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

APPENDIX TO THE
PETITION FOR A WRIT OF CERTIORARI

SETH P. WAXMAN
Solicitor General
Counsel of Record
DAVID W. OGDEN
Acting Assistant Attorney
General
EDWIN S. KNEEDLER
Deputy Solicitor General
PAUL R. Q. WOLFSON
Assistant to the Solicitor General
DAVID M. COHEN
DOUGLAS N. LETTER
JEANNE E. DAVIDSON
KATHLEEN MORIARTY MUELLER
ANNE MURPHY
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217


TABLE OF CONTENTS

Appendix A (opinion of en banc court of appeals, Feb. 9, 2000)

Appendix B (opinion of United States Claims Court, Nov. 9, 1990)

Appendix C (opinion of court of appeals, Jan. 16, 1992)

Appendix D (opinion of Court of Federal Claims, June 22, 1994)

Appendix E (opinion of court of appeals, Aug. 30, 1995)

Appendix F (order of court of appeals denying rehearing and rehearing en banc, Dec. 26, 1995)

Appendix G (order of Supreme Court affirming for lack of quorum, Oct. 7, 1996)

Appendix H (opinion of Court of Federal Claims, June 6, 1997)

Appendix I (opinion of court of appeals, Aug. 5, 1999)

Appendix J (order of court of appeals granting and denying petitions for rehearing and rehearing en banc and vacating panel decision, Dec. 20, 1999)

Appendix K (constitutional and statutory provisions involved)

Appendix L (list of other cases and judges challenging OASDI and HI taxes)



APPENDIX A

UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

No. 97-5093

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., DOLORES LEE BURCIAGA, EXECUTRIX OF THE ESTATE OF 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.
UNITED STATES, DEFENDANT-APPELLEE

ORDER

[Feb. 9, 2000]

Before: MAYER, Chief Judge, NEWMAN, Circuit Judge, ARCHER, SENIOR CIRCUIT JUDGE, MICHEL, PLAGER, LOURIE, CLEVENGER, RADER, SCHALL, BRYSON, and GAJARSA, Circuit Judges.

IT IS ORDERED THAT:

The judgment of the court entered on August 5, 1999 be reinstated. The opinion reported at 185 F.3d 1356 (Fed. Cir. 1999) remains in effect as to parts 1 and 2. The opinion of the court en banc issued today supercedes part 3 of that opinion.

PLAGER, Circuit Judge.

On August 5, 1999, this court issued its opinion and judgment in Hatter v. United States, 185 F.3d 1356 (Fed. Cir. 1999) (Hatter VII ).1 In Hatter VII we were called upon to review the decision of the Court of Federal Claims regarding the measure of damages to be awarded to the plaintiff judges who had been subjected to a previously-declared, see Hatter v. United States, 64 F.3d 647 (Fed. Cir. 1995) (Hatter IV), unconstitutional diminution in compensation, and to review the ruling by the Court of Federal Claims regarding the application of the statute of limitations to these damages claims, see Hatter v. United States, 38 Fed. Cl. 166 (1997) (Hatter VI).

Subsequently both parties petitioned for rehearing by the panel which issued Hatter VII, and, failing that, for rehearing by the court en banc. By Order dated December 20, 1999, we reported the denial of both petitions for rehearing by the panel. With regard to the petitions for rehearing en banc, the court en banc granted the petition of the appellants, Terry J. Hatter, Jr., et al., and denied the petition of the appellee, the United States. In the Order, the judgment of the court in Hatter VII was vacated, and the opinion of the court accompanying the judgment was withdrawn with respect to part 3 thereof.2

Part 3 of the court's opinion in Hatter VII addressed the statute of limitations issue. The question was whether the moneys wrongfully withheld from the judges' monthly paychecks constituted a "continuing claim," as that term is understood in the jurisprudence of this court. In Hatter VII, the court concluded that it did not. After full consideration of the petition by the plaintiffs/appellants and the Government's response, the court en banc concluded that, with regard to the statute of limitations issue, the opinion in Hatter VII did not give adequate weight to this court's precedents; accordingly, part 3 of the opinion in Hatter VII was withdrawn. Following is the en banc court's opinion and judgment regarding that issue.

* * * * * *

3.

As explained in this court's opinion of August 5, 1999, (Hatter VII), the judgment of the trial court must be reversed and the matter must be returned to the Court of Federal Claims for determination of damages consistent with that opinion. There remains a disputed issue that needs resolving regarding the application of the statute of limitations. Under the law, a claim against the Government for money damages must be filed within six years of the time the claim first accrues. 28 U.S.C. § 2501. Failure to file within the time period imposed by the statute of limitations means that the Government may raise the statute as an affirmative defense. The six years begins to run when the cause of action accrues.

The judges argue that this case is controlled by what is known as the continuing claim doctrine. Under that doctrine, each time moneys are deducted from the judges' pay and paid into the Treasury of the United States, a new cause of action accrues. Thus, any judge whose salary was or is subject to the unconstitutional imposition can file a claim for each deduction within six years from the time the deduction is made; claims for deductions made longer ago than six years from the time suit is filed would be barred.

The Government argued, and the trial court agreed, that the continuing claim doctrine did not apply to this case. On appeal, this court in its August 5th opinion held with the Government, and affirmed that part of the trial court's judgment. See Hatter VII, 185 F.3d. at 1363. As we indicated earlier, on further review and after considering appellants' petition for rehearing and the Government's brief in opposition, the court is of the view that the original opinion did not give sufficient weight to our precedents, and that the Government's arguments are unsound in this respect.

In a 1962 seminal opinion, this court's predecessor, the Court of Claims, addressed the question of how to apply the six year statute of limitations to claims against the Government when the claims involve payments from the Government that were to be made in a series or periodically. See Friedman v. United States, 159 Ct. Cl. 1, 310 F.2d 381 (1962).3 Judge Davis, writing for a unanimous court, examined the governing policies and precedents at length, citing over a hundred cases that had been reviewed. Though admitting that not every case was fully consistent in language, and occasionally in outcome, the court identified two basic categories of cases that emerged from its jurisprudence.

The first was those cases in which the repeated government action (or failure to act) resulted in repeated causes of action. The court described those cases as having the following characteristics: (1) the case turned on pure issues of law, or on specific issues of fact which the court was to decide for itself; (2) Congress had not interposed an administrative agency or officer charged with the duty of determining the claimant's eligibility for the money claimed (i.e., there was no discretionary administrative decision at issue), and (3) if fact issues were involved, they were "sharp and narrow." Id. 310 F.2d at 384-85.

The cases the court had in mind were the pay cases-those in which the claimant was suing "for additional pay at a higher grade, or claiming greater compensation (under a statute or regulation) than the claimant was receiving, or seeking special statutory increments or allowances, etc." Id. at 384. In such a case, when "no administrative agency has been set up to decide the claim, and the court passes de novo on all issues of law and fact-the 'continuing claim' doctrine is wholly appropriate and in accord with the general jurisprudence in this country on the statute of limitations." Id. at 385. The court went on to note that "[u]nder those general principles the cause of action for pay or compensation accrues as soon as the payor fails or refuses to pay what the law (or the contract) requires; . . . [a]nd where the payments are to be made periodically, each successive failure to make proper payment gives rise to a new claim upon which suit can be brought." Id.

The court contrasted those cases with the cases in the second category, cases "in which the cause of action does not accrue until after a determination entrusted by Congress to an administrative official. . . In those instances, the claim does not accrue until the executive body has acted (if seasonably asked to act) or declines to act." Id. The general rule here is that "in appropriate cases conditions precedent to the accrual of a cause of action can be established by statute, contract, or common law, and that where such a condition precedent has been created the claim does not ripen until the condition is fulfilled." Id. at 386. The kinds of cases the court listed here typically involved those in which a statute required a demand upon an executive official before payments were due. See id. at 386.

As the court saw it, the touchstone between the two categories was that "'continuing claims' . . . are independent of administrative determination[,] and those other claims [are] dependent on prior administrative evaluation." Id. at 387. Applying this principle to the case before it, the court concluded that a claim for entitlement to disability retirement pay, of the type requiring discretionary action by a board or executive official, is not a continuing claim, but accrues as a whole, once it accrues. On the other hand, other types of pay claims not dependent on a discretionary finding- including claims for increased retirement pay because of new legislation, etc.-are continuing claims. See id. at 396.

In the case before us, suit was brought not as a class action but on behalf of the individually named judges. In that regard, there are distinct causes of action arising under two different statutes. The Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, imposed the Hospital Insurance portion of the Social Security tax on federal judges effective January 1, 1983; the Old Age and Survivors Disability Insurance portion of the Social Security tax was imposed on federal judges by the Social Security Amendments of 1983, Pub. L. No. 98-21, and was effective January 1, 1984.

In both cases, each month after the Acts became effective the Government automatically deducted from the judges' salary checks the amount, calculated by formula, that was due under the tax. No administrative officer or tribunal was given discretion to decide whether the judges were entitled not to pay the tax, or whether the judges had to pay only some of it. The question of whether the monthly tax deduction would occur was determined as a pure issue of law-all judges were to pay; and the only factual issue was to determine the judges' gross salary as provided by Congress from time to time, against which the formula would be applied. Under the analysis given to us by the Court of Claims in Friedman, there is merit to the argument of the judges that these periodic deductions, which have been ruled to have been unlawful, should be treated as a continuing claim.

The Government, in its Opposition to Appellants' Petition for Rehearing En banc, argues that the continuing claim doctrine does not apply since plaintiffs' claims are not inherently susceptible to being divided into a series of independent and distinct wrongs. This is because the continued withholding of these taxes from plaintiffs' judicial salaries "is simply the ongoing 'damages resulting from the single earlier alleged [constitutional] violation by the government.'" Opposition at 4, quoting Brown Park Estates-Fairfield Dev. Co. v. United States, 127 F.3d 1449, 1457 (Fed. Cir. 1997).

The Government relies heavily on Brown Park, as well as another recent case in this court, Hart v. United States, 910 F.2d 815 (Fed. Cir. 1990). Brown Park involved a suit by low-income housing providers against the Department of Housing and Urban Development ("HUD"), alleging breach of their housing assistance payments contract with HUD. The plaintiffs complained that HUD had failed to make rent adjustments in accordance with their contracts. Their main contention was that "HUD has breached its contracts with the Plaintiffs because, in the absence of any comparability studies, it failed to pay full rental adjustments based on the [Automatic Annual Adjustment Factor in the contracts]." Brown Park at 1453.

The question on appeal was whether plaintiffs could ward off the bar of the six year statute of limitations by relying on the continuing claim doctrine. This court cited the Court of Claims decision in Friedman, and pointed out the distinction drawn there between claims which fall within the continuing claim doctrine, such as periodic pay claims, and claims which do not. See id. at 1456.

In describing the latter category, this court spoke in terms of "a single distinct event, which may have ill effects later on," as a wrong that does not qualify under the continuing claim doctrine. Id. Seizing upon that language, and the language above quoted, the Government argues that the imposition of the taxes at issue in 1983 and 1984 constituted such a single distinct event, even though the events continued to have ill effects over the years since.

But that language from Brown Park is simply descriptive of the type of case that falls outside the continuing claim doctrine. To determine whether a case falls inside or outside of that description, we return, as we must, to the governing considerations set out in Friedman, specifically, has Congress entrusted an administrative officer with the determination of the claimant's entitlement (in Brown Park Congress had so entrusted the determination to HUD); does the case involve significant factual determinations, or does it turn on pure issues of law or specific facts which the court is to decide for itself (in Brown Park the facts in dispute involved complex calculations of area market rents that were within the expertise of HUD); and does the case call upon the court to address broad concepts rather than resolve sharp and narrow factual issues (Brown Park's resolution turned on such issues as the "material differences between the rents charged for assisted and comparable unassisted units"). This court concluded, consistent with governing precedent, that Brown Park did not involve a continuing claim for statute of limitations purposes; the case thus lends no support to the Government's case here.

