Throwback Thursday: United States v. Bowman

Chief Justice Taft in 1922, Library of Congress

One hundred years ago, on November 13, 1922, Chief Justice William Howard Taft delivered the Supreme Court’s decision in United States v. Bowman, holding that a federal statute that made it a criminal offense to conspire to defraud a corporation owned by U.S. government applied extraterritorially to conduct on the high seas and in Brazil. Taft reasoned that the presumption against extraterritoriality, which the Court had recently articulated in American Banana Co. v. United Fruit Co. (1909), did not apply to statutes like this.

Bowman reasoned that the geographic scope of a statute “depends upon the purpose of Congress,” anticipating the focus approach that Morrison v. National Australia Bank (2010) would incorporate into the presumption itself. This Throwback Thursday post examines Bowman and its implications for extraterritoriality today.

The Facts

Raymond H. Bowman was the engineer on the steamship Dio, which belonged to the United States Shipping Board Emergency Fleet Corporation (“Fleet Corporation”) owned by the U.S. government. According to the indictment, Bowman and the ship’s captain hatched a plan while the ship was at sea to bill the Fleet Corporation for more fuel than they took aboard at Rio de Janeiro, Brazil. They carried out the plan with help from a Standard Oil Co. agent in Rio and a British merchant there. All but the last were U.S. citizens, and all four were indicted in New York.

According to Ellen Podgor and Daniel Filler, one of the U.S. defendants pleaded guilty and was sentenced to a single day in custody.  The second U.S. defendant jumped bail. And the British defendant was never apprehended. That left Bowman. The district court dismissed the charges against him on the ground that the statute did not apply extraterritorially to conspiracies on the high seas and in Brazil. The Supreme Court reversed.

Chief Justice Taft’s Opinion

Chief Justice Taft began by observing that the geographic scope of a statute, “when not specially defined, depends upon the purpose of Congress as evinced by the description and nature of the crime and upon the territorial limitations upon the power and jurisdiction of a government to punish crime under the law of nations.” The customary international law governing prescriptive jurisdiction was changing at this time, a process that would culminate five years later in the Permanent Court of International Justice’s famous Lotus decision. But there was no question that the United States had authority under international law to regulate the conduct of its own nationals abroad, a principle the Supreme Court had recognized a century earlier in The Apollon (1822).

Taft then distinguished between two classes of statutes.

Crimes against private individuals or their property, like assaults, murder, burglary, larceny, robbery, arson, embezzlement, and frauds of all kinds, which affect the peace and good order of the community must, of course, be committed within the territorial jurisdiction of the government where it may properly exercise it. If punishment of them is to be extended to include those committed outside of the strict territorial jurisdiction, it is natural for Congress to say so in the statute, and failure to do so will negative the purpose of Congress in this regard.

Taft was referring here to the presumption against extraterritoriality articulated in American Banana, a 1909 case involving antitrust law, which he gave as an example of this class of statutes that are presumed to be territorial.

“But,” Taft continued, “the same rule of interpretation should not be applied to criminal statutes which are, as a class, not logically dependent on their locality for the government’s jurisdiction, but are enacted because of the right of the government to defend itself against obstruction, or fraud wherever perpetrated.” When territorial limits would “greatly … curtail the scope and usefulness of the statute,” the Court does not require a “specific provision in the law that the locus shall include the high seas and foreign countries, but allows it to be inferred from the nature of the offense.” The statute criminalizing conspiracies to defraud government-owned corporations like the Fleet Corporation fell into this category.

The Changing Presumption Against Extraterritoriality

Inconsistent Application

The presumption against extraterritoriality that the Supreme Court articulated in American Banana turned entirely on the location of the conduct. “[T]he character of an act as lawful or unlawful,” Justice Holmes wrote, “must be determined wholly by the law of the country where the act is done.”

Over the next four decades, the Supreme Court applied this presumption inconsistently. It relied on the presumption to limit the employment statutes like the Seaman’s Act, the Employer Liability Act, and the federal Eight Hour Law. But it held that effects in the United States were sufficient to justify extraterritorial application of the National Prohibition Act and the Sherman Act. The Court held that a tax statute applied extraterritorially to a U.S. citizen in Mexico without any mention of the presumption. And, of course, it held in Bowman that the presumption did not apply to statutes, like the one prohibiting fraud against a government-owned corporation, that are “not logically dependent on their locality for the government’s jurisdiction.”

When the Supreme Court departed from the presumption against extraterritoriality, it was generally in cases where limiting the statute to conduct within the United States would defeat the statute’s apparent purpose. Bowman made the connection to congressional intent explicit, stating that the geographic scope of a statute, “when not specially defined, depends upon the purpose of Congress.” In 1949, the Supreme Court took a further step in Foley Bros. v. Filardo, making presumed congressional intent one of the rationales for the presumption against extraterritoriality. Whereas American Banana had based the presumption on the need to avoid “interference with the authority of another sovereign, contrary to the comity of nations, which the other state concerned justly might resent,” Foley Bros. recast it in terms of “congressional intent … based on the assumption that Congress is primarily concerned with domestic conditions.”

