Amicus Curiae Brief — General Motors Corp. v. Romein

Supreme Court brief1991

Ask Donna

What actually matters in this document.

Text

dune Cour OS &

FILED

o JUL 11 1991

No. 90-1390 —

IN THE big

Supreme Court of the United States

OcTOBER TERM, 1991

GENERAL MOTORS CORPORATION, Petitioner

EVERT ROMEIN, ET AL., Respondents

FORD MOTOR COMPANY, Petitioner

ARTURO GONZALEZ, ET AL., Respondents

On Writ Of Certiorari

To The Supreme Court Of Michigan

BRIEF FOR THE MOTOR VEHICLE

MANUFACTURERS ASSOCIATION OF THE

UNITED STATES, INC., AND

THE MICHIGAN MANUFACTURERS ASSOCIATION

AS AMICI CURIAE SUPPORTING PETITIONERS

WILLIAM H. CRABTREE DAVID A. STRAUSS

Vice President and General Counsel Counsel of Record

Motor Vehicle Manufacturers 1111 East 60th Street

Association of the United States, Inc. Chicago, Illinois 60637

7430 Second Avenue (312) 702-9601

Suite 300

DWIGHT H. VINCENT

J. WALKER HENRY

RACHELLE G. SILBERBERG

Clark, Klein & Beaumont

1600 First Federal Building

Detroit, Michigan 48226

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

QUESTION PRESENTED

Amici will address the following question:

Whether the Contract Clause of the Constitution should

be interpreted according to its literal terms, as a strict

prohibition against legislation impairing the obligation of

contracts.

TABLE OF CONTENTS

PAGE

QUESTION PRESENTED .................6. i

INTEREST OF THE AMICI CURIAE ....... 1

SUMMARY OF ARGUMENT ................ 2

. „ V „ 5

THE CONTRACT CLAUSE SHOULD BE IN-

TERPRETED TO PROHIBIT LEGISLATION

THAT IMPAIRS CONTRACTUAL OBLIGA-

TIONS IN ALL BUT THE MOST COMPEL-

LING CIRCUMSTAN CEB. 5

A. The Language And Structure Of The

Constitution Require That The Contract

Clause Be Interpreted As A Strict Pro-

hibition Against Impairing The Obliga-

tions Of Contracts 5

B. The History Of The Drafting Of The Con-

tract Clause Confirms That The Framers

Intended The Clause To Be A Strict Pro-

.. eee see eee 12

C. The Evolution Of Contract Clause Doc-

trine Shows That The Current Interpreta-

tion Is Unwarranted ...............-- 17

CONCLUSION .ncccccccccccccsccvccsscsessess 24

TABLE OF AUTHORITIES

Cases: PAGE

Adkins v. Children’s Hospital, 261 U.S. 525 (1923) 22

Allgeyer v. Louisiana, 165 U.S. 578 (1897) 18

Allied Structural Steel Co. v. Spannaus, 438 U.S.

re eee 6, 8, 12, 13, 19

Barron v. Mayor & City Council of Baltimore, 32

Boe GE Bed Be CURD cc ccccccccccccccces 9

Califano v. Goldfarb, 430 U.S. 199 (1977) ...... 17

9 Bd. of Realtors v. City of Chicago, 819

Z EE, ED ccccccccccccccceces 10

Coppage v. Kansas, 236 U.S. 1 (1915) ........ 18

East New York Bank v. Hahn, 326 U.S. 230 (1945) 22

Energy Reserves Group, Inc. v. Kansas Power &

Light Co., 459 U.S. 400 (1983) ............ 7, 8, 17

Exxon Corp. v. Eagerton, 462 U.S. 176 (1983) 5

Gelfert v. National City Bank, 313 U.S. 221 (1941) .. 22

Home Building & Loan Ass’n v. Blaisdell, 290

Ce 19, 20, 21, 22

Keystone Bituminous Coal Ass’n v. DeBenedictis,

Ge Es GU ED cc ccccccccccccccces 8, 9, 10, 17

Lochner v. New York, 198 U.S. 45 (1905) ..... 7, 18, 22

Louisville Joint Stock Land Bank v. Radford, 295

r itd pon deseeeescceoceesccecs 21

Miller v. Florida, 482 U.S. 423 (1987) ........ 10

Minneapolis Star & Tribune Co. v. Minnesota

Comm of Revenue, 460 U.S. 575 (1983) 17

New York Times Co. v. United States, 403 U.S.

713 (1971) ...... eee ce. 20

Ogden v. Saunders, 25 U.S. (12 Wheat.) 213 (1827) 23

Stone v. Mississippi, 101 U.S. 814 (1880) ..... 5

Treigle v. Acme Homestead Ass’n, 297 U.S. 189

K——)—5 . 21

United States v. Lovett, 328 U.S. 303 (19460) 10

United States Trust Co. v. New Jersey, 431 U.S. 1

GE daa vhedicsndstencagceesess 6, 8, 17, 18, 19, 22

Vanhorne’s Lessee v. Dorrance, 2 U.S. (2 Dall.) 304

ne. eee ese tees ee 13

Veix v. Sixth Ward Bldg. & Loan Ass u, 310 U.S.

