Constitutional Faces: Charles Hauser, President of Milnot, Defendant in United States v. Carolene Products

August 23rd, 2012

This is the first part of my series of posts about Charles Hauser, the Defendant in United States v. Carolene Products. My first post looked at how a federal court struck down the Filled Milk Act in 1972, three decades after the Supreme Court famously upheld it. The second post looks at Hauser’s subsequent criminal conviction in 1943, which was affirmed by the Supreme Court. The third post analyzes the Milnot factory built that straddles the Missouri-Oklahoma border. The final post analyzes a subsequent pardon signed by President Roosevelt in in 1945.

We all remember United States v. Carolene Products for its (in)famous Footnote Four. But, in the process of Justice Stone bifurcating rights into tiers of judicial scrutiny, the Court found that the Filled Milk Act, and the ban on the sale of Milnut’s Carolene Product’s Filled Milk, was constitutional under Congress’s power to regulate interstate commerce.

The prohibition of shipment in interstate commerce of appellee’s product, as described in the indictment, is a constitutional exercise of the power to regulate interstate commerce. As the statute is not unconstitutional on its face the demurrer should have been overruled, and the judgment will be reversed.

Charles Hauser

Yesterday, I received yesterday an email from Donna Sattley, the Granddaughter of Charles Hauser, who was the President of Milnot, based in Litchfield, Il, during the time of the case.

Donna told me some great stories (I am in the process of scheduling an interview with her). She said that her grandfather tried to set this test case off by personally driving a  truck of Milnot across state lines. Hauser spent a lot of his time and money proving that his product–in contrast with Congress’s findings–was not of poor quality. She also said that Hauser built a factory that straddled the state line–products produced on one side of the factory went to one state, products on the other side went to the other state.  She also recalled her grandfather spending a night in jail for the crime in this case. Donna also suggested that she has some kind of pardon President Roosevelt signed on behalf of her grandfather (I am trying to get a copy).

But, I must confess error. Donna told me that the Filled Milk Act was ultimately declared unconstitutional, in an effort led by her cousin. I told her, quite ignorantly it seems, that no such thing happened. How could the FIlled Milk Act be unconstitutional, I thought? Lopez and Morrison were the first time in decades federal laws were struck down under the commerce power. But, I did a bit of research, and she is right.

In Milnot Company v. Richardson, in 1972, the U.S. District Court for the Southern District of Illinois declared the Filled Act Unconstitutional!

The opinion had this brief bit of history of what happened after the Supreme Court’s opinion:

The Filled Milk Act, promulgated by Congress in 1923, prohibits interstate shipment of filled milk products. Following enactment of that statute, plaintiff, then known as Carolene Products Company, violated it and was convicted. After much litigation, the United States Supreme Court twice upheld the validity of the statute. United States v. Carolene Products Co., 304 U.S. 144, 58 S.Ct. 778, 82 L.Ed. 1234 (1938), and United States v. Carolene Products Co., 323 U.S. 18, 65 S.Ct. 1, 89 L.Ed. 15 (1944). At least since affirmance of its second conviction, plaintiff has limited its distribution of Milnot to intrastate commerce in the 223*223 several states where it is produced. In 1950, Carolene Products Company changed its name to Milnot Company.

Selling the products only intrastate makes the factory straddling state lines genius.

Milnot asserted not that the Filled Milk Act is beyond Congress’s powers to regulate interstate commerce, but that it deprives Millnot of due process of law.

In a somewhat meta analysis, the district court cites Carolene Products for the proposition that laws concerning economic transactions only need have a rational basis:

The measuring stick to which legislative acts must conform in order to satisfy due process has been stated in the previous Carolene decisions, supra. That is, regulatory legislation affecting ordinary commercial transactions is not to be pronounced unconstitutional unless, in light of the known facts, it is of such a character as to preclude the assumption that it rests upon some rational basis within the knowledge and experience of the legislators. United States v. Carolene Products, 304 U.S. 144, 152, 58 S.Ct. 778, 89 L.Ed. 15 (1938).

Yet, the court found that the Filled Milk Act did violate the due process of law!

