NEBBIA v. NEW YORK 291 U.S. 502 (1934)

Both the desperate economic conditions in the American dairy industry and the legal responses to the dairy crisis, during the depression years 1929–1933, exemplified the dilemmas that the Great Depression posed for American law. Vast, unmarketable surpluses of fluid milk and other dairy products, widespread mortgage foreclosures in dairy centers of rural America, and wild swings in dairy prices and consumption, all spelled extreme distress for the industry and its marketing institutions.

Among the states that responded with new legislation was New York, whose dairy industry constituted about half the value of its farm income and served the great urban concentration of population in the city of New York and its metropolitan area. In framing a program to deal with the crisis, New York's lawmakers knew they were forced to walk through a constitutional minefield. Despite provisions of the 1933 federal agricultural adjustment act intended to give the states some latitude in control of dairy commerce involving interstate milksheds, federal district courts around the country had struck down state laws seeking to control interstate movements of fluid milk or the terms on which it could be marketed. In addition, even laws seeking to regulate only in-state production and distribution were challenged as invalid under the affected with a public interest rule; indeed, in numerous previous decisions the Supreme Court had in obiter dicta listed dairies among the enterprises that clearly were "ordinary" or "purely private" businesses, not affected with a public interest and therefore not subject to price regulation. In new state ice co. v. liebmann (1932), for example, the Court had denied the legislature of Oklahoma authority to regulate ice manufacturing and selling on the ground that it was "a business as essentially private in its nature as the business of the grocer, the dairyman, the butcher, the baker, the shoemaker, or the tailor."

Mindful of this background, the New York legislature conducted a lengthy investigation of the fluid milk industry and its travails. In addition to making a record, thereby, as to the condition of the farmers and distribution system, the price collapse and its consequences, and the extensive effects of the crisis on the state's economy, when the legislature drafted a new Milk Control Law in March 1933, it explicitly denominated it as emergency legislation and provided for its termination one year following. By this maneuver, the legislators hoped to slip the knot of "affected with a public interest" and give the Milk Control Law safe harbor in the emergency powers and police power area in the event that courts proved unimpressed with the statute's assertion that the milk industry was "a business affecting the public health and interest."

Like similar legislation enacted in New Jersey, Illinois, and other dairy states, the New York law included power to fix prices in the virtually plenary grant of authority to the milk control agency that was established. The board was also empowered to license producers, establish maximum retail prices and the spread between prices paid producers and charged consumers, and regulate interstate fluid milk entrants to the New York market.

The price-fixing provision came before the bench in an appeal from the conviction of a storekeeper for selling milk at retail below the price established by the new milk control agency. When the New York Court of Appeals affirmed the conviction, the case was carried to the Supreme Court. Counsel contended that price control violated the "affected with a public interest" standard, subjecting Nebbia to improper regulation in violation of his fourteenth amendment right to due process.

By a 5–4 vote, the Court upheld the New York law. justice owen j. roberts's opinion did not rest on the narrow grounds that the milk control program was of an emergency nature; instead, it addressed in broadest possible terms the nature of the police power and the constitutional limitations upon which states might exercise it. The long history of the "affected with a public interest" doctrine came to an end with Nebbia, the majority opinion going back to Chief Justice morrison r. waite's language in Munn v. Illinois (1877). (See granger cases.) Waite had used the phrase "affected with a public interest" as the equivalent of "subject to the exercise of the police power," the Court now declared: "It is clear that there is no closed class or category of businesses affected with a public interest, and the function of courts in the application of the Fifth and Fourteenth Amendments is to determine in each case whether circumstances vindicate the challenged regulation as a reasonable exertion of governmental authority or condemn it as arbitrary or discriminatory." By repudiating the doctrine of affection with a public interest, which was based on substantive due process of law, the Court weakened the due process clause as a bastion of property rights. The due process clause, Roberts observed, made no mention of sales, prices, business, contracts, or other incidents of property. Nothing, he added, was sacred about the prices one might charge. The state, Roberts declared, "may regulate a business in any of its aspects, including the prices to be charged for the products or commodities it sells." The crux of this opinion, which prefigured a transformation in constitutional law, was this statement: "So far as the requirement of due process is concerned … a state is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, and to enforce that policy by legislation adapted to its purpose. The courts are without authority either to declare such policy, or, when it is declared by the legislature, to override it."

Handed down not long after home building loan association v. blaisdell (1934), a decision that did extensive damage to once sacrosanct contract clause doctrine, the Nebbia decision was anathema to property-minded conservatives who saw the juridical scaffolding for vested rights as collapsing in the early New Deal years, even before the Court fight and the wholesale reversal of doctrine that came after 1935. Indeed, Nebbia may be read as present-day constitutional law.

Harry N. Schneiber
(1986)

Bibliography

Goldsmith, Irving B. and Winks, Gordon W. 1938 Price Fixing: From Nebbia to Guffey. Pages 531–553 in Douglas B. Maggs, ed., Selected Essays on Constitutional Law. Chicago: Association of American Law Schools.