service charge

In 1984, the Supreme Court of Washington adopted rules requiring lawyers to deposit client funds nominal in amount or expected to be held for a short period of time into IOLTA accounts. The interest earned is paid to the Legal Foundation of Washington for use in providing legal services to the indigent. Petitioner Allen Brown is a lawyer who maintains an IOLTA account, and petitioner Greg Hayes is one of his clients. In 1990, Hayes recovered a judgment in an action for nonpayment of overtime wages entitling him to a payment of $4,000 in attorney's fees that could not be paid immediately, so the funds were placed in an IOLTA account. In August 1996, Hayes made an earnest money deposit of $2,000 and a further payment of $12,793.32 in connection with a real estate purchase closed on August 30, 1996, with the money going into an IOLTA account. In May 1997, Brown made a payment of $90,521.29 that remained in escrow for two days, generating an estimated $4.96 in interest ultimately paid to the Foundation. In 1994, Brown and Hayes filed this action in the United States District Court for the Western District of Washington seeking a declaration that the IOLTA program violated the Fifth Amendment and an injunction against its continued operation. The District Court granted summary judgment to respondents after finding that petitioners could not make any net return on the interest accrued in the accounts. The Court of Appeals for the Ninth Circuit affirmed, and the Supreme Court granted certiorari.

Mass. Gen. Laws Ann., ch. 55, § 8 prohibits banks and business corporations from making contributions or expenditures for the purpose of influencing the vote on any referendum question other than one materially affecting the corporation's property, business, or assets. The statute also specifies that no question solely concerning the taxation of individuals would be deemed to have such an effect. Appellants, the First National Bank of Boston, New England Merchants National Bank, the Gillette Company, Digital Equipment Corporation, and Wyman-Gordon Company, wished to spend corporate funds to publicize their opposition to a proposed constitutional amendment authorizing the legislature to impose a graduated personal income tax. That amendment was scheduled for submission to voters on November 2, 1976. Appellants brought suit in the Supreme Judicial Court of Massachusetts seeking a declaration that the statute was unconstitutional as applied to their proposed expenditures. The case was submitted on an expedited basis upon agreed facts to a single justice of that court, who referred the matter to the full bench the same day. The statement of agreed facts reflected disagreement among economists on whether a graduated personal income tax would affect corporate business or assets. Appellants' management nevertheless believed the tax would have a significant effect on their businesses. The Supreme Judicial Court upheld the statute in a 1973 decision. After the United States Supreme Court vacated the judgment and remanded for further consideration in light of Buckley v. Valeo, the Massachusetts court again upheld the statute in a February 1977 opinion. It construed the law to bar the proposed corporate expenditures on the individual-tax referendum. Although the November 1976 referendum was held and the amendment defeated, the United States Supreme Court addressed the merits. The controversy fell within the class of cases capable of repetition yet evading review. Similar graduated-income-tax amendments had been submitted to voters four times in recent years. The interval between legislative authorization and election was only about eighteen months. The statute prescribed a maximum fine of $50,000 for a violating corporation. It also prescribed a maximum fine of $10,000 or imprisonment for up to one year, or both, for a violating corporate officer, director, or agent.

Eastern Air Lines, Inc. and Gulf Oil Corporation maintained a business relationship spanning several decades involving the sale and purchase of aviation fuel. On June 27, 1972, following months of arm's length negotiation, the parties executed a contract under which Gulf agreed to supply Eastern's requirements of jet fuel at specified cities in the Eastern system through January 31, 1977. The agreement was Gulf's standard form aviation fuel contract and incorporated a price escalation clause tied to the average of the posted prices for West Texas sour crude oil 30.0-30.9 gravity as listed for Gulf, Shell, and Pan American in Platt's Oilgram Crude Oil Supplement. The contract price mechanism operated against the backdrop of U.S. government price controls in effect from 1972 through the fall of 1973. In late 1973 the Arab oil embargo occurred. OPEC unilaterally increased the price of their crude to the world market some 400% between September, 1973, and January 15, 1974. This triggered implementation of two-tier price controls under which old oil remained frozen at controlled levels while new and released oil prices rose from approximately $5 to $11 per barrel. Platt's continued publishing only the controlled old oil postings for West Texas Sour, and Eastern paid contract prices that rose from 11 cents to 15 cents per gallon. On March 8, 1974, Gulf demanded that Eastern accept a price increase or face cutoff of jet fuel supplies within fifteen days. Eastern filed its complaint in the United States District Court for the Southern District of Florida alleging breach and seeking preliminary and permanent mandatory injunctions. By agreement of the parties a preliminary injunction preserving the status quo was entered on March 20, 1974, requiring Gulf to continue performance and Eastern to pay according to contract terms pending final disposition. Gulf answered and asserted that the contract lacked mutuality, was not a binding requirements contract, and was commercially impracticable. At trial the parties presented evidence concerning Eastern's fuel liftings at Gulf stations, which varied daily, weekly, and monthly due to weather, schedules, aircraft loads, and fuel freighting practices that Gulf had accepted without objection over thirty years of dealing. Gulf introduced evidence of its increased crude oil costs, including intra-company transfer prices that incorporated profits from its overseas and domestic production subsidiaries, while the record showed Gulf recorded net profits after taxes of approximately $800 million in 1973 and more than $1.065 billion in 1974.

In 1967 the Detroit Federation of Teachers was certified under Michigan's Public Employment Relations Act as the exclusive bargaining representative of all teachers employed by the Detroit Board of Education. The Union and the Board thereafter concluded a collective-bargaining agreement effective from July 1, 1969, to July 1, 1971. Among the agreement's provisions was an agency shop clause. Every teacher who had not become a Union member within 60 days of hire or of the clause's effective date had to pay the Union a service charge equal to the regular dues required of Union members. A teacher who failed to meet this obligation was subject to discharge. Christine Warczak and other named teachers filed a class action in a state court naming as defendants the Board, the Union, and several Union officials. Their complaint as amended alleged that they were unwilling or had refused to pay dues and that they opposed collective bargaining in the public sector. D. Louis Abood and other named teachers filed a separate action in the same state trial court with virtually identical allegations. This second action was held in abeyance pending disposition of the Warczak appeal. When that case was remanded the two cases were consolidated in the trial court for consideration of the defendants' renewed motion for summary judgment. Following the 1973 legislative amendment that expressly authorized agency-shop clauses the trial court granted summary judgment and upheld the clause under state law and the Federal Constitution. The Michigan Court of Appeals reversed the retroactive application of the amendment but upheld the clause insofar as service fees financed collective bargaining while invalidating it to the extent fees financed political and ideological activities. The Michigan Supreme Court denied review and the plaintiffs appealed to the United States Supreme Court.