author: Justice O’Connor Justice Brennan, Chief Justice Rehnquist,

text:
    BOOS et al. v. BARRY, MAYOR OF THE DISTRICT OF COLUMBIA, et al.
    No. 86-803.
    Argued November 9, 1987
    Decided March 22, 1988

      O’Connor, J., delivered the opinion of the Court with respect to Parts I, II-B, and V, in which Brennan, Marshall, Stevens, and Scalia, JJ., joined, and with respect to Parts III and IV, in which all participating Members joined, and an opinion with respect to Part II-A, in which Stevens and Scalia, JJ., joined. Brennan, J., filed an opinion concurring in part and concurring in the judgment, in which Marshall, J., joined, post, p. 334. Rehnquist, C. J., filed an opinion concurring in part and dissenting in part, in which White and Blackmun, JJ., joined, post, p. 338. Kennedy, J., took no part in the consideration or decision of the case.

      Raymond, D. Battocchi argued the cause for petitioners. With him on the briefs were Isaac N. Groner, Walter H. Fleischer, Alfred F: Belcuore, and James A. Bensfield.

      Edward E. Schwab argued the cause for respondents. With him on the brief was Charles L. Reischel. Michael S. Arif filed a brief for respondent Father R. David Finzer.

      Edwin S. Kneedler argued the cause for the United States as amicus curiae urging affirmance. With him on the brief were Solicitor General Fried, Assistant Attorney General Willard, Deputy Solicitor General Wallace, Anthony J. Steinmeyer, and Barbara Biddle.

      Briefs of amici curiae urging reversal were filed for the American Civil Liberties Union et al. by Arthur B. Spitzer, John A. Powell, and Elizabeth Symonds; for the American Jewish Congress by Joel H. Levy, Marc D. Stem, Lois C. Waldman, and Amy Ádelson; for the Legal Affairs Council et al. by Wyatt B. Durrette, Jr.; and for the Washington Legal Foundation et al. by Daniel J. Popeo and Paul D. Kamenar.

        Seth P. Waxman filed a brief for Geraldine M. Lipkin et al. as amici curiae urging affirmance.

   Justice O’Connor

delivered the opinion of the Court, except as to Part II-A.

The question presented in this case is whether a provision of the District of Columbia Code, § 22-1115, violates the First Amendment. This section prohibits the display of any sign within 500 feet of a foreign embassy if that sign tends to bring that foreign government into “public odium” or “public disrepute.” It also prohibits any congregation of three or more persons within 500 feet of a foreign embassy.

I

Petitioners are three individuals who wish to carry signs critical of the Governments of the Soviet Union and Nicaragua on the public sidewalks within 500 feet of the embassies of those Governments in Washington, D. C. Petitioners Bridget M. Brooker and Michael Boos, for example, wish to display signs stating “RELEASE SAKHAROV” and “SOLIDARITY” in front of the Soviet Embassy. Petitioner J. Michael Waller wishes to display a sign reading “STOP THE KILLING” within 500 feet of the Nicaraguan Embassy. All of the petitioners also wish to congregate with two or more other persons within 500 feet of official foreign buildings.

Asserting that D. C. Code § 22-1115 (1981) prohibited them from engaging in these expressive activities, petitioners, together with respondent Father R. David Finzer, brought a facial First Amendment challenge to that provision in the District Court for the District of Columbia. They named respondents, the Mayor and certain other law enforcement officials of the District of Columbia, as defendants. The United States intervened as amicus curiae supporting the constitutionality of the statute.

Congress enacted §22-1115 in 1938, S. J. Res. 191, ch. 29, § 1, 52 Stat. 30 (1938), pursuant to its authority under Article I, § 8, cl. 10, of the Constitution to “define and punish ... Offenses against the Law of Nations.” Section 22-1115 reads in pertinent part as follows:

“It shall be unlawful to display any flag, banner, placard, or device designed or adapted to intimidate, coerce, or bring into public odium any foreign government, party, or organization, or any officer or officers thereof, or to bring into public disrepute political, social, or economic acts, views, or purposes of any foreign government, party or organization . . . within 500 feet of any building or premises within the District of Columbia used or occupied by any foreign government or its representative or representatives as an embassy, legation, consulate, or for other official purposes ... or to congregate within 500 feet of any such building or premises, and refuse to disperse after having been ordered so to do by the police authorities of said District.”

The first portion of this statute, the “display” clause, applies to signs tending to bring a foreign government into public odium or public disrepute, such as signs critical of a foreign government or its policies. The display clause applies only to the display of signs, not to the spoken word. See Zaimi v. United States, 155 U. S. App. D. C. 66, 82, 476 F. 2d 511, 527 (1973). The second portion of the statute, the “congregation” clause, addresses a different concern. It prohibits congregation, which District of Columbia common law defines as an assemblage of three or more people. District of Columbia v. Reed, Cr. No. 2021-67 (D. C. Ct. Gen. Sess., May 11, 1967) (reprinted in App. in Kinoy v. District of Columbia, 130 U. S. App. D. C. 290, 298, 400 F. 2d 761, 769 (1968)); Hunter v. District of Columbia, 47 App. D. C. 406, 409 (1918). Both of these prohibitions generally operate within a 500-foot zone surrounding embassies or consulates owned by foreign governments, but the statute also can extend to other buildings if foreign officials are inside for some official purpose.

The District Court granted respondents’ motion for summary judgment, relying upon an earlier Court of Appeals decision, Frend v. United States, 69 App. D. C. 281, 100 F. 2d 691 (1938), cert. denied, 306 U. S. 640 (1939), that had sustained the statute against a similar First Amendment challenge. A divided panel of the Court of Appeals for the District of Columbia affirmed. Finzer v. Barry, 255 U. S. App. D. C. 19, 798 F. 2d 1450 (1986). Although it found Frend “persuasive precedent,” the Court of Appeals thought Frend was not binding because it “was decided almost a half century ago and in the interval the Supreme Court has developed constitutional law in ways that must be taken into account.” 255 U. S. App. D. C., at 23, 798 F. 2d, at 1454.

The Court of Appeals considered -the two aspects of §22-1115 separately. First, the court concluded that the display clause was a content-based restriction on speech. Relying, however, upon our decisions in Perry Education Assn. v. Perry Local Educators’ Assn., 460 U. S. 37, 45 (1983), and Carey v. Brown, 447 U. S. 455, 461-462 (1980), the court nonetheless found it constitutional because it was justified by a compelling governmental interest and was narrowly drawn to serve that interest. Second, the Court of Appeals concluded that the congregation clause should be construed to authorize an order to disperse “only when the police reasonably believe that a threat to the security or peace of the embassy is present,” and that as construed, the congregation clause survived First Amendment scrutiny. 255 U. S. App. D. C., at 40, 798 F. 2d, at 1471.

We granted certiorari, 479 U. S. 1083 (1987). We now reverse the Court of Appeals’ conclusion as to the display clause, but affirm as to the congregation clause.

II

A

Analysis of the display clause must begin with several important features of that provision. First, the display clause operates at the core of the First Amendment by prohibiting petitioners from engaging in classically political speech. We have recognized that the First Amendment reflects a “profound national commitment” to the principle that “debate on public issues should be uninhibited, robust, and wide-open,” New York Times Co. v. Sullivan, 376 U. S. 254, 270 (1964), and have consistently commented on the central importance of protecting speech on public issues. See, e. g., Connick v. Myers, 461 U. S. 138, 145 (1983); NAACP v. Claiborne Hardware Co., 458 U. S. 886, 913 (1982); Carey v. Brown, supra, at 467. This has led us to scrutinize carefully any restrictions on public issue picketing. See, e. g., United States v. Grace, 461 U. S. 171 (1983); Carey v. Brown, supra; Police Department of Chicago v. Mosley, 408 U. S. 92 (1972).

Second, the display clause bars such speech on public streets and sidewalks, traditional public fora that “time out of mind, have been used for purposes of assembly, communicating thoughts between citizens, and discussing public questions.” Hague v. CIO, 307 U. S. 496, 515 (1939) (Roberts, J.). In such places, which occupy a “special position in terms of First Amendment protection,” United States v. Grace, 461 U. S., at 180, the government’s ability to restrict expressive activity “is very limited.” Id., at 177.

Third, §22-1115 is content básed. Whether individuals may picket in front of a foreign embassy depends entirely upon whether their picket signs are critical of the foreign government or not. One category of speech has been completely prohibited within 500 feet of embassies. Other categories of speech, however, such as favorable speech about a foreign government or speech concerning a labor dispute with a foreign government, are permitted. See D. C. Code § 22-1116 (1981).