„ 7, 22

WB. Worthen Co. v. Kavanaugh, 295 U.S. 56

„„ 21

W. B. Worthen Co. v. Thomas, 292 U.S. 426 (1934) 21

Wood v. Lovett, 313 U.S. 362 (1941) .......... 21

Constitutional Provisions:

U.S. Constitution,

Be ID . esse 10

Article I, $10, Clause 1 ................. passim

Article I, $10, Clause s cccccccees 10

Miscellaneous:

E. Corwin, The Constitution and What It Means

Today (H. Chase & C. Ducat eds. 1973) . 12

4 Debates in the Several State Conventions on the

of the Federal Constitution (J. Elliott

eee 13

The Federalist (C. Rossiter ed. 1961) .... 12, 13, 16, 17

Hale, The Supreme Court and the Contract Clause:

III. 57 Harv. L. Rev. 852 (1944) .......... 12

E. Johnson, The Foundations of American Eco-

NEED eee ses esse 12

Katz, Thomas Jefferson and the Right to

in Revolutionary America, 19 J. Law & Econ.

GE aetna enebbecacdebcacecses 12

Kmiec & McGinnis, The Contract Clause: A Return

to the Original Understanding, 14 Hastings

4 Sccccencececcecesee: 11

H. Maine, Popular Government (18860) 19

McConnell, Contract Rights and Property Rights:

A Case Study in the Relationship Between In-

dividual Liberties and Constitutional Structure,

76 Calif. L. Rev. 267 (1988) ............... 12, 13

Merrill, Public Contracts, Private Contracts, and

the Trans of the Constitutional Order,

37 Case W. Res. L. Rev. 597 (1987) ....... 11

J. Nedelsky, Private Property and the Limits of

American Constitutionalism (1990) ......... 12

Note, A Process-Oriented A to the Contract

Clause, 89 Yale L.J. 1 . 11

Records of the Federal Convention of 1787 (Far-

eee esse 14, 15, 16

B. Schwartz, A Commentary on the Constitution of

the United States (19650): 11

Schwartz, Old Wine in Old Bottles? The Renais-

sance of the Contract Clause, 1979 Sup. Ct.

sees sede 12, 19

B. Wright, The Contract Clause of the Constitution

K4«ͤ . 13, 14, 15, 19

5 The Writings of James Madison (G. Hunt ed.

nee sees 13

No. 90-1390

IN THE

Supreme Court of the United States

OcTOBER TERM, 1991

GENERAL MOTORS CORPORATION, Petitioner

EVERT ROMEIN, ET AL., Respondents

FORD MOTOR COMPANY, Petitioner

ARTURO GONZALEZ, ET AL., Respondents

On Writ Of Certiorari

To The Supreme Court Of Michigan

BRIEF FOR THE MOTOR VEHICLE

MANUFACTURERS ASSOCIATION OF THE

UNITED STATES, INC., AND

THE MICHIGAN MANUFACTURERS ASSOCIATION

AS AMICI CURIAE SUPPORTING PETITIONERS

INTEREST OF THE AMICI CURIAE

The Motor Vehicle Manufacturers Association of the

United States, Inc., (MVMA) is a nonprofit membership

association composed of companies engaged in the manu-

facture of motor vehicles in the United States. The mem-

bers of MVMA are Chrysler Corporation, Ford Motor

Company, General Motors Corporation, Honda of America

Manufacturing, Inc., Navistar International Transportation

Corp., PACCAR, Inc., and Volvo North America Corpo-

ration. The Michigan Manufacturers Association (MMA)

afin

is an association composed of 2,665 private Michigan em-

ployers. It is organized to study matters of general inter-

est to its members, to promote the interests of Michigan

employers and of the public generally in the proper ad-

ministration of laws relating to its members, and other-

wise to promote the general business and economic wel-

fare of the State of Michigan. Both MVMA and MMA

have often represented the interests of their member com-

panies in administrative and judicial proceedings.

This case presents important questions concerning the

power of state governments retroactively to alter the

obligations of employment contracts and, by extension, all

contracts. MVMA’s member companies employ over 715,000

workers in the United States. MMA’s members employ

over 1,000,000 workers in a variety of industries. Amici

therefore have a strong interest not only in the outcome

of this case but in the effect that the Court’s decision in

this case will have on the future development of the law

governing states’ power retroactively to impair contrac-

tual obligations.!

SUMMARY OF ARGUMENT

A. As currently interpreted, the Contract Clause im-

poses only limited restraints on state governments. Michi-

gan’s 1987 amendment to its workers’ compensation laws

is irreconcilable even with the current Contract Clause

standards; indeed, the 1987 amendment is in many respects

a core example of a violation of the Contract Clause. This

case, however, also furnishes the Court an opportunity

Letters from the parties consenting to the filing of this brief

have been filed with the Clerk.

to establish that current Contract Clause standards have

eroded too far, and that the Clause should be interpreted

more strietly, according to its language and the original

understanding.

The language of the Contract Clause is unequivocal:

“{njo State shall . . . pass any . . . Law impairing the

Obligation of Contracts.” The Contract Clause appears in

the provision of the Constitution (Art. I, § 10, Cl. 1) that

contains the most fundamental restrictions on the powers

of the states found in the pre-Civil War Constitution.

Within that provision, the Contract Clause is conjoined

with the Ex Post Facto Clause and the Bill of Attainder

Clause—two fundamental guarantees of the rule of law.

For the first 150 years of the Republic, the Clause was

interpreted strictly, in accordance with its terms. That

strict enforcement is generally recognized to have been

highly beneficial to the Nation’s economy.

Under current law, however, many abrogations of con-

tract rights are not deemed “impairments.” Moreover,

contrary to the explicit language of the Clause, even an

acknowledged impairment will be upheld if it satisfies

open-ended criteria of “reasonableness” and “appropriate-

ness” and if the state interest outweighs the “severity

of the impairment.” Such a lenient interpretation of an

explicit, unequivocal constitutional command has never

been adequately justified.

