No. 99-1978 

In the Supreme Court of the United States 

UNITED STATES OF AMERICA, PETITIONER 

v. 

JUDGE TERRY J. HATTER, JR., ET AL. 

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE FEDERAL CIRCUIT 

REPLY BRIEF FOR THE UNITED STATES 

SETH P. WAXMAN 

Solicitor General 

Counsel of Record 
Department of Justice 
Washington, D.C. 20530-0001 
(202) 514-2217 

TABLE OF CONTENTS 

Page 

1. Recusal/Quorum ....................................................................... 

1 

2. Law of the case ......................................................................... 
4 

3. Merits ......................................................................................... 
5 

4. Termination of constitutional violation ................................ 
9 

TABLE OF AUTHORITIES 

Cases: 

Durant v. Essex Co., 74 U.S. (7 Wall.) 107 
(1868) ........................................................................................ 4 

Evans v. Gore: 
262 F. 550 (W.D. Ky. 1919), rev’d, 253 U.S. 245 
(1920) ................................................................................... 2 

253 U.S. 245 (1920) ................................................................ 

1, 2, 7 

Miles v. Graham, 268 U.S. 501 (1925) ................................ 
5 

O’Malley v. Woodrough, 307 U.S. 277 (1939) .................... 
5 

Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 
429 (1895) ................................................................................. 
7 

State ex rel. Mitchell v. Sage Stores Co., 143 P.2d 
652 (Kan. 1943), aff ’d, 323 U.S. 32 (1944) ......................... 
2 

United States v. Will, 449 U.S. 200 (1980) ........................ 
1, 2, 6 

Constitution and statutes: 

U.S. Const.: 

Art. II, § 1, Cl. 7 ..................................................................... 

6 

Art. III, § 1 (Compensation Clause) ................... 
1, 4, 5, 6, 7, 9 

Amend. XVI ........................................................................... 
7 

Amend. XXVII ...................................................................... 
6 

Act of May 22, 1920, ch. 195, 41 Stat. 614 ............................. 
8 

5 U.S.C. 719 (1925) .................................................................... 
8 

26 U.S.C. 3101(a) ....................................................................... 
5 

26 U.S.C. 3101(b) ....................................................................... 
5 

26 U.S.C. 3121(b) (1994 & Supp. III 1997) ............................ 
8 

28 U.S.C. 371 (1994 & Supp. III 1997) ................................... 9 

(I) 

II 

Statutes: Page 

28 U.S.C. 455 .............................................................................. 
1, 2 

28 U.S.C. 455(b)(4) .................................................................... 
3 

28 U.S.C. 2109 ............................................................................ 
4 

Miscellaneous: 

Biographical Dictionary of the Federal Judiciary 
(Harold Chase et al., comp. 1976) ....................................... 

2 
58 Cong. Rec. 7969 (1919) ........................................................ 
2 

1 Debates and Proceedings in the Congress of the 

United States (Joseph Gales comp. 1789) .......................... 6 

In the Supreme Court of the United States 

No. 99-1978 

UNITED STATES OF AMERICA, PETITIONER 

v. 

JUDGE TERRY J. HATTER, JR., ET AL. 

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE FEDERAL CIRCUIT 

REPLY BRIEF FOR THE UNITED STATES 

1. Recusal/Quorum. Respondents acknowledge (Br. in 
Opp. 14) that the Rule of Necessity permits a Justice to 
participate in a case, even if that Justice might be dis- 
qualified under 28 U.S.C. 455, when recusal would deny 
“litigants a fair forum in which they can pursue their claims.” 
United States v. Will, 449 U.S. 200, 217 (1980). 

That is pre- 

cisely the situation in this case. Only this Court can enter- 
tain the government’s argument that this Court’s decision in 
Evans v. Gore, 253 U.S. 245 (1920), no longer represents the 
proper interpretation of the Compensation Clause, Art. III, 
§ 1, and should therefore be definitively overruled. 
The court of appeals ruled that it was bound to follow 
Evans (see Pet. App. 59a-61a), and on that basis it held two 
Acts of Congress unconstitutional. But if a quorum of this 
Court is not available to review that decision, then the 

(1) 

