source: Caselaw Access Project

author: Justice Marshall

license: Public Domain

text:
    BURLINGTON NORTHERN RAILROAD CO. v. WOODS et al.
    No. 85-1088.
    Argued November 4, 1986
    Decided February 24, 1987

      Marshall, J., delivered the opinion for a unanimous Court.

      L. Vastine Stabler, Jr., argued the cause and filed briefs for petitioner.

      James O. Haley argued the cause for respondents. With him on the brief were John W. Haley and Francis W. Hare, Jr

        Ellis J. Horvitz and Peter Abrahams filed a brief for the Association of Southern California Defense Counsel as amicus curiae.

   Justice Marshall

This case presents the issue whether, in diversity actions, federal courts must apply a state statute that imposes a fixed penalty on appellants who obtain stays of judgment pending unsuccessful appeals.

I

Respondents brought this tort action in Alabama state court to recover damages for injuries sustained in a motorcycle accident. Petitioner removed the case to a Federal District Court having diversity jurisdiction. A jury trial resulted in a judgment of $800,000 for respondent Alan Woods and $5,000 for respondent Cara Woods. Petitioner posted bond to stay the judgment pending appeal, and the Court of Appeals affirmed without modification. 768 F. 2d 1287 (CA11 1985).

Respondents then moved in the Court of Appeals, pursuant to Ala. Code § 12-22-72 (1986), for imposition of that State’s mandatory affirmance penalty of 10% of the amount of judgment. Petitioner challenged the application of this statute as violative of the equal protection and due process guarantees of the Fourteenth Amendment and as “a procedural rule . . . inapplicable in federal court under the doctrine of Erie Railroad Company v. Tompkins, 304 U. S. 64 (1938) and its progeny.” App. to Pet. for Cert. A-5. The Court of Appeals summarily granted respondents’ motion to assess the penalty and subsequently denied a petition for rehearing. The parties have stipulated that the final judgment has been paid, except for the $30,500 statutory affirmance penalty, which petitioner has withheld pending proceedings in this Court.

We granted certiorari to consider the equal protection and due process challenges as well as the Erie claim. 475 U. S. 1080 (1986). Because we conclude that the Alabama statute imposing a mandatory affirmance penalty has no application in federal diversity actions, we decline to reach the Fourteenth Amendment issues.

l — l I — l

The Alabama statute provides in relevant part:

‘When a judgment or decree is entered or rendered for money, whether debt or damages, and the same has been stayed on appeal by the execution of bond, with surety, if the appellate court affirms the judgment of the court below, it must also enter judgment against all or any of the obligors on the bond for the amount of the affirmed judgment, 10 percent damages thereon and the costs of the appellate court. . . .” Ala. Code § 12-22-72 (1986).

As set forth in the statute, then, a combination of three conditions will automatically trigger the 10% penalty: (1) the trial court must enter a money judgment or decree, (2) the judgment or decree must be stayed by the requisite bond, and (3) the judgment or decree must be affirmed without substantial modification. E. g., Chapman v. Rivers Construction Co., 284 Ala. 633, 644-645, 227 So. 2d 403, 414-415 (1969). The purposes of the mandatory affirmance penalty are to penalize frivolous appeals and appeals interposed for delay, Montgomery Light & Water Power Co. v. Thombs, 204 Ala. 678, 684, 87 So. 205, 211 (1920), and to provide “additional damages” as compensation to the appellees for having to suffer the ordeal of defending the judgments on appeal. Birmingham v. Bowen, 254 Ala. 41, 46-47, 47 So. 2d 174, 179-180 (1950).

Petitioner contends that the statute’s underlying purposes and mandatory mode of operation conflict with the purposes and operation of Rule 38 of the Federal Rules of Appellate Procedure, and therefore that the statute should not be applied by federal courts sitting in diversity. Entitled “Damages for delay,” Rule 38 provides: “If the court of appeals shall determine that an appeal is frivolous, it may award just damages and single or double costs to the appellee.” See also 28 U. S. C. § 1912. Under this Rule, “damages are awarded by the court in its discretion in the case of a frivolous appeal as a matter of justice to the appellee and as a penalty against the appellant.” Advisory Committee’s Notes on Fed. Rule App. Proc. 38, 28 U. S. C. App., p. 492.

In Hanna v. Plumer, 380 U. S. 460 (1965), we set forth the appropriate test for resolving conflicts between state law and the Federal Rules. The initial step is to determine whether, when fairly construed, the scope of Federal Rule 38 is “sufficiently broad” to cause a “direct collision” with the state law or, implicitly, to “control the issue” before the court, thereby leaving no room for the operation of that law. Walker v. Armco Steel Corp., 446 U. S. 740, 749-750, and n. 9 (1980); Hanna, supra, at 471-472. The Rule must then be applied if it represents a valid exercise of Congress’ rulemaking authority, which originates in the Constitution and has been bestowed on this Court by the Rules Enabling Act, 28 U. S. C. §2072. Hanna, 380 U. S., at 471-474.

The constitutional constraints on the exercise of this rulemaking authority define a test of reasonableness. Rules regulating matters indisputably procedural are a priori constitutional. Rules regulating matters “which, though falling within the uncertain area between substance and procedure, are rationally capable of classification as either,” also satisfy this constitutional standard. Id., at 472. The Rules Enabling Act, however, contains an additional requirement. The Federal Rule must not “abridge, enlarge or modify any substantive right. . . .” 28 U. S. C. §2072. The cardinal purpose of Congress in authorizing the development of a uniform and consistent system of rules governing federal practice and procedure suggests that Rules which incidentally affect litigants’ substantive rights do not violate this provision if reasonably necessary to maintain the integrity of that system of rules. See Hanna, supra, at 464-465; Missis sippi Publishing Corp. v. Murphree, 326 U. S. 438, 445-446 (1946); 19 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure §4509, pp. 145-146 (1982). Moreover, the study and approval given each proposed Rule by the Advisory Committee, the Judicial Conference, and this Court, and the statutory requirement that the Rule be reported to Congress for a period of review before taking effect, see 28 U. S. C. §2072, give the Rules presumptive validity under both the constitutional and statutory constraints. See Hanna, supra, at 471.

Applying the Hanna analysis to an analogous Mississippi statute which provides for a mandatory affirmance penalty, the United States Court of Appeals for the Fifth Circuit concluded in Affholder, Inc. v. Southern Rock, Inc., 746 F. 2d 305 (1984), that the statute conflicted with Rule 38 and thus was not applicable in federal diversity actions. The Fifth Circuit discussed two aspects of the conflict: (1) the discretionary mode of operation of the Federal Rule, compared to the mandatory operation of the Mississippi statute, and (2) the limited effect of the Rule in penalizing only frivolous appeals or appeals interposed for purposes of delay, compared to the effect of the Mississippi statute in penalizing every unsuccessful appeal regardless of merit. Id., at 308-309.

We find the Fifth Circuit’s analysis persuasive. Rule 38 affords a court of appeals plenary discretion to assess “just damages” in order to penalize an appellant who takes a frivolous appeal and to compensate the injured appellee for the delay and added expense of defending the district court’s judgment. Thus, the Rule’s discretionary mode of operation unmistakably conflicts with the mandatory provision of Alabama’s affirmance penalty statute. Moreover, the purposes underlying the Rule are sufficiently coextensive with the asserted purposes of the Alabama statute to indicate that the Rule occupies the statute’s field of operation so as to preclude its application in federal diversity actions.

Respondents argue that, because Alabama has a similar Appellate Rule which may be applied in state court alongside the affirmance penalty statute, see Ala. Rule App. Proc. 38; McAnnally v. Levco, Inc., 456 So. 2d 66, 67 (Ala. 1984), a federal court sitting in diversity could impose the mandatory penalty and likewise remain free to exercise its discretionary authority under Federal Rule 38. This argument, however, ignores the significant possibility that a court of appeals may, in any given case, find a limited justification for imposing penalties in an amount less than 10% of the lower court’s judgment. Federal Rule 38 adopts a case-by-case approach to identifying and deterring frivolous appeals; the Alabama statute precludes any exercise of discretion within its scope of operation. Whatever circumscriptive effect the mandatory affirmance penalty statute may have on the state court’s exercise of discretion under Alabama’s Rule 38, that Rule provides no authority for defining the scope of discretion allowed under Federal Rule 38.

