Schechter Poultry Corp. v. United States (1935)

Introduction

In the case Schechter Poultry Corp. v. U.S. (1935) the major statute under review was the “Live Poultry Code”. The “Live Poultry Code was part of a larger sweeping reform enacted under President Franklin Roosevelt known as the new deal legislation. The code was created as part of the National Industry Recovery Act (NIRA) to regulate industry as a way to combat the great depression. Section 3 of the act gave the president the right to regulate unfair competition in business.

The President approved the “Live Poultry Code” on April 13th,  1934. The code contains eight articles that describe its intent and scope such as purposes, definitions, hours, wages, general labor provisions, administration, trade practice provisions, and general provisions. The intended purpose of the act was to enact the policies of the first title of the National Industrial Recovery Act.  The code was intended to establish a code of fair competition in the city of New York.

The act defined industry as every person engaged in selling, re-selling, handling, transporting, and slaughtering live poultry in New York. Employers were considered to be members of industry and employees were defined as any engaged in the industry no matter how they were compensated. The code also set a fix number of hours for work days, and week. No employee, except a few exceptions were allowed to work more than 40 hours in any one week, and that no employee should be paid less than 50 cents per hour. The code also prohibited anyone under the age of 16 from being employed in the industry. Employees were given the right to collectively bargain and freedom to choose labor groups by article 7(a) of the act. It also set a minimum on the number of employees employed by slaughterhouses and the number could only be changed according to the volume of sales per week. There was also to be an industry advisory committee that would supervise the code. The code also contained trade provisions that prohibited unfair methods of competition and members were responsible for keeping records of all financial transactions.

Case Timeline

Background

President Roosevelt’s sole focus was on ending the Great Depression during his run for Presidency. Roosevelt believed the United States economy suffered from too much competition, which made prices too low. He felt like it would be better for the economy if the government could enforce higher prices, which would increase income. People would start spending more money again, and the depression would end. After his inauguration the National Industrial Recovery Act was passed which established strict codes for individual industries (Tammy Bruce).

Schechter Poultry Corporation purchased live poultry from Commissioners in New York City and Philadelphia. Once they received the chickens they sold the slaughtered poultry to retailers and butchers in Brooklyn. The Schechter brothers ultimately became a target and was convicted in the District Court of the United States in the Eastern District of New York for violating the Live Poultry code, under Section 3 of the National Industrial Recovery Act. Section 3 of the Act authorized the President to approve “codes of unfair competition” for trades and industries, and a violation of any code provision in any transaction in or affecting interstate or foreign commerce was punishable by a fine (Supreme.justia). They were indicted on 60 violations of the poultry code including competing too hard, keeping prices too low, and selling unfit chickens (Tammy Bruce). They also were charged for avoiding inspections by local poultry regulators, falsifying records of poultry sold, selling poultry to non-licensed purchasers, and plenty more.

The Schechter’s and their lawyer appealed their case. They lost the first appeal, but they continued to appeal until their case was eventually heard by the Supreme Court. After reviewing the case the Supreme Court voted and ruled in favor of the Schechter brothers with a unanimous decision. The Supreme Court held that the National Industrial Recovery Act was an unconstitutional attempt to regulate intrastate commerce (Tammy Bruce).

Procedural History

Joseph, Martin, Alex, and Aaron Schechter were indicted on 60 violations pertaining to the Live Poultry Code in the District Court of the United Stated in the Eastern district of New York. “The Schechter brothers were convicted on 18 counts of violating the Live Poultry Code and two counts of conspiring to violate the Live Poultry Code.” (Legal.dictionary) Fortunately, “the trial court dismissed 27 of the counts, while the brothers were acquitted of the other charges.” (Supreme justia) Even though the brothers were sentenced to jail and fined for the convictions the case did not end there. The brother decided to appeal the case at the state level, but unfortunately the appeals court did not favor with the brothers, instead they affirmed their convictions. The Supreme Court eventually took interest and decided to hear the case to see if the decision was unconstitutional.