B. The history of the drafting of the Contract Clause

shows that the Framers intended it to be interpreted

strictly. Indeed, in the debates at the Convention and

elsewhere, opponents of the Contract Clause offered pre-

cisely the arguments that are now advanced for inter-

preting the Clause “flexibly.” The Framers rejected those

arguments and wrote a Clause phrased in unequivocal

terms.

Moreover, the history of the Clause shows that the

Framers did not see it simply as a protection of proper-

ty rights. Instead, they believed that the Contract Clause,

like the Ex Post Facto Clause, reflected a fundamental

requirement of fairness between the government and its

citizens.

C. The evolution of Contract Clause doctrine shows

that the current standards are not the result of a consid-

ered judgment by the Court that strict enforcement of

the Clause would be harmful or unworkable. Instead, the

erosion of the Contract Clause is the result of an unreflec-

tive series of decisions that, wholly unjustifiably, associ-

ated the Contract Clause with the utterly different notion

of economic substantive due process. Properly understood,

the Contract Clause is in no sense a general barrier to

state regulation, any more than the Ex Post Facto Clause

is a general barrier to state criminal law enforcement.

Rather, the Contract Clause is an unequivocal constitu-

tional guarantee, rooted in values of fairness and stabil-

ity, that should be interpreted in accordance with its lan-

guage and intent.

— 2 — —

ARGUMENT

THE CONTRACT CLAUSE SHOULD BE INTERPRETED

TO PROHIBIT LEGISLATION THAT IMPAIRS CONTRAC-

TUAL OBLIGATIONS IN ALL BUT THE MOST COM-

PELLING CIRCUMSTANCES.

A. The Language And Structure Of The Constitution Re-

quire That The Contract Clause Be Interpreted As A

Strict Prohibition Against Impairing The Obligations Of

Contracts.

As currently interpreted, the Contract Clause imposes

only limited restraints on the power of state governments.

Amici agree with petitioners that Michigan’s 1987 amend-

ment to its workers’ compensation laws transgresses even

those limits. Indeed, in many respects the 1987 amend-

ment is a paradigm example of legislation that violates

the Contract Clause. The 1987 amendment is not a general

police power regulation that happens to have an inciden-

tal effect on settled obligations. Compare Exxon Corp.

v. Eagerton, 462 U.S. 176, 191 (1983) (upholding a measure

affecting contract rights on the ground that it “applied

to all oil and gas producers, regardless of whether they

happened to be parties to .. contracts“); Stone v. Mis-

sissippi, 101 U.S. 814 (1880) (upholding a state constitu-

tional provision that incidentally invalidated already-issued

lottery tickets, in the course of prohibiting all lotteries).

Rather, the 1987 amendment is legislation targeted spe-

cifically on settled obligations; as Justice Griffin noted in

his opinion below, it was “deliberately designed to disrupt

retroactively past transactions” (Pet. App. 50a). The state’s

only justification for the 1987 amendment is simply that

the state thought it would be advantageous to readjust

contractual rights retroactively. And the 1987 amendment

is designed to benefit a narrow group, not the public gen-

erally. A statute of this kind—narrow legislation designed

specifically to disrupt contractual expectations solely be-

cause the state seeks to capture some political advantage

by doing so- constitutes a core violation of the Contract

Clause.

As associations of manufacturers with large numbers of

employees and extensive commereial dealings, however,

amici are concerned not just about this ease but about

the larger picture as well. Although the judgment of the

Michigan Supreme Court should be reversed even under

current Contract Clause standards, this case provides the

Court with an occasion to consider whether those stan-

dards should be revised.

e The Contract Clause “was perhaps the strongest single

constitutional check on state legislation during our early

years as a Nation.” Allied Structural Steel Co. v. Span-

naus, 438 U.S. 234, 241 (1978). During the last half-cen-

tury, however, this Court has invalidated only two stat-

utes (and only one statute regulating contracts between

private parties) under the Contract Clause. Allied Struc-

tural Steel, supra; United States Trust Co. v. New Jersey,

431 U.S. 1 (1977).

This dramatic erosion of the Contract Clause has never

been adequately justified. The text of the Contract Clause

is unequivocal. Nothing in the history of the framing of

the Clause suggests that the needs that animated it have

disappeared; on the contrary, the Framers anticipated,

and were not persuaded by, the very arguments that have

today been accepted as reasons for relaxing the limits that

the Clause imposes on the states.

Ultimately, Contract Clause doctrine today appears to

be the product of the unreflective association of the Con-

tract Clause with the discredited notion of economic sub-

stantive due process, a notion that led to the invalidation

of much state regulatory legislation in the first third of

= Ss

this century. See, e. g., Lochner v. New York, 198 U.S.

45 (1905). As we explain below, this association is unwar-

ranted, and there is no reason why the Contract Clause

should not be applied today in the terms in which it was

written—as a strict rule that contractual obligations are

not to be impaired, at least absent the most compelling

circumstances. Amici therefore suggest that the Court

take this opportunity to establish that the Contract Clause

should be interpreted in accordance with its language and

history.

1. The Contract Clause provides that “(njo State shall

.. pass any . . . Law impairing the Obligation of Con-

tracts.“ Under current doctrine, however, even a state

law that explicitly abrogates contractual rights may not

qualify as an “impairment” within the meaning of the

Contract Clause. In particular, states have been allowed

great latitude to alter the contractual obligations of any

firm in a “heavily regulated industry.” Energy Reserves

Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400,

413 (1983), citing Veix v. Sixth Ward Bldg. & Loan Ass n,

310 U.S. 32, 38 (1940). In a period when regulation was

the exception rather than the rule, this limitation on the

Contract Clause might have been appropriate. But today

there are few industries that are not heavily regulated

in many respects, ranging from the securities they issue to

conditions on the workplace floor, from the safety of the

products they produce to their employees’ pensions. Thus

even this threshold limitation has the effect of severely

reducing the coverage of the Contract Clause.

