Brief on be half of petition for a writ of certiorari — Ashwander v. TVA

FILE COPY

~ Supreme Court of the United States.

--—

f

OCTOBER TERM, 1935,

no 4.03, ° 404

GEORGE ASHWANDER. et al.,

P Petitioners,

VS.

TENNESSEE VALLEY AUTHORITY et al.,

Respondents.

BRIEF IN SUPPORT OF PETITION FOR WRITS

OF CERTIORARI.

— —--— 2 ~_—

* FORNEY JOHNSTON,

Attorney for Petitioners.

St. Lovis Law PaintinG Co., 415 North Eighth Street. CE ntral 4477.

3

FR

SUBJECT, INDEX.

Page

Opinions Below ........... ans erence as piiuaun poebendedee 1

I, ke ee aweceeveniess ieee eunue , PAE ee oo eee as oa 2

Censtitutidn and Statutes.......... Peete... 8 FR ey OT AGE ess 2

I aS a de cuivewkuedo us ven waeecunwae Pree re Pore ‘ahiseeuune 3

Propositions and Principal Authorities: :

(1) Operation of proprietary business in competition with citizens

‘not a legitimate function of the federal government......... 3

(2) Regulation of local utilities and promotion of local social ob-

jectives not functions of the federal government............. 5

(3) Principle of state-business tax cases applies................. ¥ |

(4) Distinction between private agencies used by government and

direct federal operation MMS aaa st RRO ERR a A ee’ one bee aes 9

(5) The desire for revenue does not authorize, federal business.. 10

(6) Manufacture and sale of electricity not a federal function.... 10

(7) The Property Clause of the Constitution does not authorize

rr re ee ee ee 11

(8) Dominant objective beyond fe power renders Act uncon-

SURCRIORE 6 oioi6 ois os cecnccvme ieee Gp ec ccecccesccccces 14

.(9) Circuit Court of Appeals misapplied Supreme Court decisions

with respect to dams on navigable waters................... 17

(10) TVA Act and program unconstitutional in fundamental re-

hak ow ace oct a wae woo 6 aru bled e'6 ko bie mca wo a eae oe « wee 20

(11) TVA Act delegates arbitrary discretion to destroy private

ve utilities by competition....... ceekisewendudséaceu teen bunnies 23

(12) Declaratory Relief ............ CPP E TIT C TT ETE Eee TCC eer Tere «25

CASES CITED.

American Trust & Savings Bank v. Federal Reserve Bank, 256 U. S. ;

ei a cag ln er a aaah ra a FS 24.

Gripes Vv, Calitarmin, SES U. G. GBB... 5 cc ccccccccccccecccvccccceces 19

' Arkansag-Missouri Power Co. v. City of Kennett (U. S. C. C. A, 8th,

a Pn cctueeee ise nee re eee bodice oé eave oh daheocaen 25, 26

Ashwander .v. Tennessee Valley Authority, 8 Fed. Supp. 893, 9 Fed.

EE URS ade Ne nee ces deueauekeeneresus bvens bees vuaveves ves Bed, 4

Bailey v. Drexel Furniture Co., 259 U. S. 20 (1922). RO er re 15

Chastleton Corp. v. Sinclair, 264 U. S. 543 (1924)................... 15

Child Labor Tax Case, 259 U. thinset Ree ee lead vitineess wand cakes 4

City of Campbell v. Ark.-Miss. Pow. Co., 55 F. “e 560; Et saeeien. 26

Clallam County v. Spruce Corporation, 263 ee Ws oeedeckenanece 4, 5,8 |

Detroit International Bridge Co, v. Appeal Board, 79 Adv. Op. 337... 13

Se I, UD le Me Wl oo ie one tnc ere ceedersecrterececcens eo 16

Employers Liability Cases, 207 U. S. 463 (1908)................. ose 4

' First National Bank v. Fellows, 244 U. S. 415.....¢........ savanaeierats 9

Frost v. Corp. Comm. of Ohio, 278 U. S. 615....... ccc cc cece ccc eee 26

. Green v. Frazier, 253 U. S. 233................005- FES 7

Hammer v. Dagenhart, 247-U. S. 251........... Re oe 4

ras W. rer, Se Be, OL BP, Gm. BOE... ow ccc cicecenccss 7

Henderson Bridge Co. v. Kentucky, 166 U.-S. 150................... 13

ee PO nn os cu cas cere e cies d awicwice <u cKs 4

Hill v. Wallace, 259 U ) og EASELS Tabet SSE ot Sar gi eet oe 15

Indian Motorcycle Co. v. United States, 283 U. S. 570...............

International Paper Co. v. United States, 282 U. S. 399........... 4; 18, *

re Oy as ae sh rec ck Ca ccmcceweccuen 7

Mammes w. Coneramo. SOG U. Si Ge. qj ann cok ec cccccccccss 4, 6,11, 17,18

eer Te Se nk we naan Sn noo chee cc ccc cccecce 4,5

Linder v. United URE tg Ch ie Co Sis a nein ecw kos ea 4

Linder v. U. S268 U. S. 466 (1925) “2 RE SNS COS rane Pa an SSO eR 15

Magnano Co. v. Hamilton, i Oe ee ie de eww cee 15

Po RR ee

Massachusetts v. Mellon, 262 U. S. 447............................ 25

McCulloch v. Maryland, 4 Wheat. 316, 423 (1819).................. 15

Missouri v. Duncan, 265 U. S. 17..... Relate PADS RNS Pee nee 9

nn. wncweeeuceecdauenne 5

Mobile Trans. Co. v. City of Mobile, 153 Ala: 409................°... 18

Nigro v. United States, 276 U. S. 332.............. SEU te Be aaa 15, 16

Ge. I I nn on cn ci cecunsecucccece eeu 7

Osborne v. Bank, 9 Wheat. 738, 860... . 2.2... ccc eee 9

Penna. Mining Co. v. Mahon, 260 U. S. "393 olehuaas wate aiaeas sate 4,18, 25

ee ee ec ewe weiweeewcncccence@ewn 17,18

Pollock v. Farmers Loan & Trust Co., 157 U. S. 429................ 15

Port of Seattle y. Oregon-Washington Ry., 255 U. S. 56............. 17

’ Puget Sound L. & P. Co. v. Seattle, 291 U. S. 619............0..... 7

Railroad Retirement Board v. Alton Ry., 79 L. ed. Adv. 803, 55 Sup.