Issues

Article 1 of the Constitution states that all legislative (law making) powers shall be vested in a Congress of the United States. The “Live Poultry Code” was created under section 3 of the National Industrial Recovery Act. That section authorizes the President to approve “codes of fair competition.” This gave the President the power to “impose conditions (law and regulations) for the protection of consumers, competitors, employees, and others, and in furtherance of the public interest, and may provide such exceptions to and exemptions from the provisions of the code, at his own discretion (Supreme.justia). The issue here is can Congress transfer to others, in this case, the executive branch of government, the essential legislative functions with which it is vested by Article I of the Constitution of the United States?

Article 1 Section 8 of the Constitution grants congress the power to regulate commerce among the states, foreign nations, and Indian tribes. “The “Live Poultry Code” also states that violation of any provision of a code  “in any transaction in or affecting interstate or foreign commerce” is made a misdemeanor punishable by a fine of not more than $500 for each offense, and each day the violation continues is to be deemed a separate offense” (Supreme.justia). Schechter Poultry Corp was selling to local companies within the state of New York when they violated the Live Poultry Code. This bring up another apart of that issue, whether the regulations could be authorized by the commerce clause?

Holdings

Primary Holding: NO –No branch of the government can delegate its power to another (Supreme.justia).

  • The court held that the Live Poultry Code was unconstitutional and that the conviction must be overturned. The court stated that the president did not have the power to write the code citing the U.S. Constitution, Article I that states all legislative power is vested in Congress and that no branch can delegate its power to another.
  • The court also held that the phrase “unfair competition” was too ambiguous to properly enforce.
  • The justices of the court vote unanimously in a 9-0 vote against the Live Poultry Code. There was also a concurring opinion by Justice Benjamin Cardozo joined by Justice Harlan.

Majority Opinion

The defendants argued that “(1) that the Code had been adopted pursuant to an unconstitutional delegation by Congress of legislative power; (2) that it attempted to regulate intrastate transactions which lay outside the authority of Congress, and (3) that, in certain provisions, it was repugnant to the due process clause of the Fifth Amendment.” Chief Justice Hughes delivered the majority opinion of the Court.

(1) The “Live Poultry Code” was promulgated under Section 3 of the National Industrial Recovery Act. The code authorized the President to approve “codes of fair competition”. The code allowed the President to “impose such conditions for the protection of consumers, competitors, employees, and others” as long as it did not promote monopolies. The “Live Poultry Code” was approved by the President on April 13, 1934. The purpose of the code established “a code of fair competition for the live poultry industry of the metropolitan area in and about the City of New York.”.

The Court held that “Congress is not permitted to abdicate or to transfer to others the essential legislative functions with which it is thus vested”. In the Constitution, it says that all legislative powers are vested in a Congress of the United States. However, the Court understands that in extraordinary conditions, extraordinary remedies may be required, but “Extraordinary conditions do not create or enlarge constitutional power.” Therefore, the Court concluded that “We think that the code-making authority this conferred is an unconstitutional delegation of legislative power.”

(2) The defendants held that the poultry in their slaughterhouse markets for slaughter and local sale to locations that sold directly to customers. The slaughtering and the sales by the defendants were not interstate commerce transactions. Under Section 3, “penalties are assigned to violations of a code provision in any transaction in or affecting interstate foreign commerce”. The code provisions, in this case, do not concern the “transportation of the poultry from other States to New York, or the transactions of the commission men or others to whom it is consigned, or the sales made by such consignees to defendants” because ultimately, the poultry was taken to Brooklyn for “local disposition.” The government argued that the use of The Stream of Commerce Doctrine justified the regulation of economic activity. The doctrine basically states that intrastate commerce can be regulated when it comes into contact with interstate commerce.

The Court held that “the regulations of transactions involved in that practical continuity of movement, are not applicable [in this case].” The poultry “had come to a permanent rest within the State” and was not used in any further transactions in interstate commerce. Therefore, decisions that handle interstate commerce with regulations do not apply.

