Carter v. Carter Coal Co.

Supreme Court of United States
298 U.S. 238 (1936)

ELI5:

Rule of Law:

The federal government's power to regulate interstate commerce does not extend to the regulation of purely local activities such as production, manufacturing, or mining. Congress cannot regulate the wages, hours, and other conditions of employment in these industries, as their effect on interstate commerce is indirect, not direct.

Facts:

The Bituminous Coal Conservation Act of 1935 was enacted by Congress to stabilize the nation's bituminous coal industry.
The Act imposed an excise tax of 15% on the sale price of all bituminous coal produced in the United States.
It provided for a 90% tax credit, or 'drawback,' for any producer who agreed to abide by the 'Bituminous Coal Code' formulated under the Act.
The Code contained detailed provisions for setting minimum prices for coal in various districts across the country.
The Code also included labor provisions that guaranteed employees the right to organize and bargain collectively.
Crucially, the Code stipulated that wage and hour agreements negotiated between producers of more than two-thirds of the annual national tonnage and representatives of more than one-half of the mine workers would be binding on all code members.
James W. Carter was a shareholder of the Carter Coal Company.
The board of directors of the Carter Coal Company, while believing the Act to be unconstitutional, resolved to accept the Code to avoid the punitive 15% tax.

Procedural Posture:

James W. Carter, a stockholder, filed suit against the Carter Coal Company in the Supreme Court of the District of Columbia (a trial court of first instance) to enjoin the company from complying with the Bituminous Coal Conservation Act of 1935.
In parallel cases, other coal producers sued a collector of internal revenue in the U.S. District Court for the Western District of Kentucky to enjoin collection of the tax.
The D.C. trial court held the Act's labor provisions unconstitutional but found the price-fixing provisions constitutional and severable.
The Kentucky federal district court held the entire Act to be constitutional.
Appeals were taken from these decisions to the respective U.S. Courts of Appeals for the District of Columbia and for the Sixth Circuit.
Before the intermediate appellate courts could hear and decide the cases, the U.S. Supreme Court granted writs of certiorari to provide a speedy final determination due to the great public importance of the questions involved.

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Issue:

Does the Bituminous Coal Conservation Act of 1935, which regulates the prices, wages, and hours of labor within the coal industry, exceed Congress's power under the Commerce Clause and improperly delegate legislative power?

Opinions:

Majority - Justice Sutherland

Yes, the Bituminous Coal Conservation Act of 1935 is unconstitutional because it regulates production, which is a local activity, not interstate commerce. The Court's reasoning is grounded in the fundamental distinction between production and commerce. Mining is a purely local activity that precedes commerce. The labor relations, wages, and hours associated with mining are incidents of production, and any effect they have on interstate commerce is secondary and indirect. The Commerce Clause only grants Congress the power to regulate activities that directly affect interstate commerce. The magnitude of an indirect effect is irrelevant; the character of the relation between the local activity and interstate commerce is what matters. Furthermore, the Act's provision allowing a majority of producers and miners to set binding wage and hour standards for the entire industry is an unconstitutional delegation of legislative power to private individuals. Finally, the price-fixing provisions of the Act are not severable from the unconstitutional labor provisions because the Act's text demonstrates they were intended to be an integrated system, with prices dependent on the stabilization of wages.

Concurring - Chief Justice Hughes

Yes, the labor provisions are unconstitutional, but no, the price-fixing provisions are not. He agreed with the majority that production is not commerce and that the labor provisions of the Act exceeded congressional authority under the Commerce Clause and constituted an improper delegation of legislative power. However, he argued that the provisions regulating the prices of coal sold in interstate commerce were a valid exercise of federal power. Critically, he believed the price-fixing provisions were severable from the invalid labor provisions, emphasizing the Act's express severability clause. This clause created a presumption of divisibility that the majority improperly ignored. Therefore, the Court should have struck down only the labor sections and upheld the distinct marketing and price-fixing scheme.

Dissenting - Justice Cardozo

No, the Act's price-fixing provisions are constitutional, and the challenge to the labor provisions is premature. The regulation of prices for coal sold in interstate transactions is a direct regulation of commerce itself, not merely its antecedents. Even for intrastate sales, the prices have such a close and intimate relation to interstate prices that federal regulation is necessary to protect interstate commerce, akin to the Court's reasoning in the Shreveport Rate Cases. The dissent argued that the price-fixing provisions were clearly severable from the labor provisions, as evidenced by the Act's severability clause and the fact that the labor rules were contingent on future agreements that might never occur. Therefore, the Court should have upheld the price regulations and dismissed the challenge to the labor rules as premature, since no specific wage or hour requirements had yet been imposed.

Analysis:

Carter v. Carter Coal Co. represents the high-water mark of the Supreme Court's narrow interpretation of the Commerce Clause during the Lochner era. By drawing a rigid distinction between 'production' (local) and 'commerce' (interstate) and applying a strict 'direct vs. indirect effects' test, the Court invalidated a key piece of New Deal legislation. This decision severely limited the federal government's ability to address nationwide economic crises. The case is a cornerstone of pre-1937 Commerce Clause jurisprudence and serves as a critical point of contrast to the subsequent dramatic expansion of federal power that began with NLRB v. Jones & Laughlin Steel Corp. in 1937.

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