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III On foundations of fact, a wide expansion of the commerce power has been established.-The application and results of the doctrine described in part II of this memorandum are illustrated by a long line of cases in the Supreme Court of the United States. They show a steady and significant expansion of the acknowledged power of Congress to foster, protect, control, and restrain” where interstate or foreign commerce is concerned. They make manifest, in particular, the reach of congressional power to remove or to prevent interferences with or burdens upon interstate commerce. Such interferences or burdens may arise from the violent actions of individuals (in re debs, 158 U.S. 534), or the peaceable activities of state corporations (Northern Securities Co. v. United States, 193 U.S. 197) or the duties imposed on public officers by State laws (Shreveport Rate cases, 234 U.S. 342). Whatever may be the source and whatever the kind of interference or obstruction, the subject matter is one for the consideration of Congress.

The cases have arisen under various statutes: The Interstate Commerce Act, antitrust laws, Federal Trade Commission Act, and others. They have covered a wide range. Aside from differences on the facts, however, all of them stand together on a common ground, namely, that they are concerned with the development and expansion of the auxiliary power of Congress to reach as far into the States as may be necessary affectively to foster and protect interstate commerce. They make an elaborate array of authority for the exercise of the power of Congress over affairs normally considered intrastate. In addition to those already cited, and sometimes by way of repetition in order to emphasize the development, the more significant cases follow.

Earliest in point of time, as the first important national development, are the railroad cases. In re Debs (158 U.S. 564) (removal of obstructions to interstate commerce caused by strikers); Southern Ry. v. United States (222 U.S. 20) (Federal Safety Appliance Act applied to intrastate equipment of interstate railroad); Shreveport Rate cases (234 U.S. 342), and the Wisconsin Rate case (257 U.S. 563) (discontinuance of intrastate rates discriminating against interstate commerce); Colorado v. United States (271 U.S. 153), and Transit Commission of New York v. United States (284 U.S. 360) (discontinuance of intrastate branches under orders from Interstate Commerce Commission); and Texas & N. O. R. Co. v. Brotherhood (281 U.S. 548) (compelling employers to grant free choice of arbitrators to employees).

Paralleling this expansion of Federal power over transportation facilities, has been the growth of supervision over commercial corporations. Powerful combinations threatening the welfare of commerce led successively to the Sherman Antitrust Act, the Clayton Act, and the Federal Trade Commission Act. Within the scope of these statutes, practices have been deemed restraints which concerned the organization and security structure of the corporation, not of themselves interstate commerce. Northern Securities Co. v. United States (193 U.S. 197) (consolidation of competing railroads by stock transfer to a holding company); Federal Trade Commission v. Western Meat Co. (272 U.S. 554) (acquiring stock in a competitor); Standard Oil Co. v. United States (221 U.S. 1) (formation of holding company out of stock of various petroleum corporations); United States v. Union Pac. R. Co. (226 U.S. 61) (purchase by one railroad of dominating stock interest in another); United States v. American Tobacco Co. (221 U.S. 106) (monopolizing tobacco industry by stock acquisition); United States v. Reading Co. (253 U.S. 26) (holding company controlling coal companies and their railroad facilities).

As coming closer to the present problem the following may be noted: Swift & Co. v. United States (196 U.S. 375) (combination of livestock commission merchants violates the Sherman Act); United States v. Patten (226 U.S. 525) (corner of the New York cotton market a restraint of trade); Stafford v. Wallace, supra (sustaining the Packers and Stockyards Act); Chicago Board of Trade v. Olsen, supra (upholding the Grain Futures Act); Binderup v. Pathe Exchange (263 U.S. 291) ("exchange" receiving interstate shipments of films and redistributing them to local exhibitors in the same State held to be a restraint on interstate commerce).

In the light of these cases alone, it is no longer open to question that Congress may reach and control intrastate affairs whenever such control is necessary to the effective exercise of its power over interstate commerce. Ample power exists; and, as the Supreme Court has said in Florida v. United States (282 U.S. 194), 'it becomes only a question as to the "propriety of the exertion" of the power.

