Panama Refining Co. v. Ryan

Panama Refining Co. v. Ryan, 293 U.S. 388 (1935), argued 10–11 Dec. 1934, decided 7 Jan. 1935 by vote of 8 to 1; Hughes for the Court, Cardozo in dissent. During the Great Depression of the 1930s, oil prices collapsed because of overproduction and the general economic slowdown. The oil‐producing states, unable individually to raise prices by limiting production, demanded congressional controls. The National Industrial Recovery Act (NIRA) of 1934, a wide‐ranging effort by the administration of President Franklin Roosevelt to deal with the Depression, authorized the president to prohibit the shipment in interstate commerce of petroleum produced in excess of quotas fixed by the states (popularly referred to as “hot oil”). Precedents existed for federal assistance to state law enforcement. For example, the Webb‐Kenyon Act of 1913 had prohibited the interstate transportation of liquor into states banning liquor imports.

The “hot oil” program was only one of the many provisions of the NIRA, but it was the first New Deal initiative to be tested before the Supreme Court. Panama Refining Co. v. Ryan (1935), a decision widely perceived as a threat to the entire New Deal program, held the “hot oil” provision to be an unconstitutional delegation of legislative power to the president.

Separation of powers is a basic principle of the Constitution, but up to 1935 the Supreme Court had never held that Congress had violated this principle by delegating its power to the executive. The reasons for legislative delegation are well understood. When adopting a legislative program, Congress cannot foresee all the problems that those administering the program will encounter or the adjustments that will be needed as the program develops. As early as 1825 Chief Justice John Marshall, in Wayman v. Southard, held that officials administering a general statutory program must be permitted to “fill up the details” (p. 43). In previous delegation situations, the Court had insisted that Congress set “standards” to guide administrative discretion, but the justices had typically accepted broad general statements as meeting this requirement. Consequently, that a ruling in the Panama Refining case would be based on the delegation issue was so unanticipated by the Roosevelt administration that the government's brief of 427 pages devoted only 13 pages to it.

But in the Panama decision, Chief Justice Charles Evans Hughes held the statute invalid because Congress had established no “primary standard,” leaving the matter to the president without direction or rule, “to be dealt with as he pleased.” The statute, wrote Hughes, established “no criteria to govern the President's course. It does not require any finding by the President as a condition of his action. The Congress … thus declares no policy as to the transportation of the excess production” (p. 430).

Justice Benjamin N. Cardozo was the sole dissenter. He approved the statute because it was framed to meet a “national disaster,” presenting problems that only the president could deal with on a day‐to‐day basis (p. 443). In fact, congressional intention to control the production and transportation of “hot oil” was fairly clear in the statute, and delegations of equal scope in earlier legislation had encountered no judicial ban.

Shortly after the “hot oil” decision, the Supreme Court in Schechter Poultry Corp. v. U.S. (1935) declared unconstitutional another major feature of NIRA—industry codes of fair competition—also on grounds of unconstitutional delegation of legislative power. The following year legislation regulating prices and labor relations in the bituminous coal industry was ruled unconstitutional on the same grounds in Carter v. Carter Coal Co. (1936).

After the defeat of Roosevelt's court‐packing plan by Congress in 1937, the Court made its peace with the New Deal, and on no subsequent occasion did the justices strike down a statutory program on a charge of unconstitutional delegation of legislative power to the president.

The Panama and Schechter decisions have never been overruled. In fact, Panama (nearly always paired with Schechter) has been cited in more than forty subsequent Supreme Court decisions, typically where administrative exercise of delegated power was involved. But in none of these cases was the congressional delegation held invalid. As Justice William H. Rehnquist said in Hampton v. Mow Sun Wong (1976): “The Court has not seen fit during the forty years following these decisions to enlarge in the slightest their relatively narrow holdings” (p. 122). Panama and Schechter remain museum pieces from a period of troubled relations between the executive and judicial branches.

See also Commerce Power; Delegation of Powers.

C. Herman Pritchett