Constitutional Law I

21 October

• Montana Coal again...
  Montana increased its severance tax on its low-sulphur coal in an astute market-milking plan. Alaska did even better: it doesn't even have income taxes-- it has an annual rebate, even.

  So, is this constitutional or not? SCOTUS says so: the four-prong auto body test. Four is the regular maximum number of prongs, by the way.

  1. Nexus with the taxing state. This is elementary, or we'd be taxing everyone. This wasn't contested: the coal was from Montana. It's a no-brainer-- of course there's a nexus. Conceding points like this is a fatal mistake, incidentally. There was a comedic case where WI tried to tax meals on NWA flights if they were eaten over WI. That had too little nexus.
  2. Fairly apportioned tax. Can't tax in a way that puts other would-be taxing states at a disadvantage: e.g., a pipeline tax. A pipeline going through 10 states... all the states along the way want to tax the oil going through the pipeline. Suppose one says "let's tax it at 100% of the value:" that's just going to bankrupt the pipeline. So when more than one state can tax an activity, they have to be modest, and not just clobber one another. This also was conceded by the plaintiff.
  3. Can't discriminate against interstate commerce. This gets argued: 90% of MT coal is shipped out of state. So MT is accomplishing what everyone else wants-- effectively taxing out-of-state people. But the court says this isn't really discriminating-- just because MT has few coal consumers doesn't mean there's discrimination: MT consumers pay tax at the same rate as out-of-staters. So that's different from Dean Milk or the NJ case.
  4. Tax has to be fairly related to the services provided by the state. And here, the amount of the tax vastly exceeds the cost of the problems to which MT is subjected by the removal of the coal. And most of this coal comes from land that's federally owned; maybe this tax isn't fairly related to the value provided.
  SCOTUS says that the third point folds over into the fourth point, and the fourth is really all about nexus (which was conceded). QED.

  So that's a pretty formalistic argument. The court also says that the argument here is really about the tax being too high, not about whether MT could tax at all. MT says the court isn't there to deal with rate arguments-- they're not going to draw a line between too-high and not-too-high-- and the court agrees. The market is supposed to restrict crazy rates, at least somewhat. Of course, the whole point of the dormant commerce clause is that competition doesn't level it enough, and national intervention is required. Congress could intervene, though.

  Why should MT win?

  • Federalism: let MT decide
  • Separation of powers: role of the legislature
  • Competition and free market: this isn't the only source of coal
  Note that when MT levies a tax, that raises utility prices for everyone. Why shouldn't they be able to do it?
  • Dormant commerce: states shouldn't be able to regulate interstate commerce, and the courts are out there to enforce the constitution.
  If there is grounds for taxation at all, the courts will only intervene when in extreme instances. This is why dormant commerce clause problems are all over the map. Congress isn't going to intervene: they don't want to lose MT electoral votes.

  But all the same, it's pretty clear what MT is doing here: exploiting the interstate commerce network. Church's wife used to clerk for Rhenquist, looking at cert requests, incidentally.

• Consequence of the dormant commerce clause: natural resources do not belong to the states. They belong to the nation. But this only goes so far, and a clever state can subtly maintain a revenue stream on this basis.
• Cases not in the materials:
  • A few years ago, all midwest states (except IA) had a three-part tax formula for taxing businesses. WI taxed on income on the sales of products in WI, payroll paid in WI, and real property owned in WI. IA just had a tax based on sales in IA. So suppose you were a company trying to figure out where to locate its warehouse: IA is very attractive (sales tax, but no payroll or property tax). Neighboring states complain that IA is sniping business by structuring its taxes this way. SCOTUS: this is too fine a point for us, and we're not going to get into it. IA wins.
  • A WI case vs Exxon. Exxon's business in WI (retail sale of gas) actually operated at a loss. So Exxon thought: no need to pay income tax here. WI says... um... we count money differently than you, and we'll be taxing gross income, not net. WI wins.
  • KY vs. Davis. KY overtly discriminates against out-of-state purchasers of some municipal bonds. This makes a nice tax shelter for some people.
• OK, so moving on. Now constraints on the states imposed by federal courts, not by congressional incursions. What can federal courts do to constrain state behavior? Well, there's the Impairment of Contracts clause: Art 1 § 10, clause 1: no state shall [...] impair the obligations of contracts.
• Early on (Fletcher v. Peck), the clause meant that states couldn't step into contract terms. GA sold off some of its vast tracts of land: the speculators sold the land off to speculators, who re-sold on the private market and made a killing. But it turns out the speculators had bribed the entire freaking legislature. Outrage: everyone is voted out. The new legislature came in and said that those sales are off. SCOTUS: we do not question motive (lest there be endless intrusion in the states' business). Also, a state can not upset contractual obligations, especially not its own.

