National Industrial Recovery Act - Legal Challenge and Nullification

Legal Challenge and Nullification

On April 13, 1934, the President had approved the "Code of Fair Competition for the Live Poultry Industry of the Metropolitan Area in and about the City of New York." The goal of the code was to ensure that live poultry (provided to kosher slaughterhouses for butchering and sale to observant Jews) were fit for human consumption and to prevent the submission of false sales and price reports. The industry was almost entirely centered on New York City. Under the new poultry code, the Schechter brothers were indicted on 60 counts (of which 27 were dismissed by the trial court), acquitted on 14, and convicted in 19. One of the counts on which they were convicted was for selling a diseased bird, leading Hugh Johnson to jokingly call the suit the "sick chicken case".

A number of court challenges to the NIRA were winding their way through the courts. Although Roosevelt, most of his aides, Johnson, and the NRA staff felt the Act would survive a court test, the U.S. Department of Justice had on March 25, 1935, declined to appeal an appellate court ruling overturning the lumber industry code on the grounds that the case was not a good test of the NIRA's constitutionality. The Justice Department's action worried many in the administration. But on April 1, the Second Circuit Court of Appeals upheld the constitutionality of the NIRA in the Schechter case. Although Donald Richberg and others felt the government's case in Schechter was not a strong one, the Schechters were determined to appeal their conviction. So the government appealed first, and the Supreme Court heard oral argument on May 2 and 3.

On May 27, 1935, Chief Justice Charles Evans Hughes wrote for a unanimous Court in Schechter Poultry Corp. v. United States 295 U.S. 495 (1935) that Title I of the National Industrial Recovery Act was unconstitutional. First, Hughes concluded that the law was void for vagueness because the critical term "fair competition" was nowhere defined in the Act. Second, Hughes found the Act's delegation of authority to the executive branch unconstitutionally overbroad:

To summarize and conclude upon this point: Section 3 of the Recovery Act (15 USCA 703) is without precedent. It supplies no standards for any trade, industry, or activity. It does not undertake to prescribe rules of conduct to be applied to particular states of fact determined by appropriate administrative procedure. Instead of prescribing rules of conduct, it authorizes the making of codes to prescribe them. For that legislative undertaking, section 3 sets up no standards, aside from the statement of the general aims of rehabilitation, correction, and expansion described in section 1. In view of the scope of that broad declaration and of the nature of the few restrictions that are imposed, the discretion of the President in approving or prescribing codes, and thus enacting laws for the government of trade and industry throughout the country, is virtually unfettered. We think that the code-making authority thus conferred is an unconstitutional delegation of legislative power.

Finally, in a very restrictive reading of what constituted interstate commerce, Hughes held that the "'current' or 'flow'" of commerce involved was simply too minute to constitute interstate commerce, and subsequently Congress had no power under the Commerce Clause to enact legislation affecting such commercial transactions. The Court dismissed with a bare paragraph the government's ability to regulate wages and hours. Although the government had argued that the national economic emergency required special consideration, Hughes disagreed. The dire economic circumstances the country faced did not justify the overbroad delegation or overreach of the Act, the majority concluded. "Extraordinary conditions may call for extraordinary remedies. But the argument necessarily stops short of an attempt to justify action which lies outside the sphere of constitutional authority. Extraordinary conditions do not create or enlarge constitutional power."

Although the decision emasculated NIRA, it had little practical impact, as Congress was unlikely to have reauthorized the Act in any case.