IV

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The exertion of Federal power is not restricted to the interstate transportation of commodities nor is it limited to persons engaged in interstate Commerce. It is not indispensable for the exertion of Federal power that it be directed to a specific interstate commerce transaction. No commodity need move from State to State. To be sure, where an actual interstate transaction is involved the exercise of power by Congress is more easily supported. But Congress is not so limited. Thus, in United States v. Ferger (250 U.S. 199), the question was whether the United States could impose punishment where a bill of lading had been fraudulently issued, no goods having been offered or delivered for shipment. The existence of power was vigorously objected to on the ground that there was no interstate commerce whatever but only a fraudulent scheme. Yet, the power was sustained. In regard to the objection the Court said:

“This mistakenly assumes that the power of Congress is to be necessarily tested by the intrinsic existence of commerce in the particular subject to commerce, and its effects upon it. We say mistakenly assumes, because we think it clear that if the proposition were sustained it would destroy the power of Congress to regulate, as obviously that power, if it is to exist, must include authority to deal with obstructions

and with a host of other acts which because of their relationship to and influence upon commerce, come within the power of Congress to regulate, although they are not interstate commerce in and of themselves (at 203)."

Probably no one would contend that the hatters (Loewe v. Lawlor, 208 U.S. 274) or the coal miners (Coronada Coal Co. v. United Mine Workers of America, 268 U.S. 295) or the lessors of shoe machinery (United Shoe Machine Co. v. United States, 258 U.S. 451) were engaged in interstate commerce. Still, because what they were doing had a certain relationship to and undesirable effect upon interstate commerce in a general sense they were held subject to congressional power.

Further illustrations may be found in cases having to do with transactions sometimes described as interstate contracts. Here the cases are chiefly those holding certain transactions immune from State regulation because of their interstate character, and invalidating State statutes as applied to them. To the extent that these decisions turn upon objections under the commerce clause, they identify transactions to which congressional power may extend. Perhaps the most significant case in this group is Dahnke-Walker Milling Co. v. Bondurant (257 U.S. 282). In that case there was a contract, between a corporation of Tennessee and a person in Kentucky, under which certain quantities of grain were to be purchased by the corporation and delivered by the seller in Kentucky for transportation to Tennessee. Default having occurred through nondelivery and the corporation having brought an action in the courts of Kentucky, a defense was interposed on the ground that the plaintiff had not complied with the State corporation laws.

The defense was disallowed, the Court holding this to be an interstate transaction which the corporation was entitled to enter into without complying with the State law. To a like effect are Lemke v. Farmers' Grain Co. (258 U.S. 50, State grain grading and inspection act invalid); Robbins v. Shelby County Taxing District, (120 U.S. 489, State tax on interstate soliciting agent invalid); International Text Book Co. v. Pigg (217 U.S. 91, correspondence school corporation not compelled to comply with conditions imposed by State). That the solicitation of orders for interstate shipment is part of the interstate transaction, see Weeks v. United States (245 U.S. 618, regulation sustained under the Food and Drugs Act); and see Hall v. Geiger Jones (242 U.S. 509) for the suggestion that a security, although a chose in action, is subject to Federal control as an object of interstate commerce Nor should Champion v. Ames, popularly known as the "Lottery Case", previously cited, be forgotten in considering the power of Congress over the interstate transportation of such documents as lottery tickets.

Cases sustaining State regulation of insurance and other subjecis as not involsing interstate commerce do not stand in the way of Federal power. -An array of cases in which various State statutes were sustained must be considered, for the reason that the cases are so much relied on in support of the contention that the transactions with which they had to do are beyond the power of Congress, Chief among them all is Paul v. Virginia (75 U.S. 168). An insurance contract was held to be not interstate commerce and a condition imposed by the State upon the entry of the foreign insurance company was sustained.