From the undisputed facts in the record here, it appears crystal clear that certain imitation milk and dairy products are so similar to Milnot in composition, appearance, and use that different treatment as to interstate shipment caused by application of the Filled Milk Act to Milnot violates the due process of law to which Milnot Company is constitutionally entitled. No useful purpose is served by listing such products here by name or otherwise, or by discussing the dairy market conditions and dangers of confusion which led to the passage and judicial upholding of the Filled Milk Act many years ago. Suffice it to say that this court finds that the latter have long since ceased to exist.

And, in a further jab at the rationales Congress asserted when passing the Filled Milk Act–that it was not as healthy as real milk–the district court buried this chestnut in a footnote:

 It is not insignificant in this regard that some eleven states which passed filled milk acts have since discarded them—five by repeal and six by court action. By far, the majority of states now permit wholesome and properly labeled filled milk products. It is worth noting, also, that when the Federal Filled Milk Act was passed by Congress and upheld by the Supreme Court, the presently accepted dangers of “cholesterol” in animal fat were almost unknown.

So much for deferring to Congress’s expert judgment, huh? Somewhere Justice Breyer is cringing.

And just for good measure, the opinion cites Wickard v. Filburn, a companion case in the New Deal Cannon, along with Carolene Products.

It is true that equal protection of the laws does not require identical treatment among those similarly situated, but it does require that arbitrary or capricious distinctions not be made. Wickard v. Filburn, 317 U.S. 111, 129, 63 S.Ct. 82, 87 L.Ed. 122 (1942). It is uncontested that many of these imitation milk and dairy products contain as basic and primary ingredients skim milk and vegetable oil. The defendant does argue that certain of these products on the retail market are not “in imitation or semblance of milk” to the extent that Milnot is. While each product, including Milnot, has, by design of its producer, its own unique taste, it appears clear that at least six other food products now moving in interstate commerce have almost identical appearance and consistency to milk (or evaporated milk) and to each other, both in the package and when poured. The defendant may well be correct in determining that each such product, other than Milnot, is not within the purview of the Filled Milk Act; but this circumstance seems simply to lend support to the conclusion that an act which produces such incongruous results regarding interstate shipment alone is devoid of rationality. The possibility of confusion, or passing off, in the marketplace, which justified the statute in 1944, can no longer be used rationally as a constitutional prop to prevent interstate shipment of Milnot. There is at least as much danger in this regard with imitation milk as with filled milk, and actually no longer any such real danger with either.

The United States did not appeal this case to the 7th Circuit, as far as I can tell. So, after long last, the Filled Milled Act (4 decades ago) is no longer on the books.

By the time the Filled Milk Act was finally deemed unconstitutional in 1973, Hauser was too feeble to understand. His granddaughter suggests that this law (no doubt stimulated by rent-seeking and protectionism) prevented Milnot from becoming as large as Carnation and Pet.

An interesting footnote. Donna told me that her cousin, Richard Allen Hauser, who is now working at Boeing led the challenge to this act. His name was not on the counsel of record, so I will dig deeper, and try to contact Richard. (Update 8/30/12: Donna has subsequently told me that Richard was not involved in this challenge.)

I found several other cases involving Carolene Products dealing with state laws banning filled milk, prior to the Supreme Court’s opinion, including:

Mr. Hauser was quite litigious!

Last year, I won an auction on eBay for a cookbook of Carolene Products Milnut from 1939. Tragically, it seems that I beat Hauser’s granddaughter in that auction! She laughed, realizing who she was bidding against. Alas, I have since given the cookbook to Randy Barnett.

Update: In the comments, Eric Daniels points me to a 1987 article Geoffrey Stone wrote in the Supreme Court Review, titled “The True Story of Carolene Products.” I could not find a freely available copy online, but it is available here on Hein Online ($$$).

Stone tells the story of how Carolene Products had some success leading up to the Supreme Court’s opinion:

 The leading (perhaps the only) manufac- turer of filled milk after 1923 was the Carolene Products Corpo- ration. This firm continued to manufacture and sell the substance in a number of states, including several that had enacted prohibitory legislation. Despite what appeared to be the unfavorable precedent in Hebe Co., Carolene Products had some remarkable successes in its lonely legal odyssey.

