American Constitutional Law LAW-210

1. American Constitutional LawLAW-210 Economic Due Process

2. Unit Objectives At the completion of this unit, students should be able to: Identify the provisions of the Constitution that protect property rights and economic interests and briefly describe the protections granted by each provision. Describe how substantive due process protects property interests. Explain how the Supreme Court used the Due Process Clause to strike down labor laws and business regulations. Describe the different ways in which government takes property so as to require compensation under the Fifth Amendment. List the criteria used by the Supreme Court to determine if a law or regulation results in a taking for Fifth Amendment purposes.

3. Unit Objectives(Continued) Describe examples of laws or regulations that resulted in a taking for Fifth Amendment purposes. Compare and contrast a taking with a forfeiture. Identify the type of law that comes under the provisions of the Contract Clause. Explain what is meant by the obligation of contracts. Explain how state police power affects the Contract Clause.

4. Constitutional Protections for Property Rights and Economic Interests • The Constitution protects property rights and economic interests through the Due Process Clauses, the Takings Clause of the Fifth Amendment, and the Contract Clause in Article 1 §10. • Under the Due Process Clauses, laws that affect property or economic interests must have a legitimate state interest and not be arbitrary or irrational. • The Takings Clause prohibits federal and state governments from taking property for public use without just compensation. • The Contract Clause prohibits states from passing laws that interfere with the obligations of contracts.

5. Lochner v. New York198 U.S. 45 (1905) • Casenotes • Held that: • A state statute forbidding bakers to work more than 60 hours per week or 10 hours per day violated the liberty protected by due processes of the Fourteenth Amendment. • The statute interfered with the freedom of contract, and thus the Fourteenth Amendment’s right to liberty afforded to employer and employee – the state had no reasonable grounds for interfering by determining the hours of labor.

6. Substantive Due Process • The liberty of contract right being asserted in Lochner v. New Yorkwas a substantive due process right based on the Liberty Clause of the Fourteenth Amendment, not the Contract Clause of Article I, section 10 of the Constitution. • Fearing legislative invasion into all aspects of private life, the Court used substantive due process to prevent legislatures from enacting laws that drew lines, with respect to an individual’s freedom, that the Court considered arbitrary. • States must have a legitimate state interest in enacting laws that take away property and laws must not be arbitrary.

7. Nebbia v. New York291 U.S. 502 (1934) • Casenotes • Held that: • A state Milk Control Law adopted in 1933 to combat the effects of the Great Depression that established a board empowered to set a minimum retail price for milk did not violate the Due Process Clause of the Fourteenth Amendment. • Since the price controls were not “arbitrary, discriminatory, or demonstrably irrelevant” to the policy adopted by the legislature top promote the general welfare, the statute was consistent with the Constitution – there is nothing “peculiarly sacrosanct” about prices that insulates them from government regulation.

8. Craigmiles v. Giles312 F.3d 220 (6th Cir. 2002) • Facts: • Plaintiffs challenged a state law that forbade anyone from selling caskets without being licensed as a funeral director. • Licensing required two years of education and training, little of which arguably pertained to casket design or selection. • Held that: • Insofar as the law barred nonlicensed funeral directors from the retail sale of caskets, the restriction violated both the Due Process and Equal Protection Clauses of the Fourteenth Amendment in that it lacked a rational basis.

9. Taking: Physical vs. Regulatory • Eminent domain involves the physical (or possessory) taking of property that will be used for some public use (road, park, etc.). • Regulatory taking results from laws such as zoning or landmark ordinances – it does not involve a physical taking but interferes with the owners free use of property. • Government regulation constitutes a taking if it does not substantially advance a legitimate state interest or leaves no reasonable, economic, or viable use of the land. • Government regulation that simply causes a reduction in the value of the property (even if drastic) does not constitute a taking.

10. Fifth Amendment Takings • In determining whether a law results in a taking for Fifth Amendment purposes, the Supreme Court uses the following factors or criteria: • The character of the governmental action, • The economic impact, and • The interference with reasonable investment-backed expectations.

11. Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency535 U.S. 302 (2002) • Casenotes • Held that: • A moratorium on development imposed during the process of devising a comprehensive land-use plan did not constitute a per se taking of property requiring compensation under the Takings Clause of the Fifth Amendment. • Whether a taking occurred depended on the considerations of landowners’ expectations, actual impact, public interest, and reasons for the action – the adoption of a categorical rule that any deprivation of all economic use, however brief, constitutes a compensable taking would impose unreasonable financial obligations upon governments for the normal delays in processing land use applications.

12. Takings: General Provisions • Unless there is a physical taking, the Court requires a complete loss of use of the property before it results in a taking. • Government regulation that simply causes a reduction in the value of the property (even if drastic) does not constitute a taking. • Property subject to the Takings Clause includes real property, personal property, and intangible property interests (e.g., trade secret information, rights to a professional football team, interest on lawyers’ trust accounts). • If a taking has occurred, just compensation must be paid, which is measured in terms of the reasonable market value of the loss to the owner.

13. Taking v. Forfeiture • Taking is for a public purpose and does not involve a wrong done by a property owner. • Forfeiture is a penalty for the commission of some offense (although not necessarily by the property owner – it could be someone simply in lawful possession of the property). • No compensation is required for forfeiture.

14. Bennis v. Michigan516 U.S. 442 (1996) • Casenotes • Held that: • Confiscation by a state of a married couple’s jointly owned car as a public nuisance because of the husband’s use of it to conduct illegal and indecent activity did not violate the wife’s constitutional rights under the property clauses of the Fifth and Fourteenth Amendments. • The state’s abatement policy, aimed at deterring criminal uses of property, lawfully transferred title to the state and as such, did not require the state to compensate the owner for the vehicle’s forfeiture.

15. The Contract Clause • Article 1 §10 prohibits any state from passing any law “impairing the Obligation of Contracts…” • In interpreting this section of the Constitution, the Supreme Court has concentrated on addressing the following: • What does “law” include? • What is the “obligation of contracts”? • Does the state police power authorize laws that impair contractual obligations?

16. The Contract Clause(Continued) • The Court has interpreted the term law under the provision of the Contract Clause to include only legislative acts, not case law. Central Land Co. v. Laidley (1895) • The term obligation of contracts means duty of the parties to perform. • Applies only to executory contracts, not to executed contracts.

17. The Contract Clausevs. State Police Power • The Contract Clause is not an absolute prohibition on laws that impair obligations of contract. • By proper use of state police powers, states can enact laws that impair contractual obligations. • The state needs a legitimate interest in order to use state police powers.