Ashwander v. Tennessee Valley Authority

297 U.S. 288 (1936) · Supreme Court of the United States · February 17, 1936 · No. Nos. 403 and 404

Summary

The Supreme Court considered a derivative action by preferred shareholders of Alabama Power Company challenging the company's contract with the Tennessee Valley Authority. The Court held that the shareholders could maintain the suit, limited the controversy to the specific contract at issue, and upheld the constitutional authority for construction of Wilson Dam and disposition of the electric power generated there. The excerpt addresses the justiciability of constitutional claims and the federal government's property and commerce powers.

Court
Supreme Court of the United States
Writing for the Court
Chief Justice Hughes; Justice Brandeis; Justice Cardozo; Justice McReynolds; Justice Roberts; Justice Stone
Jurisdiction
Federal
Decision date
February 17, 1936
Docket number
Nos. 403 and 404
Procedural posture
Preferred stockholders brought a derivative and equitable action challenging the constitutionality of a contract between Alabama Power Company and the Tennessee Valley Authority and seeking injunctive and declaratory relief. The district court annulled the contract and enjoined its performance; the Fifth Circuit reversed; the Supreme Court granted certiorari.
Standard of review
The Supreme Court reviewed the legal questions concerning standing, justiciability, and the constitutional authority of Congress and TVA; the opinion also considered the equitable basis for injunctive relief.
Precedential value
published Supreme Court opinion; binding precedent
Parties
Ashwander et al., preferred stockholders of Alabama Power Company v. Tennessee Valley Authority et al., Alabama Power Company, City of Florence, Commonwealth & Southern Corporation, other named defendants
Disposition
affirmed

Topics

constitutional lawfederalismdeclaratory judgmentcorporate lawequitable relief

Practice areas

constitutional lawfederal courtscorporate lawadministrative lawequitable remedies

Questions Presented

  1. Whether the preferred stockholders had standing to maintain a derivative equitable action when the corporation's directors refused to challenge an allegedly unconstitutional transaction.
  2. Whether the plaintiffs could obtain a general declaratory judgment concerning TVA's policies, programs, and constitutional authority beyond the specific January 4, 1934 contract.
  3. Whether Congress constitutionally authorized construction of Wilson Dam under its war and commerce powers.
  4. Whether the United States had constitutional authority under Article IV, § 3, to dispose of water power and electric energy generated at Wilson Dam and to acquire transmission lines as a means of marketing that energy.
  5. Whether the particular contract's limited acquisition of transmission lines and disposition of energy invaded powers reserved to the States.

Holdings

  1. Preferred stockholders may maintain an equitable derivative action, in the absence of an adequate legal remedy, to prevent illegal or unconstitutional transactions by those controlling corporate property when the corporation refuses to act.
  2. The controversy was limited to the validity of the January 4, 1934 contract and the constitutional authority directly implicated by that contract; the Court would not decide abstract questions concerning TVA's general policies, programs, or hypothetical future activities.
  3. Wilson Dam and its hydroelectric plant were constitutionally constructed pursuant to Congress's war and commerce powers, including national-defense and navigation purposes.
  4. Water power, the right to convert it into electric energy, and the electric energy generated at a constitutionally authorized federal dam are property belonging to the United States that Congress may dispose of under Article IV, § 3, cl. 2.
  5. The contract's sale and interchange of electric energy and acquisition of transmission lines as a facility for reaching a market were constitutionally permissible on the record, provided the energy arose from the operation of works lawfully constructed under an enumerated federal power.

Key quotations

“The judicial power does not extend to the determination of abstract questions.” (297 U.S. at 324)
“In such matters there can be no divided empire.” (297 U.S. at 338)
“We limit our decision to the case before us, as we have defined it.” (297 U.S. at 340)
“The Court developed, for its own governance in the cases confessedly within its jurisdiction, a series of rules under which it has avoided passing upon a large part of all the constitutional questions pressed upon it for decision.” (297 U.S. at 346-48)

Factual background

TVA entered into a contract with Alabama Power Company to purchase transmission lines and related property, exchange and sell hydroelectric energy, and restrict the parties' service areas. Preferred stockholders alleged that the transaction injured the corporation and exceeded the constitutional authority of the Federal Government. After the company's directors refused to challenge the contract, the stockholders brought suit; the district court annulled the contract, but the Fifth Circuit reversed.

Procedural history

The plaintiffs demanded that Alabama Power Company's directors annul the contract with TVA, but the directors refused and the common-stock holder declined to call a stockholders' meeting. The district court entered findings and annulled the contract, enjoining transfer of the transmission lines and related activities. The Fifth Circuit reversed as to the contract, holding that TVA had constitutional authority to construct Wilson Dam and dispose of the resulting electrical energy, and the Supreme Court affirmed.

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