Securities law and the new deal justices

Virginia Law Review

Volumn 95, Issue 4, 2009, Pages 841-926

  Pritchard, A C ^a   Thompson, Robert B ^b  

^a UNIVERSITY OF MICHIGAN   (United States)

^b VANDERBILT UNIVERSITY   (United States)

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EID: 69249168414     PISSN: 00426601     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (469)

1. Joel Seligman, The Transformation of Wall Street 19-20 (3d ed. 2003).
2. Id. at 1-2. The Pécora hearings take their name from Ferdinand Pécora, who led the Senate investigation. Pecora would later serve as one of the Security and Exchange Commission's first commissioners.
3. Roosevelt named eight new Justices during his presidency and also elevated Stone to Chief Justice. Because James Byrnes resigned after serving only a short time on the Court, Roosevelt thus filled eight of the nine seats. Only Roberts (and Stone) carried over from the pre-New Deal Court to Truman's presidency.
4. Seligman, supra note 1, at 57-58.
5. Id. at 122;
6. see also Morris L. Forer, A Postscript to the Administration of the Public Utility Holding Company Act: The Hydro-Electric System Case, 45 Va. L. Rev. 1007, 1007-08 (1959) (" Probably the most dynamic piece of New Deal legislation, [PUHCA] was revolutionary in that it required not only the immediate eradication of specific and now all too familiar abuses, but also in that it provided for the minute supervision of actions and programs then conceived as being safely reposed in management This statute aimed not only at the remedial, but, shooting at the escaping present, had also as its target a better economic future." (footnote omitted)).
7. Seligman characterizes Douglas's chairmanship as "the most accomplished in the SECs history." Seligman, supra note 1, at 157.
8. For this project, we examined the papers of each of the eight New Deal Justices in the Library of Congress and in various other libraries where they are deposited. The records relied upon are all publicly available.
9. PUHCA was repealed in 2005. Energy Policy Act of 2005, Pub. L. 109-58, 119 Stat. 594 We end our analysis when the last of the PUHCA reorganizations had worked their way up to the Court in the mid-1950s. Among the New Deal Justices, Justice Frankfurter would continue to serve into the 1960s and Justices Black and Douglas into the 1970s. We leave those periods for future work.
10. Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat. 745 (codified at 15 U.S.C.
11. Seligman, supra note 1, at 131.
12. PUHCA accounted for thirteen cases between 1935 and 1955, as compared to ten for all other securities law issues combined. The PUHCA cases were: SEC v. Drexel & Co., 348 U.S. 341 (1955);
13. Gen. Protective Comm. for Holders of Options Warrants of United Corp. v. SEC, 346 U.S. 521 (1954);
14. Niagara Hudson Power Co. v. Leventritt 340 U.S. 336 (1951);
15. SEC v. Cent.-Ill. Sec. Corp., 338 U.S. 96 (1949);
16. In re Elec Power & Light Corp., 337 U.S. 903 (1948);
17. Eng'rs Pub. Serv. Co. v. SEC, 332 U.S. 788 (1947V SEC v. Chenery Corp. (Chenery Corp. II), 332 U.S. 194 (1947);
18. Am. Power & Light Co. v. SEC (Am. Power & Light Co. II), 329 U.S. 90 (1946);
19. N. Am. Co. v. SEC 327 U.S. 686 (1946);
20. Am. Power & Light Co. v. SEC, 325 U.S. 385 (1945);
21. Otis & Co v SEC, 323 U.S. 624 (1945);
22. SEC v. Chenery Corp., 318 U.S. 80 (1943);
23. Landis v N Am Co., 299 U.S. 248 (1936).
24. The ten non-PUHCA cases were: Wilko v. Swan, 346 U.S. 427 (1953)- SEC v Ralston Purina Co., 346 U.S. 119 (1953);
25. Penfield Co. of Cal. v. SEC, 330 U S. 585 (1947)
26. SEC v. W.J. Howey Co., 328 U.S. 293 (1946);
27. SEC v. C. M. Joiner Leasing Corp., 320 U.S. 344 (1943);
28. Edwards v. United States, 312 U.S. 473 (1941);
29. A. C. Frost & Co v Coeur D'Alene Mines Corp., 312 U.S. 38 (1941);
30. Deckert v. Independence Shares Corp., 311 U.S. 282 (1940);
31. SEC v. U.S. Realty & Improvement Co., 310 U.S 434 (1940);
32. Jones v. SEC, 298 U.S. 1 (1936).
33. The Supreme Court gave an expansive view of the securities law and supported the SECs position in all but a few of the securities decisions that came before the court in the first four decades after the passage of the securities act. See E. Thomas Sullivan & Robert B. Thompson, The Supreme Court and Private Law: The Vanishing Importance of Securities and Antitrust, 53 Emory L.J. 1571, 1579-86 (2004) (describing the Supreme Court's expansive holding in all but a handful of securities cases until 1973). Lewis F. Powell played the key role in reversing this trend.
34. See A.C. Pritchard, Justice Lewis F. Powell, Jr., and the Counterrevolution in the Federal Securities Laws, 52 Duke L.J. 841 (2003).
35. After FDR's election as Governor, Frankfurter sent F D.R. a copy of the Dodge Lectures he had delivered at the Yale Law School The Public and Its Government, which emphasized many key ideas of his mature political philosophy-the indispensability of the administrative process in the management of contemporary economic life; the importance of nurturing federalism and seeking state or regional solutions to social problems that were not overwhelmingly national in scope; the adaptability of the Constitution to the resolution of these conflicts; and the crucial role that could be played in modern government by trained experts recruited from the nation s universities and professional schools.
36. Michael E. Parrish, Felix Frankfurter and His Times: The Reform Years 200 (1982).
37. The other three statutes of the second term-the Trust Indenture Act of 1939, 53 Stat. 1149; the Investment Advisers Act of 1940, 54 Stat. 847; and the Investment Company Act of 1940, 54 Stat. 789-completed the menu of New Deal securities legislation, extending government regulation to bond covenants, mutual funds, and investment advisers. These statutes produced no Supreme Court cases during our period of study.
38. For the comprehensive account, see Seligman, supra note 1.
39. William E. Leuchtenburg, Franklin D. Roosevelt and the New Deal 148 (1963) ("Brandéis' ideas made their way in Washington under the aegis of his chief disciple,
40. Felix Frankfurter, and through the young men Frankfurter had sent down to be law clerks to the Justice or to staff New Deal agencies."). Brandeis's influence was not limited to his writings before becoming a Justice; he regularly sent messages on policy to Roosevelt, using Frankfurter as his emissary. Peter H. Irons, The New Deal Lawyers 20 (1982). Brandeis's use of Frankfurter for this task was a long-standing practice.
41. See David W. Levy & Bruce Allen Murphy, Preserving the Progressive Spirit in a Conservative Time: The Joint Reform Efforts of Justice Brandeis and Professor Frankfurter, 1916-1933, 78 Mich. L. Rev. 1252, 1257, 1279 (1980).
42. 17H.N. Hirsch, The Enigma of Felix Frankfurter 104 (1981) ("The ideological core of Brandeisian liberalism was its emphasis on smallness. As many of the advisors of Roosevelt's first New Deal-Tugwell, Berle, Moley-struggled to create a planned and centralized economy, the Brandeisians sought to restore the simple and decentralized market economy of the nineteenth century. Their key program was trust busting-breaking up the large banks, the large corporations, the large utility companies. To the first New Dealers, business was to be a partner; to the Brandeisians, business was the enemy.").
43. Frankfurter wrote Roosevelt that "the real trouble with capitalism is the capitalists." Letter from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (May 18, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 60).
44. Frankfurter had a similarly dim view of the lawyers and accountants who served the capitalists. See Letter from Felix Frankfurter, Professor, Harvard Law Sch., to James M. Landis, Comm'r, Fed. Trade Comm'n (Feb. 8, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70) ("I have long had strong suspicions that these fancy accounting firms occupy a role towards financial and business immoralities comparable to that of the eminent law firms.").
45. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Justice Harlan Fiske Stone (undated) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 3, Reel 3). Frankfurter had a sympathetic audience in Stone, who responded: "Perhaps the most astonishing manifestation of our times is the blindness of those who have the big stake in our present system to its evils. It is the story of the Bourbons over again." Letter from Justice Harlan Fiske Stone to Felix Frankfurter Professor, Harvard Law Sch. (Feb. 17, 1933) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 3, Reel 3). Another sympathetic ear on the Court was Louis Brandeis, who was "quiet[ly] advising [the Roosevelt administration] from the sidelines." Letter from Raymond Moley to Felix Frankfurter, Professor Harvard Law Sch. (Oct. 31, 1935) (on file with the Felix Frankfurter Collection Library of Congress, Reel 51).
46. Felix Frankfurter, The Federal Securities Act: II, Fortune, Aug. 1933, at 53, 54.
47. Raymond Moley, After Seven Years 176 (1939).
48. See id. at 177-78. PUHCA is another example of FDR using competing drafts of securities legislation. See infra note 35 and accompanying text.
49. Moley, supra note 21, at 179. 24Id.
50. Memorandum from Felix Frankfurter, Professor, Harvard Law Sch. (Mar. 15, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 60);
51. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (Mar. 14, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 60).
52. Hirsch, supra note 17, at 41.
53. Felix Frankfurter, Diary (May 8, 1933) (on file with the Felix Frankfurter Collection, Library of Congress) ("I said that having refused the request of the President for my services as Solicitor General, I could not possibly decline the President's request, these days, to do ad hoc jobs").
54. Moley, supra note 21, at 180.
55. Felix Frankfurter, Diary (May 8, 1933) (on file with the Felix Frankfurter Collection, Library of Congress). Landis, Cohen, and Corcoran would eventually become quite influential New Deal figures in their own right, but they were all Frankfurter's protégés at that time. Frankfurter picked clerks for Brandeis, Cardozo, and Stone; Landis had clerked for Brandeis, and Corcoran for Holmes, on Frankfurter's recommendation. Joseph P. Lash, From the Diaries of Felix Frankfurter 36 (1975). Cohen and Corcoran remained squarely within Frankfurter's sphere of influence after they became part of the New Deal. As Joseph Rauh put it, "When Felix came to Washington, I was working for Ben Cohen and Tom Corcoran. They were pretty important guys, but when Felix walked in the door there wasn't any question who was boss." Joseph L. Rauh, Jr., Clerks of the Court on the Justices, in The Making of the New Deal: The Insiders Speak 55, 63 (Katie Louchheim ed., 1983). On Cohen and Corcoran's influence, see The Janizariat, Time, Sept. 12, 1938, at 22, available at http://www.time.com/time/magazine/article/0,9171,760147,00.html. Frankfurter's influence drew him the enmity of the Old Guard.
56. See The Forgotten Memoir of John Knox 70 (Dennis J. Hutchinson & David J. Garrow eds., 2002) (quoting Justice McReynolds: "I also hope that you did not come under the influence of Frankfurter when you were in law school....He is certainly one man not to be trusted! Even though he is dangerous to the welfare of this country, he evidently has a powerful influence at the White House.");
57. id. at 114 (quoting Justice McReynolds: "Statutes [establishing the New Deal] carelessly drawn by young men just out of the Harvard Law School! Frankfurter's protégés, too, I suppose!")
