Amicus Brief — Allied Structural Steel Co. v. Spannaus

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MAR ® 1978

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IN THE K JR. CLERK

Supreme Court of the United i

OCTOBER TERM, 1977

No, 77-747

WALTER J. FLECK, ET AL.,

7 Appellants,

WARREN SPANNAUS, ET AL.,

®& = Appellees.

On Appeal From The United States District Court

For The District Of Minnesota

BRIEF AMICUS CURIAR

OF THE CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA

Perer G, NASH

EUGENE B, GRANOF

Dixie L. ATWATER

VepDpDER, Prick, KAUFMAN,

KAMMHOLZ & Day

Of Counsel: 1750 Pennsylvania Ave., N.W.

STANLEY T. KALEcZzYC Washington, D.C, 20006

National Chamber Counsel for the

Litigation Center Chamber of Commerce of the

1615 H Street, N.W. United States of America,

Washington, D.C, 20062 amicus curiae

Witeon ~« Eres Prntine Co., ine, « Re 7.6002 . Wasnineton, 0.C. 20001

Page

INTEREST OF THE AMICUS CURIAER. .................... 1

SUMMARY OF ARGUMENT. .............. SE eee . 4

PETG RREEESE SSIES 3 LES cil Rees h

The Minnesota Private Pension Benefits Protection

Act Operated To Impair Contract Obligations In

Violation of Article I, Section 10, Clause 1 Of The

United States Constitution .. x we.

"A. The Relevant Legal Pr’-siples .

B. Application of the Relevant =a Principle to

the Facts of the Instant Case .. 7 15

1, The Extent of the Impairment fae

2. The “Public Interest” Served

a 27

1

TABLE OF AUTHORITIES

Cases: Page

Boys Markets v. Retail Clerks —* 398 U.S, 235

(1970) . 2

Cort Vv. Ash, 422 US. 66 (1975) ... ae 2

DeFunia V. Odegaard, 416 U.S. 812 (1974) .. ct se 2

El Paso V. Simmona, 379 U.S. 497 (1965) .. ..Paaeim

Fornaria V. Ridge Tool Co., 423 F.2d 668 (ist Cir.)

rev'd per curiam on other grounds, 400 U.S, 41

SARE EES aE Se PS oooh], 18, 18, 20

Gateway Coal Co, ¥. United Mine Workers of

America, 414 U.S, 868 (1974) ....... ee See 2

Globe Liquor Co. v. Four Roses Distillers Co., 281

A.2d 19 (Del, 1971), cert. denied, 404 U.S, 878

ECCS Ee er PEA 18-19

Home Building & Loan Aaa’n V. Blaiadell, 290 U.S.

398 (1934) .......... ee. ee eae nt on Paasim

Louisville Joint Stock Land Bank v. Radford, 295

CE a 19

Railroad Retirement Board vy. Alton R. Co., 295

U.S, 880 (1985) .. 20

Standard Oil Co, of Louisiana v. “Porterie, 12

F, Supp. 100 (B.D. La. 1985) ...................... 20

Superior Motors, Inc. v. Winnebago Industries, Inc.,

859 F. Supp. 773 (D.S.C. 1978) ........... 16

United States Trust Co. Vv. New Jeraey, 431 US. 1

AIRED RSE eee or SEO RES _Paasim

W. RB, Worthen Co. v. Kavanaugh, 295 U.S. 56

RR a ene nase es 21

White Motor Corp. v. Malone, 646 F.2d 599 (1976) 24

Statutory and Conatitutional Provisiona ;

. Stat. §§ 181B.1, et seq. ...... 2

Constitution, Article I, Section 10, ‘Clause 1 Paseim

Other Authoritiea:

Supreme Court Rule 42(2) seiitieniamndgattinsiantitaiiiaisie 1

In THE

Supreme Court of the United States

OcToBer TERM, 1977

No, 77-747

WALTER J, FLECK, ET AL.,

¥, Appellants,

WARREN SPANNAUS, ET AL.,

Appellees.

On Appeal From The United States District Court

For The District Of Minnesota

F AMICUS CURIAE

OF THE CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA

INTEREST THE AMICUS CURIAE'

The Chamber of Commerce of the United States

of America is a federation consisting of a member-

' This brief is filed with the written consent of the parties

pursuant to Supreme Court Rule 42(2). Letters of consent

are on file with the Clerk of this Court.

(1)

ship of over 3,700 state and local chambers of com-

merce and trade and professional associations, and

a direct business membership in excess of 68,000.

It is the largest association of business and profes-

sional organizations in the United States.

The Chamber regularly represents the interests of

its member-employers in important matters vitally

affecting those interests before the courts, the United

States Congress, the Executive Branch and independ-

ent regulatory agencies of the federal government.

Such representation constitutes a significant aspect

of the Chamber's activities. Accordingly, the Cham-

ber has sought to advance those interests in a wide

spectrum of litigation.’

The specific question presented by this case is

whether the United States District Court for the

District of Minnesota, sitting as a three-judge court,

erred in concluding that the Minnesota Private Pen-

sion Benefits Protection Act, Minn, Stat. $$ 181B.1

et seq. (“Minnesota Pension Act”) does not impair

contractual obligations in violation of Article 1, Sec-

tion 10 of the United States Constitution. The Minne-

sota Pension Act is directed against certain employers

with existing pension plans who terminated such plans

or ceased to operate a place of employment within the

atate. The Act imposes a pension funding charge

on these employers, payable out of their assets, suffi-

cient to fund the value of existing vested pension

*E.g., Malone V. White Motor Corp., Case No, 76-1184; Cort

v. Ash, 422 U.S. 66 (1975); DeFunia V. Odegaard, 416 US.

