Right-Wing Anti-New Deal Litigation Strategy in the 1930s

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Right-Wing Anti-New Deal Litigation Strategy in the 1930s

The Switch in Time that Saved Nine: While getting ready for my classes this spring on the Great Depression and the coming of the mixed economy, I found myself noticing something in Robert Stern's classic article on "The Commerce Clause and the National Economy" that I had not noticed before: the presence of Frederick H. Wood, formerly general counsel for the Southern Pacific Railroad (the "Octopus") and principal litigation partner at Cravath in the 1930s.

He is there arguing in front of the Supreme Court in both Schechter Poultry and Carter Coal, in both of the cases that are the high-water mark of the judicial resistance to Roosevelt's New Deal before Roosevelt's reelection and the consequent switch in time that saved nine--the shift of Chief Justice Hughes and Justice Roberts to the New Deal side, and then the replacement of two of the dinosaurs by Hugo Black and Stanley Reed:

http://www.jstor.org/cgi-bin/jstor/printpage/0017811x/ap040472/04a00020/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&[email protected]/01cce4406500501b847ee&0.pdf: Robert L. Stern (1946), "The Commerce Clause and the National Economy, 1933-46," Harvard Law Review 59:5 (May), pp. 645-93: Mr. Joseph Heller, the Schechters' original counsel, effectively convinced the Court of the trivially local nature of some of the practices involved.... [H]umor was not ineffective in ridiculing the code provisions involved. The defendants' argument was concluded by Mr. Frederick H. Wood, of a large New York firm which represented substantial business interests and which came into the case at the last moment; he oratorically contended that such matters should be regulated only by the states...

[...]

James W. Carter brought suit... against the Carter Coal Co., his father, and its other officers, to enjoin the company from accepting the Coal Code.... The case was argued in the district court for two full days by Mr. Frederick H. Wood and Mr. whitney for the plaintiff.... Justice Adkins rendered his oral opinion.... [H]e was compelled by the Schechter case to hold that "as a matter of law" the effect upon interstate commerce of wages and labor relations was... not within the commerce power.... The case was argued [before the Supreme Court] in March [1936] by Mr. Wood.... Mr. Justice Sutherland, speaking for five members of the Court... sidestep[ped] the... constitutionality of the price-fixing provisions... by holding them inseparable from the labor provisions and holding the latter unconstitutional...

[...]

Finally the opinion reached the crucial point. Did labor relations in the vast Jones and Laughlin steel-manufacturing enterprise sufficiently affect interstate commerce? Gone was the verbalism of the Carter [coal] case, the reliance upon such metaphysical concepts as proximate or intermediate causation.... "Actual experience," actual relation to commerce, was henceforth to be the criterion.... Mr. Justice McReynolds, in a bitter dissent... [joined by] Van Devanter, Sutherland, and Butler, accused the majority of abandoning the precepts of the Schechter and Carter decisions.... For the second time in two weeks the Court had in substance overruled cases decided less than one year before on major constitutional issues. No serious effort had been made to distinguish... Carter.... There had been no change in the membership.... What had induced Mr. Justice Roberts to switch?... What of the Chief Justice?...

No one who did not participate in the conferences of the Court will know.... But few attributed the difference in results... to anything... in the cases... their facts, the arguments presented, or the authorities cited. Perhaps the series of violent strikes had educated Mr. Justice Roberts as to the close relationship between labor relations and interstate commerce. But the consensus... was that the Chief Justice and Mr. Justice Roberts believed that the continued nullification of the legislative program demanded by the people and their representatives... would lead to acceptance of the President's Court [packing] plan, and that this would seriously undermine the independence and prestige of the federal judiciary....

At the end of the term, Mr. Justice Van Devanter announced his retirement.... Senator [Hugo] Black successed Mr Justice Van Devanter at the beginning of the October Term, 1937. Mr. Justice Sutherland retired in January, 1938, and Solicitor General Stanley Reed took his place...