58. Felix Frankfurter, Diary (May 8, 1933) (on file with the Felix Frankfurter Collection, Library of Congress).
59. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Sam Rayburn, U.S. Rep. (Apr. 24, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 115).
60. Memorandum Commenting Upon a Memorandum Prepared By Counsel For the Investment Bankers' Association in re H.R. 5480 (undated) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 84).
61. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Raymond Moley (May 10, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 51).
62. See Telegram from Felix Frankfurter, Professor, Harvard Law Sch., to Raymond Moley (Apr. 27, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 115);
63. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Raymond Moley (Apr. 28, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 115);
64. Telegram from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (Apr. 14, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 115).
65. On Landis's role as SEC Commissioner, Chairman, and administrative law theorist, see Thomas K. McCraw, Prophets of Regulation 153-209 (1984).
66. See Telegram from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (May 8, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 115).
67. Moley, supra note 21, at 182-83 (noting that Byrnes helped Senate Majority Leader Joe Robinson bury the Senate bill in conference in favor of the Frankfurter bill). Byrnes would later play a role in navigating the Exchange Act through conference. Seligman, supra note 1, at 98-99.
68. For a firsthand account of the maneuvering, see James M. Landis, The Legislative History of the Securities Act of 1933, 28 Geo. Wash. L. Rev. 29 (1959).
69. William O. Douglas, Letter to the Editor, N.Y. Times, Apr. 3, 1933 (on file with the Felix Frankfurter Collection, Library of Congress, Reel 116).
70. William O. Douglas & George E. Bates, The Federal Securities Act of 1933, 43 Yale L.J. 171, 171 (1933) ("There is nothing in the Act which would control the speculative craze of the American public, or which would eliminate wholly unsound capital structures. There is nothing in the Act which would prevent a tyrannical management from playing wide and loose with scattered minorities, or which would prevent a new pyramiding of holding companies violative of the public interest and all canons of sound finance.").
71. Id.
72. See Letter from William O. Douglas, Professor, Yale Law Sch., to A.A. Berle, Jr., Professor, Columbia Law Sch. (Dec. 29, 1933) (on file with the William O. Douglas Collection, Library of Congress).
73. See Letter from William O. Douglas, Professor, Yale Law Sch., to Jerome N. Frank, Gen. Counsel, Agrie. Adjustment Admin. (Dec. 2, 1933) (on file with the William O. Douglas Collection, Library of Congress) ("I am particularly intrigued with your proposal for federal incorporation, as I think that only by some such beginning can genuine progress towards protection of investors get under way.").
74. See Letter from William O. Douglas, Professor, Yale Law Sch., to A.A. Berle, Jr., Professor, Columbia Law Sch. (Jan. 3, 1934) (on file with the William O. Douglas Collection, Library of Congress) ("You can count on me to pull an oar on federal incorporation....[P]erhaps we can begin to get at the really fundamental problem of the increment of power and profit inherent in our present form of organization....").
75. Douglas & Bates, supra note 39, at 192 (footnotes omitted). Douglas conceded some virtue in the ambiguities in the Securities Act, as they "would give the enforcing agency a powerful weapon... with which to control financial practices deemed inimical to the public interest."
76. Id. at 211.
77. His bottom line, however, was that the Act required amendment to correct its "ambiguities and inconsistencies" lest it "paralyz[e]... legitimate activity." William O. Douglas & George E. Bates, Some Effects of the Securities Act upon Investment Banking, 1 U. Chi. L. Rev. 283, 306 (1933).
78. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to James M. Landis, Comm'r, Fed. Trade Comm'n (Mar. 17, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70) ("I wrote him a letter the other day, in a halfsaucy, half-severe strain....").
79. Id. ("[E]ven Bill Douglas is trying to reflect too much the people in the big offices and the business schools, among whom he likes to appear as a sound and knowing fellow.").
80. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to William O. Douglas, Professor, Yale Law Sch. (Jan. 16, 1934) (on file with the William O. Douglas Collection, Library of Congress).
81. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to William O. Douglas, Professor, Yale Law Sch. (Feb. 5, 1934) (on file with the William O. Douglas Collection, Library of Congress).
82. Letter from Felix Frankfurter to William O. Douglas (Jan. 16, 1934), supra note 47.
83. Id.
84. Id. Frankfurter had been pursuing a "tax on the bigness of corporations" since at least 1932.
85. See Letter from Burton K. Wheeler, U.S. Sen., to Felix Frankfurter, Professor, Harvard Law Sch. (Mar. 30, 1932) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 67);
86. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Burton K. Wheeler, U.S. Sen. (Apr. 4, 1932) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 67). Roosevelt endorsed Frankfurter's legislation in January 1935. Memorandum for the Secretary of the Treasury from President Franklin D. Roosevelt (Jan. 16, 1935) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 155). Senator Burton Wheeler introduced it into Congress shortly thereafter. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Burton Wheeler, U.S. Sen. (Mar. 12, 1935) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 67) ("I rejoice over your introduction of the tax on bigness....."). Frankfurter also discouraged Roosevelt from pursuing federal incorporation. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (Mar. 6, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 60) ("I notice also some talk of an Administration measure for federal incorporation. . . . Great difficulties are involved in such a measure, and I hope there won't be any urgency in pushing it. Of course many abuses have found shelter under our corporation laws. But the abuses that call for public protection and are essential to a healthy economic life can be dealt with by a number of specific improvements in federal legislation, especially through the use of the taxing power, without prematurely raising the many problems that are involved in a federal incorporation law."). Letter from William O. Douglas, Professor, Yale Law Sch., to Felix Frankfurter, Professor, Harvard Law Sch. (Feb. 19, 1934) (on file with the William O. Douglas Collection, Library of Congress) ("My heart would indeed 'bleed' if I thought I was inadvertently championing the cause of 'the Street.'").
87. Id. ("On analysis it will be seen that federal incorporation is only one device. But it is a damn convenient one. Hooked up with the commerce and taxing powers it can be made a powerful weapon for social control.").
88. Id. ("The Securities Act will be fully justified if it drives the government into the investment banking business.").
89. "Seligman, supra note 1, at 205-09 (discussing federal incorporation);
90. Letter from William O. Douglas, Chairman, Sec. Exch. Comm'n, to Henry A. Wallace, Sec'y, Dep't of Agric. (Apr. 11, 1938) (on file with the William O. Douglas Collection, Library of Congress) (advocating a system of government investment banking). Letter from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (July 6, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 60) ("[F]ray indeed is ahead in the administration of the Securities Act. There are still too many in 'the Street' who think what Joe Cotton used to call the 'green goods business'-when he passed on securities issues for his notable clients-will flourish as of old. It is hard for some folk to realize that new social and economic standards ever come into play.").
91. See, e.g., Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Arthur Perry (Sept. 7, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 84).
92. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Louis Howe (Sept. 13, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 84).
93. Letter from Arthur Perry to Felix Frankfurter, Professor, Harvard Law Sch. (Sept. 14, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 84). Frankfurter's response was a harbinger of the response to claims of excessive securities regulation that we hear today: "The English seem to have done very well as the money market of the world despite their stringent controls. My patriotism is somewhat offended-and I speak as an Anglophile-that ethical and fiduciary standards which are legally enforced in England should be deemed too stringent for us. I refuse to believe it." Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Arthur Perry (Sept. 18, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 84).
94. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Justice Harlan Fiske Stone (Sept. 28, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 64); see also Letter from Felix Frankfurter, Professor, Harvard Law Sch., to George Brownell (Dec. 1, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 69) ("The leading law firms of New York and Boston ... began a systematic campaign to undermine the essentials of the Act by attributing to it the congealing of capital investment....[T]here isn't a particle of doubt that lawyers of responsibility and high standing infused clients with fears and worse than that-I know what I am talking about-actually discouraged clients, at times, from doing any financing for the present, so that the campaign against the Act, when Congress next meets, should show that the Act had prevented financing.").
95. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (Dec. 19, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 155);
96. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Henry Stimson (Dec. 19, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 84).
97. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to James M. Landis, Comm'r, Fed. Trade Comm'n (Jan. 10, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70).
98. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to James M. Landis, Chairman, Sec. Exch. Comm'n (Apr. 30, 1935) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 45).
99. Letter from James M. Landis, Comm'r, Fed. Trade Comm'n, to Felix Frankfurter, Professor, Harvard Law Sch. (Dec. 13, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70) ("As you know, the Securities Act has been opened pretty widely for discussion.").
100. As the Securities Act was working its way through Congress, Stone wrote to Frankfurter: Of course, the Stock Exchange should require precise information as to the total distribution made to officers and directors. The fact that it has never done so shows how little it performs what should be its real function to protect adequately those who deal in securities sold under its auspices. Many years ago, after I had unearthed a series of shockingly fraudulent performances by members of the Exchange, which should have been known to its Governors, I told the latter that the survival of the Exchange would depend primarily on their own willingness to take proper measures to protect adequately the interest of those who availed of its facilities. Letter from Justice Harlan Fiske Stone to Felix Frankfurter, Professor, Harvard Law Sch. (May 15, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 64).
101. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (Feb. 14, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 155).
102. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (Oct. 1, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 155). Frankfurter quoted at length from a letter that he had received from Stone, which Frankfurter considered particularly apt, as Stone was "an old-line Republican, a member of Sullivan & Cromwell before he became Coolidge's Attorney General": The new Securities Act promises well and undoubtedly will prevent some of the fraudulent schemes which have been common in the past, especially in marketing bonds. There is another like evil that must ultimately be reached, and that is the creation of boom markets for stocks through wash sales on the Exchange.
103. Id.
104. Seligman, supra note 1, at 85-87.
105. Id. at 89-93.
106. Letter from Ben Cohen to Felix Frankfurter, Professor, Harvard Law Sch. (May 11, [1934]) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70).
107. Letter from James M. Landis, Comm'r, Fed. Trade Comm'n, to Felix Frankfurter, Professor, Harvard Law Sch. (Mar. 6, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70) ("The Stock Exchange Bill is receiving a terrific battering. All the corporate wealth of this country has gone into the attack and carried it all the way up to the White House. I think F.D. will stand very firm on its essentials, however.").
108. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to James M. Landis, Comm'r, Fed. Trade Comm'n (Mar. 17, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70) ("What you tell me as to the likely direction of amendments to the Securities Act is, of course, extremely interesting and sounds like sense.").
109. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Raymond Moley (Apr. 24, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 71).
110. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Tom Corcoran (May 7, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70) ("[T]he talk against the Jews in the government comes from the powerful financial and business interests, who have given battle and will continue to give battle to the Administration on things like the Seucrites [sic] Act and stock exchange legislation. It's Wall Street that is using the Jewish stick precisely as it has used and will use any other stick....").
111. Moley, supra note 21, at 285.
112. See, e.g., Telegram from Felix Frankfurter, Professor, Harvard Law Sch., to John Dickinson, Assistant Sec'y, U.S. Treasury (Mar. 4,1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70).
113. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Tom Corcoran (May 7, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70).