2 

United States will be deprived of the opportunity to argue to 
the only competent forum that Evans is no longer good law. 
Thus, even if Section 455 might indicate recusal by one or 
more Justices, the Rule of Necessity permits all the Justices 
to hear and decide this case. See State ex rel. Mitchell v. 
Sage Stores Co., 143 P.2d 652, 656 (Kan. 1943) (“[I]t is well 
established that actual disqualification of a member of a 
court of last resort will not excuse such member from per- 
forming his official duty if failure to do so would result in a 
denial of a litigant’s constitutional right to have a question, 
properly presented to such court, adjudicated.”) (quoted 
with approval in Will, 449 U.S. at 214), aff ’d on other 
grounds, 323 U.S. 32 (1944).1 

1 Respondents mistakenly state (Br. in Opp. 14) that Will held that 
the Rule of Necessity applies only when all Article III judges have an 
interest in the outcome of the case. In fact, while Will held that the Rule 
of Necessity does apply in that situation, it did not hold that the Rule 
applies only in such a case. Indeed, Will’s approving quotation of Sage 
Stores, discussed in the text, suggests otherwise, because the Kansas 
Supreme Court stated there that the Rule applies when disqualification 
would prevent the “court of last resort” from hearing a case. Similarly, in 
Evans v. Gore, this Court stated that it would hear the case because, once 
the district court rejected the plaintiff judge’s Compensation Clause claim, 
“there was no other appellate tribunal to which under the law he could 
go.” 253 U.S. at 248 (emphasis added). In Will, the Court indicated that 
Evans had applied the Rule of Necessity. See 449 U.S. at 215 & n.18. 

That point about Evans is particular noteworthy because, under 
respondents’ understanding of Evans, the district judge who heard that 
case was not disqualified to do so. Respondents maintain (Br. in Opp. 17- 

18) that the issue in Evans was the constitutionality of applying the 
income tax to the salaries of already-sitting federal judges. The case 
involved a federal statute imposing taxes on income, including federal 
judges’ salaries, enacted on February 24, 1919. See 253 U.S. at 246. 
District Judge Peck, however, was appointed later in 1919, after the 
income tax on judicial salaries had already taken effect. See 58 Cong. Rec. 
7969 (1919); Biographical Dictionary of the Federal Judiciary 217 (Harold 
Chase et al., comp. 1976); Evans v. Gore, 262 F. 550, 550 (W.D. Ky. 1919), 
rev’d, 253 U.S. 245 (1920). Even respondents would agree, therefore, that 

3 

Moreover, respondents notably do not argue that a 
quorum of the Court is lacking on the ground that at least 
four Justices currently have a financial interest in this case. 
Section 455(b)(4), however, speaks unmistakably in the 
present tense, requiring disqualification if a Justice “has a 
financial interest in the subject matter in controversy or in a 
party to the proceeding.” (Emphasis added.) Thus, a Justice 
is disqualified at this point only if he or she has a financial 
interest in this proceeding–-i.e., this certiorari petition, not a 
past one. 

Respondents rely instead (Br. in Opp. 13) on a rule of 
practice developed in the lower courts, that once a district 
judge recuses himself from a case, that judge may issue no 
further substantive rulings in the case. The cases cited by 
respondents, however, do not involve a situation like this 
one, where a case returns to a court after further pro- 
ceedings in a lower court, and where changed circumstances 
have terminated the basis for disqualifications that led to 
recusals on the prior petition. In addition, the rule of 
practice respondents invoke reflects the understanding that 
once a district judge removes himself from a case, the case is 
simply no longer before that judge; it also reflects the fact 
that many other district judges will usually be available to 
hear the case. Neither rationale is applicable to recusal in 
this Court, a multi-member appellate court with the 
responsibility for making final determinations about the 
constitutionality of federal statutes. 

Judge Peck’s compensation could not have been “diminished” by the 
application of the income tax act to judicial salaries, see Br. in Opp. 18 

n.10, and so Judge Peck could not have had an interest in the case. Thus, if 
respondents’ understanding of the Rule of Necessity (that it applies only 
when every judge has an interest in the case) were correct, this Court 
should not have decided Evans on the merits—especially since every 
Justice of this Court then sitting had been appointed before the 1919 
income tax statute under review took effect. See 253 U.S. at iv (allotment 
of Justices to Circuits from 1916). 