Both the majority and dissent in the Court of Appeals accepted this common sense reading of the statute and concluded that the display clause was content based. The majority indicated, however, that it could be argued that the regulation was not content based. 255 U. S. App. D. C., at 38, n. 15, 798 F. 2d, at 1469, n. 15. Both respondents and the United States have now made such an argument in this Court. They contend that the statute is not content based because the government is not itself selecting between viewpoints; the permissible message on a picket sign is determined solely by the policies of a foreign government.

We reject this contention, although we agree the provision is not viewpoint based. The display clause determines which viewpoint is acceptable in a neutral fashion by looking to the policies of foreign governments. While this prevents the display clause from being directly viewpoint based, a label, with potential First Amendment ramifications of its own, see, e. g., City Council of Los Angeles v. Taxpayers for Vincent, 466 U. S. 789, 804 (1984); Schacht v. United States, 398 U. S. 58, 63 (1970), it does not render the statute content neutral. Rather, we have held that a regulation that “does not favor either side of a political controversy” is nonetheless impermissible because the “First Amendment’s hostility to content-based regulation extends ... to prohibition of public discussion of an entire topic.” Consolidated Edison Co. v. Public Service Comm’n, 447 U. S. 530, 537 (1980). Here the government has determined that an entire category of speech — signs or displays critical of foreign governments — is not to be permitted.

We most recently considered the definition of a content-neutral statute in Renton v. Playtime Theatres, Inc., 475 U. S. 41 (1986). Drawing on prior decisions, we described “‘content-neutral’ speech restrictions as those that ‘are justified without reference to the content of the regulated speech.’ Virginia Pharmacy Board v. Virginia Citizens Consumer Council, Inc., 425 U. S. 748, 771 (1976) (emphasis added).” Id., at 48. The regulation at issue in Renton described prohibited speech by reference to the type of movie theater involved, treating “theaters that specialize in adult films differently from other kinds of theaters.” Id., at 47. But while the regulation in Renton applied only to a particular category of speech, its justification had nothing to do with that speech. The content of the films being shown inside the theaters was irrelevant and was not the target of the regulation. Instead, the ordinance was aimed at the “secondary effects of such theaters in the surrounding community,” ibid. (emphasis in original), effects that are almost unique to theaters featuring sexually explicit films, i. e., prevention of crime, maintenance of property values, and protection of residential neighborhoods. In short, the ordinance in Renton did not aim at the suppression of free expression.

Respondents attempt to bring the display clause within Renton by arguing that here too the real concern is a secondary effect, namely, our international law obligation to shield diplomats from speech that offends their dignity. We think this misreads Renton. We spoke in that decision only of secondary effects of speech, referring to regulations that apply to a particular category of speech because the regulatory targets happen to be associated with that type of speech. So long as the justifications for regulation have nothing to do with content, i. e., the desire to suppress crime has nothing to do with the actual films being shown inside adult movie theaters, we concluded that the regulation was properly analyzed as content neutral.

Regulations that focus on the direct impact of speech on its audience present a different situation. Listeners’ reactions to speech are not the type of “secondary effects” we referred to in Renton. To take an example factually close to Renton, if the ordinance there was justified by the city’s desire to prevent the psychological damage it felt was associated with viewing adult movies, then analysis of the measure as a content-based statute would have been appropriate. The hypothetical regulation targets the direct impact of a particular category of speech, not a secondary feature that happens to be associated with that type of speech.

Applying these principles to the case at hand leads readily to the conclusion that the display clause is content-based. The clause is justified only by reference to the content of speech. Respondents and the United States do not point to the “secondary effects” of picket signs in front of embassies. They do not point to congestion, to interference with ingress or egress, to visual clutter, or to the need to protect the security of embassies. Rather, they rely on the need to protect the dignity of foreign diplomatic personnel by shielding them from speech that is critical of their governments. This justification focuses only on the content of the speech and the direct impact that speech has on its listeners. The emotive impact of speech on its audience is not a “secondary effect.” Because the display clause regulates speech due to its potential primary impact, we conclude it must be considered content-based.

B

Our cases indicate that as a content-based, restriction on political speech in a public forum,, §22-1115 must be subjected to the most exacting scrutiny. Thus, we have required the State to show that the “regulation is necessary to serve a compelling state interest and that it is narrowly drawn to achieve that end.” Perry Education Assn. v. Perry Local Educators’ Assn., 460 U. S., at 45. Accord, Board of Airport Comm’rs of Los Angeles v. Jews for Jesus, 482 U. S. 569, 572-573 (1987); Cornelius v. NAACP Legal Defense & Educational Fund, Inc., 473 U. S. 788, 800 (1985); United States v. Grace, 461 U. S., at 177.

We first consider whether the display clause serves a compelling governmental interest in protecting the dignity of foreign diplomatic personnel. Since the dignity of foreign officials will be affronted by signs critical of their governments or governmental policies, we are told, these foreign diplomats must be shielded from such insults in order to fulfill our country’s obligations under international law.

As a general matter, we have indicated that in public debate our own citizens must tolerate insulting, and even outrageous, speech in order to provide “adequate ‘breathing space’ to the freedoms protected by the First Amendment.” Hustler Magazine, Inc. v. Falwell, ante, at 56. See also, e. g., New York Times Co. v. Sullivan, 376 U. S., at 270. A “dignity” standard, like the “outrageousness” standard that we rejected in Hustler, is so inherently subjective that it would be inconsistent with “our longstanding refusal to [punish speech] because the speech in question may have an adverse emotional impact on the audience.” Hustler Magazine, supra, at 55.

We are not persuaded that the differences between foreign officials and American citizens require us to deviate from these principles here. The dignity interest is said to be compelling in this context primarily because its recognition and protection is part of the United States’ obligations under international law. The Vienna Convention on Diplomatic Relations, April 18, 1961, [1972] 23 U. S. T. 3227, T. I. A. S. No. 7502, which all parties agree represents the current state of international law, imposes on host states

“[the] special duty to take all appropriate steps to protect the premises of the mission against any intrusion or damage and to prevent any disturbance of the peace of the mission or impairment of its dignity.” Id., at 3237-3238, Art. 22.

As a general proposition, it is of course correct that the United States has a vital national interest in complying with international law. The Constitution itself attempts to further this interest by expressly authorizing Congress “[t]o define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations.” U. S. Const., Art. I, § 8, cl. 10. Cf. The Federalist No. 3, p. 43 (C. Rossiter ed. 1961) (J. Jay). Moreover, protecting foreign emissaries has a long history and noble purpose. In this country national concern for the protection of ambassadors and foreign ministers even predates the Constitution. In 1781 the Continental Congress adopted a resolution calling on the States to enact laws punishing “infractions of the immunities of ambassadors and other public ministers, authorised and received as such by the United States in Congress assembled,” targeting in particular “violence offered to their persons, houses, carriages and property.” 21 J. Continental Cong. 1136-1137 (G. Hunt ed. 1912).

The need to protect diplomats is grounded in our Nation’s important interest in international relations. As a leading commentator observed in 1758, “[i]t is necessary that nations should treat and hold intercourse together, in order to promote their interests, — to avoid injuring each other, — and to adjust and terminate their disputes.” E. Vattel, The Law of Nations 452 (J. Chitty ed. 1844) (translation). This observation is even more true today given the global nature of the economy and the extent to which actions in other parts of the world affect our own national security. Diplomatic personnel are essential to conduct the international affairs so crucial to the well-being of this Nation. In addition, in light of the concept of reciprocity that governs much of international law in this area, see C. Wilson, Diplomatic Privileges and Immunities 32 (1967), we have a more parochial reason to protect foreign diplomats in this country. Doing so ensures that similar protections will be accorded those that we send abroad to represent the United States, and thus serves our national interest in protecting our own citizens. Recent history is replete with attempts, some unfortunately successful, to harass and harm our ambassadors and other diplomatic officials. These underlying purposes combine to make our national interest in protecting diplomatic personnel powerful indeed.

At the same time, it is well established that “no agreement with a foreign nation can confer power on the Congress, or on any other branch of Government, which is free from the restraints of the Constitution.” Reid v. Covert, 354 U. S. 1, 16 (1957). See 1 Restatement of Foreign Relations Law of the United States § 131, Comment a, p. 53 (Tent. Draft No. 6, Apr. 12, 1985) (“[R]ules of international law and provisions of international agreements of the United States are subject to the Bill of Rights and other prohibitions, restrictions or requirements of the Constitution and cannot be given effect in violation of them”).