ee eet a eee OE a ie Ge Gad Sua Dee Oh Klee scan 5

Schechter Poultry Co. v. United States, ae on We Be WR. Ws ct 5

en ee. en ce we we wwe een vicescescns 17

South Carolina v. United States,-199 err ema 3, 7,8

Speed v. United States, 75 U. S. 77 (1868)..........000 00200000002. . 4,5

State v. Alabama Power Co., 176 Ala. 620............0....00.0....0. 18

Texas & N. O. R. Co. v. Brotherhood, 281 U. S. 548, 569............ 26

ee WH i, Ge a naw ho wink ccc cccccccn Be Sete oe 4,15

United States v. Arizona, 79 L. ed. Adv. 681, 685, 55 Sup. Ct. 666.. 17

United States v. One Ford Coupe, 272 U. S. 32...................... 15

United States v. West Virginia, 79 L. ed. 848...................... 19

Dee een iwc ubewenvsceesucieceuceuen 18

Nee sier Wi RII OG OM ooo ois so cic oes shes cwlescéeceeccacelbeeee 10

GU. B. We Tremrama Goel Go. 197 U.S. 160. occ cc cccccevecccccecscce 12

Van Brocklin v. Anderson, 117 U. S. 158............... SPREE! ine ie

Von Baumbach v. Sargent Land Co.,°242 U. S. 503...... ae eae 12

Wisconsin v. IHinois, 278 U. S. 367............... Rae ae, Serer 17

Bee Wee Hy Gy BOe OG, Be wee ye ccdesceneeccdenvecrcessves 24

Zonne v. Minneapolis Syndicate, 220 U. S. 187............ 0... ccc eee -12

iii fh

STATUTES CITED. °

Act No. 40, Feb. 10, 1927, Acts 1927, p. 38...........0ceeeeeee arene 18

Code of Alabama (1923), Sec. 10570.............0eeeeeeee hdaruae 18

Constitution:

EES BE ere Perr re. errr ee A aesese ie 2,3

BE i IG Diceagnge deny o usin eken es nneetvenesicecedsaeennwes 2,10

ee aah ae ce eeene sa townay ees Se 2

eS OS CO ee rr err Tr ee 2, 10, 11, 13, 14, 21

Declaratory Judgment Act of June 14, 1934 (C. 512, 48 Stat. 955; 28

U. S. C. 490; Judicial Code, Sec. 274 D)..... LAepahascanneendee

Federal Water Power Act of June 10, 1920, 41 Stat. 1063, 16 U. Ss. C.

ee rere re rr re Tere rT Tree TT Te Te » Ure

Judicial Code, Sec. 240-a, as amended by Act of Feb. 48, 1935, C. 229,

o43 Stat. 938, 28 U. S. Code, Sec. 347.2... .. cc cet ieee cece eevene a:

Muscle Shoals Act of 1928 (S. 46) and 1930 ({S. 49) as eS AED at 4

National Defense Act, Sec. 124 (C. DE SO UNS BIO) < o:c cie'e's eieeieisiaretes . 8

Tennessee Valley Authority Act of 1933, 48 Stat. 58,16 U. S.C. 831 2

OTHER AUTHORITIES. ~

RE la GARE RIESE TIRE Aaa Re itis aie A

Joint oo uw. Ss. Engineers and New York Power Authority,

_ -— Ser chet 1e eRe ead ee ew a deedsen «fag y Nase rene

Op. Att’y. Gen. Feb. 7, 1934, and Oct. 21, 1933, to Hon. Harold L:

Ickes, Federal Emergency Administrator of Public Works.........

Report Fed. Power. Comm.. 1934, p. 147. Project No. 1175............ 13

Report No. 49, April 20, 1933......... 2c cee cece eee eee eee cece eeees 19

Sen. Doc. No. 31+ 70th Cong.,; 1st Sess., Jan. 4, 1928, p. 31...... awkow 18

Supreme Court of the United States.

OCTOBER TERM, 1935,

u

_ GEORGE ASHWANDER et al.,

| Petitioners,

VS.

TENNESSEE VALLEY AUTHORITY et al., |

’ Respondents.

BRIEF IN SUPPORT OF PETITION FOR WRIT. s

OF CERTIORARI. |

OPINIONS BELOW.

Opinion ‘of District Court on motion to dismiss’ bill, 8

Fed. Supp. 893; on motion to dissolve restraining order, 9

- Fed. Supp. 800; at conclusion of argument on final sub-.

mission, 9 Fed. Supp. 965.

Conclusions of Law by District Court: Record, Vol. II,

pp. 1091-1101. These conclusions -reflect the basic facts’

involved in the controversy, entered pursuant to Equity

- Rule 70% (II-1035}, which were not modified by the Cir-

cuit Court of Appeals. .

Opinion of Circuit Court of ‘Appeals, July 17, 1935: Ree-

ord, Vol. II, following page 1304.

a

aa

a URISDICTION.

The decree of the Circuit Court of as was entered

July 17, 1935. There was no petition for rehearing. The

jurisdiction of this Court is invoked under Section 240-a

of the Judicial Code as amended by the Act of February

13, 1935, C. 229, 43 Stat. 938, 28 U. S. Code, See. 347.

CONSTITUTION AND STATUTES.

The basic: enniiens rest on the lack of constitutional

- authority in the federal government, for non-federal use:

—to establish and operate in state domain a perma-

nent commercial business, utility in type,- intention-

ally, directly and necessarily monopolizing and reg-

ulating local electric service and rates;

_—to engage in an organized proprietary business of

manufacturing electricity at war-purpose steam-elec-

tric plants for ‘commercial distribution and sale in

state domain;.

—to install and operate hydro-electric units in nav-

- igation dams for the manufacture of electricity by the

government for commercial distribution and sale in

- state domain.