Federal Rule 38 regulates matters which can reasonably be classified as procedural, thereby satisfying the constitutional standard for validity. Its displacement of the Alabama statute also satisfies the statutory constraints of the Rules Enabling Act. The choice made by the drafters of the Federal Rules in favor of a discretionary procedure affects only the process of enforcing litigants’ rights and not the rights themselves.

Ill

We therefore hold that the Alabama mandatory affirmance penalty statute has no application to judgments entered by federal courts sitting in diversity.

Reversed.

       Compare Ky. Rev. Stat. §26A.300 (1985) (mandatory 10% penalty for second appeal); Miss. Code Ann. § 11-3-23 (Supp. 1986) (15% mandatory penalty regardless of stay); Va. Code § 16.1-113 (Supp. 1986) (10% mandatory penalty regardless of stay).

       Under Alabama law, an appellant may obtain a stay of judgment pending appeal by providing an acceptable surety bond of a set amount, which in this case would have been 126% of the trial court’s judgment had the case been tried in state court. Ala. Rule App. Proc. 8(a)(1).

       Article III of the Constitution, augmented by the Necessary and Proper Clause of Article I, § 8, cl. 18, empowers Congress to establish a system of federal district and appellate courts and, impliedly, to establish procedural Rules governing litigation in these courts. In the Rules Enabling Act, Congress authorized this Court to prescribe uniform Rules to govern the “practice and procedure” of the federal district courts and courts of appeals. 28 U. S. C. § 2072. Though Hanna v. Plumer, 380 U. S. 460 (1965), involved a conflict between state law and a Federal Rule of Civil Procedure, its analytical framework provides the test for the validity of Federal Rules of Appellate Procedure as well, since these Rules were also prescribed pursuant to the Rules Enabling Act. See Advisory Committee’s Notes on Fed. Rule App. Proc. 1, 28 U. S. C. App., p. 466.

         The Mississippi statute applies without regard to whether the judgment has been stayed pending appeal. Miss. Code Ann. § 11-3-23 (Supp. 1986). In Walters v. Inexco Oil Co., 725 F. 2d 1014, 1016-1017 (1984), the Court of Appeals for the Fifth Circuit held the statute applicable in federal diversity actions. Later that year, in Affholder, Inc. v. Southern Rock, Inc., the Fifth Circuit overruled Walters, supra, and expressly rejected a similar decision, Proctor v. Gissendaner, 587 F. 2d 182 (1979) (per curiam), in which it had applied the Alabama statute we are now considering. Affholder, 746 F. 2d, at 311. In Gissendaner, supra, the court had held without discussing Hanna, supra, that the Alabama statute dealt with a “non-federal substantive matter” and therefore applied in diversity actions. 587 F. 2d, at 184. This decision was among those adopted as binding precedent by the Eleventh Circuit following its creation in 1981, Bonner v. Prichard, 661 F. 2d 1206, 1209 (1981), and it provides the apparent rationale for imposition of the penalty in the present case.

       Rule 37 of the Federal Rules of Appellate Procedure provides further indication that the Rules occupy the Alabama statute’s field of operation so as to preclude its application in diversity actions. Since the affirmance penalty only applies if a trial court’s judgment is stayed pending appeal, see Ala. Code § 12-22-72 (1986), it operates to compensate a victorious ap-pellee for the lost use of the judgment proceeds during the period of appeal. Federal Rule 37, however, already serves this purpose by providing for an award of postjudgment interest following an unsuccessful appeal. See also 28 U. S. C. § 1961.
      In addition, we note that federal provisions governing the availability of a stay of judgment pending appeal do not condition the procurement of a stay on exposure to payment of any additional damages in the event the appeal is unsuccessful and, unlike the state provision in this case, allow the federal courts to set the amount of security in their discretion. Compare Fed. Rules Civ. Proc. 62(d) and 62(g) and Fed. Rule App. Proc. 8(b) with Ala. Rule App. Proc. 8(b). See also 28 U. S. C. § 1651.


author: Justice Marshall Justice Stevens,

text:
    IOWA MUTUAL INSURANCE CO. v. LaPLANTE et al.
    No. 85-1589.
    Argued December 1, 1986
    Decided February 24, 1987

      Marshall, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Brennan, White, Blackmun, Powell, O’Connor, and Scalia, JJ., joined. Stevens, J., filed an opinion concurring'in part and dissenting in part, post, p. 20.

      Maxon R. Davis argued the cause and filed briefs for petitioner.

      Joe Bottomly argued the cause and filed a brief for respondents.

      Briefs of amici curiae urging affirmance were filed for the United States by Solicitor General Fried, Assistant Attorney General Habicht, Deputy Solicitor General Wallace, Richard G. Taranto, and Edward J. Shawaker; for the Blaekfeet Tribe of Indians by Jeanne S. Whiteing; and for the Navajo Nation Tribe of Indians et al. by Claudeen Bates Arthur, Yvonne T. Knight, and W. Richard West, Jr.

   Justice Marshall

delivered the opinion of the Court.

Petitioner, an Iowa insurance company, brought this action in Federal District Court against members of the Blackfeet Indian Tribe resident on the Tribe’s reservation in Montana. The asserted basis for federal jurisdiction was diversity of citizenship. At the time the action was initiated, proceedings involving the same parties and based on the same dispute were pending before the Blackfeet Tribal Court. The question before us is whether a federal court may exercise diversity jurisdiction before the tribal court system has an opportunity to determine its own jurisdiction

I.

Respondent Edward LaPlante, a member of the Blackfeet Indian Tribe, was employed by the Wellman Ranch Company, a Montana corporation. The Wellman Ranch is located on the Blackfeet Indian Reservation and is owned by members of the Wellman family, who are also Blackfeet Indians residing on the Reservation. Petitioner Iowa Mutual Insurance Company was the insurer of the Wellman Ranch and its individual owners.

On May 3,1982, LaPlante was driving a cattle truck within the boundaries of the Reservation. While proceeding up a hill, he lost control of the vehicle and was injured when the truck “jackknifed.” Agents of Midland Claims Service, Inc., an independent insurance adjuster which represented Iowa Mutual in this matter, attempted unsuccessfully to settle La-Plante’s claim. In May 1983, LaPlante and his wife Verla, also a Blackfeet Indian, filed a complaint in the Blackfeet Tribal Court. The complaint stated two causes of action: the first named the Wellman Ranch and its individual owners as defendants and sought compensation for LaPlante’s personal injuries and his wife’s loss of consortium; the second alleged a claim for compensatory and punitive damages against Iowa Mutual and Midland Claims for bad-faith refusal to settle.

Iowa Mutual and Midland Claims moved to dismiss for failure properly to allege Tribal Court jurisdiction and for lack of jurisdiction over the subject matter of the suit. The Tribal Court dismissed the complaint for failure to allege the factual basis of the court’s jurisdiction, but it allowed the LaPlantes to amend their complaint to allege facts from which jurisdiction could be determined. The Tribal Court also addressed the issue of subject-matter jurisdiction, holding that the Tribe could regulate the conduct of non-Indians engaged in commercial relations with Indians on the reservation. Since the Tribe’s adjudicative jurisdiction was coextensive with its legislative jurisdiction, the court concluded that it would have jurisdiction over the suit. Although the Blackfeet Tribal Code establishes a Court of Appeals, see ch. 11, § 1, it does not allow interlocutory appeals from jurisdictional rulings. Accordingly, appellate review of the Tribal Court’s jurisdiction can occur only after a decision on the merits.

