Ashwander et al. v. Tennessee Valley Authority et al.

Supreme Court of United States
297 U.S. 288 (1936)

ELI5:

Sections

Rule of Law:

Under its authority to provide for national defense and improve navigation, Congress may authorize the construction of a dam, and the electric energy generated by that dam constitutes property of the United States which the government may sell under the power granted by Article IV, Section 3 of the Constitution.

Facts:

The United States government constructed Wilson Dam on the Tennessee River under the National Defense Act of 1916 for the purposes of national defense and improving river navigation.
The operation of the dam inevitably created a large amount of hydroelectric power.
The Tennessee Valley Authority (TVA), a federal corporation, was created by Congress to operate the dam and related properties.
On January 4, 1934, the TVA entered into a contract with the Alabama Power Company.
Under the contract, the TVA agreed to purchase certain transmission lines, substations, and other properties from the Alabama Power Company.
The contract also provided for the sale of surplus hydroelectric power from the TVA to the Alabama Power Company and established specific service areas for each party to prevent competition.
Ashwander and other preferred stockholders in the Alabama Power Company protested the contract, believing it to be unconstitutional and injurious to the company's interests.
After the company's board of directors refused to challenge the contract, the stockholders initiated a lawsuit.

Procedural Posture:

Ashwander and other preferred stockholders filed a shareholder derivative suit in the U.S. District Court against the Alabama Power Company and the Tennessee Valley Authority (TVA).
The plaintiffs sought to declare the contract between the two entities void and to enjoin its performance.
The District Court ruled in favor of the plaintiffs, annulling the contract and granting an injunction.
The TVA appealed this decision to the U.S. Circuit Court of Appeals for the Fifth Circuit.
The Circuit Court of Appeals reversed the District Court, finding the contract to be valid and within the constitutional powers of the federal government.
The plaintiffs (Ashwander et al.) petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.

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Issue:

Does the United States government have the constitutional authority to sell surplus electricity generated by a dam lawfully constructed for national defense and navigation purposes, and to acquire transmission lines as a means of distributing that electricity?

Opinions:

Majority - Chief Justice Hughes

Yes. The United States government has the constitutional authority to sell surplus electricity generated by a dam lawfully constructed for national defense and navigation purposes, and to acquire transmission lines as a means of distributing that electricity. The Wilson Dam was constitutionally constructed under Congress’s war and commerce powers. The electric energy generated as an incident of the dam's operation is property belonging to the United States. Article IV, Section 3 of the Constitution expressly grants Congress the power to dispose of government property. This power includes the authority to sell the electricity and to use appropriate means for that disposition, which includes acquiring transmission lines to reach a wider market and avoid being limited to a single buyer at the dam site.

Concurring - Justice Brandeis

The Court should not reach the constitutional issue presented. The judgment should be affirmed on the grounds that the plaintiffs, as stockholders, lack standing to maintain the suit. The decision by the Alabama Power Company's directors to enter the contract was a matter of business judgment made in good faith, and stockholders cannot use the courts to interfere with such management decisions absent fraud, oppression, or bad faith. Furthermore, courts should follow established principles of judicial restraint and avoid deciding constitutional questions unless absolutely necessary. This case could have been resolved on the non-constitutional ground of the plaintiffs' lack of standing.

Dissenting - Justice McReynolds

No. While the government may dispose of property honestly developed, the TVA's actions here are an unconstitutional pretext to enter into the business of generating, distributing, and selling electric power. The contract and the broader TVA program are not a good faith effort to dispose of surplus energy from a legitimate government project. Instead, the real purpose is to create a government-run power monopoly, establish a 'yardstick' for electricity rates, and drive private power companies out of business. This scheme goes far beyond the federal government's enumerated powers and infringes upon the rights reserved to the states and the people.

Analysis:

This case was a landmark decision that validated a key component of President Franklin D. Roosevelt's New Deal. It affirmed the federal government's authority to generate and sell hydroelectric power, providing the constitutional foundation for the TVA and similar large-scale public works projects involving energy production. The ruling broadly interpreted the Property Clause of Article IV, allowing the government not only to sell property but also to acquire related infrastructure to facilitate the sale. More enduringly, Justice Brandeis's concurring opinion famously articulated the 'Ashwander rules,' a set of principles for judicial avoidance that has become a cornerstone of constitutional law, guiding courts to refrain from deciding constitutional issues unless unavoidable.

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