Constitution:

Article I, See. 1;

Article I, Sec. 8, Cl. 12, limiting appropriations for

stated war purposes for a longer term than

two years;

Article IV, Sec. 3, Cl. 2.

Amendments V, IX, X.

Tennessee Valley Authority Act of 1933, 48 Stat. 58, 16

U. S. C. 831. (The amendment which passed House and

Senate August 21, 1935, emphasizes and does not dispose

of any questions discussed.)

Section 124, National Defense Act (C. 34, 39 Stat. 215).

Declaratory Judgment Act of June 14, 1934 (C. 512, 48

Stat. 955; 28 U. S. C. 400; Judicial Code, Sec. 274 D).

STATEMENT-

An outline of the case, the facts and controversy,- ap-

pears in the petition for certiorari.

PROPOSITIONS AND PRINCIPAL AUTHORITIES.

| (1)

Permanent commercial operation by the government of .

@ proprietary ‘business of manufacture and sale within .

State domain of a commodity for private consumption in

competition with ‘citizens is not a legitimate function of

the federal government. Such business can not, without

violation of the Tenth Amendment, be licensed or regu-

lated or operated by the federal government under a pre-

tense ‘of disposing of federal property, where the com-

modity is commercially manufactured for that purpose.

* Constitution: Amendment IX, Amendment X.

See South Carolina v. Teited States, 199 U. S. 4837,

quoting the language of Chief Justice Nott:

‘‘Certain it is that if the possibility of a govern-

ment usurping the ordinary business of individuals,

driving them out of the market, and maintaining

place and power by means of what would have been

called, in the heated invective of the time, ‘a legion

of mercenaries,’ had been in the public mind, the

° om Gwe

Constitution would not have been adopted, or an in-

hibition of such power would have been placed among

Madison’s amendments.’

Ashwander v. Tennessee Valley hulhevite, § Fed.

Supp. 893; 9 Fed, Supp. 965;

Speed v. United States, 75 U.S. 77 (1868) ;

License. Tax Cases, 5 Wall. 462;

Kansas v. Colorado, 206 U. S. 89.

As to the invasion of the rights reserved to the States and

people under the guise of commerce or tax powers:

Employers Liability Cases, 207 U. S. 463 (1908) ;

Hammer v. Dagenhart, 247 U. S. 251;

Child Labor Tax Case, 259 U. S. 38;

Hill v. Wallace, 259 U. S. 44;

Trusler v. Crooks, 269 U.S. 475;

Linder v. United States, 268 U. S. 5.

This invasion is comparable to the effort to take prop-

erty under the guise of regulation (a) or performance of

international obligations (b). .

(a) Penna. Mining Co. v. Mahon, .260 U. S. 393;

(b) International Paper Co. v. United States, 282

“U.S. 399.

That the commercial manufacturing business in compe-

tition with citizens is alien to federal function seems con- «

ceded by the Circuit Court of Appeals.*

So little effort has been made by the government in a

century and a half to manufacture commodities for com-

mercia} sale or render services beyond the range of fed-

eral domain or use (except as ineidental to liquidation of

a war plant—Clallam County v. Spruce Corporation, 263

*“Of course, it is true that the Government of the United States can-

not engage at will in private business.” :

—

U.S. 41) that the solitary expression grazing the commer-

cial manufacturing process seems to be this statement in

United States v, Speed, 75 U. S. 77 (1868) :

. “Tf by this is meant that the War Department has

no: authority to enter into the business of converting

hogs into pork, lard and bacon, for the purposes of

profit or sale as individuals do, the proposition may

be conceded . ee ee

(2)

The disciplining and regulation of local utilities, the

promotion of public ownership of utilities, the desire te .

supplement regulation by State authorities and State proc

esses, the general desire to promote the industrial, social

and economic welfare of the public in state domain in mat-

ters reserved to the States, are not functions of the federal

government, however exigent they may be deemed by. Con-

gress.

Cases cited, supra;

Schechter Poultry Co. v. United: States, 79 me ed.

Adv. 888; |

Railroad Rtinenvent Board v. Alton Ry,., 79 L. ed.

Adv. 803, 55 Sup. Ct. 758; |

Missouri v. Holland, 252 U. S. 416."

In the License Tax Cases, supra, the sharp line between

the business of the citizen and the federal government is’

asserted in these words: :

‘‘No interference by Congress with the business of

citizens transacted within a state is warranted by the

Constitution, except such as is strictly incidental to

the exercise of powers clearly granted to the Legisla-

*“It is obvious that there may be matters of the sharpest exigency for ;

national well being that an Act of Congress could not deal with.” .Per

Holmes, J.

ture. The power to authorize a business within a-state

is plainly repugnant to the exciusive power of the

State over the same subject’’;

‘and in Kansas v . Colorado, the Court asserted that the

Tenth iaelioes

‘‘disclosed widespread fear that the National Govern-

ment might, under the pressure of a supposed general

welfare, attempt to exercise powers which had not

been granted. With equal determination the framers

intended that no such assumption should ever find

justification in the organic act, and that if in the fu-

ture further powers seemed necessary they should be

granted by the people in the manner they had provided

for amending that Act.’’

The findings of the: District Court, conceded to be cor-

rect by the Cireuit Court of Appeals, to the effect.that the

electricity intentionally manufactured by Tennessee Val-

~ ley Authority for commercial distribution and sale within

state domain through a business permanent in character

and utility in type, is not in aid or furtherance of any fed-

eral use or necessary to the preservation of the plants

(No. 43, II-1048), result in the necessary conclusion that’ -

the plan, program and mechanism of TVA to that end are

violative of the Tenth Amendment.

(Findings No. 73, I1-1061;'104 and 106, II-1072; 118,

II-1079) ;

(Conclusions Nos, 2, 4, 5, 6, 1, 8, 12, II-1091, et a’

= eo

(3)

. The principle of the State-Business Tax Cases that such -

_ businesses are proprietary and not governmental is ap-

plicable where the commodity is manufactured not for Gov-

ment use but, intentionally, for commercial sale.