Similarly, the other case on which the Government places heavy reliance, Hart v. United States, is inapposite. Hart involved a claim by the widow of a retired military member, in which she alleged that her deceased husband's election not to participate in the survivors benefit program was invalid because she had not been given notice as required by statute. She sued for annuity benefits, but filed her claim more than six years after her husband's death, the event under which her entitlement vested.

This court held that "[b]ecause all events necessary to her benefits claim had occurred when her husband died, we conclude that plaintiff's claim for . . . annuity benefits is not a 'continuing' claim." Hart, 910 F.2d at 818. Again, it is readily apparent that this was a case in which Congress has charged an administrative agency with making a determination whether she qualified for an annuity, and how much, and the case did not turn on an issue of law but on disputed facts as to whether and when she received notice. The court correctly discerned that under the Friedman precedent, this case fell over the line into the second category, that of non-continuing claim cases.

Neither Brown Park nor Hart questioned the authority of Friedman, nor could they, since neither was decided by this court en banc. We find the analysis provided by Judge Davis in the Friedman opinion to be a useful and effective mechanism for distinguishing between cases when the Government has failed to make a series of payments claimed to be due (or, as here, has deducted or withheld pay), and the question is whether there is a seminal event that constitutes one cause of action, or whether each wrongful deduction or refusal to pay constitutes a separate cause of action. Statements such as "all necessary events had occurred," or "the claim must be inherently susceptible to being broken down into a series of independent and distinct events or wrongs," may be accurate ways of describing the events after-the-fact, but they do not contribute to the analysis. The Government's reliance on such statements, rather than focusing on the Friedman factors, leaves us unpersuaded that the Government's view should prevail. We conclude that, for the reasons stated above, the case before us falls comfortably on the side of the line governed by the continuing claim doctrine.

CONCLUSION

The judgment of the trial court with regard to the application of the statute of limitations issue must be, and is, reversed. The matter is remanded to the trial court for further proceedings consistent with this opinion.

REVERSED AND REMANDED.

1 The history of this case now involves the following seven decisions: Hatter v. United States, 21 Cl. Ct. 786 (1990) (Hatter I ), Hatter v. United States, 953 F.2d 626 (Fed. Cir. 1992) (Hatter II), Hatter v. United States, 31 Fed. Cl. 436 (1994) (Hatter III), Hatter v. United States, 64 F.3d 647 (Fed. Cir. 1995) (Hatter IV), United States v. Hatter, 519 U.S. 801, 117 S. Ct. 39, 136 L.Ed.2d 3 (1996) (Hatter V), Hatter v. United States, 38 Fed. Cl. 166 (1997) (Hatter VI), and Hatter v. United States, 185 F.3d 1356 (Fed. Cir. 1999) (Hatter VII).

2 The disposition of the vacated judgment in Hatter VII is dealt with in a separate Order of the court, issued this date.

3 We are of course bound by the decisions of our predecessor court, until modified or overruled by this court en banc. See Newell Cos. v. Kenney Mfg. Co., 864 F.2d 757, 765 (Fed. Cir. 1988).

APPENDIX B

UNITED STATES CLAIMS COURT

No. 705-89 C

TERRY J. HATTER, JR., ET AL., PLAINTIFFS
v.
UNITED STATES OF AMERICA, DEFENDANT

[Filed: Nov. 9, 1990]

OPINION AND ORDER

TURNER, Judge.

Plaintiffs are ten Article III* federal judges serving on various United States district courts and on one United States court of appeals. They bring this action pursuant to U.S. Const. art. III, § 1 (Compensation Clause) claiming that their compensation has been diminished by reason of the Social Security Amendments of 1983, Pub. L. 98-21, § 101, 97 Stat. 65, 68 (codified as amended in scattered sections of 26 U.S.C. and 42 U.S.C.). Plaintiffs seek damages in the amount of the Social Security taxes withheld from their salaries from January 1, 1984 to the present.

Defendant filed a motion to dismiss the complaint pursuant, inter alia, to RUSCC 12(b)(1). It alleges that this a tax refund suit over which the Claims Court currently lacks subject matter jurisdiction because the plaintiffs failed to file an administrative claim for refund with the Internal Revenue Service as required by 26 U.S.C. § 7422(a). Hearing concerning defendant's motion was conducted on November 9, 1990 in Washington, D.C.

For reasons stated below, we conclude that the Claims Court lacks subject matter jurisdiction over the complaint at this time. Although plaintiffs characterize their claims as ones for damages other than a tax refund, we conclude that, in essence, their claims are for tax refunds which much be brought first before the IRS. 26 U.S.C. § 7422(a).

I

Prior to January 1, 1984, the salaries of Article III judges were not subject to withholding for Social Security taxes. Effective January 1, 1984, Congress amended the Social Security Act, 42 U.S.C. § 401(a)(5)(E) (1988), and the Internal Revenue Code of 1954, 26 U.S.C. § 3121(b)(5)(E) (1988), extending Social Security coverage to many previously exempt civilian government employees, including judges of the United States district courts and courts of appeals. Pursuant to this statute, the plaintiffs in this case had the following amounts withheld from their salaries during the years 1984 through 1989:

Year Amount Withheld

1984 $2,532.60
1985 $2,791.80
1986 $3,003.00
1987 $3,131.70
1988 $3,379.50
1989 $3,604.80

All of the plaintiffs were appointed and took office prior to January 1, 1984, the effective date of the amendments. At the time of their respective appointments, the only mandatory deductions from their salaries were for federal and state income taxes. No mandatory deductions were made for retirement or for Social Security benefits. Plaintiffs now seek to recover as damages the amounts withheld for Social Security taxes.

II

Title 26 U.S.C. § 7422(a) provides in pertinent part:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected . . . or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof. [Emphasis added.]

Plaintiffs concede that if the court determines that their claims are for tax refunds, then they must file an administrative refund claim with the IRS before suit may be brought in this court. See 26 U.S.C. § 7422(a). They argue, however, that this is not a tax refund suit but rather a claim for damages based on the diminution in compensation caused by withholding the Social Security tax from their salaries. To support their position, plaintiffs rely on the Court of Claims opinion in Atkins v. United States, 556 F.2d 1028, 214 Ct. Cl. 196 (1977), cert. denied, 434 U.S. 1009, 98 S. Ct. 718, 54 L.Ed. 751 (1978). They argue that since, according to Atkins, the court would have great flexibility in fashioning a remedy for a violation of the Compensation Clause, their claim is somehow distinguished from an ordinary tax refund suit. Plaintiffs argue that the court could provide a remedy by awarding damages or by ordering an appropriate increase in their salaries to counteract the effect of the Social Security deductions. The possibility of alternative relief, according to plaintiffs, demonstrates that defendant's characterization of their claim as one for a tax refund is mistaken.

Defendant argues that this is a tax refund suit, relying primarily on the Court of Claims opinion in King v. United States, 390 F.2d 894, 896, 182 Ct. Cl. 631, 633-34 (1968), rev'd on other grounds, 395 U.S. 1, 2, 89 S. Ct. 1501, 1501-02, 23 L.Ed.2d 52 (1969). In King, the plaintiff was a retired Army colonel who claimed that by misclassifying his armed services retirement status, the government caused him to pay federal income taxes which he was not legally obligated to pay. King asserted that he should be allowed to maintain his claim even though he had not filed a refund claim with the IRS. The Court of Claims held that this monetary claim was barred because he did not file an administrative refund claim but granted him relief in the form of a declaratory judgment and was later reversed on this ground. 395 U.S. at 5, 89 S. Ct. at 1503.

Although King did not involve a diminution claim based on the Compensation Clause, we conclude that it is more analogous to the present case than Atkins. Plaintiffs attempt to distinguish their case from King on the ground that, unlike King, they do not challenge the government's authority to deduct Social Security contributions from their wages. Plaintiffs argue that if they are legally obligated to pay the Social Security taxes, then the diminution which results must be rectified. Putting aside semantics, we find that this is a tax refund suit. Like the plaintiff in King, plaintiffs here are asserting that they should be allowed to maintain their claim in this court even though they have not filled a refund claim with the IRS. For jurisdictional purposes, plaintiffs' position is identical to the plaintiff in King and we find it controlling.

The fact that the plaintiffs in Atkins brought a claim for damages is of no help to the plaintiffs in this case. The claim in Atkins was for a violation of the Compensation Clause based on alleged diminution in salary caused by inflation and by the failure of Congress to raise judicial salaries. Since Atkins did not involve alleged diminution by taxation, it did not present a jurisdictional problem for the court similar to the one addressed in King.

The issue of whether taxes withheld from Article III judicial salaries constitute a diminution in violation of the Compensation Clause is not new. It was first brought before the United States Supreme Court in 1920 in a case involving income taxes. Evans v. Gore, 253 U.S. 245, 40 S. Ct. 550, 64 L.Ed. 887 (1920). Thereafter, each time the "diminution" issue has arisen in the context of income taxes, the claim originated as one against the IRS. See Miles v. Graham, 268 U.S. 501, 45 S. Ct. 601, 69 L.Ed. 1067 (1925), overruled by O'Malley v. Woodrough, 307 U.S. 277, 59 S. Ct. 838, 83 L.Ed. 1289 (1939). In O'Malley, the Supreme Court described the suit below as "an action at law to recover a tax on income claimed to have been illegally exacted." 307 U.S. at 278, 59 S. Ct. at 838. The Court further noted that the suit had been brought against the Collector of Internal Revenue and the plaintiff's claim for refund had been rejected. 307 U.S. at 279, 59 S. Ct. at 838-39.

None of the claims for violation of the Compensation Clause brought after O'Malley was based on taxes. See United States v. Will, 449 U.S. 200, 101 S. Ct. 471, 66 L.Ed.2d 392 (1980); Duplantier v. United States, 606 F.2d 654 (5th Cir. 1979), cert. denied, 449 U.S. 1076, 101 S. Ct. 854, 66 L.Ed.2d 798 (1981); Atkins v. United States, 556 F.2d 1028, 214 Ct. Cl. 186 (1977), cert. denied, 434 U.S. 1009, 98 S. Ct. 718, 54 L.Ed.2d 751 (1978).

We conclude that there is no logical reason to view a claim for diminution based on Social Security taxes differently from one based on income taxes. In order to obtain a refund of either, the claim must be brought before the IRS prior to filing a complaint in this court. Manifestly, however, artfully characterized, plaintiffs seek recovery of Social Security taxes which have been deducted from their salaries since January 1, 1984. Based on the Supreme Court's interpretation of diminution claims involving income taxes as claims for a tax refund rather than damages, the Court of Claims opinion in King, and the face of 26 U.S.C. § 7422(a), we conclude that plaintiffs' claims are for tax refunds over which this court lacks subject matter jurisdiction at this time.

III

Defendant's motion to dismiss filed on May 15, 1990, to the extent that it asserts this court's current lack of jurisdiction, see RUSCC 12(b)(1), is GRANTED. It is ORDERED that judgment be entered dismissing the complaint for lack of jurisdiction.

Each party shall bear its own costs. See Johns-Manville Corp. v. United States, 893 F.2d 324, 328 (Fed. Cir. 1989) ("the Claims Court has no power to award costs in cases over which is has no . . . jurisdiction").

* The designation stems from Article III, Section 1, of the United States Constitution which provides:

The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive or their Services a Compensation, which shall not be diminished during their Continuance in Office. [Emphasis added.]

APPENDIX C

UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

No. 91-5039

JUDGE TERRY J. HATTER, JR., JUDGE GEORGE ARCENEAUX, JR., JUDGE PETER H. BEER, CHIEF JUDGE JUAN G. BURCIAGA, JUDGE A.J. MCNAMARA, JUDGE HARRY PREGERSON JUDGE RAUL A. RAMIREZ AND CHIEF JUDGE THOMAS A. WISEMAN, JR., PLAINTIFFS-APPELLANTS
v.
THE UNITED STATES, DEFENDANT-APPELLEE

[Filed: Jan. 16, 1992]

Before: ARCHER, PLAGER and RADER, Circuit Judges.

RADER, Circuit Judge.