  Of course, nearly all legislation impairs contract in some ways. But smarties find an implied clause in every contract: the state may upset the contract if it's in the best interests. So the impairments clause gets overrun, and only gets cited every 30 years in some outrageous case.

  But one of the proposals for the current credit crisis has been to declare a moratorium on foreclosures. So the issue got raised. It got raised in the depression, in the same context, and the court said, no this doesn't impair contracts.

• But there's aother clause which is the functional equivalent: 14A and 5A: substantive due process. Does "liberty" mean liberty of contract? free market liberty? What does it mean? This and more next time...

22October

• Federal power over the states exercised by courts. The impairments clause came and went, of course. Due process, on the other hand, had a lot more staying power.
• So what is "due process?" Well, there's procedure: have we had enough trial in order to justify the outcome? A lot of crim pro is federal courts resolving state procedural issues.
• But there's substantive due process as well: are there some things a government can't do, regardless of how much procedure there is? Like torture. But what are the boundaries of substantive due process? The word substantive doesn't turn up in the constitution, and even if it did, it's not clear what it means.
• Lochner
  Regulation of bakery work hours. This was justified on health grounds, but it's pretty clear that the actual motive is to protect existing workers against the influx of German immigrants who are willing to work way longer.

  This is a labor regulation, and it conflicts with the US constitution, which preserves liberty. And liberty includes liberty of contract, and states may not intervene in this substantive issue.

  Herbert Spenser (mentioned in Holmes's dissent) was a total laissez faire capitalist. Holmes says the constitution is silent on economic theory, and the court here is imposing something on NY here. Well, actually, Holmes says the constitution doesn't embody extreme capitalism, not that it's silent altogether. That's a subtle point, but it's not clear exactly what Holmes meant with that comment.

• Lochner was pretty much the high point for substantive due process.
• Note that the impairments clause covers only the states; substantive due process covers federal things as well. So in Lochner, even though the issue was contract once again, the means was different.
• Some stuff that happened after Lochner not in the materials:
  • Mueller v. Oregon: the source of the Brandeis Brief. Regulation of womens' working hours. So it's OK to limit the hours of women. Not because liberty of contract is no longer needed, but because women need to be taken care of so they can bear and raise children, so it's OK to curb their hours. And this doesn't count as overruling Lochner, although it does count as some awesome gender discrimination.
  • Atkins: Frankfurter was the plaintiff's lawyer on this one. His brief was not loved. This one time, by the way, the time for oral argument ended. Frankfurter wanted to ask one more question, and the rest of the court left. Anyway, in this case, in 1923, the court extended Lochner to federal claims as well.
  • Now all this time, the court was also striking down a lot of New Deal legislation, even as they were protecting substantive due process. And this got frustrating for the legislature. The first case after court-packing (not the first Commerce Clause case) ruled that liberty of contract had no place in the constitition. This is West Coast Hotels v. Parrish, and this was the death knell for substantive due process-liberty of contract. So liberty, it turns out, is not freedom from sensible regulation. That means, really, that liberty is some kind of regulation. Bye-bye, substantive due process, at least in liberty of contract.
• There might be other flavors of substantive due process, though, and the court finds fundamental rights every once in a while. Totally unmentioned in the constitution, just like "substantive due process." This gives the court carte blanche to do totally novel things.
• Skrupa (Ferguson)
  Are there any limits on an interest group's capacity to carve out a momopoly for itself? Are there constitutional rights for liberty of profession? The statute says only lawyers can engage in debt adjustment.