812 (1974); Gateway Coal Co, v. United Mine Workers of

America, 414 U.S. 868 (1974); Boye Marketa Vv. Retail Clerka

Union, 398 U.S, 286 (1970). ,

benefits as well as the value of pension benefits for

all employees with ten or more years of service. The

charge is imposed notwithstanding the fact that the

employer’s plan did not provide vested benefits for

employees with ten years of service and notwith-

standing the actual funding provisions of the plan,

including express limitations on employer liability.

The effect of the Minnesota Pension Act in this case

is to alter retroactively the employment agreement be-

tween an employer and his employees by substan-

tially expanding the employer’s pension obligations

beyond those he agreed to assume in contracts formed

prior to the Act’s passage. The Act has here operated

to impose a heavy liability on an employer which he

could reasonably neither anticipate nor avoid, and

which cannot simply be passed off as a cost of doing

business in the future, all because the pension ar-

rangements which the employer previously entered

into with his employees, which were perfectly lawful

and proper, are now deemed by the state, acting with

hindsight, to be inadequate.

The Chamber and its members are legitimately con-

cerned that the decision of the district court sustaining

the constitutionality of the Minnesota Pension Act

establishes a dangerous precedent for future state

legislation, For if Minnesota can seek to impose a

solution of the sort represented by its Private Pen-

sion Benefits Protection Act on employers in response

to a perceived problem relating to the economic well-

being of a very small number and percentage of its

citizens, other states can and almost certainly will

do the same. To be sure, the perceived problems and

solutions will vary. But throughout will run an un-

4

dercurrent that states, responding to political or other

pressure, can conveniently negate existing private

contractual provisions of long standing, with only a

minimum of justification, and thereby expose em-

ployers to significant financial liability essentially

retroactive in nature. The Chamber and its members

have an obvious and strong interest in avoiding such

consequences and, towards that end, in urging this

Court to reverse the decision below. For that deci-

sion, if permitted to stand, will undermine the con-

stitutional protection against those consequences by

giving an unduly narrow reading to the Contract

Clause of Article I, Section 10 which is neither legally

warranted nor sound from a business or societal

standpoint.

SUMMARY OF ARGUMENT

A state statute which impairs private contractual

obligations, as does the Minnesota Pension Act, is

unconstitutional under the Contract Clause of the

United States Constitution (Article I, Section 10,

clause 1) unless it reasonably serves an important

public interest and the impairment is as minor as is

practical to serve that public interest. The Minne-

sota Pension Act meets neither of these tests, for it

severely and unreasonably impaired private employ-

ment and pension contracts, did so in furtherance of

private and parochial interests, and constituted a

radical impairment of contract that was not required

to serve any important public interest.

In sum, the Minnesota Pension Act took money

from the shareholders of a few businesses and dis-

tributed it to a selected few employees of those busi-

nesses even though the businesses had never agreed

5

to pay those moneys and even though the employees

had no contractual right to receive those moneys.

To uphold the constitutionality of the Minnesota

Pension Act could have an adverse effect upon em-

ployers nationwide, for it would allow states to man-

date retroactive payment of employment benefits that

employers have not anticipated or agreed to pay for

work already performed. Indeed, if states may so

cavalierly interfere with the employment relation-

ship, they could presumably retroactively reduce

wages or benefits below levels employers have agreed

to pay in support of the greater public welfare. Such

general disruptions of the employer-employee rela-

tionship constitute an unreasonable impairment of

employment contracts and, at least to the extent of

the application of the Minnesota Pension Act, should

be declared unconstitutional.

ARGUMENT

The Minnesota Private Pension Benefits Protection Act

Operated To Impair Contract Obligations In Violation

Of Article I, Section 10, Clause 1 Of The United States

Constitution

A. The Relevant Legal Principles

It is undisputed that the Minnesota Pension Act

operated in this case to expand the pension obliga-

tions of appellant Allied Structural Steel Company,

and thereby to impair Allied’s contract obligations.

The district court specifically found “that the Pension

Act impaired Allied’s employment agreement” (J.A.

A-73), and pointed out that “the State of Minnesota

seems to concede that there has been an impairment

6

of contract” (J.A. A-71). Nor did the state there-

after take issue with that point in the Motion to

Dismiss or Affirm the lower court’s decision which it

filed with this Court.

Article I, Section 10, clause 1 of the United States

Constitution (the “Contract Clause”) provides that

“No State shall ... pass any .. . Law impairing the

Obligation of Contracts ....” However, it is now

well-settled that this prohibition is not absolute and

that, in certain circumstances, state legislation which

modifies contract obligations may be constitutionally

sustained. El Paso v. Simmons, 379 U.S. 497 (1965)

(hereinafter “El Paso”); Home Building & Loan

Ass'n v. Blaisdell, 290 U.S. 398 (1934) (hereinafter

“Blaisdell” ). Indeed, to conclude otherwise would

mean that legitimate state regulations could be

avoided by parties merely entering into private con-

tracts. However, the Contract Clause is by no means

a nullity and any state statute impairing private con-

tracts must meet certain review standards. Thus, as

this Court recently stated in United States Trust Co.

v. New Jersey, 431 U.S. 1, 22 (1977) (hereinafter

“United States Trust”), as a minimum, any state .

law “intended to regulate existing contractual rela-

tionships must serve a legitimate public purpose,”

and also “must be upon reasonable conditions and

of a character appropriate to the public purpose jus-

tifying its adoption.” To be sure, courts must give

due deference “to legislative judgment as to the ne-

cessity and reasonableness of a particular measure.”