Subsequent to the Tribal Court’s jurisdictional ruling, Iowa Mutual filed the instant action in Federal District Court against the LaPlantes, the Wellmans, and the Wellman Ranch Company, alleging diversity of citizenship under 28 U. S. C. § 1332 as the basis for federal jurisdiction. Iowa Mutual sought a declaration that it had no duty to defend or indemnify the Wellmans or the Ranch because the injuries sustained by the LaPlantes fell outside the coverage of the applicable insurance policies. The LaPlantes moved to dismiss the action for lack of subject-matter jurisdiction and the District Court granted the motion. Relying on R. J. Williams Co. v. Fort Belknap Housing Authority, 719 F. 2d 979 (CA9 1983), the court held that the Blackfeet Tribal Court must first be given an opportunity to determine its own jurisdiction. The District Court noted that the Montana state courts lack jurisdiction over comparable suits filed by Montana insurance companies; it indicated that its jurisdiction was similarly precluded because, based on its reading of Woods v. Interstate Realty Co., 337 U. S. 535, 538 (1949), federal courts sitting in diversity operate solely as adjuncts to the state court system. The District Court held that “[o]nly if the Blackfeet Tribe decides not to exercise its exclusive jurisdiction. . . would this court be free to entertain” the case under 28 U. S. C. § 1332.

The Court of Appeals for the Ninth Circuit affirmed the District Court’s order. 774 F. 2d 1174 (1985). It found R. J. Williams Co. v. Fort Belknap Housing Authority, supra, to be consistent with this Court’s intervening decision in National Farmers Union Ins. Cos. v. Crow Tribe, 471 U. S. 845 (1985). Quoting id., at 857, the Court of Appeals concluded: “We merely permit the tribal court to initially determine its own jurisdiction. The tribal court’s determination can be reviewed later ‘with the benefit of [tribal court] expertise in such matters.’” App. to Pet. for Cert. 5a-6a. We granted certiorari. 476 U. S. 1139 (1986).

I — I HH

We have repeatedly recognized the Federal Government’s longstanding policy of encouraging tribal self-government. See, e. g., Three Affiliated Tribes v. Wold Engineering, 476 U. S. 877, 890 (1986); Merrion v. Jicarilla Apache Tribe, 455 U. S. 130, 138, n. 5 (1982); White Mountain Apache Tribe v. Bracker, 448 U. S. 136, 143-144, and n. 10 (1980); Williams v. Lee, 358 U. S. 217, 220-221 (1959). This policy reflects the fact that Indian tribes retain “attributes of sovereignty over both their members and their territory,” United States v. Mazurie, 419 U. S. 544, 557 (1975), to the extent that sovereignty has not been withdrawn by federal statute or treaty. The federal policy favoring tribal self-government operates even in areas where state control has not been affirmatively pre-empted by federal statute. “[A]b-sent governing Acts of Congress, the question has always been whether the state action infringed on the right of reservation Indians to make their own laws and be ruled by them.” Williams v. Lee, supra, at 220.

Tribal courts play a vital role in tribal self-government, cf. United States v. Wheeler, 435 U. S. 313, 332 (1978), and the Federal Government has consistently encouraged their development. Although the criminal jurisdiction of the tribal courts is subject to substantial federal limitation, see Oliphant v. Suquamish Indian Tribe, 435 U. S. 191 (1978), their civil jurisdiction is not similarly restricted. See National Farmers Union, supra, at 854-855, and nn. 16 and 17. If state-court jurisdiction over Indians or activities on Indian lands would interfere with tribal sovereignty and self-government, the state courts are generally divested of jurisdiction as a matter of federal law. See Fisher v. District Court, 424 U. S. 382 (1976); Williams v. Lee, supra.

A federal court’s exercise of jurisdiction over matters relating to reservation affairs can also impair the authority of tribal courts, as we recognized in National Farmers Union. In that case, a Tribal Court had entered a default judgment against a school district for injuries suffered by an Indian child on school property. The school district and its insurer sought injunctive relief in District Court, invoking 28 U. S. C. § 1331 as the basis for federal jurisdiction and claiming that the Tribal Court lacked jurisdiction over non-Indians. The District Court agreed and entered an injunction against execution of the Tribal Court’s judgment, but the Court of Appeals reversed, holding that the District Court lacked jurisdiction. We refused to foreclose tribal court jurisdiction over a civil dispute involving a non-Indian. 471 U. S., at 855. We concluded that, although the existence of tribal court jurisdiction presented a federal question within the scope of 28 U. S. C. §1331, considerations of comity direct that tribal remedies be exhausted before the question is addressed by the District Court. 471 U. S., at 857. Promotion of tribal self-government and self-determination required that the Tribal Court have “the first opportunity to evaluate the factual and legal bases for the challenge” to its jurisdiction. Id., at 856. We remanded the case to the District Court to determine whether the federal action should be dismissed or stayed pending exhaustion of the remedies available in the tribal court system. Id., at 857.

Although petitioner alleges that federal jurisdiction in this case is based on diversity of citizenship, rather than the existence of a federal question, the exhaustion rule announced in National Farmers Union applies here as well. Regardless of the basis for jurisdiction, the federal policy supporting tribal self-government directs a federal court to stay its hand in order to give the tribal court a “full opportunity to determine its own jurisdiction.” Ibid. In diversity cases, as well as federal-question cases, unconditional access to the federal forum would place it in direct competition with the tribal courts, thereby impairing the latter’s authority over reservation affairs. See Santa Clara Pueblo v. Martinez, 436 U. S. 49, 59 (1978); see also Fisher v. District Court, supra, at 388. Adjudication of such matters by any nontribal court also infringes upon tribal lawmaking authority, because tribal courts are best qualified to interpret and apply tribal law.

As National Farmers Union indicates, proper respect for tribal legal institutions requires that they be given a “full opportunity” to consider the issues before them and “to rectify any errors.” 471 U. S., at 857. The federal policy of promoting tribal self-government encompasses the development of the entire tribal court system, including appellate courts. At a minimum, exhaustion of tribal remedies means that tribal appellate courts must have the opportunity to review the determinations of the lower tribal courts. In this case, the Tribal Court has made an initial determination that it has jurisdiction over the insurance dispute, but Iowa Mutual has not yet obtained appellate review, as provided by the Tribal Code, ch. 1, §5. Until appellate review is complete, the Blackfeet Tribal Courts have not had a full opportunity to evaluate the claim and federal courts should not intervene.

Petitioner argues that the statutory grant of diversity jurisdiction overrides the federal policy of deference to tribal courts. We do not agree. Although Congress undoubtedly has the power to limit tribal court jurisdiction, we do not read the general grant of diversity jurisdiction to have implemented such a significant intrusion on tribal sovereignty, any more than we view the grant of federal-question jurisdiction, the statutory basis for the intrusion on tribal jurisdiction at issue in National Farmers Union, to have done so. The diversity statute, 28 U. S. C. §1332, makes no reference to Indians and nothing in the legislative history suggests any intent to render inoperative the established federal policy promoting tribal self-government. Tribal courts in the Anglo-American mold were virtually unknown in 1789 when Congress first authorized diversity jurisdiction, see Judiciary Act of 1789, § 11, 1 Stat. 78-79; and the original statute did not manifest a congressional intent to limit tribal sovereignty. Moreover, until the late 19th century, most Indians were neither considered citizens of the States in which their reservation was located, nor regarded as citizens of a foreign State, see, e. g., Cherokee Nation v. Georgia, 5 Pet. 1, 15-18 (1831); Elk v. Wilkins, 112 U. S. 94, 102-103 (1884), so a suit to which Indians were parties would not have satis-fled the statutory requirements for diversity jurisdiction. Congress has amended the diversity statute several times since the development of tribal judicial systems, but it has never expressed any intent to limit the civil jurisdiction of the tribal courts.

Tribal authority over the activities of non-Indians on reservation lands is an important part of tribal sovereignty. See Montana v. United States, 450 U. S. 544, 565-566 (1981); Washington v. Confederated Tribes of Colville Indian Reservation, 447 U. S. 134, 152-153 (1980); Fisher v. District Court, 424 U. S., at 387-389. Civil jurisdiction over such activities presumptively lies in the tribal courts unless affirmatively limited by a specific treaty provision or federal statute. “Because the Tribe retains all inherent attributes of sovereignty that have not been divested by the Federal Government, the proper inference from silence ... is that the sovereign power . . . remains intact.” Merrion v. Jicarilla Apache Tribe, 455 U. S., at 149, n. 14. See also Santa Clara Pueblo v. Martinez, supra, at 60 (“[A] proper respect both for tribal sovereignty itself and for the plenary authority of Congress in this area cautions that we tread lightly in the absence of clear indications of legislative intent”). In the absence of any indication that Congress intended the diversity statute to limit the jurisdiction of the tribal courts, we decline petitioner’s invitation to hold that tribal sovereignty can be impaired in this fashion.