The principle announced in the state-business tax cases

(South Carolina v. Un. S., 199 U. 8. 437; Ohio v. Helvering,

292 U.S. 360; Helvering v. Powers, 79 L. Kd. Adv. Op. 141) —

that proprietary business is not governmental in character

plainly requires that the federal government, in discharg-

ing its constitutional functions, be restricted in engaging

in proprietary transactions or maki ; usé of commercial

mechanism to such devices as are in furtherance of a con-

stitutional function; that is, in the case of manufacturing

confined to the fame of government requirements and in

the case of sales to bona fide left-overs not intentionally

created for commercial sale. |

The cases cited, involving the conduct by a state or its

sub-divisions of -a proprietary business, assert that a pro-

prietary business. is not a governmental function, although.

as to the states, the business may be sufficiently public. in

character to be justified under the reserved or residuary

powers of state or local governmenis and authorized by the

. particular ‘state constitution. : al OE

Jones v. Portland, 245 U.'S. 217;

Green v. Frazier, 253 U.S. 233;

Puget Sound L. d P. Co. v. Seattle, 291 U.S. 619.

The line of casex first cited, holding that operation of a

state proprietary business of buying (or manufacturing)

‘and selling, or like continuing commercial transactions, ix xo

essentially proprietary and non-governmental as to be sub-

a oe

ject to federal taxation, is necessarily to be distinguished

from the bona fide, non-commercial sale, disposition or

liquidation by the state or federal governments of public

property or a governmental agency, aS to which-a sale,

merely liquidating the ownership, would not be taxable,

-any more than the origitfal purchase for government use,

as represented by Indian Motorcycle Co. v. United States,

283 U. S. 570; Clallam County v. Spruce Corporation,

supra. . -

‘The use of a spent-purpose or future-purpose war plant

in a commercial manufacturing business to earn profit for

the treasury is obviously proprietary, non-sovereign and

non-governmental, and therefore beyond the lawful power

of the government. This is true not merely as to the

steam plants at Muscle Shoals, but as to the use of surplus

waters (actually vested in the State) as a raw material

. out of which to manufacture electricity in a hy dro- electric

plant as a permanent business.

The intentional acquisition 6dr manufacture of a com-

modity for commercial sale for profit or other non-federal

objective can not; under the cases above cited, following

South Carolina v. U. S., be regarded as governmental. For

‘this reason the ‘commercial transaction or’ business, if jus-

tified at all as to the.federal government, must have a

direct and rational relationship to an express constitu-

tional function thought to be subserved.

The Muscle Shoals Acts of 1928 (S. 46) and 1930 (S. 49),

which failed for lack of Executive approval, as in the case

of the present Act and the current amendment, alike di-

rectly contemplated commercial and proprietary manufac-

ture and sale of commercial fertilizer and electricity, with-

out relation’ to and in flagrant violation of federal powers.

(4)

There is a vital distinction between operation of a com-

mercial business by a-private business corporation created

or adopted as a federal agency, and operation of such busi-

ness Ly the government. The necessity for earning profit

is not a governmental necessity, however definitely that

function may be related to and required | for survival of the

corporate agency.

The case presented by this record in all of its aspects is

the case of direct federal operations, or operations by no-

‘Tecourse agencies financed and controlled by the govern-

ment, not the case of a private corporation adopted by

Congress, to which competitive commercial powers may be

granted in order to enable the corporation to compete and

survive.*

It can not be contended that ‘Congress could arrogate

to the government itself competitive functions merely be-

causé considered necessary or desirable by Congress to en-

able the government to earn money. The doctrine of rea-

sonable relationship would not apply.

Even in the case of federal agency corporations pri-

vately owned and operating ‘for profit, Chief Justice Mar-

shall asserted that the corporate powers granted must have |

relation to the federal objective,t and the present admin- |

istration has been warned by the Attorney General that

where a corporate agency is made use of its corporate

powers must be limited to the federal objective. t

*First National Bank v. Fellows, 244 U. S. 415; Missouri v. Duncan,

265 U. 8.17. —

+Osborne v. Bank, 9 Wheat. 738, 860.

tOp. Att'y. Gen. Feb. 7, 1934, and Oct. 21, 1933, to Hon. Harold L.

Ickes, Federal Emergency Administrator of Public Works.

| _19—

(5)

The desire for revenue does not authorize the federal

government to engage in business to earn it.

‘The tax clause (Art. I, See. 8, Cl. 1), the Sixteenth

Amendment, and the property clause (Art. IV, See. 3, Cl.

2) prescribe, in general, the means by which and the con-

ditions under which the government is authorized to pro-

vide funds. These means do not include a commercial

manufacturing business for the production of commodities,

to be sold throughout state domain. Obviously, the gov-

ernment having under a substantive power created a plant

or instrumentality, can lease it, pending reserved use of

.. future final disposition, and may reserve rent or compensa-

tion for the use. U.S. rv. Gratiot, 14 Pet. 526.

In the case of lawful instrumentalities provided for

public use within a lawful. power it may presumably -

charge tolls; but in all such eases the creation or operation

of the. property must have been pursuant to a federal func-

tion and not be dominantly based on desire to realize

money for the treasury. .

(6)

Commercial operation of the steam-electric and hydro-

electric plants to manufacture electricity for distribution

and sale to the public in state domain is not a legitimate

federal function.

The findings-of the District: Court adequately state the

complete lack of relationship between commercial manu-

facture and sale of electricity at and from the various

steam-eleetric plants or at and from the existing and pro-

spective hydro-electric. plants, and improvement of navi-

gation or war or preservation of the plants (Findings Nos.

43, 73, 91, 104, 106, II-1048 et seq.).

ee

The conclusions of law announced by the District Court

follow inevitably from these facts (Concl. Nos. 2, :4, 7, 12,

. 18, 15, [1-1091 et seq.). :

The final decree of the District Court had‘ no effect on

any navigation aspects of the TVA program. If affirmed

and extended so as to terminate finally any proprietary

manufacture and sale of electricity, either at the steam

plant: or dam, it would have no remote effect on the im-

provement of navigation or upon interstate.commerce. -

(7)

_ The property clause of the Constitution (Art. IV, Sec.