Once an “impairment” is found, the Contract Clause is

unequivocal in its terms: it flatly forbids “any . . Law

impairing the Obligation of Contracts.“ Notwithstanding

this explicit language, under current doctrine an acknowl-

edged “impairment” of contractual obligations can be up-

held with such ease that this Court has found it necessary

to caution that the Contract Clause is not a dead letter.”

Allied Structural Steel, 488 U.S. at 241.

In determining whether an impairment is justified, cur-

rent doctrine requires that the legislation satisfy three

conditions: It must promote “a significant and legitimate

public purpose“; it must be “ ‘based upon reasonable con-

ditions’ ”; and it must have ‘a character appropriate to

the public purpose.. Energy Reserves Group, 459 U.S.

at 411-12, quoting United States Trust Co., 431 U.S. at

22 (brackets omitted). These standards are unjustifiably

flexible. It is all too easy for litigants to adduce some

“significant and legitimate public purpose” that legisla-

tion supposedly serves. Similarly, the requirements of

“reasonableness” and “appropriateness” are highly open-

ended.

Moreover, some of the Court’s decisions have suggested

that in applying these criteria, the courts should adopt

a balancing test under which “[tJhe severity of the impair-

ment” will determine “the level of scrutiny to which the

legislation is subjected.” Energy Reserves Group, 459 U.S.

at 411. Finally, even in applying these lenient standards,

the courts are to be deferſential] to [the] legislative judg-

ment” in cases (like the instant case) in which the con-

tract is between private parties, rather than between a

private party and the state. Keystone Bituminous Coal

Ass’n v. DeBenedictis, 480 U.S. 470, 505 (1987).

2. The text and structure of the Constitution alone

reveal how problematic this interpretation of the Contract

Clause is. The Contract Clause appears in Article I, Sec-

tion 10, Clause 1 of the Constitution, which, in its entirety,

provides:

ite

No State shall enter into any Treaty, Alliance, or

Confederation; grant Letters of Marque and Reprisal;

coin Money; emit Bills of Credit; make any Thing but

gold and silver Coin a Tender in Payment of Debts;

pass any Bill of Attainder, ex facto Law, or Law

impairing the Obligation of Contracts, or grant any

Title of Nobility.

Until the Fourteenth Amendment was adopted, this pro-

vision was “the primary constitutional check on state

legislative power” (Keystone Bituminous Coal Ass’n, 480

U.S. at 502). Even the provisions of the Bill of Rights,

of course, applied only to the federal government. Bar-

ron v. Mayor & City Council of Baltimore, 32 U.S. (7

Pet.) 243 (1833). The provisions of Art. I, § 10, Cl. 1 were,

therefore, the restrictions that the Framers of the Con-

stitution thought were the most fundamental and impor-

tant limitations to impose on the states.

The importance of the other restrictions in Art. I, § 10,

Cl. 1, is self-evident. The first two restrictions—on enter-

ing into treaties and issuing letters of marque and reprisal

(which in effect is the power to initiate hostilities)—secure

the power of the federal government to conduct foreign

relations. The next three prohibitions in Clause 1—against

coining money or issuing currency—are the domestic equiv-

alent: they establish that national economic policy will be

set by the federal government. The prohibitions against

bills of attainder and ex post facto laws—prohibitions that

are specifically joined with the Contract Clause—reflect

the basic requirements of fair pla und the rule of law

between the government and citizens.

One would expect that prohibitions so central to the con-

stitutional scheme would be strictly enforced according to

their terms. No one would suggest that a state may enact

an ex post facto law or a bill of attainder if such a law

is reasonable“ and “appropriate” and promotes “a legiti-

mate public purpose.” See, e. g., Miller v. Florida, 482

U.S. 423 (1987); United States v. Lovett, 328 U.S. 303

(1946). No one would suggest that the courts should defer

to a state legislature’s judgment in determining whether

a state may issue paper currency or conduct foreign rela-

tions. Only the Contract Clause “is not to be read literal-

ly.” Keystone Bituminous Coal Ass’n, 480 U.S. at 502.

3. When the Framers wanted to place only a qualified

restriction on the power of the states, as opposed to the

absolute restrictions of Art. I, § 10, Cl. 1, they of course

knew how to do so. The very next clause of the Consti-

tution provides that no state may “lay any Imposts or

Duties on Imports or Exports, except what may be ab-

solutely necessary for executing its inspection Laws.”

Clause 3 of Art. I, § 10 also contains a qualified limit on

the power of the states: it provides that “{nJo State shall,

without the consent of Congress, . . engage in War,

unless actually invaded, or in such imminent Danger as

will not admit of delay. Clause 2 of Art. I, § 9 prohibits

the suspension of the writ of habeas corpus “unless when

in Cases of Rebellion or Invasion the public Safety may

require it.“ But Clause 1 of Art. I, § 10 is unqualified.

See also Chicago Bd. of Realtors v. City of Chicago, 819

F.2d 732, 744 (7th Cir. 1987) (Posner, J., concurring):

“Imagine what freedom of speech would have come to

mean if the Court had interpreted the First Amendment—

which is no more absolute in its language or clearcut in

its history than the contract clause—as loosely as it now

interprets the contract clause.”