Id. at 22-23.° Yet, because “the Contract Clause

*In the United States Trust case, this Court held that in

assessing whether a subsequent modification of a state’s own

7 f

limits otherwise legitimate exercises of state legisla-

tive authority,” even “the existence of an important

public interest is not always sufficient to overcome

that limitation.” Jd. at 21.

In essence, then, this Court has stated that, in

order to withstand constitutional scrutiny, a state

statute impairing contracts must serve an important

puplic interest, and the impairment of private con-

t¥acts must be reasonable (i.e., as slight as is prac-

tical) and must be reasonably related to a fulfillment

of the public interest sought to be served.

This principle becomes more apparent when re-

viewed in light of this Court’s holdings in Blaisdell,

El Paso and United States Trust. In Blaisdell, this

Court upheld a state statute postponing mortgage

foreclosure sales and extending mortgage redemption

periods. Although the lender was unable to obtain

possession of the land, or to obtain or convey title in

fee, as he would have been able to do had the statute

not been enacted, the statute did not impair the

integrity of the mortgage indebtedness or the obliga-

tion for interest. 290 U.S. at 424-25. Moreover,

while the borrower remained in possession, he was

required to pay the rental value as that value had

financial obligations is reasonable and necessary to serve an

important public purpose, “complete deference to a legislative

assessment of reasonableness and necessity is not appropriate

because the State’s self-interest is at stake.” 431 U.S. at 25-26.

It does not follow from this, however, that “complete” defer-

ence to a legislative assessment of reasonableness and necessity

is appropriate when a state has impaired the obligation of a

private contract. To conclude otherwise and merely defer to

state legislatures would nullify the Contract Clause of the Con-

stitution as it relates to private contracts.

8

been determined by judicial hearing. Hence, while

the lender was debarred from actual possession—

although only for a limited time under the terms of

the statute—the Court found that, by virtue of the

rent to which he was entitled, he received “the equiva-

lent of possession during the extended period.” 290

U.S. at 425. In short, notwithstanding the temporary

postponement of the remedies available to the lender

to obtain the security on his loan, it does net-appear

that the statute in question caused him to suffer any

real substantive loss. Further, to the extent that any

harm befell the lender, he was compensated for that

loss by virtue of the statutorily mandated rental pay-

ments. In addition, the state statute in question was

enacted during the depths of the 1930s Depression

when economic stagnation and unemployment were

resulting in the foreclosure sale of homes at far below

the price that would have otherwise been reasonable.

Thus, the temporary suspension of a procedural con-

tractual obligation was supported by the public in-

terest which the statute fully served—i.e., relief to

homeowners caught in an economic depression. And,

at the same time, the statute only slightly im-

paired substantive contractual rights and obligations.

In El Paso, this Court upheld a Texas statute

which curtailed the previously unlimited right of a

purchaser who had bought and then forfeited state

land to reinstate his claim to such land by merely

paying the state the accrued interest due. Although

this represented a modification of the original sales

contract because the right to reinstatement no longer

continued into the indefinite future, the statute still

permitted reinstatement within five years after for-

feiture—a length of time which certainly seems ade-

9

quate and reasonable by any objective standard.

More important, with respect to any loss suffered

by the purchaser, the Court simply refused to “be-

lieve that it can seriously be contended that the

buyer was substantially induced to enter into these

contracts [for the purchase of land from the state]

on the basis of a defeasible right to reinstatement in

case of his failure to perform, or that he interpreted

the right to be of everlasting effect.” 379 U.S. at

514. Further, the state statute was passed against

a history of land sale abuses which the state had a

legitimate right to correct and which the statute did

in fact correct.

In United States Trust, this Court applied the

same principles, and held invalid a New Jersey

statute which repealed an earlier statutory covenant

to Port Authority bondholders that had limited the

ability of the Port Authority to subsidize Bil pas-

senger transportation from its revenues and reserves.

The statutory covenant had been enacted to provide

further. security to Authority bondholders, and thus

to ensure the bonds’ marketability. 431 U.S. at 9-10.

Faced with the developing energy -risis in 1974,

however, the state retroactively repealed the covenant

in order to implement the state’s plan for encourag-

ing a shift of automobile users to public transporta-

tion. Jd. at 29.

Analyzing this retroactive repeal in the context of

an allegation that the repeal violated the Contract

Clause, this Court stated that “[a]s with laws im-

pairing the obligation of private contracts, an im-

pairment may be constitutional if it is reasonable

and necessary to serve an important public purpose.”

10

id. at 25. While finding that the state’s goals of mass

transportation, energy conservation and environmen-

tal protection were “important and of legitimate pub-

lie concern” (id, at 28), the Court concluded that

the repeal “was neither necessary to achievement of

the plan nor reasonable in light of the circumstances.”

Id, at 29.

