author: Justice Blackmun

text:
    UNIVERSITY OF PENNSYLVANIA v. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
    No. 88-493.
    Argued November 7, 1989
    Decided January 9, 1990

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

      Rex E. Lee argued the cause for petitioner. With him on the briefs were Steven B. Feirson, Carter G. Phillips, Mark D. Hopson, Nancy J. Bregstein, Shelley Z. Green, and Neil J. Hamburg.

      Solicitor General Starr argued the cause for respondent. With him on the briefs were Acting Solicitor General Bry-son, Deputy Solicitors General Wallace and Merrill, Stephen L. Nightingale, Charles A. Shanor, Gwendolyn Young Reams, Lorraine C. Davis, and Harry F. Tepker, Jr

      Briefs of amici curiae urging reversal were filed for the American Association of University Professors by William W. Van Alstyne, Ann H. Franke, and Martha A. Toll; for the President and Fellows of Harvard College by Allan A. Ryan, Jr., and Daniel Steiner; for Stanford University et al. by Steven L. Mayer, Iris Brest, Susan K. Hoerger, and Thomas H. Wright, Jr.; and for the American Council on Education by Sheldon Elliot Steinbach.

        Susan Deller Ross, R. Bruce Keiner, Jr., and Sarah E. Burns filed a brief for the NOW Legal Defense and Education Fund et al. as amici curiae urging affirmance.

   Justice Blackmun

delivered the opinion of the Court.

In this case we are asked to decide whether a university enjoys a special privilege, grounded in either the common law or the First Amendment, against disclosure of peer review materials that are relevant to charges of racial or sexual discrimination in tenure decisions.

I

The University of Pennsylvania, petitioner here, is a private institution. It currently operates 12 schools, including the Wharton School of Business, which collectively enroll approximately 18,000 full-time students.

In 1985, the University denied tenure to Rosalie Tung, an associate professor on the Wharton faculty. Tung then filed a sworn charge of discrimination with respondent Equal Employment Opportunity Commission (EEOC or Commission). App. 23. As subsequently amended, the charge alleged that Tung was the victim of discrimination on the basis of race, sex, and national origin, in violation of § 703(a) of Title VII of the Civil Rights Act of 1964, 78 Stat. 255, as amended, 42 U. S. C. §2000e-2(a) (1982 ed.), which makes it unlawful “to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.”

In her charge, Tung stated that the department chairman had sexually harassed her and that, in her belief, after she insisted that their relationship remain professional, he had submitted a negative letter to the University’s Personnel Committee which possessed ultimate responsibility for tenure decisions. She also alleged that her qualifications were “equal to or better than” those of five named male faculty members who had received more favorable treatment. Tung noted that the majority of the members of her department had recommended her for tenure, and stated that she had been given no reason for the decision against her, but had discovered of her own efforts that the Personnel Committee had attempted to justify its decision “on the ground that the Wharton School is not interested in China-related research.” App. 29. This explanation, Tung’s charge alleged, was a pretext for discrimination: “simply their way of saying they do not want a Chinese-American, Oriental, woman in their school.” Ibid.

The Commission undertook an investigation into Tung’s charge and requested a variety of relevant information from petitioner. When the University refused to provide certain of that information, the Commission’s Acting District Director issued a subpoena seeking, among other things, Tung’s tenure-review file and the tenure files of the five male faculty members identified in the charge. Id., at 21. Petitioner refused to produce a number of the tenure-file documents. It applied to the Commission for modification of the subpoena to exclude what it termed “confidential peer review information,” specifically, (1) confidential letters written by Tung’s evaluators; (2) the department chairman’s letter of evaluation; (3) documents reflecting the internal deliberations of faculty committees considering applications for tenure, including the Department Evaluation Report summarizing the deliberations relating to Tung’s application for tenure; and (4) comparable portions of the tenure-review files of the five males. The University urged the Commission to “adopt a balancing approach reflecting the constitutional and societal interest inherent in the peer review process” and to resort to “all feasible methods to minimize the intrusive effects of its investigations.” Exhibit 2 to EEOC’s Memorandum in Support of Application for Order to Show Cause 6.

The Commission denied the University’s application. It concluded that the withheld documents were needed in order to determine the merit of Tung’s charges. The Commission found: “There has not been enough data supplied in order for the Commission to determine whether there is reasonable cause to believe that the allegations of sex, race and national origin discrimination is [sic] true.” App. to Pet. for Cert. A31. The Commission rejected petitioner’s contention that a letter, which set forth the Personnel Committee’s reasons for denying Tung tenure, was sufficient for disposition of the charge. “The Commission would fall short of its obligation” to investigate charges of discrimination, the EEOC’s order stated, “if it stopped its investigation once [the employer] has . . . provided the reasons for its employment decisions, without verifying whether that reason is a pretext for discrimination.” Id., at A32. The Commission also rejected petitioner’s proposed balancing test, explaining that “such an approach in the instant case . . . would impair the Commission’s ability to fully investigate this charge of discrimination.” Id., at A33. The Commission indicated that enforcement proceedings might be necessary if a response was not forthcoming within 20 days. Ibid.

The University continued to withhold the tenure-review materials. The Commission then applied to the United States District Court for the Eastern District of Pennsylvania for enforcement of its subpoena. The court entered a brief enforcement order. Id., at A35.

The Court of Appeals for the Third Circuit affirmed the enforcement decision. 850 F. 2d 969 (1988). Relying upon its earlier opinion in EEOC v. Franklin and Marshall Col lege, 775 F. 2d 110 (1985), cert. denied, 476 U. S. 1163 (1986), the court rejected petitioner’s claim that policy considerations and First Amendment principles of academic freedom required the recognition of a qualified privilege or the adoption of a balancing approach that would require the Commission to demonstrate some particularized need, beyond a showing of relevance, to obtain peer review materials. Because of what might be thought of as a conflict in approach with the Seventh Circuit’s decision in EEOC v. University of Notre Dame du Lac, 715 F. 2d 331, 337 (1983), and because of the importance of the issue, we granted certiorari limited to the compelled-disclosure question. 488 U. S. 992 (1988), and amended, 490 U. S. 1015 (1989).