114. Seligman, supra note 1, at 84.
115. See Letter from Richard Smith to Francis T. Maloney, U.S. Rep. (Mar. 23, 1934) (on file with the William O. Douglas Collection, Library of Congress).
116. Letter from William O. Douglas, Professor, Yale Law Sch., to Richard Smith (Apr. 9, 1934) (on file with the William O. Douglas Collection, Library of Congress).
117. Letter from Richard Smith to William O. Douglas, Professor, Yale Law Sch. (May 26, 1934) (on file with the William O. Douglas Collection, Library of Congress). This view was evidently shared by others.
118. See Letter from Richard Smith to William O. Douglas, Professor, Yale Law Sch. (June 13, 1934) (on file with the William O. Douglas Collection, Library of Congress) ("I received a letter from Maloney in which he stated that he was running into opposition to you among the crowd who have resented your Articles.").
119. Letter from William O. Douglas, Professor, Yale Law Sch., to Richard Smith (June 12, 1934) (on file with the William O. Douglas Collection, Library of Congress).
120. Frankfurter denied exercising such influence, despite the overwhelming evidence to the contrary. See Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Drew Pearson (May 17, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 53).
121. Ben Cohen, who clearly had earned a spot on the Commission through his drafting efforts, was also passed over despite Tom Corcoran's lobbying efforts on Cohen's behalf. According to Corcoran, Roosevelt was afraid to put Cohen on the newly created SEC for fear that it would provoke anti-Semitism. Telegraph from Centurion [Tom Corcoran] to Felix Frankfurter, Professor, Harvard Law Sch. (May 30, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70). The next year, however, Frankfurter recommended that Roosevelt not appoint Cohen to the SEC because Cohen was too essential to Roosevelt's legislative efforts.
122. See Memorandum for the President from Felix Frankfurter (Aug. 21, 1935) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 155). Cohen also lost out on the General Counsel position at the new agency when the SEC's first chairman, Joe Kennedy, picked John Burns instead. (This scarcely reduced Frankfurter's influence; Burns was a Harvard Law graduate, and he would soon be filling the SEC's ranks with candidates recommended by Frankfurter.) Telegram from John J. Burns, Gen. Counsel, Sec. Exch. Comm'n, to Felix Frankfurter, Professor, Harvard Law Sch. (May 10, 1935) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 84). Burns was also soliciting Frankfurter's views on the interpretation of the Exchange Act. Letter from John J. Burns, Gen. Counsel, Sec. Exch. Comm'n, to Felix Frankfurter, Professor, Harvard Law Sch. (Aug. 8, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 115).
123. Letter from Tom Corcoran to Felix Frankfurter, Professor, Harvard Law Sch. (May 11, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 70) ("If Ray [Moley] is any barometer of what's going on in the White House mind, the plan of battle is to avoid any further attempt at reforms that might bring down more criticism during the present Congress, arrange a 'truce of God', reorganize the machinery down here to help along business recovery this summer, and in every other way postpone all other considerations to the necessarily primary objective of winning the Congressional elections.").
124. Parrish, supra note 13, at 244.
125. Joseph P. Kennedy, Speech to the American Arbitration Association 4 (Mar. 19, 1935) (transcript on file with the William O. Douglas Collection, Library of Congress; Securities Act Release No. 317, Mar. 19, 1935).
126. Leuchtenburg, supra note 16, at 150.
127. See David Skeel, Icarus in the Boardroom: The Fundamental Flaws in Corporate America and Where They Came From 8, 80-89 (2005) (discussing Insull);
128. Richard D. Cudahy & William D. Henderson, From Insull to Enron: Corporate (Re)Regulation After the Rise And Fall of Two Energy Icons, 26 Energy L.J. 35, 36 (2005).
129. Recent work by Paul Mahoney casts doubt on whether that reputation was warranted. See Paul G. Mahoney, The Public Utility Pyramids 4 (Jan. 2008) (unpublished manuscript, available at http://www2.law.columbia.edu/ contracteconomics/conferences/laweconomicsS08/Mahoney%20paper.pdf).
130. John M. Ferren, Salt of the Earth, Conscience of the Court: The Story of Justice Wiley Rutledge 93 (2004) (noting that Rutledge favored the Brandeisian notion that the "growth of corporate enterprise has been drying up individual independence and initiative, drying up the life of the big town and the small town, and the hamlet. We are becoming a nation of hired men, hired by great aggregations of capital").
131. Id. at 89.
132. Wiley B. Rutledge, Editorial, The Future of the Interstate Power Holding Company, St. Louis Post-Dispatch, May 5, 1935, at Editorial Section 1.
133. Id.
134. Id.
135. Hirsch, supra note 17, at 116 ("The result of Frankfurter's proddings and Roosevelt's turn of mind was the second hundred days, during which the administration pushed for five major pieces of legislation: the social securities bill, the Wagner labor bill, a banking bill, a holding companies measure, and a tax plan.").
136. See Felix Frankfurter, Lecture to Pub. Utils. Course (Sept. 28, 1914) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 3, Reel 21) (predicting that "in the immediate decades ahead, during your time and mine, there will be a continued extension of governmental activity and governmental supervision of business").
137. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Ray Moley (Feb. 28, 1933) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 51) ("This time I am troubling you about legislation regarding the reorganization and extension of federal public utility control. This is a subject on which F.D.R. spoke to me when I saw him last, and as to which he desires, I am sure, early action.").
138. Quoted in Arthur M. Schlesinger, Jr., The Age of Roosevelt: 1935-1936, The Politics of Upheaval 305 (1960).
139. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt (Jan. 24, 1935) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 155). Frankfurter laid the blame for the evils of the industry with the investment bankers. Felix Frankfurter, The Public & Its Government 109-10 (1930) (criticizing role of bankers in creating elaborate holding company structures that put utilities beyond the effective reach of regulation).
140. See Letter from Ben Cohen to Robert E. Healy, Comm'r, Sec. Exch. Comm'n (Nov. 23, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 113);
141. see also Letter from Ben Cohen to Felix Frankfurter, Professor, Harvard Law Sch. (Nov. 23, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 113) (soliciting Frankfurter's comments on the draft bill).
142. Letter from Ben Cohen to Robert E. Healy, Comm'r, Sec. Exch. Comm'n (Nov. 23, 1934) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 113).
143. Schlesinger, supra note 99, at 305.
144. 104Id.
145. Leuchtenburg, supra note 16, at 156 ("The Public Utilities Holding Company Act was a bold stroke against bigness, and the Brandeisians were delighted. 'If F.D. carries through the Holding Company bill we shall have achieved considerable toward curbing Bigness.'" (quoting Brandeis)). The bill was a victory not only for the Brandeisians, but also Brandeis himself, who had been pushing for the abolition of the holding companies behind the scenes. Bruce Allen Murphy, Elements of Extrajudicial
146. Strategy: A Look at the Political Roles of Justices Brandeis and Frankfurter, 69 Geo. L.J. 101, 120 (1980).
147. Schlesinger, supra note 99, at 306.
148. Id. at 308.
149. Id. at 310.
150. After the enactment of PUHCA, Corcoran told Moley: "It won't come fast, but twenty years from now the government will own and operate all the electrical utilities in the country." Moley, supra note 21, at 354.
151. But not with Douglas. Wilkie's efforts on behalf of the utility industry earned him Douglas's bitter antipathy. See William O. Douglas, Diary (Dec. 1, 1939) (on file with the William O. Douglas Collection, Library of Congress, Box 1780) ("I had had many many contacts with Wilkie at the S.E.C. I was convinced that he was one of the most unscrupulous men I had ever met, that he was interested only in power, for himself + for the vested interests, that he had no principles, and that he was the most dangerous Fascist threat on the scene.").
152. Schlesinger, supra note 99, at 311-16.
153. Moley, supra note 21, at 315; see also Schlesinger, supra note 99, at 318-23.
154. Schlesinger, supra note 99, at 323-24.
155. Parrish, supra note 13, at 250.
156. Moley, supra note 21, at 316 & n.2.
157. Parrish, supra note 13, at 250.
158. See David A. Skeel, Jr., Debt's Dominion: A History of Bankruptcy Law in America 125 (2001) ("Within a few years, the starring role that the Wall Street bankers had played for more than fifty years was a thing of the past.").
159. Act of June 22,1938, ch. 575, §§171-74, 52 Stat. 840, 890-91.
160. Ralph F. de Bedts, The New Deal's SEC: The Formative Years 109 (1964) ("In his demand for studies and more studies Landis can be likened to the field general who will not unnecessarily risk his forces until sure of overwhelming superiority. But the many studies begun by Chairman Landis-and frequently used to such good advantage by his successor, William O. Douglas-were not born of timidity.").
161. 120H. Comm. on the Judiciary, 71st Cong., Report on the Administration of Bankruptcy Estates (Comm. Print 1931) (Donovan Report);
162. Att'y Gen., Strengthening of Procedures in the Judicial System: The Report of the Attorney General on Bankruptcy Law and Practice, S. Doc. No. 65, at 90-93 (1st Sess. 1932) (Thatcher Report).
163. Act of Mar. 3, 1933, ch. 204, §77, 47 Stat. 1474, 1474-82;
164. Act of June 7, 1934, ch. 424, §77B, 48 Stat. 911, 912-22.
165. Act of June 6, 1934, ch. 404, §211, 48 Stat. 881, 909.
166. William O. Douglas, Diary (Mar. 26, 1939) (on file with the William O. Douglas Collection, Library of Congress, Box 1780).
167. Skeel, supra note 117, at 109.
168. See Letter from William O. Douglas, Professor, Yale Law Sch., to James Landis, Comm'r, Fed. Trade Comm'n (July 12, 1934) (on file with the William O. Douglas Collection, Library of Congress).
169. Letter from William O. Douglas, Professor, Yale Law Sch., to Abe Fortas, Agric. Adjustment Admin. (Aug. 2, 1934) (on file with the William O. Douglas Collection, Library of Congress).
170. Bruce Allen Murphy, Wild Bill 107 (2003) ("To Douglas, this new appointment signaled the beginning of his rise to the top. 'Bill began telling us he would be the chairman of the SEC,' recalled Irene Hamilton.").
171. 1281-8 Sec. & Exch. Comm'n, Report on the Study and Investigation of the Work, Activities, Personnel and Functions of Protective and Reorganization Committees (1936-40).
172. Revision of the Bankruptcy Act: Hearings on H.R. 6439 Before the H. Comm. on the Judiciary, Reintroduced as H.R. 8046, 75th Cong. 199 (1937) (statement of William O. Douglas, Chairman, Sec. Exch. Comm'n).
173. See Conservator in Bankruptcy, Hearing Before the Comm. on the Judiciary, H. of Rep., on H.R. 9 and H.R. 6963, 75th Cong. 69 (1937) (statement of Adolph J. Sabath).
174. To Amend the Securities Act of 1933: Hearings on H.R. 6968 Before the H. Comm. on Interstate and Foreign Commerce, 75th Cong. (1937).
175. See H. Comm. on the Judiciary, Revision of the National Bankruptcy Act, H.R. Rep. 1409, at 1-3 (1937) (containing a chronology of the formation of the National Bankruptcy Conference).