Terry J. Hatter, Jr., et al., life-tenured federal judges, appeal the dismissal of their complaint by the United States Claims Court. Hatter v. United States, 21 Cl. Ct. 786 (1990). The judges allege that imposition of social security taxes diminished their compensation in violation of the United States Constitution. The Claims Court dismissed their complaint for lack of jurisdiction. Because the Tucker Act gives the Claims Court jurisdiction over claims of salary diminution under Article III of the Constitution, this court reverses and remands.

BACKGROUND

In 1983, Congress passed the Social Security Amendments of 1983. See 42 U.S.C. § 410(a)(5)(C)-(G) (1988). This Act extended social security coverage to many Government employees, including federal court of appeals and district court judges.* Previously, federal judges were exempt from paying social security taxes.

On January 1, 1984, the Social Security Amendments imposed Federal Insurance Contributions Act ("FICA") taxes on federal judges. From 1984 to 1989, plaintiffs each paid the following amounts in FICA taxes:

YEAR TAX

1984 $2,532.60
1985 $2,791.80
1986 $3,003.00
1987 $3,131.70
1988 $3,379.50
1989 $3,604.80

On December 29, 1989, plaintiffs filed a complaint in the Claims Court. In count I, plaintiffs contend that the 1983 Amendments "unlawfully diminished and continues to diminish plaintiffs' compensation in violation of Article III, Section 1, of the Constitution of the United States." Under this count, plaintiffs sought monetary damages to compensate for their diminished wages. Count II claims that plaintiffs have an employment contract with the Government which protects them against diminishment of their compensation. Again, plaintiffs seek damages for breach of contract.

The Government moved to dismiss the complaint for lack of jurisdiction because plaintiffs did not file an administrative claim for a tax refund. See 26 U.S.C. § 7422(a) (1988). The Claims Court granted the Government's motion. Plaintiffs appealed.

DISCUSSION

This court must decide whether appellants have stated a case within the Claims Court's jurisdiction under 28 U.S.C. § 1491 (1988) (Tucker Act). Under the Tucker Act, the United States has waived sovereign immunity for suits in the Claims Court:

The United States Claims Court shall have jurisdiction to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.

28 U.S.C. § 1491(a)(1).

The Tucker Act alone, however, does not create a substantive right to collect money damages from the United States. United States v. Testan, 424 U.S. 392, 398, 96 S. Ct. 948, 953, 47 L.Ed.2d 114 (1976); Eastport S.S. v. United States, 372 F.2d 1002, 1007-1009, 178 Ct. Cl. 599 (1967). Rather, the Act empowers the Claims Court to award damages for the violation of substantive rights embodied in the Constitution, federal statutes, executive regulations, or federal contracts. United States v. Mitchell, 463 U.S. 206, 216-17, 103 S. Ct. 2961, 2967-68, 77 L.Ed.2d 580 (1983).

Thus, to invoke Tucker Act jurisdiction, claimants must show that their claim arises under an independent source of federal law. Moreover, the federal law or contract, fairly interpreted, must provide a damages remedy for violations. Id. In sum, appellants must show their claim arises from a federal constitutional, statutory, regulatory, or contractual provision that provides damages its breach.

Appellants base their Tucker Act claim on Article III, Section 1, of the United States Constitution:

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, § 1. Appellants thus invoke the Constitution as an independent source of federal law providing for the payment of money.

This provision of the Constitution, fairly interpreted, mandates the payment of money in the event of a prohibited compensation diminution. This provision states, in mandatory and unconditional terms, that judges' salaries "shall not be diminished during their Continuance in Office." This language presupposes damages as the remedy for a governmental act violating the compensation clause. Only a timely restoration of lost compensation would prevent violation of the Constitution's prohibition against diminution of judicial salaries.

Thus, the Constitution mandates that federal judges must receive, "during their Continuance in Office," compensation for their services which may not be less than their compensation upon assuming office. In the event of a violation of this clause, the Constitution itself provides a remedy-compensation. In sum, by forbidding any diminution of judicial compensation, the Constitution itself requires repayment of prohibited reductions in compensation to Article III judicial officers.

The history of the compensation clause supports this court's reading that a violation of the clause mandates repayment or compensatory damages. According to James Madison's notes, the delegates to the Philadephia Convention discussed the compensation clause on July 18, 1787. 2 Max Farrand, The Records of the Federal Convention of 1787, 44-45 (1911). Gouverneur Morris proposed wording the compensation clause to prevent "any improper dependence in the Judges." Id. James Madison, in response, shared Morris's view that the Constitution should reduce any dependence by the judicial branch on the other branches for compensation. Id. at 45. Alexander Hamilton, too, explained the compensation clause:

Next to permanency in office, nothing can con- tribute more to the independence of the judges than a fixed provision for their support . . . . In the general course of human nature, a power over a man's subsistence amounts to a power over his will. And we can never hope to see realized in practice the complete separation of the judicial from the legislative power, in any system which leaves the former dependent for pecuniary resources on the occasional grants of the latter.

The Federalist No. 79, at 472 (Alexander Hamilton) (emphasis in original) (Clinton Rossiter ed., 1961). These framers of the Constitution shared a common vision of the undiminishable compensation clause.

These observations by the framers of the compensation clause underscore its importance to the preservation of judicial independence in a system of separated powers. These comments also suggest that judicial officers deprived of full compensation need not rely on legislative or executive action for a remedy. To require further legislative or executive actions to enforce the compensation clause would frustrate Article III's purpose of judicial independence. The purpose of Article III, § 1, as well as its language, embraces a self-executing compensatory remedy.

The Supreme Court has also considered whether an alleged violation of the compensation clause provides Tucker Act jurisdiction. United States v. Will, 449 U.S. 200, 101 S. Ct. 471, 66 L.Ed.2d 392 (1980). In Will, several federal judges sought review of four statutes purporting to stop or reduce cost-of-living increases for judges. The Court concluded that two of the four statutes purported to roll back judicial salary increases already in effect. These statutes violated Article III, § 1. Id. at 226, 230, 101 S. Ct. at 486, 488. Any legislative attempt to rescind those effective salary increases would diminish judges' compensation. The Court upheld the other two statutes because they affected salary increases not yet in effect. Id. at 229, 101 S. Ct. at 487. Therefore, those two statutes did not diminish judicial salaries. The case was remanded to the trial court to determine money damages. Id. at 230-31, 101 S. Ct. at 488.

To reach these substantive results, the Court necessarily examined the jurisdiction of the trial courts to enforce the compensation clause. The Court stated that both the Court of Claims, the predecessor to the Claims Court's trial jurisdiction, and district courts had jurisdiction to determine whether the four statutes violated Article III, § 1. The Court stated:

[T]here is no doubt whatever as to this Court's jurisdiction under 28 U.S.C. § 1252 or that of the District Court under 28 U.S.C. § 1346(a)(2) (1976 ed., Supp. III).

Id. at 210-11, 101 S. Ct. at 478 (footnote omitted). "Jurisdiction being clear," id. at 211, 101 S. Ct. at 479, the Court proceeded to the next inquiry.

The Court felt jurisdiction was "clear" based on 28 U.S.C. § 1346(a)(2). In a footnote, the Court explained:

This provision confers on the district courts and the Court of Claims concurrent jurisdiction over actions against the United States based on the Constitution when the amount in controversy does not exceed $10,000.

Id. at 211, n. 10, 101 S. Ct. at 478, n. 10. Section 1346(a)(2) of title 28, also known as the Little Tucker Act, mirrors the Tucker Act. It provides district courts concurrent jurisdiction with the Claims Court to handle claims against the United States, "not exceeding $10,000 in amount, founded either upon the Constitution, or any Act of Congress." The Supreme Court found jurisdiction in the district court for the Will plaintiffs under the Little Tucker Act.

The only jurisdictional difference between the appellants in Will and the plaintiffs in this case is the amount in controversy. Plaintiffs in this case seek more than $10,000 in damages. The Supreme Court found jurisdiction under the Little Tucker Act in the district court for the Will plaintiffs. The Tucker Act provides jurisdiction in the Claims Court for the plaintiffs in this case.

The Claims Court erred by recharacterizing plaintiffs' action as solely a request for a tax refund. Plaintiffs' complaint sought damages for violation of the compensation clause. Nonetheless, the Claims Court read their claim as a tax refund suit. The Claims Court erred by imposing a single legal theory on the plaintiffs' complaint.

The Federal Rules of Civil Procedure permit parties to pursue their claim on any viable legal theory. Fed. R. Civ. P. 8(e)(2). In this case, plaintiffs could have pursued a tax refund. If they had, as the Claims Court noted, title 26 would have required a prior administrative claim. See, 26 U.S.C. § 7422(a). Plaintiffs, however, did not pursue a tax refund. Instead they sought damages for violation of Article III, § 1-an action which is within the Tucker Act jurisdiction of the Claims Court.

By requiring prior filing of an administrative claim with the Internal Revenue Service for a compensation clause violation, the Claims Court overlooked the language and purpose of Article III, § 1. Conditioning redress of an alleged compensation clause breach on executive branch actions would frustrate the purpose of Article III, § 1. The Constitution provides a compensatory remedy without need for reliance on other branches.

The Claims Court based its recharacterization of plaintiffs' action on two cases, O'Malley v. Woodrough, 307 U.S. 277, 59 S. Ct. 838, 83 L.Ed. 1289 (1939), and King v. United States, 390 F.2d 894, 182 Ct. Cl. 631 (1968), rev'd on other grounds, 395 U.S. 1, 89 S. Ct. 1501, 23 L.Ed.2d 52 (1969). In O'Malley, the plaintiffs challenged the validity of federal income taxes because withholding revenues allegedly diminished federal judges' salaries. The Court determined that Article III did not bar Congress from imposing a non-discriminatory income tax on federal judges. O'Malley, 307 U.S. at 282, 59 S. Ct. at 840. O'Malley, however, does not affect the jurisdiction of the Claims Court. Contrary to the Claims Court's statement, Hatter, 21 Cl. Ct. at 789, the Supreme Court did not recast O'Malley's plaintiffs' diminution claims as tax refund actions. The O'Malley plaintiffs elected to sue the Collector of Internal Revenue for a refund, rather than seeking damages. The O'Malley plaintiffs' election in the 1930s, however, hardly binds the Hatter plaintiffs in the 1990s. As noted earlier, the Tucker Act provides plaintiffs an independent action for damages based on a purported violation of Article III, § 1.

By improperly recharacterizing plaintiffs' action, the Claims Court also foreclosed an issue to be determined on the merits. O'Malley determined that federal income taxes do not have a discriminatory impact on federal judges. Plaintiffs have had no opportunity to demonstrate whether the social security tax is discriminatory. The Claims Court erred in foreclosing this issue without full consideration of the merits. On remand, the Claims Court will have an opportunity to examine whether social security taxes have a discriminatory effect on federal judges.

The Claims Court also erred in viewing King as identical to this case for jurisdictional purposes. Hatter, 21 Cl. Ct. at 788. King was an Army Colonel who claimed that he had paid too much federal income tax because the Government misclassified his retirement status. The Court of Claims dismissed Colonel King's tax refund claim for failure to file a prior administrative claim with the Internal Revenue Service. King, 390 F.2d at 896. In equating the Hatter plaintiffs with Colonel King, the Claims Court overlooked pertinent distinctions.

First, plaintiffs in this case have an independent jurisdictional basis for their claim. Colonel King had no choice except to seek a tax refund. Second, unlike Colonel King, plaintiffs here do not challenge the United States' authority to impose a tax. Plaintiffs merely seek compensation to ensure that imposition of a tax does not diminish their salary. In sum, plaintiffs do not seek tax refunds, but compensation to ensure compliance with Article III, § 1. The Tucker Act provides the Claims Court jurisdiction to adjudicate this action.

CONCLUSION

Appellants' claim for relief states a claim within the jurisdiction of the Claims Court. Therefore, the decision of the Claims Court is reversed and this case is remanded for a hearing on the merits.

REVERSED AND REMANDED.

* No member of this panel was an Article III judge in 1984. Therefore, no panel member suffered an alleged diminution in salary when the 1983 Amendments took effect.