Thus, applying the principles noted above, this

Court found that New Jersey had not established the

necessity of its action because less drastic measures

could have been employed to accomplish the desired

public purposes. /d. at 29-30. Further, this Court

found that the repeal of the covenant was not a rea-

sonable impairment of the contract between the state

and the bondholders. Thus, even though the Court

could not determine how much financial loss, if any,

the bondholders suffered by the repeal (id. at 18-19),

the Court concluded that the bondholders bought their

bonds with the reasonable expectation that the state

would not undercut the promised security embodied

in the covenant. Even then, the repeal of the cov-

enant might have been reasonable if circumstances

had changed to the extent that the bondholders might

have otherwise realized a windfall profit or a far

more secure loan than they had originally anticipated,

and the repeal of the covenant had thus merely re-

turned them to the position they originally expected

when they bought the bonds. /d. at 31-32. But the

facts revealed no such changed circumstances, so

that the repeal of the covenant simply eliminated the

expected position of security. Accordingly, for the

state to impair that security, even in furtherance of

an important public purpose, was not reasonable and

presented a situation far different from that involved

ey

11

in the El Paso case where, in light of changed cir-

cumstances, the Texas statute was “a reasonable

means to ‘restrict a party to those gains reasonably

to be expected from the contract’ when it was

adopted.” Jd. at 31, quoting El Paso, supra, 379

U.S. at 515.

Finally, in judging the reasonableness of a state

statute’s impairment of contractual obligaticns, it is

relevant to analyze whether that statute imposes a

retroactive or prospective alteration of the contract

and, as in Blaisdell, whether the rights being altered

are substantive or procedural in nature. Thus, as

the First Circuit pointed out in a case which predated

but is consistent with this Court’s decision in United

States Trust, “[a]ll courts recognize . . . that retro-

spective legislation, affecting established rights and

relationships, presents an additional problem.” For-

naris v. Ridge Tool Co., 423 F.2d 563, 566 (1st Cir.

1970), rev'd per curiam on other grounds, 400 U.S.

41 (1970). For instance, “[w)hile the legislature

may prevent an employee willing to contract to work

for a low wage from doing so, West Coast Hotel Co.

v. Parrish, 1937, 300 U.S. 379 . . ., the retrospective

imposition of a minimum wage would be quite a dif-

ferent matter.” Jd. In short, “‘[p]olice power’ is

not a magic word that permits the legislature to ad-

just any and every found economic ill without pay-

ment.” Jd. at 567. Rather,

only minor infringement of established contrac-

tual rights may be effected without just com-

pensation. .. .

In determining whether retroactive altera-

tion of contractual provisions are sufficiently

12

minor to be permissible a distinction is some-

times drawn between alteration of substantive

rights and alteration of procedures or remedies.

See Stockholders of Peoples Banking Co. of

Smithsberg, Md. v. Sterling, 1937, 300 U.S. 175,

180-183, 57 S.Ct. 386, 81 L.Ed. 586 (alternative

holding). However, even the latter may infringe

constitutional rights, . . . W.B. Worthen Co. ex

rel. Street Improv. Dist. v. Kavanaugh, 1935,

295 U.S. 56, 55 S.Ct. 555, 79 L.Ed. 1298, while

the former can sometimes be tolerated if the

effect is not too severe. E] Paso v. Simmons,

1965, 379 U.S. 497, 503-508, 85 S.Ct. 577, 13

L.Ed.2d 446. Essentially, the question is, how

drastically have property rights been affected,

. and, particularly, how great is the change viewed

in the light ofthe reasonable expectations of the

parties when the contract was entered into. See

El Paso v. Simmons, supra; Home Bldg. & Loan

Ass'n v. Blaisdell, 1934, 290 U.S. 398, 54 S.Ct.

231, 78 L.Ed. 413. The distinction is one of

degree. For example, emergency statutes allow-

ing a tenant to stay beyond the term of his lease

upon payment of reasonable rent have been up-

held as reasonable alterations, Block v. Hirsch,

1921, 256 U.S. 135, 41 S.Ct. 458, 65 L.Ed. 865,

.. Whereas a statute which would have destroyed

a mining company’s reserved right to mine coal

underneath land, the balance of which had been

sold by it, has been invalidated as working a

change of too great magnitude. Pennsylvania

Coal Co. v. Mahon, 1922, 260 U.S. 393, 43 S.Ct.

158, 67 L.Ed. 322. (/d.)

13

Applying this analysis, the First Circuit invali-

dated * a statute which would have imposed substan-

tial monetary liability upon a franchisor who termi-

nated his franchising contract without “just cause,”

irrespective of the franchisor’s right to terminate the

relationship at will under the terms of his preexist-

ing franchise agreement.

Thus, in summary, the courts have determined

whether a state statute impairing contracts is viola-

tive of the Constitution by comparing the extent of

contract impairment (including its retroactive or

prospective effect, the extent of interference with

legitimate expectations of contracting parties and

whether the impairment is procedural or substantive )

against the extent to which the state’s action serves

an important public interest and the extent to which

that interest could be served by measures having a

less drastic effect on contract obligations.

* Because Fornaris was concerned with an enactment of the

legislature of Puerto Rico and because it was unclear in the

circumstances whether Puerto Rico could be deemed a state for

purposes of Article I, Section 10, the Court analyzed the case

in terms of due process. Nonetheless, as the Court's opinion

makes clear, its reasoning was based upon contract impair-

ment cases and would have been precisely the same under

Article I, Section 10 if the legislation under review had been

that of a state rather than Puerto Rico. In any event, a state

statute impairing the obligation of contract in a manner suffi-

ciently harsh and oppressive to violate the Fourteenth Amend-

ment’s Due Process Clause would a fortiori be deemed to like-

wise violate Article I, Section 10, under this Court's prior

decisions. Fornaris, supra, 423 F.2d at 566-67, citing Thorpe

v. Housing Authority, 398 U.S. 268, 278-79 and Lynch V.