Petitioner also contends that the policies underlying the grant of diversity jurisdiction — protection against local bias and incompetence — justify the exercise of federal jurisdiction in this case. We have rejected similar attacks on tribal court jurisdiction in the past. See, e. g., Santa Clara Pueblo v. Martinez, 436 U. S., at 65, and n. 21. The alleged incompetence of tribal courts is not among the exceptions to the exhaustion requirement established in National Farmers Union, 471 U. S., at 856, n. 21, and would be contrary to the congressional policy promoting the development of tribal courts. Moreover, the Indian Civil Rights Act, 25 U. S. C. § 1302, provides non-Indians with various protections against unfair treatment in the tribal courts.

Although petitioner must exhaust available tribal remedies before instituting suit in federal court, the Blackfeet Tribal Courts’ determination of tribal jurisdiction is ultimately subject to review. If the Tribal Appeals Court upholds the lower court’s determination that the tribal courts have jurisdiction, petitioner may challenge that ruling in the District Court. See National Farmers Union, supra, at 853. Unless a federal court determines that the Tribal Court lacked jurisdiction, however, proper deference to the tribal court system precludes relitigation of issues raised by the La-Plantes’ bad-faith claim and resolved in the Tribal Courts.

I — I I — f

The Court of Appeals correctly recognized that National Farmers Union requires that the issue of jurisdiction be resolved by the Tribal Courts in the first instance. However, the court should not have affirmed the District Court’s dismissal for lack of subj ect-matter jurisdiction. Accordingly, we reverse and remand for further proceedings consistent with this opinion.

It is so ordered.

Justice Stevens,

concurring in part and dissenting in part.

The complaint filed by petitioner in the United States District Court for the District of Montana raised questions concerning the coverage of the insurance policy that petitioner had issued to respondents Wellman Ranch Co. and its owners. Complaint ¶¶ 8, 9 (App. 3-4). It did not raise any question concerning the jurisdiction of the Blackfeet Tribal Court. For purposes of our decision, it is therefore appropriate to assume that the Tribal Court and the Federal District Court had concurrent jurisdiction over the dispute. The question presented is whether the Tribal Court’s jurisdiction is a sufficient reason for requiring the federal court to decline to exercise its own jurisdiction until the Tribal Court has decided the case on the merits. In my opinion it is not.

A federal court must always show respect for the jurisdiction of other tribunals. Specifically, only in the most extraordinary circumstances should a federal court enjoin the conduct of litigation in a state court or a tribal court. Thus, in National Farmers Union Ins. Cos. v. Crow Tribe, 471 U. S. 845 (1985), we held that the Federal District Court should not entertain a challenge to the jurisdiction of the Crow Tribal Court until after petitioner had exhausted its remedies in the Tribal Court. Our holding was based on our belief that Congress’ policy of supporting tribal self-determination “favors a rule that will provide the forum whose jurisdiction is being challenged the first opportunity to evaluate the factual and legal bases for the challenge.” Id., at 856 (emphasis added; footnote omitted). We have enforced a similar exhaustion requirement in cases challenging the jurisdiction of state tribunals. See, e. g., Juidice v. Vail, 430 U. S. 327, 335-336 (1977).

The deference given to the deliberations of tribal courts on the merits of a dispute, however, is a separate matter as to which National Farmers Union offers no controlling precedent. Indeed, in holding that exhaustion of the tribal jurisdictional issue was necessary, we explicitly contemplated later federal-court consideration of the merits of the dispute. We noted that “the orderly administration of justice in the federal court will be served by allowing a full record to be developed in the Tribal Court before either the merits or any question concerning appropriate relief is addressed.” 471 U. S., at 856 (footnote omitted). I see no reason why tribal courts should receive more deference on the merits than state courts. It is not unusual for a state court and a federal court to have concurrent jurisdiction over the same dispute. In some such cases it is appropriate for the federal court to stay its hand until the state-court litigation has terminated, see, e. g., Colorado River Water Conservation District v. United States, 424 U. S. 800, 813-816 (1976), but as we have consistently held, “[ajbstention from the exercise of federal jurisdiction is the exception, not the rule.” Id., at 813. The mere fact that a case involving the same issue is pending in another court has never been considered a sufficient reason to excuse a federal court from performing its duty “to adjudicate a controversy properly before it.” County of Allegheny v. Frank Mashuda Co., 360 U. S. 185, 188 (1959). On the contrary, as between state and federal courts, the general rule is that “the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction . . . .” McClellan v. Carland, 217 U. S. 268, 282 (1910). In this case a controversy concerning the coverage of the insurance policy issued to respondents Wellman Ranch Co. and its owners by petitioner is properly before the Federal District Court. That controversy raises no question concerning the jurisdiction of the Blackfeet Tribal Court.

Adherence to this doctrine, by allowing the declaratory judgment action to proceed in District Court, would imply no disrespect for the Blackfeet Tribe or for its judiciary. It would merely avoid what I regard as the anomalous suggestion that the sovereignty of an Indian tribe is in some respects greater than that of the State of Montana, for example.

Until today, we have never suggested that an Indian tribe's judicial system is entitled to a greater degree of deference than the judicial system of a sovereign State. Today’s opinion, however, requires the federal court to avoid adjudicating the merits of a controversy also pending in tribal court although it could reach those merits if the case instead were pending in state court. Thus, although I of course agree with the Court’s conclusion that the Federal District Court had subject-matter jurisdiction over the case, I respectfully dissent from its exhaustion holding.

       Iowa Mutual and Midland Claims renewed their motions to dismiss for lack of subject-matter jurisdiction after the LaPlantes amended their complaint to set forth the factual bases for the Tribal Court’s jurisdiction. The Tribal Court summarily denied the motions. Brief for United States as Amicus Curiae 3-4.

       Midland Claims also initiated a federal action against the LaPlantes in which Iowa Mutual intervened as a plaintiff. The companies sought a declaratory judgment that the Tribal Court lacked jurisdiction over the La-Plantes’ claim of bad-faith refusal to settle, as well as an injunction barring further proceedings in the Tribal Courts. The jurisdictional basis for this suit was 28 U. S. C. § 1331. The District Court dismissed this suit for failure to state a claim and both companies appealed. While the appeal was pending, this Court decided National Farmers Union Ins. Cos. v. Crow Tribe, 471 U. S. 845 (1986). The Court of Appeals for the Ninth Circuit remanded the action to the District Court for reconsideration in light of National Farmers Union. On remand, the District Court dismissed the action without prejudice, pending exhaustion of tribal court remedies. That decision is not before us.

       Iowa Mutual also asserted lack of coverage as an affirmative defense in its answer to respondents’ amended Tribal Court complaint. See Reply Brief for Petitioner 1, n. 1.

       A federal statute, Pub. L. 280, originally allowed States to assume civil jurisdiction over reservation Indians without tribal consent, but Montana did not take such action with respect to the Blackfeet Tribe. See Kennerly v. District Court, 400 U. S. 423 (1971). Tribal consent is now a prerequisite to the assumption of jurisdiction, see 25 U. S. C. § 1326, and the Blackfeet Tribe has not consented to state jurisdiction. Petitioner does not contend that the Montana state courts would have jurisdiction over the dispute. Brief for Petitioner 5 and 7; see Milbank Mutual Ins. Co. v. Eagleman, 218 Mont. 35, 705 P. 2d 1117 (1985) (Montana state courts lack subject-matter jurisdiction over suit between Indian and non-Indian arising out of on-reservation conduct).

       Numerous federal statutes designed to promote tribal government embody this policy. See, e. g., 25 U. S. C. §§450, 450a (Indian Self-Determination and Education Assistance Act); 25 U. S. C. §§ 476-479 (Indian Reorganization Act); 25 U. S. C. §§ 1301-1341 (Indian Civil Rights Act).