Of course, like any constitutional provision, the Contract

Clause is subject to interpretation. There will be instances

in which reasonable people can differ over whether a par-

ticular measure constitutes a Law impairing the Obliga-

= =

tion of Contracts,” just as there can be reasonable dis-

agreements over whether a particular measure constitutes

an ex post facto law or a bill of attainder. But the defer-

ential approach that current law takes to the Contract

Clause is simply not warranted for a constitutional guar-

antee that is so unequivocal, and that occupies such an

important structural position in the Constitution.

4. Perhaps for this reason, commentary on the Contract

Clause has been virtually unanimous in criticizing the cur-

rent standard and urging a more strict interpretation of

the Clause. A consistent theme among the commentators

is that many recent decisions—unlike the Contract Clause

cases of the last century—do not treat the Clause with

the rigor that is appropriate for a specific constitutional

provision that is phrased in absolute terms and that is

linked with such fundamental guarantees as the Ex Post

Facto and Bill of Attainder Clauses. See, e.g., Merrill,

Public Contracts, Private Contracts, and the Transforma-

tion of the Constitutional Order, 37 Case W. Res. L. Rev.

597, (1987) (We are all familiar with . . constitu-

tional law evolving into something [different from what

was perhaps originally conceived. But . . . [i]t is quite

another [thing] to contemplate a judicial doctrine which

has moved 180 degrees from both the original understand-

ing and the first 150 years of our constitutional history”’);

II B. Schwartz, A Commentary on the Constitution of the

United States 306 (1965); Note, A Process-Oriented Ap-

proach to the Contract Clause, 89 Yale L.J. 1623, 1627

(1980) (footnote omitted) (“interpretation of the clause

(has) bec{o}me virtually independent of intent and text“);

Kmiec & McGinnis, The Contract Clause: A Return to the

Original Understanding, 14 Hastings Const. L.Q. 525, 545

(1987) (“The present Court’s jurisprudence is at odds with

the Framers’ interest in providing certainty to those who

enter into contracts, because in evaluating the constitu-

tionality of an impairment the Court has adopted widely

differing standards of review and [has] balanced the ex-

tent of the impairment against the policy that the state

seeks to advance“). See also Hale, The Supreme Court

and the Contract Clause: III, 57 Harv. L. Rev. 852, 890-

91 (1944), quoted in Allied Structural Steel, 438 U.S. at

241 n.12; E. Corwin, The Constitution and What It Means

Today 105 (H. Chase & C. Ducat eds. 1973).

B. The History Of The Drafting Of The Contract Clause

Confirms That The Framers Intended The Clause To Be

A Strict Prohibition.

1. The history of the Contract Clause confirms what

the text and structure of the Constitution reveal. It is

a commonplace that the Framers attached great impor-

tance to the protection of property rights.? In Federalist

No. 10, perhaps the most important of the Federalist

papers, Madison stated that “the protection of [the] facul-

ties of acquiring property” is “the first object of govern-

ment.” Federalist No. 10 (Madison), at 78 (C. Rossiter ed.

1961). Madison particularly feared the threat to property

resulting from “{tJhe mutability of the laws of the States.”

The “injustice” and “evils issuing from” frequent changes

in state laws, Madison wrote to Jefferson, contributed

0 2 1979 Sup, Ct. Rev. 95, 120; MeConnell,

ip Between I Liberties and Constitutional Struc

Pen. 2 467, 400.70 (i946) E Seinen, The Foundations .

1 Nedelsly, phe

erty and the Limits of American Constitutionalism chs. 2, 5 (1

more to the uneasiness which produced the [Constitution-

al] Convention” than any other inadequacy of the Articles

of Confederation. 5 The Writings of James Madison 27

(letter of Oct. 24, 1787) (G. Hunt ed. 1904).

The Contract Clause reflectis] the high value the Fram-

ers placed on the protection of private contracts.” Allied

Structural Steel, 488 U.S. at 245. The Framers viewed

the Contract Clause, together with the prohibition against

bills of attainder and ex post facto laws, as the constitu-

tional bulwark in favor of personal security and private

rights.“ Federalist No. 44 (Madison), at 282 (C. Rossiter

ed. 1961). “The sober people of America,” Madison ex-

plained, “are weary of the fluctuating policy which has

directed the public councils. They have seen with regret

and indignation that sudden changes and legislative in-

terferences, in cases affecting personal rights, become jobs

in the hands of enterprising and influential speculators,

and snares to the more industrious and less informed part

of the community.” Ibid.

Charles Pinckney regarded the Contract Clause and the

other limitations of Art. I, § 10, Cl. 1 as “the soul of the

Constitution.” 4 Debates in the Several State Conventions

on the Adoption of the Federal Constitution 333 (J. Elliott

ed. 1881), quoted in McConnell, Contract Rights and Prop-

erty Rights: A Case Study in the Relationship Between

Individual Liberties and Constitutional Structure, 76 Calif.

L. Rev. 267, 284 (1988). Justice William Patterson, who

had been an influential member of the Federal Conven-

tion” (B. Wright, The Contract Clause of the Constitution

20 (1938)) wrote an opinion in an early, important case

invalidating a state statute under the Contract Clause and

explained: “The preservation of property . . . is a primary

object of the social compact. Vanhorne’s Lessee v. Dor-

rance, 2 U.S. (2 Dall.) 304, 310 (C.C. Pa. 1795). Roger

Sherman, a member of the Convention from Connecticut,

explained to the Governor of Connecticut that the Con-

tract Clause was “necessary as a security to commerce.”’

3 Records of the Federal Convention of 1787, at 100 (Far-

rand ed. 1911) (hereinafter “Farrand”’) (letter coauthored

by Oliver Ellsworth). And Alexander Hamilton, in another

remark typical of the Framers, commented that a law re-

scinding a state’s obligations may be safely said to be

a contravention of the first principles of natural justice and

social policy.” B. Wright, supra, at 22 (citation omitted).

