Paul v. United States, 371 U.S. 245 (1963)

MR. JUSTICE STEWART, whom MR. JUSTICE HARLAN and MR. JUSTICE GOLDBERG join, dissenting in part.

I

I do not doubt that Congress, in the exercise of its war power,{1} could, by virtue of the Supremacy Clause,{2} provide that an otherwise valid state law affecting the price of milk shall not apply to milk purchased with federal funds for use at these military installations. But I cannot agree that Congress has done so. I am unable to find, either in the terms of the relevant legislation or in its history, any evidence of a congressional purpose to immunize these federal purchases from the generally applicable California minimum price regulations. The California statutes regulating its milk industry are admittedly a valid exercise of that State’s power to legislate for the general health and welfare of its people, and serve the important function of insuring stability in the production and supply of a vital commodity. In Penn Dairies v. Milk Control Comm’n, 318 U.S. 261, the Court emphasized that

[a]n unexpressed purpose of Congress to set aside statutes of the states regulating their internal affairs is not lightly to be inferred, and ought not to be implied where the legislative command, read in the light of its history, remains ambiguous.

318 U.S. at 275. I think that the congressional purpose in the present case is less than ambiguous -- that Congress has in fact manifested a presumption and a desire that valid state welfare legislation such as this is not to be undermined by the procurement activities of the Federal Government.{3}

In the Penn Dairies case, the Court held that the State of Pennsylvania could enforce its milk marketing statute against suppliers dealing with the federal military establishment. It was held that the federal procurement legislation then in effect contained no evidence of a policy to override state regulatory legislation of this type. 318 U.S. at 272-275. A different result was reached in Public Utilities Comm’n v. United States, 355 U.S. 534, where the Court held that California could not apply its law regulating intrastate transportation rates to the carriage of strategic military supplies of the United States. The Court discussed at length the peculiarly burdensome effect that the state regulation there involved would have upon the shipment of this kind of freight, stressing the difficulty and delays involved in classifying such goods under existing state tariffs, and the importance to the national security of secrecy and rapid movement. 355 U.S. at 544-546. Regardless of any impact on transportation costs, therefore, enforcement of the State’s regulatory scheme was barred because it constituted a direct interference with the performance of a vital federal function. M’Culloch v. Maryland, 4 Wheat. 316. The opinion in the California Commission case also discussed the 1947 Armed Services Procurement Act,{4} but nowhere suggested that the 1947 Act had changed the law upon which the decision in Penn Dairies had rested. Rather, the Court distinguished the Penn Dairies case on the ground that the Pennsylvania milk marketing statute had not subjected the National Government or its officers to any direct restraints, as did the California legislation. 355 U.S. 543-544.

The Court today abandons that distinction and, for the first time, suggests that the 1947 Act did, in fact, change the federal procurement policy in effect at the time of the Penn Dairies decision. I think this novel interpretation of the statute which is the basis of all federal procurement, civilian as well as military,{5} is incorrect, and that any doubt which could ever have existed on that score has been laid to rest by the amendment to the 1947 statute enacted at the last session of Congress.{6}

There is simply no support in any of the pertinent legislative materials for the conclusion that Congress, solely in order to save a few dollars, intended to permit federal agencies to subvert general and nondiscriminatory state regulatory measures which promote health, safety, or better working or economic conditions. Indeed, Congress has evidenced a directly contrary intention. Of course, as the decision in the California Commission case demonstrates, state law cannot be allowed to impair fulfillment of appropriate federal functions, be they civil or military; similarly, state measures contrary to national policy cannot be allowed to bind or inhibit federal activities. This case, however, presents no such problems. The only issue is whether Congress has or has not expressed a desire to bypass valid state regulatory legislation in the conduct of federal procurement activities.