4 

2. Law of the Case. Respondents acknowledge (Br. in 
Opp. 15) that this Court is not barred from considering the 
merits of the Compensation Clause issue in this case by its 
prior order entered under 28 U.S.C. 2109, affirming the 
judgment of the court of appeals for lack of a quorum. 
Respondents note that in Durant v. Essex Co., 74 U.S. (7 
Wall.) 107, 113 (1868), the Court stated that a final judgment 
affirmed by this Court in a tie vote is “conclusive and binding 
in every respect upon the parties as if rendered upon the 
concurrence of all the judges upon every question involved in 
the case.” In Durant, however, the Court was considering 
the res judicata effect of a final circuit court decree dis- 
missing a bill in equity, which an equally divided Court had 
affirmed. Id. at 109. The Court held that the decree was to 
be treated as final, just as would have been the case if it had 
been affirmed in a reasoned opinion or if the appeal had been 
dismissed. Id. at 112. That statement in Durant is inap- 
posite here because the Court was not there considering the 
effect of an affirmance of an interlocutory order—which of 
course is not entitled to res judicata effect—nor was it con- 
sidering the effect of an order affirming a lower-court judg- 
ment for lack of a quorum—which, unlike a tie-vote 
affirmance, is entered by operation of law and does not re- 
flect consideration of the merits of the case by the Court. 
The Court’s order of affirmance entered on our prior 
certiorari petition did not reflect any judgment by this Court 
about the merits of the controversy and so does not prevent 
the government from raising the Compensation Clause issue 
again in this Court.2 

2 Respondents also state, without citation (Br. in Opp. 16-17), that 
after this Court’s affirmance of the Federal Circuit’s earlier decision, the 
Administrative Office of the United States Courts (AOUSC) offered the 
affected judges the option to discontinue the challenged tax deductions 
into the future. The Department of Justice, however, did not advise 
AOUSC that it could do so, and the fact that AOUSC may have decided to 

5 

3. Merits. 

a. Respondents press their argument (Br. in Opp. 17-20) 
that the Constitution’s reference to judges’ “Compensation” 
in Article III must mean their salary net of taxes, and so any 
new taxation of sitting judges’ salaries is unconstitutional. 
But as we noted in our petition (Pet. 28 n.26), if respondents’ 
understanding of “Compensation” is correct, then it is 
difficult to see why the Clause would not also prohibit Con- 
gress from increasing the rate of income tax on sitting 
judges, or imposing a special surtax. Respondents assert 
(Br. in Opp. 29) that there simply is a difference between a 
new tax and an increased tax, but they do not explain why, 
or how one might distinguish in principle between the two. 
Indeed, Social Security taxes are merely a kind of income 
tax. See 26 U.S.C. 3101(a) and (b) (imposing Social Security 
taxes “on the income of every individual”).3 

do so without waiting for the courts to enter final judgment in this case is 
hardly a reason to prevent the United States from pressing its arguments 
to this Court. Nor has Congress authorized AOUSC to cease the Social 
Security tax deductions from respondents’ salaries. We also note that 
even respondents have never argued that Congress was prohibited by the 
Compensation Clause from subjecting their salaries to Social Security 
taxes; respondents have argued, rather, that when Congress imposed such 
taxes on them, Congress was also required to compensate them for the 
incidence of the tax on their salaries. (That point explains why the 
Federal Circuit ruled at an earlier stage of this litigation that respondents 
were not required to abide by the procedural requirements of a tax-refund 
suit. See Pet. App. 26a.) It is not clear, therefore, by what warrant 
AOUSC may have ceased the deductions. 

3 Respondents observe (Br. in Opp. 29) that no judge has yet brought 
suit challenging the application of a tax increase to judicial salaries. While 
it is impossible to state with certainty why such a suit has not yet been 
brought, we suggest that, before this Court decided O’Malley v. 
Woodrough, 307 U.S. 277 (1939), the Court’s decision in Evans was 
generally read to hold that Congress could not impose income taxes on 
judicial salaries at all (see Miles v. Graham, 268 U.S. 501 (1925)), whereas 
after O’Malley, it was generally understood that Evans had been interred 
and that the imposition of generally applicable income taxes on judicial 