United States, 292 U.S. 571, 579 (1984).

\

14

Indeed, the district court below paid lip service

to the foregoing principles. It recognized that a

major consideration “in determining the constitution-

ality of a particular [contract| impairment is the

extent of that impairment” (J.A. A-70). And it

agreed “that a factor to be considered in determin-

ing the extent of impairment is the legitimate expec-

tations of the contracting parties.” /d. It also ac-

knowledged “that an impairment can be sustained

only if reasonable and necessary to serve important

purposés of the state” (J.A. A-71). As we show

below, however, the court thereafter refused to apply

the principles in any meaningful way. Had it done

so, it could not have avoided finding on the undis-

puted record that the impairment here was substan-

tial, for the Minnesota Pension Act retroactively

interfered with major substantive contractual obliga-

tions and significantly frustrated the expectations of

the parties. Further, proper analysis would have

revealed to the district court that the Minnesota

Pension Act was essentially special interest legisla-

tion for parochial interests which was neither neces-

sary to serve important state purposes nor reasonably

related to serving state interests.’

’ The result below cannot simply be explained away on the

basis of a differing appraisal of the evidence which this Court,

although it might disagree, would be reluctant to disturb.

Rather, the district court’s treatment of the relevant principles

serves seriously to distort those principles—so much so as to

suggest that the Contract Clause limitation on state power is

illusory. As Was pointed out in United States Trust, supra,

431 U.S. at 16, even those “modern era” decisions sustaining

state regulation against Article I, Section 10 contract impair-

ment claims—i.e., Blaisdell and El Paso—carefully avoided

such an extreme holding.

16

B. Application of the Relevant Legal Principles to the

Facts of the Instant Case

A correct application of the above legal principles

to the instant case requires a finding that the Minne-

sota Pension Act impermissibly impairs contractual

obligations. We deal first with the extent of impair-

ment and then the lack of reasonable relationships

between the legislation creating that impairment and

the public interest it seeks to serve.

1, The Extent of the Impairment. Here, the em-

ployer, Allied Structural Steel, established a pension

plan in 1963 (J.A. A-39) which provided that

a salaried employee is entitled to full vesting

of his pension for early retirement purposes if:

(1) he has worked fifteen continuous years and

has attained the age of 60; or (2) after he has

attained the age of 55 and has worked 20 con-

tinuous years, or a lesser number of continuous

years of service, which when added to his age

equals the sum of 75; or (3) before reaching

age 55, he has at least 25 or more years of con-

tinuous service such that the sum of his age and

continuous years of service equal 80. (J.A. A-

40).

The plan, to which employees were not permitted to

contribute, provided with respect to the employer's

contributions:

The employers shall make conteljulins in such

amounts and at such times as an actuary shall

determine, as shall be necessary to meet the bene-

fits payable pursuant to the Plan. All contribu-

tions made by the employers to the Trust shall

be irrevocable and shall be used to pay benefits

16

under the Plan or to pay expenses of the Plan

or Trust, to the extent not paid by the employers,

(Appellant’s Brief, App. 10a)

The plan further provided that the Company “may

terminate the Plan at any time and may direct and

require the trustee to liquidate the Trust.” In such

event, “the rights of all employees accrued to the date

of such termination or discontinuance to the extent

then funded shall be non-forfeitable and fully vested”

(Appellant’s Brief, App. 13a). Further, the accumu-

lated assets of the pension trust fund would be ap-

plied, first, for the benefit of employees then receiv-

ing pensions; second, for the benefit of employees

who are then eligible to retire; and, lastly, if any

balance remained, for the benefit of all other em-

ployees covered under the plan (Appellant’s Brief,

App. 13a-l4a). The plan recognized the possibility

that the trust fund’s assets might not be sufficient

to meet the “equivalent actuarial value of each such

employee's pension” in all three, or two, or even one,

of the above groups and provided for “pro rata reduc-

tion” (Appellant’s Brief, App. 13a-l4a). The plan

further explicitly specified :

No employee shall have any right to, or interest

in, any part of the Trust’s assets upon termina-

tion of his employment or otherwise, except as

provided from time to time under this Plan, and

then only to the extent of the benefits payable

to such employee out of the assets of the Trust.

All payments of benefits as provided for in this

Plan shall be made solely out of the assets of the

Trust and neither the employer, the trustee, nor

any member of the Committee shall be liable

-therefor in any manner. (Appellant’s Brief,

~sApp. 17a)

i*

17

In sum, the Allied pension plan was an agreement

between Allied and its employees which set forth

certain limited pension rights of employees and com-

mitted Allied to no payment or liability beyond

contribution levels necessary to fund those limited

benefits.

However, in 1974 the state of Minnesota enacted

the Min Pension Act which required any em-

ployer within that state who employed 100 or more

employees, and who provided pension benefits, to fund

vested pension benefits for its employees with ten

years or more seniority if the employer terminated

his business or pension plan.

When Allied began to terminate its Minnesota

operation in 1974, “there were i cient assets in

the pension fund to pay the inated employees

after paying all employees who had vested rights

under the plan” (J.A. A-68). As shown above, under

the terms of the plan Allied would have had no fur-

ther obligation to those employees. Yet, under the

Minnesota Pension Act, Allied’s contractual obliga-

tion under the plan was expanded to require it to

purchase prepaid deferred annuities for,all termi-

nated employees with ten or more years Of service at

an additional cost ranging from $11¥,171.93 to

$185,751.00. Thus, the impairment here was clearly

substantive, for unlike the situation in Blaisdell,

which merely deferred procedural rights, Allied is be-

ing required to pay sums it never agreed to pay to

its employees.