Separate Opinions

Justice Benjamin Cardozo delivered the concurring opinion. He argued that the delegated powers of legislation should be not confined. He continued on to quote an opinion from Panama Refining Co. v. Ryan to say “no grant to the Executive of any roving commission to inquire into evils and then, upon discovering them, do anything he pleases.” Justice Cardozo believed that the legislative branch has the power to delegate powers, but the power should be limited. In this case, when Congress delegated their legislative powers to the President, there was a “roving commission to inquire into evils and, upon discovery, correct them.” Delegation in some situations is needed because there are many diverse industries, which makes it difficult for Congress to legislate directly with an appropriate consideration of all conditions.

However, in the case of Schechter Poultry Corp. v. United States the code created when beyond the limits of the power transferred to the President. The purpose of the code was to include ordinances that would be helpful to the wellbeing of the industry, not eliminate practices that are “unfair”. If this were allowed, Congress could allow the President to make decisions regarding the “betterment of business” by calling it a code.

Lastly, if the code had been implemented by Congress, it would still be considered void unless the authority to adopt the code included “to regulate commerce with foreign nations among the several states” in the grant of powers.

Justice Harlan Stone joined Justice Cardozo.

There was not a dissenting opinion. The Supreme Court ruled an unanimous decision in favor of Schechter Poultry Corp.

Significance/Impact

The decision in the A.L.A Schechter Poultry Corp v. United States, the United States Supreme Court held that the Commerce Clause granted Congress the power to regulate interstate commerce, but not intrastate commerce. The power to regulate intrastate commerce was left to the states by the Tenth Amendment.

According to the Court, the business conducted by the Schechters was intrastate commerce. Their business was licensed in New York, they bought their poultry in New York, and they sold it to retailers in New York. The Live Poultry Code intended to reach intrastate businesses thus, regulating intrastate commerce, and it was therefore an unconstitutional exercise of congressional power. The Court declared the Live Poultry Code unconstitutional.

The Schechter decision was decided around the same time as Supreme Court decisions that struck down other federal attempts to address the economic crises of the depression by regulating commerce. Particularly, the Schechter decision was a difficult setback for the Roosevelt administration. The NIRA was the cornerstone of Roosevelt’s plan to stabilize the economy and the government’s loss in the case proved to be devastating to the New Deal codes. After the Schechter decision was announced, Roosevelt publicly declared that the Court’s “horse-and-buggy definition of interstate commerce” was an obstacle to national health.

Roosevelt’s remarks were controversial because they appeared to cross the line that separated the powers of the executive branch from those of the judicial branch. His comment caused a debate on the definition of interstate commerce, the limits of federal and judicial power, and the role of the U.S. Supreme Court. Citizens and legislators began to propose laws and amendments in an effort to change the Supreme Court. Roosevelt did not support any proposals to change the Supreme Court in hope of a reversal of the Schechter decision. Later, the Supreme Court delivered another series of opinions in 1936 that struck down more New Deal legislation. Roosevelt then began to push for legislation that would modify the makeup of the Court. In 1937, the Supreme Court began to issue decisions upholding New Deal legislation. Congress never furthered Roosevelt’s court-packing plan.

Text of Case Opinion

Majority Opinion (Hughes)

External Resource Links

This source is useful because it talks about the significance of the Schechter case and how the outcome of the case ultimately led to the National Relation Labor Act.

This external resource is useful for understanding the case in its most simplistic form and enables the reader to determine the issues and facts of the case.

This external link is useful for an overall summary of the case to give the reader an idea of what will be discussed in the case.

This source is useful because it explains the case in simpler form.

This resource is useful because it explains what the National Relation Labor Act is. It is important to know this Act because it was Congress response to losing the case to Schechter Poultry Corp.

This link is useful to understanding the case because it explains what the Schechter brothers were charged with and talks about the outcome of the case.

This resource is useful for understanding the case because it talks about what was going on at the time to make the president want to implement the NRA.

This link is useful to understanding the case because it explains what the National Industrial Recovery Act is. It is important to know this because the strict codes for industries were established under this Act.

 Major Statute Under Review

National Industry Recovery Act (NIRA)

Important Precedents

Gibbins v. Ogden, 22 U.S. 1, 9 Wheat. 1, 6 L. Ed. 23 (1824)

Panama Refining Co. v. Ryan, 293 U. S. 388, (1935) 

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