Frederick H. Wood shows up in front of the Supreme Court ten times during the New Deal years: NORMAN v. BALTIMORE & O.R. CO. (1935); YOUNGSTOWN SHEET & TUBE CO. v. UNITED STATES (1935); A.L.A. SCHECHTER POULTRY CORPORATION v. UNITED STATES (1935); CARTER v. CARTER COAL CO. (1936); four times in various MORGAN v. U.S. proceedings; FORD MOTOR CO. v. NATIONAL LABOR RELATIONS BOARD (1939); and UNION STOCK YARD & TRANSIT CO. OF CHICAGO v. U.S.

There is an oral tradition at Cravath that Wood headed up a sophisticated long-term anti-New Deal litigation strategy: the fact that the named plaintiffs in the big anti-NRA case were orthodox butchers from Brooklyn is said to be no accident, but instead a successful attempt to pin Louis Brandeis by making him see the case as state power vs. the little guy from his minority religion, and not only to swing his vote but to curb his tongue from having its influence on the rest of the liberal wing of the court. And, indeed, in Schechter the NRA went down 9-0 (a blessing for the country).

Wood and company's victory in Schechter in 1935 on the limits of the Commerce Clause and of the federal government's ability to regulate the national economy was extended the following year in Carter Coal, before collapsing in 1937 with the switch. I find myself wanting to know more about this: did they think that they were going to win--stop the New Deal long enough and that when the dust cleared the 1920s would come back?

I should get myself over to the Boalt Hall Library and hope that their copy of Robert T. Swaine (1946), The Cravath Firm and Its Predecessors is still there, because amazon wants $395 for a copy.

Surprisingly--or maybe not surprisingly--the best short things on the web I see about this come from Time Magazine, back when it was an edgy startup interested in informing its viewers and not an organization that saw pleasing its insider sources as job #1. Consider:

Especially good is Time's series of short pieces on the Gold Clause cases, watching as Chief Justice Charles Evans Hughes twists and turns to avoid repudiating the actions of the Roosevelt administration with respect to government debt while also damning those actions as reprehensible:

http://www.time.com/time/printout/0,8816,787934,00.html: Businessmen knew it, Congress knew it, the Brain Trust knew it, Mr. Homer Stille Cummings knew it: The Justices of the Supreme Court would do their duty as they saw it. Yet somehow nearly everyone had overlooked the obvious fact that the nine potent, grave and reverend judges would first take a good look at that duty. Last week when the Court in unmistakable fashion began that scrutiny, business fell into a dither, Congress chattered, the Brain Trust fretted and the Attorney General blushed.... For years the U. S. Government and most corporations promised to repay lenders their principal and interest "in gold coin of the present standard of weight and fineness." On June 5, 1933 Congress, having authorized the President to suspend the gold standard, forbade the writing of any more gold clauses, declared in effect that all those previously written were legally out of bounds. Hence came the four issues before the Supreme Court last week.

Norman C. Norman, 39, a bachelor in the jewelry manufacturing business with his father in Manhattan, demanded $16.60 from Baltimore & Ohio Railroad. He held a coupon of one of the railroad's bonds calling for an interest payment of $22.50 in gold. Since the railroad could not pay in gold he wanted $39.10 in devalued currency. Lower courts had upheld the railroad's refusal to pay Norman C. Norman the additional $16.60...

http://www.time.com/time/printout/0,8816,754528,00.html: The Court upheld the right of Congress--under the Constitutional power of regulating money--to void gold clauses in private bonds. But no such clean bill of health was given the Government in abrogating the gold clauses of its own bonds. Government bondholders were denied the right to sue in the Court of Claims on the somewhat extraordinary grounds that it is impossible to tell how much damage they have suffered since it is now illegal to own gold. However, the Court did not uphold the propriety of the Government's offering devalued money.... In short, Government bondholders have now the right but no legal opportunity to collect, and morally the Government is no better than a malefactor who takes refuge behind a legal technicality—-in this case the right not to be sued without its own consent. No pretty position is this for any government to be in. It posed a problem in New Deal morals.