       For example, Title II of the Indian Civil Rights Act provides “for the establishing of educational classes for the training of judges of courts of Indian offenses.” 25 U. S. C. § 1311(4).

       See also Santa Clara Pueblo v. Martinez, 436 U. S. 49, 60 (1978) (providing a federal forum for claims arising under the Indian Civil Rights Act interferes with tribal autonomy and self-government).

       As the Court’s directions on remand in National Farmers Union indicate, the exhaustion rule enunciated in National Farmers Union did not deprive the federal courts of subject-matter jurisdiction. Exhaustion is required as a matter of comity, not as a jurisdictional prerequisite. In this respect, the rule is analogous to principles of abstention articulated in Colorado River Water Conservation Dist. v. United States, 424 U. S. 800 (1976): even where there is concurrent jurisdiction in both the state and federal courts, deference to state proceedings renders it appropriate for the federal courts to decline jurisdiction in certain circumstances. In Colorado River, as here, strong federal policy concerns favored resolution in the nonfederal forum. See id., at 819.

       “Congress has plenary authority to limit, modify or eliminate the powers of local self-government which the tribes otherwise possess.” Santa Clara Pueblo v. Martinez, supra, at 56. See generally F. Cohen, Handbook of Federal Indian Law 207-216 (1982).

       In 1924, Congress declared that all Indians born in the United States are United States citizens, see Act of June 2, 1924, ch. 233, 43 Stat. 253, now codified at 8 U. S. C. § 1401, and, therefore, under the Fourteenth Amendment, Indians are citizens of the States in which they reside. There is no indication that this grant of citizenship was intended to affect federal protection of tribal self-government.

       The most recent amendment occurred in 1976. See Act of Oct. 21, 1976, Pub. L. 94-583, § 3, 90 Stat. 2891.

       In National Farmers Union, we indicated that exhaustion would not be required where “an assertion of tribal jurisdiction ‘is motivated by a desire to harass or is conducted in bad faith,’ or where the action is patently violative of express jurisdictional prohibitions, or where exhaustion would be futile because of the lack of adequate opportunity to challenge the court’s jurisdiction.” 471 U. S., at 856, n. 21 (citation omitted). While petitioner contends that tribal court jurisdiction over outsiders “is questionable at best,” Reply Brief for Petitioner 6, it does not argue that the present action is “patently violative of express jurisdictional prohibitions,” nor do we understand it to invoke any of the other exceptions enumerated in National Farmers Union.

       See n. 8, supra.

      The Court of Appeals also relied on Woods v. Interstate Realty Co., 337 U. S. 535 (CA9 1949), as a basis for dismissal. Following its earlier decision in R. J. Williams Co. v. Fort Belknap Housing Authority, 719 F. 2d 979, 982 (1983), the court held that diversity jurisdiction would be barred as long as the courts of the State in which the federal court sits would not entertain the suit, apparently assuming that the exercise of federal jurisdiction would contravene a substantive state policy. However, it is not clear that Montana has such a policy, since state-court jurisdiction seems to be precluded by the application of the federal substantive policy of non-infringement, rather than any state substantive policy. See, e. g., Milbank Mutual Ins. Co. v. Eagleman, 218 Mont. 35, 705 P. 2d 1117 (1985).

       On remand, the District Court should consider whether, on the facts of this case, the federal action should be stayed pending further Tribal Court proceedings or dismissed under the prudential rule announced in National Farmers Union.

      The Court seems to assume that the merits of this controversy are governed by “tribal law.” See ante, at 16. I express no opinion on this choice-of-law question.


author:
Justice Blackmun
      Justice White,

text:
    COMMISSIONER OF INTERNAL REVENUE v. GROETZINGER
    No. 85-1226.
    Argued December 8, 1986
    Decided February 24, 1987
    Blackmun, J., delivered the opinion of the Court, in which Brennan, Marshall, Powell, Stevens, and O’Connor, JJ., joined. White, J., filed a dissenting opinion, in which Rehnquist, C. J., and Scalia, J., joined, post, p. 37.

      Albert G. Lauber, Jr., argued the cause for petitioner. With him on the briefs were Solicitor General Fried, Assistant Attorney General Olsen, Alan I. Horowitz, Jonathan S. Cohen, and Bruce R. Ellisen.

      Carroll Baymiller argued the cause and filed a brief for respondent.

        George A. Hrdlicka filed a brief for Touche Ross & Co. as amicus curiae.

   Justice Blackmun

delivered the opinion of the Court.

The issue in this case is whether a full-time gambler who makes wagers solely for his own account is engaged in a “trade or business,” within the meaning of §§ 162(a) and 62(1) of the Internal Revenue Code of 1964, as amended, 26 U. S. C. §§ 162(a) and 62(1) (1976 ed. and Supp. V). The tax year with which we here are concerned is the calendar year 1978; technically, then, we look to the Code as it read at that time.

I

There is no dispute as to the facts. The critical ones are stipulated. See App. 9. Respondent Robert P. Groet-zinger had worked for 20 years in sales and market research for an Illinois manufacturer when his position was terminated in February 1978. During the remainder of that year, respondent busied himself with parimutuel wagering, primarily on greyhound races. He gambled at tracks in Florida and Colorado. He went to the track 6 days a week for 48 weeks in 1978. He spent a substantial amount of time studying racing forms, programs, and other materials. He devoted from 60 to 80 hours each week to these gambling-related endeavors. He never placed bets on behalf of any other person, or sold tips, or collected commissions for placing bets, or functioned as a bookmaker. He gambled solely for his own account. He had no other profession or type of employment.

Respondent kept a detailed accounting of his wagers and every day noted his winnings and losses in a record book. In 1978, he had gross winnings of $70,000, but he bet $72,032; he thus realized a net gambling loss for the year of $2,032.

Respondent received $6,498 in income from other sources in 1978. This came from interest, dividends, capital gains, and salary earned before his job was terminated.

On the federal income tax return he filed for the calendar year 1978 respondent reported as income only the $6,498 realized from nongambling sources. He did not report any gambling winnings or deduct any gambling losses. He did not itemize deductions. Instead, he computed his tax liability from the tax tables.

Upon audit, the Commissioner of Internal Revenue determined that respondent’s $70,000 in gambling winnings were to be included in his gross income and that, pursuant to § 165(d) of the Code, 26 U. S. C. § 165(d), a deduction was to be allowed for his gambling losses to the extent of these gambling gains. But the Commissioner further determined that, under the law as it was in 1978, a portion of respondent’s $70,000 gambling-loss deduction was an item of tax preference and operated to subject him to the minimum tax under § 56(a) of the Code, 26 U. S. C. § 56(a) (1976 ed.). At that time, under statutory provisions in effect from 1976 until 1982, “items of tax preference” were lessened by certain deductions, but not by deductions not “attributable to a trade or business carried on by the taxpayer.” §§57(a)(1) and (b)(1)(A), and §62(1), 26 U. S. C. §§ 57(a)(1) and (b)(1)(A), and § 62(1) (1976 ed. and Supp. I).

These determinations by the Commissioner produced a § 56(a) minimum tax of $2,142 and, with certain other adjustments not now in dispute, resulted in a total asserted tax deficiency of $2,522 for respondent for 1978.

Kespondent sought redetermination of the deficiency in the United States Tax Court. That court, in a reviewed decision, with only two judges dissenting, held that respondent was in the trade or business of gambling, and that, as a consequence, no part of his gambling losses constituted an item of tax preference in determining any minimum tax for 1978. 82 T. C. 793 (1984). In so ruling, the court adhered to its earlier court-reviewed decision in Ditunno v. Commissioner, 80 T. C. 362 (1983). The court in Ditunno, id., at 371, had overruled Gentile v. Commissioner, 65 T. C. 1 (1975), a case where it had rejected the Commissioner’s contention (contrary to his position here) that a full-time gambler was in a trade or business and therefore was subject to self-employment tax.

The United States Court of Appeals for the Seventh Circuit affirmed. 771 F. 2d 269 (1985). Because of a conflict on the issue among Courts of Appeals, we granted certiorari. 475 U. S. 1080 (1986).

