George Lafayette Carter was a reclusive Virginia industrialist who became a millionaire through business developments based on mining in what became known as the Mountain Empire, encompassing parts of Tennessee, Virginia, Kentucky, and West Virginia. By the time of his death in 1936, he had built his fortune through extensive coal field purchases, founding numerous businesses including Carter Coal and Iron Company. George L. Carter and his wife, Mayetta Wilkinson Carter, had only one child, James Walter Carter. James managed his father’s businesses beginning in 1933.
By 1933, the low point of the Great Depression, the unemployment rate was about 25%, and industrial production was less than half of what it had been in early 1929. In response to the widespread economic collapse, Congress enacted the New Deal, a series of laws intended to repair the economy. Unemployment, low wages, and brutal working conditions had sparked labor unrest, strikes, and violence among coal miners. As part of the New Deal, Congress enacted the Bituminous Coal Conservation Act of 1935, also called the Guffey Coal Act. The law was intended to stabilize the chaotic coal industry by declaring it to be a public utility and establishing national standards that would apply to almost every detail of the industry. The complex components of the law provided for price-fixing to appeal to the coal operators, guaranteed wages, job retraining, and collective bargaining to appeal to the labor unions, and regional commissions to supervise planning and ensure compliance. The law also provided for a 15% tax to be charged to the coal operators, but those who agreed to comply with the extensive regulations would receive a rebate amounting to 90% of the tax they paid. Congress based its authority for the sweeping law on the Interstate Commerce Clause of Article 1, Section 8, Clause 3, which gives Congress the power to regulate commerce that crosses state lines.
Upon the enactment of the law, James Walter Carter, president of the Carter Coal and Iron Company, immediately filed suit to stop his company from paying the excise tax and prevent its compliance with the law’s other provisions. He maintained that the Guffey Act was an overreach of Congress’s constitutional powers. The law, Carter argued, violated the Tenth Amendment because its provisions are outside of the specific enumerated powers of Congress and therefore a power reserved to the states. Further, Carter believed the 15% tax violated the Fifth Amendment because it was not actually a tax, but a penalty against any operators who refused to accept the regulations, depriving them of their property without due process.
The Franklin D. Roosevelt administration argued that uninterrupted production and distribution of bituminous coal at a fair price was in the national interest. Moreover, the relationships among the public, producers, owners, and employees were so fractured by the Great Depression’s desperate conditions that it was necessary for the federal government to stabilize the industry for the general welfare of the nation.
Carter v. Carter Coal (1936) raised important issues related to federalism and the constitutional limits on the power of the federal government. The central question of the case was whether the Interstate Commerce Clause authorizes Congress to regulate labor relations and all phases of the production and commercial activity related to coal within a state, due to its importance to the nation as a whole.
In a 5 to 4 decision, Justice George Sutherland wrote for the majority that Congress had, indeed, exceeded its constitutional limits, and the Guffey Act was unconstitutional. He wrote,
“Every journey to a forbidden end begins with the first step…it may be said that, to a constitutional end, many ways are open, but to an end not within the terms of the Constitution, all ways are closed.”
Justice Sutherland warned of the slippery slope inherent in such a sweeping increase in the federal government’s power. When the federal government begins crafting policies outside of its enumerated powers, the states begin to lose their identity and their responsibilities.
In addition, “production and manufacture of commodities are not commerce.” Such matters as wages, hours, working conditions, and the bargaining that surrounds them, are local business decisions and examples of production, not commerce. The commerce that Congress has authority to regulate, Justice Sutherland explained, is only the selling and shipping of commodities across state lines.
In Justice Benjamin Cardozo’s dissent, he pointed out that the law had not yet gone into effect, and coal mine operators who might become injured by the Guffey Act could properly challenge the act only when they had actually been harmed by it. He wrote of those challenging the law, “To adopt a homely form of words, the complainants have been crying before they are really hurt.”
