Constitutional Law I, Spring 1996 Exam No. __________

Professor Paul Salamanca

Final Exam: 3 Hours

 

Please read these instructions before you begin.

Please write your exam number in the space above and in any blue books that you use. If you make any assumptions of law or fact, please state them. You are allowed to have with you a clean copy of the Constitution, which I will provide. You may use as many blue books as you like, but please write on only one side of the paper. Please write legibly. Illegible blue books will result in your examination being graded by an irate person. Please return your exam and blue books to me when you have finished. Good luck!

 

I

(50 points total)

 

On January 10, 1998, a revolution rocks the rapidly developing Latin American country of San Pedro, closing factories and throwing hundreds of thousands of people out of work. As a result, people around the world lose faith in the value of San Pedro's currency, the penso, causing them to unload pensos for other currencies, particularly United States dollars. This causes the value of the penso to plummet. Between January 10 and February 10, 1998, the value of one penso decreases from fifty United States cents to twenty-five United States cents.

 

In an effort to support its nose-diving currency, on February 15, 1998, the government of San Pedro begins taking United States dollars that it happens to hold in its treasury and using them to buy pensos. By creating a demand for pensos, the government hopes to reverse the trend in the value of the national currency. Unfortunately, the government lacks the resources to accomplish its goals. More importantly, on March 15, 1998, the government is obligated to pay four billion dollars -- not pensos -- to foreign banks that lent them U.S. dollars in the past. Because the government has been spending U.S. dollars to buy pensos in the market, however, the government is afraid that it will miss payments on the loans due March 15. If this happens, the government will default on its loans, which will cause economic disturbances not only in San Pedro, but as far away as the United States.

 

Desperate for dollars, the leaders of San Pedro appeal to the United States government for support on February 20, 1998. If the United States government will agree to make $20 billion in loans available to them on a ten-year basis, they say, they will be able to restore confidence in their currency. Armed with this information, the President of the United States goes to Congress on February 25 and requests a $20 billion "package"of loans for the government of San Pedro. While Congress mulls over this issue, many members proclaim that San Pedro ought to suffer for its history of bad government. A particularly outspoken senator describes lending money to the San Pedrans as 'throwing good money after bad," in reference to a earlier loan to that government, which, in fact, the San Pedrans had repaid. Meanwhile, the fate of the penso becomes steadily darker, as more people attempt to redeem their pensos for stronger currencies.

You are an Assistant Counsel to the President. Your boss, the White House Counsel, tells you that, because the situation is urgent, the president would like to intervene in the San Pedran crisis without further congressional authorization. The White House Counsel wants to know if there is any constitutional or statutory basis upon which the President might do this.

Shortly after you begin your research, you find the following federal statute, enacted in 1934:

 

AN ACT

 

Section 1. In order to maintain the value of national currencies, the Secretary of the Treasury, with the approval of the President, may purchase or sell gold or foreign currencies, or lend or borrow currency of the United States, as the Secretary deems necessary. Notwithstanding the foregoing language, however, the Secretary may not lend or give credit to a foreign government for a period of more than 6 months, unless the President gives Congress a written statement that unique or emergency circumstances require that he or she do so.

Section 2. The Department of the Treasury shall have a stabilization fund, called the Emergency Stabilization Fund, for which the sum of $2,000,000,000 is hereby appropriated. The Secretary may use the fund to carry out the provisions of section 1 of this Act, and may invest any portions of the fund when not in use. The proceeds of any use of the fund shall be paid back into the fund and shall be available for the purposes of this Act.

With interest, the $2 billion set aside in 1934 has increased to over $40 billion by 1998.

 

As you continue your research, you learn that the Committee of the United States Senate that recommended the 1934 Act issued a report along with its recommendation. In that report, the Committee stated:

Although we recognize that there may be circumstances where long-term ESF credits to foreign governments may be necessary, the Act expressly provides that such loans and credits be provided only where there are such unique or exigent circumstances as natural disasters, trade embargoes, unforeseen economic developments abroad, or other catastrophic events. The goal is for the United States to place primary reliance on international organizations to help other nations with financial crises and to confine direct involvement by the united States in such situations to short4erm operations.

As you continue your research, you learn that the executive branch has lent money from the ESF to foreign governments on numerous occasions, but only twice has the executive given the borrower more than six months to repay, and never has the executive made a loan pursuant to the Act that was not due within a year. You also discover that the United States has never lent more than $600 million pursuant to the Act. Finally, and perhaps most significantly, you learn that previous administrations have denied that the ESF may be used for what amounts to "long-term foreign aid." In hearings before Congress regarding proposed aid to Poland, for instance, officers of the Department of the Treasury testified that:

We have used the fund for intervention in exchange markets and for very short-term loans, usually connected to a guaranteed repayment, but the proposal to provide ESF money to Poland on a long-term basis is a totally different use of the funds. That is much closer to foreign aid. We think, therefore, that the money for helping Poland should be appropriated.

You also know that the entire foreign aid budget for 1998 was $12.1 billion.