Thus, the fact that an interest is recognized in international law does not automatically render that interest “compelling” for purposes of First Amendment analysis. We need not decide today whether, or to what extent, the dictates of international law could ever require that First Amendment analysis be adjusted to accommodate the interests of foreign officials. Even if we assume that international law recognizes a dignity interest and that it should be considered sufficiently “compelling” to support a content-based restriction on speech, we conclude that § 22-1115 is not narrowly tailored to serve that interest. See, e. g., Perry Education Assn., 460 U. S., at 45; Board of Airport Comm’rs of Los Angeles, 482 U. S., at 573.

The most useful starting point for assessing § 22-1115 is to compare it with an analogous statute adopted by Congress, which is the body primarily responsible for implementing our obligations under the Vienna Convention. Title 18 U. S. C. § 112(b)(2) subjects to criminal punishment willful acts or attempts to “intimidate, coerce, threaten, or harass a foreign official or an official guest or obstruct a foreign official in the performance of his duties.”

Its legislative history reveals that § 112 was developed as a deliberate effort to implement our international obligations. See, e. g., 118 Cong. Rec. 27112-27113 (1972). At the same time, the history reflects a substantial concern with the effect of any such legislation on First Amendment freedoms. For example, the original provision contained a prohibition on willful acts or attempts to “intimidate, coerce, threaten, or harass ... or obstruct a foreign official,” as does the current version of § 112. In a portion with similarities to the display clause, however, it also punished anyone who

“parades, pickets, displays any flag, banner, sign, placard, or device, or utters any word, phrase, sound, or noise, for the purpose of intimidating, coercing, threatening, or harassing any foreign official or obstructing him in the performance of his duties.” Act for Protection of Foreign Official Guests of the United States, Pub. L. 92-539, Title III, § 301(c)(1), 86 Stat. 1070, 1073 (1972).

Concerned with the effects that such a provision might have on First Amendment freedoms, the Senate added a new subsection, which directed:

“[N]othing contained in this section shall be construed or applied so as to abridge the exercise of rights guaranteed under the first amendment to the Constitution of the United States.” § 301(e), 86 Stat. 1073.

See S. Rep. No. 92-1105, p. 19 (1972).

After the 1972 passage of § 112 in this form, congressional concerns about its impact on First Amendment freedoms apparently escalated rather than abated. In 1976, Congress revisited the area and repealed the antipicketing provision, leaving in place only the current prohibition on willful acts or attempts to “intimidate, coerce, threaten, or harass a foreign official.” § 112(b)(2). In modifying § 112, Congress was motivated by First Amendment concerns:

“This language [of the original anti-picketing provision] raises serious Constitutional questions because it appears to include within its purview conduct and speech protected by the First Amendment.” S. Rep. No. 94-1273, p. 8, n. 9 (1976); H. R. Rep. No. 94-1614, p. 6, n. 9 (1976).

Thus, after a careful balancing of our country’s international obligations with our Constitution’s protection of free expression, Congress has determined that § 112 adequately satisfies the Government’s interest in protecting diplomatic personnel outside the District of Columbia. It is the necessary, “appropriate” step that Congress has enacted to fulfill our international obligations. Cf. Vienna Convention on Diplomatic Relations, Art. 22, § 2, 23 U. S. T., at 3237 (“special duty to take all appropriate steps”).

Section 112 applies to all conduct “within the United States but outside the District of Columbia.” § 112(b)(3). In the legislative history, the exclusion of the District from the statute’s reach is explained with reference to § 22-1115; Congress was informed that a “similar” statute already applied inside the District. S. Rep. No. 92-1105, supra, at 19; H. R. Rep. No. 92-1268, p. 5 (1972). The two statutes, however, are not identical, and the differences between them are constitutionally significant. In two obvious ways, § 112 is considerably less restrictive than the display clause of §22-1115. First and foremost, § 112 is not narrowly directed at the content of speech but at any activity, including speech, that has the prohibited effects. Moreover, §112, unlike §22-1115, does not prohibit picketing; it only prohibits activity undertaken to “intimidate, coerce, threaten, or harass.” Indeed, unlike the display clause, even the repealed antipicketing portion of § 112 permitted peaceful picketing.

Given this congressional development of a significantly less restrictive statute to implement the Vienna Convention, there is little force to the argument that we should give deference to a supposed congressional judgment that the Convention demands the more problematic approach reflected in the display clause. If § 112 is all that is necessary in the rest of the country, petitioners contend it should be all that is necessary in the District of Columbia. The only counterargument offered by respondents is that the District has a higher concentration of foreign embassies than other locales and that a more restrictive statute is therefore necessary. But this is arguably factually incorrect (New York City is reported to have a greater number of foreign embassies, missions, or consulates than does the District of Columbia, see Note, Regulating Embassy Picketing in the Public Forum, 55 Geo. Wash. L. Rev. 908, 928, n. 140 (1987)), and logically beside the point since the need to protect “dignity” is equally present whether there is one embassy or mission or one hundred. The United States points to Congress’ exclusive legislative authority over the District of Columbia, U. S. Const., Art. I, § 8, cl. 17, and argues that this justifies more extensive measures. We fail to see, however, why the potential legislative power to enact more extensive measures makes such measures necessary.

Congressional action since the Court of Appeals’ ruling in this case casts even further doubt on the validity of the display clause and causes one to doubt whether that court would have reached the same result under the law as it now stands. In § 1302 of the Omnibus Diplomatic Security and Antiterrorism Act of 1986, Congress said:

“(1) [T]he District of Columbia law concerning demonstrations near foreign missions in the District of Columbia (D. C. Code, sec. 22-1115) may be inconsistent with the reasonable exercise of the rights of free speech and assembly, that law may have been selectively enforced, and peaceful demonstrators may have been unfairly arrested under the law;
“(2) the obligation of the United States to provide adequate security for the missions and personnel of foreign governments must be balanced with the reasonable exercise of the rights of free speech and assembly; and
“(3) therefore, the Council of the District of Columbia should review and, if appropriate, make revisions'in the laws of the District of Columbia concerning demonstrations near foreign missions, in consultation with the Secretary of State and the Secretary of the Treasury.” Pub. L. 99-399, § 1302, 100 Stat. 853, 897.

This sense-of-the-Congress resolution originated as a proposal to repeal § 22-1115 directly and to amend § 112 to include the District. The sponsor of this proposal noted that in excluding the District from the reach of § 112, Congress had apparently assumed that § 22-1115 and §112 were similar, when in fact the two laws are “in no way similar.” 132 Cong. Rec. 15329 (1986) (Sen. Grassley). The Senate passed the bill repealing § 22-1115, see ibid., but the Conference Committee was concerned with objections to congressional repeal arising from the tenets of “home rule” for the District of Columbia. See id., at 20913. Cf. District of Columbia Self-Government and Governmental Reorganization Act, Pub L. 93-198, 87 Stat. 774 (establishing home rule). These objections led Congress to replace a repeal of § 22-1115 with the sense-of-the-Congress language quoted above.

The District of Columbia government has responded to the congressional request embodied in the Omnibus Act by repealing § 22-1115. The repeal is contingent, however, on Congress’ first acting to extend § 112 to the District. See Protection for Foreign Officials, Official Guests, and Internationally Protected Persons Amendment Act of 1987, § 3, D. C. Act 7-138, 35 D. C. Reg. 728-729 (Feb. 5, 1988). Cf. § 112(b)(3) (Section applies “within the United States but outside the District of Columbia”).

While this most recent round of legislative action concerning § 22-1115 has not yet led to making the repeal of that provision effective, it has undercut significantly respondents’ defense of the display clause. When considered together with earlier congressional action implementing the Vienna Convention, the claim that the display clause is sufficiently narrowly tailored is gravely weakened: if ever it did so, Congress no longer considers this statute necessary to comply with our international obligations. Relying on congressional judgment in this delicate area, we conclude that the availability of alternatives such as § 112 amply demonstrates that the display clause is not crafted with sufficient precision to withstand First Amendment scrutiny. It may serve an interest in protecting the dignity of foreign missions, but it is not narrowly tailored; a less restrictive alternative is readily available. Cf. Wygant v. Jackson Bd. of Ed., 476 U. S. 267, 280, n. 6 (1986) (plurality opinion). Thus, even assuming for present purposes that the dignity interest is “compelling,” we hold that the display clause of § 22-1115 is inconsistent with the First Amendment.

Ill

Petitioners initially attack the congregation clause by arguing that it confers unbridled discretion upon the police. In addressing such a facial overbreadth challenge, a court’s first task is to ascertain whether the enactment reaches a substantial amount of constitutionally protected conduct. Houston v. Hill, 482 U. S. 451, 458-459 (1987); Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U. S. 489, 494 (1982). In making this assessment, we consider the actual text of the statute as well as any limiting constructions that have been developed. Kolender v. Lawson, 461 U. S. 352, 355 (1983); Hoffman Estates, supra, at 494, n. 5.