II

As it had done before the Commission, the District Court, and the Court of Appeals, the University raises here essentially two claims. First, it urges us to recognize a qualified common-law privilege against disclosure of confidential peer review materials. Second, it asserts a First Amendment right of “academic freedom” against wholesale disclosure of the contested documents. With respect to each of the two claims, the remedy petitioner seeks is the same: a requirement of a judicial finding of particularized necessity of access, beyond a showing of mere relevance, before peer review materials are disclosed to the Commission.

A

Petitioner’s common-law privilege claim is grounded in Federal Rule of Evidence 501. This provides in relevant part:

“Except as otherwise required by the Constitution ... as provided by Act of Congress or in rules prescribed by the Supreme Court . . . , the privilege of a witness . . . shall be governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience.”

The University asks us to invoke this provision to fashion a new privilege that it claims is necessary to protect the integrity of the peer review process, which in turn is central to the proper functioning of many colleges and universities. These institutions are special, observes petitioner, because they function as “centers of learning, innovation and discovery.” Brief for Petitioner filed June 23, 1989, p. 24 (hereinafter Brief for Petitioner).

We do not create and apply an evidentiary privilege unless it “promotes sufficiently important interests to outweigh the need for probative evidence . . . .” Trammel v. United States, 445 U. S. 40, 51 (1980). Inasmuch as “[testimonial exclusionary rules and privileges contravene the fundamental principle that ‘the public . . . has a right to every man’s evidence,”’ id., at 50, quoting United States v. Bryan, 339 U. S. 323, 331 (1950), any such privilege must “be strictly construed.” 445 U. S., at 50.

Moreover, although Rule 501 manifests a congressional desire “not to freeze the law of privilege” but rather to provide the courts with flexibility to develop rules of privilege on a case-by-case basis, id., at 47, we are disinclined to exercise this authority expansively. We are especially reluctant to recognize a privilege in an area where it appears that Congress has considered the relevant competing concerns but has not provided the privilege itself. Cf. Branzburg v. Hayes, 408 U. S. 665, 706 (1972). The balancing of conflicting interests of this type is particularly a legislative function.

With all this in mind, we cannot accept the University’s invitation to create a new privilege against the disclosure of peer review materials. We begin by noting that Congress, in extending Title VII to educational institutions and in providing for broad EEOC subpoena powers, did not see fit to create a privilege for peer review documents.

When Title VII was enacted originally in 1964, it exempted an “educational institution with respect to the employment of individuals to perform work connected with the educational activities of such institution.” §702, 78 Stat. 255. Eight years later, Congress eliminated that specific exemption by enacting §3 of the Equal Employment Opportunity Act of 1972, 86 Stat. 103. This extension of Title VII was Congress’ considered response to the widespread and compelling problem of invidious discrimination in educational institutions. The House Report focused specifically on discrimination in higher education, including the lack of access for women and minorities to higher ranking (i. e., tenured) academic positions. See H. R. Rep. No. 92-238, pp. 19-20 (1971). Significantly, opponents of the extension claimed that enforcement of Title VII would weaken institutions of higher education by interfering with decisions to hire and promote faculty members. Petitioner therefore cannot seriously contend that Congress was oblivious to concerns of academic autonomy when it abandoned the exemption for educational institutions.

The effect of the elimination of this exemption was to expose tenure determinations to the same enforcement procedures applicable to other employment decisions. This Court previously has observed that Title VII “sets forth ‘an integrated, multistep enforcement procedure’ that enables the Commission to detect and remedy instances of discrimination.” EEOC v. Shell Oil Co., 466 U. S. 54, 62 (1984), quoting Occidental Life Ins. Co. v. EEOC, 432 U. S. 355, 359 (1977). The Commission’s enforcement responsibilities are triggered by the filing of a specific sworn charge of discrimination. The Act obligates the Commission to investigate a charge of discrimination to determine whether there is “reasonable cause to believe that the charge is true.” 42 U. S. C. §2000e-5(b) (1982 ed.). If it finds no such reasonable cause, the Commission is directed to dismiss the charge. If it does find reasonable cause, the Commission shall “endeavor to eliminate [the] alleged unlawful employment practice by informal methods of conference, conciliation, and persuasion.” Ibid. If attempts at voluntary resolution fail, the Commission may bring an action against the employer. §2000e-5(f)(l).

To enable the Commission to make informed decisions at each stage of the enforcement process, § 2000e-8(a) confers a broad right of access to relevant evidence:

“[T]he Commission or its designated representative shall at all reasonable times have access to, for the purposes of examination, and the right to copy any evidence of any person being investigated . . . that relates to unlawful employment practices covered by [the Act] and is relevant to the charge under investigation.”

If an employer refuses to provide this information voluntarily, the Act authorizes the Commission to issue a subpoena and to seek an order enforcing it. § 2000e-9 (incorporating 29 U. S. C. § 161).

On their face, §§2000e-8(a) and 2000e-9 do not carve out any special privilege relating to peer review materials, despite the fact that Congress undoubtedly was aware, when it extended Title VII’s coverage, of the potential burden that access to such material might create. Moreover, we have noted previously that when a court is asked to enforce a Commission subpoena, its responsibility is to “satisfy itself that the charge is valid and that the material requested is ‘relevant’ to the charge . . . and more generally to assess any contentions by the employer that the demand for information is too indefinite or has been made for an illegitimate purpose.” It is not then to determine “whether the charge of discrimination is ‘well founded’ or ‘verifiable.’” EEOC v. Shell Oil Co., 466 U. S., at 72, n. 26.

The University concedes that the information sought by the Commission in this case passes the relevance test set forth in Shell Oil. Tr. of Oral Arg. 6. Petitioner argues, nevertheless, that Title VII affirmatively grants courts the discretion to require more than relevance in order to protect tenure review documents. Although petitioner recognizes that Title VII gives the Commission broad “power to seek access to all evidence that may be ‘relevant to the charge under investigation,’” Brief for Petitioner 38 (emphasis added), it contends that Title VII’s subpoena enforcement provisions do not give the Commission an unqualified right to acquire such evidence. Id., at 38-41. This interpretation simply cannot be reconciled with the plain language of the text of § 2000e-8(a), which states that the Commission “shall . . . have access” to “relevant” evidence (emphasis added). The provision can be read only as giving the Commission a right to obtain that evidence, not a mere license to seek it.

