1. Lecture 41 The Contract Clause
Part 3: Modern Applications

2. This lecture We will finish Chapter 9
Modern Applications of the Contract Clause
More conservative justices entering the Court brought some life back to the Contract Clause

3. United States Trust Company v. New Jersey (1977)
Background
New York and New Jersey enter into a compact to form the Port Authority in 1921
It was financially independent funds mostly from private investors
They take control of the Hudson & Manhattan Railroad in 1962
As part of this, the states agreed none of the revenues of the authority would be used for securing bonds for further railroad expenditures
But in 1974, both states repeal this provision to make it eligible for bonding for transit
The plaintiff sues on the grounds that it impaired his bonds
They lose at the New Jersey Supreme Court, so they appeal

4. United States Trust Company v. New Jersey- II
Question:
Did the repeal of the 1962 law violate the Contract Clause?
Arguments
For United States Trust Company (did violate)
The 1962 agreement was a contract
The 1974 act abrogated it
This cancellation of the laws impaired the bondholders to their detriment
The actions were not taken out of need
Even if this is a use of police powers, it still violates the Contract Clause

5. United States Trust Company v. New Jersey- III
Arguments
For New Jersey (uphold the law)
All contracts are subject to the police powers of the state
Repeal of the 1962 law was needed to reduce pollution and promote mass transit
The company knew the agreement was subject to police powers
Thus it was not immune from reasonable state regulations

6. United States Trust Company v. New Jersey- IV
Justice Blackmun rules for a 4-3 Court
Prior precedent did not rendered the Contract Clause without meaning
Private contracts are not subject to unlimited modification of police powers
This does not give complete deference to states
The change has to be reasonable and necessary to serve important purposes
New Jersey loses this case
Less dramatic modifications could have worked rather than total repeal
The states had alternative means rather than modification or repeal
Mass transit had always been an important issue for this region, and nothing really changed that dramatically in 1974

7. United States Trust Company v. New Jersey- V
Justices Stewart and Powell were recused
Justice Brennan, dissenting
Joined by Marshall and White
This should not be used to maintain private property rights with the government
It is not the Court’s place to overrule local governmental policies
This was part of New Jersey’s police powers

8. Allied Structural Steel Company v. Spannus (1978)
Background
This was an Illinois company with an office in Minnesota
In 1963, it set up a pension plan for its employees it retained the right to modify or terminate the plan at any time
In 1974 Minnesota adopts a law requiring any company that shuts down or terminates a pension plan to by a fee to fulling fund the pensions
Nine employees had been there for 10+ years, but did not qualify
Minnesota said they did and charged the company $185,000
The company sues and loses at the trial court level, and appeals

9. Allied Structural Steel Company v. Spannus- II
Question:
Did The Private Pension Benefits Protection Act violate the Contract Clause?
Arguments
For the Allied Structural Steel Company (violates the clause)
It changes the provisions of the companies contract with employees
This goes way beyond Home Building & Loan v. Blaisdell
The state has essentially rewritten the pension contract
This is not in response to a crisis
It is not reasonable or necessary

10. Allied Structural Steel Company v. Spannus- III
Arguments
For Spannus (uphold the law)
This is aimed at legitimate public purposes
It is reasonable and necessary to achieve those purposes
This is a broad measure rather than narrow
The retroactive effect is permissible under current precedent

11. Allied Structural Steel Company v. Spannus- IV
Justice Stewart, writing for a 5-3 majority
The Contract Clause can impose some limits on state power to abridge
The effect of this law was severe for the company
This law substantially modified the pension clause in its contract
It imposed expected liability in crippling amounts
The law was narrowly targeted to not everyone, but employers that established pensions
Brennan dissents on similar lines as in the previous case
However, this did not expand the Contract Clause to what it was under Marshall
Court upholds a Kansas law dictating an energy pricing scheme
And a Pennsylvania law requiring 50% of coal to remain
Both went against existing contracts

12. Next lecture We have finished Chapter 9 and move on to Chapter 10
It deals with Economic Substantive Due Process
We will start with its development
Pages