Fourteenth Amendment. Section 1: Privileges and immunities of citizenchip, due process and equal protection
The Fourteenth Amendment and States' Rights Amendment of the Constitution during the post-Civil War Reconstruction period resulted in a fundamental shift in the relationship between the Federal Government and the States. The Civil War had been fought over issues of States' rights, including the right to control the institution of slavery. In the wake of the war, the Congress submitted, and the States ratified, the Thirteenth Amendment (making slavery illegal), the Fourteenth Amendment (defining and granting broad rights of national citizenship), and the Fifteenth Amendment (forbidding racial discrimination in elections). The Fourteenth Amendment was the most controversial and far-reaching of the three "Reconstruction Amendments." Citizens of the United States The citizenship provisions of the Fourteenth Amendment may be seen as a repudiation of one of the more politically divisive cases of the nineteenth century. Under common law, free persons born within a State or nation were citizens thereof. In the Dred Scott Case,
however, Chief Justice Taney, writing for the Court, ruled that this rule did not apply to freed slaves. The Court held that United States citizenship was enjoyed by only two classes of individuals: (1) white persons born in the United States as descendants of "persons, who were at the time of the adoption of the Constitution recognized as citizens in the several States and [who] became also citizens of this new political body," the United States of America, and (2) those who, having been "born outside the dominions of the United States," had migrated thereto and been naturalized therein. Freed slaves fell into neither of these categories.
The Court further held that, although a State could confer state citizenship upon whomever it chose, it could not make the recipient of such status a citizen of the United States. Thus, the "Negro," as an enslaved race, was ineligible to attain United States citizenship, either from a State or by virtue of birth in the United States. Even a free man descended from a Negro residing as a free man in one of the States at the date of ratification of the Constitution was held ineligible for citizenship. Congress subsequently repudiated this concept of citizenship, first in section 1 of the Civil Rights Act of 1866 and then in section 1 of the Fourteenth Amendment. In doing so, Congress set aside the Dred Scott holding, and restored the traditional precepts of citizenship by birth.
Based on the first sentence of section 1, the Court has held that a child born in the United States of Chinese parents who were ineligible to be naturalized themselves is nevertheless a citizen of the United States entitled to all the rights and privileges of citizenship. The requirement that a person be "subject to the jurisdiction thereof," however, excludes its application to children born of diplomatic representatives of a foreign state, children born of alien enemies in hostile occupation, or children of members of Indian tribes subject to tribal laws. In addition, the citizenship of children born on vessels in United States territorial waters or on the high seas has generally been held by the lower courts to be determined by the citizenship of the parents. Citizens of the United States within the meaning of this Amendment must be natural and not artificial persons; a corporate body is not a citizen of the United States.
Privileges or Immunities
Unique among constitutional provisions, the clause prohibiting state abridgement of the "privileges or immunities" of United States citizens was rendered a "practical nullity" by a single decision of the Supreme Court issued within five years of its ratification. In the Slaughter-House Cases, the Court evaluated a Louisiana statute which conferred a monopoly upon a single corporation to engage in the business of slaughtering cattle. In determining whether this statute abridged the "privileges" of other butchers, the Court frustrated the aims of the most aggressive sponsors of the Privileges or Immunities Clause. According to the Court, these sponsors had sought to centralize "in the hands of the Federal Government large powers hitherto exercised by the States" by converting the rights of the citizens of each State at the time of the adoption of the Fourteenth Amendment into protected privileges and immunities of United States citizenship. This interpretation would have allowed business to develop unimpeded by state interference by limiting state laws "abridging" these privileges.
According to the Court, however, such an interpretation would have "transfer[red] the security and protection of all the civil rights . . . to the Federal Government, . . . to bring within the power of Congress the entire domain of civil rights heretofore belonging exclusively to the States," and would "constitute this court a perpetual censor upon all legislation of the States, on the civil rights of their own citizens, with authority to nullify such as it did not approve as consistent with those rights, as they existed at the time of the adoption of this amendment . . . . [The effect of] so great a departure from the structure and spirit of our institutions . . . is to fetter and degrade the State governments by subjecting them to the control of Congress, in the exercise of powers heretofore universally conceded to them of the most ordinary and fundamental character . . . . We are convinced that no such results were intended by the Congress . . . , nor by the legislatures . . . which ratified" this amendment, and that the sole "pervading purpose" of this and the other War Amendments was "the freedom of the slave race."