Although the text of the access provisions thus provides no privilege, Congress did address situations in which an employer may have an interest in the confidentiality of its records. The same §2000e-8 which gives the Commission access to any evidence relevant to its investigation also makes it “unlawful for any officer or employee of the Commission to make public in any manner whatever any information obtained by the Commission pursuant to its authority under this section prior to the institution of any proceeding” under the Act. A violation of this provision subjects the employee to criminal penalties. Ibid. To be sure, the protection of confidentiality that §2000e-8(e) provides is less than complete. But this, if anything, weakens petitioner’s argument. Congress apparently considered the issue of confidentiality, and it provided a modicum of protection. Petitioner urges us to go further than Congress thought necessary to safeguard that value, that is, to strike the balance differently from the one Congress adopted. Petitioner, however, does not offer any persuasive justification for that suggestion.

We readily agree with petitioner that universities and colleges play significant roles in American society. Nor need we question, at this point, petitioner’s assertion that confidentiality is important to the proper functioning of the peer review process under which many academic institutions operate. The costs that ensue from disclosure, however, constitute only one side of the balance. As Congress has recognized, the costs associated with racial and sexual discrimination in institutions of higher learning are very substantial. Few would deny that ferreting out this kind of invidious discrimination is a great, if not compelling, governmental interest. Often, as even petitioner seems to admit, see Reply Brief for Petitioner 15, disclosure of peer review materials will be necessary in order for. the Commission to determine whether illegal discrimination has taken place. Indeed, if there is a “smoking gun” to be found that demonstrates discrimination in tenure decisions, it is likely to be tucked away in peer review files. The Court of Appeals for the Third Circuit expressed, it this way:

“Clearly, an alleged perpetrator of discrimination cannot be allowed to pick and choose the evidence which may be necessary for an agency investigation. There may be evidence of discriminatory intent and of pretext in the confidential notes and memorand[a] which the [college] seeks to protect. Likewise, confidential material pertaining to other candidates for tenure in a similar time frame may demonstrate that persons with lesser qualifications were granted tenure or that some pattern of discrimination appears. . . . [T]he peer review material itself must be investigated to determine whether the evaluations are based in discrimination and whether they are reflected in the tenure decision.” EEOC v. Franklin and, Marshall College, 775 F. 2d, at 116 (emphasis deleted).

Moreover, we agree with the EEOC that the adoption of a requirement that the Commission demonstrate a “specific reason for disclosure,” see Brief for Petitioner 46, beyond a showing of relevance, would place a substantial litigation-producing obstacle in the way of the Commission’s efforts to investigate and remedy alleged discrimination. Cf. Branzburg v. Hayes, 408 U. S., at 705-706. A university faced with a disclosure request might well utilize the privilege in a way that frustrates the EEOC’s mission. We are reluctant to “place a potent weapon in the hands of employers who have no interest in complying voluntarily with the Act, who wish instead to delay as long as possible investigations by the EEOC.” EEOC v. Shell Oil Co., 466 U. S., at 81.

Acceptance of petitioner’s claim would also lead to a wave of similar privilege claims by other employers who play significant roles in furthering speech and learning in society. What of writers, publishers, musicians, lawyers? It surely is not unreasonable to believe, for example, that confidential peer reviews play an important part in partnership determinations at some law firms. We perceive no limiting principle in petitioner’s argument. Accordingly, we stand behind the breakwater Congress has established: unless specifically provided otherwise in the statute, the EEOC may obtain “relevant” evidence. Congress has made the choice. If it dislikes the result, it of course may revise the statute.

Finally, we see nothing in our precedents that supports petitioner’s claim. In United States v. Nixon, 418 U. S. 683 (1974), upon which petitioner relies, we recognized a qualified privilege for Presidential communications. It is true that in fashioning this privilege we noted the importance of confidentiality in certain contexts:

“Human experience teaches that those who expect public dissemination of their remarks may well temper candor with a concern for appearances and for their own interests to the detriment of the decisionmaking process.” Id., at 705.

But the privilege we recognized in Nixon was grounded in the separation of powers between the branches of the Federal Government. “[T]he privilege can be said to derive from the supremacy of each branch within its own assigned area of constitutional duties. Certain powers and privileges flow from the nature of enumerated powers; the protection of the confidentiality of Presidential communications has similar constitutional underpinnings.” Id., at 705-706 (footnote omitted). As we discuss below, petitioner’s claim of privilege lacks similar constitutional foundation.

In Douglas Oil Co. of Cal. v. Petrol Stops Northwest, 441 U. S. 211 (1979), the Court recognized the privileged nature of grand jury proceedings. We noted there that the rule of secrecy dated back to the 17th century, was imported into our federal common law, and was eventually codified in Federal Rule of Criminal Procedure 6(e) as “an integral part of our criminal justice system.” 441 U. S., at 218, n. 9. Similarly, in Clark v. United States, 289 U. S. 1, 13 (1933), the Court recognized a privilege for the votes and deliberations of a petit jury, noting that references to the privilege “bear with them the implications of an immemorial tradition.” More recently, in NLRB v. Sears, Roebuck & Co., 421 U. S. 132 (1975), we construed an exception to the Freedom of Information Act in which Congress had incorporated a well-established privilege for deliberative intraagency documents. A privilege for peer review materials has no similar historical or statutory basis.

B

As noted above, petitioner characterizes its First Amendment claim as one of “academic freedom.” Petitioner begins its argument by focusing our attention upon language in prior cases acknowledging the crucial role universities play in the dissemination of ideas in our society and recognizing “academic freedom” as a “special concern of the First Amendment.” Keyishian v. Board of Regents of University of New York, 385 U. S. 589, 603 (1967). In that case the Court said: “Our Nation is deeply committed to safeguarding academic freedom, which is of transcendent value to all of us and not merely to the teachers concerned.” See also Adler v. Board of Education of City of New York, 342 U. S. 485, 511 (1952) (academic freedom is central to “the pursuit of truth which the First Amendment was designed to protect” (Douglas, J., dissenting)). Petitioner places special reliance on Justice Frankfurter’s opinion, concurring in the result, in Sweezy v. New Hampshire, 354 U. S. 234, 263 (1957), where the Justice recognized that one of “four essential freedoms” that a university possesses under the First Amendment is the right to “determine for itself on academic grounds who may teach” (emphasis added).