  The court quotes Holmes, and expands on him: the constitution doesn't touch economics.

• Eastern Enterprises v. Apfel
  As more companies got out of coal mining (due to rising health care costs), there was less money paid into the trust fund to provide benefits. And so there were about 1,000 people (miners and their families) who were getting the shaft. WV senators make their case in congress, and congress decides to help.

  The bill they draft (to fund this based on a coal tax) gets vetoed because of some lame rider. So congress comes back with a smaller simpler bill that says basically anyone who ever touched a miner has a role in paying the health care costs of these 1,000 people. The union estimates that this is about $50M. The coal side says $100M. So maybe it's $75M.

  Scalia and Thomas can't abide the finding of substantive due process rights and fundamental rights in the abortion arena. So they can't say those words. Without them, there's no majority, so it's necessary to call it something else.

  All 9 say this is retroactive. So now we know that retroactive is bad. But beyond that, they diverge, and there are so many different opinions that it's not clear if there really is a rule in there.

  Is this ex post facto? Yes, but SCOTUS said long ago that the ex post facto clause was for criminal matters only. This oas Calder v. Bull or some such. Thomas is willing to go there, and also call it a takings violation.

  Kennedy is the swing vote, and he is hampered by his baggage in Nolan and Dolan: he wants to say that takings are only about real property. If something is bad enough to be unconstitutional, does it matter what we call it? If we reject it on policy grounds, ought we not just to say so and be done with it? So anyway, we can't actually call it substantive due process-liberty of contract. Maybe this is substantive due process-property.

  This opinion is a muddle. It's impossible to say what the holding is. Clever lawyers have tried to plug this into various cases, but nobody knows what the theory of the court is. The five justices who agreed that this was substantive due process-property don't agree about whether it's constitutional, even. And when people seek cert on this basis: denied.

23 October

• Eastern Enterprises
  Why is this in the state power section? Because it had to come after Lochner, not because it's a state power case.

  So, first, is this sufficiently bad to warrant the title "unconstitutional," and second, under what label?

  Four say it's a taking without just compensation. Except that this isn't a normal taking at all: the law has never just taken money.

  One says retroactive, in violation of the ex post facto clause, but nobody else likes that because it means overturning an old case that says it's only for criminal.

  Five say it's substantive due process, but not liberty as in Lochner. Rather it's substantive due process-property. And that's a whole new term, and therefore undefined: what does property mean in the context of 14A? Four of those five say that this is what it's called, but in order to be unconstitutional it has to be "fundamentally unfair," and the facts of this don't add up to that. Why? Because there is some connection between these 1,000 people and Eastern.

  Note that there's a corporate veil: owning one share doesn't make you liable. So Eastern's ownership of a subsidiary isn't a very big deal-- this is WHY we have corporations, incidentally. And these 1,000 people weren't employed by the subsidiary anyway.

  Well, even so, that's a closer connection than anyone else in the picture. This is straying near the inference-on-inference problem, though. And there were other parties (the government and the unions) who maybe colored what people thought of the contract, so the workers thought they had a better deal than they did: parole evidence rule counters this. And the right remedy would be for congress to appropriate federal money, in those circumstances.

  Today's Eastern didn't benefit from the workers' labor: that was all long ago. And even the shareholders back then weren't the only beneficiaries. And if we hold Eastern liable today, we harm today's shareholders, workers, and those who consume Eastern's services.

  So the fact that there's some connection is quite debatable. So is this so thin that it's unconstitutional? Now we move to the policy side.

  The Government/Widows/Winers: This is constitutional.

