This is a rush transcript from "The O'Reilly Factor," July 27, 2007. This copy may not be in its final form and may be updated.

MICHELLE MALKIN, GUEST HOST: Hi, I'm Michelle Malkin reporting for Bill O'Reilly. Thanks for watching us tonight. Our top story takes us to Hazelton, Pennsylvania, a former mining town that has become ground zero for the illegal immigration debate.

Last year, Hazelton officials passed a law imposing fines on landlords who rent to illegals and denying business permits to companies that give them jobs.

It was a tough measure aimed at cracking down on a huge population increase of illegals. Dozens of other towns followed suit. But Federal Judge James Munley struck the law down, saying it's the federal government's job to deal with illegal immigrants. The mayor says he'll take the case all the way to the Supreme Court if he has to.

Joining us now from Fort Worth, Texas, immigration attorney Francisco Hernandez. And from Topeka, Kansas, Kris Kobach, attorney for the Hazelton mayor.

Chris, I'm going to start with you. You've read this entire 200-plus-page ruling. And I saw you quoted saying that this is a great glaring example of judicial activism. Explain that.

KRIS KOBACH, ATTY. FOR HAZELTON, PA MAYOR: Well, it's activism in the truest sense, where the judge ventured out of his judicial role and into a sort of a quasi-legislative role.

At one point, the judge looked at an act of Congress passed in 1986, that says cities do have permission to impose licensing sanctions on the employers of unauthorized aliens. And he said, “Well that's the way the statute reads, but that doesn't make sense to me.” He literally said it wouldn't make sense to read it that way.

And so he gave his own meaning to that statute where he took away the permission that Congress gave to these cities. He also ignored a Supreme Court precedent that's been around for 31 years, coming out of California back in 1976 that says cities and states do have the authority to penalize the employers of illegal aliens.

MALKIN: Now James Munley is a Clinton appointee. I think that's worth pointing out here just in connection with, you know, his activist bent. What are your next steps? What are you going to do?

KRIS KOBACH, FORMER JUSTICE DEPT. COUNSEL ON BORDER SECURITY: We will be appealing to the Third Circuit Court of Appeals in Philadelphia. And actually, we knew for quite some time that the judge was likely to rule against us. And the other side knew as well that this case was going to be decided in the Court of Appeals.

So really, this was just round one in a two part legal battle, which you know, conceivably could have three parts if it goes to the Supreme Court.

MALKIN: Right. Now this judge did something very unusual, because he allowed the plaintiffs to be anonymous, these are illegal aliens who represented the plaintiffs’ side.

KOBACH: Yes.

MALKIN: Explain what happened there. And apparently, legal U.S. citizens and legal immigrants don't have that same right.

KOBACH: Yes, nor do U.S. citizens. This was one of the extraordinary rulings he made before the trial even began. He ruled that illegal aliens could sue a United States city. Now that's something you and I can't do. A U.S. citizen cannot walk in and say, “I want to sue some city. And I don't want to be revealed. And I don't want to take the stand. I don't want to be cross- examined.”

These illegal aliens were not cross-examined. We never learned their names. We never were able to question them and find out their exact situation and any injuries they may/may not have suffered. And so, it was an extraordinary ruling at the beginning. And we'll probably be appealing that ruling as well, although that's sort of on the side of the central issue of the opinion.

MALKIN: Right. Right. Francisco, so it looks like this case is going to go to the Third Circuit Court of Appeals. What is your read on the ruling?

FRANCISCO HERNANDEZ, IMMIGRATION ATTORNEY: Well, I agree with the ruling. I disagree with the concept that it's judicial activism. If you just read one sentence from his opinion — the genius of our Constitution is that it provides rights even to those who evoke the least sympathy from the general public. That's a strict interpretation of the Constitution, which is what we're trying to safeguard here.

I do agree that it is the first step of many steps to go to the Supreme Court eventually. And really all this was caused, as the mayor said, because the federal government refuses to do its job. And that's what the judge said. It's not the city's job. It's not the state's job. It's the federal government's job to address these immigration and border issues. It's that strict interpretation.

MALKIN: But did you just hear Kris Kobach point out that special rights were conferred on these plaintiffs that are not available to people who are here legally, U.S. citizens or legal immigrants or otherwise?

HERNANDEZ: They are available if there's a particularized need. We let child victims of offenses testify via closed circuit so they don't get involved in the fear or put them in any danger.

In this situation, obviously if the plaintiffs’ identities were to be disclosed, well, the cities could just call immigration and have them deported. And guess what, no plaintiff, no lawsuit. That's what the judge is trying to safeguard is the protection and the ability of this lawsuit to go forward. I can sue a city. And I can sue a state. It does not keep me from suing them because people that need protection...

MALKIN: Kris, I'm going to let you respond.

KOBACH: Yes. The point he's making about the anonymous plaintiffs is absolutely wrong. In the past precedent, there have only been two areas where the Supreme Court has recognized that you can sue anonymously. If you're a minor, to protect that person, and if you are someone suing for example on an abortion-related issue involving unique personal privacy claims. That's it.

This was new ground that the judge plowed, where he said “Well, I'm going to protect this plaintiff because this plaintiff is breaking federal law and I want to protect him from his potential violation of federal law.” No federal judge should be in that position where he's sheltering someone because that individual has broken federal law. That's unusual.

HERNANDEZ: Well, listen, and we...

KOBACH: And as far as judicial activism goes, you know, the earlier point that somehow just because this judge wrote this flowery passage about how everybody is guaranteed rights — and by the way we never contested that in the trial. That was largely beside the point. Strict interpretation or non-judicial activism means you stick to the meaning of the law.

There was clear law in the books. Congress said - states and localities can do this. And that's ultimately the question here, what Congress allows states and localities to do. And the law was very clear. The judge said he didn't think that made sense. And he put his own vision of the law, his own spin on the law. That's why we think this is actually going to be a pretty easy case to appeal.

MALKIN: Francisco, go ahead.

HERNANDEZ: When really what you want is an adverse ruling, so you could appeal. That was the whole point of making your statements. You want to — because eventually, it doesn't even mean much of a precedent unless it has a court appellate rule on it. And then you have to have both — at least two circuits contradict each other.

KOBACH: You're right — I agree.

HERNANDEZ: So the Supreme Court will entertain it. So we all wanted some kind of ruling just so the process can continue.

KOBACH: No, you're absolutely right. Both sides were going to appeal this, no matter what the ruling was. And I think both sides recognized the judge probably was going to come down this way anyway. But what I'm saying is — because the judge wrote — he went on such thin ice, and he took such extraordinary measures.

For example, ignoring that Supreme Court precedent, or not ignoring it, but saying he no longer thought it applied, that's going to make this easier for us to appeal. If he had written a tightly reasoned opinion that didn't venture out into such thin ice, it would have been a harder appeal for us.

MALKIN: We have about half a minute left, Francisco. And I just want to understand your position. Is it your position that no locality or state should take any action at all to remedy what the federal government is failing to do and force immigration law?

HERNANDEZ: I'm saying if we're going to take action at the local level, it ought to be an action that actually has to do with the action you're trying to keep from happening. Renting, well, you might as well stop renting to homosexual couples because they may engage in what somebody might consider to be illegal sex.

MALKIN: Well, we'll see how the immigration issue plays out. Gentlemen, thank you.

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