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Following that case it has been repeatedly declared that insurance is not interstate commerce. New York Life Insurance Co. v. Deer Lodge County (231 U.S. 495). Of a somewhat like character and antedating Paul v. Virginia is Nathan v. Louisiana (8 Howard 73), sustaining a State tax on the brokerage business. With these cases also may be grouped Hatch v. Reardon (204 U.S. 152, State stamp tax on stock sales), Ware & Leland v. Mobile County (209 U.S. 405, State license tax on brokers in futures), and United States F. & G. Co. v. Kentucky (231 U.S. 394), State privilege tax on commercial agencies). Moore v. New York Cotton Exchange (270 U.S. 593) may be noticed here, though it did not turn on a State statute. A contention that the cotton exchange was engaged in interstate commerce was denied and certain relief sought on the ground that the exchange's monopoly of its price quotations was a restraint of interstate commerce was refused. Mr. Justice Sutherland's statement (at 604) that “there is no averment of fact in the bill on which a violation of the anti trust law can be predicated" probably means no more than that.

But these cases do not stand in the way of congressional power. They may all be put to one side. In the first place, deicisions sustaining State statutes over objections on the commerce clause are hardly in point, certainly not authoritative, on the question of the power possessed by Congress. Assertion of the contrary would in effect mean that there is a definite division of power between the Nation and the States in regard to interstate commerce. But we know, the cases make it perfectly plain, that sometimes Congress can regulate intrastate commerce and sometimes the States can regulate interstate commerce. It does not follow that because a thing is subject to State taxation, it is also immune from Federal regulation under the commerce clause”, said Sutherland, J., in Binderup v. Pathe Erchange (263 U.S. 291, 311), Federal antitrust litigation), as he called attention to the fact that “cases cited

upholding State taxation as not constituting an interference with interstate commerce are of little value to the inquiry here." And see the recent case of Minnesota v. Blasius (54 Sup. Ct. 34, State taxation of livestock in the "current of commerce").

In the second place, aside from the emphasis repeatedly put on the personal nature of insurance contracts as taking them out of an interstate commerce classification, Paul v. Virginia and other cases of like character belong to a period prior to the fullest development by the Supreme Court of the present constitutional doctrine concerning the effect of the commerce clause on State power. It will be recalled that up to Cooley v. Board of Wardens (12 How. 299), there had been differences of opinion in the Court on the question whether the commerce clause per se deprived the States of power to regulate interstate commerce. In sustaining the State action (regulation of pilotage) called in question in that case the Court announced its much-discussed doctrine of interstate commerce of two kinds, namely, local and national. As to the former, State action was permissible in the absence of inconsistent Federal action (though as a matter of fact the case actually involved the exercise of power by the State supported by an express congressional permission). As the latter, State action was inadmissible, it being indicated that in this field the States were deprived of power. Interstate transportation of an article was thought to be commerce of a national character. Consequently, when the Court faced the question, as it did in Paul v. Virginia, where interstate transportation of insurance policies was involved, it would have been difficult to uphold State action if the subject matter, insurance, was conceded to be interstate commerce at all. A further reason for upholding State power came from Chief Justice Taney's doctrine, in Bank of Augusta v. Earle (13 Peters 519), asserting an unlimited power of the States over foreign corporations. Paul v. l'irginia thus belongs to a period not only of uncertainty about the effect of the commerce clause but also of distrust of foreign corporations. Such corporations, it was assumed, must be held in subjection to State power. Difficulty in so doing would be encountered if their activities were classified as interstate commerce. But the Supreme Court long since has pushed the development of the commerce clause to such a point that difficulties of that kind have substantially disappeared. Not only may a State regulate interstate commerce of local character; it may even regulate that which is national in character, if Congress permits it so to do.