6 

Respondents’ understanding of “Compensation,” more- 
over, creates further serious textual problems. The Consti- 
tution provides that the President “shall receive for his 
Services, a Compensation, which shall neither be increased 
nor diminished during the Period for which he shall have 
been elected.” U.S. Const. Art. II, § 1, Cl. 7 (emphasis 
added). Under respondents’ understanding of “Compensa- 
tion,” Congress could not eliminate or reduce any tax on the 
President’s salary while he was in office, even if that elimi- 
nation or reduction were generally applicable to all citizens, 
because such an action would “increase[]” the President’s 
compensation net of taxes. The Twenty-seventh Amend- 
ment also provides that “[n]o law, varying the compensation 
for the services of the Senators and Representatives, shall 
take effect, until an election of Representatives shall 
have intervened.” U.S. Const. Amend. XXVII.4 

Thus, in re- 
spondents’ view, Congress could not immediately impose 
new taxes or increase taxes on its own Members’ salaries, 
even if it did so with respect to the general population, 
because such an action would “vary[] the compensation” of 
Senators and Representatives. Respondents’ textual analy- 
sis therefore leads to the conclusion that, when Congress ad- 
justs income taxes, it is required either to discriminate 
against the President (if reducing rates) or in favor of itself 
(if raising rates). This implausible result demonstrates that 
salaries did not implicate the Compensation Clause at all. See Will, 449 
U.S. at 227 n.31 (stating that “O’Malley must also be read to undermine 
the reasoning of Evans”). Now that the Federal Circuit has found new life 
in Evans, there may no longer be a consensus about the reach of that 
decision. 

4 The Twenty-seventh Amendment was proposed to the States by 
the First Congress and was first introduced in the House of 
Representatives by James Madison, who obviously was familiar with the 
Framers’ understanding of the term “Compensation” as used in the 
Constitution. See 1 Debates and Proceedings in the Congress of the 
United States 452, 457, 756-757, 948, 950 (Joseph Gales comp. 1789). 

7 

respondents’ reading of the Compensation Clause cannot be 
sustained. 

b. Respondents also defend the decision in Evans by 
arguing (Br. in Opp. 20) that, when they were considering 
whether to accept a judicial commission, they compared their 
private-sector salaries, which were then subject to Social 
Security taxes, with the prospect of judicial salaries inde- 
finitely free of such taxes. Thus, respondents argue, the 
subsequent extension of Social Security taxes to their 
judicial salaries made the judicial position relatively less 
attractive. That rationale, however, could not have been the 
basis for the Court’s decision in Evans. The plaintiff in 
Evans became a district judge in 1899, when there was no 
federal income tax at all.5 
Thus, when Judge Evans took 

office, he could not have been comparing the relative merits 
of a private salary subject to federal income tax with a 
judicial salary free of such a tax. Moreover, respondents’ 
argument suggests that, even if Congress could apply new 
taxes at one time to both private and judicial salaries, it 
could not first apply the tax to private salaries and later 
extend it to judges. The text of the Compensation Clause 
gives no hint that Congress is constitutionally compelled to 
retain permanently any exceptional relief from income 
taxation that it may once have granted to judges. 

c. Respondents also argue (Br. in Opp. 22-24) that Con- 
gress unconstitutionally discriminated against federal judges 
when it extended Social Security taxes to their salaries. The 
court of appeals did not address that contention, and the 
Court of Federal Claims correctly rejected it. See Pet. App. 
48a-50a. 

5 Judge Evans took office after this Court’s decision in Pollock v. 
Farmers’ Loan & Trust Co., 157 U.S. 429 (1895), holding the income tax 
unconstitutional, but before the Sixteenth Amendment was adopted in 
1913. See 253 U.S. at 246. 

8 

When Congress extended Social Security taxes to judicial 
salaries, it merely brought taxation of those salaries in line 
with the treatment of the vast majority of other wage- 
earners in this country.6 Respondents object (Br. in Opp. 