In 1931 the Supreme Court of Illinois–Carolene’s home state-invalidated its filled milk statute on due process grounds.6 When an organization of evaporated milk producers caused the legislature to enact a new statute complete with suitable recitations of “fact,” the Illinois Supreme Court again struck it down, holding that the purported fact finding intruded on the ju- dicial function and denied due process and equal protection of the laws. 69 These decisions established a safe harbor in which the com- pany could operate its manufacturing plant and serve the large intrastate market, including the Chicago metropolitan area.

In 1934 the company won an even bigger victory when a judge in the Southern District of Illinois, in a sweeping if confused opin- ion, invalidated the federal statute.70 The act, said the court, “strikes down a well-known lawful industry, one which theretofore was entitled to and had the protection of the Constitution and laws of the United States. It amounts to a taking of private property os- tensibly for the public good without compensation, and deprives the defendant and others similarly situated of liberty and property, without due process of law.’ 71

Carolene Products’ situation improved still more in 1936 with decisions by the Supreme Courts of Michigan and Nebraska striking down their respective filled milk statutes.72 Although prohibitory legislation was still being enacted in a number of states, it began to appear as if the dairy industry’s campaign of 1920-23 would founder completely upon the rocks of the Due Process Clause.

In fact, however, it was Carolene Products that was on a headlong course for disaster. In 1937 it attempted to eliminate interference from its archenemy, the Evaporated Milk Association, by bringing a bill of complaint alleging that the Association’s activities violated the antitrust law. The strategy backfired when the Seventh Circuit upheld the federal statute, overruling the prior decision by the Southern District of Illinois. 73

The following year catastrophe struck. The Supreme Courts of Missouri and Pennsylvania upheld their states’ prohibitory stat- utes. 74 Worse, the United States Supreme Court upheld the federal statute in UnitedStatesv. CaroleneProductsCo.75Justice Stone’s opin- ion for the Court deferred totally to congressional committee “find- ings” that filled milk threatened the public health (because it lacked vitamins) and encouraged consumer fraud (because it could be con- fused with evaporated milk).

Even after the stunning loss at the Supreme Court, Carolene Products, and its President, Charles Hauser, did not give up:

Despite the Court’s apparent renunciation of any meaningful role in economic cases, Carolene Products refused to abandon the fight. It added a little cod liver oil and marketed the product as “New Vitamin A Carolene.”76 The scheme failed. State supreme courts in Kentucky 77 and Kansas 7 sustained filled milk statutes as applied to the new formula. A renewed federal prosecution came to the United States Supreme Court in 1944.79 The Court rejected the company’s arguments out of hand, holding that congressional con- cerns about consumer fraud were sufficient to sustain the statute even if the product were assumed to be completely wholesome and nutritionally equivalent to milk. In a companion case, Sage Stores v. Kansas,0 the Court sustained the Kansas filled milk statute as applied to the new product.

By the end of 1944 Carolene Products appeared to have run out of options. The Supreme Court had made it abundantly clear that it was not about to overturn filled milk statutes no matter what proof the company might offer. Filled milk had been banned in more than thirty states and heavily regulated in others. Carolene was relegated to a marginal legal existence, able to survive by serv- ing a few intrastate markets but without serious prospects for ex- pansion. At this point the record falls almost silent on the fate of an organization known as the Carolene Products Corporation.

Until the 1973 opinion, when ultimately, Carolene Products prevailed:

It did so in 1972 in a suit brought by the Milnot Company, a manufacturer of filled milk. A federal district court struck the stat- ute down as a violation of substantive due process, thus overruling 87 the Supreme Court’s decisions in CaroleneProducts. The statute was arbitrary and capricious, according to the court, because prod-ts virtually identical to Milnot were circulating in interstate com- merce free of statutory infirmity. Moreover, the market conditions and dangers of confusion that led to the passage and judicial up- holding of the statute “have long since ceased ‘ 8 Accordingly, Mil- not had the right to market its product in interstate and foreign commerce free from federal interference under the Filled Milk Act.89

Stone’s history is largely consistent with the stories Donna told me. What an amazing history!

Update 2: Donna shared with me a scan of a Milnot Newsletter from 1957. There is a picture of the can on the newsletter!