions of [§1221]. Admittedly, petitioner’s corn futures do not come within the literal language of the exclusions set out in that section. They were not stock in trade, actual inventory, property held for sale to customers or depreciable property used in a trade or business. But the capital-asset provision of [§ 1221] must not be so broadly applied as to defeat rather, than further the purpose of Congress. Congress intended that profits and losses arising from the everyday operation of a business be considered as ordinary income or loss rather than capital gain or loss. . . . Since this section is an exception from the normal tax requirements of the Internal Revenue Code, the definition of a capital asset must be narrowly applied and its exclusions interpreted broadly.” 350 U. S., at 51-52 (citations omitted).

The Court went on to note that hedging transactions consistently had been considered to give rise to ordinary gains and losses, and then concluded that the corn futures were subject to ordinary-asset treatment. Id., at 52-53.

The Court in Corn Products proffered the oft-quoted rule of construction that the definition of “capital asset” must be narrowly applied and its exclusions interpreted broadly, but it did not state explicitly whether the holding was based on a narrow reading of the phrase “property held by the taxpayer,” or on a broad reading of the inventory exclusion of § 1221. In light of the stark language of § 1221, however, we believe that Corn Products is properly interpreted as involving an application of § 1221’s inventory exception. Such a reading is consistent both with the Court’s reasoning in that case and with § 1221. The Court stated in Corn Products that the company’s futures transactions were “an integral part of its business designed to protect its manufacturing operations against a price increase in its principal raw material and to assure a ready supply for future manufacturing requirements.” 350 U. S., at 50. The company bought, sold, and took delivery under the futures contracts as required by the company’s manufacturing needs. As Professor Bittker notes, under these circumstances, the futures can “easily be viewed as surrogates for the raw material itself.” 2 B. Bittker, Federal Taxation of Income, Estates and Gifts ¶ 51.10.3, p. 51-62 (1981). The Court of Appeals for the Second Circuit in Corn Products clearly took this approach. That court stated that when commodity futures are “utilized solely for the purpose of stabilizing inventory cost[,] . . . [they] cannot reasonably be separated from the inventory items,” and concluded that “property used in hedging transactions properly comes within the exclusions of [§1221].” 215 F. 2d, at 516. This Court indicated its acceptance of the Second Circuit’s reasoning when it began the central paragraph of its opinion: “Nor can we find support for petitioner’s contention that hedging is not within the exclusions of [§ 1221].” 350 U. S., at 51. In the following paragraph, the Court argued that the Treasury had consistently viewed such hedging transactions as a form of insurance to stabilize the cost of inventory, and cited a Treasury ruling which concluded that the value of a manufacturer’s raw-material inventory should be adjusted to take into account hedging transactions in futures contracts. See id., at 52-53 (citing G. C. M. 17322, XV-2 Cum. Bull. 151 (1936)). This discussion, read in light of the Second Circuit’s holding and the plain language of § 1221, convinces us that although the corn futures were not “actual inventory,” their use as an integral part of the taxpayer’s inventory-purchase system led the Court to treat them as substitutes for the corn inventory such that they came within a broad reading of “property of a kind which would properly be included in the inventory of the taxpayer” in § 1221.

Petitioner argues that by focusing attention on whether the asset was acquired and sold as an integral part of the taxpayer’s everyday business operations, the Court in Corn Products intended to create a general exemption from capital-asset status for assets acquired for business purposes. We believe petitioner misunderstands the relevance of the Court’s inquiry. A business connection, although irrelevant to the initial determination whether an item is a capital asset, is relevant in determining the applicability of certain of the statutory exceptions, including the inventory exception. The close connection between the futures transactions and the taxpayer’s business in Corn Products was crucial to whether the corn futures could be considered surrogates for the stored inventory of raw corn. For if the futures dealings were not part of the company’s inventory-purchase system, and instead amounted simply to speculation in corn futures, they could not be considered substitutes for the company’s corn inventory, and would fall outside even a broad reading of the inventory exclusion. We conclude that Corn Products is properly interpreted as standing for the narrow proposition that hedging transactions that are an integral part of a business’ inventory-purchase system fall within the inventory exclusion of § 1221. Arkansas Best, which is not a dealer in securities, has never suggested that the Bank stock falls within the inventory exclusion. Corn Products thus has no application to this case.

It is also important to note that the business-motive test advocated by petitioner is subject to the same kind of abuse that the Court condemned in Corn Products. The Court explained in Corn Products that unless hedging transactions were subject to ordinary gain and loss treatment, taxpayers engaged in such transactions could “transmute ordinary income into capital gain at will.” 350 U. S., at 53-54. The hedger could garner capital-asset treatment by selling the future and purchasing the commodity on the spot market, or ordinary-asset treatment by taking delivery under the future contract. In a similar vein, if capital stock purchased and held for a business purpose is an ordinary asset, whereas the same stock purchased and held with an investment motive is a capital asset, a taxpayer such as Arkansas Best could have significant influence over whether the asset would receive capital or ordinary treatment. Because stock is most naturally viewed as a capital asset, the Internal Revenue Service would be hard pressed to challenge a taxpayer’s claim that stock was acquired as an investment, and that a gain arising from the sale of such stock was therefore a capital gain. Indeed, we are unaware of a single decision that has applied the business-motive test so as to require a taxpayer to report a gain from the sale of stock as an ordinary gain. If the same stock is sold at a loss, however, the taxpayer may be able to garner ordinary-loss treatment by emphasizing the business purpose behind the stock’s acquisition. The potential for such abuse was evidenced in this case by the fact that as late as 1974, when Arkansas Best still hoped to sell the Bank stock at a profit, Arkansas Best apparently expected to report the gain as a capital gain. See 83 T. C., at 647-648.

