Economic Due Process Flashcards
What is Economic Due Process?
The idea that individuals and businesses have a fundamental right to engage in business activities without arbitrary interference by the government.
The Slaughterhouse Cases (1873)
Background
* This is a civil war case, and the 14A was JUST ratified (very fresh)
* Louisiana wants to clean up Mississipi river and begins to prohibit livestock slaughter in New Orleans since the large amount of dead animals were being dumpy in river. All slaughterhouses, except for 1, were prevented from functioning.
* Bunch of butchers sue, stating that the 14A applies to them and economic livelihood, not just slaves.
Issue
* Does the Louisiana Law violate the 14A? [No]
Reasoning
* First time the Court had to address a Civil War amendment
* The purpose of the 14A was to protect newly freed slaves and stop slavery.
* The only defined protected class was slaves and black citizens
* Butchers were not included in the definition just yet, so the Court ruled that the LA law could not have violated the butcher’s rights
Other Opinions
* J1 (dissent): Economic livelihood should be included in the 14A definition. Fundamental liberties are a function of being a citizen.
* J2 (dissent): LA law prevents citizens from pursuing economic livelihood, a fundamental liberty. Isn’t the 14A supposed to prevent this in the first place?
Munn v. Illinois (1877)
Background
* Grain storage is a major industry in Chicago, so Illinois begins to put price controls after companies begin to charge insane prices for their services.
* Munn has a grain storage business, but he is one of the businesses w/ lots of fraud. He goes bankrupt by the new regulations and gets fined by Illinois for breaking the new laws. Munn challenges by arguing that the law arbitrairly deprives his business from functioning w/o gov’t interference.
Issue
* Does the Illinois law violate the Due Process Clause of the 14A? [No]
Reasoning
* What does deprive in the Due Process Clause exactly mean?
* The Majority Opinion stated that being “deprived of your property usage” does NOT necessairly mean a “deprivation of due process”
* Munn’s business was a public business involved in a public service, which was storing and shipping grains (and foods). Public businesses are subject to public regulations.
* Grain storage is also something significiantly impacting interstate commerce. It is the distribution of food to Americans, and thus it is subkect to regulations.
* Takeaway: The Illinois law is not a violation of the Constitution. A state can regulate a public business involved in a public service.
Other Opinions
* J1 (dissent): 14A is more than just the freedom from restraint; it includes the freedom to pursue vocations. If a state can, under the guise of public interest, control how a property is used, then they are essentially depriving the owner of the their property, kinda like confiscation. Nothing about Munn’s property is public as it isn’t a public nuisance, so this is just the gov’t trying to destory freedom.
Allegeyer v. Louisiana (1987)
Background
* Louisiana enacted a law that barred in-state businesses from contracting with out-of-state insurance companies.
* Allgeyer gets insurance from NY, gets caught. Allgeyer challenges the law.
Issue
* Does the Louisiana Law violate the 14th Amendment/Due Process Clause? [Yes]
Reasoning
* Majority opinion is continuing to expand upon the definition of liberty in DP.
* Liberty includes the freedom of (economic) livelihood, which includes the freedom to contract.
* Individuals have the right to contract with whoever they please. It is clear that the Louisiana law is infringing on that fundamental right thru the usage of their police powers.
Lochner v. New York (1905)
Background
* New York passes a law that decides the maximum hours for a baker. State argues that this is a police power/health regulation.
* Lochner owns a bakery and he is caught making an employee work more than the law requires. He challenges the law, saying it infringes on his freedom to contract with his employees.
Issue
* Does the NY law violate the DP Clause of the 14th Amendment? [Yes]
Reasoning
* Included in the freedom to contract is the freedom to purchase and sell labor (aka. deciding the contract terms)
* State still has police powers, but if they want to place labor regulations, then it MUST have a connection to public health and safety, such as if an industry is dangerous (eg. mining)
* However, baking isn’t so dangerous to the point it needs the state to step in. Also, baking has no reasonable connection to public health.
* Overall, the NY law was an arbitrary interference on a business/employer/employee’s freedom to contract w/o gov’t interference.