APPENDIX D

UNITED STATES COURT OF FEDERAL CLAIMS

No. 705-89 C

JUDGE TERRY J. HATTER, JR., ET AL., PLAINTIFFS
v.
UNITED STATES OF AMERICA, DEFENDANT

[Filed: June 22, 1994]

OPINION AND ORDER

TURNER, Judge.

This opinion addresses plaintiffs' motion for summary judgment filed September 2, 1993 and defendant's cross-motion for summary judgment filed October 1, 1993. Oral argument was heard on November 16, 1993. The parties agree that there are no material disputed facts. We conclude that defendant's cross-motion should be granted.

I

Plaintiffs are federal district and circuit court judges who took office prior to January 1, 1983. On that date, all federal judges for the first time became subject to the Hospital Insurance (Medicare) portion of the Social Security tax. Tax Equity and Fiscal Responsibility Act, Pub. L. No. 97-248, § 278(a) 96 Stat. 324, 559 (1982) (codified as amended at 26 U.S.C. (I.R.C.) § 3121(u) (1988)). One year later, judges became subject to the Old Age Survivors and Disability Insurance portion of the Social Security tax, and since January 1, 1984, all federal judges have been fully subject to Social Security taxes. Social Security Amendments of 1983, Pub. L. No. 98-21, § 101(a)(1), (b)(1) and (d), 97 Stat. 65, 68, 69 (codified as amended at 26 U.S.C. (I.R.C.) § 3121(b)(5)(E) (1988) and 42 U.S.C. § 410(a)(5)(E) (1988)). Social Security taxes have therefore been duly withheld from plaintiffs' monthly compensation since the effective dates of these acts.

Plaintiffs all serve pursuant to Article III of the Constitution, which in pertinent part provides that federal judges "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, § 1 (hereafter the "Compensation Clause").

Plaintiffs contend that because they were already judges when the withholding of Social Security taxes from their pay began, their compensation was diminished in violation of the Compensation Clause. In the alternative, plaintiffs claim a contract right to undiminished compensation. Plaintiffs seek a refund of all Social Security taxes collected thus far.

After a review of Compensation Clause law in part II, we consider plaintiffs' four main constitutional arguments in part III, and then address plaintiffs' contract claim in part IV.

II

A

An income tax on judges was first imposed in 1862 and was collected for several years. Act of July 1, 1862, ch. 119, § 86, 12 Stat. 432, 472 (1862). This law occasioned the Supreme Court's first pronouncement on the constitutionality of taxing judges. It came as an extraordinary 1863 protest against the tax issued in the form of a letter from Chief Justice Taney to the Treasury Secretary. This remarkable document, officially recorded and published by the Court1 and resembling nothing so much as an unsolicited advisory opinion, was echoed several years later by an opinion from the Attorney General that the income tax was unconstitutional as applied to judges. 13 Op.A.G. 161 (1869). As a consequence, all taxes which had been collected on judicial compensation were refunded in 1873. Wayne v. United States, 26 Ct. Cl. 274, 290, 1800 WL 1765 (1891). But these two seemingly non-binding opinions had an even more powerful effect: the courts came to consider the matter of judicial taxation closed without ever actually addressing the issue. E.g., Wayne, 26 Ct. Cl. at 290.

The courts finally addressed the matter when, subsequent to ratification of the 16th Amendment in 1913,2 Congress in 1919 made its second serious attempt to tax federal judges. Revenue Act of 1918, ch. 18, § 213, 40 Stat. 1057, 1065 (1919). Thus the first Compensation Clause case of precedential significance does not appear until Evans v. Gore, 253 U.S. 245, 40 S. Ct. 550, 64 L.Ed. 887 (1920). In Evans, a federal judge who had taken office in 1899 challenged the Revenue Act of 1918, arguing that the income tax was an unconstitutional diminution of his salary.

Over a vigorous dissent by Justice Holmes, joined by Justice Brandeis, the Court agreed with the plaintiff judge, holding that an income tax on judges was an impermissible diminution in compensation, and that the Compensation Clause continued to prohibit taxation of judicial salaries even after the 16th Amendment. Holmes's position in dissent, since adopted by the Court as will be seen, was that an income tax on judges would be valid so long as it did not single out judicial compensation but rather applied with like force to the income of all citizens. 253 U.S. at 264-267, 40 S. Ct. at 557-558.

The taxing authorities refused to give in so easily. In Miles v. Graham, 268 U.S. 501, 45 S. Ct. 601, 69 L.Ed. 1067 (1925), the government sought to limit the Evans rule, arguing that the tax protection of the Compensation Clause shielded only judges appointed before the tax became law (hereafter "prior judges").3 According to the government, prior judges stood in contrast to judges taking office after the tax (hereafter "new judges"): taxation would not diminish the compensation of new judges, since they would never have received their salary untaxed. In Miles, the plaintiff was a new judge who argued, in essence, that the Compensation Clause's protection extended to judicial compensation as an entity or institution, without regard to whether the recipient judge took office before or after enactment of the tax.

The Court in Miles agreed with the plaintiff, firmly rejecting the government's attempt to limit the Evans tax exemption to prior judges. (Brandeis, but not Holmes, dissented without comment.) Relying heavily on Evans, Miles made explicit the simple rule inferable from Evans: under the constitution, all judicial compensation provided for by Congress was tax-free. 268 U.S. at 509, 45 S. Ct. at 602.

In a familiar pattern, it was not long before the initially rejected Holmes-Brandeis formulation (calling for judicial salary to be treated the same for tax purposes as income earned by any citizen) was, in effect, adopted by the Court. This development came after Congress in 1932 made its third attempt to tax the judiciary, imposing another income tax limited to new judges. Revenue Act of 1932, ch. 209, § 22(a), 47 Stat. 169, 178 (1932). Predictably, a new judge challenged this tax based on the rule of Miles. O'Malley v. Woodrough, 307 U.S. 277, 59 S. Ct. 838, 83 L.Ed. 1289 (1939) (Frankfurter, J.).

For the tax collectors, the third time proved the charm: the Court reversed course, issuing its first rejection of a judge's Compensation Clause challenge to a tax. The Court held that judicial compensation could be taxed, approving Congress's "position that a non-discriminatory tax laid generally on net income is

not . . . a diminution [of a federal judge's] salary within the prohibition" of the Compensation Clause. 307 U.S. at 282, 59 S. Ct. at 840. According to the Court, the constitution did not excuse judges from the obligations of citizenship. Id. O'Malley left Miles effectively overruled.4

Justice Frankfurter in O'Malley also sharply criticized Evans, but in a characteristic exercise of judicial restraint was careful to note that only the question of tax immunity for new judges was properly at bar, whereas the plaintiff in Evans had been a prior judge. O'Malley, 307 U.S. at 281-82, 59 S. Ct. at 839-40. As will be seen, O'Malley remains the most important precedent in the area of taxation of federal judges.

A generation after O'Malley, the Court of Claims5 thoroughly reviewed Compensation Clause law in Atkins v. United States, 214 Ct. Cl. 186, 556 F.2d 1028 (1977) (en banc), cert. denied, 434 U.S. 1009, 98 S. Ct. 718, 54 L.Ed.2d 751 (1978). This review was occasioned by the suit of a group of federal judges who claimed that their compensation, though nominally unchanged since 1969, had in fact been unconstitutionally eroded by inflation. In rejecting this claim, the Court of Claims gave valuable guidance on the import of O'Malley and its predecessors.

In analyzing the Supreme Court's holding in O'Malley, the Court of Claims in Atkins stated that both Evans and Miles are "no longer good law," id., 214 Ct. Cl. at 213, 556 F.2d at 1043. According to the Court of Claims, O'Malley "overruled Miles, and by force of reasoning overruled a good deal of Evans," id. at 215, 556 F.2d at 1044.6

Atkins fleshes out the distinction between indirect and direct diminution first alluded to by the Supreme Court in Evans, 253 U.S. at 254, 40 S. Ct. at 553. A direct diminution is a reduction in the number of dollars authorized by Congress for a judge's salary, while an indirect reduction, for instance "by virtue of a tax," lowers the take-home pay of a judge but not the statutory salary. Atkins, 214 Ct. Cl. at 215, 556 F.2d at 1044. Given that "the purpose of the Compensation Clause is to preclude a financially based attack on judicial independence," id. at 222, 556 F.2d at 1048, cases of indirect diminution are to be handled differently from cases of direct diminution. The Court of Claims explained that while the Supreme Court's Compensation Clause cases uniformly agreed that direct diminutions were always prohibited, after O'Malley "[i]ndirect, nondiscriminatory diminishments [like taxes] . . . which do not amount to an assault on the independence of the third branch . . . [are not prohibited by] the Compensation Clause," id. at 216, 556 F.2d at 1045.

The 1977 Atkins decision is in full accord with the later Supreme Court Compensation Clause case of United States v. Will, 449 U.S. 200, 101 S. Ct. 471, 66 L.Ed.2d 392 (1980), which dealt with a direct diminution. In Will, scheduled increases in judicial, congressional, and top-level executive pay were withdrawn for four years running, twice just before the raises took hold, and twice just after. Upon a suit by federal judges, the Court held that while the political branches may cancel a prospective judicial salary increase, any increase allowed to become effective even for less than a day is permanent for Article III judges. 449 U.S. at 224-26, 101 S. Ct. at 485-486.

The Will decision buttresses the implication of the Court of Claims in Atkins that all direct reductions of judicial compensation are invalid regardless of congressional intent: speaking of direct diminutions, the Court said "the Constitution makes no exceptions for 'nondiscriminatory' reductions." 449 U.S. at 226, 101 S. Ct. at 486. As to indirect diminutions, not at issue in Will, the Court was not quite so clear. Still, Will gives some guidance on indirect diminutions like taxes: the Court discussed O'Malley with apparent approval, noting that O'Malley validated income taxation of judicial salaries and "recognized that the Compensation Clause does not forbid everything that might adversely affect [the finances of] judges." Id. at 227 n.31, 101 S. Ct. at 486 n. 31. In fact, Will may have left open the possibility that even a congressional intent to pressure the judiciary might not invalidate an indirect diminution: "[w]e need not address the question of whether evidence of an intent to influence the Judiciary would invalidate a statute that on its face does not directly reduce judicial compensation." Id. at 226 n. 30, 101 S. Ct. at 486 n. 30.7 Of course, in the absence of facts showing bad legislative intent, this legal question is moot. Atkins, 214 Ct. Cl. at 216, 228, 235, 556 F.2d at 1045, 1051, 1055.

B

The following two rules and one corollary emerge from the foregoing review of the Compensation Clause case law.8 First, direct diminution of the salary authorized for federal judges is absolutely forbidden, no matter how innocent the intent of Congress is. Second, so-called indirect diminishments, and specifically income taxes, are permissible even if they result in a reduction in take-home pay for federal judges, at least so long as they are not part of an assault on judicial independence. This rule's corollary is that if there is no evidence of legislative intent to influence the judiciary, taxes of general applicability are valid as to Article III judges.

Thus the question in this case is not whether the plaintiffs' compensation has been reduced by Social Security taxes, for at least in terms of take-home pay it has been, but rather whether this indirect reduction is of the type forbidden by the Compensation Clause.9 As will be shown below, under O'Malley and subsequent cases, the answer is no.

III

As to the Compensation Clause claims, (Second Am.Cplt. Counts I-II at 7-8), four basic themes, some of them related, emerge from plaintiffs' briefs and oral argument. First, plaintiffs contend that in overruling Miles but not Evans, the Supreme Court meant to limit the original broad holding of Evans to the following still vital rule: "[E]ven a tax of general applicability cannot be imposed upon [prior] judges who were appointed . . . before the tax became law." Pl. Br. at 29. To some extent linked with this reading of Evans is plaintiffs' second contention that no taxation of judges is permissible if it makes judicial service relatively less attractive than it was when a judge took office. Pl. Br. at 20-21; Pl. Reply at 12-13. Plaintiffs' third argument is that the Social Security tax at issue here is not even an income tax of general applicability such as was permitted to be laid on judges by O'Malley. Pl. Br. at 25-26; Pl. Reply at 25-26; Tr. 15-16. Somewhat related to this argument is plaintiffs' last main point: that the scheme designed to bring federal employees under Social Security coverage discriminated against the plaintiff judges compared to other federal workers. Pl. Br. at 37-8, 40, 43; Tr. at 16-17, 19, 72-74. We discuss these four themes in turn.