VI

The respective fields of action of the Nation, and the States are not fired by the commerce clause but depend upon the will of Congre88.—As a result of the constitutional doctrine developed around the commerce clause and in the light of a few additional cases presently to be mentioned, it may be said that the true significance of the commerce clause is found in treating it, not as fixing a division of

powers between the Nation and the States, but as investing Congress with the primary power and responsibility to do two things; first, to determine, from a national estimate of interstate commerce as a whole, the respective fields of action by the Nation and the States, and second, to use its powers within the national field for advancing the general welfare.

The second is clearly established and so well known that the citation of authority is unnecessary. Under the first, however, a greater power than is commonly understood is ascribed to Congress for the purpose of coordinating and harmonizing State and national action. The discernment by Congress of national needs and its initiative (as well as its ingenuity) in moving to meet them by means of the power exercisable under the commerce clause have produced the vast expansion of Federal regulation in part pictured in the cases cited herein.

But, an aspect of the matter not so frequently noted, Congress has also moved in the opposite direction when the general interests so required. It has restricted the effect of the commerce clause in the furtherance of State action. Witness, the Wilson Act (sustained In Re Rahrer, 140 U.S. 545) and the Webb-Kenyon Act (sustained in Clark Dist. Co. v. Western Md. Ry. Co., 242 U.S. 311) to enable the States to deal with the interstate aspects of the prohibition problem, and the Hawes-Cooper Act (validity not yet passed on) to enable the States to deal with interstate traffic in convict-made goods.

The truth of the matter is that Congress has the power to expand or contract the area of national action under the commerce clause. Over against this power is set, of course, the function of the Supreme Court to check the expansion (and possibly also the contraction) if Congress should become arbitrary in dealing with the facts and attempt to go too far.

The check is a real one. But that the responsibility is after all upon the Congress is shown by the fact that in the course of the expansion above indicated only three statutes have been held invalid. As far as two of those statutes are concerned, it may well be doubted whether they would be held invalid on de novo proceedings today. The Employers' Liability cases (207 U.S. 463) (holding the Federal Liability Act unconstitutional because it included employees injured in intrastate commerce) and Adair v. United States (208 U.S. 161) (invalidating the Federal statute aimed at so-called "yellow-dog" contracts). Cf. Teras & N.O. R. Co. v. Brotherhood, etc. (281 U.S. 548). Hammer v. Dagenhart (247 U.S. 251), generally known as the Child Labor case, remains. Whatever may be thought of the soundness of that case and the theory on which it was decided, it may at least be distinguished on the facts from the present proposal as well as on the objectives which Congress seeks now to attain.

It will be noted that the foregoing discussion is directed, not to what may be done in "emergencies", but to the normal powers of Congress. But sinee, as shown in part II hereof, the expanded range of congressional action is dependent upon fact foundations, there is ample room for the play of forces of an emergener character. Indeed, an enlarging function of government to meet new needs is indicated in a passage from the opinion by Mr. Chief Justice Hughes in the recent case sustaining the Minnesota mortgage moratorium law (Home B. & L. Association v. Blaisdell, 54 Sup. Ct. 231). Speaking particularly of the contract clause, but possibly with wider implications, he said (at 239):

"The policy of protecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worth while a government which retains adequate authority to secure the peace and good order of society. This principle of harmonizing the constitutional prohibition with the necessary residiuum of State power has had progressive recognition in the decisions of this Court."

In view of the national character of the problem here involved and the method of solving such problems on the facts, on the basis of the expansion of power described in this memorandum and on the recognized function of Congress to adjust National and State relationships, it is my opinion that Congress may establish and maintain its regulatory power over security exchanges.

It may go further, though how far it may go in the regulation of related and collateral activities will depend on the fact foundation laid therefor, in the hearings and otherwise, and on the considered judgment of Congress concerning the public needs.

Prof. Walter Gellhorn, of the Faculty of Law of Columbia University, joins me in the opinions herein expressed. We have been assisted in the preparation of this memorandum by Messrs. W. W. Gardner and T. E. Jenks, both of the Legislative Drafting Research Fund of Columbia University.