Muller v. Oregon (1908)
Background
* Orgeon puts a cap on the amount of hours women can work per day (10 hours)
* Muller breaks the law and gets caught. He argues that the Oregon law is now wrong under Lochner
Issue
* Does the Oregon law violate the DP Clause of the 14th Amendment? [No]
Reasoning
* The freedom to contract provided by 14A is not unlimited; states still have their police powers.
* Oregeon was able to substantially prove that women are historically and biologically at a disadvantage (women are dependent on men, they have less opportunities, long hours can be a burden on motherhood)
* The Court held that these findings were a reasonable connection to the general welfare, so the law is okay.
* {note: this case didn’t depart from Lochner; it just found that OR regulations were a reasonable use of state power}
Adkins v. Children’s Hospital (1923)
Background
* Washington DC does minimum wage for women and kids. Their justification is that they have enough money to protect morals.
* Problem is that employers cannot afford new minimum wage, nor did they agree to it when making their contracts w/ employees.
* Children’s Hospital doesn’t comply, challenges with the argument that the regulations violated the freedom to enter into salary contracts w/ employees.
Issue
* Does the DC law violate the 5th Amendment/Due Process Clause? [Yes]
Reasoning
* The right to contract is not absolute, and there are special circumstances that can limit it (eg. state police powers regulating labor for public health)
* However, this doesn’t apply here.
* Payments should be something that is left between the employer and employee when making a contract. The law mandates that a payment be based on an employee’s needs, regardless of the actual work done or the fairness of the compensation. This goes against the basic idea that payments are based on the service provided and should be a fair exchange between employer and employee.
* The law penalizes employers for contracting with capable parties, which is a clear violation of the freedom to contract. The law is a violation of individual liberties.
Other Opinions
* J1 (dissent): This is a reasonable law concerned for employee health. I thought Locher’s holding was over.
* J2 (Dissent): The freedom to contract isn’t in the Constitution, so this entire argument is false and made up.
Nebbia v. New York (1934)
Background
* New York is interested in maintaining the dairy industry so they set a Milk Control Board which can control the minimum and maximum prices a store can sell their milk products for.
* The point of the Board and price controls was to ensure that the milk producers got their moneys worth, while the prices remained affordable for consumers.
* Nebbia sells milk that breaks the regulations and he gets caught and fined. He challenges the price control regulation, arguing that it interfered with his freedom to conduct business.
Issue
* Does the New York law violate the Due Process Clause of the 14th Amendment? [No]
Reasoning
* Remember, while property rights and freedom to conduct business w/o gov’t interference is important, it is NOT absolute. During specific circumstances, states can use their police powers and place regulations on businesses to promote public health and general welfare.There will always be a tough fight and debate between individual liberties (freedom to business) vs police powers (regulations)
* Here, New York has huge public interest. There are public health concerns (milk is a huge staple product in the average life) and economic concerns (dairy is a huge industry and so there has to be some regulations
* Based off of precedent, the gov’t is allowed to use their PP and place regualtions on (1) businesses with public service and (2) if there is a connection to public health and general welfare. This was found in this case.
* Price controls are valid form of police powers.
Other Opinions
* J1: This is just wrong. What are we doing here. The price control is too far because if the gov’t can control the prices of various products, then it basically control how the businesses can run. Also, it takes away ppl’s ability to freely conduct their business and purchase what they want. It also places burdens on small businesses who are less financially supported and now have to abide by these price controls.
West Coast Hotel v. Parrish (1937)
Background
* Washington state passes a basic minimum wage law
* Parrish works for the hotel, but she gets fired in 1935. She was severely underpaid under the minimum wage, and she asks the Hotel for the difference (~216)
* Hotel only offers her $17 –> Parrish rejects and sues
Issue
Does the Washington law violate the Due Process Clause of the 14th Amendment? [No]
Reasoning
* This case overrules Adkins v. Children’s Hospital
* The entire idea of “freedom to contract” is NOT in the Constitution; in fact it is just a made-up term. The idea was just created to help the Court interpret what “liberty” meant in the DP Clause
* Additionally, in past precedent, it has been said that the “freedom to contract”/economic liberties can be trumped by public service/police powers.