A

Plaintiffs' first contention is that the factually similar Evans case (discussed above in part II A) controls here, and thus that new taxes cannot be imposed on prior judges even if all other citizens are included in the new tax. Pl. Br. at 28-29. While it is true that the Supreme Court has never expressly overruled Evans, subsequent Court of Claims and Supreme Court cases convince us it would be irresponsible to dispose of this controversy on that ground. The Supreme Court itself long ago criticized the Evans case, O'Malley, 307 U.S. at 280-82, 59 S. Ct. at 839-40 (1939), and more recently confirmed that Evans has been "undermine[d]," Will, 449 U.S. at 227 n. 31, 101 S. Ct. at 486 n. 31. Additionally in Will, the Supreme Court reversed a trial judge who expressly relied on Evans, albeit in a factually distinguishable case. Will, 449 U.S. at 227, 101 S. Ct. at 486-487.

Such negative Supreme Court guidance certainly discourages automatic reliance on Evans. But in addition, the Will and O'Malley decisions at the very least strongly suggest that a tax or other statute which indirectly reduces judicial pay is permissible absent evidence of a congressional intent to influence the judiciary. Will, 449 U.S. at 226-27 & nn.30-31, 101 S. Ct. at 486-87 & nn.30-31; O'Malley, 307 U.S. at 282, 59 S. Ct. at 840. Moreover, the Court of Claims stated that the Supreme Court has effectively overruled Evans "at least as regards [new] judges," Atkins, 214 Ct. Cl. at 215, 556 F.2d at 1044 (emphasis added).

Even in the face of this negative treatment, plaintiffs persist in their claim that though the broad rationale of Evans has certainly been narrowed by subsequent case law, the fact that Evans has never been expressly overruled means that some part of the holding survives. Pl. Br. at 28. According to plaintiffs, the surviving rule of Evans is that under the Compensation Clause, prior judges have more tax protection than new judges: you can't charge a prior judge new taxes. Pl. Br. at 28-29. Adopting this distinction between new and prior judges would require us to read much into Evans, because that case nowhere suggested such a difference. In fact the Court in Evans broadly defined the issue in that case as the taxability of the "compensation of federal judges in general," 253 U.S. at 247, 40 S. Ct. at 551 (emphasis added). We understand that the distinction between prior and new judges was arguably drawn by omission in O'Malley when the Court expressly limited its holding to new judges. 307 U.S. at 281-82, 59 S. Ct. at 839-40. But unlike the Court in O'Malley, here we are squarely addressed with the question of whether new judges have less tax protection than prior ones under the constitution. O'Malley's failure to expressly address the propriety of new taxes on prior judges is typical of the judicial restraint that Justice Frankfurter was known for, and is not a ruling against such taxation.10

Only the quite proper use of judicial restraint in O'Malley and later in Will prevented the Supreme Court from overruling Evans. Now that the question of whether prior judges should be afforded more Compensation Clause protection than new judges is at bar for the first time since the discredited Miles decision, reaching back to the 1920 Evans case to resolve the question in plaintiffs' favor would require us to willfully ignore the intervening, and uniformly critical, case history. This we decline to do, although because this history developed in factually distinguishable situations, the question in a narrow technical sense will arguably remain open until the Supreme Court addresses the point. As discussed above, the more recent Supreme Court and Court of Claims cases on the Compensation Clause counsel reliance on the dissenting view of Holmes in Evans rather than on the majority.11 Therefore, we hold that judicial salary, like other components of a judge's income, is taxable. Will, 449 U.S. at 227 n.31, 101 S. Ct. at 486 n.31 (citing with approval O'Malley, 307 U.S. 277, 59 S. Ct. 838 (1939)); Evans, 253 U.S. at 265-266, 40 S. Ct. at 557 (Holmes, J., dissenting); Atkins, 214 Ct. Cl. at 216, 556 F.2d at 1044-45.

B

Given that we decline to rely on Evans, plaintiffs, in the alternative, claim that the statutes in question violate the Compensation Clause by wiping out a tax advantage prior judges enjoyed relative to other citizens, a situation plaintiffs contend to be different from that presented in Evans. Plaintiffs argue that in Evans, a new tax was imposed on both judges and other citizens "at the same time;"12 in contrast, plaintiffs here were subjected to the extension of an old tax they had escaped by becoming judges, thereby unconstitutionally costing sitting judges an advantage they held relative to non-judges. Pl. Reply 16 n.7. As we will show, plaintiffs' attempt to distinguish their case from Evans fails.

1

Plaintiffs argue that to be valid, any new tax on prior judges must be simultaneous with taxation of the public. Pl. Reply at 16 n.7; Tr. at 9-10. This is so because as long as an identical burden is simultaneously laid on the public and the judiciary, not even prior judges have suffered a diminution relative to other citizens13 and so their judicial independence is not potentially threatened. Tr. at 9-10; see Pl. Br. at 16, 35-37; Pl. Reply at 19, 21. On the other hand, reason plaintiffs, the taking away of a tax exemption or other advantage held by prior judges relative to other citizens does potentially threaten judicial independence because it singles out judges.14 See Pl.Br. at 20-21, 34; Pl. Reply at 16 n.7, 19.

Looking past the terms of plaintiffs' seemingly novel relativity argument to its substance, it appears plaintiffs' position at bottom is nothing more remarkable than that a new tax laid wholesale on prior judges and the public is not discriminatory.15 While this may be true, it provides no support for plaintiffs' further implication that a tax placed on the public and only later extended piecemeal to prior judges automatically violates the Compensation Clause as a potential threat to the independence of prior judges.

Plaintiffs have pointed to no good reason why Congress in taxing judges has the power to accomplish wholesale what it cannot do piecemeal. See, e.g., Pl. Br. at 34; Pl. Reply at 2-3, 9-10, 12-13, 16 n.7. Plaintiffs equate comparative tax advantages enjoyed by judges with direct increases in judicial pay, arguing that both should at inception be permanent for judges then in office. Pl. Br. at 30-31, 34; Tr. at 8-9. But the purpose of the Compensation Clause is not to make irrevocable every momentary tax exemption enjoyed by sitting judges relative to the public; its purpose is rather to protect the independence of the judicial branch by insuring that judges are shielded from attempts by the political branches to impose economic duress. O'Malley, 307 U.S. at 282, 59 S. Ct. at 840; Evans, 253 U.S. at 265-67, 40 S. Ct. at 557-58 (Holmes, J., dissenting); see Atkins, 214 Ct. Cl. at 223, 556 F.2d at 1048-49. This underlying purpose leads to the simple rule of thumb which governs this case: in general, if judges are treated like other citizens by the tax laws, no threat to judicial independence arises, and so the Compensation Clause is not implicated. Congress always has the power to place judges in tax parity with other citizens.

2

Plaintiffs profess not to rely on Evans in deriving the simultaneity requirement for the taxation of prior judges. But plaintiffs' simultaneity requirement leads inescapably to the conclusion that the Compensation Clause provides the class of prior judges more tax protection than it does to new judges. This is the very conclusion that we rejected in refusing to rely on Evans above in part A. The new packaging does not yield a different result. Barring some sort of targeted discrimination, the finances of one individual judge or even a class of judges is not the concern of the Compensation Clause. 16 There is no requirement that prior judges be treated any differently from new judges for tax purposes: a judge escapes neither the present nor the future obligations of citizenship by taking the oath of office.

C

Plaintiffs go on to claim that even with the above arguments conceded Social Security is not a tax of general applicability like the one which was held proper as to judges in O'Malley. Pl. Reply at 24-25; Tr. at 15-16, 72-73. In this vein, plaintiffs first contend that Social Security is not an income tax, but is rather a contributory public benefit plan. E.g. Pl. Br. at 26-27. In addition, plaintiffs maintain that Social Security taxes are not a truly general obligation of citizenship because the plan is not universal. Id.; Tr. at 72-73.

1

A close reading of plaintiffs' arguments shows that they do not seriously contend that Social Security is a contractual benefit plan rather than an income tax. In fact, plaintiffs themselves note that Social Security benefits are by no means guaranteed, and that the Congress could limit or cancel benefits under the program. Tr. at 10-11 (citing Bowen v. Public Agencies Opposed to Soc. Secur. Entrapment, 477 U.S. 41, 51-52, 106 S. Ct. 2390, 2396-97, 91 L.Ed.2d 35 (1986)). We agree. Of course, the taking of money by the federal government with no specific return obligation is typical of tax schemes, including income taxes. And, in fact, Social Security has long been treated as an income tax by courts. Helvering v. Davis, 301 U.S. 619, 634-35, 57 S. Ct. 904, 905-06, 81 L.Ed. 1307 (1937). It is plain that Social Security imposes an income tax.

2

At the heart of plaintiffs' argument that Social Security is not a tax of general applicability is the contention that the Social Security income tax is not sufficiently widespread. See Pl. Br. at 26, 36-37; Tr. at 72. We disagree. Social Security is a tax of general applicability, and so can be applied to federal judges. The parties have stipulated to the following facts: during 1984, the percentage of the paid civilian labor force covered by Social Security climbed from 91 percent to 93 percent, Jt. Stip. ¶ 18 (Appendix C to Pl. Br.), even while the paid civilian labor force increased from 102.2 million workers to 105.5 million, Jt. Stip. ¶ 27 (Table 4).

This amounts to effectively universal coverage of the nation's work force.17 Given the web of exemptions and deductions allowed by Congress in virtually all areas of taxation, it is doubtful if any federal tax is of general applicability in the sense of applying to 100 percent of the possible taxpayers. We do not need to decide the boundaries of the term "a tax of general applicability" today. It is enough to say that the Social Security income tax, which at all times relevant to this litigation covered over 90 percent of paid civilian workers, is a tax of general applicability like that held valid as to judges by the Supreme Court in O'Malley.

D

Plaintiffs' last main Compensation Clause contention, somewhat linked to the idea that Social Security is not a tax of general applicability, is that the plaintiff judges were discriminated against as compared to the other federal employees affected by the same Social Security amendments. Pl. Br. at 37-38, 40, 43; Pl. Reply at 24; Tr. at 12, 15-17, 19, 22-23, 72-74. Plaintiffs contend that a Compensation Clause violation arises because judges, unlike all other federal employees, faced a mandatory reduction in take-home pay. Pl. Br. at 40, 43; Tr. at 74-75.

1

However, using federal employees instead of the general public as the Compensation Clause benchmark to determine the validity of a tax does not help plaintiffs in this case, since for purposes of this discussion the two groups have historically been treated alike.

Most federal employees have long been required to contribute to retirement plans in order to obtain retirement benefits. See 5 U.S.C. §§ 8331-48 (1988). This does not apply to Article III judges, whose basic retirement plan is free, and provides for lifetime full pay when certain age and length of service requirements are met. 28 U.S.C. § 371 (1988). By the acts challenged here, Congress expanded Social Security to cover most federal positions, including Article III judgeships, for the first time. Jt. Stip. ¶ 20. Speaking generally, Congress reduced or offset the contribution federal employees were required to make to their retirement plan by the amount of any newly required Social Security tax. Pl. Proposed Findings of Uncontroverted Fact ¶ 11 ("PPUF"). The retirement plan benefits of federal employees were correspondingly reduced to account for any newly expected Social Security benefits. E.g., Federal Employees' Retirement Contribution Temporary Adjustment Act of 1983, Pub. L. 98-168, § 206(c)(2), 97 Stat. 1106, 1109-10 (1983) (codified as amended in a note after 5 U.S.C. § 8331 (1988)). The net result of inclusion in Social Security for most federal workers thus was no change in take-home pay or benefits. It is plainly the view of Congress that the Social Security tax is fungible with the other retirement payments required of federal employees. Thus, both before and after the acts in question, almost all non-judicial federal employees, like over 90 percent of the nation's civilian workers, paid Social Security taxes or a mandatory equivalent.