Petitioner contends that it exercises this right of determining “on academic grounds who may teach” through the process of awarding tenure. A tenure system, asserts petitioner, determines what the university will look like over time. “In making tenure decisions, therefore, a university is doing nothing less than shaping its own identity.” Brief for Petitioner 19.

Petitioner next maintains that the peer review process is the most important element in the effective operation of a tenure system. A properly functioning tenure system requires the faculty to obtain candid and detailed written evaluations of the candidate’s scholarship, both from the candidate’s peers at the university and from scholars at other institutions. These evaluations, says petitioner, traditionally have been provided with express or implied assurances of confidentiality. It is confidentiality that ensures candor and enables an institution to make its tenure decisions on the basis of valid academic criteria.

Building from these premises, petitioner claims that requiring the disclosure of peer review evaluations on a finding of mere relevance will undermine the existing process of awarding tenure, and therefore will result in a significant infringement of petitioner’s First Amendment right of academic freedom. As more and more peer evaluations are disclosed to the EEOC and become public, a “chilling effect” on candid evaluations and discussions of candidates will result. And as the quality of peer review evaluations declines, tenure committees will no longer be able to rely on them. “This will work to the detriment of universities, as less qualified persons achieve tenure causing the quality of instruction and scholarship to decline.” Id., at 35. Compelling disclosure of materials “also will result in divisiveness and tension, placing strain on faculty relations and impairing the free interchange of ideas that is a hallmark of academic freedom.” Ibid. The prospect of these deleterious effects on American colleges and universities, concludes petitioner, compels recognition of a First Amendment privilege.

In our view, petitioner’s reliance on the so-called academic-freedom cases is somewhat misplaced. In those cases government was attempting to control or direct the content of the speech engaged in by the university or those affiliated with it. In Sweezy, for example, the Court invalidated the conviction of a person found in contempt for refusing to answer questions about the content of a lecture he had delivered at a state university. Similarly, in Keyishian, the Court invalidated a network of state laws that required public employees, including teachers at state universities, to make certifications with respect to their membership in the Communist Party. When, in those cases, the Court spoke of “academic freedom” and the right to determine on “academic grounds who may teach” the Court was speaking in reaction to content-based regulation. See Sweezy v. New Hampshire, 354 U. S., at 250 (plurality opinion discussing problems that result from imposition of a “strait jacket upon the intellectual leaders in our colleges and universities”); Keyishian v. Board of Regents, 385 U. S., at 603 (discussing dangers that are present when a “pall of orthodoxy” is cast “over the classroom”).

Fortunately, we need not define today the precise contours of any academic-freedom right against governmental attempts to influence the content of academic speech through the selection of faculty or by other means, because petitioner does not allege that the Commission’s subpoenas are intended to or will in fact direct the content of university discourse toward or away from particular subjects or points of view. Instead, as noted above, petitioner claims that the “quality of instruction and scholarship [will] decline” as a result of the burden EEOC subpoenas place on the peer review process.

Also, the cases upon which petitioner places emphasis involved direct infringements on the asserted right to “determine for itself on academic grounds who may teach.” In Keyishian, for example, government was attempting to substitute its teaching employment criteria for those already in place at the academic institutions, directly and completely usurping the discretion of each institution. In contrast, the EEOC subpoena at issue here effects no such usurpation. The Commission is not providing criteria that petitioner must use in selecting teachers. Nor is it preventing the University from using any criteria it may wish to use, except those — including race, sex, and national origin — that are proscribed under Title VII. In keeping with Title VIPs preservation of employers’ remaining freedom of choice, see Price Waterhouse v. Hopkins, 490 U. S. 228 (1989) (plurality opinion), courts have stressed the importance of avoiding second-guessing of legitimate academic judgments. This Court itself has cautioned that “judges . . . a§ked to review the substance of a genuinely academic decision . . . should show great respect for the faculty’s professional judgment.” Regents of University of Michigan v. Ewing, 474 U. S. 214, 225 (1985). Nothing we say today should be understood as a retreat from this principle of respect for legitimate academic decisionmaking.

That the burden of which the University complains is neither content based nor direct does not necessarily mean that petitioner has no valid First Amendment claim. Rather, it means only that petitioner’s claim does not fit neatly within any right of academic freedom that could be derived from the cases on which petitioner relies. In essence, petitioner asks us to recognize an expanded right of academic freedom to protect confidential peer review materials from disclosure. Although we are sensitive to the effects that content-neutral government action may have on speech, see, e. g., Heffron v. International Society for Krishna Consciousness, Inc., 452 U. S. 640, 647-648 (1981), and believe that burdens that are less than direct may sometimes pose First Amendment concerns, see, e. g., NAACP v. Alabama ex rel. Patterson, 357 U. S. 449 (1958), we think the First Amendment cannot be extended to embrace petitioner’s claim.

First, by comparison with the cases in which we have found a cognizable First Amendment claim, the infringement the University complains of is extremely attenuated. To repeat, it argues that the First Amendment is infringed by disclosure of peer review materials because disclosure undermines the confidentiality which is Central to the peer review process, and this in turn is central to the tenure process, which in turn is the means by which petitioner seeks to exercise its asserted academic-freedom right of choosing who will teach. To verbalize the claim is to recognize how distant the burden is from the asserted right.

Indeed, if the University’s attenuated claim were accepted, many other generally applicable laws might also be said to infringe the First Amendment. In effect, petitioner says no more than that disclosure of peer review materials makes it more difficult to acquire information regarding the “academic grounds” on which petitioner wishes to base its tenure decisions. But many laws make the exercise of First Amendment rights more difficult. For example, a university cannot claim a First Amendment violation simply because it may be subject to taxation or other government regulation, even though such regulation might deprive the university of revenue it needs to bid for professors who are contemplating working for other academic institutions or in industry. We doubt that the peer review process is any more essential in effectuating the right to determine “who may teach” than is the availability of money. Cf. Buckley v. Valeo, 424 U. S. 1, 19 (1976) (discussing how money is sometimes necessary to effectuate First Amendment rights).