* Adkins ruled that the minumum wage/salaries are protected under the freedom to contract and should remain btwn the employer and employee. This is now just wrong.
* For one, the Washington law (in this case), isn’t compelling the employer to pay the employee a specific amount; it just sets a minimum requirement for basic living expenses
* Second, the Washington law is protecting workers from bad employers. The law is simply protecting a class of people who don’t have equal bargaining power.
* Takeaway:*
* For states using police powers, they will need to use the rational basis test.
* Starting from this case and forward, the Court starts to rule against the “freedom to contract” argument. If someone wants to challenge a state on their usage of police powers by using the “freedom to contract,” then they will almost always lose bc it is not in the Constitution
Other Opinions
* J1 (dissent): Adkins was fine, why are we going thru all this again. The Court just made this change to get a policy it likes in the current day.
Williamson v. Lee Optical (1955)
Background
* Oklahoma requires a state license to fit eyeglasses (aka. You have to be an optometrist or ophthalmologist) – means opticians can’t do it
* Opticians sue and argue that there is not rational connection to public welfare [and unconstitutionally deprived opticians the right to perform their craft]
Issue
* Does the OK law violate the Due Process Clause of the 14A? [No]
Reasoning
* This is one of the cases that begins using the “rational basis” test established by West Coast v. Parrish
* As long as there is a plausible connection between the regulation and the public health, welfare, and safety of the people, then the regulation is okay.
* That was clear here– the state just wants to ensure that people getting a NEW prescription to their eyes (a health thing) gets a trustworthy and licensed person to provide that service. This is a plausible connection to public health
* Yes, the law may seem burdensome and unreasonable sometimes to prevent opticians from fitting ppl with NEW prescriptions, but that isn’t up to the courts to decide the pros and cons of a law; that is up to legislature.
BMW v. Gore (1996)
Background
* Gore buys a new BMW for $40k – gets it detailed to make it snazzier, but in the process, he finds that the car has been repainted. He gets made so he sues for punitive and compensatory damages
* After doing some research, Gore found the BMW policy: for a new car, if the damages are less than 3% of its value, then BMW will just fix it and sell the car as brand new without notice/disclosure to customers
Gore’s damage was 1.5% of the value of the car ($600)
* Jury awards Gore $4k in compensatory damages and $4 million in in punitive damages - reduced to $2 million on appeal (reduction because of bad jury instructions)
Issue
* Whether or not the punitive damages in the jury award violate the DP clause of the 14A? [Yes]
Reasoning
* State has a legit interest in using punitive awards. BUt awards that are too high can violate fairness guarantees of DP
* Justification for the jury award was to punish BMW for their national policy, but individual states can’t do that. The award was too excessive.
* Maj. Opinion provided 3 points to see if a jury award is too excessive:
* Degree of reprehensibility – how bad/evil was the (business’s) behavior?
In this case, it wasn’t so bad. There are no aggravating factors and there is no deliberate lying
Ratio of damages to harm – there is no precise formula, but $2 million is 500 times greater than the compensatory damages. To start with, we will be skeptical of any ratio that is 10 to 1, but in this case, it is more like 20000 to 1. But remember, there is no exact formula to determine these ratios.
Comparable sanctions? – usually max out in the 5-10k range
- Takeaway: While EDP is no longer used anymore, this case is about the implications of that era. The justices directly applied concepts of substantive due process to jury awards and concluded that grossly excessive awards violate the essential fairness guarantees of the Fourteenth Amendment.
Other Opinions
* J1 (concur): All this “jury award being excessive” stuff is a judgement of degree/dependent on a case-by-case basis. there is no exact rule or formula on determining what makes an award excessive. While this case, it was easy to see that the award was excessive, it may be more difficult in others
* J2 (dissent): This is a state issue. 14A doesn’t protect against jury awards we don’t like.
* J3 (Dissent): This is a subjective take. this isn’t an actual standard. This is bad.
