Hatter v. U.S., 94-5139

• Citation: 64 F.3d 647
• Decision Date: 30 August 1995
• Docket Number: No. 94-5139,94-5139
• Parties: -6111, 64 USLW 2142, 96-1 USTC P 50,074, Unempl.Ins.Rep. (CCH) P 14854B Judge Terry J. HATTER, Jr., Mary Martin Arceneaux, on behalf of the late Judge George Arceneaux, Jr., Judge Peter H. Beer, Judge Dudley H. Bowen, Jr., Chief Judge Juan G. Burciaga, Judge A.J. McNamara, Judge Harry Pregerson, Judge Raul A. Ramirez, Judge Norman C. Roettger, Jr., Chief Judge Thomas A. Wiseman, Jr., Chief Judge Terence T. Evans, Judge Henry A. Mentz, Jr., Chief Judge Wilbur D. Owens, Jr., Judge Henry R. Wilhoit, Jr., Judge Harold A. Baker, and Chief Judge Michael M. Mihm, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 647

64 F.3d 647

76 A.F.T.R.2d 95-6111, 64 USLW 2142,

96-1 USTC P 50,074,

Unempl.Ins.Rep. (CCH) P 14854B

Judge Terry J. HATTER, Jr., Mary Martin Arceneaux, on behalf

of the late Judge George Arceneaux, Jr., Judge Peter H.

Beer, Judge Dudley H. Bowen, Jr., Chief Judge Juan G.

Burciaga, Judge A.J. McNamara, Judge Harry Pregerson, Judge

Raul A. Ramirez, Judge Norman C. Roettger, Jr., Chief Judge

Thomas A. Wiseman, Jr., Chief Judge Terence T. Evans, Judge

Henry A. Mentz, Jr., Chief Judge Wilbur D. Owens, Jr., Judge

Henry R. Wilhoit, Jr., Judge Harold A. Baker, and Chief

Judge Michael M. Mihm, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.

No. 94-5139.

United States Court of Appeals,

Federal Circuit.

Aug. 30, 1995.

Rehearing Denied; Suggestion for Rehearing In Banc Declined

Dec. 26, 1995.

Steven S. Rosenthal, Morrison & Foerster, Washington, DC, argued for plaintiff-appellants. With him on the brief were W. Stephen Smith and Eric N. Richardson. Of counsel was Ellen E. Deason.

Jeanne E. Davidson, Asst. Director, Commercial Litigation Div., Dept. of Justice, Washington, DC, argued for defendant-appellee. With her on the brief were Frank W. Hunger, Asst. Atty. Gen. and David M. Cohen, Director. Of counsel was Earl Sanders, Office of Gen. Counsel, Office of Personnel Management.

Before ARCHER, Chief Judge, PLAGER, and RADER, Circuit Judges.

RADER, Circuit Judge.

Sixteen federal judges challenged the withholding of Social Security taxes from their judicial salaries as a violation of the Compensation Clause of the United States Constitution, Article III, section 1. Accordingly, they sought a tax refund or recovery of their diminished compensation. The United States Court of Federal Claims granted the Government summary judgment. Hatter v. United States, 31 Fed.Cl. 436 (1994). Because the Compensation Clause forbids diminishments in the compensation of Article III judges after they have taken office, and because the trial court did not determine whether a diminution in fact occurred, this court reverses and remands.

BACKGROUND

Until 1983, judges appointed under Article III of the Constitution, like most federal employees, did not participate in the Social Security program. Most legislative and executive federal employees acquired a retirement annuity by contributing to the Civil Service Retirement System. 5 U.S.C. Secs. 8331-51 (1994). After meeting age and service requirements, however, Article III judges receive a retirement annuity equal to their judicial salaries without making additional payments. 28 U.S.C. Sec. 371(a) (1988 & Supp. V 1993).

In the early 1980s, Congress ordered withholding of certain components of the Social Security tax from the salaries of most federal employees, including Article III judges. Withholding of the Hospital Insurance portion began on January 1, 1983. Tax Equity and Fiscal Responsibility Act of 1982, Pub.L. No. 97-248, Sec. 278(a), 96 Stat. 324, 559, 562 (codified as amended at 26 U.S.C. Sec. 3121(u) (1988)). Withholding of the Old Age and Survivors Disability Insurance portion began on January 1, 1984. Social Security Amendments of 1983, Pub.L. No. 98-21, Sec. 101(a)(1),(b)(1) & (d), 97 Stat. 65, 67-70 (codified as amended at 26 U.S.C. Sec. 3121(b)(5)(E) (1988 & Supp. V 1993) and 42 U.S.C. Sec. 410(a)(5)(E) (1988 & Supp. V 1993)).

Sixteen Article III judges--all appointed before January 1, 1983--sued in the Court of Federal Claims for a refund of these Social Security taxes or recovery of their diminished compensation. The judges claimed that the taxation diminished their judicial compensation in violation of the Compensation Clause of the Constitution. The trial court granted the Government summary judgment that the Compensation Clause does not prohibit application of the tax to sitting Article III judges. Hatter, 31 Fed.Cl. at 445-47. The claimants appealed.