3, Cl. 2) does not contemplate or authorize the commercial

operation of a federal purpose plant for the manufacture

of new commodities'or the processing by the government

of federal raw materials into finished products to be sold

throughout state domain in competition with citizens.

The property clause is found in the Constitution not

among the legislative powers’ but among the clauses deal- .

ing with the velations: between the state and federal gov-

ernments.

‘‘Clearly it does not grant to Congress any legis-

lative control over the States; and must,.so far as they

are concerned, be limited to authority over the prop-

erty belonging to the United States within their

limits.’

Kansas v. Petae: 206 U.S. 89.

)

The direct and necessary result of the power claimed by

TVA is the antithesis of state jurisdiction.

‘The elimination of state licensed utilities and the substi-

tution of the power of the federal government to control

the business, by. dictating the terms and conditions upon

Bann.

—12—.

which utilty service may be had, can not possibly be con-

sidered other than a direct interference with the state

under a pretense of disposing of or regulating government

‘property. . ‘

Local utility service is affected with a local &nd not a

national public interest and is wholly a state function. To

hold that the federal government can compete with and

thereby destroy, through its superior resources and their

untaxed and unregulated administration by a three man

corporation, this duty and responsibility of the state or its

subdivisions to its own citizens, would wreck the principle

of state sovereignty.

The findings and conclusions of the District Court aptly

and: accurately distinguish between the ownership and dis-

position (such as by lease or sale) of government lands

and property, and the use of government property to

organize and engage in a manufacturing business in state

domain (Nos. 9 and 10, II-1093).

Conduct of a permanent business is not a function of dis-

posal of property. ‘‘The United States can not hold prop-

erty as a monarch may for private or personal purposes.’’

Van Brocklin v. Anderson, 117 U. S. 158. Such proper-

- . ties are held in trust for all of the people. U.S. v. Trini-

dad Coal Co., 137 U. S. 160. :

These principles necessarily exclude the use of federal

properties as a competitive means with which to annihilate

private business within a region or a city arbitrarily se-

lected by an agent of the government for federal monopoly

or control of the business.

The distinction between static ownership or stand-by own-

ership (lease) and engaging in business with property is

well. established. Von Baumbach v. Sargent Land Co., 242

U. 8. 503; Zanne v. Minneapolis Syndicate, 220 U. 8. 187. a

So also is the distinction between providing and making

‘The facts distinguishing (a) manufacturing, (b) the func-

| . tion of transmission and sale asserted in Utah P.&L. Co.

Pfost, 286 U.S. 165 (Petition for Cert., pe 16), and (c)

lease of government plant, were stated by the District |

Court (Fng¢ No : «1045: Con Nc + ee ;

pees

:

ae,

available an instrumentality in- aid of commerce, to be

used by others, and engaging in commercial business by

means of the instrumentality. Detroit International Bridge

Co. v. Appeal Board, 79 Adv. Op. 337; Henderson Bridge

Co. v. Kentucky, 166 U.S. 150. |

Subject to the question of good faith in acquiring plants

to lease rather than for a federal purpose, there would be

- no objection to the lease by the government of the emplace-

ments in navigation dams (as has been done at Boulder

- Dam* and at the Kanawha Damst) or of the Muscle Shoals”

steam plant, as was done by the War Department, or the

hydro-electric units.

There have been compensatcry offers for the lease of

the Muscle Shoals property, which have been declined’

(Finding No. 92, II-1069). The government declines to

_ lease‘these plants or even to sell the output of these plants

at the plant (II-543, Finding No. 113, II-1078). ‘It insists

upon direct commercial manufacture by the government in

order to conduct a business in state domain (I1-1042, No.

26 et seq.). |

This is not disposing of or making rules and regulations

respecting the territory and other property belonging to

the United States, viz., the steam plant, the emplacements

and the hydro-electric units, within the meaning of Article

IV, Sec. 3, Cl. 2. It is conducting the business both of

manufacture and sale, involving plant, working capital,

technical organization, personnel, promotion, all in order

to acquire a commodity not owned by the government and

not desired for government use but for proprietary sale.

There would be no constitutional difference between com-

mercial manufacture of a commodity for sale and purchas-

ing it for sale. In fact, the TVA is shown on this record

*The Hoover Dam Contracts, Wilbur and Ely, Gov’t Ptg. Off. 1933.

+Report Fed. Power Comm. 1934, p. 147, Project No. 1175..

a ee

to have entered into contract to purchase electric power for

resale in this business (II-1078, No. 116).

The range of and the limitations upon the property

clause as demonstrable from the transactions of the Con-

vention of 1787 and the decisions of this court warrant no

such use of the so-called war and navigation plants.

In general, the organization and operation of a perma-

nent business designed and intended to have its impact on

local service in state domain and to accomplish a permanent

monopoly and control of that service can not be justified as

a legitimate means for regulating or disposing of the prop-

erty of the United States. The plan and program of TVA

is basically and intrinsically, as well as by design and in-

tent, monopolistic and permanent and wholly beyond the

legitimate scope of Art. IV, Sec. 3, Cl. 2.

(8)

Where the dominant objective of an Act of Congress or

a transaction undertaken by the Federal Government

(TVA) is to regulate intrastate utilities‘and otherwise di-

rectly to control matters reserved by the Ninth and Tenth

Amendments from federal interference, the, Act or trans-

action is illegal, notwithstanding its form or its recitals,

even if the mechanism employed, separately and intrinsi- |

cally considered, involved an act otherwise or ordinarily

or superficially within the scope of federal power.

The record in this case, the findings of fact made by the

District Court not in any respect modified by the Circuit

~ Court of Appeals, and the consistent and unqualified ad-

missions in the record, excerpted from the corporate min- . .

utes and official releases of TVA, make plain that the

dominant and primary purpose of the TVA program. was

and is the establishment of a permanent, independent util- .

| a) |

ity network in state domain as a yardstick over or to reg-

ulate utilities, to supplement state regulation and to pro-

mote public or cooperative ownership. ‘All overt acts and

transactions ‘were plainly designed to that end, and to

drive out existing utilities as a designed or proximate and

‘necessary result.