176. See Skeel, supra note 117, at 116-17.
177. The NBC approved the change in the spring of 1937 in a sparsely attended meeting by a split vote of 14 of its 42 members.
178. See Revision of the Bankruptcy Act: Hearings on H.R. 6439 Before the H. Comm. on the Judiciary, Reintroduced as H.R. 8046, supra note 129, at 364-65 (statement of John Gerdes) (recounting a meeting of the National Bankruptcy Conference in March 1937).
179. The insertion of trustees brought broad changes in the reorganization process. See, e.g., Robert T. Swaine, "Democratization" of Corporate Reorganizations, 38 Colum. L. Rev. 256, 259 (1938) ("In the name of 'democratization' corporate securityholders are to be enlisted in a war on corporate management. Not merely are bankers to be scourged from the temple, but corporate officers and directors are to be driven out with them.").
180. 136Act of June 22,1938, ch. 575, §172, 52 Stat. 840, 890-91.
181. Investor's Advocate, Time, Sept. 26, 1938, at 57.
182. 138Felix Frankfurter, Justice Holmes Defines the Constitution (1938), in Law and Politics: Occasional Papers of Felix Frankfurter 61, 74 (Archibald MacLeish & E.F. Prichard, Jr. eds., 1939) ("Until after the 1936 election, the Court was back to the high tide of judicial negation reached in the Lochner case in 1905."). More recent scholars of the period have pointed out the Court's response to the administration was more
183. mixed. See, e.g., Barry Cushman, The Secret Lives of the Four Horsemen, 83 Va. L. Rev. 559, 560-61 (1997).
184. Rauh, supra note 29, at 56-57 (footnote omitted).
185. John D. Fassett, New Deal Justice: The Life of Stanley Reed of Kentucky 66 (1994).
186. Landis v. North American Co., 299 U.S. 248, 249 (1936).
187. Elec. Bond & Share Co. v. SEC, 303 U.S. 419, 442-43 (1938).
188. See N. Am. Co. v. SEC, 327 U.S. 686, 704 (1946).
189. William E. Leuchtenburg, The Supreme Court Reborn: The Constitutional Revolution in the Age of Roosevelt 84-89 (1995) ("The [Roosevelt] Administration put off tests of the constitutionality of the legislation of the First Hundred Days as long as possible; as a result the Supreme Court did not have the opportunity to rule on a New Deal statute until 1935.").
190. 145A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 542 (1935) McReynolds credited the Schechter decision with restoring business confidence. The Forgotten Memoir of John Knox, supra note 29, at 72 (quoting McReynolds: [Businessmen throughout the country have become more and more confident because of the Court's [Schechter] decision .... The decision stimulated industry, which had been hampered by the N.R.A. laws."). 146 Humphrey's Executor v. United States, 295 U.S. 602, 632 (1935).
191. Irons, supra note 16, at 104.
192. Letter from John Burns, Gen. Counsel, Sec. Exch. Comm'n, to Felix Frankfurter, Professor, Harvard Law Sch. (May 29, 1935) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 84).
193. The Forgotten Memoir of John Knox, supra note 29, at 72 (quoting McReynolds: "[I]f it were not for the Court, this country would go too far down the road to socialism ever to return.").
194. Frankfurter himself was not that distressed by the invalidation of the N.I.R.A. According to Moley, There's no doubt that Frankfurter, a Brandeis devotee, had a deep antipathy to both the A.A.A. and the N.I.R.A. He, as well as most of his young disciples in Washington, opposed the loosening up of the antitrust laws involved in the N.I.R.A. principle. As avowed enemies of bigness in business, viewing government's role as that of policeman, rather than coordinator, they looked upon N.I.R.A.'s invalidation with no little satisfaction. Moley, supra note 21, at 306-07.
195. Royalist's Revelations, Time, July 1, 1935, at 47, available at http://www.time.com/time/printout/0,8816,770055,00.html.
196. Id.
197. SEC v. Jones, 12 F. Supp. 210, 213 (S.D.N.Y. 1935), aff'd, 79 F.2d 617 (2d Cir. 1935), rev'd, 298 U.S. 1 (1936).
198. Letter from James Landis, Chairman, Sec. Exch. Comm'n, to Felix Frankfurter, Professor, Harvard Law Sch. (Mar. 11, 1936) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 45).
199. Jones v. SEC, 298 U.S. 1, 28 (1936).
200. See generally id. The Court said the stop order proceeding had the effect of suspending the operation of the registration statement; the appellate court had ruled that the registration statement remained effective, since no stop order had been issued. Id. at 15.
201. Justice Sutherland wrote the opinion for the court despite not having heard oral argument in the case, participating via the "vouching in]" approach that Chief Justice Hughes employed. Letter from Justice William O. Douglas to Justice Arthur Goldberg (Jan. 18, 1964) (on file with the William O. Douglas Collection, Library of Congress).
202. Jones, 298 U.S. at 22.
203. Id at 23.
204. Id.
205. Reed had not predicted a tougher go on the constitutional argument. He wrote Homer Cummings, the Attorney General, that '"I think that if we lose, it will be on the statutory construction point and not on the constitutional point. We may get a good result and I would be very much surprised if we got a bad result.'" Fassett, supra note 140, at 121.
206. Jones v. SEC, 298 U.S. 1, 28 (1936). 163 Id.
207. Id. at 33 (Cardozo, J., dissenting).
208. Letter from Justice Harlan Fiske Stone to Felix Frankfurter, Professor, Harvard Law Sch., (Apr. 7, 1936) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 64).
209. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Justice Harlan Fiske Stone (Apr. 7, 1936) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 64).
210. Letter from Justice Harlan Fiske Stone to Felix Frankfurter, Professor, Harvard Law Sch. (Apr. 9, 1936) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 64).
211. Fassett, supra note 140, at 124 ("The Jones decision was publicized by opponents of the New Deal as affording proof that FDR's alphabet agencies did in fact engage in 'Star Chamber' proceedings.' Enforcement actions pursuant to the securities acts particularly were seriously impeded as claims of abuse of administrative powers proliferated.").
212. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Justice Harlan Fiske Stone, (May 18, 1936) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 64) (quoting John Burns).
213. United States v. Butler, 297 U.S. 1, 74 (1936).
214. Carter v. Carter Coal Co., 298 U.S. 238, 311-17 (1936).
215. See, e.g., Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Stanley Reed, Solicitor Gen. (Feb. 15, 1936) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Reel 2);
216. Letter from Stanley Reed, Solicitor Gen., to Felix Frankfurter, Professor, Harvard Law Sch. (Dec. 17, 1936) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 3, Reel 2) ("My own views have not chrystalized [sic]. Can you help me?");
217. Letter from Felix Frankfurter, Professor, Harvard Law Sch., to Stanley Reed, Solicitor Gen. (Dec. 7, 1936) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 3, Reel 2) ("I appreciate your thoughtfulness in sending me a copy of your confidential memorandum on pending matters involving administration measures."). Frankfurter also consulted with John Burns, the SECs general counsel.
218. See Letter from John Burns, Gen. Counsel, Sec. Exch. Comm'n, to Felix Frankfurter, Professor, Harvard Law Sch. (Oct. 18, 1935) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 115) (discussing litigation strategy with respect to constitutional issues).
219. Letter from Robert H. Jackson, Asst. Gen. Counsel, Treasury Dept., to Herman Oliphant, Gen. Counsel, Treasury Dept. (Dec. 8, 1935) (on file with the Robert Jackson Collection, Library of Congress, Box 66).
220. Landis v. N. Am. Co., 299 U.S. 248 (1936).
221. Brief for the Petitioners at 97, Landis v. N. Am. Co., 299 U.S. 248 (1936) (Nos. 22122).
222. Lash, supra note 29, at 36.
223. N. Am. Co., 299 U.S. at 252 (noting that forty-seven other cases had been filed); Seligman, supra note 1, at 134.
224. William O. Douglas, Go East Young Man: The Early Years 278 (1974).
225. - 303 U.S. 419 (1938).
226. Courts in jurisdictions other than the D.C. Circuit could not compel the SEC to be a party, so the SEC could control its venue as long as it did not attempt to enforce the act. Seligman, supra note 1, at 137.
227. N. Am. Co. v. Landis, 85 F.2d 398, 401 (D.C. Cir. 1936).
228. Landis v. N. Am. Co., 299 U.S. 248, 259 (1936). McReynolds concurred in the result without opinion and Stone did not participate, likely because of his prior partnership with Sullivan & Cromwell, the law firm for the company.
229. Id at 256. The stay approved by the Court was narrow, however, extending "[f]or the moment" only until the first district court decision in the New York litigation. Id. at 256-57.
230. SEC v. Elec. Bond & Share Co., 18 F. Supp 131 (S.D.N.Y. 1937).
231. Id. at 147. This was friendly ground for the SEC; Mack was a friend of Frankfurter and Cohen had served as his law clerk. Seligman, supra note 1, at 136.
232. Judge Manton's lead opinion upheld the registration provisions as akin to registration of securities. Elec. Bond & Share Co. v. SEC, 92 F.2d 580, 590 (2d Cir. 1937). Judge Swan concurred in the result without an opinion, id. at 593 (Swan, J., concurring in the result), and Learned Hand wrote separately to say he would uphold sections 4 and 5 (the registration provisions) along with sections 6, 7, 9, and 10 after doubtful portions were removed. Id. (Hand, J., concurring).
233. West Coast Hotel Co. v. Parrish, 300 U.S. 379, 400 (1937).
234. On the original source of the phrase, see G. Edward White, The Constitution and the New Deal 17 (2000). Scholars have recently questioned the extent to which Roberts "switched," given that he voted at the conference before the announcement of the Court-packing plan.
235. See, e.g., Barry Cushman, Rethinking the New Deal Court: The Structure of a Constitutional Revolution 103 (1998) [hereinafter Cushman, Rethinking the New Deal Court]. At the time, however, Frankfurter viewed the switch as transparent.
236. See Letter from Felix Frankfurter, Professor, Harvard Law Sch., to President Franklin D. Roosevelt, (Mar. 30, 1937) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Reel 155) ("And now, with the shift by Roberts, even a blind man ought to see that the Court is in politics, and understand how the Constitution is 'judicially' construed."). Professor Cushman, in his commentary in this symposium, addresses Frankfurter's later view backing away from his earlier comment.
237. See Barry Cushman, The Securities Laws and the Mechanics of Legal Change, 95 Va. L. Rev. 927, 933 (2009).
238. NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 43 (1937).
239. Steward Machine Co. v. Davis, 301 U.S. 548, 598 (1937).
240. Letter from Stanley Reed, Solicitor Gen., to Felix Frankfurter, Professor, Harvard Law Sch., (Dec. 19, 1937) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Reel 56) ("We are filing our response in E. B. & S. tomorrow. Ben and Bob Jackson are to argue it. I think they have both earned the right...."). A colleague described to Frankfurter Cohen's argument in an "electric" courtroom. Letter from Dave G[insburg] to Felix Frankfurter, Professor, Harvard Law Sch. (Feb. 12, 1938) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Reel 27).