Almost as disconcerting to citizens was the news that the legality of the country's monetary policy was approved by only five of the nine Justices of the Court. New Dealers were pleased that Chief Justice Hughes had joined with Liberals Brandeis, Cardozo, Roberts and Stone to give them comfort. Little did they care about the dissent of four Justices, for they look down very long Liberal noses at the four Conservatives: Justices Sutherland, Van Devanter, Butler and McReynolds—in particular at Justice McReynolds.... [T]he majority opinion, upholding the Government in every case without exception, would have seemed stronger had Mr. Hughes not thundered so loud... the dissenting opinion would have borne more weight had it been written by a less uncompromising reactionary than Mr. McReynolds... [who] launched not into an opinion but into an elegy for honesty and good government.

"It seems impossible to overestimate the result of what has been done here this day. . . . God knows, I do not want to talk about such matters but it is my duty. . . . The Constitution is gone. . . . This is Nero in his worst form. We are confronted with a dollar which has been reduced to 60¢ which may be 30¢ tomorrow, 10¢ the next day and 1¢the day following. "We have tried to prevent its entrance into our legal system but have tried in vain..."

I remember listening once to the aged Paul Freund reminisce about working for the Solicitor General in the 1930s. He talked about the government's own litigation strategy, and about Charles Evans Hughes's twists and turns as he found that the government had broken its contract with its bondholders but there were no damages, but he never mentioned Frederick H. Wood.

February 16, 2007 at 19:53 in #economichistory, #economics, #politicaleconomy, #politics, History | Permalink | Comments (14)

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http://www.jstor.org/cgi-bin/jstor/printpage/0017811x/ap040472/04a00020/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&[email protected]/01cce4406500501b847ee&0.pdf: Robert L. Stern (1946), "The Commerce Clause and the National Economy, 1933-46," Harvard Law Review 59:5 (May), pp. 645-93: Mr. Joseph Heller, the Schechters' original counsel, effectively convinced the Court of the trivially local nature of some of the practices involved.... [H]umor was not ineffective in ridiculing the code provisions involved. The defendants' argument was concluded by Mr. Frederick H. Wood, of a large New York firm which represented substantial business interests and which came into the case at the last moment; he oratorically contended that such matters should be regulated only by the states...

[...]

James W. Carter brought suit... against the Carter Coal Co., his father, and its other officers, to enjoin the company from accepting the Coal Code.... The case was argued in the district court for two full days by Mr. Frederick H. Wood and Mr. whitney for the plaintiff.... Justice Adkins rendered his oral opinion.... [H]e was compelled by the Schechter case to hold that "as a matter of law" the effect upon interstate commerce of wages and labor relations was... not within the commerce power.... The case was argued [before the Supreme Court] in March [1936] by Mr. Wood.... Mr. Justice Sutherland, speaking for five members of the Court... sidestep[ped] the... constitutionality of the price-fixing provisions... by holding them inseparable from the labor provisions and holding the latter unconstitutional...

[...]

Finally the opinion reached the crucial point. Did labor relations in the vast Jones and Laughlin steel-manufacturing enterprise sufficiently affect interstate commerce? Gone was the verbalism of the Carter [coal] case, the reliance upon such metaphysical concepts as proximate or intermediate causation.... "Actual experience," actual relation to commerce, was henceforth to be the criterion.... Mr. Justice McReynolds, in a bitter dissent... [joined by] Van Devanter, Sutherland, and Butler, accused the majority of abandoning the precepts of the Schechter and Carter decisions.... For the second time in two weeks the Court had in substance overruled cases decided less than one year before on major constitutional issues. No serious effort had been made to distinguish... Carter.... There had been no change in the membership.... What had induced Mr. Justice Roberts to switch?... What of the Chief Justice?...