J — I f — I

The phrase trade or business” has been in § 162(a) and in that section’s predecessors for many years. Indeed, the phrase is common in the Code, for it appears in over 50 sections and 800 subsections and in hundreds of places in proposed and final income tax regulations. The slightly longer phrases, “carrying on a trade or business” and “engaging in a trade or business,” themselves are used no less than 60 times in the Code. The concept thus has a well-known and almost constant presence on our tax-law terrain. Despite this, the Code has never contained a definition of the words “trade or business” for general application, and no regulation has been issued expounding its meaning for all purposes. Neither has a broadly applicable authoritative judicial definition emerged. Our task in this case is to ascertain the meaning of the phrase as it appears in the sections of the Code with which we are here concerned.

In one of its early tax cases, Flint v. Stone Tracy Co., 220 U. S. 107 (1911), the Court was concerned with the Corporation Tax imposed by § 38 of the Tariff Act of 1909, ch. 6, 36 Stat. 112-117, and the status of being engaged in business. It said: “‘Business’ is a very comprehensive term and embraces everything about which a person can be employed.” 220 U. S., at 171. It embraced the Bouvier Dictionary definition: “That which occupies the time, attention and labor of men for the purpose of a livelihood or profit.” Ibid. See also Helvering v. Horst, 311 U. S. 112, 118 (1940). And Justice Frankfurter has observed that “we assume that Congress uses common words in their popular meaning, as used in the common speech of men.” Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum. L. Rev. 527, 536 (1947).

With these general comments as significant background, we turn to pertinent cases decided here. Snyder v. Commissioner, 295 U. S. 134 (1935), had to do with margin trading and capital gains, and held, in that context, that an investor, seeking merely to increase his holdings, was not engaged in a trade or business. Justice Brandéis, in his opinion for the Court, noted that the Board of Tax Appeals theretofore had ruled that a taxpayer who devoted the major portion of his time to transactions on the stock exchange for the purpose of making a livelihood could treat losses incurred as having been sustained in the course of a trade or business. He went on to observe that no facts were adduced in Snyder to show that the taxpayer “might properly be characterized as.a ‘trader on an exchange who makes a living in buying and selling securities.’” Id., at 139. These observations, thus, are dicta, but, by their use, the Court appears to have drawn a distinction between an active trader and an investor.

In Deputy v. Du Pont, 308 U. S. 488 (1940), the Court was concerned with what were “ordinary and necessary” expenses of a taxpayer’s trade or business, within the meaning of § 23(a) of the Revenue Act of 1928, 45 Stat. 799. In ascertaining whether carrying charges on short sales of stock were deductible as ordinary and necessary expenses of the taxpayer’s business, the Court assumed that the activities of the taxpayer in conserving and enhancing his estate constituted a trade or business, but nevertheless disallowed the claimed deductions because they were not “ordinary” or “necessary.” 308 U. S., at 493-497. Justice Frankfurter, in a concurring opinion joined by Justice Reed, did not join the majority. He took the position that whether the taxpayer’s activities constituted a trade or business was “open for determination,” id., at 499, and observed:

“‘. . . carrying on any trade or business,’ within the contemplation of § 23(a), involves holding one’s self out to others as engaged in the selling of goods or services. This the taxpayer did not do. . . . Without elaborating the reasons for this construction and not unmindful of opposing considerations, including appropriate regard for administrative practice, I prefer to make the conclusion explicit instead of making the hypothetical litigation-breeding assumption that this taxpayer’s activities, for which expenses were sought to be deducted, did constitute a Trade or business.’” Ibid.

Next came Higgins v. Commissioner, 312 U. S. 212 (1941). There the Court, in a bare and brief unanimous opinion, ruled that salaries and other expenses incident to looking after one’s own investments in bonds and stocks were not deductible under § 23(a) of the Revenue Act of 1932, 47 Stat. 179, as expenses paid or incurred in carrying on a trade or business. While surely cutting back on Flint’s broad approach, the Court seemed to do little more than announce that since 1918 “the present form [of the statute] was fixed and has so continued”; that “[n]o regulation has ever been promulgated which interprets the meaning of ‘carrying on a business’ that the comprehensive definition of “business” in Flint was “not controlling in this dissimilar inquiry”; that the facts in each case must be examined; that not all expenses of every business transaction are deductible; and that “[n]o matter how large the estate or how continuous or extended the work required may be, such facts are not sufficient as a matter of law to permit the courts to reverse the decision of the Board.” 312 U. S., at 215-218. The opinion, therefore — although devoid of analysis and not setting forth what elements, if any, in addition to profit motive and regularity, were required to render an activity a trade or business — must stand for the propositions that full-time market activity in managing and preserving one’s own estate is not embraced within the phrase “carrying on a business,” and that salaries and other expenses incident to the operation are not deductible as having been paid or incurred in a trade or business. See also United States v. Gilmore, 372 U. S. 39, 44-45 (1963); Whipple v. Commissioner, 373 U. S. 193 (1963). It is of interest to note that, although Justice Frankfurter was on the Higgins Court and this time did not write separately, and although Justice Reed, who had joined the concurring opinion in Du Pont, was the author of the Higgins opinion, the Court in that case did not even cite Du Pont and thus paid no heed whatsoever to the content of Justice Frankfurter’s pronouncement in his concurring opinion. Adoption of the Frankfurter gloss obviously would have disposed of the case in the Commissioner’s favor handily and automatically, but that easy route was not followed.

Less than three months later, the Court considered the issue of the deductibility, as business expenses, of estate and trust fees. In unanimous opinions issued the same day and written by Justice Black, the Court ruled that the efforts of an estate or trust in asset conservation and maintenance did not constitute a trade or business. City Bank Farmers Trust Co. v. Helvering, 313 U. S. 121 (1941); United States v. Pyne, 313 U. S. 127 (1941). The Higgins case was deemed to be relevant and controlling. Again, no mention was made of the Frankfurter concurrence in Du Pont. Yet Justices Reed and Frankfurter were on the Court.

Snow v. Commissioner, 416 U. S. 500 (1974), concerned a taxpayer who had advanced capital to a partnership formed to develop an invention. On audit of his 1966 return, a claimed deduction under § 174(a)(1) of the 1954 Code for his pro rata share of the partnership’s operating loss was disallowed. The Tax Court and the Sixth Circuit upheld that dis-allowance. This Court reversed. Justice Douglas, writing for the eight Justices who participated, observed: “Section 174 was enacted in 1954 to dilute some of the conception of ‘ordinary and necessary’ business expenses under § 162(a) (then § 23(a)(1) of the Internal Revenue Code of 1939) adumbrated by Mr. Justice Frankfurter in a concurring opinion in Deputy v. Du Pont . . . where he said that the section in question . . . ‘involves holding one’s self out to others as engaged in the selling of goods or services.’” 416 U. S., at 502-503. He went on to state, id., at 503, that § 162(a) “is more narrowly written than is § 174.”

From these observations and decisions, we conclude (1) that, to be sure, the statutory words are broad and comprehensive (Flint); (2) that, however, expenses incident to caring for one’s own investments, even though that endeavor is full time, are not deductible as paid or incurred in carrying on a trade or business (Higgins; City Bank; Pyne); (3) that the opposite conclusion may follow for an active trader (Snyder); (4) that Justice Frankfurter’s attempted gloss upon the decision in Du Pont was not adopted by the Court in that case; (5) that the Court, indeed, later characterized it as an “adumbration” (Snow); and (6) that the Frankfurter observation, specifically or by implication, never has been accepted as law by a majority opinion of the Court, and more than once has been totally ignored. We must regard the Frankfurter gloss merely as a two-Justice pronouncement in a passing moment and, while entitled to respect, as never having achieved the status of a Court ruling. One also must acknowledge that Higgins, with its stress on examining the facts in each case, affords no readily helpful standard, in the usual sense, with which to decide the present case and others similar to it. The Court’s cases, thus, give us results, but little general guidance.