In addition to being remote and attenuated, the injury to academic freedom claimed by petitioner is also speculative. As the EEOC points out, confidentiality is not the norm in all peer review systems. See, e. g., G. Bednash, The Relationship Between Access and Selectivity in Tenure Review Outcomes (1989) (unpublished Ph.D. dissertation, University of Maryland). Moreover, some disclosure of peer evaluations would take place even if petitioner’s “special necessity” test were adopted. Thus, the “chilling effect” petitioner fears is at most only incrementally worsened by the absence of a privilege. Finally, we are not so ready as petitioner seems to be to assume the worst about those in the academic community. Although it is possible that some evaluators may become less candid as the possibility of disclosure increases, others may simply ground their evaluations in specific exam-pies and illustrations in order to deflect potential claims of bias or unfairness. Not all academics will hesitate to stand up and be counted when they evaluate their peers.

The case we decide today in many respects is similar to Bmnzburg v. Hayes, 408 U. S. 665 (1972). In Bmnzburg, the Court rejected the notion that under the First Amendment a reporter could not be required to appear or to testify as to information obtained in confidence without a special showing that the reporter’s testimony was necessary. Petitioners there, like petitioner here, claimed that requiring disclosure of information collected in confidence would inhibit the free flow of information in contravention of First Amendment principles. In the course of rejecting the First Amendment argument, this Court noted that “the First Amendment does not invalidate every incidental burdening of the press that may result from the enforcement of civil or criminal statutes of general applicability.” Id., at 682. We also indicated a reluctance to recognize a constitutional privilege where it was “unclear how often and to what extent informers are actually deterred from furnishing information when newsmen are forced to testify before a grand jury.” Id., at 693. See also Herbert v. Lando, 441 U. S. 153, 174 (1979). We were unwilling then, as we are today, “to embark the judiciary on a long and difficult journey to ... an uncertain destination.” 408 U. S., at 703.

Because we conclude that the EEOC subpoena process does not infringe any First Amendment right enjoyed by petitioner, the EEOC need not demonstrate any special justification to sustain the constitutionality of Title VII as applied to tenure peer review materials in general or to the subpoena involved in this case. Accordingly, we need not address the Commission’s alternative argument that any infringement of petitioner’s First Amendment rights is permissible because of the substantial relation between the Commission’s request and the overriding and compelling state interest in eradicating invidious discrimination.

The judgment of the Court of Appeals is affirmed.

It is so ordered.

       Three days before the stated 20-day period expired, petitioner brought suit against the EEOC in the United States District Court for the District of Columbia seeking declaratory and injunctive relief and an order quashing the subpoena. App. 4. The Pennsylvania District Court declined to follow its controlling court’s announced “first-filed” rule, which counsels the stay or dismissal of an action that is duplicative of a previously filed suit in another federal court. See Crosley Corp. v. Hazeltine Corp., 122 F. 2d 925, 929 (CA3 1941), cert. denied, 315 U. S. 813 (1942); Compagnie des Bauxites de Guinea v. Insurance Co. of North America, 651 F. 2d 877, 887, n. 10 (CA3 1981), cert. denied sub nom. Compagnie des Bauxites de Guinea v. Insurance Corp. of Ireland, Ltd., 457 U. S. 1105 (1982). This declination, however, was upheld by the Third Circuit. See 850 F. 2d 969, 972 (1988). Since the applicability of the “first-filed” rule to the facts of this case is not a question on which we granted certiorari, we do not address it.

       The Court of Appeals did not rule on the question whether the Commission’s subpoena permits petitioner to engage in any redaction of the disputed records before producing them, because the District Court had not fully considered that issue. The Third Circuit therefore ordered that the case be remanded for further consideration of possible redaction. See id., at 982.

       See, e. g., 118 Cong. Rec. 311 (1972) (remarks of Sen. Ervin); id., at 946 (remarks of Sen. Allen); id., at 4919 (remarks of Sen. Ervin).

       Similarly, the charging party may bring an action after it obtains a “right-to-sue” letter from the Commission. §2000e-5(f)(l).

       The prohibition on Commission disclosure does not apply, for example, to the charging party. See EEOC v. Associated Dry Goods Corp., 449 U. S. 590, 598-604 (1981).

       Obvious First Amendment problems would arise where government attempts to direct the content of speech at private universities. Such content-based regulation of private speech traditionally has carried with it a heavy burden of justification. See, e. g., Police Dept. of Chicago v. Mosley, 408 U. S. 92, 95, 98-99 (1972). Where, as was the situation in the academic-freedom cases, government attempts to direct the content of speech at public educational institutions, complicated First Amendment issues are presented because government is simultaneously both speaker and regulator. Cf. Meese v. Keene, 481 U. S. 465, 484, n. 18 (1987) (citing Block v. Meese, 253 U. S. App. D. C. 317, 327-328, 793 F. 2d 1303, 1313-1314 (1986)). See generally, M. Yudof, When Government Speaks (1983).

       Petitioner does not argue in this case that race, sex, and national origin constitute “academic grounds” for the purposes of its claimed First Amendment right to academic freedom. Cf. Regents of University of California v. Bakke, 438 U. S. 265, 312-313 (1978) (opinion of Powell, J.).

       In Bmnzburg we recognized that the bad-faith exercise of grand jury powers might raise First Amendment concerns. 408 U. S., at 707. The same is true of EEOC subpoena powers. See EEOC v. Shell Oil Co., 466 U. S. 64, 72, n. 26 (1984). There is no allegation or indication of any such abuse by the Commission in this case.

       We also do not consider the question, not passed upon by the Court of Appeals, whether the District Court’s enforcement of the Commission’s subpoena will allow petitioner to redact information from the contested materials before disclosing them. See n. 2, supra.


source: Caselaw Access Project

license: Public Domain

text:
    COMMISSIONER OF INTERNAL REVENUE v. INDIANAPOLIS POWER & LIGHT CO.
    No. 88-1319.
    Argued October 31, 1989
    Decided January 9, 1990
    Blackmun, J., delivered the opinion for a unanimous Court.