Based on these conclusions, the Court held that none of the rights alleged by the competing New Orleans butchers to have been violated were derived from the butcher's national citizenship; insofar as the Louisiana law interfered with their pursuit of the business of butchering animals, the privilege was one which "belonged to the citizens of the States as such." Despite the broad language of this clause, the Court held that the privileges and immunities of state citizenship had been "left to the state governments for security and protection" and had not been placed by the clause "under the special care of the Federal Government." The only privileges which the Fourteenth Amendment protected against state encroachment were declared to be those "which owe their existence to the Federal Government, its National character, its Constitution, or its laws." These privileges, however, had been available to United States citizens and protected from state interference by operation of federal supremacy even prior to the adoption of the Fourteenth Amendment. The Slaughter-House Cases, therefore, reduced the privileges or immunities clause to a superfluous reiteration of a prohibition already operative against the states.
Although the Slaughter-House Cases Court expressed a reluctance to enumerate those privileges and immunities of United States citizens which are protected against state encroachment, it nevertheless felt obliged to suggest some. Among those which it then identified were the right of access to the seat of Government and to the seaports, subtreasuries, land officers, and courts of justice in the several States, the right to demand protection of the Federal Government on the high seas or abroad, the right of assembly, the privilege of habeas corpus, the right to use the navigable waters of the United States, and rights secured by treaty. In Twining v. New Jersey, the Court recognized "among the rights and privileges" of national citizenship the right to pass freely from State to State, the right to petition Congress for a redress of grievances, the right to vote for national officers, the right to enter public lands, the right to be protected against violence while in the lawful custody of a United States marshal, and the right to inform the United States authorities of violation of its laws. Earlier, in a decision not mentioned in Twining, the Court had also acknowledged that the carrying on of interstate commerce is "a right which every citizen of the United States is entitled to exercise."
In modern times, the Court has continued the minor role accorded to the clause, only occasionally manifesting a disposition to enlarge the restraint which it imposes upon state action. In Hague v. CIO, two and perhaps three justices thought that the freedom to use municipal streets and parks for the dissemination of information concerning provisions of a federal statute and to assemble peacefully therein for discussion of the advantages and opportunities offered by such act was a privilege and immunity of a United States citizen, and in Edwards v. California four Justices were prepared to rely on the clause. In many other respects, however, claims based on this clause have been rejected. injuries caused by negligence of fellow servants and abolishing the defense of contributory negligence); Western Union Tel. Co. v. Milling Co., 218 U.S. 406 (1910) (statute prohibiting a stipulation against liability for negligence in delivery of interstate telegraph messages); Bradwell v. Illinois, 83 U.S. (16 Wall.) 130 , 139 (1873); In re Lockwood, 154 U.S. 116(1894) (refusal of state court to license a woman to practice law); Kirtland v. Hotchkiss, 100 U.S. 491 , 499(1879) (law taxing a debt owed a resident citizen by a resident of another State and secured by mortgage of land in the debtor's State); Bartemeyer v. Iowa, 85 U.S. (18 Wall.) 129 (1874); Mugler v. Kansas, 123 U.S. 623 (1887); Crowley v. Christensen, 137 U.S. 86 , 91 (1890); Giozza v. Tiernan, 148 U.S. 657 (1893) (statutes regulating the manufacture and sale of intoxicating liquors); In re Kemmler, 136 U.S. 436 (1890) (statute regulating the method of capital punishment); Minor v. Happersett, 88 U.S. (21 Wall.) 162 (1875) (statute regulating the franchise to male citizens); Pope v. Williams, 193 U.S. 621 (1904) (statute requiring persons coming into a State to make a declaration of intention to become citizens and residents thereof before being permitted to register as voters); Ferry v. Spokane, P. & S. Ry., 258 U.S. 314 (1922) (statute restricting dower, in case wife at time of husband's death is a nonresident, to lands of which he died seized); Walker v. Sauvinet, 92 U.S. 90 (1876) (statute restricting right to jury trial in civil suits at common law); Presser v. Illinois, 116 U.S. 252 , 267 (1886) (statute restricting drilling or parading in any city by any body of men without license of the Governor); Maxwell v. Dow, 176 U.S. 581 , 596 , 597- 98 (1900) (provision for prosecution upon information, and for a jury (except in capital cases) of eight persons); New York ex rel. Bryant v. Zimmerman, 278 U.S. 63 , 71 (1928) (statute penalizing the becoming or remaining a member of any oathbound association (other than benevolent orders, and the