Ill

Federal and state legislation and court decisions, perhaps understandably, until recently have not been noticeably favorable to gambling endeavors and even have been reluctant to treat gambling on a parity with more “legitimate” means of making a living. See, e. g., §4401 et seq. of the Code; Marchetti v. United States, 390 U. S. 39, 44-46, and nn. 5 and 6 (1968). And the confinement of gambling-loss deductions to the amount of gambling gains, a provision brought into the income tax law as § 23(g) of the Revenue Act of 1934, 48 Stat. 689, and carried forward into § 165(d) of the 1954 Code, closed the door on suspected abuses, see H. R. Rep. No. 704, 73d Cong., 2d Sess., 22 (1934); S. Rep. No. 558, 73d Cong., 2d Sess., 25 (1934), but served partially to differentiate genuine gambling losses from many other types of adverse financial consequences sustained during the tax year. Gambling winnings, however, have not been isolated from gambling losses. The Congress has been realistic enough to recognize that such losses do exist and do have some effect on income, which is the primary focus of the federal income tax.

The issue this case presents has “been around” for a long time and, as indicated above, has not met with consistent treatment in the Tax Court itself or in the Federal Courts of Appeals. The Seventh Circuit, in the present case, said the issue “has proven to be most difficult and troublesome over the years.” 771 F. 2d, at 271. The difficulty has not been ameliorated by the persistent absence of an all-purpose definition, by statute or regulation, of the phrase “trade or business” which so frequently appears in the Code. Of course, this very frequency well may be the explanation for legislative and administrative reluctance to take a position as to one use that might affect, with confusion, so many others.

Be that as it may, this taxpayer’s case must be decided and, from what we have outlined above, must be decided in the face of a decisional history that is not positive or even fairly indicative, as we read the cases, of what the result should be. There are, however, some helpful indicators.

If a taxpayer, as Groetzinger is stipulated to have done in 1978, devotes his full-time activity to gambling, and it is his intended livelihood source, it would seem that basic concepts of fairness (if there be much of that in the income tax law) demand that his activity be regarded as a trade or business just as any other readily accepted activity, such as being a retail store proprietor or, to come closer categorically, as being a casino operator or as being an active trader on the exchanges. ' :

It is argued, however, that a full-time gambler is not offering goods or his services, within the line of demarcation that Justice Frankfurter would have drawn in Du Pont. Respondent replies that he indeed is supplying goods and services, not only to himself but, as well, to the gambling market; thus, he says, he comes within the Frankfurter test even if that were to be imposed as the proper measure. “It takes two to gamble.” Brief for Respondent 3. Surely, one who clearly satisfies the Frankfurter adumbration usually is in a trade or business. But does it necessarily follow that one who does not satisfy the Frankfurter adumbration is not in a trade or business? One might well feel that a full-time gam-bier ought to qualify as much as a full-time trader, as Justice Brandéis in Snyder implied and as courts have held. The Commissioner, indeed, accepts the trader result. Tr. of Oral Arg. 17. In any event, while the offering of goods and services usually would qualify the activity as a trade or business, this factor, it seems to us, is not an absolute prerequisite.

We are not satisfied that the Frankfurter gloss would add any helpful dimension to the resolution of cases such as this one, or that it provides a “sensible test,” as the Commissioner urges. See Brief for Petitioner 36. It might assist now and then, when the answer is obvious and positive, but it surely is capable of breeding litigation over the meaning of “goods,” the meaning of “services,” or the meaning of “holding one’s self out.” And we suspect that — apart from gambling — almost every activity would satisfy the gloss. A test that everyone passes is not a test at all. We therefore now formally reject the Frankfurter gloss which the Court has never adopted anyway.

Of course, not every income-producing and profit-making endeavor constitutes a trade or business. The income tax law, almost from the beginning, has distinguished between a business or trade, on the one hand, and “transactions entered into for profit but not connected with . . . business or trade,” on the other. See Revenue Act of 1916, §5(a), Fifth, 39 Stat. 759. Congress “distinguished the broad range of income or profit producing activities from those satisfying the narrow category of trade or business.” Whipple v. Commissioner, 373 U. S., at 197. We accept the fact that to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify.

It is suggested that we should defer to the position taken by the Commissioner and by the Solicitor General, but, in the absence of guidance, for over several decades now, through the medium of definitive statutes or regulations, we see little reason to do so. We would defer, instead, to the Code’s normal focus on what we regard as a common-sense concept of what is a trade or business. Otherwise, as here, in the context of a minimum tax, it is not too extreme to say that the taxpayer is being taxed on his gambling losses, a result distinctly out of line with the Code’s focus on income.

We do not overrule or cut back on the Court’s holding in Higgins when we conclude that if one’s gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business within the meaning of the statutes with which we are here concerned. Respondent Groetzinger satisfied that test in 1978. Constant and large-scale effort on his part was made. Skill was required and was applied. He did what he did for a livelihood, though with a less-than-successful result. This was not a hobby or a passing fancy or an occasional bet for amusement.

We therefore adhere to the general position of the Higgins Court, taken 46 years ago, that resolution of this issue “requires an examination of the facts in each case.” 312 U. S., at 217. This may be thought by some to be a less-than-satisfactory solution, for facts vary. See Boyle, What is a Trade or Business?, 39 Tax Lawyer 737, 767 (1986); Note, The Business of Betting: Proposals for Reforming the Taxation of Business Gamblers, 38 Tax Lawyer 759 (1985); Lopez, Defining “Trade or Business” Under the Internal Revenue Code: A Survey of Relevant Cases, 11 Fla. St. U. L. Rev. 949 (1984). Cf. Comment, Continuing Vitality of the “Goods or Services” Test, 15 U. Balt. L. Rev. 108 (1985). But the difficulty rests in the Code’s wide utilization in various contexts of the term “trade or business,” in the absence of an all-purpose definition by statute or regulation, and in our concern that an attempt judicially to formulate and impose a test for all situations would be counterproductive, unhelpful, and even somewhat precarious for the overall integrity of the Code. We leave repair or revision, if any be needed, which we doubt, to the Congress where we feel, at this late date, the ultimate responsibility rests. Cf. Flood v. Kuhn, 407 U. S. 258, 269-285 (1972).

The judgment of the Court of Appeals is affirmed.

It is so ordered.

Justice White,

with whom The Chief Justice and Justice Sc alia join, dissenting.

The 1982 amendments to the Tax Code made clear that gambling is not a trade or business. Under those amendments, the alternative minimum tax base equals adjusted gross income reduced by specified amounts, including gambling losses, and increased by items not relevant here. See 26 U. S. C. §§ 55(b), 55(e)(1)(A), 165(d) (1982 ed. and Supp. III). If full-time gambling were a trade or business, a full-time gambler’s gambling losses would be “deductions . . . attributable to a trade or business carried on by the taxpayer,” and hence deductible from gross income in computing adjusted gross income, 26 U. S. C. § 62(1), though only to the extent of gambling winnings, 26 U. S. C. § 165(d). To again subtract gambling losses (to the extent of gambling winnings) from adjusted gross income when computing the alternative minimum tax base would be to give the full-time gambler a double deduction for alternative minimum tax purposes, which was certainly not Congress’ intent. Thus, when Congress amended the alternative minimum tax provisions in 1982, it implicitly accepted the teaching of Gentile v. Commissioner, 65 T. C. 1 (1975), that gambling is not a trade or business. Groetzinger would have had no problem under the 1982 amendments.

One could argue, I suppose, that although gambling is not a trade or business under the 1982 amendments, it was in 1978, the tax year at issue here. But there is certainly no indication that Congress intended in 1982 to alter the status of gambling as a trade or business. Rather, Congress was correcting an inequity that had arisen because gambling is not a trade or business, just as 40 years earlier Congress had, by enacting the predecessor to 26 U. S. C. § 212, corrected an inequity that became apparent when this Court held that a full-time investor is not engaged in a trade or business. See Higgins v. Commissioner, 312 U. S. 212 (1941). In neither case did Congress attempt to alter the then-prevailing definition of trade or business, nor do I think this Court should do so now to avoid a harsh result in this case. In any event, the Court should recognize that its holding is a sport that applies only to a superseded statute and not to the tax years governed by the 1982 amendments. Accordingly, I dissent.