      Deputy Solicitor General Wallace argued the cause for petitioner. With him on the briefs were Solicitor General

      Starr, Acting Assistant Attorney General Knapp, Alan I. Horowitz, Jonathan S. Cohen, and William A. Whitledge.

      Larry J. Stroble argued the cause for respondent. With him on the brief was Stanley C. Fickle.

      Briefs of amici curiae urging affirmance were filed for American Information Technologies Corporation et al. by Jerome B. Libin, Bradley M. Seltzer, Jim J. Kilpatric, and Lawrence H. Coken; for El Paso Electric Company by Stephen R. Nelson; for Oak Industries, Inc., and Subsidiaries by John P. Warner and Samuel M. Maraca; and for Wisconsin Electric Power Co. and Affiliated Companies by Joseph E. Tierney, Jr., and Margaret T. Lund.

   Justice Blackmun

delivered the opinion of the Court.

Respondent Indianapolis Power & Light Company (IPL) requires certain customers to make deposits with it to assure payment of future bills for electric service. Petitioner Commissioner of Internal Revenue contends that these deposits are advance payments for electricity and therefore constitute taxable income to IPL upon receipt. IPL contends otherwise.

I — I

IPL is a regulated Indiana corporation that generates and sells electricity in Indianapolis and its environs. It keeps its books on the accrual and calendar year basis. During the years 1974 through 1977, approximately 5% of IPL’s residential and commercial customers were required to make deposits “to insure prompt payment,” as the customers’ receipts stated, of future utility bills. These customers were selected because their credit was suspect. Prior to March 10, 1976, the deposit requirement was imposed on a case-by-case basis. IPL relied on a credit test but employed no fixed formula. The amount of the required deposit ordinarily was twice the customer’s estimated monthly bill. IPL paid 3% interest on a deposit held for six months or more. A customer could obtain a refund of the deposit prior to termination of service by requesting a review and demonstrating acceptable credit. The refund usually was made in cash or by check, but the customer could choose to have the amount applied against future bills.

In March 1976, IPL amended its rules governing the deposit program. See 170 Ind. Admin. Code §4-1-15 (1988). Under the amended rules, the residential customers from whom deposits were required were selected on the basis of a fixed formula. The interest rate was raised to 6% but was payable only on deposits held for 12 months or more. A deposit was refunded when the customer made timely payments for either 9 consecutive months, or for 10 out of 12 consecutive months so long as the 2 delinquent months were not themselves consecutive. A customer could obtain a refund prior to that time by satisfying the credit test. As under the previous rules, the refund would be made in cash or by check, or, at the customer’s option, applied against future bills. Any deposit unclaimed after seven years was to escheat to the State. See Ind. Code §32-9-l-6(a) (1988).

IPL did not treat these deposits as income at the time of receipt. Rather, as required by state administrative regulations, the deposits were carried on its books as current liabilities. Under its accounting system, IPL recognized income when it mailed a monthly bill. If the deposit was used to offset a customer’s bill, the utility made the necessary accounting adjustments. Customer deposits were not physically segregated in any way from the company’s general funds. They were commingled with other receipts and at all times were subject to IPL’s unfettered use and control. It is undisputed that IPL’s treatment of the deposits was consistent with accepted accounting practice and applicable state regulations.

Upon audit of respondent’s returns for the calendar years 1974 through 1977, the Commissioner asserted deficiencies. Although other items initially were in dispute, the parties were able to reach agreement on every issue except that of the proper treatment of customer deposits for the years 1975, 1976, and 1977. The Commissioner took the position that the deposits were advance payments for electricity and therefore were taxable to IPL in the year of receipt. He contended that the increase or decrease in customer deposits outstanding at the end of each year represented an increase or decrease in IPL’s income for the year. IPL disagreed and filed a petition in the United States Tax Court for re-determination of the asserted deficiencies.

In a reviewed decision, with one judge not participating, a unanimous Tax Court ruled in favor of IPL. 88 T. C. 964 (1987). The court followed the approach it had adopted in City Gas Co. of Florida v. Commissioner, 74 T. C. 386 (1980), rev’d, 689 F. 2d 943 (CA11 1982). It found it necessary to “continue to examine all of the facts and circumstances,” 88 T. C., at 976, and relied on several factors in concluding that the deposits in question were properly excluded from gross income. It noted, among other things, that only 5% of IPL’s customers were required to make deposits; that the customer rather than the utility controlled the ultimate disposition of a deposit; and that IPL consistently treated the deposits as belonging to the customers, both by listing them as current liabilities for accounting purposes and by paying interest. Id., at 976-978.

The United States Court of Appeals for the Seventh Circuit affirmed the Tax Court’s decision. 857 F. 2d 1162 (1988). The court stated that “the proper approach to determining the appropriate tax treatment of a customer deposit is to look at the primary purpose of the deposit based on all the facts and circumstances . . . Id., at 1167. The court appeared to place primary reliance, however, on IPL’s obligation to pay interest on the deposits. It asserted that “as the interest rate paid on a deposit to secure income begins to approximate the return that the recipient would be expected to make from ‘the use’ of the deposit amount, the deposit begins to serve purposes that comport more squarely with a security deposit.” Id., at 1169. Noting that IPL had paid interest on the customer deposits throughout the period in question, the court upheld, as not clearly erroneous, the Tax Court’s determination that the principal purpose of these deposits was to serve as security rather than as prepayment of income. Id., at 1170.

Because the Seventh Circuit was in specific disagreement with the Eleventh Circuit’s ruling in City Gas Co. of Florida, supra, we granted certiorari to resolve the conflict. 490 U. S. 1033 (1989).

II

We begin with the common ground. IPL acknowledges that these customer deposits are taxable as income upon receipt if they constitute advance payments for electricity to be supplied. The Commissioner, on his part, concedes that customer deposits that secure the performance of non-income-producing covenants — -such as a utility customer’s obligation to ensure that meters will not be damaged — are not taxable income. And it is settled that receipt of a loan is not income to the borrower. See Commissioner v. Tufts, 461 U. S. 300, 307 (1983) (“Because of [the repayment] obligation, the loan proceeds do not qualify as income to the taxpayer”); James v. United States, 366 U. S. 213, 219 (1961) (accepted definition of gross income “excludes loans”); Commissioner v. Wilcox, 327 U. S. 404, 408 (1946). IPL, stressing its obligation to refund the deposits with interest, asserts that the payments are similar to loans. The Commissioner, however, contends that a deposit which serves to secure the payment of future income is properly analogized to an advance payment for goods or services. See Rev. Rui. 72-519, 1972-2 Cum. Bull. 32, 33 (“[W]hen the purpose of the deposit is to guarantee the customer’s payment of amounts owed to the creditor, such a deposit is treated as an advance payment, but when the purpose of the deposit is to secure a property interest of the taxpayer the deposit is regarded as a true security deposit”).