Ill

We conclude that a taxpayer’s motivation in purchasing an asset is irrelevant to the question whether the asset is “property held by a taxpayer (whether or not connected with his business)” and is thus within §1221’s general definition of “capital asset.” Because the capital stock held by petitioner falls within the broad definition of the term “capital asset” in § 1221 and is outside the classes of property excluded from capital-asset status, the loss arising from the sale of the stock is a capital loss. Corn Products Refining Co. v. Commissioner, supra, which we interpret as involving a broad reading of the inventory exclusion of § 1221, has no application in the present context. Accordingly, the judgment of the Court of Appeals is affirmed.

It is so ordered.

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

       Title 26 U. S. C. § 1211(a) states that “[i]n the case of a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of gains from such sales or exchanges.” Section 1212(a) establishes rules governing carrybacks and carryovers of capital losses, permitting such losses to offset capital gains in certain earlier or later years.

       In 1975, when petitioner sold its Bank stock, § 1221 contained a different exception (5), which excluded certain federal and state debt obligations. See 26 U. S. C. § 1221(5) (1970 ed.). That exception was repealed by the Economic Recovery Tax Act of 1981, Pub. L. 97-34, § 505(a), 95 Stat. 331. The present exception (5) was added by the Tax Reform Act of 1976, Pub. L. 94-455, § 2132(a), 90 Stat. 1925. These changes have no bearing on this case.

       See, e. g.,2 B. Bittker, Federal Taxation of Income, Estates and Gifts ¶ 51.10.3, p. 51-62 (1981); Chirelstein, Capital Gain and the Sale of a Business Opportunity: The Income Tax Treatment of Contract Termination Payments, 49 Minn. L. Rev. 1, 41 (1964); Troxell & Noall, Judicial Erosion of the Concept of Securities as Capital Assets, 19 Tax L. Rev. 185, 187 (1964); Note, The Corn Products Doctrine and Its Application to Partnership Interests, 79 Colum. L. Rev. 341, and n. 3 (1979).

       See, e. g., Campbell Taggart, Inc. v. United States, 744 F. 2d 442, 456-458 (CA5 1984); Steadman v. Commissioner, 424 F. 2d 1, 5 (CA6), cert. denied, 400 U. S. 869 (1970); Booth Newspapers, Inc. v. United

        States, 157 Ct. Cl. 886, 893-896, 303 F. 2d 916, 920-921 (1962); W. W. Windle Co. v. Commissioner, 65 T. C. 694, 707-713 (1976).

       Petitioner mistakenly relies on cases in which this Court, in narrowly applying the general definition of “capital asset,” has “construed ‘capital asset’ to exclude property representing income items or accretions to the value of a capital asset themselves properly attributable to income,” even though these items are property in the broad sense of the word. United States v. Midland-Ross Corp., 381 U. S. 54, 57 (1965). See, e. g., Commissioner v. Gillette Motor Co., 364 U. S. 130 (1960) (“capital asset” does not include compensation awarded taxpayer that represented fair rental value of its facilities); Commissioner v. P. G. Lake, Inc., 356 U. S. 260 (1958) (“capital asset” does not include proceeds from sale of oil payment rights); Hort v. Commissioner, 313 U. S. 28 (1941) (“capital asset” does not include payment to lessor for cancellation of unexpired portion of a lease). This line of cases, based on the premise that § 1221 “property” does not include claims or rights to ordinary income, has no application in the present context. Petitioner sold capital stock, not a claim to ordinary income.

       The inventory exception was part of the original enactment of the capital-asset provision in 1924. See Revenue Act of 1924, ch. 234, § 208(a)(8), 43 Stat. 263. Depreciable property used in a trade or business was excluded in 1938, see Revenue Act of 1938, ch. 289, § 117(a)(1), 52 Stat. 500, and real property used in a trade or business was excluded in 1942, see Revenue Act of 1942, ch. 619, § 151(a), 56 Stat. 846. The exception for accounts and notes receivable acquired in the ordinary course of trade or business was added in 1954. Internal Revenue Code of 1954, § 1221(4), 68A Stat. 322.

       Although congressional inaction is generally a poor measure of congressional intent, we are given some pause by the fact that over 25 years have passed since Corn Products Refining Co. v. Commissioner was initially interpreted as excluding assets acquired for business purposes from the definition of “capital asset,” see Booth Newspapers, Inc. v. United States, 157 Ct. Cl. 886, 303 F. 2d 916 (1962), without any sign of disfavor from Congress. We cannot ignore the unambiguous language of § 1221, however, no matter how reticent Congress has been. If a broad exclusion from capital-asset status is to be created for assets acquired for business purposes, it must come from congressional action, not silence.