23), however, that Congress did not also require all federal 
employees who were then in service to pay the old-age, 
survivors, and disability insurance (OASDI) portion of Social 
Security taxes.7 Congress was aware, however, that most 
federal employees were already required to make salary 
contributions to a separate retirement system, the Civil 
Service Retirement System (CSRS), which had been in place 
since 1920.8 Terminating CSRS immediately would have 
been extremely disruptive of federal employees’ retirement 
plans. On the other hand, requiring federal employees to 
contribute to both Social Security and CSRS would have 
made those employees the only persons in the country 
subject to a mandatory double deduction imposed under 
federal law. Thus, to treat incumbent federal employees as 
equally as possible with other wage earners, Congress 

6 Respondents note (Br. in Opp. 22) that a very small minority of 
wage earners still remain outside the Social Security system. See 
generally 26 U.S.C. 3121(b) (1994 & Supp. III 1997) (setting forth various 
exceptions to coverage, including such persons as Bahamian temporary 
agricultural workers, student nurses, and teenagers delivering news- 
papers). That hardly establishes, however, that the imposition of Social 
Security taxes on judges’ salaries is discriminatory. The taxes are surely 
generally applicable, even if they are not universally applicable—just as 
the income tax is not universally applicable, for not all persons have 
income. 

7 Respondents’ discrimination argument does not apply to the 
Medicare hospital insurance tax, because all federal civilian employees 
were required to pay that tax after January 1, 1983. See Lynn Dec. ¶ 11, 
94-5139 C.A. App. 109. 

8 See Act of May 22, 1920, ch. 195, 41 Stat. 614; 5 U.S.C. 719 (1925) 
(mandatory deduction from federal employees’ salaries to finance retire- 
ment system). 

9 

allowed them to remain in CSRS.9 Federal judges, however, 
were not subject to any similar mandatory civil-service 
retirement deduction, because judges are guaranteed a life- 
time annuity, entirely at taxpayer expense, after retirement. 
See 28 U.S.C. 371 (1994 & Supp. III 1997). Congress 
therefore had no occasion to permit judges to “opt out” of 
Social Security. 

10 

4. Termination of Constitutional Violation. Respon- 
dents argue (Br. in Opp. 24-28) that any Compensation 
Clause violation caused by the application of Social Security 
taxes to their salaries continues indefinitely and long after 
Congress raised their salaries (even net of taxes) above the 
level in effect before those taxes were first applied. Re- 
spondents maintain that, even after they received sub- 
stantial raises in salary, they received less “compensation 
[than] they would have received but for the enactment of the 
challenged statutes” (id. at 28). Neither logic nor precedent 
supports that argument. Assume that in Year 1, judges are 
paid $150,000; in Year 2, Congress impermissibly reduces 
their stated salary to $140,000; and in Year 3, Congress 

9 Federal employees as of December 31, 1983, were subsequently 
allowed to transfer from CSRS to a different retirement system that 
included coverage under Social Security, see Br. in Opp. 23, but because 
many had long contributed to CSRS and were familiar with that system, 
relatively few did so. 

10 Respondents also point out (Br. in Opp. 5-7) that, when Congress 
extended OASDI taxes to judicial salaries, it allowed a small number of 
high-level federal officials and employees to opt out of CSRS, thus (re- 
spondents contend) permitting those persons effectively to offset the 
incidence of the new OASDI taxes on their salaries. But as we explain in 
the text, if Congress had required federal employees to continue con- 
tributing to both CSRS and Social Security, they would have been subject 
to a double deduction. Moreover, Congress did not allow those high-level 
officials and employees to opt out of Social Security; it required them (like 
judges) to pay OASDI taxes, and made the second deduction to CSRS 
optional. Judges were not covered by CSRS, and so they had no cause to 
complain of double retirement deductions. 

10 

raises it to $160,000. Although the judges would be entitled 
to recover the $10,000 that they should have received in 
Year 2, one could hardly contend that in Year 3, Congress 
was constitutionally required to give the judges a salary of 
$170,000, merely because it raised their salary by $20,000 
above the previous year’s level. 

11 Surely any Compensation 
Clause violation would have come to an end once Congress 
raised the salaries above the pre-diminution level, for after 
that point, the judges’ salaries would no longer be “dimi- 
nished” from what they were before the violation occurred. 

* * * * * 

For the foregoing reasons, and for the reasons set forth in 
the petition, the petition for a writ of certiorari should be 
granted. 

Respectfully submitted. 

SETH P. WAXMAN 

Solicitor General 

AUGUST 2000 

11 Moreover, contrary to respondents’ suggestion (Br. in Opp. 25), it 
would scarcely matter why Congress would have granted judges such a 
salary increase. As a matter of pure arithmetic, there would no longer be 
any diminution once the judges’ salaries were raised above the pre- 
diminution level.