The congregation clause makes it unlawful

“to congregate within 500 feet of any [embassy, legation, or consulate] and refuse to disperse after having been ordered so to do by the police.” § 22-1115.

Standing alone, this text is problematic both because it applies to any congregation within 500 feet of an embassy for any reason and because it appears to place no limits at all on the dispersal authority of the police. The Court of Appeals, however, has provided a narrowing construction that alleviates both of these difficulties.

The Court of Appeals, we must first observe, read the congregation clause as distinct from the display clause, so the constitutional infirmity of the latter need not affect the former. See 255 U. S. App. D. C., at 41, n. 17, 798 F. 2d, at 1472, n. 17. Second, the Court of Appeals followed the lead of several earlier decisions, see, e. g., United States v. Travers, 98 Daily Wash. L. Rptr. 1505 (D. C. Ct. Gen. Sess. April 2, 1970), and concluded that the statute permits the dispersal only of congregations that are directed at an embassy; it does not grant “police the power to disperse for reasons having nothing to do with the nearby embassy.” 255 U. S. App. D. C., at 41, 798 F. 2d, at 1472. Finally, the Court of Appeals further circumscribed police discretion by holding that the statute permits dispersal “only when the police reasonably believe that a threat to the security or peace of the embassy is present.” Id., at 40, 798 F. 2d, at 1471.

Petitioners protest that the Court of Appeals was without authority to narrow the statute. According to petitioners, § 22-1115 must be considered to be state legislation, which brings it within the sweep of prior decisions indicating that federal courts are without power to adopt a narrowing construction of a state statute unless such a construction is reasonable and readily apparent. See, e. g., Grayned v. Rockford, 408 U. S. 104, 110 (1972); Gooding v. Wilson, 405 U. S. 518, 520-521 (1972). Even assuming that the District of Columbia could be considered a State for this purpose, the argument overlooks the fact that § 22-1115 was enacted by Congress, not by the District of Columbia Council. Cf. Whalen v. United States, 445 U. S. 684, 687-688 (1980). It is well settled that federal courts have the power to adopt narrowing constructions of federal legislation. See, e. g., New York v. Ferber, 458 U. S. 747, 769, n. 24 (1982); United States v. Thirty-seven Photographs, 402 U. S. 363, 368-370 (1971). Indeed, the federal courts have the duty to avoid constitutional difficulties by doing so if such a construction is fairly possible. See, e. g., Ferber, supra, at 769, n. 24; Thirty-seven Photographs, supra, at 369; Schneider v. Smith, 390 U. S. 17, 26-27 (1968). While the original congressional resolution is now part of the District of Columbia Code, this administrative transfer did not diminish the national interest in the congregation clause. As counsel for respondents indicated at oral argument, there “is no independent District of Columbia interest here.” Tr. of Oral Arg. 28. Accordingly, we see no barrier to the Court of Appeals’ adoption of a narrowing construction.

So narrowed, the congregation clause withstands First Amendment overbreadth scrutiny. It does not reach a substantial amount of constitutionally protected conduct; it merely regulates the place and manner of certain demonstrations. Unlike a general breach of the peace statute, see, e. g., Cox v. Louisiana, 379 U. S. 536 (1965), the congregation clause is site specific; it applies only within 500 feet of foreign embassies. Cf. Cox v. Louisiana, 379 U. S. 559, 568, n. 1 (1965) (ordinance prohibiting certain picketing “near” a courthouse upheld; § 22-1115 cited with approval as being less vague due to specification of 500 feet); Grayned, supra, at 112, 120-121 (upholding ban on picketing near a school; special nature of place relevant in judging reasonableness of restraint). Moreover, the congregation clause does not prohibit peaceful congregations; its reach is limited to groups posing a security threat. 'As we have noted, “where demonstrations turn violent, they lose their protected quality as expression under the First Amendment.” Grayned, supra, at 116. These two limitations prevent the congregation clause from reaching a substantial amount of constitutionally protected conduct and make the clause consistent with the First Amendment.

Petitioners argue that even as narrowed by the Court of Appeals, the congregation clause is invalid because it is impermissibly vague. In particular, petitioners focus on the word “peace,” which is not further defined or limited. We rejected an identical argument in Grayned, supra. That case concerned an ordinance that prohibited persons near schools from “disturbing] the peace” of the schools. 408 U. S., at 107-108. We held that given the “particular context” of the ordinance it gave fair notice of its scope: “Although the prohibited quantum of disturbance is not specified in the ordinance, it is apparent from the statute’s announced purpose that the measure is whether normal school activity has been or is about to be disrupted.” Id., at 112. Section 22-1115 presents the same situation. It is crafted for a particular context and given that context, it is apparent that the “prohibited quantum of disturbance” is whether normal embassy activities have been or are about to be disrupted. The statute communicates its reach in words of common understanding, ibid.; Cameron v. Johnson, 390 U. S. 611, 616 (1968), and it accordingly withstands petitioners’ vagueness challenge.

IV

In addition to their First Amendment challenges to the display clause and the congregation clause, petitioners raise an equal protection argument. Relying on Police Department of Chicago v. Mosley, 408 U. S. 92 (1972), and Carey v. Brown, 447 U. S. 455 (1980), petitioners contend that both the display clause and the congregation clause violate equal protection by virtue of § 22-1116, which excludes labor picketing from the general prohibitions of § 22-1115:

“[N]othing contained in [§ 22-1115] shall be construed to prohibit picketing, as a result of bona fide labor disputes regarding the alteration, repair, or construction of either buildings or premises occupied, for business purposes, wholly or in part, by representatives of foreign governments.”

No doubt the primary intent of § 22-1116 was to ensure that the display clause did not prohibit labor picketing, since “picketing” is most directly implicated in the display clause. Even if § 22-1116 were to exempt the display of labor signs that offended the dignity of foreign officials from the display clause’s general ban on such signs, and thereby raise equal protection concerns, we have already concluded that the display clause is contrary to the First Amendment. Accordingly, the only provision to which § 22-1116 conceivably could apply is the congregation clause. And the Court of Appeals has already construed that provision to apply only to congregations that threaten the security or peace of an embassy. Therefore, peaceful congregations, including peaceful labor congregations, are not prohibited.

Accordingly, only if § 22-1116 is construed to protect violent labor congregations, will there be any unequal treatment of nonlabor and labor picketing which could run afoul of the Equal Protection Clause. In our view, § 22-1116 should not be interpreted in this manner. First, it is well established that statutes should be construed to avoid constitutional questions if such a construction is fairly possible. See, e. g., New York v. Ferber, supra, at 769, n. 24; United States v. Thirty-seven Photographs, supra. Second, the face of the statute admonishes only that nothing shall “prohibit picketing.” As narrowed by the Court of Appeals, the congregation clause does not “prohibit picketing” at all, it merely regulates the place and manner of certain demonstrations. The labor proviso is thus completely consistent with the congregation clause. Third, § 22-1116 evinces an intent to protect only “bona fide” labor disputes. We think it safe to conclude that an intent to protect such “good faith” disagreements falls short of an intent to insulate violent conduct. Indeed, it would be unreasonable to construe this statute in such a way that the sole purpose of § 22-1116 would be to protect violent labor congregations.

The intended function of § 22-1116 is largely pre-empted by our conclusion that the display clause is invalid. Viewing the section in this way eliminates any potential unequal treatment of nonlabor and labor congregations. Accordingly, in our view, § 22-1116 does not violate the Equal Protection Clause.

V

We conclude that the display clause of § 22-1115 is unconstitutional on its face. It is a content-based restriction on political speech in a public forum, and it is not narrowly tailored to serve a compelling state interest. We also conclude that the congregation clause, -as narrowed by the Court of Appeals, is not facially unconstitutional. Accordingly, the judgment of the Court of Appeals is reversed in part and affirmed in part.

It is so ordered.

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

Justice Brennan,

with whom

Justice Marshall joins, concurring in part and concurring in the judgment.

I join all but Part II-A of Justice O’Connor’s opinion. I also join Part II-A to the extent it concludes that even under the analysis set forth in Renton v. Playtime Theatres, Inc., 475 U. S. 41 (1986), the display clause constitutes a content-based restriction on speech that merits strict scrutiny. Whatever “secondary effects” means, I agree that it cannot include listeners’ reactions to speech; Cf. Hustler Magazine, Inc. v. Falwell, ante, p. 46. I write separately, however, to register my continued disagreement with the proposition that an otherwise content-based restriction on speech can be recast as “content neutral” if the restriction “aims” at “secondary effects” of the speech, see Renton, supra, at 55 (Brennan, J., joined by Marshall, J., dissenting), and to object to Justice O’Connor’s assumption that the Renton analysis applies not only outside the context of businesses purveying sexually explicit materials but even to political speech.