241. Elec. Bond & Share Co. v. SEC, 303 U.S. 419, 442-43 (1938). Hughes's opinion gained the support of Butler and Roberts from the Jones majority as well as Brandeis and Stone from the minority and new appointee Black (who had helped push the law through the Senate). McReynolds dissented without opinion. Reed, who was solicitor general when the case was argued below, did not participate, nor did Cardozo, who died shortly after the term ended.
242. Id. at 443.
243. Seligman, supra note 1, at 179-80.
244. See Telegram from Felix Frankfurter, Professor, Harvard Law Sch., to Robert H. Jackson, Solicitor Gen. (Mar. 30, 1938) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 3, Reel 1).
245. SEC v. U.S. Realty & Improvement Co., 310 U.S. 434 (1940).
246. Id. at 460-61.
247. Id. at 441, 461, 469. Douglas did not participate. Id. at 461.
248. Id. at 448 n.6 ("The basic assumption of Chapter X and other acts administered by the Commission is that the investing public dissociated from control or active participation in the management, needs impartial and expert administrative assistance in the ascertainment of facts, in the detection of fraud, and in the understanding of complex financial problems.").
249. The Court found:The Commission's duty and its interest extend not only to the performance of its prescribed functions where a petition is filed under Chapter X, but to the prevention, so far as the rules of procedure permit, of interferences with their performance through improper resort to a Chapter XI proceeding in violation of the public policy of the Act.... Id. at 459.
250. In re U.S. Realty & Improvement Co., 108 F.2d 794, 798 (2d Cir. 1940).
251. SEC v. U.S. Realty & Improvement Co., 310 U.S. 434, 448 (1940).The Court stated that "we cannot assume that Congress has disregarded well settled principles of equity." Id. at 457. The dissent, by Justice Roberts, joined by Hughes and Butler, sought to refute the SECs argument of a bright line between chapters X and XI. Id. at 464 (Roberts, J., dissenting). The Court's majority did not draw such a line, focusing instead on a trial court's discretion to use its power in particular circumstances.
252. Id. at 455 (majority opinion).
253. William O. Douglas, Diary (May 27, 1940) (on file with the William O. Douglas Collection, Library of Congress, Box 1780). Douglas's account is certainly open to question;
254. it is somewhat difficult to imagine the magisterial Hughes stooping to such a gambit, and it seems somewhat unlikely that he would use Stone as his messenger.
255. Note from Justice Felix Frankfurter to Justice William O. Douglas (undated), appended to Memorandum from William O. Douglas on SEC v. U.S. Realty & Improvement Co. (undated) ("Bill, Hadn't you better send a copy of this memo to Stone? FF") (on file with the William O. Douglas Collection, Library of Congress).
256. In overturning the Second Circuit's decision, the Supreme Court had the benefit of a strong dissenting opinion authored by Judge Charles Clark. Clark asserted that the Court of Appeals' decision "goes far to render abortive what might have proved one of the most important corporate reforms of modern times." In re U.S. Realty & Improvement Co., 108 F.2d at 802 (Clark, J., dissenting). Clark, who had been Dean of Yale Law School during the decade in which Douglas split his time between New Haven and Washington, knew Douglas well. What is more, Clark's brother Sam had worked with Douglas on the protective committee report and later was named by Chairman Douglas as first head of the agency's reorganization section. Investor's Advocate, Time, Sept. 26, 1938, at 57, available at http://timeinc8-sd11.websys.aol.com/ time/printout/0,8816,788825,00.html.
257. Douglas participated in the Court's next case addressing the securities aspect of bankruptcy, writing the opinion for the Court in General Stores Corp. v. Shlensky, 350 U.S. 462 (1956). That opinion tracks Douglas's earlier memo and Stone's U.S. Realty opinion in rejecting a bright line approach; the opinion suggests criteria, now grouped under the heading of "needs to be served" for determining when bankrupts must proceed through Chapter X.
258. Id. at 466. Douglas's adherence to a multifactor test left the door open to public corporation reorganization through Chapter XI. That space allowed companies to avoid the SECs role in reorganizations. The SECs participation was largely eliminated with the bankruptcy reforms of 1978.
259. See David A. Skeel, The Rise and Fall of the SEC in Bankruptcy 2-3 (Inst, for Law & Econ., Working Paper No. 267, 1999), available at http://papers.ssrn/paper.taf?abstract-id=172030.
260. See Leuchtenburg, supra note 144, at 154. ("This new Court-the 'Roosevelt Court' as it was called-ruled favorably on every one of the New Deal laws whose constitutionality was challenged. It expanded the commerce power and the taxing and spending power so greatly that it soon became evident that there was almost no statute for social welfare or the regulation of business that the Court would not validate.").
261. - 311 U.S. 282 (1940). Douglas did not participate. The injured investor was unlikely to be able to recover from the asserted wrongdoer, but there were funds that had been paid to a bank which had acted as trustee. Id. at 284-85, 291.
262. J. I. Case Co. v. Borak, 377 U.S. 426, 433-34 (1964) (discussing the "duty of the courts to be alert to provide such remedies as are necessary to make effective the congressional purpose" and quoting Decken, 311 U.S. at 288).
263. Decken, 311 U.S. at 288 ("That it does not authorize the bill in so many words is no more significant than the fact that it does not in terms authorize execution to issue on a judgment recovered under §12(2).").
264. - 312 U.S. 38 (1941). Douglas did not participate. Id. at 45.
265. Id. at 44-45. The SEC was concerned that such a broad holding could thwart protections for the investing public in other situations; the Court agreed without getting into questions such as in pari delicto. The Court quoted extensively from a SEC memorandum expressing concern that a void ab initio holding would prevent an issuing company from recovering the sales proceeds from its underwriter in a transaction where there had been a violation.
266. Id. at 43 n.2.
267. -312 U.S. 473 (1941). Douglas did not participate. Id. at 484.
268. Id. at 482. The government asserted that the defendant had given no testimony of an incriminating nature and had offered a transcript to the court below, but Reed's opinion insisted on a right to cross-examine with the transcript as part of a certified record: "The refusal to permit the accused to prove his defense may prove trivial when the facts are developed. Procedural errors often are. But procedure is the skeleton which forms and supports the whole structure of a case." Id.
269. -320 U.S. 344 (1943). Douglas did not participate, which was his practice in all of the securities cases to this point. Usually his file includes a brief memo from his secretary, Edith Walters (who had also been with Douglas at the SEC), describing the SECs involvement with the case.
270. In this case, the memo relates that Orval Dubois had reported that the present case had been opened quite recently and that there was an earlier investigation, described as informal which never reached the Commission and was closed by the staff in February 1936. Douglas had become a commissioner in January of 1936. SEC Historical Summary of Chairman and Commissioners (Feb. 23, 2009), http://www.sec.gov/about/sechistoricalsummary.htm.
271. - 328 U.S. 293 (1946).
272. Joiner, 320 U.S. at 350.
273. Id. at 350-51.
274. Id. at 348. Later, Jackson returned to the importance of the enterprise in giving an example about cemetery plots. "One's cemetery lot is not ordinarily thought of as an investment and is most certainly real estate. But when such interests become the subject of speculation in connection with the cemetery enterprise, courts have held conveyances of these lots to be securities."
275. Id. at 352 n.10.
276. Howey, 328 U.S. at 296.
277. Id. at 295-96.
278. Id. at 299 ("They are offering an opportunity to contribute money and to share in the profits of a large citrus fruit enterprise managed and partly owned by respondents.").
279. Interestingly, the focus on offers, rather than sales, a critical element of the analysis, was not in the draft that Murphy first circulated. See Memorandum from Justice Frank Murphy to the Conference re no. 843-S.E.C. v. Howey Co. (May 17, 1946) (on file with the Wiley Rutledge Collection, Library of Congress Box 141).
280. SEC v. W. J. Howey Co., 328 U.S. 293, 298-99 (1946).
281. Id. at 302 (Frankfurter, J., dissenting).
282. Conference Notes of Justice Harold Burton, SEC v. W. J. Howey Co. (undated) (on file with the Harold Burton Collection, Library of Congress, Box 128).
283. Landis v. N. Am. Co., 299 U.S. 248, 259 (1936).
284. See Sidney Fine, Frank Murphy: The Washington Years 250 (1984) ("When because of quorum problems in the 1943 term Stone stated in conference that he would sit in a holding company case despite having previously disqualified himself in a similar case, Roberts exploded and said that 'he would write and tell the world about Stone.' The chief justice 'turned white' and responded that no one would tell him in what cases he should disqualify himself. Although it was 'a very embarrassing situation' for him, he was 'willing to be the goat' and to participate in the two cases....");
285. see also Alpheus Thomas Mason, Harlan Fiske Stone: Pillar of the Law 640-41 (1956) ("The Chief Justice was much disturbed that litigants, otherwise entitled to it, could not have their day in Court. His concern grew as more cases involving features of the holding company law were filed. Should not this consideration, he wondered, overbalance those that moved him initially to announce disqualification? As no former law partner or client was present in these cases, he now saw no reason to disqualify himself.
286. When he broached the matter in conference, however, Justice Roberts objected to his sitting on the ground that similar issues were raised in all the cases, and that if he were disqualified in the one, he ought not to sit in judgment on a related case. Roberts' suggestion, apparently querying the Chief Justice's honor and implying that he would discuss in an opinion the propriety of Stone's sitting, brought on a heated debate. The accusation so angered the Chief that he had his clerk prepare a memorandum of cases on which Roberts had sat although his old firm or former clients were involved." (footnotes omitted)).
287. See Letter from Justice Frank Murphy to Chief Justice Fred Vinson (October 9, 1946) (on file with the Frank Murphy Collection, University of Michigan) ("I had finished most of the work on the Engineers Public Service and the American Power & Light-Electric Power & Light opinions and was about ready to circulate them when, unfortunately, the good Chief Justice died, destroying the necessary quorum."). The Engineers Public Service case was eventually dismissed as moot. Eng'rs Pub. Serv. Co. v. SEC, 332 U.S. 788, 788 (1947).
288. N. Am. Co. v. SEC, 327 U.S. 686 (1946). Justices Douglas, Jackson and Reed did not participate. Id. at 711. Frankfurter wrote Reed during the time when the quorum problem remained unresolved:
289. [Y]ou are right in not sitting in the North American case....I also know that the people who were eager to have you sit were not moved by the considerations that should move a court. They counted on your deciding their way, which is precisely the reason why the other side would have had a just grievance. And you do not alleviate a grievance by showing that similar grievances that others might have had in the past were equally disregarded.
290. Nor are feelings of injustice rendered unreasonable by having those who inflict them tell those who feel them they are really quite unreasonable in feeling them. That psychological fact is, I believe, at the core of the labor problem as it is of the race problem. Letter from Justice Felix Frankfurter to Justice Stanley Reed (Mar. 27, 1944) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Reel 56).
291. N. Am. Co., 327 U.S. at 703.
292. Id. at 705.
293. Id. at 706. Murphy similarly disposed of the due process clause claim, permitting Congress to balance the various considerations. Id. at 708.