like) with knowledge that the association has failed to file its constitution and membership lists); Palko v. Connecticut, 302 U.S. 319 (1937) (statute allowing a State to appeal in criminal cases for errors of law and to retry the accused); Breedlove v. Suttles, 302 U.S. 277 (1937) (statute making the payment of poll taxes a prerequisite to the right to vote); Madden v. Kentucky, 309 U.S. 83 , 92 -93 (1940), (overruling Colgate v. Harvey, 296 U.S. 404 , 430 (1935)) (statute whereby deposits in banks outside the State are taxed at 50¢ per $100); Snowden v. Hughes, 321 U.S. 1 (1944) (the right to become a candidate for state office is a privilege of state citizenship, not national citizenship); MacDougall v. Green, 335 U.S. 281 (1948) (Illinois Election Code requirement that a petition to form and nominate candidates for a new political party be signed by at least 200 voters from each of at least 50 of the 102 counties in the State, notwithstanding that 52% of the voters reside in only one county and 87% in the 49 most populous counties); New York v. O'Neill, 359 U.S. 1 (1959) (Uniform Reciprocal State Law to secure attendance of witnesses from within or without a State in criminal proceedings); James v. Valtierra, 402 U.S. 137 (1971) (a provision in a state constitution to the effect that low-rent housing projects could not be developed, constructed, or acquired by any state governmental body without the affirmative vote of a majority of those citizens participating in a community referendum). In Oyama v. California, the Court, in a single sentence, agreed with the contention of a native-born youth that a state Alien Land Law, which resulted in the forfeiture of property purchased in his name with funds advanced by his parent, a Japanese alien ineligible for citizenship and precluded from owning land, deprived him "of his privileges as an American citizen." The right to acquire and retain property had previously not been set forth in any of the enumerations as one of the privileges protected against state abridgment, although a federal statute enacted prior to the proposal and ratification of the Fourteenth Amendment did confer on all citizens the same rights to purchase and hold real property as white citizens enjoyed.
In a doctrinal shift of uncertain significance, the Court will apparently evaluate challenges to durational residency requirements, previously considered as violations of the right to travel derived from the Equal Protection Clause, as a potential violation of the Privileges or Immunities Clause. Thus, where a California law restricted the level of welfare benefits available to Californians who have been residents for less than a year to the level of benefits available in the State of their prior residence, the Court found a violation of the right of newly-arrived citizens to be treated the same as other state citizens. Despite suggestions that this opinion will open the door to "guaranteed equal access to all public benefits," it seems more likely that the Court is protecting the privilege of being treated immediately as a full citizen of the state one chooses for permanent residence.
Due Process of Law
Due process under the Fourteenth Amendment can be broken down into two categories- procedural due process and substantive due process. Procedural due process, based on principles of "fundamental fairness," addresses which legal procedures are required to be followed in state proceedings. Relevant issues, as discussed in detail below, include notice, opportunity for hearing, confrontation and cross-examination, discovery, basis of decision, and availability of counsel. Substantive due process, while also based on principles of "fundamental fairness," is used to evaluate whether a law can fairly be applied by states at all, regardless of the procedure followed. Substantive due process has generally dealt with specific subject areas, such as liberty of contract or privacy, and over time has alternately emphasized the importance of economic and non-economic matters. In theory, the issues of procedural and substantive due process are closely related. In reality, substantive due process has had greater political import, as significant portions of a state legislature's substantive jurisdiction can be restricted by its application.
While the extent of the rights protected by substantive due process may be controversial, its theoretical basis is firmly established and forms the basis for much of modern constitutional case law. Passage of the Reconstruction Amendments (13th, 14th and 15th) gave the federal courts the authority to intervene when a state threatened fundamental rights of its citizens, and one of the most important doctrines flowing from this is the application of the Bill of Rights to the states through the due process clause. Through the process of "selective incorporation," most of the provisions of the first eight Amendments such as free speech, freedom of religion, and protection against unreasonable searches and seizures are applied against the states as they are against the federal government. Though application of these rights against the states is no longer controversial, the incorporation of other substantive rights, as is discussed in detail below, has been.