This was a cost which Allied neither agreed to

undertake nor could have reasonably anticipated be-

ing required to undertake when it established its plan

18

and during the period it continued to maintain that

plan from 1963 to 1974. On the contrary, Allied was

fully justified in believing it could rely on the terms

of the plan to protect itself from such liability. For

the plan itself not only expressly recognized the pos-

sibility of termination, but also expressly provided

for distribution of the trust fund assets in that event,

fully taking into account the possibility that those

assets might be insufficient to provide “equivalent

actuarial value” benefits for emplo who had al-

ready retired, for those who were then eligible to

retire, and then for all other employees. Moreover,

although the plan obliged the employer to make “‘con-

tributions in. such amounts and at such times as an

actuary shall determine,” there was no requirement

that the actuarial assumptions take into account the

possibility of a plant closure, and, in fact, “the pos-

sibility of plant closure was not relied upon by the

. . . actuaries in calculating plan contributions”

(J.A..A-73; accord, J.A. A-68).

Nor vould Allied’s employees have had any reason-

able expectation that their employment with Allied

would produce pension benefits beyond those estab-

ished by their pension plan. They might have “hoped”

that they would ultimately receive a pension, but no

state legislature may convert mere “hopes” into legiti-

mate expectations, particularly where to do so would

retroactively force one of the contracting parties

(Allied) “into heavy contractual obligations that it

never assumed.” Fornaris, supra, 423 F.2d at 567.

See also Superior Motors, Inc. v. Winnebago Indus-

tries, Inc., 359 F. Supp. 773 (D.S.C. 1973); Globe

19

Liquor Co. v. Four Roses Distillers Co., 281 A.2d 19

(Del. 1971), cert. denied, 404 U.S. 873 (1971).

Indeed, by giving Allied’s employees pension bene-

fits which they would not have received under the

terms of Allied’s p sion plan, the Minnesota Pension

Act produced a wi.dfall for those employees that

they could not have anticipated. To sustain a statute

providing such a windfall benefit at the expense of

the employer would surely be incongruous in light of

earlier Contract Clause cases decided by this Court

permitting states to enact legislation which elimi-

nated windfall benefits notwithstanding that such

legislation impaired existing contracts. United States

Trust, 431 U.S. at 31, n. 30.

Moreover, the costs which the Minnesota Pension

Act imposed on Allied were retroactive costs—that is,

they represented payments above and beyond what

Allied agreed to pay its employees in exchange for

work previously performed. As the district court

observed, “[e]mployer contributions to pension funds

must be recognized as a substitute for present com-

pensation” (J.A. A-77). The Minnesota Act was

enacted on April 10, 1974, and Allied began phasing

out its Minnesota operation several months there-

after. Hence, the additional liability imposed on

Allied as a result of the Act was almost entirely

attributable to service performed by Allied employees

* Cf. Louisville Joint Stock Land Bank v. Radford, 295 U.S. —

555 (1935) where, using a due process analysis, the Court.

invalidated a federal statute which, in effect, permitted a de-

faulting mortgager to redeem the property by paying the

mortgagee at the appraised value of the land, which was less

than half the face amount of the mortgage.

prior to the Act’s effective date. For such past serv-

ice, the Minnesota statute mandated for those em-

ployees with ten or more years of service whose

pension benefits had not yet vested additional com-

pensation in the form of pension benefits to which

they were not entitled under the established pension

plan. This, we submit, is virtually indistinguishable

from “the retrospective imposition of a minimum

wage” which the First Circuit in Fornaris, supra,

pointed to as an obvious example of improper retro-

spective legislation.

Where a state statute has altered existing contrac-

tual arrangements to impose a substantial and unex-

pected retroactive financial burden upon one of the

parties, as the Minnesota Pension Act does here

upon Allied, courts have found such legislation viola-

tive of the Contract Clause. Thus, in Standard Oil

Co. of Louisiana v. Porterie, 12 F. Supp. 100 (E.D.

La. 1935), a three-judge court held that a state

statute which required employers “to contribute large

additional sums of money to the payment of pensions

and annuities based upon services long since com-

pleted and fully paid for” violated not only the Con-

tract Clause, but the Due Process Clause of the

Fourteenth Amendment as well. 12 F. Supp. at 104."

*In Railroad Retirement Board v. Alton R. Co., 295 U.S.

330 (1935), this Court invalidated on Fifth Amendment due

process grounds a federal statute establishing a compulsory

retirement pension system which was held to place unjustified

burdens on the carriers:

The statute would take from the railroads’ future earnings

amounts to be paid for services fully compensated when

rendered in accordance with contract, with no thought on

the part of either employer or employee that further sums

21

In sum, what the state of Minnesota has done with

its retroactive imposition of massive new substantive

requirements upon employment and pension contracts

is to take between $114,000 and $185,000 from the

shareholders of Allied and to give that money to

selected ex-employees of Allied. And the state has not

done this because Allied or its sharehoders acted im-

properly or otherwise caused harm which might

justify a compensatory remedy. Indeed, the basic

reason Allied’s shareholders: must bear this burden

now is ause their corporation was “foolhardy”

enough to provide conditional pension coverage for

employees in 1963. ,

‘Although it is fashionable today to view corpora-

tions like Allied as faceless entities with unlimited

assets who can well afford the additional costs of

providing pensicn or other benefits that a state like

Minnesota may mandate, that view, even if true, can

must be provided by the carrier. The provision is not only

retroactive in that it resurrects for new burdens transac-

tions long since past and closed; but as to some of the

railroad companies it constjtutes a naked appropriation of

private property upon th is of transactions with which -»

the owners of the pro were never connected. Thus

the Act denies due process of law by taking the property

of one and bestowing it upon another. This onerous finan-

cial burden cannot be justified upon the plea that it is in

the interest of economy, or will promote efficiency or

safety. (295 U.S. at 349-50).