The dangers and difficulties posed by the Renton analysis are extensive. Although in this case it is easy enough to determine that the display clause does not aim at a “secondary effect” of speech, future litigants are unlikely to be so bold or so forthright as to defend a restriction on speech with the argument that the restriction aims to protect listeners from the indignity of hearing speech that criticizes them. Rather, they are likely to defend content-based restrictions by pointing, as Justice O’Connor suggests, to secondary effects like “congestion,. . . visual clutter, or . . . security. . . .” Ante, at 321. But such secondary effects offer countless excuses for content-based suppression of political speech. No doubt a plausible argument could be made that the political gatherings of some parties are more likely than others to attract large crowds causing congestion, that picketing for certain causes is more likely than other picketing to cause visual clutter, or that speakers delivering a particular message are more likely than others to attract an unruly audience. Our traditional analysis rejects such a priori categorical judgments based on the content of speech, Police Department of Chicago v. Mosley, 408 U. S. 92, 100-101 (1972), requiring governments to regulate based on actual congestion, visual clutter, or violence rather than based on predictions that speech with a certain content will induce those effects. The Renton analysis, however, creates a possible avenue for governmental censorship whenever censors can concoct “secondary” rationalizations for regulating the content of political speech.

Moreover, the Renton analysis provides none of the clear lines or sanctuaries the First Amendment demands. The traditional approach sets forth a bright-line rule: any restriction on speech, the application of which turns on the content of the speech, is a content-based restriction regardless of the motivation that lies behind it. That, to my mind, has always been implicit in the fact that we term the test a “content-based” test rather than a “motivation-based” test. The traditional rule thus provides clear guidance. Governments can ascertain the scope of impermissible regulation. Individuals can ascertain the scope of their constitutional protection. The Renton analysis, in contrast, plunges courts into the morass of legislative motive, a notoriously hazardous and indeterminate inquiry, particularly where, as under the Renton approach, the posited purpose flies in the face of plain statutory language. See, e. g., United States v. O’Brien, 391 U. S. 367, 383-384 (1968). And even where the motivational inquiry can be resolved, the Renton approach saddles courts with a fuzzy distinction between the secondary and direct effects of speech, a distinction that is likely to prove just as unworkable as other direct/indirect distinctions in constitutional jurisprudence have proved. Compare, e. g., Complete Auto Transit, Inc. v. Brady, 430 U. S. 274 (1977) (criticizing and wisely rejecting the distinction between direct and indirect taxation of interstate commerce); L. Tribe, American Constitutional Law § 6-4, p. 408 (2d ed. 1988) (noting that the Court abandoned a similar distinction between direct and indirect regulation of interstate commerce).

This indeterminacy is hardly Renton’s worst flaw, for the root problem with the Renton analysis is that it relies on the dubious proposition that a statute which on its face discriminates based on the content of speech aims not at content but at some secondary effect that does not itself affect the operation of the statute. But the inherently ill-defined nature of the Renton analysis certainly exacerbates the risk that many laws designed to suppress disfavored speech will go undetected. Although an inquiry into motive is sometimes a useful supplement, the best protection against governmental attempts to squelch opposition has never lain in our ability to assess the purity of legislative motive but rather in the requirement that the government act through content-neutral means that restrict expression the government favors as well as expression it disfavors. In Justice Jackson’s felicitous words of nearly 40 years ago: “Courts can take no better measure to assure that laws will be just than to require that laws be equal in operation.” Railway Express Agency, Inc. v. New York, 336 U. S. 106, 113 (1949) (concurring opinion). Moreover, even if we could be confident about our ability to determine that a content-based law was intended to aim at the “secondary effects” of certain types of speech, such a law would still offend fundamental free speech interests by denying speakers the equal right to engage in speech and by denying listeners the right to an undistorted debate. These rights are all the more precious when the speech subject to unequal treatment is political speech and the debate being distorted is a political debate. And the dangers, the uncertainties, and the damage to free and equal debate caused by the Renton analysis are all the more regrettable given the unlikelihood of any legitimate governmental interest in a content-based restriction on speech (especially political speech) and the ample alternatives governments have for advancing content-neutral goals through content-neutral regulation. At least in Renton there was a plausible argument that the secondary effect sought to be regulated — the social decay of neighborhoods — could not be directly regulated in the way that congestion, visual clutter, or violence can be. But absent a demonstrable showing of that type of necessity, it is hard to see how a convincing argument could ever be made that a content-based regulation does not aim at content. Nor can I conceive of any situation where a plausible argument could be made that regulating the content of political speech is necessary to regulate content-neutral secondary effects.

Until today, the Renton analysis, however unwise, had at least never been applied to political speech. Renton itself seemed to confine its application to “businesses that purvey sexually explicit materials.” 475 U. S., at 49, and n. 2. Indeed, the same day that we decided Renton, three of the Justices who joined it reiterated the traditional test in Pacific Gas & Electric Co. v. Public Utilities Comm’n, 475 U. S. 1, 20 (1986) (plurality opinion of Powell, J.) (“For a time, place, or manner regulation to be valid, it must be neutral as to the content of the, speech to be regulated”). See also Widmar v. Vincent, 454 U. S. 263 (1981) (evaluating a prohibition on the religious use of university buildings under the strict scrutiny applicable to content-based regulations even though the prohibition was aimed at avoiding perceived Establishment Clause problems, a secondary effect of the speech). True, today’s application of the Renton analysis to political speech is dictum: the challenged statute would be treated as content based under either Renton or the traditional approach, and the opinion could easily have stated simply that we need not reach the issue whether Renton applies to political speech because even under Renton the law constitutes a content-based restriction. It is nonetheless ominous dictum, for it could set the Court on a road that will lead to the evisceration of First Amendment freedoms. I can only hope that, when the Court is actually presented with a case involving a content-based regulation of political speech that allegedly aims at so-called secondary effects of that speech, the Court will recognize and avoid the pitfalls of the Renton approach.

Chief Justice Rehnquist,

with whom

Justices White and Blackmun join, concurring in part and dissenting in part.

For the reasons stated by Judge Bork in his majority opinion below, I would uphold that portion of § 22-1115 of the District of Columbia Code that prohibits the display of any sign within 500 feet of a foreign embassy if that sign tends to bring that foreign government into “public odium” or “public disrepute.” However, I agree with Justice O’Connor that §22-1115’s congregation clause is not unconstitutional and that the exemption for labor picketing does not violate the Equal Protection Clause, so I join in Parts III and IV of the majority opinion.

      And, as suggested above, strong arguments exist for, at a minimum, confining the Renton analysis to situations where the secondary effects sought to be regulated are not amenable to direct regulation.


source: Caselaw Access Project

author: Justice Scalia

license: Public Domain

text:
    COMMISSIONER OF INTERNAL REVENUE v. BOLLINGER et al.
    No. 86-1672.
    Argued January 13, 1988
    Decided March 22, 1988

      Scalia, 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.

      Alan I. Horowitz argued the cause for petitioner. With him on the briefs were Solicitor General Fried, Acting Assistant Attorney General Durney, Deputy Solicitor General Lauber, Richard Farber, and Teresa E. McLaughlin.

      Charles R. Hembree argued the cause for respondents. With him on the brief was Philip E. Wilson.

        F. Kelleher Riess filed a brief for Gary R. Frink et al. as amici curiae urging affirmance.

   Justice Scalia

delivered the opinion of the Court.

Petitioner, the Commissioner of Internal Revenue, challenges a decision by the United States Court of Appeals for the Sixth Circuit holding that a corporation which held record title to real property as agent for the corporation’s shareholders was not the owner of the property for purposes of federal income taxation. 807 F. 2d 65 (1986). We granted certiorari, 482 U. S. 913 (1987), to resolve a conflict in the Courts of Appeals over the tax treatment of corporations purporting to be agents for their shareholders. Compare George v. Commissioner, 803 F. 2d 144, 148-149 (CA5 1986), cert. pending, No. 86-1152, with Frink v. Commissioner, 798 F. 2d 106, 109-110 (CA4 1986), cert. pending, No. 86-1151.