"Person".-The due process clause provides that no States shall deprive any "person" of "life, liberty or property" without due process of law. A historical controversy has been waged concerning whether the framers of the Fourteenth Amendment intended the word "person" to mean only natural persons, or whether the word was substituted for the word "citizen" with a view to protecting corporations from oppressive state legislation. As early as the 1877 Granger Cases the Supreme Court upheld various regulatory state laws without raising any question as to whether a corporation could advance due process claims. Further, there is no doubt that a corporation may not be deprived of its property without due process of law. While various decisions have held that the "liberty" guaranteed by the Fourteenth Amendment is the liberty of natural, not artificial, persons, nevertheless, in 1936, a newspaper corporation successfully objected that a state law deprived it of liberty of the press.
Amendment, decided almost at the same time, the Court explicitly declared the United States "equally with the States . . . are prohibited from depriving persons or corporations of property without due process of law." Sinking Fund Cases, 99 U.S. 700 , 718 -19 (1879).
A separate question is the ability of a government official to invoke the due process clause to protect the interests of his office. Ordinarily, the mere official interest of a public officer, such as the interest in enforcing a law, has not been deemed adequate to enable him to challenge the constitutionality of a law under the Fourteenth Amendment. Similarly, municipal corporations have no standing "to invoke the provisions of the Fourteenth Amendment in opposition to the will of their creator," the State. However, state officers are acknowledged to have an interest, despite their not having sustained any "private damage," in resisting an "endeavor to prevent the enforcement of laws in relation to which they have official duties," and, accordingly, may apply to federal courts for the "review of decisions of state courts declaring state statutes which [they] seek to enforce to be repugnant to the" Fourteenth Amendment.
"Property" and Police Power.-States have an inherent "police power" to promote public safety, health, morals, public convenience, and general prosperity, but the extent of the power may vary based on the subject matter over which it is exercised. If a police power regulation goes too far, it will be recognized as a taking of property for which compensation must be paid. Thus, the means employed to affect its exercise can be neither arbitrary nor oppressive but must bear a real and substantial relation to an end which is public, specifically, the public health, safety, or morals, or some other aspect of the general welfare.
An ulterior public advantage, however, may justify a comparatively insignificant taking of private property for what seems to be a private use. Mere "cost and inconvenience (different words, probably, for the same thing) would have to be very great before they could become an element in the consideration of the right of a state to exert its reserved power or its police power." Moreover, it is elementary that enforcement of a law passed in the legitimate exertion of the police power is not a taking without due process of law, even if the cost is borne by the regulated. Initial compliance with a regulation which is valid when adopted, however, does not preclude later protest if that regulation subsequently becomes confiscatory in its operation.
"Liberty".-As will be discussed in detail below, the "liberty" guaranteed by the due process clause has been variously defined by the Court. In the early years, it meant almost exclusively "liberty of contract," but with the demise of liberty of contract came a general broadening of "liberty" to include personal, political and social rights and privileges. Nonetheless, the Court is generally chary of expanding the concept absent statutorily recognized rights.
The Rise and Fall of Economic Substantive Due Process: Overview
Long before the passage of the 14th Amendment, the due process clause of the Fifth Amendment was recognized as a restraint upon the Federal Government, but only in the narrow sense that a legislature needed to provide procedural "due process" for the enforcement of law. Although individual justices suggested early on that particular legislation could be so in conflict with precepts of natural law as to render it wholly unconstitutional, the potential of the due process clause of the 14th Amendment as a substantive restraint on state action appears to have been grossly underestimated in the years immediately following its adoption.
Thus, early invocations of "substantive" due process were unsuccessful. In the Slaughter- House Cases, discussed previously in the context of the Privileges or Immunities Clause, a group of butchers challenged a Louisiana statute conferring the exclusive privilege of butchering cattle in New Orleans to one corporation. In reviewing the validity of this monopoly, the Court noted that the prohibition against a deprivation of property without due process "has been in the Constitution since the adoption of the Fifth Amendment, as a restraint upon the Federal power. It is also to be found in some forms of expression in the constitution of nearly all the States, as a restraint upon the power of the States. . . . We are not without judicial interpretation, therefore, both State and National, of the meaning of this clause. And it is sufficient to say that under no construction of that provision that we have ever seen, or any that we deem admissible, can the restraint imposed by the State of Louisiana upon the exercise of their trade by the butchers of New Orleans be held to be a deprivation of property within the meaning of that provision."