294. Fassett, supra note 140, at 66.
295. See Reuel E. Schiller, The Era of Deference: Courts, Expertise, and the Emergence of New Deal Administrative Law, 106 Mich. L. Rev. 399, 417-21 (2007) (describing Professor Frankfurter's views on the need for judicial deference to administrative experts). There are suggestions in Frankfurter's writing, however, of the importance that he placed on judicial review of agency action.
296. Frankfurter laid the blame for the evils of the industry with the investment bankers. Felix Frankfurter, supra note 100, at 157-58 ("[T]he power which must more and more be lodged in administrative experts, like all power, is prone to abuse unless its exercise is properly circumscribed and zealously scrutinized. For we have greatly widened the field of administrative discretion and thus opened the doors to arbitrariness.").
297. Rauh, supra note 29, at 64 ("When Felix went on the bench in January 1939 he had such stature as a professor, and adviser to Presidents, an articulate writer, and a liberal that he was assumed to be the leader of the liberal wing.").
298. The split-and Frankfurter's eroding influence-may have had its roots in other areas. The first tensions in the New Deal bloc began to surface in the Flag Salute cases. In the first of these cases, Minersville School District v. Gobitis, 310 U.S. 586, 600 (1940),
299. Frankfurter wrote for an eight-Justice majority upholding a Pennsylvania law requiring school children to salute the American flag. Soon thereafter, however, Frankfurter felt his leadership position slipping away. Hirsch, supra note 17, at 155. This unexpected development embittered him: by the end of the 1942 term, Frankfurter had the sense of being under siege. Unexpectedly, he found himself in a position of being in opposition; his leadership had been rejected. He would react in a manner that had become a familiar part of his psychological makeup. The reaction would be particularly bitter, for this time his opponents were former allies; thechallenge was in a domain where he had every reason to anticipate complete success; and he had no choice but to remain where he was and fight it out.
300. Id. at 176.
301. The erosion of his influence became quite obvious when Gobitis was overruled only three years after being handed down by West Virginia State Board of Education v. Barnette, 319 U.S. 624 (1943).
302. Frankfurter was angered by the switch of Black, Douglas, and Murphy and appalled by what he saw as their political motivation. Edward F. Prichard, Jr., Clerks of the Court on the Justices, in The Making of the New Deal: The Insiders Speak, supra note 29, at 47-71 ("Frankfurter .... had great contempt for Murphy, Black, and Douglas, because they voted with him in the first case and then changed their minds. He always said he didn't believe they had reread the Constitution, they had just read the newspapers.");
303. Rauh, supra note 29, at 64 ("When Frankfurter asked Douglas whether Hugo Black had any new insight into the case, Douglas said, 'No, but he's read the papers.' Felix thought that was terrible!"). Whatever motivated the Progressive trio to switch, Frankfurter's leadership role on the Court had quite publicly disappeared with the Flag Salute cases.
304. See Hirsch, supra note 17, at 155 ("The term that began the fall of 1941 was a turning point. The liberal trio solidified in its opposition to Frankfurter, and personnel changes brought a new unsettledness to inter-Court relations. Suddenly, Frankfurter found himself watching a calm Court, amenable to his influence and leadership, slip away from him.").
305. SEC v. Chenery Corp. (Chenery I), 318 U.S. 80 (1943).
306. The vote was 4-3 with Jackson, Roberts and Stone joining Frankfurter's majority; Douglas was not participating as usual and Rutledge had not yet taken Byrnes' seat.
307. See generally A.C. Pritchard, United States v. O'Hagan: Agency Law and Justice Powell's Legacy for the Law of Insider Trading, 78 B.U. L. Rev. 13 (1998) (detailing Powell's reliance on common law concepts in insider trading cases). Jackson, in a letter to Frankfurter two days before the decision was released, suggested that the insider trading may well have helped the shareholders, a view that was also to appear in later debates about insider trading. He argued that "if, as is frequently the case, they were selling under compulsion, the bids of these directors may well have sustained their market, and they may well have benefited therefrom as against the terms they must have accepted in the absence of such bids." Letter from Justice Robert H. Jackson to Justice Felix Frankfurter (Jan. 30, 1943) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 1, Reel 7).
308. Chenery I,318 U.S. at 81-82.
309. Id. at 85.
310. Id.
311. Id. at 85-86.
312. This is clearly set out in Frankfurter's exchange with Reed just prior to the issuance of the Chenery I decision. See infra notes 252-261 and accompanying text.
313. Chenery I,318 U.S. at 86-87.
314. Id. at 89.
315. Indeed, Frankfurter favored more demanding standards for fiduciaries. See Felix Frankfurter, Social Issues before the Supreme Court (1933), reprinted in Law and Politics: Occasional Papers of Felix Frankfurter, supra note 138, at 48, 50 ("[T]he law must become more sophisticated in its conception of trustees' obligations. It must sharpen and extend the duties incident to the fiduciary relations of corporate directors and officers.").
316. Chenery I, 318 U.S. at 89.
317. Id. at 95.
318. For a discussion of this principle and the explanations that have been given for it, see Kevin M. Stack, The Constitutional Foundations of Chenery, 116 Yale L.J. 952 (2007) (arguing that Chenery I is best explained by the nondelegation doctrine). This bedrock principle of administrative law may not have had the strongest of foundations. Jackson, the fourth vote in a 4-3 decision, had written a draft concurrence in which he said, "where the administrative order depends upon legal grounds I should think it our duty to sustain an order that is right on correct legal principles even if the administrative body has assigned incorrect ones."
319. Draft Concurrence of Justice Jackson, SEC v. Chenery Corp., No. 254, October Term, 1942, at 1 (on file with the Papers of Robert H. Jackson, Library of Congress, Box 126). Nevertheless, Jackson joined the four-Justice majority without a separate concurrence. Jackson's more fundamental legal point in the draft concurrence was that the SECs order was unsustainable because the insiders had not received notice that their conduct was illegal: "Surprise law is sometimes inevitable, but it seems almost bromidic to say that citizens are entitled to have some way of learning the general principles that they will suffer in person or property for transgressing."
320. Id. at 6.
321. Chenery I, 318 U.S. at 92. Chief Justice Stone suggested a more explicit endorsement of rulemaking by the SEC was in order. Handwritten Note from Chief Justice Harlan Fiske Stone to Justice Felix Frankfurter (undated) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 1, Reel 7).
322. Frankfurter demurred: Of course I agree with you that had the SEC summarized their experience by putting the specific ruling in the Chenery case into a generalized rule, a totally different situation would have been created. But I thought it wiser to indicate that by innuendo rather than explicitly. To do the latter might be read by the Commission as a broad hint from us to issue a regulation. Thereby we would be stimulating new problems. Letter from Justice Felix Frankfurter to Chief Justice Harlan Fiske Stone (Jan. 23, 1943) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Parti, Reel 7).
323. Draft Opinion, SEC v. Chenery Corp., at 8-9 (undated) (on file with the Hugo Black Papers, Library of Congress, Box 270) ("But whether it is 'necessary or appropriate in the public interest or for the protection of investors or consumers' that a general rule or regulation be adopted to prohibit reorganization managers from participating equally with others with respect to stock acquired by them during the course of the reorganization is for the Commission to determine.
324. Where an administrative order is valid only if it rests upon a determination which the agency alone is authorized to make, its failure to make such a determination cannot be remedied by the fact that the agency might properly have made such a determination. It is not for us to determine independently what is 'detrimental to the public interest or the interest of investors or consumers' or 'fair and equitable' within the meaning of §§7 and 11 of the Public Utility Holding Company Act of 1935.").
325. In his final opinion, Frankfurter merely asserted that, [B]cfore transactions otherwise legal can be outlawed or denied their usual business consequences, they must fall under the ban of some standards of conduct prescribed by an agency of government authorized to prescribe such standards-either the courts or Congress or an agency to which Congress has delegated its authority. Chenery I,318 U.S. at 92-93.
326. Chenery I, 318 U.S. at 99 (Black, J., dissenting).
327. Id. at 100.
328. See Fasse», supra note 140, at 347 (noting that, over the course of the 1942 and 1943 terms, Reed voted most frequently with Frankfurter).
329. Letter from Justice Felix Frankfurter to Justice Stanley Reed, at 1 (Jan. 29, 1943) (on file with the Felix Frankfurter Collection, Harvard Law School Library Part 1 Reel 7).
330. Id. at 2.
331. Id. at 3.
332. Id. at 3-4.
333. See Felix Frankfurter, Does Law Obstruct Government?, in The Public & Its Government, supra note 100, at 36,47 (expressing dismay at Supreme Court's increasing tendency to strike down economic regulation: "And always by a divided Court, always over the protest of its most distinguished minds!").
334. Letter from Justice Stanley Reed to Justice Felix Frankfurter (Jan. 29, 1943) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 1, Reel 7).
335. Id.
336. Id.
337. The SEC, for its part, ameliorated some of the surprise element of its pronouncements by making liberal use of informal guidance, a practice that has developed into its current "No Action" letters.
338. See Thomas K. McCraw, Prophets of Regulation 215 (1984) (discussing the SECs use of General Counsel opinions to elucidate its views on the securities laws).
339. Barry Cushman, Lost Fidelities, 41 Wm. & Mary L. Rev. 95, 98 (1999).
340. Fasse», supra note 140, at 405 (noting that, on Stone's death, "it is quite clear that five of the associate justices each seriously aspired to, or at least would wholeheartedly have welcomed, becoming chief justice").
341. See Ferren, supra note 91, at 326.
342. See id. at 325.
343. Murphy, supra note 127, at 244.
344. Id.
345. Cable from Justice Robert H. Jackson to President Harry Truman (June 8, 1946), discussed in Melvin I. Urofsky, Division and Discord: The Supreme Court Under Stone and Vinson 1941-1953, at 143-44 (1997). The case was Jewel Ridge Coal Corp. v. Local No. 6167, United Mine Workers of Am., 325 U.S. 161 (1945).
346. Letter from Justice Felix Frankfurter to Justice Hugo Black (Dec. 23, 1946) (on file with the Robert Jackson Collection, Library of Congress, Box 138). The "Kadi" reference made its way into a published dissent a few years later.
347. See Terminiello v Chicago, 337 U.S. 1, 11 (1949) (Frankfurter, J., dissenting) ("This is a court of review, not a tribunal unbounded by rules. We do not sit like a kadi under a tree dispensing justice according to considerations of individual expediency.").
348. We thank Kevin Stack for pointing out this difference.
349. SEC v. Chenery Corp. (Chenery II), 332 U.S. 194, 203 (1947).
350. Douglas, as usual, had recused himself. Chief Justice Vinson did not participate. Id. at 209.
351. James E. St. Clair & Linda C. Gugin, Chief Justice Fred M. Vinson of Kentucky: A Political Biography 180 (2002).
352. Telephone Interview with Eugene Gressman, Law Clerk to Justice Frank Murphy 1943-48 (Sept. 6,2008) (notes on file with the authors). 2,3 Id.
353. Justice Felix Frankfurter, Memorandum to the Conference in Nos. 81 and 82, Oct. Term, 1946 (June 23, 1947) (on file with the Hugo Black Collection, Library of Congress, Box 283).
354. Letter from Justice Wiley Rutledge to Justice Felix Frankfurter (June 18, 1947) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 3, Reel 3).