In economic terms, to be sure, the distinction between a loan and an advance payment is one of degree rather than of kind. A commercial loan, like an advance payment, confers an economic benefit on the recipient: a business presumably does not borrow money unless it believes that the income it can earn from its use of the borrowed funds will be greater than its interest obligation. See Illinois Power Co. v. Commissioner, 792 F. 2d 683, 690 (CA7 1986). Even though receipt of the money is subject to a duty to repay, the borrower must regard itself as better off after the loan than it was before. The economic benefit of a loan, however, consists entirely of the opportunity to earn income on the use of the money prior to the time the loan must be repaid. And in that context our system is content to tax these earnings as they are realized. The recipient of an advance payment, in contrast, gains both immediate use of the money (with the chance to realize earnings thereon) and the opportunity to make a profit by providing goods or services at a cost lower than the amount of the payment.

The question, therefore, cannot be resolved simply by noting that respondent derives some economic benefit from receipt of these deposits. Rather, the issue turns upon the nature of the rights and obligations that IPL assumed when the deposits were made. In determining what sort of economic benefits qualify as income, this Court has invoked various formulations. It has referred, for example, to “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.” Commissioner v. Glenshaw Glass Co., 348 U. S. 426, 431 (1955). It also has stated: “When a taxpayer acquires earnings, lawfully or unlawfully, without the consensual recognition, express or implied, of an obligation to repay and without restriction as to their disposition, ‘he has received income . . . James v. United States, 366 U. S., at 219, quoting North American Oil Consolidated v. Burnet, 286 U. S. 417, 424 (1932). IPL hardly enjoyed “complete dominion” over the customer deposits entrusted to it. Rather, these deposits were acquired subject to an express “obligation to repay,” either at the time service was terminated or at the time a customer established good credit. So long as the customer fulfills his legal obligation to make timely payments, his deposit ultimately is to be refunded, and both the timing and method of that refund are largely within the control of the customer.

The Commissioner stresses the fact that these deposits were not placed in escrow or segregated from IPL’s other funds, and that IPL therefore enjoyed unrestricted use of the money. That circumstance, however, cannot be dispositive. After all, the same might be said of a commercial loan; yet the Commissioner does not suggest that a loan is taxable upon receipt simply because the borrower is free to use the funds in whatever fashion he chooses until the time of repayment. In determining whether a taxpayer enjoys “complete dominion” over a given sum, the crucial point is not whether his use of the funds is unconstrained during some interim period. The key is whether the taxpayer has some guarantee that he will be allowed to keep the money. IPL’s receipt of these deposits was accompanied by no such guarantee.

Nor is it especially significant that these deposits could be expected to generate income greater than the modest interest IPL was required to pay. Again, the same could be said of a commercial loan, since, as has been noted, a business is unlikely to borrow unless it believes that it can realize benefits that exceed the cost of servicing the debt. A bank could hardly operate profitably if its earnings on deposits did not surpass its interest obligations; but the deposits themselves are not treated as income. Any income that the utility may earn through use of the deposit money of course is taxable, but the prospect that income will be generated provides no ground for taxing the principal.

The Commissioner’s advance-payment analogy seems to us to rest upon a misconception of the value of an advance payment to its recipient.. An advance payment, like the deposits at issue here, concededly protects the seller against the risk that it would be unable to collect money owed it after it has furnished goods or services. But an advance payment does much more: it protects against the risk that the purchaser will back out of the deal before the seller performs. From the moment an advance payment is made, the seller is assured that, so long as it fulfills its contractual obligation, the money is its to keep. Here, in contrast, a customer submitting a deposit made no commitment to purchase a specified quantity of electricity, or indeed to purchase any electricity at all. IPL’s right to keep the money depends upon the customer’s purchase of electricity, and upon his later decision to have the deposit applied to future bills, not merely upon the utility’s adherence to its contractual duties. Under these circumstances, IPL’s dominion over the fund is far less complete than is ordinarily the case in an advance-payment situation.

The Commissioner emphasizes that these deposits frequently will be used to pay for electricity, either because the customer defaults on his obligation or because the customer, having established credit, chooses to apply the deposit to future bills rather than to accept a refund. When this occurs, the Commissioner argues, the transaction, from a cash-flow standpoint, is equivalent to an advance payment. In his view this economic equivalence mandates identical tax treatment.

Whether these payments constitute income when received, however, depends upon the parties’ rights and obligations at the time the payments are made. The problem with petitioner’s argument perhaps can best be understood if we imagine a loan between parties involved in an ongoing commercial relationship. At the time the loan falls due, the lender may decide to apply the money owed him to the purchase of goods or services rather than to accept repayment in cash. But this decision does not mean that the loan, when made, was an advance payment after all. The lender in effect has taken repayment of his money (as was his contractual right) and has chosen to use the proceeds for the purchase of goods or services from the borrower. Although, for the sake of convenience, the parties may combine the two steps, that decision does not blind us to the fact that in substance two transactions are involved. It is this element of choice that distinguishes an advance payment from a loan. Whether these customer deposits are the economic equivalents of advance payments, and therefore taxable upon receipt, must be determined by examining the relationship between the parties at the time of the deposit. The individual who makes an advance payment retains no right to insist upon the return of the funds; so long as the recipient fulfills the terms of the bargain, the money is its to keep. The customer who submits a deposit to the utility, like the lender in the previous hypothetical, retains the right to insist upon repayment in cash; he may choose to apply the money to the purchase of electricity, but he assumes no obligation to do so, and the utility therefore acquires no unfettered “dominion” over the money at the time of receipt.

