Economic Liberties
I. Overview
A. Economic Liberties = Constitutional rights to (1) enter into and enforce contracts, (2) pursue a trade or profession, and (3) acquire, possess, and convey property.
B. Three Constitutional Theories for Protection of Economic Rights:
1. Economic Substantive Due Process (Not Used Anymore)
a. 5th and 14th Amendment: No person shall be deprived “of life, liberty, or property, without due process of law.”
i. 5th amendment applies to the federal government.
ii. 14th amendment applies to the state and local government.
b. There are two types of protection under the Due Process Clause…
i. Procedural Due Process = focuses on whether the government followed proper procedures.
ii. Substantive due Process = focuses on whether the government had adequate reason for taking away an individual’s economic liberty: to enter into and enforce contracts, to pursue a trade or profession, and to acquire, possess, and convey property.
c. The word “liberty” in the due process clause has a specific substantive meaning, and that among the substances protected by “liberty” in the 5th and 14th Amendment Due Process clauses are economic freedoms. Freedom to contract is one of them.
2. Contracts Clause (Not Used Anymore)
a. Article I §10 [1]: “No state shall… pass any Law… impairing the Obligation of Contracts.”
3. Takings Clause
a. 5th Amendment: No property shall be “taken for public use, without just compensation.”
II. Economic Substantive Due Process
A. Definition
1. Substantive due Process = whether the government had adequate reason for taking away an individual’s economic liberty: to enter into and enforce contracts, to pursue a trade or profession, and to acquire, possess, and convey property.
B. The Early History of Economic Substantive Due Process
1. Courts did not use the substantive portion of the due process clause to protect economic rights, but rather deny them protection.
a. i.e. The court in the Slaughter-House Cases (1872) [Miller] found that the right to practice one trade was not a liberty or property protected by the substantive portion of the due process clause.
i. However, that position did not last long.
C. Substantive Due Process of the Lochner Era (narrow)
1. Background: Industrial Revolution / Laissez-Faire Economy.
a. Beginning in the 1870s, the industrial revolution began. Courts and scholars were deeply committed to this laissez-faire movement of unregulated economy. They believed in Darwinism and natural rights. Accordingly, Courts began to use the Economic Substantive Due Process to invalidate economic regulations as interfering with freedom of contract.
2. Philosophies
a. Social Darwinism: society would thrive with the least government regulations.
b. Natural Rights: government regulations unduly interfered with people’s natural rights to own and use property.
i. Allgeyer v. Louisiana (1897) [Peckham]
A. Case that represents the true beginning of the use of the substantive due process idea; there were no allegations of inadequate procedural due process, such as notice and hearing.
B. Holding: State law that prohibits foreign corporations from doing any business within a state unless it had a place of business and agent within the state violates the substantive portion of the due process clause. It deprives persons of the “liberty” to do business and enter into contracts. In this case, government had no adequate reason to prevent a mailing of a letter in reference to a K entered in another state.
ii. Lochner v. NY (1905) [Peckham]
A. The most famous case that uses the Due Process Clause to limit government economic regulations on the freedom of K.
B. Heightened Strict Scrutiny Test: The end itself must be legitimate and appropriate.
C. Holding: State law setting maximum hours a bakery employees could work violates the substantive due process clause because the state has no adequate reason to pass such law under its police power. Reasoning: This case differs from Holden v. Hardy where court upheld law restricting number of house a mine employee works because the nature of the work is different; law was necessary to protect public health. While all professions have seeds of unhealthiness, bakers are not subject to those seed more than most other professions, unlike mine workers.
D. Harlan Dissent: Rational Basis Test should be applied.
E. Holmes Dissent: Agrees on the law/test used but believes that the nature of bakers work is different from normal professions. They breathe air that is not pure and are generally in more delicate health than members of other professions.
3. Protecting Unionizing
a. Cappage v. Kansas (1915) [Pitney]: Law that prohibited employers from conditioning an offer of employment on the employee promising not to join the union is unconstitutional because there is no substantial justification for this law. Freedom of K and right to employment are fundamentally protected liberties within the substantive due process clause.
4. Maximum Hours Laws
a. State laws setting maximum hours must have a legitimate and appropriate end. See Lochner (holding laws setting maximum hours for bakery works unconstitutional)and Holden (holding laws setting maximum hours for mine workers constitutional).
i. Muller v. Oregon (1908) [Brewer]: Laws limiting the maximum number of hours women can work is a valid and reasonable within the state’s police power because women are in need of special protection; they are physically different, have maternal functions, is responsible for rearing and education of children, and maintenance of homes.
ii. Bunting v. Oregon (1917): Laws limiting maximum hours for manufacturing workers is within a state’s police power because such laws are needed to protect the health of employees in that industry.
5. Minimum Wage Laws
a. Laws setting minimum wage for women, Adkins v. Children’s Hospital (1936), or men, Morehead v. New York (1936), are not a valid exercise of police power because such laws interferes with the freedom of K and are not necessary to protect the health, safety, morals, or general welfare of public. Adkins makes clear that it is not overruling Muller, just that a minimum wages law in not necessary to protect health and welfare of women.
6. Consumer Protection Legislation
a. Weaver v. Palmer Bros Co. (1926) [Butler]
i. Holding: Laws banning blankets made of substandard material are not within a state’s police power because while the material is substandard, it is not a significant danger to public health. Consumers have freedom to choose the types of blankets they contract to buy.
ii. Holmes Dissent: As long as the legislature regarded the danger of shoddy (the material as great), it should have been upheld. Note: Holmes is basically advocating the rational basis test here.
b. Price Regulation: Courts narrowly defined the permissible scope of governments’ police power in price regulation. Struck don for items like theater tickets, employment agencies, and gasoline.
i. Munn v. Illinois (notes): upheld price regulation for grain storage because it affected the public interest.
ii. Nebbia v. NY (1934) [Roberts]: upheld price regulation for milk because it affects public health of consumers (sold for lower prices when they are no longer safe to drink) and general welfare of farmers (low price sale leaves farmers too poor to continue subsidies).