Four years later, in Munn v. Illinois, the Court reviewed the regulation of rates charged for the transportation and warehousing of grain, and again refused to interpret the due process clause as invalidating substantive state legislation. Rejecting contentions that such US Constitution Annotated - The Rise and Fall of Economic Substantive Due Process legislation effected an unconstitutional deprivation of property by preventing the owner from earning a reasonable compensation for its use and by transferring an interest in a private enterprise to the public, Chief Justice Waite emphasized that "the great office of statutes is to remedy defects in the common law as they are developed. . . . We know that this power [of rate regulation] may be abused; but that is no argument against its existence. For protection against abuses by legislatures the people must resort to the polls, not to the courts."
In Davidson v. New Orleans, Justice Miller also counseled against a departure from these conventional applications of due process, although he acknowledged the difficulty of arriving at a precise, all-inclusive definition of the clause. "It is not a little remarkable," he observed, "that while this provision has been in the Constitution of the United States, as a restraint upon the authority of the Federal government, for nearly a century, and while, during all that time, the manner in which the powers of that government have been exercised has been watched with jealousy, and subjected to the most rigid criticism in all its branches, this special limitation upon its powers has rarely been invoked in the judicial forum or the more enlarged theatre of public discussion. But while it has been part of the Constitution, as a restraint upon the power of the States, only a very few years, the docket of this court is crowded with cases in which we are asked to hold that state courts and state legislatures have deprived their own citizens of life, liberty, or property without due process of law. There is here abundant evidence that there exists some strange misconception of the scope of this provision as found in the Fourteenth Amendment. In fact, it would seem, from the character of many of the cases before us, and the arguments made in them, that the clause under consideration is looked upon as a means of bringing to the test of the decision of this court the abstract opinions of every unsuccessful litigant in a State court of the justice of the decision against him, and of the merits of the legislation on which such a decision may be founded. If, therefore, it were possible to define what it is for a State to deprive a person of life, liberty, or property without due process of law, in terms which would cover every exercise of power thus forbidden to the State, and exclude those which are not, no more useful construction could be furnished by this or any other court to any part of the fundamental of law. But, apart from the imminent risk of a failure to give any definition which would be at once perspicuous, comprehensive, and satisfactory, there is wisdom . . . in the ascertaining of the intent and application of such an important phrase in the Federal Constitution, by the gradual process of judicial inclusion and exclusion, as the cases presented for decision shall require . . . ."
A bare half-dozen years later, however, in Hurtado v. California, the Justices gave warning of an impending modification of their views. Justice Mathews, speaking for the Court, noted that due process under the United States Constitution differed from due process in English common law in that the latter only applied to executive and judicial acts, while the former additionally applied to legislative acts. Consequently, the limits of the due process under the 14th Amendment could not be appraised solely in terms of the "sanction of settled usage" under common law. The Court then declared that "[a]rbitrary power, enforcing its edicts to the injury of the persons and property of its subjects, is not law, whether manifested as the decree of a personal monarch or of an impersonal multitude. And the limitations imposed by our constitutional law upon the action of the governments, both state and national, are essential to the preservation of public and private rights, notwithstanding the representative character of our political institutions. The enforcement of these limitations by judicial process is the device of self-governing communities to protect the rights of individuals and minorities, as well against the power of numbers, as against the violence of public agents transcending the limits of lawful authority, even when acting in the name and wielding the force of the government." By this language, the States were put on notice that all types of state legislation, whether dealing with procedural or substantive rights, were now subject to the scrutiny of the Court when questions of essential justice were raised.
What induced the Court to overcome its fears of increased judicial oversight and of upsetting the balance of powers between the Federal Government and the states was state remedial social legislation, enacted in the wake of industrial expansion, and the impact of such legislation on property rights. The added emphasis on the due process clause also afforded the Court an opportunity to compensate for its earlier nullification of much of the privileges or immunities clause of the Amendment. Legal theories about the relationship between the government powers and private rights were available to demonstrate the impropriety of leaving to the state legislatures the same ample range of police power they had enjoyed prior to the Civil War. In the meantime, however, the Slaughter-House Cases and Munn v. Illinois had to be overruled at least in part.