When the Commissioner examines privately structured transactions, the true understanding of the parties, of course, may not be apparent. It may be that a transfer of funds, though nominally a loan, may conceal an unstated agreement that the money is to be applied to the purchase of goods or services. We need not, and do not, attempt to devise a test for addressing those situations where the nature of the parties’ bargain is legitimately in dispute. This particular respondent, however, conducts its business in a heavily regulated environment; its rights and obligations vis-a-vis its customers are largely determined by law and regulation rather than by private negotiation. That the utility’s customers, when they qualify for refunds of deposits, frequently choose to apply those refunds to future bills rather than taking repayment in cash does not mean that any customer has made an unspoken commitment to do so.

Our decision is also consistent with the Tax Court’s longstanding treatment of lease deposits — perhaps the closest analogy to the present situation. The Tax Court traditionally has distinguished between a sum designated as a prepayment of rent — which is taxable upon receipt — and a sum deposited to secure the tenant’s performance of a lease agreement. See, e. g., J. & E. Enterprises, Inc. v. Commissioner, 26 TCM 944 (1967). In fact, the customer deposits at issue here are less plausibly regarded as income than lease deposits would be. The typical lease deposit secures the tenant’s fulfillment of a contractual obligation to pay a specified rent throughout the term of the lease. The utility customer, however, makes no commitment to purchase any services at all at the time he tenders the deposit.

We recognize that IPL derives an economic benefit from these deposits. But a taxpayer does not realize taxable income from every event that improves his economic condition. A customer who makes this deposit reflects no commitment to purchase services, and IPL’s right to retain the money is contingent upon events outside its control. We hold that such dominion as IPL has over these customer deposits is insufficient for the deposits to qualify as taxable income at the time they are made.

The judgment of the Court of Appeals is affirmed.

It is so ordered.

       During the years 1974 through 1977, the total amount that escheated to the State was less than $9,325. Stipulation of Facts ¶25.

       The parties’ stipulation sets forth the balance in IPL’s customer-deposit account on December 31 of each of the years 1954,1974,1975,1976, and 1977. In his notice of deficiency, the Commissioner concluded that IPL was required to include in income for 1975 the increase in the account between December 31, 1954, and December 31, 1975. For 1976 and 1977, IPL was allowed to reflect in income the respective decreases in the account during those years.

       This Court has held that an accrual-basis taxpayer is required to treat advance payments as income in the year of receipt. See Schlude v. Commissioner, 372 U. S. 128 (1963); American Automobile Assn. v. United States, 367 U. S. 687 (1961); Automobile Club of Michigan v. Commissioner, 353 U. S. 180 (1957). These cases concerned payments —nonrefundable fees for services — that indisputably constituted income; the issue was when that income was taxable. Here, in contrast, the issue is whether these deposits, as such, are income at all.

       See Illinois Power Co. v. Commissioner, 792 F. 2d 683, 690 (CA7 1986). See also Burke & Friel, Recent Developments in the Income Taxation of Individuals, Tax-Free Security: Reflections on Indianapolis Power & Light, 12 Rev. of Taxation of Individuals 157, 174 (1988) (arguing that economic-benefit approach is superior in theory, but acknowledging that “an economic-benefit test has not been adopted, and it is unlikely that such an approach will be pursued by the Service or the courts”).

       Cf. Rev. Rui. 71-189, 1971-1 Cum. Bull. 32 (inactive deposits are not income until bank asserts dominion over the accounts). See also Fidelity-Philadelphia Trust Co. v. Commissioner, 23 T. C. 527 (1954).

       A customer, for example, might terminate service the day after making the deposit. Also, IPL’s dominion over a deposit remains incomplete even after the customer begins buying electricity. As has been noted, the deposit typically is set at twice the customer’s estimated monthly bill. So long as the customer pays his bills in a timely fashion, the money he owes the utility (for electricity used but not yet paid for) almost always will be less than the amount of the deposit. If this were not the case, the deoosit would provide inadequate protection. Thus, throughout the period the deposit is held, at least a portion is likely to be money that IPL has no real assurance of ever retaining.

       The Commissioner is unwilling, however, to pursue this line of reasoning to the limit of its logic. He concedes that these deposits would not be taxable if they were placed in escrow, Tr. of Oral Arg. 4; but from a cash-flow standpoint it does not make much difference whether the money is placed in escrow or commingled with the utility’s other funds. In either case, the utility receives the money and allocates it to subsequent purchases of electricity if the customer defaults or-chooses to apply his refund to a future bill.

       The Commissioner contends that a customer’s decision to take his refund while making a separate payment for services, rather than applying the deposit to his bill, would amount to nothing more than an economically meaningless “exchange of checks.” But in our view the “exchange of cheeks,” while less convenient, more accurately reflects the economic substance of the transactions.

       In J. & E. Enterprises the Tax Court stated: “If a sum is received by a lessor at the beginning of a lease, is subject to his unfettered control, and is to be applied as rent for a subsequent period during the term of the lease, such sum is income in the year of receipt even though in certain circumstances a refund thereof may be required. ... If, on the other hand, a sum is deposited to secure the lessee’s performance under a lease, and is to be returned at the expiration thereof, it is not taxable income even though the fund is deposited with the lessor instead of in escrow and the lessor has temporary use of the money. ... In this situation the acknowledged liability of the lessor to account for the deposited sum on the lessee’s performance of the lease covenants prevents the sum from being taxable in the year of receipt.” 26 TCM, at 945-946.
      In Rev. Rui. 72-519, 1972-2 Cum. Bull. 32, the Commissioner relied in part on J. & E. Enterprises as authority for the proposition that deposits intended to secure income-producing covenants are advance payments taxable as income upon receipt, while deposits intended to secure nonincome-producing covenants are not. 1972-2 Cum. Bull., at 33. In our view, neither J. & E. Enterprises nor the other cases cited in the Revenue Ruling support that distinction. See Hirsch Improvement Co. v. Commissioner,
        143 F. 2d 912 (CA2), cert. denied, 323 U. S. 750 (1944); Mantell v. Commissioner, 17 T. C. 1143 (1952); Gilken Corp. v. Commissioner, 10 T. C. 445 (1948), aff’d, 176 F. 2d 141 (CA6 1949). These cases all distinguish between advance payments and security deposits, not between deposits that do and do not secure income-producing covenants.