Death and Rebirth

After Foley Bros., the presumption against extraterritoriality fell out of use. The Supreme Court did not apply the presumption again until 1989, and in the meantime lower courts developed alternative approaches to determine the geographic scope of U.S. antitrust and securities laws. In 1991, Aramco resurrected the presumption in full force, holding that Title VII did not apply extraterritorially (a result Congress quickly overrode by amending the statute). Like American Banana’s presumption, the Aramco presumption turned entirely on the location of the conduct. It was also applied inconsistently, with the Supreme Court declining to apply the presumption against extraterritoriality to the Sherman Act, for example.

The New Presumption

In 2010, in Morrison v. National Australia Bank, the Court adopted a new presumption against extraterritoriality. Morrison divided the presumption analysis into two steps. At step one, a court looks for a “clear indication” of a provision’s geographic scope. If there is no clear indication, then at step two, a court determines the “focus” of the provision. If the focus is found in the United States, then applying the provision is considered domestic even if conduct occurs abroad. In Morrison, for example, the Court had to determine the geographic scope of Section 10(b), the principal antifraud provision of the Securities Exchange Act, in a case that involved fraud in the United States affecting a transaction in Australia. At step one, the Court found no clear indication of Section 10(b)’s geographic scope. At step two, the Court determined that the provision’s focus was the transaction not the fraud, adopting a transactional test that turns on the location of the transaction rather than the location of the fraudulent conduct.

As I have explained elsewhere, this new presumption attempts to channel congressional intent. The presumption first looks to see if Congress has clearly indicated its intent with respect to the scope of a particular provision. If Congress has not, then the presumption aims to effectuate congressional intent by looking to the purpose of the provision, applying the provision if its “focus” is in the United States. In the process of adopting its new presumption, the Supreme Court broke with American Banana and Aramco by detaching the presumption from the location of the conduct. Under the new presumption, the application of a provision turns on the location of the conduct only when conduct is its focus. But when the focus is something else, the application of the provision turns on the location of that other thing, in Morrison, for example, the location of the transaction.

Bowman foreshadowed Morrison’s approach by emphasizing the importance of congressional intent. The geographic scope of a statute, Chief Justice Taft wrote, “when not specially defined, depends upon the purpose of Congress.” To be sure, Bowman created an exception to the presumption based on congressional intent, whereas Morrison incorporated congressional intent in its two-step framework. But both decisions recognize that different kinds of statutory provisions may have different geographic scopes. And both also recognize that a court need not always find a “specific provision in the law that the locus shall include the high seas and foreign countries” and may instead “allow[] it to be inferred from the nature of the offense.”

Bowman’s Implications Today

In addition to anticipating the Supreme Court’s current approach to extraterritoriality, Bowman has a few other implications today. One concerns the geographic scope of criminal law. A few courts have read Bowman to stand for the proposition that the presumption against extraterritoriality never applies to criminal statutes. But this is clearly wrong. Taft was quite clear that the presumption applies to “[c]rimes against private individuals or their property, like assaults, murder, burglary, larceny, robbery, arson, embezzlement, and frauds of all kinds, which affect the peace and good order of the community.” He distinguished only “criminal statutes which are, as a class, not logically dependent on their locality for the government’s jurisdiction, but are enacted because of the right of the government to defend itself against obstruction, or fraud wherever perpetrated.” It was only crimes against the government, Taft reasoned, that might apply without geographic limit.

Bowman also raised the possibility that some statutory provisions may have no geographic focus and therefore apply universally. This helps to explain the Supreme Court’s post-Morrison decisions in two intellectual property exhaustion cases. In Kirtsaeng v. John Wiley & Sons (2013), the Court adopted a “nongeographical interpretation” of the Copyright Act’s exhaustion provision, holding that the first sale of a copyrighted book in Thailand exhausted the copyright. Notably, the Court reached this conclusion over a dissent by Justice Ginsburg invoking the presumption against extraterritoriality. Four years later, in Impression Products v. Lexmark International (2017), the Court reached a similar conclusion with respect to patent exhaustion, without mentioning the presumption. One way of understanding these decisions is to say that copyright and patent exhaustion are, to quote Bowman, “not logically dependent on their locality.”

Conclusion

Bowman was a decision ahead of its time. Chief Justice Taft had the good sense to understand that the presumption against extraterritoriality could not be applied without an appreciation of what Congress was trying to accomplish. As the Supreme Court continues to grapple with the geographic scope of various statutory provision—including a case involving the federal trademark statute this Term—one can only hope that the current Court shows similar common sense.