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United States v. A. L. A. Schechter Poultry Corp.

April 1, 1935

UNITED STATES
v.
A. L. A. SCHECHTER POULTRY CORPORATION ET AL.



Appeal from the District Court of the United States for the Eastern District of New York.

Author: Manton

Before MANTON, L. HAND, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

The appellants were convicted on 19 counts of an indictment charging crimes in 60 counts. They were convicted of: (Count 1) Conspiracy to commit offenses against the United States by violating the National Industrial Recovery Act and provisions of the Code of Fair Competition for the Live Poultry Industry of Metropolitan New York; (count 2) violation of article VII, § 2, of the Code, prohibiting purchase or sale of poultry unfit for human consumption; (counts 4 and 5) violation of article VII, § 22, prohibiting the sale of poultry not inspected and approved in accordance with the ordinances and regulations of New York City; (counts 24 to 33, inclusive) violations of article VII, § 14, prohibiting the use of any method of slaughtering other than straight killing; (counts 38 and 39) violations of article VIII, § 3, and article VI, §§ 1 and 2, requiring weekly reports on daily range of prices and volume of sales; (count 46) violation of article IV, §§ 1 and 2, requiring a minimum wage of 50 cents per hour to be paid in lawful currency; (count 55) violation of article III, § 1, providing a maximum of 48 hours per week for slaughterhouse employees; and (count 60) violation of article VII, § 15, prohibiting the sale of live poultry to any person not licensed as required by the New York City ordinances and New York City Board of Health rules and regulations.

Appellants are wholesale marketmen engaged in the poultry business in the borough of Brooklyn, New York City. Their purchases were ordinarily made in the market in New York City, but sometimes in Philadelphia, Pa. The poultry bought by them is taken directly to their slaughterhouse in markets and sold to retail dealers within 24 hours. The shares of stock of the corporations named in the indictment were owned, and the corporations controlled, by the individual appellants.

The evidence at the trial established to the satisfaction of the jury that the poultry industry in the New York City area was beset with evil trade practices. The New York City market is the largest in the country and dominates the industry. In 1930, sales of 224,000,000 pounds of poultry were made in New York City; in 1933, 190,000,000 pounds were sold. This large volume, with the consequent market domination, places New York City in the position of being the medium by which prices for poultry throughout the country are measured. The markets in other large cities, as Chicago and St. Louis, maintain their prices in accordance with those current in New York, the difference being determined by the cost of freight and handling, and as to whether the poultry is coming from the west to the east, or the south to the north, the direction of flow depending upon the season. The farmer's price reflects the price current in the New York market, so that the demoralization of price structure in New York produces a similar situation, not only in other markets throughout the country, but also in all poultry farming areas. It reduces the price received by the interstate shipper and by the farmer. To the farmer, poultry is a cash, as distinct from a seasonal, crop. He seels day by day for cash, and this provides the means for purchasing current supplies, so that a cheap market for poultry entails a falling off in the daily purchases of the farmer. From 1927 to 1933, there was a decrease in the wholesale value of poultry sold of approximately 53 per cent., or $30,000,000. The price per pound was reduced from approximately 30 cents in 1929 to 14 cents in 1933.

The practices of selling below cost, selective killing, bringing in uninspected poultry from outside the state, selling poultry unfit for human consumption, making possible a ready market for diseased and inferior poultry, were assigned as evils resulting in loss in the volume of business. New York presented a market for diseased poultry, and the evidence shows that diseased poultry was shipped almost exclusively to New York. Live poultry is a perishable commodity, and the presence of a few diseased chickens in a car frequently infects the whole carload. Such poultry, when sold, is necessarily disposed of through misrepresentations as to its condition, and causes distrust and a reluctance to purchase on the part of consumers. The presence of diseased poultry in the market caused a demand because of its cheap price. It narrowed the price range because good poultry, which could otherwise sell at a high price, had to meet the competition of the diseased poultry and drop in price. The avoidance of poultry inspection was a relatively simple matter in New York, and this was a material circumstance in conditioning the shipment of unfit poultry to that market. Poultry certain to be condemned in other markets because of its diseased condition, was shipped to New York. Lack of inspection requirements also induced fraudulent practices in the course of interstate shipment -- such as overfeeding the poultry to increase its weight. The practice of selective killing, rather than straight killing, resulted in price cutting, and a lowering of prices received by the farmers and the interstate shippers. The control of prices by which poultry can be sold to the consumer is determined not only by the cost of the poultry but also by the wages paid to the employees in the poultry slaughterhouses.

The appellee argues that the payment of lower wages permits the employer to sell at a lower price than if he paid higher wages. Competition is thus affected. Lower wages resulted in price cutting, which in turn affects interstate commerce. It was also established that sales by wholesale marketmen to unlicensed operators, not subject to Health Department supervision, were a further cause of the industry's unfair practices. Such operators, being irresponsible and not disposed to make the necessary expenditures for the maintenance of sanitary places of business, sold at cut prices and initiated the sales of unfit poultry. There was evidence that these conditions brought about an industrial demoralization which, with all its adverse national consequences, needed correction and betterment. It is argued that no improvement was possible unless all the evil practices in the industry were controlled, and it was to accomplish this result that the Live Poultry Code for the Metropolitan area was adopted and approved.