Judges, with no retirement plan contributions to offset, were unique among federal employees in seeing their take-home pay necessarily decrease by the amount of the Social Security tax. PPUF ¶ 12. But this happened only because judges, unlike other federal employees and citizens, were never before required to pay into Social Security or a retirement plan equivalent to Social Security. There is no reason that tax burdens equivalent to those long required of other federal employees and working citizens cannot be extended to judges. See supra, part B(1). Here, the central Compensation Clause taxation rule has not been violated: judges are being treated no worse than other federal employees and citizens.

2

Even if we were to assume that the Social Security taxes at issue here did hurt judges compared to other federal workers, plaintiffs' Compensation Clause claim would not succeed. This is because in cases of indirect reduction in judicial compensation, it is an open question whether evidence of Congressional intent to pressure the judiciary would be enough to invalidate a statute. Will, 449 U.S. at 226 n. 30, 101 S. Ct. at 486 n.30. At any rate, without evidence of such an intent this legal question is moot. Atkins, 214 Ct. Cl. at 216, 228, 235, 556 F.2d at 1045, 1051, 1055.

In this case, there is absolutely no evidence of an intent to influence the judiciary. This conclusion is not disputed by plaintiffs, Pl. Br. at 21-22; see Pl. Reply at 2; rather, plaintiffs' by-now familiar argument is that any reduction in take-home pay should be handled like a direct reduction in salary, that is to say it is prohibited by the Compensation Clause regardless of congressional intent. Pl. Br. at 21-23; Pl. Reply at 2, 10, 12; Tr. at 69, 71-72.

As indicated above, plaintiffs' conclusion ignores two related rules of Compensation Clause jurisprudence. First, in case of an indirect diminution of judicial compensation, it is at least arguable that judges seeking relief under the Compensation Clause for an indirect reduction in pay must show not just a discriminatory effect but an intent to influence the judiciary. See Will, 449 U.S. at 226 n.30, 101 S. Ct. at 486 n.30; Atkins, 214 Ct. Cl. at 233, 556 F.2d at 1054. Second and more important to the instant case, it is clear that if the indirect diminution is due to a tax of general applicability and the possibility of discriminatory legislative intent has been ruled out, the tax is valid under the Compensation Clause. O'Malley, 307 U.S. at 282, 59 S. Ct. at 840; Atkins, 214 Ct. Cl. at 216, 556 F.2d at 1044-45. That is the case here.

IV

Plaintiffs claim that if their constitutional argument fails, they still may be able to prevail on a contract theory. Second Am. Cplt. Count III at 8-9. Defendant has moved for summary judgment on the contract claim, maintaining that judges serve pursuant to appointment, not contract. Def. Br. at 38-41.

Plaintiffs are unable to cite any convincing authority for the proposition that judges are contract employees. See, e.g., Pl. Reply at 27-29; Tr. at 31-38. Plaintiffs point chiefly to Embry v. United States, 100 U.S. 680, 25 L.Ed. 772 (1879), wherein the Supreme Court made the following statement: "No officer except the President or a judge of a court of the United States can claim a contract right to any particular amount of unearned compensation." 100 U.S. at 685. While this isolated sentence may be in plaintiffs' favor, the case it comes from is not. The holding of Embry is not that judges have a contract right to compensation while in office; in fact, the case is not about judges at all, nor even about incumbent officeholders. Instead, Embry holds that non- judicial federal officers such as postmasters do not have a contract right to compensation while suspended from office. 100 U.S. at 685. Since judges can only be impeached, not suspended, Embry has no relevance here. At any rate, the sentence relied on by plaintiffs, besides being taken out of context, is wholly unnecessary to the holding of the case and thus a textbook example of dicta.

Plaintiffs claim that even if Embry is distinguishable, this case falls squarely under the rule of Johnson v. United States, 111 Ct. Cl. 750, 79 F. Supp. 208 (1948). Tr. at 66. Again, we disagree. Johnson involved a judge who resigned from office. The Court of Claims found that such a judge has a contract or property right to his retirement pay. 111 Ct. Cl. at 756, 79 F. Supp. at 211. Without assessing the validity of this Johnson holding today, we note that a judge who resigns (as the plaintiff did in Johnson) is no longer a federal officeholder. Booth v. United States, 291 U.S. 339, 348-50, 54 S. Ct. 379, 380-81, 78 L.Ed. 836 (1934). At best for plaintiffs, Johnson holds that judges who resign from office in reliance on future retirement payments may have a contract remedy. The Johnson case has no applicability to cases involving compensation for sitting Article III judges.18

Plaintiffs have cited no controlling authority indicating a possible contract claim. Pl. Reply at 27-29; Tr. at 31-37, 65-66. In our view, no such claim exists.

V

Plaintiffs' contention that the extension of Social Security taxes to sitting Article III judges violated the Compensation Clause is a pure question of constitutional law. There are no material facts in dispute. Therefore, defendant is entitled to judgment on Counts I and II, (Second Am. Cplt. at 7-8), as a matter of law. RCFC 56(c).

Plaintiffs' contention that they have a contract right to compensation is likewise a pure question of law involving no disputed material facts. Therefore, defendant is entitled to judgment on the contract claim, (Count III, Second Am. Cplt. at 8-9), as a matter of law. RCFC 56(c).

Based on the foregoing, plaintiffs' motion for summary judgment is DENIED, and defendant's cross-motion for summary judgment is GRANTED. Accordingly, judgment shall be entered in favor of defendant.

Each party shall bear its own costs.

1 The letter is found at 157 U.S. 701. There was a 32-year lapse between the 1863 order of the Court recording the letter and its publication.

2 "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration." U.S. Const. amend. XVI (emphasis added).

3 Plaintiffs here are all prior judges, since they took office before the Social Security tax extended to the judiciary.

4 The court's language is to some degree unclear as to the fate of Miles: "But to the extent that what the Court now says is inconsistent with what was said in Miles v. Graham, 268 U.S. 501, 45 S. Ct. 601, the latter cannot survive." 307 U.S. at 282-83, 59 S. Ct. at 840.

5 In 1982 the Court of Claims and the Court of Customs and Patent Appeals were abolished. Judges of those two courts became judges on the new Court of Appeals for the Federal Circuit. See Federal Courts Improvement Act of 1982, Pub. L. No. 97-164, tit. I, § 165, 96 Stat. 25, 50 (1982) (codified as amended at 28 U.S.C. § 44 (1988)). Court of Claims decisions constitute precedent for this court to the same extent as decisions of the Federal Circuit. South Corp. v. United States, 690 F.2d 1368 (Fed. Cir. 1982).

6 Also interesting in this regard is Justice Butler's dissent in O'Malley itself, which states that the majority in O'Malley "intend [ed] to destroy the decision in Evans v. Gore." 307 U.S. at 297, 59 S. Ct. at 846.

7 The Court of Claims, albeit also in dicta, took a firmer stand on this issue, indicating that an indirect diminution which discriminated against judges would be remediable by the courts. Atkins, 214 Ct. Cl. at 222-23, 556 F.2d at 1048.

8 Atkins as it applies to this case is primarily dicta, since Atkins dealt with the impact of inflation on judicial buying power rather than with an impact caused by congressional action. Will is likewise not on all fours here, dealing as it does with a direct diminution rather than a tax. O'Malley, however, is almost directly on point, with the only arguable distinction being that it does not overtly deal with the problem of taxation of prior judges. Still, as we demonstrate, the dicta from Atkins and Will, read together with the all-important holding in O'Malley, form a consistent and common-sensical body of law governing the instant case.

9 For the purpose of resolving the motions at bar, we accept plaintiffs' assumption that inclusion in Social Security represents a reduction in judicial pay. But this proposition is by no means settled. If plaintiffs were to prevail in this litigation, and all affected judges were effectively taken out of Social Security and refunded their Social Security taxes, Compensation Clause claims by judges who felt their compensation had been decreased would surely result. For instance, though plaintiffs here claim Social Security coverage reduces their compensation, in Robinson v. Sullivan, 905 F.2d 1199 (8th Cir. 1990) (Wollman, J.), a senior judge who was retroactively denied Social Security credit for service during a brief window of Social Security coverage for senior judges challenged the denial as a Compensation Clause diminution. This argument was rejected on the grounds that his temporary coverage under Social Security was "not a direct increase" in compensation. 905 F.2d at 1202 (emphasis added).

10 See Jefferson County v. Acker, 850 F. Supp. 1536, 1548 (N.D. Ala. 1994) (indicating in dicta that new judges would be entitled to the same Compensation Clause protection as the prior judges who were plaintiffs in the case).

11 Plaintiffs agree that the Court of Claims in Atkins read the Supreme Court decision in O'Malley to adopt Holmes's dissent in Evans. Pl. Br. at 33. (A district judge evaluating O'Malley recently came to the same conclusion. Acker, 850 F. Supp. at 1546.) Though plaintiffs argue that the Atkins and Holmes rule allowing judicial salaries to be taxed is incompatible with the Will approach banning any diminution in gross judicial pay, Tr. at 70-71, we disagree. As we explained above in part II A, in actuality Atkins and Will are complementary because they deal with different facts. Will expressed the absolute Compensation Clause protection which exists when judicial pay is directly diminished, while the more flexible rule developed in Atkins indicates that in cases of indirect, take-home pay diminution like taxation, an inquiry into congressional intent is needed.

12 Pl. Reply at 16 n. 7. It is unclear what plaintiffs mean by "at the same time." While it certainly is true that the Revenue Act of 1918 (which was at issue in Evans) did for the first time tax the income of judges, § 213, 40 Stat. at 1065, it is also true that the Revenue Acts of 1916 and 1917 had already imposed broad-ranging income taxes, although exempting judges already in office, ch. 463, § 4, 39 Stat. 756, 759 (1916); ch. 63, § 1200, 40 Stat. 300, 329 (1917). Thus, the income tax was imposed on the public years before judges were included. Only by artificially viewing each successive year's income tax statute in isolation can it be said that the Revenue Act of 1918 imposed a tax on the public and on judges "at the same time." But for purposes of this discussion only, we accept plaintiffs' characterization.

13 Hereafter, we may refer to this as the "simultaneity requirement."

14 Hereafter, we may refer to this as plaintiffs' "relativity" argument or analysis.

15 Plaintiffs posit a scenario (first rhetorically raised in Atkins, 214 Ct. Cl. at 223, 556 F.2d at 1048) in which an enormous tax is laid across the land and then all other federal workers or citizens except judges get a raise or some other kind of relief. Pl. Br. at 36 n. 22. Suffice it to say that we do not here prejudge such a case.

16 The proper constitutional focus is on the interaction between the branches of government, not on the appointment dates of individual judges. (It might be said that plaintiffs' analysis neglects the constitutional dimension of this case in favor of the astronomical.) The Compensation Clause is "not a private grant of privilege [to judges] but a limitation intended to benefit the public at large," Atkins, 214 Ct. Cl. at 223, 556 F.2d at 1049. The same idea is expressed in Will, 449 U.S. at 217, 101 S. Ct. at 481-82 and O'Donoghue v. United States, 289 U.S. 516, 533, 53 S. Ct. 740, 744, 77 L.Ed. 1356 (1933).

17 In September 1983, there were over 2.7 million federal employees. Jt. Stip. P 19.

18 This conclusion is strengthened by the fact that the Court of Claims in Johnson did not once cite the dicta from Embry which, if read in isolation, indicates that sitting judges have a contract right to compensation.