2. Participants in the Philadelphia Convention and in

the state ratifying conventions objected to the proposed

Contract Clause precisely on the grounds that are today

advanced as reasons for interpreting the Contract Clause

less than literally. The Framers rejected those arguments

and adopted the Contract Clause—which they deliberate-

ly phrased as unequivocally as the other provisions of Art.

I, § 10, Cl. 1. Moreover, the debates that led to the adop-

tion of the Contract Clause show that the Framers did

not see the Clause as simply a way to protect property

rights. They believed the Clause was important for an

even more fundamental reason: like the Ex Post Facto

Clause, it was central to preserving the rule of law and

protecting against fundamental unfairness.

a. The first motion to add the Contract Clause to the

Constitution was made by Rufus King. 2 Farrand at 439.

The motion was opposed by those who believed it would

unduly restrict the ability of the states to respond to

economic exigencies. See id. at 439-40. For example, Gouv-

erneur Morris remarked that King’s proposal “would be

going too far. There are a thousand laws relating to bring-

ing actions—limitations of actions & which affect con-

tracts.“ Id. at 439. George Mason, anticipating the very

language of today’s proponents of a flexible“ Contract

Clause, objected: “Cases will happen that can not be fore-

seen, where some kind of interference will be proper, &

essential.“ Jd. at 440. During the subsequent ratification

debates, Luther Martin attacked the Contract Clause on

the ground that “there might be times of such great pub-

lie calamities and distress . . . as should render it the duty

of a government” to interfere with contractual obligations,

by “totally or partially stopping the courts” if necessary.

3 Farrand at 214-15 (emphasis omitted).

Madison’s statement in the Convention reflected the

position that ultimately prevailed: although “inconveniences

might arise” from the absolute prohibition against impair-

ing contractual obligations, Madison said, on the whole

[the inconveniences] would be overbalanced by the utility

of” the prohibition. 2 Farrand at 440. The turning point

of the debate occurred when James Wilson pointed out

that, under the proposed Contract Clause, “retrospective

interferences only are to be prohibited.“ /bid. (emphasis

in original).

In response to Wilson’s suggestion, Madison and Ed-

ward Rutledge proposed that the purposes of the Con-

tract Clause could be accomplished simply by applying the

Ex Post Facto Clause—which, at that point, was drafted

to apply only to the federal government—to the states.

See 2 Farrand at 440. Rutledge proposed a substitute for

King’s motion that would prohibit the states from adopt-

ing ex post facto laws. That motion carried without fur-

ther debate. /bid.*

3 Madison’s notes reported that s motion used the term

— 17 laws, but according to Journal of the Conven-

tion, w is apparently more accurate on this point, the term

was “ex post facto.” See B. Wright, supra, at 9 n.16.

The next day, John Dickinson reported that, according

to Blackstone, “the terms ‘ex post facto’ related to crim-

inal cases only; that they would not consequently restrain

the States from retrospective laws in civil cases, and that

some further provision for this purpose would be requi-

site.” 2 Farrand at 448-49. The matter was referred to the

Committee on Style, which ultimately reported the Con-

tract Clause in its current form. The Clause was adopted

without further reported debate. Jd. at 619.

These events show that the Framers specifically contem-

plated that ‘inconveniences might arise” if the Contract

Clause were added to the Constitution. They were urged

not to adopt the Contract Clause precisely because it

“would be going too far” and because “{cjases will hap-

pen . . where some kind of interference will be proper,

& essential.” Despite these arguments the Framers deter-

mined to adopt the Contract Clause. Moreover, they re-

garded the Contract Clause as no less absolute than the

Ex Post Facto Clause.

b. The debates also show that the Framers viewed the

Contract Clause as protecting the same values that are

secured by the Ex Post Facto Clause—which is univer-

sally recognized not just as an unequivocal constitutional

guarantee but as an essential component of the rule of

law. As Madison explained: “Bills of attainder, ex post

facto laws, and laws impairing the obligation of contracts,

are contrary to the first principles of the social compact

and to every principle of sound legislation.” Federalist No.

44 (Madison), at 282 (C. Rossiter ed. 1961). Elbridge Gerry

sought to apply the Contract Clause to the federal govern-

ment precisely because preserving contractual obligations

was a matter of “public faith.” 2 Farrand at 619. And

Hamilton summarized the views of many when he stated

that laws impairing the obligation of contract are atro-

afin

cious breaches of moral obligation and social justice.” Fed-

eralist No. 7 (Hamilton), at 65 (C. Rossiter ed. 1961). The

Framers did not regard the Contract Clause as merely

a matter of ‘economic and social regulation? (Energy

Reserves Group, 459 U.S. at 412-13 (citation omitted))—a

realm in which flexibility might be appropriate. Instead,

they conceived the Contract Clause to be a guarantee of

fundamental fairness and the rule of law.

C. The Evolution Of Contract Clause Doctrine Shows That

The Current Interpretation Is Unwarranted.

The current state of Contract Clause doctrine is not the

result of a considered judgment by the Court that strict

enforcement of the Clause will produce harmful results

or will otherwise be unworkable. On the contrary, the

period during which the Clause was strictly enforced is

generally viewed as one in which the economy greatly

profited from the stability that the Contract Clause pro-

vided. The Contract Clause has evolved to its current

state because of a mistaken association between the Clause

and a wholly different conception, the notion of economic

substantive due process.