  • Separation of powers: we rely on elections for accountability, not unelected supreme courts. This should be fought out in the legislature. And we might be setting ourselves up for another court-packing smackdown. And if this is a taking, then so are lots of other things (esp. environmental measures like the superfund... or taxes). Plus confronting congress is something we've been avoiding for so long.
  • Lots of basic cases represent a clash between two fundamental policies, and this is what makes them difficult. Here it's equality and liberty-- both strong values-- and they can't both win. The government thinks equality should win: it's unacceptable to deny these people medical care. There's textual support for egalite: the declaration of independence, for example. And 14A.
  • Utilitarianism: the greatest good for the greatest number.
  • Radical disparities undermine faith in the system, participation, and morale. So we need at least relative equality. You can't have a stable political system without equality. Equality trumps liberty in this sense.
  • Liberty is nice, but basic health is an even more basic value.
  • Liberty of contract: this was adhesive.
  • Economic progress: we need to pay people enough that they'll be willing to work. And, by the way, to buy things. This was the basic philosophy of the New Deal: pay people enough to buy things, and that will sustain the economy.
  • No need to rock the boat: the US economy has been working pretty well overall, and we are used to this kind of federal power. Maybe in the Olden Dayes SCOTUS would have revolted, but at this point, if we want to influence policy, just hire a lobbyist.
  • And so what, anyway? $75M is just going to come out of the economy someplace, one way or another.
  Eastern : This is constitutional.
  • Egalite: we've had growing disparities for a long time: so what?
  • Liberty of contract: this was a vigorously negotiated deal.
  • Separation of powers: the court should defer, but this isn't a broad-based economic matter. It's an individual losing $75M, just because the public wants it. If SCOTUS acquiesces to that, then it's feckelss: why even have a court if it's not even going to protect individuals?
  • Let the market handle this: it's the ultimate separation of powers. It's better to split this decision between as many people as possible.
  • The constitution protects liberty. That's freedom from intrusive meddling.
  • Liberty of contract and property ownership are the two greatest civil rights (though they are usually considered individual or economic rights), but they are ultimately the right to be autonomous and free from the government.
  • Liberty outweighs egalite. Maybe it does give way to health, but that's not really the issue here. The issue here is not whether there will be health care, but who will be paying for it.
  • Equality favors Eastern anyway: the government is essentially arguing that all decisions should be made by congress. This means that those who lobby congress control all decisions. That's not good for refular folks. It's the Iron Triangle again (see 9/29/08): nobody who really controls legislation is accountable, either. The more power shifts to government, the less equality.
  • Economics: corporations will just periodically dissolve themselves and re-form, in order to avoid this kind of liability. Or move offshore. Or not bother creating concentrated wealth. This will reduce investment and retard growth.
  • Individuals and markets will make better policy decisions than concentrated legislatures anyway. If congress can get away with this kind of move, congress will pay profligately for all sorts of things: there's no cost to congress if they can just appropriate their funding from elsewhere. There will be unfunded mandates galore, because they don't cost anything. Unfunded mandates are not rational economically.
  • Don't try to roll the clock back to 1936-- that's never going to work.
  Relationship between policy debates and stated grounds for opinions. We've looked at three ways to analyze this case: taking, ex post facto, and violation substantive due process-property. These look radically differently, but they lead to the same policy ends.

  And there are zillions of others. You could use substantive due process-liberty of contract. This is like Lochner quite a bit, really. Well, SCOTUS can't resurrect that case-- they themselves have condemned it. But they could impose a Locher "lite: this case is so extreme that it might pass.

  There's 14A equal protection, as well. No suspect category, but there's the requirement for rational basis (perhaps "with bite" as in Ferdon). Maybe this fails the rational basis test.

  Maybe it fails the taxing and spending limits: it's not levied on the general public, and it's not spending on the general welfare.

  And we could make a different takings argument: this isn't for public use-- it's got no public purpose, it's just robbing Peter to pay Paul.

  Or maybe this is one of those rare cases where Impairment of Contracts comes back.

  Or maybe it takes inference-on-inference to make this either interstate or commerce (cf. Lopez).

• So when we ask "how much federal power is there," the answer is that ultimately congress decides, in effect. That's not maybe how it was planned, but there you have it.