APPENDIX E

UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

No. 94-5139

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. ROETTER, 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

[Filed: Aug. 30, 1995]

Before: ARCHER, Chief Judges, 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. §§ 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. § 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, § 278(a), 96 Stat. 324, 559, 562 (codified as amended at 26 U.S.C. § 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, § 101(a)(1),(b)(1) & (d), 97 Stat. 65, 67-70 (codified as amended at 26 U.S.C. § 3121(b)(5)(E) (1988 & Supp. V 1993) and 42 U.S.C. § 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, § 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 of these pronouncements, however, are sufficient to overrule Evans. Had changes in judicial doctrine in fact "removed or weakened the conceptual underpinnings" of Evans, the Court itself would have overruled the case. Patterson v. McLean Credit Union, 491 U.S. 164, 173, 109 S. Ct. 2363, 2370-71, 105 L.Ed.2d 132 (1989). It has not done so. Further, as the Supreme Court recently stated:

If a precedent of this Court has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions.

Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484, 109 S. Ct. 1917, 1921-22, 104 L.Ed.2d 526 (1989). Again, the Supreme Court has never overruled Evans. Evans governs this case more directly than O'Malley.

The trial court erred by upholding the imposition of Social Security taxes on the claimants on the grounds that such taxation was both "generally applicable" and "non-discriminatory." See O'Malley, 307 U.S. at 282, 59 S. Ct. at 840; see also Atkins, 556 F.2d at 1045. The trial court holding thus interprets the Constitution's Compensation Clause to forbid only discriminatory taxes which single out the federal judiciary. In other words, the trial court in effect read the term "compensation" as synonymous with "salary," and "diminished" as synonymous with "intentionally reduced." This reading limited the protections for judicial independence to discriminatory attacks on the judiciary in the form of direct reductions in salary.

The words of the Constitution are not so limited, nor are its protections for judicial independence. "Compensation" embraces all forms of remuneration, not merely salary. "Diminished" embraces all means of decreasing, regardless of the intent or target of the reduction. Thus, the Constitution protects judicial compensation against all forms of diminishment.

The Constitution's enactment history supports this reading of the Compensation Clause. On June 13, 1787, the Constitutional Convention's Committee of the Whole drafted a resolution prohibiting Congress from either increasing or decreasing the compensation of judges. Clinton Rossiter, 1787: The Grand Convention 365 (1966). Gouveneur Morris opposed the prohibition on increases, as he believed that Congress should have the power to augment judicial compensation "as circumstances might require" to avoid "any improper dependence in the judges." 2 Max Farrand, Records of the Federal Convention of 1787 at 44 (1911). Benjamin Franklin agreed and specified two circumstances- increases in workload and inflation of the currency- which would justify an increase. Id. at 44-45.

James Madison favored retaining the ban on increases in compensation. He feared that judges might unduly defer to Congress during legislative consideration of pay raises. Id. at 45. In other words, the Convention was unanimous on the overriding concern of protecting the judicial branch against meddling with its compensation. Further, the Convention voiced grave concerns about potential compromises in judicial independence if judges faced the prospect of seeking legislative redress of compensation concerns. In sum, the Convention perceived only mischief in the prospect of judges approaching the legislative branch to seek proper compensation. Ultimately, on a vote of 6-2, with one state absent, the Convention permitted increases and forbade all decreases in judicial compensation. Id. at 45.

Alexander Hamilton later explained this result:

It will readily be understood that the fluctuations in the value of money and in the state of society rendered a fixed rate of compensation in the Constitution inadmissible. What might be extravagant today might in half a century become penurious and inadequate. It was therefore necessary to leave it to the discretion of the legislature to vary its provisions in conformity to the variations in circumstances, yet under such restrictions as to put it out of the power of that body to change the condition of the individual [judge] for the worse.

The Federalist No. 79, at 473 (Alexander Hamilton) (Clinton Rossiter ed., 1961). According to Hamilton, the Compensation Clause's term "diminished" forbids any action which changes the "condition of the individual [judge] for the worse." Id.

James Madison concurred in Hamilton's analysis and extended the coverage of the term "compensation" to all "emoluments" of the judicial office:

[M]embers of each department should be as little dependent as possible on those of the others for the emoluments annexed to their offices. Were the executive magistrate, or the judges, not independent of the legislature in this particular, their independence in every other would be nominal.

The Federalist No. 51, at 321 (James Madison) (Clinton Rossiter ed., 1961). In sum, the Convention considered judicial independence a core value of the Constitution and adopted a broad protection for it. See Will, 449 U.S. at 217-21, 101 S. Ct. at 481-84; Evans, 253 U.S. at 252-55, 40 S. Ct. at 552-54.

The text and history of the Compensation Clause do not support the test applied by the trial court. The Supreme Court itself suggested as much in Will where, in considering Congress's rescission of judicial pay raises, the Court stated: "the Constitution makes no exceptions for 'nondiscriminatory' reductions." Will, 449 U.S. at 226, 101 S. Ct. at 486.

The Government's attempt to limit this statement in Will to 'direct diminutions' is unpersuasive. O'Malley, distinguished by the Will Court as applying a nondiscrimination test, held that nondiscriminatory taxation of a judge who took office after the tax went into effect does not violate the Compensation Clause. In such circumstances, the taxation formed part of that judge's compensation scheme from the outset of his tenure. See O'Malley, 307 U.S. at 282, 59 S. Ct. at 838.

Nor does Atkins provide support for application of a nondiscrimination test to the taxes imposed in this case. In Atkins, the United States Court of Claims found that Congress' failure to raise judicial salaries during a period of high inflation was not an actionable diminution under the Compensation Clause, because the plaintiff judges could not show that Congress intended an attack on the judiciary's independence.

However appropriate it may be to consider whether inflation diminishes judicial compensation in a discriminatory fashion, as in Atkins, or applies taxes of general applicability to judges taking office after such taxes are effective, as in O'Malley, neither the Compensation Clause nor Supreme Court precedent supports applying a non-discrimination test to the imposition of a new tax, even though generally applicable, on sitting judges. As indicated above, the controlling Supreme Court precedent, Evans, instructs otherwise. Evans, 253 U.S. at 254-55, 40 S. Ct. at 553-54. Under Evans, only judges who took office prior to the imposition of the new Social Security taxes suffered a diminution.

III.

The trial court did not determine whether the Social Security taxes in this case in fact diminished the claimants' compensation. Although noting that inclusion in Social Security might not result in an overall reduction of compensation, Hatter, 31 Fed. Cl. at 441 n.9, the trial court assumed a reduction, noting the decrease at least in take-home pay, for the purpose of resolving the summary judgment motions before it and proceeding to the constitutional issue.

As noted, the term "compensation" extends beyond mere salary, and includes all forms of remuneration attached to the judicial office. Therefore, the claimants' new Social Security retirement benefits, if any, are part of their compensation. These future benefits, however, are not vested in any manner. They thus do not give the claimants a certain entitlement to any offsetting sum. In addition, innumerable individual scenarios could eliminate a claimant's potential Social Security benefit, or greatly reduce the amount of the potential benefit. Because of all the variables that would have to be taken into account in arriving at even a rough estimate of a current discounted value for Social Security benefits that might be payable in the future, it is impossible accurately to weigh these benefits against the taxes withheld from the claimants.

It is certain, however, that the Social Security taxes diminished the claimants' salaries by specific amounts. The reduction was concrete, while the potential future benefit is entirely speculative. A speculative, incalculable future benefit cannot offset a concrete, present reduction.* The Social Security taxes therefore diminished the claimants' compensation in violation of the Compensation Clause.

CONCLUSION

Social Security taxes diminish the compensation of Article III judges who took office prior to enactment of the taxes. This court therefore reverses and remands the case for tax refunds or recoveries for the sums improperly withheld from the claimants' salaries.

COSTS

Each party shall bear its own costs.

REVERSED and REMANDED.

* If the future benefits were calculable and marketable, however, an unconstitutional diminution in compensation would occur when a present reduction exceeded the present value of the future benefits minus reasonable transaction costs in marketing them.

APPENDIX F

UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

No. 94-5139

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

[Filed: Dec. 26, 1995]

ORDER

A combined petition for rehearing and suggestion for rehearing in banc having been filed by the APPELLEE, and a response thereto having been invited by the court and filed by the APPELLANT, and the petition for rehearing having been referred to the panel that heard the appeal, and thereafter the suggestion for rehearing in banc and response having been referred to the circuit judges who are in regular active service,

UPON CONSIDERATION THEREOF, it is

ORDERED that the petition for rehearing be, and the same hereby is, DENIED and it is further

ORDERED that the suggestion for rehearing in banc be, and the same hereby is DECLINED.

The mandate of the court will issue on January 2, 1996.

FOR THE COURT,

FRANCIS X. GINDHART, CLERK

Dated: December 26, 1995

/s/ By DIANE M. FRYE
DIANE M. FRYE
Chief Deputy Clerk

APPENDIX G

SUPREME COURT OF THE UNITED STATES

October 7, 1996

Affirmed for Absence of Quorum

No. 95-1733. UNITED STATES v. HATTER, JUDGE, UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA, ET AL., C.A. Fed. Cir. Because the Court lacks a quorum, 28 U.S.C. § 1, and since a majority of the qualified Justices are of the opinion that the case cannot be heard and determined at the next Term of the Court, the judgment is affirmed under 28 U.S.C. § 2109, which provides that under these circumstances the Court shall enter its order affirming the judgment of the court from which the case was brought for review with the same effect as upon affirmance by an equally divided Court. JUSTICE STEVENS, JUSTICE O'CONNOR, JUSTICE GINSBURG, and JUSTICE BREYER took no part in the consideration or decision of this petition. Reported below: 64 F.3d 647.

APPENDIX H

UNITED STATES COURT OF FEDERAL CLAIMS

No. 705-89 C

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., DOLORES LEE BURCIAGA, EXECUTIX OF THE ESTATE OF CHIEF JUDGE JUAN G. BURCIAGA, DECEASED, JUDGE A.J. MCNAMARA, JUDGE HARRY PREGERSON, JUDGE RAUL A. RAMIREZ, 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

v.

THE UNITED STATES OF AMERICA, DEFENDANT

[June 6, 1997]

OPINION AND ORDER

TURNER, Judge.

This opinion addresses all damages issues related to claims by 16 federal judges that their compensation was unlawfully diminished by imposition of Social Security taxes. There are no material facts in dispute.1

For reasons stated below, we conclude that eight of the plaintiffs are entitled to refunds of a portion of Social Security taxes withheld from salary in January 1984, together with compound interest. We further conclude, however, that any additional recovery is either barred by the applicable statute of limitations or offset by salary increases and that, consequently, the bulk of plaintiffs' claims for damages must be denied.

I

Plaintiffs are 16 federal district and circuit judges2 who took office prior to January 1, 1983. On that date, all federal judges for the first time became subject to the Hospital Insurance (Medicare) (hereafter HI) portion of the Social Security tax.3 Tax Equity and Fiscal Responsibility Act, Pub. L. No. 97-248, § 278(a), 96 Stat. 324, 559 (1982) (codified as amended at 26 U.S.C. (I.R.C.) § 3121(u) (1988)). One year later, judges became subject to the Old Age Survivors and Disability Insurance (hereafter OASDI) portion of the Social Security tax, and since January 1, 1984, all federal judges have been fully subject to Social Security taxes.4 Social Security Amendments of 1983, Pub. L. No. 98-21, § 101(a)(1), (b)(1) and (d), 97 Stat. 65, 68, 69 (codified as amended at 26 U.S.C. (I.R.C.) § 3121(b)(5)(E) (1988) and 42 U.S.C. § 410(a)(5)(E) (1988)). Social Security taxes have been duly withheld from plaintiffs' monthly compensation since the effective dates of these acts.

Since the original plaintiffs filed their complaint on December 29, 1989, there have been four prior published opinions regarding this case. Chronologically, they are Hatter v. United States, 21 Cl. Ct. 786 (1990) (Hatter I), Hatter v. United States, 953 F.2d 626 (Fed. Cir.1992) (Hatter II), Hatter v. United States, 31 Fed. Cl. 436 (1994) (Hatter III), and Hatter v. United States, 64 F.3d 647 (Fed. Cir.1995) (Hatter IV), aff'd by a divided court, -- U.S. --, 117 S. Ct. 39, 136 L.Ed.2d 3 (1996).