About twenty years were required to complete this process, in the course of which two strands of reasoning were developed. The first was a view advanced by Justice Field in a dissent in Munn v. Illinois, namely, that state police power is solely a power to prevent injury to the "peace, good order, morals, and health of the community." This reasoning was adopted by the Court in Mugler v. Kansas, where, despite upholding a state alcohol regulation, the Court held that "[i]t does not at all follow that every statute enacted ostensibly for the promotion of [public health, morals or safety] is to be accepted as a legitimate exertion of the police powers of the state." The second strand, which had been espoused by Justice Bradley in his dissent in the Slaughter-House Cases, tentatively transformed ideas embodying the social compact and natural rights into constitutionally enforceable limitations upon government. The consequence was that the States in exercising their police powers could foster only those purposes of health, morals, and safety which the Court had enumerated, and could employ only such means as would not unreasonably interfere with fundamental natural rights of liberty and property. As articulated by Justice Bradley, these rights were equated with freedom to pursue a lawful calling and to make contracts for that purpose.
There are limitations on [governmental power] which grow out of the essential nature of all free governments. Implied reservations of individual rights, without which the social compact could not exist . . . ."
Having narrowed the scope of the state's police power in deference to the natural rights of liberty and property, the Court proceeded to incorporate into due process theories of laissez faire economics, reinforced by the doctrine of Social Darwinism (as elaborated by Herbert Spencer). Thus, "liberty" became synonymous with governmental non-interference in the field of private economic relations. For instance, in Budd v. New York, Justice Brewer declared in dictum: "[t]he paternal theory of government is to me odious. The utmost possible liberty to the individual, and the fullest possible protection to him and his property, is both the limitation and duty of government."
Next, the Court watered down the accepted maxim that a state statute must be presumed to be valid until clearly shown to be otherwise, by shifting focus to whether facts existed to justify a particular law. The original position could be seen in earlier cases such as Munn v. Illinois, where the Court sustained legislation before it by presuming that such facts existed: "For our purposes we must assume that, if a state of facts could exist that would justify such legislation, it actually did exist when the statute now under consideration was passed." Ten years later, however, in Mugler v. Kansas, rather than presume the relevant facts, the Court sustained a statewide anti-liquor law based on the proposition that the deleterious social effects of the excessive use of alcoholic liquors were sufficiently notorious for the Court to be able to take notice of them. This opened the door for future Court appraisals of the facts which had induced the legislature to enact the statute.
The implications of Mugler were significant, as it carried the inference that unless the Court found by judicial notice the existence of justifying fact, it would invalidate a police power regulation as bearing no reasonable or adequate relation to the purposes to be subserved by the latter-namely, health, morals, or safety. Interestingly, the Court found the rule of presumed validity quite serviceable for appraising state legislation affecting neither liberty nor property, but for legislation constituting governmental interference in the field of economic relations, especially labor-management relations, the Court found the principle of judicial notice more advantageous. In litigation embracing the latter type of legislation, the Court would also tend to shift the burden of proof, which had been with litigants challenging legislation, to the State seeking enforcement. Thus, the State had the task of demonstrating that a statute interfering with a natural right of liberty or property was in fact "authorized" by the Constitution, and not merely that the latter did not expressly prohibit enactment of the same. As will be discussed in detail below, this approach was utilized from the turn of the century through the mid 1930s to strike down numerous laws which were seen as restricting economic liberties.
As a result of the Depression, however, the laissez faire approach to economic regulation lost favor to the dictates of the New Deal. Thus, in 1934, the Court in Nebbia v. New York discarded this approach to economic legislation. The modern approach is exemplified by the 1955 decision, Williamson v. Lee Optical Co., which upheld a statutory scheme regulating the sale of eyeglasses which favored ophthalmologists and optometrists in private professional practice and disadvantaged opticians and those employed by or using space in business establishments. "The day is gone when this Court uses the Due Process Clause of the Fourteenth Amendment to strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought. . . . We emphasize again what Chief Justice Waite said in Munn v. Illinois, 94 U.S. 113 , 134 , 'For protection against abuses by legislatures the people must resort to the polls, not to the courts."' The Court did go on to assess the reasons which might have justified the legislature in prescribing the regulation at issue, leaving open the possibility that some regulation might be found unreasonable. More recent decisions have limited this inquiry to whether the legislation is arbitrary or irrational, and have abandoned any requirement of "reasonableness."
Regulation of Labor Conditions
Liberty of Contract.-One of the most important concepts utilized during the ascendancy of economic due process was liberty of contract. The original idea of economic liberties was advanced by Justices Bradley and Field in the Slaughter-House Cases, and elevated to the status of accepted doctrine in Allgeyer v. Louisiana. It was then used repeatedly during the early part of this century to strike down state and federal labor regulations. "The liberty mentioned in that [Fourteenth] Amendment means not only the right of the citizen to be free from the mere physical restraint of his person, as by incarceration, but the term is deemed to embrace the right of the citizen to be free in the enjoyment of all his faculties, to be free to use them in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; to pursue any livelihood or avocation, and for that purpose to enter into all contracts which may be proper, necessary and essential to his carrying out to a successful conclusion the purposes above mentioned."
