Schechter v. US
Bill Long 11/16/05
295 US 495 (1935); A Really Big Case
I originally got into this case because I was researching the historical background to the Uniform Commercial Code. That task led me in four different directions. First, I began to study some of the New Deal background to Article 2 concepts. I will write some essays on this background soon. As part of this first directin, it led me to some interesting vocabulary (palming off), which I studied here. Second, it brought me to early trademark cases, where palming off and unfair competition are discussed. Third, it is leading me to study the history of the development of drafts of Article 2, a seemingly dull process but one which I hope will result in several essays over the next month. And, finally, it brought me back to the Schechter case which, more than any other case, shows in stark contrast two significantly different intellectual worlds that passed each other in the night in the mid-1930s. In this and the next essay, I will present the Schechter case from the perspective of those two important worlds.
What Was At Stake in Schechter
On the surface, Schechter is about chickens and shochtim (the chicken slaughterers--the only time the word appears in any appellate case in American history) or, for more sophisticated readers, about the propriety of Congress' delegating its law-making power to the Executive branch. This is the way, in fact, the case is normally presented in "doctrinal" constitutional law classes. But, under the surface it is the story of a clash of two world views which are represented by Charles Evans Hughes, Chief Justice of the United States and Republican nominee for President against Woodrow Wilson in 1916, and his fellow New Yorker, President Franklin Delano Roosevelt. To understand these two world views we must understand a statute passed by Congress in June 1933, in the first 100 days of FDR's first term. It is known by its acronym NIRA (the National Industrial Recovery Act), and was the jewel in the crown of the New Deal Reformers.
What's In A Statute?
NIRA authorized the President to approve "codes of fair competition" for various industries. More specifically, sec. 3 of the statute provided that "upon the application to the President by one or more trade or industrial associations or groups," the President may approve codes of fair competition for that industry, taking care to make sure that the associations recommending the codes were open to members, small and large alike, of the industry and that the codes were not designed to promote monopolies or eliminate or oppress small enterprises. Before accepting the recommendation of any industry group, the President would grant "the right to be heard" to any groups affected by the codes. The President could also impose conditions on the industry groups for the protection of consumers, competitors, employees and others.
Once the President approved such competition codes, the provisions of the codes "shall be the standards of fair competition" for the affected industry. Any violation of the terms of the codes shall be deemed "an unfair method of competition in commerce" within the meaning of the Federal Trade Commission Act ("FTC"). US District Courts were empowered to restrain any violation of a code of fair competition. The statute also went on, among other things, to regulate maximum hours and minimum wages for those who worked in these industries.
The Heart of the Disagreement
The huge leap taken by this statute, in comparison with preceding common law decisions and the FTC Act, was to broaden the definition of "unfair competition" far beyond anything the Act or the common law decisions before the 1914 Act had authorized. That is, the tort of unfair competition was limited, as Chief Justice Hughes would point out, to the dual sins of misrepresentation (saying that your goods are some else's) and misappropriation (saying that someone else's goods are your own). Now, under this 1933 statute, the concept had been exploded far beyond any recognizable bound. Unfair competition was redefined to include anything that may violate any code that industry groups wrote and the President (not Congress) approved. Unfair competition would include violation of minimum wage laws; it could, in the case of the poultry industry, be the selling of chickens that were defective in any way. Hughes put the issue in the following rhetorical questions:
"What is meant by 'fair competition' as the term is used in the act? Does it refer to a category established in the law, and is the authority to make codes limited accordingly (answer expected, NO!)? Or is it used as a convenient designation for whatever set of laws the formulators of a code for a particular trade or industry may propsoe and the President may approve...or the President may himself prescribe, as being wise and beneficient provisions for the government of the trade or industry in order to accomplish the broad purposes of rehabilitation, correction, and expansion which are stated in the first section of title I (expected answer, YES!)?" 295 US at 530.
Conclusion
This, then, rather than simply the issue of improper delegation of Congressional authority, is really the problem of the case. On the one hand will be those who think that in order to deal with industrial chaos and depression all around, that codes of competition must be developed (to eliminate the "chiseler") and enforced. On the other hand are those who believe that this kind of code not only expands the law of unfair competition in an unrecognizable direction but it centralizes power in Presidential hands and would eliminate the freedom to contract that had been a sacred principle of American law. The next essay tells some of the specifics of the case.
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