Congress had the power, under the Commerce Clause (art. 1 § 8, cl. 3), to regulate transactions in interstate commerce, and its power also extends to all transactions which substantially burden or affect such commerce. Local 167, International Brotherhood of Teamsters v. United States, 291 U.S. 293, 54 S. Ct. 396, 398 78 L. Ed. 804; Thornton v. United States, 271 U.S. 414, 46 S. Ct. 585, 70 L. Ed. 1013; United States v. Ferger, 250 U.S. 199, 39 S. Ct. 445, 63 L. Ed. 936; Minnesota Rate Cases (Simpson v. Shepard), 230 U.S. 352, 33 S. Ct. 729, 57 L. Ed. 1511, 48 L.R.A. (N.S.) 1151, Ann. Cas. 1916A, 18. And whenever an intrastate activity substantially and directly burdens or interferes with the free flow of interstate commerce, under the Commerce Clause, Congress has the power to remove the obstruction. Local 167, Brotherhood of Teamsters v. United States, supra; Board of Trade of City of Chicago v. Olsen, 262 U.S. 1, 43 S. Ct. 470, 478, 67 L. Ed. 839. Interference "with the unloading, the transportation, the sales by market men to retailers, the prices charged, and the amount of profits exacted operate substantially and directly to restrain and burden the untrammelled shipment and movement of the poultry while unquestionably it is in interstate commerce." Local 167, Brotherhood of Teamsters v. United States, supra. To the extent that the sale of unfit and uninspected poultry diverts healthy poultry from the New York market, and brings about the sale of inferior poultry, and demoralizes the price, this rule has application, for the burden is no less substantial and direct. Thornton v. United States, supra; Board of Trade of Chicago v. Olsen, supra. In the Olsen Case, the court said: "The question of price dominates trade between the states. Sales of an article which affect the country-wide price of the article directly affect the country-wide commerce in it." So the fraudulent shipment of inferior poultry in interstate commerce is sufficiently substantial and direct to warrant federal regulation. United States v. Ferger, supra. The power to legislate as to general trade practices merely affecting interstate commerce, though never so broadly exercised, was recognized in the earlier cases. Gibbons v. Ogden, 9 Wheat. 1, 6 L. Ed. 23; Standard Oil Co. v. United States, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619, 34 L.R.A. (N.S.) 834, Ann. Cas. 1912D, 734; United States v. Amer. Tobacco Co., 221 U.S. 106, 31 S. Ct. 632, 55 L. Ed. 663. Transactions or violations, which amount to more or less constant practice, and which threaten to obstruct or to unduly burden the freedom of interstate commerce, are within the regulatory powers of Congress under the Commerce Clause. Stafford v. Wallace, 258 U.S. 495, 42 S. Ct. 397, 66 L. Ed. 735, 23 A.L.R. 229; Brooks v. United States, 267 U.S. 432, 45 S. Ct. 345, 69 L. Ed. 699, 37 A.L.R. 1407.

Congress stated in section 1 of the National Industrial Recovery Act (15 USCA § 701) that its purpose was to promote interstate commerce. The national economic emergency, hereinafter referred to, has made interstate commerce more sensitive than normally to unfair trade practices. Trade practices which, in normal times, would have had only an indirect and incidental effect upon interstate commerce, may substantially burden interstate commerce during a period of overproduction, unfair competition, and a reduced purchasing power. And, as pointed out, emergency does not create the power, but it may furnish the occasion for the exercise of the power conferred by the Constitution. Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 54 S. Ct. 231, 78 L. Ed. 413, 88 A.L.R. 1481; Wilson v. New, 243 U.S. 332, 37 S. Ct. 298, 61 L. Ed. 755, L.R.A. 1917E, 938, Ann. Cas. 1918A, 1024. The prohibition of the sale of unfit poultry in the state of destination when that state is the major market of the nation is an especially direct and appropriate means to protect interstate commerce from deception or spread of disease affecting it. Colorado v. United States, 271 U.S. 153, 46 S. Ct. 452, 70 L. Ed. 878; Railroad Commission of Wisconsin v. Chicago, B. & Q. Ry. Co., 257 U.S. 563, 42 S. Ct. 232, 66 L. Ed. 371, 22 A.L.R. 1086.

Appellants contend that the act as a whole, and section 3 thereof particularly, is unconstitutional in that it is an invalid delegation of legislative power by Congress to the President.

The Constitution provides that: "All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives." Article 1, § 1. And further it provides that the Congress is empowered "to make all Laws which shall be necessary and proper for carrying into Execution" all its general powers. Article 1, § 8, cl. 18.

By the National Industrial Recovery Act, Congress delegated to the President the power to approve various Codes of Fair Competition. The constitutional validity of this delegation of power is brought into question. Section 1, title 1 of the act (15 USCA § 701), contains a "Declaration of Policy," reading: "A national emergency productive of widespread unemployment and disorganization of industry, which burdens interstate and foreign commerce, affects the public welfare, and undermines the standards of living of the American people, is hereby declared to exist. It is hereby declared to be the policy of Congress to remove obstructions to the free flow of interstate and foreign commerce which tend to diminish the amount thereof; and to provide for the general welfare by promoting the organization of industry for the purpose of cooperative action among trade groups, to induce and maintain united action of labor and management under adequate governmental sanctions and supervision, to eliminate unfair competitive practices, to promote the fullest possible utilization of the present productive capacity of industries, to avoid undue restriction of production (except as may be temporarily required), to increase the consumption of industrial and agricultural products by increasing purchasing power, to reduce and relieve unemployment, to improve standards of labor, and otherwise to rehabilitate industry and to conserve natural resources."

Section 3 (a, b), 15 USCA § 703 (a, b), provides for Codes of Fair Competition, and their approval by the President, their conditions, restrictions, and exemptions, and for the approval of the Codes to have the effect of ...


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