355. Id. Rutledge was sufficiently distressed by Frankfurter's opinion that he wrote a draft concurrence exonerating Murphy of any blame for the lateness of the opinion. Draft Concurrence of Justice Rutledge, SEC v. Chenery Corp., Nos. 81 and 82, Oct. Term, 1946 (June 23, 1947) (on file with the Wiley Rutledge Collection, Library of Congress, Box 155).
356. Justice Felix Frankfurter, Memorandum to the Conference in Nos. 81 and 82 (June 18, 1947) (on file with the Wiley Rutledge Collection, Library of Congress, Box 155).
357. Justice Frank Murphy, Memorandum to the Conference (June 18, 1947) (on file with the Hugo Black Collection, Library of Congress, Box 283).
358. Justice Felix Frankfurter, Memorandum for the Conference Nos. 81 and 82 (June 18, 1947) (on file with the Hugo Black Collection, Library of Congress, Box 281).
359. Letter from Justice Frank Murphy to Justice Felix Frankfurter (June 18, 1947) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 1, Reel 17) ("Thanks for your last circulation in the Chenery case. It is entirely satisfactory to me now.").
360. Letter from Justice Felix Frankfurter to Justice Robert H. Jackson (July 23, [1947]) (on file with the Robert Jackson Collection, Library of Congress, Box 138).
361. SEC v. Chenery Corp., 332 U.S. 194, 213 (1947) (Jackson, J., dissenting).
362. Memo on dissenting opinion in S.E.C. v. Chenery from JT to Chief Justice Fred Vinson (Oct. 4, 1947) (on file with the Fred Vinson Collection, University of Kentucky).
363. Jackson Says High Court Encourages Lawlessness, Minneapolis Morning Tribune, Oct. 7, 1947, at 2 (newspaper clipping on file with the Robert Jackson Collection, Library of Congress, Box 138).
364. See generally Administrative Procedure Act, 5 U.S.C. §§551-59, 701-06 (2000).
365. M. Elizabeth Magill, Agency Choice of Policymaking Form, 71 U. Chi. L. Rev. 1383, 1427 (2004).
366. On the long struggle by conservatives to rein in the New Deal agencies, see George B. Shepherd, Fierce Compromise: The Administrative Procedure Act Emerges from New Deal Politics, 90 Nw. U. L. Rev. 1557 (1996).
367. Lisa Schultz Bressman, Procedures as Politics in Administrative Law, 107 Colum. L. Rev. 1749, 1756 (2007) (describing how "New Deal Democrats fought to unleash agencies from rigid procedural control, while Republicans pushed in the opposite direction, particularly in the context of adjudication, which was a prevalent form of agency decisionmaking at the time").
368. See Schiller, supra note 233, at 441 ("The profound deference of New Deal-era administrative law was not to last long, but it firmly defined the role of expertise in the administrative state and created the model of judicial deference that would be both emulated and reacted against as administrative law developed during the rest of the twentieth century." (footnote omitted)).
369. The bedrock holding of Chenery II as to agency choice would come into question after one point after Frankfurter's retirement. NLRB v. Wyman-Gordon, 394 U.S. 759 (1969), suggested "that a doctrine policing agency choice of procedure might be on the horizon," Magill, supra note 288 at 1407, but as Professor Magill has developed, the doctrine thereafter evolved to emphasize the breadth of an agency's discretion to choose between rulemaking and adjudication. See generally id.
370. - 323 U.S. 624 (1945). The preference purported to apply to "liquidation of the corporation, whether voluntary or involuntary." Id. at 630 n.6 (quoting the United Light and Power Company's charter).
371. Id. The SEC chose instead to value the preferred stock on a going concern basis and awarded a small percentage of the value of the liquidated company to the common stockholders. Id. at 629-32.
372. Case v. Los Angeles Lumber Co., 308 U.S. 106, 114-16 (1939);
373. see also Consol. Rock Prod. Co. v. DuBois, 312 U.S. 510, 530-31 (1941).
374. Letter from Justice Felix Frankfurter to Justice Stanley Reed (Nov. 21, 1944) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 56).
375. Handwritten Notes from Conference, No. 81, OT 1944 (undated) (on file with the Frank Murphy Collection, Bentley Library, University of Michigan, Reel 131).
376. In SEC v. Cent. III. Sec. Corp., 338 U.S. 96, 155 (1949), the Justices were unanimous (with Douglas and Jackson not participating) in deferring to the SECs choice to award preferred shareholders the call value of their securities rather than their involuntary liquidation value. The Court characterized the "principle of the Otis case ... that the measure of equitable equivalence for purposes of simplification proceedings compelled by the Holding Company Act is the value of the securities 'on the basis of a going business and not as though a liquidation were taking place.'" Id. at 131 (citation omitted).
377. Niagara Hudson Power Corp. v. Leventritt, 340 U.S. 336 (1951), represents the complete triumph of administrative expertise over the wisdom of the marketplace. There, the Court upheld the SECs determination to afford no value to outstanding stock option warrants, despite the fact that the warrants had no time limit for their exercise and were trading for a positive value in the marketplace. The Court deferred to the SECs determination that "there is no ground for a reasonable expectation that, within the foreseeable future" the warrants would be in the money.
378. Id. at 344. "Where the line is to be drawn is a matter for the expert judgment of the Commission." Id. The Court's opinion drew a dissent from the odd couple of Frankfurter and Black, but Frankfurter rested his objection on the reasoning of the court below. Id. at 348 (Frankfurter, J., dissenting).
379. Am. Power & Light Co. v. SEC (American Power II), 329 U.S. 90 (1946). The case resolved the lingering constitutional issues left after North American at the end of the Court's previous term. Under review was the SECs order breaking up the largest single public utility holding company system registered under the Act.
380. Id. at 104.
381. The Court used equally broad strokes in addressing the utility's argument of an unconstitutional delegation of legislative power to the SEC. "The judicial approval accorded these 'broad' standards for administrative action is a reflection of the necessities of modern legislation dealing with complex economic and social problems."
382. Id. at 104-05.
383. Id. at 112.
384. Murphy's broad trust of the agency extended to the SECs refusal to hold a hearing on the company's alternative plan proposed under § 11(e) of the act, but here he lost the Court's unanimity. Id. at 112, 118. Justice Rutledge wrote separately to say he viewed the statue as requiring the Commission to provide for notice and hearing, the absence of which would have been grounds for reversal had the companies not effectively waived their rights in this case. Id. at 121-22 (Rutledge, J., concurring). Frankfurter inserted a written statement as to his belief that the consideration of notice and hearing does not arise given the particular circumstances of this case in what he hoped would be a message to the agency.
385. Id. at 121 (opinion of Frankfurter, J.). Frankfurter noted his initial opposition to the discussion of the notice issue, and his willingness to let it go so that the decision might be unanimous, but with the filing of Rutledge's separate opinion, he sought to pursue the issue: "[This] gives the SEC a hint to reconsider fully the proper construction of § 11(e) and ... leave the matter for future disposition here by what one has a right to hope may be a full court." Letter from Justice Felix Frankfurter to Justice Frank Murphy (Nov. 23, 1946) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 52).
386. Pac. Gas & Elec. Co. v. SEC, 324 U.S. 826 (1945) (per curiam) (affirming judgment below by an equally divided Court).
387. Draft Opinion of Justice Murphy, Pac. Gas and Elec. v. SEC, No. 55, Oct. Term, 1944, at 6 (on file with the Felix Frankfurter Collection, Library of Congress, Reel 52)
388. Id. at 6-11.
389. Letter from Justice Felix Frankfurter to Justice Frank Murphy (Feb. 22, 1945) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 52).
390. Murphy was not happy with Frankfurter's switch, as it deprived him of his majority, and with Douglas recused as usual, the SECs action would be upheld by an equally divided court, rendering Murphy's "many long hours... spent on the P.G.&E. opinion" a waste.
391. Letter from Justice Frank Murphy to Justice Felix Frankfurter (Feb. 23, 1945) (on file with the Felix Frankfurter Collection, Library of Congress, Reel 52). Murphy was prepared to write that off, but he was more impatient with Frankfurter's explanation (or lack thereof) for his switch: "I am ... at a loss to know what it is that has made you change your mind. If, as you say, it is the erroneous criteria used by the SEC, I ask you to reread my opinion and tell me what you think is wrong." Id.
392. Am. Power & Light Co. v. SEC (American Power I), 325 U.S. 385, 386 & n.l (1945).
393. - 31015 U.S.C. § 79x(a) (1940).
394. American Power 1, 325 U.S. at 386-88.
395. Id. at 392 (noting that Okin challenged the loan as illegal and fraudulent, notwithstanding its approval by the SEC).
396. Id. at 388.
397. Id. at 396 (Murphy, J., dissenting). Murphy's concern about the efficiency of the administrative process here is a little difficult to square with his position in In re Electric Power & Light Corp., in which he joined Frankfurter in dissenting from the denial of stay of execution of a plan of dissolution pending appeal. 337 U.S. 903, 904 (1949) (per curiam) (Frankfurter & Murphy, JJ., dissenting).
398. Murphy was also skeptical of Okin's claim of fraud. "Such frivolous claims of fraud are insufficient to warrant making an exception to the general rule that a stockholder cannot appeal an administrative order which involves only the corporation as such." American Power 1,325 U.S. at 398 (Murphy, J., dissenting).
399. Murphy was joined by Black and Reed in arguing to deny standing to American Power, a holding company, but not in reaching the same conclusion with respect to Okin, a small investor. Black, ever the champion of the underdog, expressed concern "that courts should not put insuperable obstacles in the way of stockholders whose interests might be sacrificed by management." Letter from Justice Hugo Black to Justice Frank Murphy (May 30,1945) (on file with the Frank Murphy Collection, Bentley Library, University of Michigan).
400. - 346 U.S. 521 (1954).
401. The Court was more generous to the SECs interest in finality in SEC v. Louisiana Public Service Comm'n, 353 U.S. 368, 372 (1957) (per curiam), in which it held that a decision by the SEC not to reopen a prior proceeding was not subject to review in the court of appeals. The decision attracted little interest from the Justices; it was decided in a short per curiam by Whitaker.
402. See Letter from Chief Justice Earl Warren to Justice Charles Evans Whitaker (May 9, 1957) (on file with the Earl Warren Papers, Library of Congress, Box 633).
403. SEC v. Drexel & Co., 348 U.S. 341 (1955).
404. Id. at 348-49 (footnote omitted).
405. Frankfurter wrote: Congress effectively equipped the Commission with power to regulate fees in the various proceedings which required approval by the Commission. But Congress particularized. It did not vest this fee-fixing authority of the Commission in a comprehensive provision. It dealt with the problem distributively.
406. It was explicit in relating the power to fix fees to the particular proceeding. The [Public Utility] Holding Company Act of 1935 is a reticulated statute, not a hodge-podge. To observe its explicit provisions is to respect the purpose of Congress and the care with which it was formulated. Id. at 349-50 (Frankfurter, J., dissenting).
407. Sullivan & Thompson, supra note 12, at 1580.
408. See supra note 8.
409. The story of this evolution and William O. Douglas's unintentional contribution to it is well told by Skeel, supra note 117, at 125-28.