 

Question A: Assume for purposes of this question only (Question A) that the President gives Congress the written "unique or emergency circumstances" statement required under section 1 of the Act, and that the Act does authorize the President to make a $20 billion loan available to the San Pedran government for ten years. Would such a loan violate the U.S. Constitution in any way? If so, why? If not, why not? Please do not discuss standing or justiciability in your answer to this question. (5 points)

 

Question B: Assume for purposes of this question only (Question B) that the Act does not confer authority upon the President to make the loan. A colleague at work tells you that some of the opinions of the Court and individual justices in Youngstown Sheet & Tube Co. v. Sawyer (involving President Truman's seizure of the steel mills) and Dames &Moore v. Regan (involving the suspension of claims against Iran after the Hostage Crisis) suggest that the President might have inherent constitutional power to make the money available. Would you agree with his or her observation? Would the existence of the 1934 Act tend to support or refute a claim by the President of inherent authority to make the money available? Please do not discuss standing or justiciability in your answer to this question. (15 points)

 

Question C: Assume for purposes of this question only (Question C) that, not only does the Act not confer authority on the President to make the money available, but also that Congress passed another law in 1990 that provided specifically that:

  • No monies appropriated by the Congress may be lent to a foreign government for a period of more than one year without specific congressional authorization.
    •

    The White House Counsel tells you that a group of United States bankers have offered to put together $20 billion in loans for the San Pedrans, provided the President agrees to assign the Secretary of State to negotiate the loan with the San Pedran authorities. Would the President's assignment of the Secretary present any constitutional problems, in light of the 1990 Act? If the 1990 Act did prevent the President from assigning the Secretary, would the Act violate the Constitution? Please do not discuss standing or justiciability in your answer to this question. (15 points)

    Question D: Assume for purposes of this question only (Question D) that no one knows for sure whether the 1934 Act authorizes the contemplated loan to the San Pedrans. Also assume that the 1990 Act described in Question C never existed. Fearing a collapse of San Pedro's economy, the President decides to make the contemplated loan from the ESF available to the San Pedrans. The President also gives Congress the written statement required by section 1 of the 1934 Act. What if, anything, could a person or group of persons do to stop this loan? How successful would they be? (15 points)

     

    Please state your answers to questions A, B, C and D in the form of memoranda to the White House Counsel.

     

    II

    (40 points total)

     

    International Jumpers, Inc., a famous maker of children's garments, decides to open a new factory in the United States. Several governors attempt to lure International to their state, but the governor of Cineplex, a state where many people are jobless, brings home the prize.

     

    The prize, however, is not free. In exchange for a commitment from International to build the new factory in Cineplex, the state agrees to: (1) donate the necessary land; (2) build the necessary road and rail connections; (3) pay half of the costs to train new employees for the factory; and (4) exempt International from business taxes payable on work performed at the site for a period of five years. In exchange for these concessions, International agrees to: (1) hire only Cineplex based contractors to build the factory; (2) require the contractors to enter into subcontracts only with Cineplex-based subcontractors; (3) require any contractor or subcontractor working at the site to use building materials manufactured in the state, unless such materials are not available at reasonable commercial rates; and (4) make sure that at all times four-fifths of workers at the completed factory are residents of Cineplex.

     

    Question A: Mack Milligan, an independent steamshovel operator, lives in the State of Kankakee, which abuts Cineplex. Milligan performs about half his work in Kankakee and half his work in Cineplex. After finding out about the project, Milligan submits a bid for work as a subcontractor at the site to Yellow Steel, Inc., the prime contractor in charge of building International's new factory, but Yellow Steel turns Milligan down because of International's agreement with Cineplex. Milligan wants to sue the governor of Cineplex to enjoin enforcement of the contractual provision that prevents Yellow Steel from hiring him to work at the site. What are the chances that he will prevail in his suit? Please assume that the governor would be the appropriate party for him to sue.

     

    Question B: Ma and Pa Trivet live and work in Kankakee, across the river from Cineplex and not far from the site where International plans to build its new factory. The Trivets own and operate a cement plant, and anticipate selling plenty of concrete to Yellow Steel and its subcontractors, until the President of Yellow Steel informs them, when they offer Yellow Steel a supply contract, that Yellow Steel is generally obligated, because of International's contract with Cineplex, to purchase concrete from Cineplex-based suppliers. The Trivets would like to sue the governor of Cineplex to enjoin enforcement of the contractual provision that appears to freeze them out of the project. Would they likely prevail? Please assume that the governor would be the proper party for them to sue.

     

    Question C: Local 175 of the International Garment Workers Union is based in a populous city in Kankakee directly across the river from the site chosen for the new factory. Many of the Local's members hold or have held jobs in Cineplex, and several would like to work at International's new factory, but they are aware of the restriction in International's contract with Cineplex. Like Milligan and the Trivets, the Local wants to file suit against the governor of Cineplex. The Local wants the court to enjoin enforcement of the contractual provision that restricts International's ability to hire people who do not live in Cineplex. Would the Local be likely to prevail in its suit? Again, please assume that the governor of Cineplex would be the proper party for the Local to sue. Also, please assume that the Local would have standing to challenge the provision at issue.

     

    In responding to Questions Il-A, B and C, please feel free to incorporate arguments made elsewhere by reference.

     

    III

    (10 points)

    At the convention at which New Yorkers met to decide whether to ratify the United States Constitution, Alexander Hamilton said:

    The State governments possess inherent advantages, which will ever give them an influence and ascendancy over the national government; and will forever preclude the possibility of federal encroachnents. That their liberties indeed can be subverted by the federal head, is repugnant to every rule of political calculation.

    Was Hamilton's prediction accurate?

    Excerpt

     

    The following excerpt may or may not be implicated in the preceding fact situations. I place it here for your reference, in case you think it is necessary:

    It is apparent that several formulations which vary slightly according to the settings in which the questions arise may describe a political question, although each has one or more elements which identify it as essentially a function of the separation of powers. Prominent on the surface of any case held to involve a political question is found a textually demonstrable constitutional commitment of the issue to a coordinate political department; or a lack of judicially discoverable and manageable standards for resolving it; or the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion; or the impossibility of a court's undertaking independent resolution without expressing lack of the respect due coordinate branches of government; or an unusual need for unquestioning adherence to a political decision already made; or the potentiality of embarrassment from multifarious pronouncements by various departments on one question.

    Baker v. Carr, 369 U.S. 186,217(1962).