Further, in W. B. Worthen Co. v. Kavanaugh, 295 U.S. 56

(1935), decided shortly after Blaisdell, this Court invalidated

a state statute which altered the rights of creditors to such an

extent that the creditors were effectively without a remedy for

six and one-half years, during which period the creditors’

right to receive principal and interest was suspended.

be no basis for upholding the Minnesota Pension Act

which so blatantly adds retroactive substantive con-

tractual obligations. Indeed, most of this Court’s

Contract Clause cases have involved corporate parties.

Further, of course, the popular view is not accurate,

for all corporations are owned by the shareholders

who have purchased their shares with the hope of

dividends and appreciation, both of which are ad-

versely affected by mandated retroactive costs created

by statutes such as the Minnesota Pension Act. If

those shareholders include retired workers who are

relying upon dividends to finance their retirement,

or pension trusts which rely upon dividends as a means

of financing the retirement income of retirees, then

the state of Minnesota may have effectively taken

money from a retiree within its state and transferred

it to another resident.

In short, it is difficult to imagine a more blatant

infringement of contract than that embodied in the

Minnesota Pension Act.

2. The “Public Interest” Served. In view of the sub-

stantial retroactive impact of the Minnesota Pension

Act, and in view also of the decided cases dealing with

the Contract Clause and with due process, it is diffi-

cult to conceive of any set of circumstances under

which that Act could be constitutionally sustained on

the basis of an important public interest. Plainly,

such circumstances do not exist here.

Thus, unaided by any statements or findings of the

Minnesota legislature, the district court set forth

what it assumed were the public purposes to be

served by the Minnesota Pension Act.*

Thus, the court assumed that the Minnesota Pen-

sion Act was the result of a strong interest of the

state in protecting the economic welfare of its senior

citizens from forfeitures of anticipated retirement in-

come (J.A. A-76). It further assumed that, in enact-

ing this legislation, the state had a pone concern

for the economic community in which retired persons

lived and that the state could assist that economy by

providing retirement income which would sustain the

buying power of the residents and reduce demands

for welfare assistance (/d.).° These assumptions,

however, are not justified by the facts.

For, clearly, the state could not have been interested

in the economic plight of retired persons in general

_ ® The district court cites no statement or finding of the legis-

lature to support what the court assumed to be the public pur-

pose to be served by the Minnesota Pension Act, and the state

seems to concede that no such statements or findings exist

(Appellee’s Motion to Dismiss or Affirm, 12-14).

® The court also concluded that an employer’s offer of pension

coverage takes the place of higher salaries. It is not clear

what this has to do with any public purpose to be served by the

Minnesota Pension Act, but it may be that the court was con-

cerned that lower salaries had adverse effects upon the general

economy of the worker’s community, so that the state had a

legitimate interest in enacting legislation to ensure that the

money that was contributed to pensions would finally find its

way back into the community in the form of pension benefits

(J.A. A-77). Without taking issue with the court’s unsup-

ported conclusions, it appears that this public interest is the

same as that discussed above—an interest in the economic

well-being of the general community.

24

or the communities in which they lived, as the

statute was directed at an exceedingly small por-

tion of the state’s population. Thus, to gain the bene-

fit of the statute an-employee would have to be em-

ployed by a Minnesota employer who employed 100 or

more employees, who had voluntarily established a pen-

sion plan, and who terminated his plan or business

between April 10, 1974 (the effective date of the

Minnesota Pension Act (J.A. A-95 to A-97)) and

January 1, 1975 (the effective date of ERISA and

the terminal date of the Minnesota Pension Act

(J.A. A-67, J.A. A-68))."° Further, the employee

would have to have worked for ten years for his

employer." In addition, the legislature seemed to give

*° Section 181B.17 of the Minnesota Pension Act provided

that the latter “shall become null and void upon the institution

of a mandatory plan of termination insurance guaranteeing

the payment of a substantial portion of an employee’s vested

pension benefits pursuant to any law of the United States”

(J.A. A-102). The court below certified to the Minnesota

Supreme Court the question: “Upon what date did the Minne-

sota Private Pension Benefits Protection Act, Minn. Stat.

§ 181B.01 et seq. (1974) ... become null and void pursuant to

Minn. Stat. § 181B.17?” (J.A. A-66). Pursuant to that certifi-

cation, “the Minnesota Supreme Court held that the [Minne-

sota] Pension Act continued in effect until January 1, 1975,

when the provisions of ERISA [Employee Retirement Income

Security Act of 1974, 29 U.S.C. § 1001, et seq.] preempted the

State act and that this preemption preserved the pending

causes of action. In other words, the terms of the [ Minnesota]

Pension Act were in force and applicable to the eleven em-

ployees terminated by Allied on July 31, 1974” (J.A. A-68).