DISCUSSION

This court reviews a grant of summary judgment by the Court of Federal Claims de novo. Cohen v. United States, 995 F.2d 205, 207 (Fed.Cir.1993).

I.

The Constitution's Compensation Clause states:

The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services a Compensation, which shall not be diminished during their Continuance in Office.

U.S. Const. art. III, Sec. 1 (emphasis added). This constitutional language protects one of the most remarkable innovations of the 1787 document: a judicial branch sufficiently independent to enforce constitutional limitations on all branches of Government. The Supreme Court acknowledged:

The Compensation Clause has its roots in the longstanding Anglo-American tradition of an independent Judiciary. A Judiciary free from control by the Executive and Legislature is essential if there is a right to have claims decided by judges who are free from potential domination by other branches of government.

United States v. Will, 449 U.S. 200, 217-18, 101 S.Ct. 471, 482, 66 L.Ed.2d 392 (1980). Alexander Hamilton, writing in The Federalist No. 79, explained the Framers' reasoning for this means of protecting the separation of powers: "In the general course of human nature, a power over a man's subsistence amounts to a power over his will." The Federalist No. 79, at 472 (Clinton Rossiter ed., 1961) (emphasis omitted).

To provide a judiciary with sufficient independence to protect constitutional rights against any incursion, the Framers adopted an unrestricted protection for judicial compensation. Judicial independence, Alexander Hamilton prophetically noted, would prove "the citadel of the public justice and the public security." The Federalist No. 78, at 466 (Clinton Rossiter ed., 1961). Thus, as the Supreme Court concluded:

[T]he prohibition against diminution was not to benefit the judges, but, like the clause in respect of tenure, to attract good and competent men to the bench and to promote that independence of action and judgment which is essential to the maintenance of the guaranties, limitations, and pervading principles of the Constitution and to the administration of justice without respect to persons and with equal concern for the poor and the rich.

Evans v. Gore, 253 U.S. 245, 253, 40 S.Ct. 550, 553, 64 L.Ed. 887 (1920). For these reasons, the Constitution's language broadly prohibits any diminution in judicial compensation during a judge's continuance in office.

II.

This case raises the question whether imposition of new taxes on judges after they have taken office unconstitutionally diminishes their compensation. The Supreme Court addressed this very issue in Evans. In Evans, the Court held that the Compensation Clause prohibited imposition of the newly enacted income tax on sitting judges. Examining the broad constitutional protection for judicial independence, the Court wrote:

The prohibition is general, contains no excepting words and appears to be directed against all diminution, whether for one purpose or another; and the reasons for its adoption ... make with impelling force for the conclusion that the fathers of the Constitution intended to prohibit diminution by taxation as well as otherwise,--that they regarded the independence of the judges as of far greater importance than any revenue that could come from taxing their salaries.

Id. at 255, 40 S.Ct. at 553; see also id. at 249-52, 40 S.Ct. at 553.

When the judges in Evans first assumed office, Congress had not charged them with the duty of paying income taxes. Thus, the imposition of these taxes on their salaries acted as a reduction in their salary. As the Court observed:

Here the Constitution expressly forbids diminution of the judge's compensation, meaning, as we have shown, diminution by taxation or otherwise.... [T]he compensation suffers a diminution to the extent that it is taxed.

Id. at 264. The Court therefore invalidated application of the income tax to judges who had taken office prior to the tax.

Evans controls this case. The claimants here are Article III judges who took office prior to imposition of the Social Security taxes in question. Federal law did not charge the claimants with the duty of paying Social Security taxes when they first assumed office. Subsequent imposition of the taxes reduced the claimants' salaries, as in Evans.

The subsequent Supreme Court case of O'Malley v. Woodrough, 307 U.S. 277, 59 S.Ct. 838, 83 L.Ed. 1289 (1939), does not affect this analysis. In that case, the Court held that newly appointed Article III judges must continue to pay income taxes just as they had prior to appointment:

To subject them to a general tax is merely to recognize that judges are also citizens, and that their particular function in government does not generate an immunity from sharing with their fellow citizens the material burden of the government whose Constitution and laws they are charged with administering.

Id. at 282, 59 S.Ct. at 840.

Because the claimants in O'Malley took office after Congress had made income taxes applicable to judges' salaries, those judicial claimants suffered no diminishment in compensation after taking office. The tax was a pre-existing obligation factored into the new judges' compensation. On this basis O'Malley is distinguishable from Evans and the facts of this case. In Evans and this case, the claimants were already judges when the Social Security taxes took effect. The taxes therefore affected the claimants' established compensation. Thus, Congress's imposition of the Social Security tax on the claimants triggered scrutiny under the Compensation Clause.

The Supreme Court has stated that O'Malley "undermined the reasoning of Evans." United States v. Will, 449 U.S. 200, 227 n. 31, 101 S.Ct. 471, 487 n. 31, 66 L.Ed.2d 392 (1980). This court's predecessor has made the same point. See Atkins v. United States, 556 F.2d 1028, 1044, 214 Ct.Cl. 186 (1977) (en banc), cert. denied, 434 U.S. 1009, 98 S.Ct. 718, 54 L.Ed.2d 751 (1978). Neither...