Under these circumstances, the principles of interpreta-

tion either applied or recognized in the cases cited below

make both the Act and the program subject 'to the test of

validity supplied by the stated dominant objective and

purpose. ‘‘Congress can not, under the pretext of execut-

ing delegated power, pass laws for the accomplishment of

objects not intrusted to the federal government.’’

McCulloch v. Maryland, 4 Wheat. 316, 423 (1819) ;

Linder v. U.S., 268 U. 8. 466 (1925) ;

Bailey v. Drexel Furniture Co., 259 U. S. 20 (1922);

Hill v. Wallace, 259 U.-S. 366 (1925) ;

- Trusler v. Crooks, 269 U. S. 475;

Chastleton Corp. v. Sinclair, 264 U. S. 543 (1924) ;

Magnano Co. v. Hamilton, 292 U.S. 40 (1934) ;

Nigro v. United States, 276 U. S. 332; —

United States v. One Ford Coupe, 272 U.S. 32; .

Pollock v. Farmers Loan & Trust Co., 157 U.S. 429.*

In declining or failing to give consideration to this in-

tegral and dominant function of the TVA program, the

Cireuit Court of Appeals declined to accept that which,

in removing the calise, the TVA recognized as involved and

directly presented for consideration and decision, viz, the

integral TVA program in its entirety. The controversy.

presented, ‘as asserted by TVA: |

‘©(5) The legality of the entire program of i re-

*“It is the substance, and not the form, which controls, as has indeed

been established.”

ae 16—

spondent Tennessee Valley Authority under the Ten-

nessee Valley Authority Act and the Constitution of

the United States.’’

° —(Petition for Removal, I-210)

The District Court made appropriate findings and con-

clusions upon the issue thas admitted. The Circuit Court

of Appeals declined this major issue, although summariz-

ing (without disapproval) with approximate correctness

certain findings of. the District Court, in these words:

‘*It is not the purpose of TVA to limit the produc-

tion of electric power to that needed by the Govern-

ment in manufacturing war materials: and providing

for navigation, but its declared policy i is to utilize to

the fullest extent possible all the electric energy which

the Wilson and other dams are capable of producing,

by supplying first governmental needs, and then by

. gelling the surplus to users of electricity, in competi-

tion with public utility corporations engaged in the

manufacture, transmission, and ‘distribution of elec-

tricity. In disposing of surplus power TVA intends

to obtain revenue, but at the same time to undersell its

private competitors in order to establish a ‘power

yardstick’ and to demonstrate the advantages of pub-

lie over private ownership of. electric light plants.’’

The failure of the Circuit Court of Appeals to consider

the question of the dominant effect of these and related

findings of fact departs from the principle of the decisions

cited, which have resulted in an express clarification of

the Doremus Case, 249 U. S. 86, as Reognized i in weer v.

United States, 276 U. S. 332.

=. =

(9)

The opinion of the Circuit Court of Appeals has misin-

terpreted the effect of the Kaukauna Water Company (142

U. 8. 254), Green Bay (172 U. 8. 58), Chandler-Dunbar (229

U. 8. 53) and Boulder Dam (283 U. 8. 423) cases in assert-

ing that those cases have adjudicated that the federal gov- —

‘ernment under the Commerce Clause acquires a proprie-

tary interest in the surplus waters impounded by naviga-

tion dams; and has departed from the principles estab-

lished in Kansas v. Colorado, 206 U. 8. 89, Wisconsin v.

Illinois, 278 U. 8. 367, and in the settled line of decisions

represented by Pollard v. Hagan, 3 How. 212, Shively v..

Bowlby, 152 U. 8. 1, 43, and Port of Seattle v. Oregon-

Washington Ry., 255 U. 8. 56, and recognized in Section 9

of the Federal Water Power Act of J une 10, 1920, 41 Stat.

‘1063, 16 U. 8. C., Sec. 791.

The cases cited in the caption sustain the assertion ve

stated. That the proprietary right of the state is subject

only to manipulation of, the waters of navigable streams

by Congress in relation to the regulation of navigation is

recognized in the latest-expressions of the Court. United

States v. Arizona, 79 L. ed. Adv. 681, 685, 55 Sup. Ct. 666.

That the use of surpius waters of a stream, that is, by

definition, waters not required .to be manipulated in: fur-

therance of navigation, vests in perpetuity in the States in

trust for the people is of all doctrines relating to waters

the most firmly established by elaborate and consistent

consideration and decision by this Court. Upon that line

of decisions rests a rule of property of the first rank. The

_ decision of the Circuit. Court .of Appeals shatters it,

~The preemption of the waters by the government pend-

ing or assuming State acquiescence adds nothing to its ex-

isting lack of Constitutional power to engage in the busi-

—18—

nexs of manufacture and commercial distribution, what-

ever the raw material, by whomsoever owned.

The argument of TVA, adopted by the Circuit Court of

. Appeals; that surplus waters are sui generis has no con-

stitutional significance. They wefe sui generis in Kansas

v. Colorado, 206 U. 8. 89, and in Péllard v. Hagan.

The government cpuld not condemn*a_ proprietary right

to use ‘the surplus waters for commercial manufacture and

distribution. It can not take that right by treaty with the

State (Pollard v. Hagan, supra), nor under Section 10570,

Code of Alabama (1923) (U. 8. v. Fox, 94 U. 8. 34; State

v. Alabama Power Co., 176 Ala. 620). It could, of course,

take the right for war purposes or manipulate the pool

levels im aid of navigation; but to take the waters or water

rights fo. commercial manufacture and: sale of power

under guise of regulation of commerce would be nothing

short of a prostitution of federal power, condemned in

International Paper Uo. v. United States, 282 U.S. 399, as,

in Penna, Coal Co. v. Mahon, 260 U. 8. 393, was condemned

the effort to enlarge a subordinate easement actually held

by the public into a dominant and much greater one de-

sired, under the guise of regulation. The Court said:

We are in danger of forgetting that a strong pub-

lie desire to improve the public condition is not

enough to warrant achieving the desire by a shorter

cut than the Con@titutional way of paying for the

change.’’

