Constitutional Law Flashcards
(1)(a) Does the State A statute substantially impair the contract between CarCo and the dealer?
First, Article I, section 10 of the Constitution provides that “[n]o state shall . . . pass any . . . Law impairing the Obligation of Contracts.” Because the State A statute makes unenforceable a term in an existing contract between private parties, the threshold question is whether the law “operate[s] as a substantial impairment of a contractual relationship.” Here, the State A statute substantially impairs CarCo’s rights under the dealership agreement because CarCo would not have anticipated the statute when the agreement was entered into, and the unilateral right to terminate was an important contract term.
(1)(b) Is the State A statute drawn in an “appropriate” and “reasonable” way to advance a significant and legitimate public purpose?
Second, a court would likely find that the State A statute is not an appropriate and reasonable way to advance a significant and legitimate public purpose because it lacks the hallmarks of such a law. While arguments might be made either way, the statute apparently does not address a general societal problem, such as a statewide economic crisis or natural disaster, but rather was enacted in response to specific private conduct. The statute does not cover threats to the government’s interest (i.e., the unequal bargaining power between automobile dealers and manufacturers in the state), but rather targets only a subset of those threats (i.e., only rural dealerships). And last, the statute is not a temporary measure but rather imposes an indefinite requirement. Thus, the statute likely violates the Contracts Clause.
Contracts Clause - General Principles
Three general legal principles apply to analysis under the Contracts Clause of the U.S. Constitution. U.S. Const. art. I, § 10.
First, the Contracts Clause applies only when a state law retroactively regulates contracts made before the law was enacted.
Second, when the Contracts Clause applies, the threshold issue is the degree to which state law impairs or interferes with the party’s contract. The degree of impairment must be substantial or significant to trigger further analysis.
Third, if a state law substantially impairs the party’s contract, courts apply a means-end balancing test to determine whether the law is constitutional. The applicable test is a form of intermediate scrutiny: the statute must be (a) a reasonable and appropriate way to (b) advance a significant and legitimate government purpose.
Does application of the State A statute to CarCo’s rights under the dealership agreement with the dealer violate the Contracts Clause? Explain.
The State A statute substantially impairs the obligation of contracts between automobile manufacturers and dealers because it overrides an important contract term, and the parties could not have anticipated enactment of the statute when they entered into the agreement.
Contracts Clause
The Contracts Clause of the U.S. Constitution provides that “[n]o state shall . . . pass any . . . Law impairing the Obligation of Contracts.” U.S. Const. art. I, § 10. Because the dealership agreement is between private parties, the first step of the Contracts Clause analysis is to determine whether the challenged law “substantially impairs” the obligations under the parties’ contract. The Supreme Court has explained that this first step has three questions: “whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial. Normally, the first two are unproblematic, and we need address only the third.” General Motors Corp. v. Romein, 503 U.S. 181, 186 (1992). As is typical, the first two questions are “unproblematic” in this case; there is a contact between the automobile manufacturer and the dealer, and the state law impairs that contract by altering the provision on termination of the agreement. The question, then, is whether that impairment is substantial.
Whether the impairment is substantial
The Court’s cases have considered three circumstances in determining whether a challenged state law substantially impairs private contracts. First, a state law does not substantially impair a contract if it merely tracks the contracting parties’ likely intent or expectation, or allows a contracting party to easily override the statutory provision. See Sveen v. Melin, 584 U.S. 811, 819 (2018) (state law voiding ex-spouse as life insurance beneficiary after a divorce did not impair the insurance contract when it allowed the insured to simply re-designate the former spouse as a beneficiary). Here, the state statute is clearly contrary to CarCo’s intent.
Second, a state statute will not impair private contracts if it merely enters an area already heavily regulated by the state, so that the parties could have anticipated the challenged law. City of El Paso v. Simmons, 379 U.S. 497, 514 (1965). Here, that is not the case. Neither the state’s statutory nor common law had specifically regulated agreements between automobile manufacturers and dealers, and the question provides no facts suggesting that CarCo could have anticipated the statute at the time it entered into the dealership agreement.