       All references herein to the Internal Revenue Code are to the 1954 Code, not to the Internal Revenue Code of 1986, as it has been designated by § 2(a) of the Tax Reform Act of 1986, 100 Stat. 2095.

       The Tax Court put it this way: “It is not disputed that petitioner during 1978 was engaged fulltime in parimutuel wagering on dog races, had no other employment during that period, gambled solely for his own account, and devoted an extraordinary amount of time and effort to his gambling with a view to earning a living from such activity.” 82 T. C. 793, 795 (1984).

       Respondent, however, did report his net gambling loss of $2,032 in Schedule E (Supplemental Income Schedule) of his return, but he did not utilize that amount in computing his adjusted gross income or claim it as an itemized deduction.

       This statutory scheme was amended by the Tax Equity and Fiscal Responsibility Act of 1982, § 201(a), 96 Stat. 411. For tax years after 1982, gambling-loss deductions explicitly are excluded from the minimum tax base. The Commissioner acknowledges that a taxpayer like respondent for a year after 1982 would not be subject to minimum tax liability because of his gambling-loss deduction. Brief for Petitioner 4, n. 4.

       Compare Nipper v. Commissioner, 746 F. 2d 813 (CA11 1984), aff’g, without opinion, 47 TCM 136, ¶ 83,644 P-H Memo TC (1983), and the Seventh Circuit’s decision in the present case, with Gajewski v. Commissioner, 723 F. 2d 1062 (CA2 1983), cert. denied, 469 U. S. 818 (1984); Estate of Cull v. Commissioner, 746 F. 2d 1148 (CA6 1984), cert. denied, 472 U. S. 1007 (1985); and Noto v. United States, 770 F. 2d 1073 (CA3 1985), aff’g, without opinion, 598 F. Supp. 440 (NJ 1984).
      Despite the interim reversals by the Second and Sixth Circuits in Gajew-ski and Cull, supra, the Tax Court has adhered to its position that a full-time gambler is engaged in a trade or business. See, e. g., Meredith v. Commissioner, 49 TCM 318, ¶84,651 P-H Memo TC (1984); Barrish v. Commissioner, 49 TCM 115, ¶84,602 P-H Memo TC (1984). It has drawn no distinction between the gambler and the active market trader. See also Baxter v. United States, 633 F. Supp. 912 (Nev. 1986).

       Some sections of the Code, however, do define the term for limited purposes. See § 355(b)(2), 26 U. S. C. § 355(b)(2) (distribution of stock of controlled corporation); §§ 502(b) and 513(b), 26 U. S. C. §§ 502(b) and 513(b) (exempt organizations); and § 7701(a)(26), 26 U. S. C. § 7701(a)(26) (defining the term to include “the performance of the functions of a public office”).

       Judge Friendly some time ago observed that “the courts have properly assumed that the term includes all means of gaining a livelihood by work, even those which would scarcely be so characterized in common speech.” Trent v. Commissioner, 291 F. 2d 669, 671 (CA2 1961).

       We caution that in this opinion our interpretation of the phrase “trade or business” is confined to the specific sections of the Code at issue here. We do not purport to construe the phrase where it appears in other places.

       See, however, § 212 of the 1954 Code, 26 U. S. C. § 212. This section has its roots in § 23(a)(2) of the 1939 Code, as added by § 121 of the Revenue Act of 1942, 56 Stat. 819. It allows as a deduction all the ordinary and necessary expenses paid or incurred “for the management, conservation, or maintenance of property held for the production of income,” and thus overcame the specific ruling in Higgins that expenses of that kind were not deductible. The statutory change, of course, does not read directly on the term “trade or business.” Obviously, though, Congress sought to overcome Higgins and achieved that end.

        Deputy v. Du Pont, 308 U. S. 488 (1940), however, was cited by the parties in their Higgins briefs submitted to this Court. See Brief for Petitioner 28, 29, 40, and 61, and Brief for Respondent 17 and 18, in Higgins v. Commissioner, O. T. 1940, No. 253.

       Today, however, the vast majority of States permit some form of public gambling. The lottery, bingo, parimutuel betting, jai alai, casinos, and slot machines easily come to mind.

       “It takes a buyer to make a seller and it takes an opposing gambler to make a bet.” Boyle, What is a Trade or Business?, 39 Tax Lawyer 737, 763 (1986).

        Levin v. United States, 220 Ct. Cl. 197, 205, 597 F. 2d 760, 765 (1979); Commissioner v. Nubar, 185 F. 2d 584, 588 (CA4 1950), cert. denied, 341 U. S. 925 (1951); Fuld v. Commissioner, 139 F. 2d 465, 468-469 (CA2 1943). See also Moller v. United States, 721 F. 2d 810 (CA Fed. 1983), cert. denied, 467 U. S. 1251 (1984); Purvis v. Commissioner, 530 F. 2d 1332, 1334 (CA9 1976).

         Each of the three eases in conflict with the Seventh Circuit’s decision in the present case, see n. 5, supra, was a gambler’s case and adopted the Frankfurter gloss. Because the same courts, in cases not involving gamblers, have not referred to the Frankfurter gloss, see Bessenyey v. Commissioner, 379 F. 2d 252 (CA2), cert. denied, 389 U. S. 931 (1967); Gestrich v. Commissioner, 681 F. 2d 805 (CA3 1982), aff’g, without opinion, 74 T. C. 525 (1980), Main Line Distributors, Inc. v. Commissioner, 321F. 2d 562 (CA6 1963), it would appear that these courts in effect were creating a special class of, and with special rules for, the full-time gambler. We find no warrant for this in the Code.

       “The more he lost, the more minimum tax he had to pay.” Boyle, 39 Tax Lawyer, at 754. The Commissioner concedes that application of the goods-or-serviees-test here “visits somewhat harsh consequences” on taxpayer Groetzinger, Brief for Petitioner 36, and “points to . . . perhaps unfortunate draftsmanship.” Ibid. See also Reply Brief for Petitioner 11.

       It is possible, of course, that our conclusion here may subject the gambler to self-employment tax, see §§ 1401-1403 of the Code, and therefore may not be an unmixed blessing for him. Federal taxes, however, rest where Congress has placed them.

       All references are to the Code as it stood prior to the 1986 amendments.

       Consider two single individuals filing for the. tax year ending December 31,1986: A has $75,000 in nongambling income, and $75,000 in itemized nongambling deductions; B, a full-time gambler, has $75,000 in gambling winnings, $75,000 in gambling losses, $75,000 in nongambling income, and $75,000 in itemized nongambling deductions. A’s gross income and adjusted gross income are both $75,000, and so is his alternative minimum tax base. The alternative minimum tax assessed on A is 20% of the excess of $75,000 over $30,000, see 26 U. S. C. §§ 55(a), 55(f)(1)(B), or $9,000. Assuming that full-time gambling is a trade or business, B has gross income of $150,000, adjusted gross income of $75,000 (because his gambling losses are attributable to a trade or business), and an alternative minimum tax base of zero (because gambling losses are deducted from adjusted gross income in computing the alternative minimum tax base). Thus, if full-time gambling were treated as a trade or business, B’s gambling losses would shield him against the $9,000 minimum tax that Congress clearly intended him to pay. “The Code should not be interpreted to allow [a taxpayer] ‘the practical equivalent of a double deduction,’ Charles Ilfeld Co. v. Her

        nandez, 292 U. S. 62, 68 (1934), absent a clear declaration of intent by Congress.” United States v. Shelly Oil Co., 394 U. S. 678, 684 (1969). There is no such clear declaration of intent accompanying the 1982 amendments.

       The Commissioner had acquiesced in Gentile. See 1980-2 Cum. Bull. 1, 4, n. 39.

       While the consequences of accepting the Commissioner’s position in this case may be harsh to the respondent — which is no doubt why Congress amended the relevant Code provisions in 1982 — 1 find the Court’s characterization of the result as a tax on gambling losses, ante, at 35, somewhat misleading. If gambling is not a trade or business, the practical effect of the minimum tax on tax preference items is to reduce the deduction allowed for gambling losses from an amount equal to 100% of gambling winnings to some lesser percentage of gambling winnings.