Panama Ref. Co. v. Ryan

Supreme Court of United States
293 U.S. 388 (1935)

ELI5:

Rule of Law:

Congress cannot delegate its legislative power to the President without establishing an intelligible principle or a clear standard to guide the executive's discretion; a law that provides no such standard is an unconstitutional delegation of legislative authority.

Facts:

In response to the Great Depression, Congress enacted the National Industrial Recovery Act (NIRA) on June 16, 1933.
Section 9(c) of the NIRA granted the President the authority to prohibit the transportation in interstate commerce of petroleum and its products produced in excess of amounts permitted by state law ('hot oil').
On July 11, 1933, President Franklin D. Roosevelt issued an Executive Order prohibiting the transportation of this 'hot oil' under the authority of Section 9(c).
The President then authorized the Secretary of the Interior to enforce the prohibition and promulgate necessary rules.
The Secretary of the Interior issued regulations requiring oil producers and refiners, including Panama Refining Company and Amazon Petroleum Corporation, to file sworn monthly statements about their production and petroleum deliveries.
These regulations also mandated that the companies keep detailed books and records available for inspection by the Division of Investigations of the Department of the Interior.
Federal officials began enforcing these regulations by entering the properties of the oil companies to gauge their tanks and inspect their operations.

Procedural Posture:

Panama Refining Company and Amazon Petroleum Corporation each filed suits against federal officials in the U.S. District Court for the Eastern District of Texas, seeking to enjoin the enforcement of regulations promulgated under Section 9(c) of the NIRA.
The District Court judge heard the claims against the federal officials and granted permanent injunctions, ruling that Section 9(c) was an unconstitutional delegation of legislative power.
The defendant federal officials (appellants) appealed the District Court's decisions.
The U.S. Court of Appeals for the Fifth Circuit reversed the decrees of the District Court, upholding the statute.
The U.S. Supreme Court granted writs of certiorari to the oil companies (petitioners) to review the judgment of the Circuit Court of Appeals.

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Issue:

Does Section 9(c) of the National Industrial Recovery Act, which authorizes the President to prohibit the transportation of petroleum products produced in excess of state quotas, constitute an unconstitutional delegation of legislative power to the President?

Opinions:

Majority - Mr. Chief Justice Hughes

Yes. Section 9(c) of the National Industrial Recovery Act is an unconstitutional delegation of legislative power because it fails to provide any standard or intelligible principle to guide the President's actions. The statute does not declare a policy regarding the transportation of 'hot oil,' nor does it establish any criterion or require any finding from the President as a condition for his prohibition. Congress did not state when, under what circumstances, or for what purpose the President should exercise this authority, effectively granting him the legislative power to create the law as he saw fit. The broad declaration of policy in Section 1 of the NIRA is insufficient to limit this unfettered discretion, as it provides no specific guidance on this particular issue. Because Congress is not permitted to abdicate or transfer its essential legislative functions, this standardless delegation is invalid.

Dissenting - Mr. Justice Cardozo

No. The delegation of authority in Section 9(c) is constitutional because a guiding standard can be reasonably implied from the NIRA as a whole, particularly the 'declaration of policy' in Section 1. The President's discretion was not unlimited but was 'canalized' by the act's stated objectives, such as eliminating unfair competitive practices, conserving natural resources, and promoting industrial recovery. The President was to prohibit the transportation of 'hot oil' only when he believed it would effectuate these declared policies. The complexity of the oil industry and the economic crisis necessitated a flexible delegation, allowing the executive to ascertain the shifting facts and apply the prohibition when needed to achieve the statute's goals. This is a lawful and practical delegation, not an abdication of legislative power.

Analysis:

This case marked the first time the Supreme Court struck down a statute on the grounds of an excessive delegation of legislative power under the nondelegation doctrine. The decision established a significant, though later relaxed, check on the expansion of executive authority during the New Deal era. It stands for the core separation-of-powers principle that Congress must make the fundamental policy choices and provide an 'intelligible principle' to guide administrative action. While the Court has since upheld very broad delegations, Panama Refining remains a key precedent for opponents of expansive executive power and a foundational case in administrative law.

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