I

Respondent Jesse C. Bollinger, Jr., developed, either individually or in partnership with some or all of the other respondents, eight apartment complexes in Lexington, Kentucky. (For convenience we will refer to all the ventures as “partnerships.”) Bollinger initiated development of the first apartment complex, Creekside North Apartments, in 1968. The Massachusetts Mutual Life Insurance Company agreed to provide permanent financing by lending $1,075,000 to “the corporate nominee of Jesse C. Bollinger, Jr.” at an annual interest rate of eight percent, secured by a mortgage on the property and a personal guarantee from Bollinger. The loan commitment was structured in this fashion because Kentucky’s usury law at the time limited the annual interest rate for noncorporate borrowers to seven percent. Ky. Rev. Stat. §§360.010, 360.025 (1972). Lenders willing to provide money only at higher rates required the nominal debtor and record titleholder of mortgaged property to be a corporate nominee of the true owner and borrower. On October 14, 1968, Bollinger incorporated Creekside, Inc., under the laws of Kentucky; he was the only stockholder. The next day, Bollinger and Creekside, Inc., entered into a written agreement which provided that the corporation would hold title to the apartment complex as Bollinger’s agent for the sole purpose of securing financing, and would convey, assign, or encumber the property and disburse the proceeds thereof only as directed by Bollinger; that Creekside, Inc., had no obligation to maintain the property or assume any liability by reason of the execution of promissory notes or otherwise; and that Bollinger would indemnify and hold the corporation harmless from any liability it might sustain as his agent and nominee.

Having secured the commitment for permanent financing, Bollinger, acting through Creekside, Inc., borrowed the construction funds for the apartment complex from Citizens Fidelity Bank and Trust Company. Creekside, Inc., executed all necessary loan documents including the promissory note and mortgage, and transferred all loan proceeds to Bollinger’s individual construction account. Bollinger acted as general contractor for the construction, hired the necessary employees,‡ and paid the expenses out of the construction account. When construction was completed, Bollinger obtained, again through Creekside, Inc., permanent financing from Massachusetts Mutual Life in accordance with the earlier loan commitment. These loan proceeds were used to pay off the Citizens Fidelity construction loan. Bollinger hired a resident manager to rent the apartments, execute leases with tenants, collect and deposit the rents, and maintain operating records. The manager deposited all rental receipts into, and paid all operating expenses from, an operating account, which was first opened in the name of Creekside, Inc., but was later changed to “Creekside Apartments, a partnership.” The operation of Creekside North Apartments generated losses for the taxable years 1969, 1971, 1972,1973, and 1974, and ordinary income for the years 1970, 1975, 1976, and 1977. Throughout, the income and losses were reported by Bollinger on his individual income tax returns.

Following a substantially identical pattern, seven other apartment complexes were developed by respondents through seven separate partnerships. For each venture, a partnership executed a nominee agreement with Creekside, Inc., to obtain financing. (For one of the ventures, a different Kentucky corporation, Cloisters, Inc., in which Bollinger had a 50 percent interest, acted as the borrower and titleholder. For convenience, we will refer to both Creekside and Cloisters as “the corporation.”) The corporation transferred the construction loan proceeds to the partnership’s construction account, and the partnership hired a construction supervisor who oversaw construction. Upon completion of construction, each partnership actively managed its apartment complex, depositing all rental receipts into, and paying all expenses from, a separate partnership account for each apartment complex. The corporation had no assets, liabilities, employees, or bank accounts. In every case, the lenders regarded the partnership as the owner of the apartments and were aware that the corporation was acting as agent of the partnership in holding record title. The partnerships reported the income and losses generated by the apartment complexes on their partnership tax returns, and respondents reported their distributive share of the partnership income and losses on their individual tax returns.

The Commissioner of Internal Revenue disallowed the losses reported by respondents, on the ground that the standards set out in National Carbide Corp. v. Commissioner, 336 U. S. 422 (1949), were not met. The Commissioner contended that National Carbide required a corporation to have an arm’s-length relationship with its shareholders before it could be recognized as their agent. Although not all respondents were shareholders of the corporation, the Commissioner took the position that the funds the partnerships disbursed to pay expenses should be deemed contributions to the corporation’s capital, thereby making all respondents constructive stockholders. Since, in the Commissioner’s view, the corporation rather than its shareholders owned the real estate, any losses sustained by the ventures were attributable to the corporation and not respondents. Respondents sought a redetermination in the United States Tax Court. The Tax Court held that the corporation was the agent of the partnerships and should be disregarded for tax purposes. 48 TCM 1443 (1984), ¶ 84, 560 P-H Memo TC. On appeal, the United States Court of Appeals for the Sixth Circuit affirmed. 807 F. 2d 65 (1986). We granted the Commissioner’s petition for certiorari.

II

For federal income tax purposes, gain or loss from the sale or use of property is attributable to the owner of the property. See Helvering v. Horst, 311 U. S. 112, 116-117 (1940); Blair v. Commissioner, 300 U. S. 5, 12 (1937); see also Commissioner v. Sunnen, 333 U. S. 591, 604 (1948). The problem we face here is that two different taxpayers can plausibly be regarded as the owner. Neither the Internal Revenue Code nor the regulations promulgated by the Secretary of the Treasury provide significant guidance as to which should be selected. It is common ground between the parties, however, that if a corporation holds title to property as agent for a partnership, then for tax purposes the partnership and not the corporation is the owner. Given agreement on that premise, one would suppose that there would be agreement upon the conclusion as well. For each of respondents’ apartment complexes, an agency agreement expressly provided that the corporation would “hold such property as nominee and agent for” the partnership, App. to Pet. for Cert. 21a, n. 4, and that the partnership would have sole control of and responsibility for the apartment complex. The partnership in each instance was identified as the principal and owner of the property during financing, construction, and operation. The lenders, contractors, managers, employees, and tenants — all who had contact with the development — knew that the corporation was merely the agent of the partnership, if they knew of the existence of the corporation at all. In each instance the relationship between the corporation and the partnership was, in both form and substance, an agency with the partnership as principal.

The Commissioner contends, however, that the normal indicia of agency cannot suffice for tax purposes when, as here, the alleged principals are the controlling shareholders of the alleged agent corporation. That, it asserts, would undermine the principle of Moline Properties v. Commissioner, 319 U. S. 436 (1943), which held that a corporation is a separate taxable entity even if it has only one shareholder who exercises total control over its affairs. Obviously, Moline’s separate-entity principle would be significantly compromised if shareholders of closely held corporations could, by clothing the corporation with some attributes of agency with respect to particular assets, leave themselves free at the end of the tax year to make a claim — perhaps even a good-faith claim— of either agent or owner status, depending upon which choice turns out to minimize their tax liability. The Commissioner does not have the resources to audit and litigate the many cases in which agency status could be thought debatable. "Hence, the Commissioner argues, in this shareholder context he can reasonably demand that the taxpayer meet a prophylactically clear test of agency.

We agree with that principle, but the question remains whether the test the Commissioner proposes is appropriate. The parties have debated at length the significance of our opinion in National Carbide Corp. v. Commissioner, supra. In that case, three corporations that were wholly owned subsidiaries of another corporation agreed to operate their production plants as “agents” for the parent, transferring to it all profits except for a nominal sum. The subsidiaries reported as gross income only this sum, but the Commissioner concluded that they should be taxed on the entirety of the profits because they were not really agents. We agreed, reasoning first, that the mere fact of the parent’s control over the subsidiaries did not establish the existence of an agency, since such control is typical of all shareholder-corporation relationships, id., at 429-434; and second, that the agreements to pay the parent all profits above a nominal amount were not determinative since income must be taxed to those who actually earn it without regard to anticipatory assignment, id., at 435-436. We acknowledged, however, that there was such a thing as “a true corporate agent... of [an] owner-principal,” id., at 437, and proceeded to set forth four indicia and two requirements of such status, the sum of which has become known in the lore of federal income tax law as the “six National Carbide factors”:

“[1] Whether the corporation operates in the name and for the account of the principal, [2] binds the principal by its actions, [3] transmits money received to the principal, and [4] whether receipt of income is attributable to the services of employees of the principal and to assets belonging to the principal are some of the relevant considerations in determining whether a true agency exists. [5] If the corporation is a true agent, its relations with its principal must not be dependent upon the fact that it is owned by the principal, if such is the case. [6] Its business purpose must be the carrying on of the normal duties of an agent.” Ibid, (footnotes omitted).

We readily discerned that these factors led to a conclusion of nonagency in National Carbide itself. There each subsidiary had represented to its customers that it (not the parent) was the company manufacturing and selling its products; each had sought to shield the parent from service of legal process; and the operations had used thousands of the subsidiaries’ employees and nearly $20 million worth of property and equipment listed as assets on the subsidiaries’ books. Id., at 425, 434, 438, and n. 21.