Justice Cardozo took a pragmatic approach. He showed that almost all of the coal in question was indeed intended for interstate commerce, and he was not persuaded of the logic of the majority’s division between production and commerce. He stressed that the problems of the coal industry, which stretched across numerous states, could not be solved by laws at the state level. He wrote that, in the weeks leading up to passage of the act, coal miners’ unions had repeatedly threatened strikes that would shut down the supply of “a fuel so vital to the national economy.”
Already the industry had experienced
“bankruptcy and waste and ruin alike for capital and for labor. The liberty protected by the Fifth Amendment does not include the right to persist in this anarchic riot. When industry is grievously hurt, when producing concerns fail, when unemployment mounts and communities dependent upon profitable production are prostrated, the wells of commerce go dry.”
After winning his case before the Supreme Court, James Carter managed the businesses he had inherited until 1946, when he sold Carter Coal Company to Youngstown Sheet and Tube Company. One biographer writes that he sold the company during a nationwide strike involving the creation of a health and retirement fund for the mine workers, ”because he refused to submit to union domination.”
The Carter case was decided in May, 1936. Later that year, President Franklin Roosevelt enjoyed a landslide re-election to a second term. Frustrated with the Supreme Court’s resistance to the New Deal, Roosevelt proposed to add up to six new justices to the Court, which he believed would give him a majority of justices who agreed with his approach to economic stabilization. This proposal, or “Court-packing Plan,” as it became known, was politically unpopular with Republicans, and even with many Democrats, as it was seen as an attempt to manipulate the constitutional system of checks and balances. The Senate rejected Roosevelt’s judicial reorganization plan, but two justices came to the liberal side and soon FDR had opportunity to fill vacancies on the Court. Just one year after the Carter decision in which the Tenth Amendment was interpreted as a limit on the Interstate Commerce Clause, the Supreme Court reversed this construction in National Labor Relations Board v. Jones and Laughlin Steel Corp. (1937) In that case, the Court ruled 5-4 that Congress can use the Commerce Clause not only to regulate commerce itself, but also any activity that affects commerce. Under this expanding vision of the Commerce Clause, Congress enacted increasingly far-reaching legislation over a variety of issues until 1995, greatly extending the reach of the federal government.
Carter v. Carter Coal (1936) Supreme Court decision: https://supreme.justia.com/cases/federal/us/298/238/case.html
Gennie Westbrook, formerly a classroom teacher, is a Madison Fellow (2000 TX), and senior advisor for education at The Bill of Rights Institute.
Carter v. Carter Coal. Legal Information Institute Cornell University https://www.law.cornell.edu/supremecourt/text/291/502
Carter v. Carter Coal https://www.oyez.org/cases/1900-1940/298us238
Carter v. Carter Coal https://supreme.justia.com/cases/federal/us/298/238/case.html
Carter v. Carter Coal http://law.jrank.org/pages/25414/Carter-v-Carter-Coal-Co-Significance.html
Diane Maleson, Carter v. Carter Coal Co. (1936) The Oxford Companion to the Supreme Court, Kermit Hall (ed) 1992, p. 128.
Joe Tennis, “Businessman George L. Carter considered to be the father of the Tri-Cities” Bristol Herald Courier Jan. 10, 2008. http://www.heraldcourier.com/archives/businessman-george-l-carter-considered-to-be-the-father-of/article_f52521b9-a9be-5b15-9ba4-0b187e58a587.html
Joyce Wadler, “About New York; At Zoo, a Benefactor’s Tall Legacy,” New York Times, Aug. 21, 1999 http://www.nytimes.com/1999/08/21/nyregion/about-new-york-at-zoo-a-benefactor-s-tall-legacy.html
James D. Watkinson “An Exercise in Futility: The Guffey Coal Act of 1935” Pennsylvania History: A Journal of Mid-Atlantic Studies, April 1987 https://journals.psu.edu/phj/article/view/24630/24399