No one who did not participate in the conferences of the Court will know.... But few attributed the difference in results... to anything... in the cases... their facts, the arguments presented, or the authorities cited. Perhaps the series of violent strikes had educated Mr. Justice Roberts as to the close relationship between labor relations and interstate commerce. But the consensus... was that the Chief Justice and Mr. Justice Roberts believed that the continued nullification of the legislative program demanded by the people and their representatives... would lead to acceptance of the President's Court [packing] plan, and that this would seriously undermine the independence and prestige of the federal judiciary....

At the end of the term, Mr. Justice Van Devanter announced his retirement.... Senator [Hugo] Black successed Mr Justice Van Devanter at the beginning of the October Term, 1937. Mr. Justice Sutherland retired in January, 1938, and Solicitor General Stanley Reed took his place...

I should get myself over to the Boalt Hall Library and hope that their copy of Robert T. Swaine (1946), The Cravath Firm and Its Predecessors is still there, because amazon wants $395 for a copy.

http://www.time.com/time/printout/0,8816,787934,00.html: Businessmen knew it, Congress knew it, the Brain Trust knew it, Mr. Homer Stille Cummings knew it: The Justices of the Supreme Court would do their duty as they saw it. Yet somehow nearly everyone had overlooked the obvious fact that the nine potent, grave and reverend judges would first take a good look at that duty. Last week when the Court in unmistakable fashion began that scrutiny, business fell into a dither, Congress chattered, the Brain Trust fretted and the Attorney General blushed.... For years the U. S. Government and most corporations promised to repay lenders their principal and interest "in gold coin of the present standard of weight and fineness." On June 5, 1933 Congress, having authorized the President to suspend the gold standard, forbade the writing of any more gold clauses, declared in effect that all those previously written were legally out of bounds. Hence came the four issues before the Supreme Court last week.

Norman C. Norman, 39, a bachelor in the jewelry manufacturing business with his father in Manhattan, demanded $16.60 from Baltimore & Ohio Railroad. He held a coupon of one of the railroad's bonds calling for an interest payment of $22.50 in gold. Since the railroad could not pay in gold he wanted $39.10 in devalued currency. Lower courts had upheld the railroad's refusal to pay Norman C. Norman the additional $16.60...

http://www.time.com/time/printout/0,8816,754528,00.html: The Court upheld the right of Congress--under the Constitutional power of regulating money--to void gold clauses in private bonds. But no such clean bill of health was given the Government in abrogating the gold clauses of its own bonds. Government bondholders were denied the right to sue in the Court of Claims on the somewhat extraordinary grounds that it is impossible to tell how much damage they have suffered since it is now illegal to own gold. However, the Court did not uphold the propriety of the Government's offering devalued money.... In short, Government bondholders have now the right but no legal opportunity to collect, and morally the Government is no better than a malefactor who takes refuge behind a legal technicality—-in this case the right not to be sued without its own consent. No pretty position is this for any government to be in. It posed a problem in New Deal morals.

Almost as disconcerting to citizens was the news that the legality of the country's monetary policy was approved by only five of the nine Justices of the Court. New Dealers were pleased that Chief Justice Hughes had joined with Liberals Brandeis, Cardozo, Roberts and Stone to give them comfort. Little did they care about the dissent of four Justices, for they look down very long Liberal noses at the four Conservatives: Justices Sutherland, Van Devanter, Butler and McReynolds—in particular at Justice McReynolds.... [T]he majority opinion, upholding the Government in every case without exception, would have seemed stronger had Mr. Hughes not thundered so loud... the dissenting opinion would have borne more weight had it been written by a less uncompromising reactionary than Mr. McReynolds... [who] launched not into an opinion but into an elegy for honesty and good government.

"It seems impossible to overestimate the result of what has been done here this day. . . . God knows, I do not want to talk about such matters but it is my duty. . . . The Constitution is gone. . . . This is Nero in his worst form. We are confronted with a dollar which has been reduced to 60¢ which may be 30¢ tomorrow, 10¢ the next day and 1¢the day following. "We have tried to prevent its entrance into our legal system but have tried in vain..."

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Right-Wing Anti-New Deal Litigation Strategy in the 1930s

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