For example, the Court has said that in deciding issues

under the Contract Clause, courts should “defer to legis-

lative judgment” as is customary in reviewing economic

and social regulation.” United States Trust Co., 431 U.S.

at 22-23; see also Energy Reserves Group, 459 U.S. at

413; Keystone Bituminous Coal Ass’n, 480 U.S. at 505.

But there is, of course, no uniform standard for review-

ing “economic and social regulation.” Economic and social

regulation that discriminates against suspect groups or

threatens First Amendment rights is strictly scrutinized.

See, e. g., Minneapolis Star & Tribune Co. v. Minnesota

Comm’r of Revenue, 460 U.S. 575 (1983); Califano v.

—18—

Goldfarb, 430 U.S. 199 (1977). Similarly, if legislation vio-

lates the plain terms of the Contract Clause, it should

not be entitled to deference.

The Court’s suggestion that a deferential standard of

review generally applies in the area of “economic and

social regulation” does, however, help explain how the

Contract Clause has evolved to its current state. The

Court’s insistence on “deference” in this area shows an

understandable concern that the notion of economic sub-

stantive due process not again be used to strike down

legislation on the basis of questionable economic theories

nowhere found in the Constitution. That now-discredited

notion was used most aggressively in the period from ap-

proximately the 1890s to the 1930s as a basis for invali-

dating much regulatory and social welfare legislation. See,

e.g., Allgeyer v. Louisiana, 165 U.S. 578 (1897); Lochner

v. New York, 198 U.S. 45 (1905); Coppage v. Kansas, 236

U.S. 1 (1915).

The current state of Contract Clause doctrine can be

traced to a series of decisions rendered immediately after

the demise of economic due process. Those decisions un-

reflectively treated the Contract Clause and economic due

process as aspects of the same bundle of outmoded ideas.

They discarded the Contract Clause because economic due

process had been discredited. Indeed, the supposed con-

nection between the Contract Clause and economic due

process was a theme of the dissent from one of the two

decisions in the last half-century in which the Court has

invalidated legislation under the Contract Clause. United

States Trust Co., 431 U.S. at 60-62 (Brennan, J., dissenting).

The association between the Contract Clause and eco-

nomic due process is, however, unwarranted. Although

- both the Contract Clause and economic substantive due

process have something to do with economic and commer-

cial affairs, the Contract Clause differs from economic due

process in its scope, its theoretical underpinnings, its ef.

fect on the power of states to govern, and, of course, its

textual basis in the Constitution.

1. For the first century of the Republic, the Contract

Clause “was far more frequently before the Court than

any other clause of the Constitution, excepting only the

commerce clause.” B. Wright, supra, at 91-92. See Allied

Structural Steel, 438 U.S. at 241. The Contract Clause

was the primary means by which the Court—dominated

for much of this time by Chief Justice Marshall—fostered

the development of the emerging American economy. See

B. Wright, supra, at 28-29; Schwartz, supra, 1979 Sup.

Ct. Rev. at 98.

The Clause continued to be important during the Taney,

Chase, and Waite Courts. See B. Wright, supra, at 62-95.

Writing near the end of this period, Sir Henry Maine as-

serted that in point of fact there is no more important

provision in the whole Constitution.” He explained that

the principle of the Contract Clause “has in reality se-

cured full play to the economical forces by which the

achievement of cultivating the soil of the North American

Continent has been performed.” H. Maine, Popular Gov-

ernment 247-48 (1886), quoted in Schwartz, supra, 1979

Sup. Ct. Rev. at 97. -

2. Home Building & Loan Ass’n v. Blaisdell, 290 U.S.

398 (1934), is “the leading case in the modern era of Con-

tract Clause interpretation.” United States Trust Co., 431

U.S. at 15. The Court in Blaisdell upheld a Minnesota

statute that permitted courts to postpone mortgage fore-

closure sales of homes and to extend the period of re-

demption. The reasoning of Blaisdell is in many ways

—20—

responsible for the modern, lenient interpretation of the

Contract Clause. For example, the Blaisdell Court ex-

plicitly disregarded the plain language of the Contract

Clause (290 U.S. at 428), deemed the conjunction of the

Contract Clause with the Ex Post Facto and Bill of At-

tainder Clauses to be irrelevant (id. at 426-27), and de-

clared that the history of the Clause was of little aid“

(id. at 427).

The Blaisdell Court, however, never intended to evis-

cerate the Contract Clause in the way that subsequent

courts believed Blaisdell to have done. The Minnesota

moratorium was enacted in April 1933, at the depths of

the Depression, and the Court in Blaisdell emphasized

the emergency nature of the legislation. Jd. at 425, 439-40,

444-45. In addition, the Minnesota statute was, by its

terms, to remain in effect “only during the continuance

of the emergency and in no event beyond May 1, 1935”

(id. at 416) and the Court emphasized that the statute

was only a limited and temporary interposition[ }” that

granted only “temporary relief’ from a contractual obliga-

tion through a “temporary and conditional restraint.” Jd.

at 439-40.

Whatever the soundness of allowing a limited exception

io the Contract Clause for temporary measures enacted in

genuine emergencies—cf. New York Times Co. v. United

States, 403 U.S. 713, 730 (1971) (Stewart, J., concurring)

(suggesting that even a prior restraint of political expres-

sion might be permitted in cases of “direct, immediate,

and irreparable damage’’)—that is not the same thing as

an interpretation of the Clause that would permit an im-

pairment of a contractual obligation whenever a state acts

in pursuit of a “significant and legitimate public purpose

by means that can be deemed “reasonable” and appro-

priate.” Certainly the Blaisdell Court did not understand

wee ee

that decision to have had a dramatic impact on the Con-

tract Cleuse. A mere four months after Blaisdell, in W.B.