The 1947 Armed Services Procurement Act was proposed to Congress jointly by the War and Navy Departments. During World War II, these Departments had run their procurement operations with a relatively free hand under the First War Powers Act, 55 Stat. 838, which authorized placement of contracts without regard to existing provisions of law regulating procurement procedures. The War Production Board had early determined that the traditional method of procurement by advertising for sealed competitive bids was unsatisfactory during wartime, and had adopted the practice of placing contracts by direct negotiation with suppliers.{7} When the war ended, the need arose to return to a peacetime system of procurement, and the 1947 bill was introduced to fill this need. At the same time, the military departments thought that the prewar procurement statutes were "woefully inadequate for supplying the tremendously expanding needs for military supplies and equipment,"{8} and that

a total reversion to prewar methods would be unfortunate in the extreme, and would severely handicap the War and Navy Departments. . . .{9}

Reflecting this attitude, the Departments stressed three major objectives of the new legislation they proposed:

1. To modernize peacetime military procurement methods;

2. To unify the procurement legislation under which the War and Navy Departments do their buying; and

3. To permit suspension of advertising as a method of procurement upon the declaration of a national emergency.{10}

The third purpose, to provide authority to suspend competitive bidding in a national emergency, was simply intended to eliminate the need for legislation in time of crisis, and thus to enable the defense establishment to respond immediately to such emergencies.{11} As for the second, prior to the war, each branch of the armed services had been governed by its own separate, and sometimes unique, procurement legislation. The 1947 Act was intended to substitute a single statute for all military procurement.{12}

The proposal to "modernize" the law was primarily a proposal to relax, in certain situations, the very strict rule requiring that almost all contracts be placed through advertising competitive bidding. Experience had shown that the formalized ritual of competitive bidding was often unwieldy and uneconomical. For example, competitive bidding was not suited to contracts involving secret projects, nor for contracts involving items for which there was no effective competition between sellers. For these types of procurement, the bill proposed direct negotiation between the Government and available suppliers. The heart of the proposed bill was § 2(c), now 10 U.S.C. § 2304(a), which set out a list of 15 specific exceptions to the rule of competitive bidding.{13}

The bill was reported out and passed in essentially the same form as proposed. Both the House and Senate Reports made clear that the purposes of the bill remained the same. The House Report began by saying,

This bill provides uniform purchase authority for the Army and Navy, and reestablishes the requirement that the advertising-competitive bid method shall be followed by those Departments in placing the great majority of their contracts for supplies and services.{14}

The Report went on to acknowledge that there are "a limited number of situations [in which] the public interest requires that purchases be made without advertising," and it listed most of the specific exceptions proposed by the War and Navy Departments.{15} It was at this point, after describing the purpose to unify procurement laws and to relax the previously rigid advertising requirements, that the House Report summed up by describing the bill as

a comprehensive revision and restatement of the laws governing the procurement of supplies and services by the War and Navy Departments.

Id. at 6.{16}

The background of the 1947 Act thus makes it abundantly clear that the "revision and restatement" of law involved in its formulation had absolutely nothing to do with the issue dealt with in Penn Dairies and presented by the case now before us. The dissatisfaction with existing prewar procurement law centered upon its lack of uniformity and its apparent insistence upon the ritual of competitive bidding in situations for which such procedures were unsuited. Neither of these major concerns touched upon the problem presented by the present case -- whether federal procurement transactions were to undermine valid state laws regulating price.{17}

Evidence is not lacking, however, of the attitude of Congress with respect to that problem, and I think such evidence clearly shows that Congress presumed and intended that federal procurement was to be conducted subject to valid state price and rate regulation of otherwise general applicability.

First, it is clear from the Act itself that Congress was not willing to override other important social and economic policies in blind pursuit of the lowest possible purchasing price. The Act commands procurement officers to consider many other factors in addition to price. For instance, § 8 directs compliance with the Walsh-Healey Act, the Davis-Bacon Act and the Eight Hour Law.{18} And in § 2(b), Congress declared that a fair proportion of purchases and contracts made under the chapter should be placed with small business.{19}

Secondly, while the legislative history of the 1947 Act contains only a few references to the specific problem of price-regulated industries, these references clearly reflect an acknowledgment that state price regulations are to apply to suppliers doing business with the Government. The statements in question relate to § 2(c)(10) of the bill as enacted, now 10 U.S.C. § 2304(a) (10). The subsection provides that the head of an agency need not employ the advertised bid method when

(10) the purchase or contract is for property or services for which it is impracticable to obtain competition.

This exception to the normal bidding procedure was first enacted in the Army Appropriations Act of 1901, 31 Stat. 905. Until 1947, it applied only to Army procurement, and one of the purposes of the Act was to make the exception applicable to all services.{20} In explaining the existing law on this subject, Under Secretary Royall of the War Department, chief spokesman for that Department, made the following remarks:

As to the exception which deals with supplies or services for which it is impracticable to secure competition, this language originally appeared in the act of March 2, 1901 (31 Stat. 1905; 10 U.S.C. 1201), and has been the subject of a number of highly restrictive administrative interpretations. In my opinion, this exception is intended to apply in at least these three situations:

1. Where the nature of the supply or service is such that only one person can furnish it, for example, a patented or secret article.