NOEL T. DOWLING NEW YORK, March 23, 1934.

BRIEF SUBMITTED BY THOMAS G. CORCORAN AND BENJAMIN V. COHEN IN

SUPPORT OF CONSTITUTIONALITY OF STOCK EXCHANGE BILL The underlying principle of the bill is that Federal regulation is necessary in the public interest to control manipulation and excessive speculation in securities and thus to secure and maintain a fair and honest market. The economic effects of manipulation and excessive speculation have been elaborately set forth through the investigation of the committee and the hearings upon the present bill. This memorandum is concerned with the constitutional aspects of the proposed measure. The constitutional authority upon which the bill is predicated rests upon several powers granted to Congress: The power over interstate commerce; the power over the mails and other means of communication; the fiscal power; and the power to exercise necessary and proper control over practices which affect the activities and instrumentalities of the Federal Government itself.

The problem of constitutionality is one of applying the words of that document to a situation which could not have been envisaged in 1789. Therefore the answer to the problem must be sought in the cevelopment of constitutional doctrine by the Supreme Court. In resolving such questions the Court has recognized that the interpretation and application of the Constitution are not mechanical processes, but the adaptation of an organic law the changing conditions and needs of a nation. Mr. Justice Holmes has stated this principle with characteristic incisiveness:

"With regard to that, we say add that when we are dealing with words that also are a constituent act, like the Constitution of the United States, we must realize that they have called into life a being the development of which could not have been foreseen completely by the most gifted of its begetters. It was enough for them to realize or to hope that they had created an organism; it has taken a century and has cost their successors much sweat and blood to prove that they created a nation. The case before us must be considered in the light of our whole experience, and not merely in that of what was said a hundred years ago." Missouri v. Holland (252 U.S. 416, 433).

"The provisions of the Constitution are not mathematical formulae having their essence in their form; they are organic, living institutions transplanted from English soil. Their significance is vital, not formal; it is to be gathered not simply by taking the words and a dictionary, but by considering their origin and the line of their growth." Gompers v. United States (233 U.S. 604, 610).

The same thought has been eloquently expressed by Chief Justice Hughes in the recent Minnesota Moratorium case, Home Building and Loan Association v. Blaisdell (78 L. ed. 255, 271).

“It is no answer to say that this public need was not apprehended a century ago, or to insist that what the provision of the Constitution meant to the vision of that day it must mean to the vision of our time. If by the statement that what the Constitution meant at the time of its adoption it means today, it is intended to say that the great clauses of the Constitution must be confined to the interpretation which the framers, with the conditions and outlook of their time, would have placed upon them, the statement carried its own refutation. It was to guard against such a narrow conception that Chief Justice Marshall uttered the memorable warning—'We must never forget that it is a constitution we are expounding' (M'Culloch v. Maryland, 4 Wheat. 316, 407, 4 L. ed. 579, 601) – 'a constitution intended to endure for ages to come, and, consequently, to be adapted to the various crises of human affairs." (Id., p. 415.)

Even were it true, as it is not, that the precedents leave in doubt the power of Congress to regulate the practices of stock exchanges and stock exchange firms, the principles just discussed would justify the passage of the present bill in the expectation that the Supreme Court would find the Constitution adequate to support it. But there is nothing in the precedents which stands in the way. They point clearly, in fact, to the validity of the proposed measure.

It can hardly be doubted that the business of the stock exchange and its members is one which it is within the power of government to regulate. In the traditional classification the business is one affected with a public interest. The decisions clearly recognize this fact. Thus, for example, the Supreme Court has held that it was within the power of a State to prohibit absolutely dealings in futures. Olis v. Parker (187 U.S. 606). It can hardly be suggested that the activities of the exchange and its members are less affected with a public interest than those of commission men at a livestock exchange, the fees of whom have been subjected to regulation by the Secretary of Agriculture. This regulation was upheld in Tagg Bros & Moorehead v. United States (280 U.S. 420).

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