410. Byrnes's Senate service would likely have served as an equally accurate predictor of his judicial judgments, had he stayed long enough on the Court to render any.
411. Notably, Frankfurter disclaimed the title of New Deal Justice: I'm incurably academic and cannot rid myself of the conviction that it is of the very essence of the function of this Court that when a man comes on it, he leaves all party feelings as well as affiliations behind. I certainly do not and have not since January 30, 1939 for one split second felt like or deemed myself, or deemed it right for anyone else to think of me, as a "New Deal" Justice. Copy of Handwritten Note from Justice Felix Frankfurter to Justice Owen Roberts (Feb. 4, 1943) (on file with the Felix Frankfurter Collection, Harvard Law School Library, Part 3, Reel 3).
412. Lash, supra note 29, at 53; Fassett, supra note 140, at 174 (describing Reed's public support).
413. Cushman, Rethinking the New Deal Court, supra note 188, at 18.
414. Ferren, supra note 91, at 133-35 (describing a prominent radio address given by Black).
415. Fassett, supra note 140, at 303 (describing support of Byrnes); Leuchtenburg, supra note 144, at 135 (describing support of future Justices Byrnes, Black and Minton as senators).
416. Seligman, supra note 1, at 155.
417. Lash, supra note 29, at 63 ("It is doubtful... that Roosevelt would have appointed [Frankfurter] after Cardozo's unexpected death, had he not loyally kept his silence [in the court packing fight].").
418. See supra Part II.
419. After his appointment, Douglas wrote in his diary: I saw Brandeis at his apartment and he told me something which gave me as great a thrill as the nomination itself. He said "You were my personal choice for my successor." He was most gracious and held my hand with great warmth as he said it. I was deeply touched. That, I felt, was the greatest compliment ever paid me. Whether he had communicated that thought to the President, I do not know. I suspect he had done so, indirectly through Felix who was most anxious that I receive the nomination. William O. Douglas, Diary (Mar. 26, 1939) (on file with the William O. Douglas Collection, Library of Congress, Box 1780).
420. Robert H. Jackson, Diary (Jan. 2, 1939) (on file with the Robert H. Jackson Collection, Library of Congress, Box 81);
421. Ferren, supra note 91, at 137.
422. Ferren, supra note 91, at 151 (describing Jackson's support);
423. J. Woodford Howard, Jr., Mr. Justice Murphy: A Political Biography 192 (1968) (describing Murphy's support).
424. Fine, supra note 226, at 194.
425. Ferren, supra note 91, at 216-17.
426. Irons, supra note 16, at 12. Frankfurter earlier had asked Reed to find spots for Cohen and Corcoran at the Reconstruction Finance Corporation.
427. See Fassett, supra note 140, at 54.
428. Lash, supra note 29, at 77.
429. Murphy, supra note 127, at 185.
430. New Deal appointees joined a court that already was more politically deep than most. Roberts was rumored as a Republican presidential candidate in 1936 and Hughes had resigned from the Court to run for President back in 1916. Leuchtenburg, supra note 144, at 43.
431. Murphy, supra note 127, at 217-30 (discussing 1944); id. at 251-65 (discussing 1948).
432. Leuchtenburg, supra note 144, at 207-08.
433. Fine, supra note 226, at 133.
434. Memorandum from Edith Walters (e.w.) for the A.C. Frost & Co. v. Coeur d'Alene's Mines Corp. conference (Dec. 21, 1940) (on file with the William O. Douglas Papers, Library of Congress) (noting no official action by the SEC until April 1940, which was after Douglas had left the agency). The memo notes that the regional office looked into some shareholder complaints between May and August 1937 and that the agency's general counsel decided it was not a matter for action by the Commission and was never taken to a Commission meeting.
435. Memorandum from Edith Walters (e.w.) for the SEC v. C.M. Joiner & Co. conference (Oct. 15,1943) (on file with the William O. Douglas Papers, Library of Congress) (reporting information gathered from Orval duBois).
436. William O. Douglas, The Court Years: 1939-1975, at 31 (1980).
437. Ferren, supra note 91, at 282.
438. Superintendent of Ins. v. Bankers Life & Casualty Co., 404 U.S. 6 (1971).
439. Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 113-14 (1939) (interpreting "fair and equitable" in the bankruptcy act).
440. William O. Douglas, Diary (Oct. 18, 1939) (on file with the William O. Douglas Collection, Library of Congress, Box 1780).
441. William O. Douglas, Diary (Oct. 21, 1939) (on file with the William O. Douglas Collection, Library of Congress, Box 1780) ("The CJ was bent on affirming the judgment below in Case v. Los Angeles Lumber Products Co. He had McR and Reed with him. Stone assigned the opinion to me.").
442. William O. Douglas, Diary (Nov. 4, 1939) (on file with the William O. Douglas Collection, Library of Congress, Box 1780).
443. - 308 U.S. 295 (1939).
444. William O. Douglas, Diary (Nov. 9, 1939) (on file with the William O. Douglas Collection, Library of Congress, Box 1780) ("This case had been on the CJ.'s 'special list.' I was responsible for taking it off. He was against it since it involved only a factual question, not an 'important principle.' I thought otherwise and carried the Court.").
445. See, e.g., James F. Simon, Independent Journey: The Life of William O. Douglas 201-02 (1980) (describing a small group that gathered to celebrate Frankfurter's appointment to the court that included Douglas, Jackson, Murphy, and Harry Hopkins in Harold Ickes' office at the Department of the Interior).
446. See Murphy, supra note 127, at 351. Walter Dellinger, then a clerk to Black (and later Acting Solicitor General in the Clinton administration), asked Douglas in 1968 if he would go on the Court if he had to do it over again. Douglas replied, "Absolutely not!" He explained that "the Court as an institution is too peripheral, too much in the backwater on the Court. You're just too far out of the action here." Id.
447. See Douglas, supra note 346, at 417-21 ("Index of Supreme Court Cases in This Volume.").
448. Hirsch, supra note 17, at 141 ("It was inevitable that Frankfurter in 1939 would think of himself as the intellectual leader of the Roosevelt Court. Members of the White House circle expected him to dominate; that was why he had been appointed. He expected himself to dominate.");
449. Lash, supra note 29, at 64 ("'If you appoint Felix,' Ickes said to Roosevelt, 'his ability and learning are such that he will dominate the Supreme Court for fifteen or twenty years to come. The result will be that probably after you are dead, it will still be your Supreme Court.").
450. Lash, supra note 29, at 75 ("Frankfurter had come on the Court expecting that in time he would become its intellectual leader and that the authority he exercised in his seminar at Harvard would be replicated in the conferences of the Brethren. He had a yearning for disciples.").
451. Hirsch, supra note 17, at 209 ("Although he, perhaps more than anyone, lobbied other members of the Court for votes, he never admitted doing so, but rather perceived his own actions as helpfully 'advising' his brethren; his judicial opponents, however, were, in his view, cynical and evil spreaders of their own influence.").
452. See Eugene Gressman, Psycho-Enigmatizing Felix Frankfurter, 80 Mich. L. Rev. 731, 739 (1982) (reviewing Hirsch, supra note 17) ("Neither I nor Murphy could discover what Frankfurter hoped to accomplish with this endless chain of condescending admonishments.... If the notes were really designed to reform or change Murphy's ideological commitments, they were futile. If they were designed to change a Murphy vote or position in a given case, they utterly failed. But if they were written to annoy, insult, or display Frankfurter's 'personalia' techniques, perhaps they hit their mark.").
453. See Schlesinger, supra note 99, at 228-29 ("Stanley Reed became the particular protector of the Harvard Law School crowd. RFC and, after Reed became Solicitor General in 1935, Justice served as the intelligence switchboard and the operational base for the web of Frankfurter-Corcoran relationships through the new agencies.").
454. Quoted in Fassett, supra note 140, at 584.
455. See also Hirsch, supra note 17, at 190 ("Frankfurter measured every colleague by his alignment with what he regarded as the ultimate split within the Court-between his 'disinterested' and scholarly belief in judicial self-restraint, and the 'shoddy,' 'result-oriented,' 'demogogic' jurisprudence of his opponents.").
456. Douglas, supra note 346, at 22.
457. Howard, Jr., supra note 334, at 269 ("Justice Murphy in turn came to regard Justice Frankfurter's professorial habits as tiresome and tangential. The former law professor's campaigns for 'self-restraint' and 'law as the embodiment of reason,' he found hard not to dismiss as masks for the same use of personal convictions that Frankfurter so readily condemned in others.").
458. St. Clair & Gugin, supra note 273, at 174.
459. Id. ("Although Vinson was an affable man by nature, 'he could take offense if he were affronted and Frankfurter was a good affronter.'").
460. Murphy, supra note 127, at 301.
461. Ferren, supra note 91, at 277 (describing how Frankfurter harangued Reed to his face and made fun of him behind his back, calling him a "vegetable");
462. Howard, Jr., supra note 334, at 268 ("Justice Murphy enjoyed Frankfurter's wit and acknowledged his superior intellect. Yet he felt defensive beside them.... Frankfurter was an excitable and scrappy intellectual who had ill-concealed contempt for the Irishman's intellect and night life....");
463. Fine, supra note 226, at 195 (Frankfurter had similarly low regard for Burton); Hirsch, supra note 17, at 182 (noting that Frankfurter wrote to Hand that '"Hugo is a self-righteous, self-deluded part fanatic, part demagogue, who really disbelieves in law, thinks it is essentially manipulation of language. Intrinsically, the best brain in the lot, but undisciplined and 'functional' in its employment, an instrument for supporting a predetermined result, not a means for responsible inquiry").
464. Telephone Interview with Eugene Gressman, supra note 274.
465. Murphy's pre-Court experience with public utilities was limited and unlikely to make him sympathetic to the industry. He had a run in with the utility companies while governor of Michigan. The private utility companies were engaged in "spite line construction," the practice of building power lines in areas that had been approved for rural electric cooperatives in an effort to maintain their monopolies. Sidney Fine, Frank Murphy: The New Deal Years 445 (1979). In response, Murphy's administration prohibited the construction of new lines by the companies without prior approval. Id.
466. Even the Justices who had not played a role in the enactment and defense of PUHCA had some experience with corporations and utilities in their
467. See supra note 91 and accompanying text. Harold Burton, Truman's first appointee to the Court, also had extensive experience in corporate and public utilities law. He worked for a corporate law firm in Cleveland and served as general counsel of the Utah Power and Light Company and the Idaho Power Company. Mary Frances Berry, Stability, Security, and Continuity: Mr. Justice Burton and Decision-Making in the Supreme Court 1945-1958, at 4 (1978). He also "taught a corporation law course at the Western Reserve University Law School from 1923 through 1925." Id. at 5. When he returned to private practice in 1932, he "specialized in municipal law, sometimes representing communities on utility and bond issues, and was associate counsel for the city of Cleveland in its gas rate litigation." Id. at 6.
468. Howard, Jr., supra note 334, at 411 ("Nearly all of [Murphy's] colleagues, at one time or another, had to remind him that the Court's job was not to pronounce on the reasons for policy, but merely to review power to make it.").
469. Pritchard, supra note 238, at 15.