2. Where the price of the supply or service has been legally fixed.

3. Where the practical circumstances are such that it would be difficult to secure real competitive proposals by means of advertising for formal bids.

(Emphasis added.){21}

The Senate Report expressly acknowledged the applicability to federal procurement activities of laws regulating prices.

The experiences of the war and contracts negotiated since the war in the fields of stevedoring, ship repairs, chartering of vessels, where prices are set by law or regulation, or where there is a single source of supply, have shown clearly that the "competitive bid advertising" method is not only frequently impracticable, but does not always operate to the best interests of the Government.

(Emphasis added.){22}

The plain meaning of these references to price regulation is that both Congress and the Departments concerned assumed such price regulation would apply to government purchases. Unless this assumption is made, there would be no reason for believing that competition would be "impracticable" in these areas. For, absent the duty of suppliers to comply with uniform price regulations, it would not be "impracticable" to advertise for bids at competitive prices.

Apart from the clear import of these references, it is also significant to note that both the Departments and the sponsoring congressional committees were aware of the fact that governmental price-fixing would affect the nature of competition for procurement contracts. Yet not once did any spokesmen for the Departments question or even mention the rule of the Penn Dairies decision, of which they could hardly have been unaware.{23} Indeed, they consistently testified that § 2(c)(10) was, as to regulated prices, merely a restatement of the existing law.{24}

Despite this clear legislative history, it is said that the statutory authorization to "negotiate" in cases where competitive bidding is not appropriate reflects a policy to allow procurement officers to bargain for prices lower than those set by state regulatory agencies.{25} If all we had to go on were this provision of the 1947 Act, there might be an arguable basis for an inference of such a federal procurement policy, since the 1947 statute nowhere defined the word "negotiation."{26} Just last year, however, Congress added an amendment to the Act in which it defined "negotiation" for the first time. Although the definition generally adopts and implements the ordinary meaning of the word -- to bargain for a lower price -- it expressly excepts price-regulated transactions. The amendment provides in pertinent part:

(g) In all negotiated procurements in excess of $2,500 in which rates or prices are not fixed by law or regulation and in which time of delivery will permit, proposals shall be solicited from the maximum number of qualified sources consistent with the nature and requirements of the supplies or services to be procured, and written or oral discussions shall be conducted with all responsible offerors who submit proposals within a competitive range, price, and other factors considered. . . .{27}

(Emphasis added.) In the words of the floor manager of the bill in the House, price-regulated transactions were excepted because they were "instances where it would be futile to have discussions."{28} In short, it is clear that Congress has now explicitly declared what was adumbrated in the legislative history of the 1947 Act -- that federal procurement is to be conducted subject to valid state price and rate regulations of otherwise general applicability.{29}

While the Court’s opinion discusses this legislative history, I read the opinion as resting primarily on the Court’s reading of certain executive regulations issued under the authority of the procurement law. In this I think the Court errs -- for two reasons. First, if I am right in the view that the statute recognizes that federal procurement is not to be immunized from the impact of valid state economic legislation, then any regulations to the contrary are completely invalid. Williamson v. United States, 207 U.S. 425, 462; Lynch v. Tilden Produce Co., 265 U.S. 315, 321-322; United States v. Barnard, 255 F.2d 583, 588-589. Secondly, I think that the regulations upon which the Court relies do not speak with so clear a voice as the Court would have us believe. The Court can find not a single regulation of either general or specific application which says, in so many words, that a procurement officer may, in his discretion, negotiate a contract in disregard of valid state price regulation.