In Hatter I, this court dismissed plaintiffs' claim for lack of jurisdiction, concluding that the plaintiffs were seeking a tax refund and had failed to observe statutory prerequisites to suit. Hatter I, 21 Cl. Ct. at 789. The Federal Circuit reversed, holding that plaintiffs were not seeking tax refunds, but rather were asserting damage claims arising directly under the Constitution which mandates the payment of money. Hatter II, 953 F.2d at 630. The case was remanded to this court for a determination on the merits.

In Hatter III, 31 Fed. Cl. at 447, this court dismissed plaintiffs' claims on the merits. We held that although Social Security taxes caused a reduction in the judges' take-home pay, imposition of the taxes did not violate the Compensation Clause of the Constitution, since the Social Security taxes imposed were nondiscriminatory and generally applicable to the public.

The Federal Circuit reversed, holding that the imposition of Social Security taxes on sitting judges diminished their compensation. Hatter IV, 64 F.3d at 652-53. The Federal Circuit remanded the case for award of "tax refunds or recoveries for the sums improperly withheld from the claimants' salaries." Id. at 653.

II

In this damages proceeding, plaintiffs seek recovery of the total amount of HI and OASDI taxes withheld from their salaries from 1983 to the present, plus interest compounded annually. In total, plaintiffs request an award in the amount of $1,059,675.59 (as of January 15, 1997).

Plaintiffs take the position that the court's task is limited to calculating the precise amounts of HI and OASDI taxes withheld from their salaries and making an award of those amounts with compound interest. Plaintiffs say with respect to principal that the remand directions of the Federal Circuit in Hatter IV are not subject to any other reasonable interpretation.

Defendant argues that all plaintiffs' claims are time-barred to the extent they seek to recover for any amounts withheld prior to January 1, 1984. Similarly, defendant argues that claims by those judges added to the case in 1992 are time-barred at least for years 1984, 1985, and part of 1986 because those claims had accrued more than six years before these judges or new claims were added to the current action.

Defendant further argues that salary increases beginning as of January 1, 1984 more than offset the amount of any Social Security tax deductions from the plaintiffs' salaries for services during and after 1984. Finally, defendant asserts that the plaintiffs are not entitled to an award of interest on any recovery of principal.

III

The history of claim presentation and appearance of plaintiffs in this litigation provides a useful beginning for resolution of damages issues.

A

The original complaint was filed on December 29, 1989 by ten judges. The complaint was specifically limited to OASDI taxes withheld on and after January 1, 1984. The complaint did not object to or otherwise address imposition of HI taxes which had become effective on January 1, 1983 and did not request any damages for taxes withheld during 1983.

After the remand instructing this court to resolve the merits of the case, Hatter II, 953 F.2d at 630, a First Amended Complaint was filed on June 25, 1992. This pleading, submitted more than nine years after imposition of HI taxes, added four new plaintiffs5 and set forth an alternative claim for tax refunds but, like the original complaint, expressed no objection to imposition of HI taxes and made no request for damages suffered in 1983.

A Second Amended Complaint was presented on December 11, 1992 (filed on January 11, 1993). This pleading added two new plaintiffs (bringing the total to the current 16) and, for the first time, asserted a right to damages resulting from imposition of HI taxes on January 1, 1983.6

As is clear from the foregoing, all 16 plaintiffs first presented a claim for recovery of HI taxes more than nine (almost ten) years after the tax was imposed. Although the original complaint presented OASDI claims, only eight of the current plaintiffs were in the case on the first remand in 1992. In June 1992, two original plaintiffs reasserted and four new plaintiffs asserted for the first time claims related to OASDI taxes; in December 1992, two additional new plaintiffs asserted for the first time claims related to OASDI taxes.

(For ease of reference, we hereafter designate the eight original plaintiffs who prosecuted the first appeal and were part of the case upon the first remand as the "original" plaintiffs and the remaining eight plaintiffs who first joined or rejoined the suit after the first remand as the "later-filing" plaintiffs.)

B

In the remainder of this opinion, we first address the OASDI claims of the "original" plaintiffs.

Thereafter, we address (1) the OASDI claims of the eight "later-filing" plaintiffs and (2) the claims of all plaintiffs based on imposition of HI taxes. Resolution of these claims involves application of statutes of limitations together with related issues including the "relation-back" doctrine and the "continuing claim" doctrine.

Finally, we address the issue of interest on damages awards for Compensation Clause violations.

IV

In Hatter IV, 64 F.3d at 653, the Federal Circuit remanded "for tax refunds or recoveries for the sums improperly withheld from the claimants' salaries." Remand was necessary because "the trial court did not determine whether the Social Security taxes in this case in fact diminished the claimants' compensation." Id. at 652 (emphasis added).

A

At all material times, the salaries of federal judges have been paid in monthly installments as of the first day of each calendar month for services during the preceding calendar month. Hence, the salary payments to plaintiffs on or about January 1, 1984 were for services during December 1983, and OASDI taxes withheld from such salary installment, although assessed with respect to and extracted from salary paid in 1984, had the effect of reducing compensation earned in December 1983.

Defendant concedes, in light of Hatter IV, that eight of the plaintiffs7 are entitled to damages for the amount of OASDI taxes withheld from salary payments made in January 1984 for services in December 1983. That amount is $328.95 for seven of the original plaintiffs who were district judges on January 1, 1984, and $347.85 for the original plaintiff who was a circuit judge on January 1, 1984. Def. Br. (2/25/97), p. 4.

Because no salary increase which first became effective on or after January 1, 1984 was retroactive to December 1983, there has been no possible cure of diminution which occurred with respect to income accrued for December 1983. Therefore, we agree with defendant that the eight plaintiffs indicated are entitled to recover the amount equal to OASDI taxes withheld from salary payments in January 1984.

We address in Part VIII below plaintiffs' claims of entitlement to interest on damages.

B

Defendant contends that pay increases in 1984 and subsequent years have offset the diminution of plaintiffs' salaries caused by all OASDI taxes (in fact, all Social Security taxes) withheld from salary payments after January 1, 1984. Even though the Federal Circuit held in Hatter IV, 64 F.3d at 652, that "the Social Security taxes diminished the claimants' salaries by specific amounts," it did not have occasion to consider whether a simultaneous or subsequent retroactive increase could offset or cure the diminution in Article III compensation8 resulting from the Social Security tax deductions. The issue is one of first impression.

In resolving the issue, we start with a straightforward application of arithmetic and logic to the question whether a simultaneous or subsequent pay raise can cure prospectively any diminution resulting from the imposition of a new tax. We then apply two concepts gleaned from legislation and case law, to wit, (1) that taxation of judges' compensation does not, per se, constitute an unlawful diminution, rather it is imposition of a new tax on sitting judges which results in a prohibited diminution, and (2) that Congress has no enforceable duty to raise the salaries of judges, rather any increase is a matter of legislative discretion.

1

At the outset, one would suppose that there could be no dispute that if, simultaneously with the imposition of a new tax, Congress granted an increase in salary which equaled or exceeded the tax, no diminution in the level of compensation just prior to imposition of the tax would have occurred. The mathematical result is the same as if the judge received either no salary increase or an increase in the amount of any excess of the raise over the tax. An increase subsequent to imposition of a new tax would have a similar effect prospectively.

2

Case law applying the Compensation Clause, U.S. Const. art. III, § 1, makes plain that Article III does not prohibit taxation of judges per se but only imposition of new taxes on sitting judges, Hatter IV, 64 F.3d at 650.

In O'Malley v. Woodrough, 307 U.S. 277, 59 S. Ct. 838, 83 L.Ed. 1289 (1939), the Supreme Court held that a federal circuit judge who was appointed after federal income taxes had become effective may be taxed by Congress, and that such taxation did not violate the Compensation Clause. O'Malley, 307 U.S. at 282, 59 S. Ct. at 840.

The Federal Circuit recognized, Hatter IV, 64 F.3d at 650, that all taxes on federal judges are not unconstitutional:

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.

Plaintiffs concede that a general increase in federal income tax rates would not constitute a diminution for any judges currently in office.

3

We next explore the concept that Congress has no enforceable obligation to raise the salaries of judges and, consequently, whether judges receive any increase in compensation is a matter within the discretion of Congress.

In the Constitutional Convention of 1787 which drafted Article III, proposals were made and serious consideration given to prohibiting Congress from making any increase to the compensation of a judge once appointed. For discussions of various positions considered at the convention, see United States v. Will, 449 U.S. 200, 219-20, 101 S. Ct. 471, 482-83, 66 L.Ed.2d 392 (1980); Atkins v. United States, 214 Ct. Cl. 186, 217-221, 556 F.2d 1028 (1977), and Hatter IV, 64 F.3d at 651. Indeed, such a prohibition on increases as well as decreases in compensation was adopted with respect to the President. U.S. Const. art. II, § 1, cl. 6 ("The President shall . . . receive . . . a Compensation, which shall neither be increased nor diminished during the Period for which he shall have been elected. . . .").

It is reasonable to suppose that the Founders-who seriously debated whether any increase in the salaries of sitting judges should be permitted and agreed that there should be none for a President between elections-assumed that Congress would be under no enforceable duty or obligation to raise judicial salaries. Rather, Congress was left with discretion to increase salaries when, in its wisdom, it chose to do so. The same Convention drafted and proposed simultaneously the Appropriations Clause, U.S. Const. art. I, § 9, cl.7 ("No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law. . . .").

The Supreme Court held in Will, 449 U.S. at 226-29, 101 S. Ct. at 486-88, that Congress may rescind a judicial salary increase provided in a statute so long as it does so before the increase becomes effective. "The Constitution delegated to Congress the discretion to fix salaries and of necessity placed faith in the integrity and sound judgment of the elected representatives to enact increases when changing conditions demand." Id. at 227, 101 S. Ct. at 487.

Earlier, the Court of Claims in Atkins v. United States, 214 Ct. Cl. 186, 221-28, 556 F.2d 1028 (1977), cert. denied., 434 U.S. 1009, 98 S.Ct. 718, 54 L.Ed.2d 751 (1978), rejecting assertions by judges that their compensation had been unconstitutionally diminished by economic inflation, recognized that Congress has discretion to increase judicial salaries or to refrain from doing so if the absence of increases is not the result of an intent to discriminate against the judiciary. No such discriminatory intent is alleged in the instant case.

Congress has provided concerning judicial compensation, § 140 of Public Law No. 97-92, 95 Stat. 1183, 1200, December 15, 1981, that federal judges are not entitled to any salary increases "except as may be specifically authorized by Act of Congress."

4

In sum, applying the concepts under discussion, we conclude that when unlawful diminution of judicial compensation results from imposition of a new tax, as found by the Federal Circuit in Hatter IV, 64 F.3d at 653, that diminution is subject to setoff or cure by simultaneous or subsequent salary increases which Congress may, in its discretion, enact, it being under no enforceable obligation to grant any increase. Thus, if Congress mandates that federal judges pay a certain amount in a new tax but, at the same time, gives those judges a salary increase in an amount equal to or greater than the amount of the tax, then any diminution within the meaning of the Compensation Clause is immediately cured. This is what occurred with respect to plaintiffs.

The order of compensation events is obviously quite important. If Congress increased judicial salaries and thereafter took action (either a direct reduction in nominal salary or imposition of a new tax) resulting in a diminution of compensation, the earlier increase would have become part of constitutionally protected compensation adversely affected by the diminution. This is the essence of Will, 449 U.S. at 200, 101 S. Ct. at 473-74. On the other hand, if an increase in nominal salary occurred simultaneously with or subsequent to such a diminution, the simultaneous or subsequent increase accomplishes a cure to the extent of such increase. As illustrated below, this is the situation in this case with respect to OASDI taxes withheld for 1984 and subsequent years.

C

The first Hatter panel in the Federal Circuit implicitly recognized that Congress may restore any diminution that may have occurred. The court reasoned that "only a timely restoration of lost compensation would prevent violation of the Constitution's prohibition against diminution of judicial salaries." Hatter II, 953 F.2d at 628.

Similarly, in Will, the judge claimants apparently recognized a prospective cure after an unlawful salary reduction was restored. Will, 449 U.S. at 206, n.3, 101 S. Ct. at 476, n.3. There, in the