. The State of Alabama by formal action both of its Leg-

islature and an appointed Commission has asserted the

proprietary right of the State in the waters of the Ten-

nessee within its borders not necessary to be manipulated

for navigation.*

°(Act No. 40, Feb. 10°1927, Acts 1927, p. 88; Sen. Doc. No. 31, 70th

Cong., 1st Sess., Jan. 4; 1928, p. 31; Mobile Trans. Co. v. City of Mobile,

163 Ala. 409). >

_

—19— .

The State of West Virginia has asserted like rights.

United States v. West Virginia, 79 L. ed. 84%.

The rights of the State of Arizona to its equitable share

of those waters at Boulder Dam not necessary to be dis-

patched for navigation and flood-control have been rec-

ognized. They have not, as erroneously assumed by the

Cireuit Court of Appeals, been foreclosed in favor of the

corsmercial manufacture of power by the United States

or its assigns. The Boulder Dam Case (Arizona v. Cali-

fornia, 283 U. S. 423) suggested no such result ; nor did

United States v. Arizona, 79 1. ed, Adv. 681, 55 Sup. Ct.

666.

The State- of New York has from the outset asserted

proprietorship in surplus waters not required to be manip-

‘ulated for improvemént of navigation; and the rights of

that State have been tacitly recognized by the Administra-

tion and the House of Representatives.t

This is not a case where one citizen is relying upon

unauthorized diversion of anofher’s property or right.

It so happens that the Alabama Power Company owns

the Wheeler Dam site (Decree, Section 3, 1-383), but that

point is not material or decisive. Whether the govern-

ment owns a proprietary right or not, in coal or water,

that right can not be made the basis of a permanent

manufacturing business to produce a commodity for com-

‘mercial sale by the government throughout state domain.

+(H. J. Res. 157, 73rd Cong., Ist Sess., passed without amendment

« April 26, 1933, Cong. Rec., p. 2441; Report No. 49, April 20, 1933; Joint

Memorandum, U. 8. Engineers and New York Power Authority, Feb-

ruary 7, 1933.) :

AL

a .

(10) ..

The TV A program is in ‘derogation of Neiman

characteristics of the federal government: and limitations |

upon, the power of Congress. . . “ os

cececiniltins - ¢ Ld ¢

‘The — Valley Authority’ Act is unconstitutional |

‘in relation to the power program and; by reason of inter: —

dependence of its arts, in its entirety.

€

dar veentens of the Tennessee Valley Authority Act

(August, 1935) emphasizes the invalidity of the program

and transactions involved on this record and the invaligity’

of the Act as amended. (

These captions for brevity may be ‘discussed jointly.

The Act and program constitute a phenomenon without

~ parallel in the history of the government. The Message

of the President requesting. the creation of the “Tennessee

Valley-- huthesity* § akes plain that the conception was

to give a board oft hree men‘discretion to commit the

government permanently and irretrievably to a region-

wide collectivist enterprise, legislative. both in ‘the con-

~ ception delegated and in detail.

The necessity for condensing this statement makes it

possible merely to schedule the result.

a

;

_ The functions proposed are essentially non-govern-

mental and inconsistent with the theory of the Constitu-

tion and the characteristics of the federal government

*Exhibit 2 to Bill of Compaint, I-106.

— )po

A cqntinuing utility servitude, subjecting the federal gov-

ernment to the continuing duty to supply without inter-

tuption servicecto every citizen, whether wholesale or re-

tail, enforced ‘by contract, involving the reading of meters, ( .

selling applianees,- repairing service, engaging in promo- >

tion, and cluttering the processes’ of federal legislation

and administration with the details, is alien to the theory

of the Americap/ government. There is no express power _

to support it. Any implication of authority ‘to so remark- .”

_ . able an end is opposed by the nature haves functions of the

government. |

| Any such servitude constitutes on ite ens an interfor-

ence with the functions of the national government. The

theory .on Which. immunity to suit is based, subject to

suspension in the interest of justice where governmenta

| functions unavoidably result in injury, is ‘directly opposgd

to the exposure of the gov ernment to roytine commercial

litigation. i

The permanent commitment of the government to any

¢ such program is in derogation of the legislative power, of

the power And duty to be free to dispose of government

property, of the duty to raise revenue under the tax

powers where the citizen is protected by the provisions

and restraints of the Constitution, rather than by com-

‘mercial monopoly and unregulated engrossing of utility.

service, directed by three ‘arbitrary directors whose statu-

tory test of fealty to the plan (Act, See. 2- h) is itself vio-

lative of Art. IV, Cl. 2 of the Constitution.

9)

The Act delegates to TVA unlimited discretion as to:

(1) The determination of the power program, its loca-

tion, conduct, the selection of the areas in which and the

Sa) soe

a

>

- a bi a

Rane fem Oo et orem me sm Tene oe oN cecum

99

rd

|

extent ta which its utility operation, domination and con-

trol, its regulation of rates, its promotion of publigown- *

ership, may . be exercised; the utilities it may single ont

funds shall be invested inj extension of the program out

of United Sfates bonds and ogt of net revenue or exist-:

ing.appropriations; the detetmination of the question of

utility relationship between the government and the States

and municipalities, and. like questions of grave legislative

ich all being determined at will by TVA.

“ (2) The extent to which TVA shall (as in the case pro-

_ for competitive exclusion; the extent to which federal ©

posed as to the seventeen* municipal defendants) finance...

distributing systems without pecuniary liability on the

municipality, supply with power, dominate and control

rates, accounts, service regulations and revenue, and .Te-

/

f | |

_ (3) The discretion’ ta commit the government to 20-30_

and 50 year actionable

upply contracts, thus effectively

freezing: the policy, the property and the-plants of the

government against withdrawal or repeal,.except on mak-

ing compensation. | )

(4) The discretion to depart from the recommendations

of the Corps of. Engineers as to depth of navigation, loca-

tion;and type of navigation dams, and of storage dams;

whether and to what extent hydro-electric emplacements

should be provided and, if provided, whether to equip

them with commercial units and put them in business in

~ competition with existing utilities; whether and to what

ent steani-electric units shall be built or electricity

purchased in the market for resale.

quire the resulting systems to be operated ‘for account of |

the government.