D. Economic Substantive Due Process Since 1937
1. Pressures for Change
a. Background: Great Depression / Anti-Laissez Fair Economy.
i. The Great Depression, at its bottom in 1933, was the longest economic collapse in American history and over a quarter of Americans was unemployed. Enormous pressures were mounting for the Court to abandon the laissez-fair philosophy of the Lochner era: it could no longer be regarded as restoring the natural order which had been upset by Legislature. Also Roosevelt was elected to his second term in 1938 and saw this as an opportunity to re-obtain support for his New Deal legislations that had been struck down during the Lochner era.
b. Philosophies: Legal Realism
2. The End of Lochnerism
a. West Coast Hotel v. Parrish (1937) [Hughes 5-4]
i. Justice Roberts switched sides constituting the 5th vote to uphold state law that required a minimum wage for women employees.
ii. Expressly overturned Adkins and Morehead.
b. US v. Carolene Products Co. (1938) [Stone 5-4]
i. Justice Roberts switched sides constituting the 5th vote to uphold ban on filled milk: obtained by mixing vegetable oil and milk.
ii. ***Most famous for Footnote 4 (p544) – that proclaims a need for judicial deference to government economic regulations, with more aggressive judicial review reserved for cases involving fundamental rights and discrete and insular minorities. Court basically applied rational basis test à that is the standard applied today à thus why economic substantive due process not used. The latter half of the sentence is the birth of strict scrutiny for fundamental rights… the “seed” that grew into strict scrutiny.
3. *Economic Substantive Due Process Since 1937: Since 1937, not one state or federal legislation has been found unconstitutional as infringing on liberty of contract as protected by the Due Process Clause of the 5th and 15th amendments.
a. Rational Basis Test: Laws only need to be “rationally related” to a legitimate government purpose – a reasonable way of attaining an end – it did not need to be narrowly tailored to achieve that goal.
b. Williamson v. Lee Optical of Oklahoma (1955) [Douglas]
i. This is the paradigm case of post-1937 judicial deference to government economic regulations. Court upheld law that prohibited individuals from replacing lenses without a prescription from a licensed eye doctor. Court re
ing it is regulation that is taking the property, they are simply admitting they are taking property.
3. Possessory Takings
a. Introduction
i. This is where government confiscates or physically occupies property.
b. The Per Se Rule (Rigid Rule):
i. It IS a taking, if it is a permanent physical occupation by, or mandated by, government.
A. This is a rigid, per se rule. It is a taking w/o regard to the public interest it may serve. This is one of the few times we have a per se rule in the takings area.
c. Case Examples
i. Loretto v. Teleprompter Manhattan Co.
A. NY law required a landlord to allow a cable TV company to install a line on the building. This physical occupation was considered a taking.
B. A permanent physical occupation authorized by government is a taking w/o regard to the public interest that it may serve or the fact is has only a minimal economic impact on the owner. Even a small occupation is sufficient, since it was a permanent physical occupation.
ii. Pumpelly v. Green Bay:
A. Where gov’t built a dam and flooded P’s property, it was a permanent physical occupation.
iii. US v. Causby:
A. Frequent flights over a landowner’s property was a taking.
4. Regulatory Takings
a. Introduction
i. VERY important dichotomy:
A. Gov’t could hardly go on if to some extent values incident to property could not be diminished w/o paying for every such change in the general law. Some values are enjoyed under an “implied limitation” and must yield to the police power. Only where it reaches a certain level is it considered a taking.
B. The Basic Question in All the Cases: With respect to any gov’t regulation, are we talking about a normal everyday exercise of state police power (so not considered a taking), or are we getting into the realm of something that can be redefined as “constructive eminent domain?”
ii. The Clash of Values
A. Much of this comes down to a “clash of values” between landowners/developers (those interested in developing their property) and conservationists. Landowners think they should be able to use property as they please. This is just as unsatisfactory as planning in person’s private bedrooms.
b. Rules
i. Old Rule (Penn Coal)
A. Taking may be found when gov’t regulation goes “too far.”
ii. Per Se Rule (Lucas) [MODERN]
A. Government regulation is a taking if it leaves no economically viable use of property.
1. This must be a 100% deprivation of economic use.
2. Government regulation is NOT a taking simply because it decreases the value of a person’s property.
iii. Flexible Rule (Penn Central) [MODERN]
A. Factors to Determine if it is a Regulatory Taking:
1. Economic impact of the regulation on the claimant;
2. Extent to which the regulation has interfered with investment-backed expectations;
3. Character of the government action (i.e. physical invasion).
a. Taking is more easily found if it is a physical invasion, rather than from some public program adjusting the burdens and benefits of economic life to promote the common good.
B. Mere denial of one’s ability to fully develop their land, in and of itself, is NOT a taking!
C. Note: Under this rule the analysis is similar to rational basis review, in that the government almost always wins, and developers lose.
c. Case Examples:
i. Penn Coal v. Mahon
A. State law prohibited mining company from mining lands in which they owned the mineral rights and had contractual right to mine under houses.
B. Test is one of whether the government regulation went “too far.” The Court must look at the extent of the diminution to the coal company. Under these facts, it was a taking.
1. This case was overruled in 1987.
ii. Miller v. Schoene
A. Cutting down the trees in someone’s yard to stop the spread of disease to others’ apple orchards was NOT a taking.
iii. Penn Central v. NY
A. This is the most important rule in the area of regulatory takings.