II

I agree with the conclusion in Part III of the Court’s opinion that it is not now possible to undertake final resolution of the Government’s claim that the sales of milk involved in this case take place on federal enclaves within the scope of Art. I, § 8, cl. 17, and therefore are immune from state regulation under the rule of Pacific Coast Dairy v. Department of Agriculture, 318 U.S. 285. Even if these military installations are now such federal enclaves, this claim will be moot if the substance of California’s milk regulation scheme antedated the acquisition of exclusive jurisdiction by the Federal Government. The concept of exclusive jurisdiction "has long been interpreted so as to permit the continuance until abrogated of those rules existing at the time of the surrender of sovereignty. . . ." James Stewart & Co. v. Sadrakula, 309 U.S. 94, 99. This question of priority cannot be decided on the record before us, and its resolution, therefore, first requires a remand of the case to the District Court. If I am right in my view of the federal procurement law, a finding that state regulation was imposed before these military installations became federal enclaves within the scope of the constitutional provision would mean that all sales of milk at issue in this case, regardless of the source of funds, would be subject to the legislation which California has validly enacted to stabilize and make economically sound the business of producing and marketing a commodity vital to the health and welfare of her people.

1. U.S.Const. Art. I, § 8, cl. 12.

2. U.S.Const. Art. VI, cl. 2.

3. It is to be emphasized that the issue in this case is not whether federal procurement officers must themselves undertake to enforce regulatory state laws. The scope of the state regulatory system and its validity are questions properly reserved for state agencies and courts, acting upon members of the regulated industry, subject to review by this Court of any federal issues presented. The only issue in this case is whether a State may itself enforce its regulatory legislation against those who deal with the Federal Government.

4. 62 Stat. 21, as amended, 10 U.S.C. §§ 2301-2314.

5. It should be noted that the Court’s decision today is likely to affect federal, as well as state, price regulation. For example, a large part of the milk marketing regulation in the United States is presently accomplished under federal marketing orders pursuant to § 8c of the Agricultural Adjustment Act, as amended, 7 U.S.C. § 608c. See 7 CFR § 1001 et seq. Federal marketing orders typically maintain minimum producer prices, and this regulation, in turn, has the effect of maintaining a certain level of handler prices. See, e. g., Lehigh Valley Coop. Farmers, Inc. v. United States, 370 U.S. 76, 78-83. It is perhaps for this reason that the Government has abandoned its attack upon California’s producer price regulation in the present case. The Government’s change of position, however, is only a matter of discretion, and it can hardly be contended that a scheme of producer price maintenance would be any less in conflict with the Court’s view of federal procurement policy.

I fail to see how the Court can limit its finding of conflict to state regulatory systems. Any thought that federal milk regulation may somehow be distinguishable necessarily supposes that Congress would have desired immunity from the burdens of state regulatory laws, while at the same time acquiescing to the very same economic burdens when they arise under a federal marketing order -- an assumption not only incongruous, but also inconsistent with express congressional policy to treat both state and federal marketing legislation as complementary parts of a single scheme.

[I]n order to obtain uniformity in the formulation, administration, and enforcement of Federal and State programs relating to the regulation of the handling of agricultural commodities or products thereof, [the Secretary is directed] to confer with and hold joint hearings with the duly constituted authorities of any State, and is authorized to cooperate with such authorities. . . .

7 U.S.C. § 610(i).

The problem is not academic. It has already arisen in one unreported case in which a handler selling to a military installation asserted immunity from an otherwise applicable federal marketing order on the ground that the order was in conflict with military procurement policy. The district judge rejected the contention on the ground that any increase in cost would be justified by the Government’s interest in maintaining a stable supply of milk. Knudsen Bros. Dairy, Inc. v. Benson, Civil No. 8145 (D.C.D.Conn., August 18, 1960).

6. Since the present case calls for an in futuro injunction against enforcement of state regulatory statutes, all federal laws currently in force are relevant to our decision.

7. W.P.B. Directive No. 2, March 3, 1942. See Hearings on H.R. 1366 before Subcommittee No. 6 of the House Committee on Armed Services, 80th Cong., 1st Sess., No. 51 at 469 (February 4, 1947). (Hereinafter cited as February House Hearings.)

8. February House Hearings at 469 (statement of W. J. Kenney, Assistant Secretary of the Navy).

9. Hearings on H.R. 1366 and H.R. 3394 before the Senate Committee on Armed Services, 80th Cong., 1st Sess. 8 (June 24, 1947) (statement of Secretary Kenney). (Hereinafter cited as June Senate Hearings.)

10. Id. at 7.

11. See, e.g., February House Hearings at 469.

12. Ibid.

13. Ibid.See also Hearings on H.R. 1366 and H.R. 1382 before Subcommittee No. 6 of the House Committee on Armed Services, 80th Cong., 1st Sess., No. 4 at 27 (January 13, 1947) (statement of Robert P. Patterson, Secretary of War). (Hereinafter cited as January House Hearings.)