The Commissioner contends that the last two National Carbide factors are not satisfied in the present case. To take the last first: The Commissioner argues that here the corporation’s business purpose with respect to the property at issue was not “the carrying on of the normal duties of an agent,” since it was acting not as the agent but rather as the owner of the property for purposes of Kentucky’s usury law. We do not agree. It assuredly was not acting as the owner in fact, since respondents represented themselves as the principals to all parties concerned with the loans. Indeed, it was the lenders themselves who required the use of a corporate nominee. Nor does it make any sense to adopt a contrary-to-fact legal presumption that the corporation was the principal, imposing a federal tax sanction for the apparent evasion of Kentucky’s usury law. To begin with, the Commissioner has not established that these transactions were an evasion. Respondents assert without contradiction that use of agency arrangements in order to permit higher interest was common practice, and it is by no means clear that the practice violated the spirit of the Kentucky law, much less its letter. It might well be thought that the borrower does not generally require usury protection in a transaction sophisticated enough to employ a corporate agent — assuredly not the normal modus operandi of the loan shark. That the statute positively envisioned corporate nominees is suggested by a provision which forbids charging the higher corporate interest rates “to a corporation, the principal asset of which shall be the ownership of a one (1) or two (2) family dwelling,” Ky. Rev. Stat. §360.025(2) (1987) — which would seem to prevent use of the nominee device for ordinary home-mortgage loans. In any event, even if the transaction did run afoul of the usury law, Kentucky, like most States, regards only the lender as the usurer, and the borrower as the victim. See Ky. Rev. Stat. § 360.020 (1987) (lender liable to borrower for civil penalty), § 360.990 (lender guilty of misdemeanor). Since the Kentucky statute imposed no penalties upon the borrower for allowing himself to be victimized, nor treated him as in pari delicto, but to the contrary enabled him to pay back the principal without any interest, and to sue for double the amount of interest already paid (plus attorney’s fees), see Ky. Rev. Stat. § 360.020 (1972), the United States would hardly be vindicating Kentucky law by depriving the usury victim of tax advantages he would otherwise enjoy. In sum, we see no basis in either fact or policy for holding that the corporation was the principal because of the nature of its participation in the loans.

Of more general importance is the Commissioner’s contention that the arrangements here violate the fifth National Carbide factor — that the corporate agent’s “relations with its principal must not be dependent upon the. fact that it is owned by the principal.” The Commissioner asserts that this cannot be satisfied unless the corporate agent and its shareholder principal have an “arm’s-length relationship” that includes the payment of a fee for agency services. The meaning of National Carbide’s fifth factor is, at the risk of understatement, not entirely clear. Ultimately, the relations between a corporate agent and its owner-principal are always dependent upon the fact of ownership, in that the owner can cause the relations to be altered or terminated at any time. Plainly that is not what was meant, since on that interpretation all subsidiary-parent agencies would be invalid for tax purposes, a position which the National Carbide opinion specifically disavowed. We think the fifth National Carbide factor — so much more abstract than the others — was no more and no less than a generalized statement of the concern, expressed earlier in our own discussion, that the separate-entity doctrine of Moline not be subverted.

In any case, we decline to parse the text of National Carbide as though that were itself the governing statute. As noted earlier, it is uncontested -that the law attributes tax consequences of property held by a genuine agent to the principal; and we agree that it is reasonable for the Commissioner to demand unequivocal evidence of genuineness in the corporation-shareholder context, in order to prevent evasion of Moline. We see no basis, however, for holding that unequivocal evidence can only consist of the rigid requirements (arm’s-length dealing plus agency fee) that the Commissioner suggests. Neither of those is demanded by the law of agency, which permits agents to be unpaid family members, friends, or associates. See Restatement (Second) of Agency §§ 16, 21, 22 (1958). It seems to us that the genuineness of the agency relationship is adequately assured, and tax-avoiding manipulation adequately avoided, when the.fact that the corporation is acting as agent for its shareholders with respect to a particular asset is set forth in a written agreement at the time the asset is acquired, the corporation functions as agent and not principal with respect to the asset for all purposes, and the corporation is held out as the agent and not principal in all dealings with third parties relating to the asset. Since these requirements were met here, the judgment of the Court of Appeals is

Affirmed.

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


author: Justice Brennan

text:
    UNITED STATES v. WELLS FARGO BANK et al.
    No. 86-1521.
    Argued December 8, 1987
    Decided March 23, 1988

      Brennan, 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 ease.

      Deputy Solicitor General Wallace argued the cause for the United States. On the briefs were Solicitor General Fried, Acting Assistant Attorney General Durney, Deputy Solicitor General Lauber, Alan I. Horowitz, Michael L. Paup, Ernest J. Brown, and David I. Pincus.

      Robert H. Rotstein argued the cause for appellees. With him on the brief for appellees Wells Fargo Bank et al. were William J. Bird and Katherine T. Pratt. Mark G. Ancel and Erwin N. Griswold filed a brief for appellees Rosenberg and Rosen.

      Briefs of amici curiae urging affirmance were filed for Herbert K. Cummings et al. by James J. Carroll, Mortimer M. Caplin, and Stuart L. Brown; for Keith D. Graham by Daniel Joseph and Bob C. Griffo; for the Estate of Dorothy G. Dillon et al. by Robert I. White; and for the Estate of Marion du Pont Scott by James J. Carroll.

        John A. Wallace filed a brief for the American College of Probate Counsel as amicus curiae.

   Justice Brennan

delivered the opinion of the Court.

This case, which consists of two actions consolidated below, Wells Fargo Bank v. United States and Rosenberg v. United States, 86-2 USTC ¶ 13,703 (CD Cal. 1986), presents two issues: first, whether certain state and local public housing agency obligations (Project Notes or Notes) were exempt from federal estate taxation prior to June 19, 1984, and second, if so, whether § 641 of the Deficit Reduction Act of 1984 (DEFRA), 98 Stat. 939, which forecloses any refund for estate taxes paid on such Project Notes, is unconstitutional. Relying on Haffner v. United States, 585 F. Supp. 354 (ND Ill. 1984), aff’d, 757 F. 2d 920 (CA7 1985), the District Court for the Central District of California ruled that Project Notes were exempt. It further held § 641 of the DEFRA unconstitutional. The United States appealed that judgment directly to this Court pursuant to 28 U. S. C. § 1252. We noted probable jurisdiction sub nom. United States v. Crocker National Bank, 481 U. S. 1047 (1987), and now reverse.

In the late 1930’s, the Nation faced a severe housing shortage. To meet that crisis, Congress enacted the Housing Act of 1937, 50 Stat. 888 et seq., which was designed to stimulate local financing of housing projects by empowering state and local housing authorities to issue tax-free obligations, termed “Project Notes.” For almost 50 years after the Act’s passage, it was generally assumed that this exempted the Notes from federal income tax, but not from federal estate tax. See Committee on Tax Exempt Financing, Section of Taxation, ABA, Report on the Tax Provisions of the United States Housing Act of 1937: Beyond the Looking Glass, 33 Tax Lawyer 71, 105 (1979); Rev. Rul. 81-63, 1981-1 Cum. Bull. 455. However, in 1984, the District Court for the Northern District of Illinois ruled that Project Notes were exempt from estate taxes as well, basing its decision on a variety of statutory construction tools. Haffner v. United States, supra. The District Court’s judgment caused a “rush to market” for Project Notes, and also prompted those who had already paid estate taxes on the Notes to seek refunds. Within months of the District Court’s ruling, Congress enacted the DEFRA, § 641 of which, effective June 19, 1984, eliminated the purported estate tax exemption for Project Notes, and also foreclosed those who had already paid estate taxes on Project Notes from obtaining a refund thereon. Against this backdrop, we turn to the facts of the instant appeal.

The Wells Fargo appellees are the executors of the estate of Jules C. Stein, who died in April 1981. Included in the estate are Project Notes with an aggregate face value of $9,550,000. They filed an estate tax return listing these notes as taxable, and paid the tax. In June 1984, following the Haffner decision, appellees timely filed an amended estate tax return declaring that the Project Notes were exempt from taxation and claiming a refund. After the Commissioner of Internal Revenue rejected their claim, they brought suit in the District Court for the Central District of California.

The Rosenberg appellees are the coexecutors of the estate of Morris Folb, who died in July 1982. Project Notes with face values totaling $250,000 are part of the estate. Appellees filed an estate tax return, and, like the Wells Fargo appellees, included the Project Notes as taxable assets and paid tax on them. In August 1984, also like the Wells Fargo appellees, they filed their amended tax return claiming that the Project Notes were exempt from estate taxation. The Commissioner denied their claim and they too filed suit in the Central District of California, where their case was consolidated with Wells Fargo.