Third, a state statute substantially impairs the obligation of a private contract if it negates a contract term that was important to the parties’ bargain or that “substantially induced” a party to enter into the agreement, id., as opposed to merely burdening an ancillary aspect of the contract. See id. at 515. Here, the affected contract provision is important to CarCo’s contract because CarCo’s ability to terminate a poorly performing dealership protects both profitability and overall brand value in a region. The dealers may respond that the statute does not prohibit termination of a dealership but rather limits the reasons for doing so. CarCo would respond that the statute defeats the contractual right that it had bargained for: unilateral termination upon 60 days’ notice without any recourse. Also, CarCo has consistently refused to omit the term from dealership agreements. Consequently, the state statute likely substantially impairs the obligation of CarCo’s private contract.
Equal Protection Clause
The Equal Protection Clause of the Fourteenth Amendment provides: “No state shall . . . deny to any person within its jurisdiction the equal protection of the laws.” U.S. Const., amend. XIV, § 1. The Supreme Court has applied three tiers of scrutiny under this Clause. See John E. Nowak and Ronald D. Rotunda, Constitutional Law § 14.3(a)(v) (8th ed. 2010). Strict scrutiny applies to laws that intentionally discriminate based on race or national origin. See id. Intermediate scrutiny applies to laws that intentionally discriminate based on sex or against non-marital children. See id. And rational basis review applies to all laws that do not receive strict or intermediate scrutiny. See id. The face of the State A statute does not discriminate on any basis that would receive strict or intermediate scrutiny, and the statute’s legislative history does not reveal an intent to do so. See Washington v. Davis, 426 U.S. 229, 246–47 (1976). Consequently, rational basis review is the proper Equal Protection standard of review for the State A statute. Cf. Fitzgerald v. Racing Ass’n of Central Iowa, 539 U.S. 103, 107 (2003) (applying rational basis review to a “law [that] distinguishes for tax purposes among revenues obtained within the State of Iowa by two enterprises, each of which does business in the State.”).
Rational basis review
Rational basis review requires that the challenged law be rationally related to a legitimate government interest. See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 462–63 (1981). The Court has held that any government purpose other than bias or animus will satisfy this requirement. See Village of Willowbrook v. Olech, 528 U.S. 562, 564 (2000) (per curiam). The Court will accept the government’s asserted purpose for the law, and it will not credit evidence of a supposed “actual purpose” harbored by members of the legislature outside the legislative record. See Clover Leaf Creamery Co., 449 U.S. at 463 n.7 (“We will not invalidate a state statute under the Equal Protection Clause merely because some legislators sought to obtain votes for the measure on the basis of its beneficial side effects on state industry.”). Here, the Court would accept the state legislature’s asserted purpose of addressing an inequality of bargaining power, and it would not accept evidence of the privately expressed views of members of the State A legislature concerning their anger toward automobile manufacturers. And promoting the economic success of an industry like automobile dealers is a legitimate government purpose. See Fitzgerald, 539 U.S. at 108 (legislative purpose of promoting the economic interests of racetracks was a legitimate state interest).
Substantive due process
The Due Process Clause of the Fourteenth Amendment provides: “nor shall any state deprive any person of life, liberty, or property, without due process of law.” U.S. Const., Amend. XIV, § 1. The Court has long interpreted this language to protect more than the right to fair process, holding that the word “liberty” ensures that laws are also substantively fair. See Washington v. Glucksberg, 521 U.S. 702, 719–20 (1997). For fundamental liberties, like aspects of the right to privacy, the Court applies strict scrutiny to laws that burden the liberty interest. Id. at 720. For some specific fundamental liberty interests, such as the right of a fit parent to make decisions for a minor child, the Court applies a specific test to assess a law’s constitutionality. See Troxel v. Granville, 530 U.S. 57, 66–67 (2000). All other liberty interests are classified as “ordinary” (and not “fundamental”), and the Court applies rational basis review to laws that burden these “ordinary” liberty interests. See Glucksberg, 521 U.S. at 728
As with Equal Protection, substantive due process rational basis review requires only that the challenged law is rationally related to a legitimate government interest. Also, substantive due process rational basis review similarly accepts the government’s asserted interest and defers to the government’s judgment that the burden on an ordinary liberty interest is rationally related to the interest. Thus, for the same reasons discussed in Point Three, the statute would survive substantive due process rational basis review.