14. H.R.Rep.No.109, 80th Cong., 1st Sess. 3.

15. Ibid.

16. Id. at 6. The Senate Report said substantially the same thing. S.Rep.No.571, 80th Cong., 1st Sess. 1-2. See also 93 Cong.Rec. 2319.

17. Nothing to the contrary can be derived from statements describing the bill as a return to a general rule of competitive bidding. Any legislation reactivating peacetime procurement methods would inevitably be a return to competitive bidding after a wartime regime of procurement by negotiation.

18. 62 Stat. 24, as amended, 10 U.S.C. § 2304(f). See S.Rep.No.571, 80th Cong., 1st Sess. 20.

19. 62 Stat. 21, as amended, 10 U.S.C. § 2301.

20. February House Hearings at 521 (statement of Colonel P. W. Smith); June Senate Hearings at 29 (statement of Secretary Kenney).

21. Hearing on H.R. 1366 before the Senate Committee on Armed Services, 80th Cong., 1st Sess. 15 (July 1, 1947). (Hereinafter cited as July Senate Hearings.) Secretary Royall repeated the explanation in a colloquy with Senators Byrd and Kilgore. Id. at 23.

22. S.Rep.No.571, 80th Cong., 1st Sess. 8.

23. The Departments’ request for authority to attack bid prices which "were not independently reached in open competition," 10 U.S.C. § 2304(a)(15), dealt with the altogether different problem of collusive pricing of the type generally violative of the antitrust laws. The Senate Report on the 1947 Act explains:

This paragraph will be most useful to break collusive bidding, "follow the leader" pricing, rotated low bids, identical bids requiring drawing of lots, uniform estimating systems, refusal to classify the Government as other than a retail buyer regardless of the quantity purchased, and similar practices. In such situations, the Government should have the power to inquire into the reasons why it is not securing the benefits of competition. It should be able to call for facts and figures, and to negotiate to eliminate unwarranted charges, excessive reserves for contingencies, commissions or brokerage charges, and unwarranted profits.

* * * *

On this same subject, another new subsection has been added. It will require reference of bids suspected of not being arrived at by open competition to the Attorney General for appropriate action under the antitrust laws.

S.Rep.No.571, 80th Cong., 1st Sess. 4-5. See also January House Hearings at 26; June Senate Hearings at 9.

24. See testimony cited in notes 20 and 21, supra.

25. The relevant provision of the 1947 Act provided:

All purchases and contracts for supplies and services shall be made by advertising . . . except that such purchases and contracts may be negotiated by the agency head without advertising if --

* * * *

(10) for supplies or services for which it is impracticable to secure competition. . . .

§ 2(c), 62 Stat. 21.

26. The only approximation of a definition by the Departments proposing the bill was the statement that "[n]egotiation includes any manner of effecting procurement other than advertising." February House Hearings at 427.

27. Public Law 87-653, 76 Stat. 528. The Senate Report explains that the amendment fills the void created by the fact that "[e]xisting procurement law does not define the word `negotiation’ except to indicate that it means `make without formal advertising.’" S.Rep. No. 1884, 87th Cong., 2d Sess. 2. See also H.R.Rep. No. 1638, 87th Cong., 2d Sess. 4-5.

28. Cong.Rec., June 7, 1962, p. 9234. In explaining the amendment to the House subcommittee, committee counsel similarly described the exception for price regulated transactions as one where "negotiation would be futile or meaningless." Hearings on H.R. 5532 before Subcommittee No. 3 of the House Committee on Armed Services, 87th Cong., 2d Sess., No. 51 at 5071 (April 10, 1962).

29. Further illumination of this policy is furnished by subsection (e) of the 1962 Act, 76 Stat. 528, amending 10 U.S.C. § 2306. After providing that, in certain circumstances, contractors must certify the correctness of their cost or pricing data, subsection (e) then makes an exception for situations in which there will be little question as to ultimate price:

Provided, That the requirements of this subsection need not be applied to contracts or subcontracts where the price negotiated is based on adequate price competition, established catalog or market prices of commercial items sold in substantial quantities to the general public, prices set by law or regulation or, in exceptional cases where the head of the agency determines that the requirements of this subsection may be waived and states in writing his reasons for such determination.

(Emphasis added.)