On cross-motions for summary judgment the District Court concluded, as mentioned above, that the Project Notes were tax exempt when the returns were filed, relying on the reasoning in Haffner. The court also held that § 641 of the DEFRA unconstitutionally denied appellees due process and equal protection of the laws as guaranteed by the Fifth Amendment. Although it is the portion of the judgment declaring an Act of Congress unconstitutional that provides us with appellate jurisdiction, such an appeal brings the entire case before us. United States v. Locke, 471 U. S. 84, 92 (1985). Moreover, our established practice is to resolve statutory questions at the outset where to do so might obviate the need to consider a constitutional issue. Ibid.; Ashwander v. TVA, 297 U. S. 288, 347 (1936) (Brandéis, J., concurring). Therefore, we consider first the question whether the statute exempts Project Notes from estate taxation.

Informing our examination of this issue is the settled principle that exemptions from taxation are not to be implied; they must be unambiguously proved. E. g., Oklahoma Tax Comm’n v. United States, 319 U. S. 598, 606 (1943); United States Trust Co. v. Helvering, 307 U. S. 57, 60 (1939); Rapid Transit Corp. v. New York, 303 U. S. 573, 592-593 (1938). Appellees do not dispute, however, that 26 U. S. C. §§ 2001 and 2002 (1982 ed. and Supp. III), which define the taxable estate for estate tax calculation, by their terms include the Project Notes. Only by referring outside the Internal Revenue Code, specifically to § 5(e) of the Housing Act of 1937, 50 Stat. 890, as amended, 42 U. S. C. § 1437i(b), do appellees endeavor to establish their exemption.

Of course, we begin our analysis of § 5(e) with the statutory language itself. This section states that “[Project Notes], including interest thereon, . . . shall be exempt from all taxation now or hereafter imposed by the United States.” Well before the Housing Act was passed, an exemption of property from all taxation had an understood meaning: the property was exempt from direct taxation, but certain privileges of ownership, such as the right to transfer the property, could be taxed. Underlying this doctrine is the distinction between an excise tax, which is levied upon the use or transfer of property even though it might be measured by the property’s value, and a tax levied upon the property itself. The former has historically been permitted even where the latter has been constitutionally or statutorily forbidden. The estate tax is a form of excise tax. Greiner v. Lewellyn, 258 U. S. 384 (1922) (municipal bonds subject to federal estate taxation notwithstanding an intergovernmental tax immunity- barring a direct tax on the bond); Murdock v. Ward, 178 U. S. 139, 148 (1900) (federal tax exemption on federal bonds did not extend to taxation on the right to transfer the bonds at death); Plummer v. Coler, 178 U. S. 115 (1900) (State may calculate estate tax based on total value of property passing through the estate, including federal obligations exempt from direct taxation by the State). See also United States Trust Co. v. Helvering, supra, at 60 (applying the rule of Greiner, Murdock, and Plummer to hold that property subject to a general exemption from “all taxation” would not exempt it from excise taxes such as the estate tax); Treas. Reg. § 20.2033-1, 26 CFR § 20.2033-1 (Supp. 1964) (statutes exempting federal obligations from “all taxation” refer only to direct taxation). Cf. West v. Oklahoma Tax Comm’n, 334 U. S. 717, 727 (1948) (recognizing the distinction between direct taxes and excise taxes); Reinecke v. Northern Trust Co., 278 U. S. 339, 347 (1929) (same). Consistent with this understanding, on the rare occasions when Congress has exempted property from estate taxation it has generally adverted explicitly to that tax, rather than generically to “all taxation.” E. g., Revenue Act of 1934, § 404, 48 Stat. 754, repealed by the Revenue Act of 1962, § 18, 76 Stat. 1052. Placed in context, then, § 5(e) does not stand for appellees’ proposition that Project Notes were intended to be exempt from estate taxes; it stands for exactly the opposite.

Appellees attempt to bolster their contrary view with various indicia of an alleged congressional intent. Although these considerations were found compelling in Haffner, we conclude, as did the Tax Court in Estate of Egger v. Commissioner, 89 T. C. 726 (1987), that the factors appellees rely upon, whether considered alone or in combination, are insufficient to demonstrate that Congress intended to exempt Project Notes from estate taxation in contravention of the understood meaning of § 5(e), a demonstration which must be unambiguous under the principle disfavoring implied tax exemptions.

Appellees’ first argument centers on § 20 of the Housing Act of 1937, 50 Stat. 898, later repealed, which gave the newly created United States Housing Authority the power to issue bonds and other obligations. Section 20(b) provided that “[s]uch obligations shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed . . . .” The familiar argument goes that Congress knew how to limit the scope of the exemption when it wanted to do so; its decision not to include limiting language in § 5(e), in light of an express limitation in § 20(b), demonstrates an intent to exempt Project Notes from estate tax.

This argument does not withstand careful scrutiny. In 1937, when the Housing Act was passed, what is now the income tax comprised two parts: a “normal” tax set at a flat 4 percent, and a graduated “surtax” with rates reaching up to 75 percent. As is plain from the face of § 20(b), Congress intended federal housing obligations to be exempt only from the normal tax. Yet as the normal tax and the surtax were both direct, simply making the federal obligations “exempt from all taxation” would exempt too much. Thus, Congress “excepted” surtaxes from the exemption. But that exception, if left by itself, would have created its own anomaly: the strict application of the rule “expressio unius est exclusio alterius” — i. e., the expression of one is the exclusion of others — would have resulted in exempting these obligations from all taxes, direct or indirect, except the surtax. To avoid that particular pitfall, Congress also excepted estate, inheritance, and gift taxes from § 20(b). Such language was commonplace when Congress sought to exempt items from the normal tax, but not the surtax. E. g., Home Owners’ Loan Act of 1933, § 4(c), 48 Stat. 130; Farm Credit Act of 1933, § 63, 48 Stat. 267.

In contrast, § 5(e) needed no parenthetical exception. Congress fully intended Project Notes to be exempt from surtaxes as well as normal taxes, and thus exempting them “from all taxation” stated with precision the congressional will. We cannot attribute to Congress an intent to break new ground in tax law by cleverly hiding an estate tax exemption, discernable only by comparing two unrelated provisions of the Housing Act. Nor would it make sense for Congress to legislate in such a bizarre fashion. If Congress really wanted to create an especially broad tax exemption for Project Notes, as appellees assert, one would expect it to do so notoriously enough to attract investors, not surreptitiously enough to evade detection for half a century.

Appellees’ second indicator of congressional intent is a statement made by Senator Walsh during the floor debate. In the midst of a lengthy speech, he stated: “Obligations, including interest thereon, issued by public housing agencies, . . . are to be exempt from all taxation now or hereafter imposed by the United States. In other words, the bill gives the public housing agencies the right to issue tax-exempt bonds, which means they are free from income tax, surtax, estate, gift, and inheritance taxes.” 81 Cong. Rec. 8085 (1937). If, as appears from the statement’s structure, the Senator intended to offer a definition of “tax-exempt bonds,” then we must conclude that he misspoke, for as we have already demonstrated, tax-exempt bonds were presumed to be exempt only from direct taxes. Even if, as appellees assert, the Senator intended to refer solely to Project Notes, we do not deem his statement compelling in this case. The relevant passage comes in the middle of a long speech, and no similar expression is to be found in any other legislative debate or document. This short, isolated comment simply cannot overcome the understood meaning of §5(e) and the presumption against implied tax exemptions.

Appellees also assert that Congress’ intent can be discerned by reference to a rejected administration housing proposal, which contained in its analogue to §5(e) an express statement that Project Notes would be subject to estate taxes. We are unpersuaded by appellees’ contention that the Finance Committee’s decision not to include a similar express reference to the estate tax indicates a desire to exempt Project Notes from that tax. Equally plausible is that the Committee omitted the express exception as unnecessary. Further, neither the administration, the Finance Committee, nor even a single Senator considered this difference worthy of comment, although numerous other variations between the two proposals received attention.

Finally, appellees point to a statement Warren J. Vinton, who later became the first Chief Economist of the United States Housing Authority, made to the American Federation of Housing Authorities shortly after the Housing Act was passed. He stated that Project Notes were “exempt from all Federal taxes, not only normal income taxes but surtax, inheritance tax, and gift tax. Investments of that nature are getting rare in the country.” Brief for Appellees Wells Fargo Bank et al. 15 (emphasis added in brief omitted). However, at the time he uttered these words, Vinton was not yet employed by the Housing Authority. We cannot attribute to this isolated comment the aura of a contemporaneous agency interpretation.

The understood meaning of §5(e) and the presumption against implied tax exemptions are too powerful to be overcome by the indicia of congressional intent put forward by appellees. Accordingly, we conclude that the Housing Act of 1937 does not exempt Project Notes from estate taxation. We therefore need not consider the constitutionality of § 641 of the DEFRA. The judgment of the District Court is

Reversed.

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