“' It appears also that the Minnesota Pension Act’s coverage

may be still further restricted by judicial decision to nonunion

employers. Thus, in White Motor Corp. v. Malone, 545 F.2d

599 (1976), the Eighth Circuit held that the Minnesota Pen-

ON

25

no consideration whatever to the retired shareholders

of companies like Allied whose expectation of divi-

dends needed for retirement may have been thwarted

by the liability imposed by the Minnesota Pension

Act (see supra p. 22).

If one is left to assume what the Minnesota leg-

islature had in mind (as we must here because the

legislature did not state its purpose), it is far more

reasonable to assume that the legislature was enact-

ing private legislation, tailored simply to provide

pensions to a few residents of its state. That the

Minnesota Pension Act is parochial special interest

legislation can hardly be doubted considering that it

was of such short duration, -that it was limited to

employers with 100 or more employees (J.A. A-90),

that it was passed with full awareness of the forth-

coming enactment of ERISA, and that it actually

operated to cover relatively few employees.

Even if some public interest) was to be served by /

the Minnesota Pension Act, it/cannot withstand con- \_

stitutional scrutiny under-the Contract Clause. Its

substantial interference with private contracts could

be justified, if at all, by only the most compelling

public interest, such as a broad based emergency situ-

atien. But no such emergency or other compelling

public interest exists. There is no deep-rooted eco-

nomic and social problem such as that created by

sion Act was preempted by the national labor policy embodied

in the National Labor Relations Act, 29 U.S.C. § 151, et segq.,

at least insofar as the Minnesota Pension Act applies to em-

ployers whose employees are represented by a union and who

engage in collective bargaining. The Eighth Circuit’s decision

is now under review by this Court (No. 76-1184).

26

the Depression of the 1930s. which justified the tem-

porary emergency legislation sustained in- Blaisdell.

Nor do we have, as in El Paso, the Texas size “im-

broglio” or “uncertainty of-land titles, the massive

litigation to which this gave rise, and the pattern of

sale and forfeiture [which] were quite costly to the

school fund and to the development of land use.” 379

U.S. at 515-16. There are not present even the kind

of broad and complex regional problems«relating to

“mass transportation, energy conservation, and en-

vironmental protection” «(431 U.S. at_28) advanced

in support of the state legislation in United States

Trust, but regarded by this Court as insufficient to

justify the contract impairment reviewed in that case.

The Minnesota Pension Act was not enacted to deal

with any problem of general state-wide importance

affecting large numbers of Minnesota’s citizens. It

was not the result of extensive legislative investiga-

tion on matters of considerable scope and concern.

Rather, as the district court found, “[i]t seems clear

that the problem of plant closure and pension plan

termination was brought to the attention of the

Minnesota legislature when the Minneapolis-Moline

Division of White Motor Corporation closed one of its

Minnesota plants and attempted to terminate its pen-

sion plan” (J.A. A-79). And as that finding makes

clear, the statute was enacted to assist a few private

individuals, not in furtherance of any overwhelming

and important public purpose.

In these circumstances, even “considerable defer.

ence to the policy judgments of the Minnesota legis-

lature” (J.A. A-75) cannot suffice to sustain the con-

clusion reached by the court below “that the Minne-

sota legislature in enacting the Pension Act, was

at ere

27

addressing a problem of vital public interest” (J.A.

A-78).

_ Further, even if the legislature had sought in the

public interest to pretect the retirement hopes of

employees and the economy of a few local communi-

ties, and even if that public interest might be suffi-

cient to justify some impairment of contract, it is

clear that enactment of the Minnesota Pension Act

constitutes a far more drastic impairment of private

contracts than is reasonably necessary to serve those

public interests. Thus, other actions by the legisla-

ture might have had the desired effect, such as a state

law mandating prospective employer or taxpayer

contributions to a fund to insure the benefits of em-

ployees who did not receive pensions despite ten

years’, employment. Alternatively, those relatively

few employees who were the object of legislative

concern could have been compensated out of the gen-

eral state treasury. Significantly, even the district

court‘ conceded that “the legislature might have

adopted a less drastic means to accomplish its pur-

pose” than the provisions of the Minnesota Pension

Act (J.A. A-79).

CONCLUSION

The Minnesota Pension Act has effected a substan-

tial impairment of contract obligations; it was neither

reasonable nor necessary to serve any vital public

purposes; and alternate, less drastic means were

available, in any event, to alleviate the perceived

problem. Of course, it may have heen politically more

facile for thie Minnesota legislature to simply rewrite

the preexisting pension arrangements Allied and

other employers had with their employees, and to

impose thereby a major retroactive liability on these

corporations. But that is precisely what the Contract

Clause in Article I, Section 10 was designed to

prevent.

Accordingly, it is respectfully submitted that the

Minnesota Private Pension Benefit Protection Act

constitutes an unconstitutional impairment of private

contracts and that this Court should reverse the judg-

ment of the district court and direct it to enjoin

enforcement of that Act.

Respectfully submitted,

PETER G. NASH

EUGENE B. GRANOF

DIXIE L. ATWATER

VEDDER, PRICE, KAUFMAN,

KAMMHOLZ & Day

1750 Pennsylvania Ave., N.W.

Washington, D.C. 20006

Counsel for the

Chamber of Commerce of the

United States of America,

amicus curiae

Of Counsel:

STANLEY T. KALECZYC

National Chamber

Litigation Center

' 1615 H Street, N.W.

Washington, D.C. 20062