Worthen Co. v. Thomas, 292 U.S. 426 (1934), the Court

invalidated an Arkansas law under the Contract Clause.

Chief Justice Hughes, who wrote the opinion for the Court

in Blaisdell, wrote the opinion for the Court in Thomas

as well; he explained that the Arkansas law, unlike the

statute upheld in Blaisdell, was not intended to deal with

an emergency and was “neither temporary nor condition-

al.” Id. at 433-34.

A year later, the Court invalidated another Arkansas

statute under the Contract Clause. W.B. Worthen Co. v.

Kavanaugh, 295 U.S. 56 (1935). Justice Cardozo, a mem-

ber of the Blaisdell majority, wrote the opinion for the

Court in Kavanaugh and distinguished Blaisdell on the

same ground: that the statute at issue in Blaisdell was

carefully limited in duration and in its effects on creditors’

rights. Id. at 63. See also Louisville Joint Stock Land

Bank v. Radford, 295 U.S. 555, 597-98 (1935) (Brandeis,

J.) (invalidating a provision of the federal Bankruptcy Act

on retroactivity grounds and distinguishing Blaisdell). In

Treigle v. Acme Homestead Ass’n, 297 U.S. 189 (1936),

the Court unanimously invalidated a Louisiana statute on

Contract Clause grounds and did not even consider it nec-

essary to discuss Blaisdell; the Court merely cited Blais-

dell for the well-established proposition that the obliga-

tions of contracts must yield to a proper exercise of the

police power” (id. at 197). Finally, in Wood v. Lovett, 313

U.S. 362 (1941), the Court invalidated a state law, enacted

after the sale of state lands, that adversely affected title

to the lands.

Thus, as late as 1941, seven years after Blaisdell, the

Court still enforced the Contract Clause rigorously against

state legislation. The Blaisdell Court itself did not con-

oii

sider Blaisdell to have reduced the Contract Clause to

an open-ended balancing test.

3. The lenient modern approach to the Contract Clause,

therefore, was not the result of a deliberate decision by

the Court to turn sharply away from strict enforcement

of the Clause. Instead, the modern view developed in a

series of decisions that ignored the limited nature of the

holding (as opposed to the dicta) in Blaisdell and that did

not seriously attempt to explain why dramatically less vig-

orous enforcement of the Contract Clause was needed. In-

stead, these decisions casually assimilated the Contract

Clause to the doctrine of economic due process and treated

the Contract Clause as a relic of a bygone era. See, e.g.,

Veix, 310 U.S. at 41 (“{clertainly the protection of building

and loan associations against the catastrophe of excessive

withdrawal is, today, within legislative power”); Gelfert

v. National City Bank, 313 U.S. 221, 235 (1941) (wie

cannot . . force legislatures to be blind to the lessons

which [this] century has taught”); East New York Bank v.

Hahn, 326 U.S. 230, 231-33 (1945). See also United States

Trust Co., 431 U.S. at 60-62 (Brennan, J., dissenting).

This conception of the Contract Clause, which treats it

as part and parcel of the economic due process era, to be

swept away with the demise of that era, cannot be justi-

fied. Properly understood, the Contract Clause has little

in common with economic due process. That notion was

used to promote what was called “freedom of contract.”

Under this rubric the Court invalidated, for example, max-

imum hour and minimum wage legislation. Lochner v.

New York, supra; Adkins v. Children’s Hospital, 261 U.S.

525 (1923). The theory of these decisions was that such

legislation unreasonably interfered with the freedom of

employees to sell their labor on the terms they chose. This

notion of freedom of contract had, of course, a devastating

effect on regulatory legislation.

The Contract Clause was never used to invalidate legis-

lation on this basis. The Contract Clause applies only to

retrospective legislation—legislation that interfered with

contracts already made. It was never used to invalidate

legislation that “interfered” with the ability to enter into

contracts in the future. This point was settled in Ogden

v. Saunders, 25 U.S. (12 Wheat.) 213 (1827), where the

Court explained that the Contract Clause, like the Bill

of Attainder and Ex Post Facto Clauses, was designed

to protect the rule of law, not broadly to interfere with

state legislation. The three Clauses, Justice Johnson said,

were a general provision against arbitrary and tyrannical

legislation over existing rights, whether of person or prop-

erty.” Id. at 286. Justice Trimble, in a concurring opinion,

noted that any other interpretation of the Contract Clause

would “transform a special limitation upon the general

powers of the States into a general restriction.” Id. at 322.

The Contract Clause, therefore, is properly understood

as a provision comparable to the Ex Post Facto Clause.

Like the Ex Post Facto Clause, it leaves ample legislative

flexibility to the states. It rests on the core values of the

rule of law, not on a highly disputable economic theory.

And the Contract Clause, unlike the notion of economic

due process, is an explicit and unequivocal constitutional

command.

The regime of economic due process and “freedom of

contract” interpreted the Due Process Clause in a way

that bore no relation to ite meaning, history, or structural

position in the Constitution. In this respect, the true suc-

cessor to economic due process today is the overly flexible

interpretation of the Contract Clause—not the interpreta-

—24—

tion we propose, which would carry out the plain language

and the Framers’ intentions. Because the current state

of Contract Clause doctrine is based on an unreflective

and unjustifiable view of the Clause, and because that doc-

trine is inconsistent with the plain meaning and the his-

tory of the Contract Clause, the Court should reconsider

the doctrine and restore the Contract Clause to the status

it held, with beneficial consequences, for 150 years of the

nation’s history.

CONCLUSION

The judgment of the Michigan Supreme Court should

be reversed.

Respectfully submitted.