“Sr

%

—23— .

The Tennessee Valley Authority Act is invalid in respect

to its provisions authorizing competitive manufacture and

distribution of electricity i in that, as construed and applied

by TVA, it purports to delegate arbitrary discretion to

so”

~\ TVA to single out‘tue Alabama Power Company or any

other utility for competitive destructiof, for arbitrary and

oppressive action. -

~ As construed and apelin’ by TVA, the Act ponstitutes

a letter of marque authorizy VA to meke war on utili-

ties serving the public wi transmission distance of any

source of electricity. Althotigh the rate schedules in force

with the Alabama Power Company were ‘shown on this

record to have been acknowledged to be reasonable by -

Tennessee Valley Authority and by it stipulated for ex-

tension into the State of Tennessee by Tennessee Electric

Power Company, the record shows systematic abuse and

incitation. of the public in the area by TVA against utili-

ties. Representative illustrations proven on this record

. are: (II-639; 1-165; Fng. No. 117, II-1078).

The Act vests TVA with exclusive contréi ovet the

power plants at Muscle Shoals and Wilson Dam and at all ~

future plants and properties (See. 7-a). Section 10 author-

izes distribution of this power at the sole discretion of

TVA. Section 11 declares a policy of equitable distribu-

tion in the area within transmission distance; -but the ree-

ord shows that TVA follows no plan or program except an.

arbitrary determination to entrench as comprehensively as _

possible this permanent network. In ‘the course of that. °

procedure it has singled out the Alabama Power Com-

pany for competitive attrition of its seventeen municipal

distribution systems, after taking ani option upon them at

60% of the replacement value stipulated in the agreement

of January 4, 1934.

Be.

ae

‘The power program as announced ‘and as administered

is conspicuously arbitrary and inequitable.

Pravisions urged by. the House requiring judicial con- | |

demnation of systems marked out for destruction, both in

the original Act and in the Amendment, were eliminated

and the principle of TVA discretion left without condition..

The inatguration and regulation of utility service is a

legislative function. The death sentence upon utilities in-

herent in the Act-as construed and administered by TVA

brings the Act and its administration within the principle

of Uo Wo v. Hopkins, 118 U. S. 356.” The Fifth Amend-

ment is plainly violated by the prscedure disclosed by this

record. That procedure faces all utilities in the area.

y This is not a case where the government is offering

” commodities for sale’ at the point of possession or man-

‘ ufacture on public domain, viz., ‘at the steam plant or dam.

This is a case where TVA is given arbitrary power to erect

a transmission line into any utility area it selects, with no

standard or instruction: in short, the full power of Con-

gress and’ the discretion of private enterprise as to a per-.

‘manent policy from which there is no practicable retreat.

TVA is accountable not even to the remote political ‘con-

’ trol of the people. ‘The determination of policy by TVA

is final. That means arbitrary three-man, ‘corporate domi-

nation, as fatal when it concentrates on seventeen munici-

pal areas as the concentration of checks in American Trust

& Savings Bank v. Federal Reserve Bank, 256 U. 8. 359.

No such arbitrary power and discretion can be justified

by an administrative agency of the federal government.

- The circumstances of unfair advantage, use of federal

‘resources, and of public incitation to force a non-federal

result are tantamount not merely to competition but to a

taking without. compensation in violation of the Fifth

Amendment, as plainly as was involved in International

—

‘Paper Co. v. Wnitea States, 282 U. S. 399, or attempted

'. jn violation of the Fourteenth Amendment, in Penna. ae

ing Co. v. Mahon, supra.

It is respectfully submitted that analvéls of this record

will disclose systematic administrative procedure’ without

precedent for arbitrary conduct in suppost of the. most

‘ ominous départure of the federal government undertaken

in its history.

If these powers exist, it is increditite that they could lie

dormant and unsuspected from 1787 until ‘> Muscle

Shoals Acts of 1928 and -1930, which failed of executive

approval, ripened into the program of federal government

by corporation, with unlimited power and discretion, ac-

complished by the Tennessee Valley Authority Act of.1933.’

_ (12)

Declaratory Relief.

The. scope of this brief will not permit expianation of

petitioners’ ‘right to declaratory decree in this controversy

. (deferred or pretermitted by the District Court, IT-1191,

No. 27) to protect. the corporation against the obvious al-

ternatives confrontimg it in‘the shifting by TVA of the |

. means of making’: effective its utility competition, either

.. directly or through active and continuing employment and

. control of federal funds, agencies’ and investments, which, .

by reason of their controlled and continuing impact = aj

* them justiciable and distinguishable from Massachusetts,

_ Mellon, 262 U. S. 447, and Arkansas-Missouri Power Co.

City of Kennett (U. 8. C. C. A.-8th, August 15, 1935).

’ However debatable may be considered the power of Con-

-gress to appropriate moneys for non-federal ‘ends, no one

" supposes that under appropriate challenge the federal gov-

ernment can itself continue to execute and administer the .

anh

t’

o

‘ing static or accomplished in that situation. It is working

‘and continuing, in aid and furtherance of illegal, competi-

‘tive, proprietary operations by thé federal government, in

privity with and controlled by TVA and ae actionable

“under the principle of : ‘

>

got er ee

. ») f ;

non-federal objective (such as a no- -recourse municipal

distributing plant, financed, dominated, ‘controlled and op-

erated for the benefit of the Government). There i is noth-

(a), Frost v. Corp. Comm. of Okla., 278 U.S. 515;

ArkansasMissouri° Power Co. v. City of Ken-

nett, supra;

City of Campbell v. Ark. Miss: Poss. Co., & P.

(2d) 560; Et passim;

(b) Marbury v. Madison, 4 Wheat. 423; _,

Texas ¢ N. O. R. Co. v. Brotherhood, 281 U. s,

548, 569. ,

"Respee fully submitted, Pa

y

\ _. .FORNEY JOHNSTON,

Counsel for Petitioners.

a

‘8