The Court, however, did sustain some labor regulations by acknowledging that freedom of contract was "a qualified and not an absolute right. . . . Liberty implies the absence of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in the interest of the community. . . . In dealing with the relation of the employer and employed, the legislature has necessarily a wide field of discretion in order that there may be suitable protection of health and safety, and that peace and good order may be promoted through regulations designed to insure wholesome conditions of work and freedom from oppression."
Still, the Court was committed to the principle that freedom of contract is the general rule and that legislative authority to abridge it could be justified only by exceptional circumstances. To serve this end, the Court intermittently employed the rule of judicial notice in a manner best exemplified by a comparison of the early cases of Holden v. Hardy and Lochner v. New York. In Holden v. Hardy, the Court, in reliance upon the principle of presumed validity, allowed the burden of proof to remain with those attacking a Utah act limiting the period of labor in mines to eight hours per day. Taking cognizance of the fact that labor below the surface of the earth was attended by risk to person and to health and for these reasons had long been the subject of state intervention, the Court registered its willingness to sustain a law which the state legislature had adjudged "necessary for the preservation of health of employees," and for which there were "reasonable grounds for believing that . . . [it was] supported by the facts."
Seven years later, however, a radically altered Court was pre-disposed in favor of the doctrine of judicial notice. In Lochner v. New York, the Court found that a law restricting employment in bakeries to ten hours per day and 60 hours per week was not a true health measure, but was merely a labor regulation, and thus was an unconstitutional interference with the right of adult laborers, sui juris, to contract for their means of livelihood. Denying that the Court was substituting its own judgment for that of the legislature, Justice Peckham nevertheless maintained that whether the act was within the police power of the State was a "question that must be answered by the Court." Then, in disregard of the medical evidence proffered, the Justice stated: "[i]n looking through statistics regarding all trades and occupations, it may be true that the trade of a baker does not appear to be as healthy as some trades, and is also vastly more healthy than still others. To the common understanding the trade of a baker has never been regarded as an unhealthy one. . . . It might be safely affirmed that almost all occupations more or less affect the health. . . . But are we all, on that account, at the mercy of the legislative majorities?"
Justice Harlan, in dissent, asserted that the law was a health regulation, pointing to the abundance of medical testimony tending to show that the life expectancy of bakers was below average, that their capacity to resist diseases was low, and that they were peculiarly prone to suffer irritations of the eyes, lungs, and bronchial passages. He concluded that the very existence of such evidence left the reasonableness of the measure open to discussion and thus within the discretion of the legislature. "The responsibility therefor rests upon the legislators, not upon the courts. No evils arising from such legislation could be more far reaching than those that might come to our system of government if the judiciary, abandoning the sphere assigned to it by the fundamental law, should enter the domain of legislation, and upon grounds merely of justice or reason or wisdom annul statutes that had received the sanction of the people's representatives. . . . [T]he public interests imperatively demand that legislative enactments should be recognized and enforced by the courts as embodying the will of the people, unless they are plainly and palpably, beyond all question, in violation of the fundamental law of the Constitution."
A second dissenting opinion, written by Justice Holmes, has received the greater measure of attention as a forecast of the line of reasoning to be followed by the Court some decades later. "This case is decided upon an economic theory which a large part of the country does not entertain. If it were a question whether I agreed with that theory, I should desire to study it further and long before making up my mind. But I do not conceive that to be my duty, because I strongly believe that my agreement or disagreement has nothing to do with the right of a majority to embody their opinions in law. It is settled by various decisions of this court that state constitutions and state laws may regulate life in many ways which we as legislators might think as injudicious or if you like as tyrannical as this, and which equally with this interfere with the liberty to contract. . . . The Fourteenth Amendment does not enact Mr. Herbert Spencer's Social Statics. . . . But a constitution is not intended to embody a particular economic theory, whether of paternalism and the organic relations of the citizen to the state or of laissez faire. It is made for people of fundamentally differing views, and the accident of our finding certain opinions natural and familiar or novel and even shocking ought not to conclude our judgment upon the question whether statutes embodying them conflict with the Constitution. . . . I think that the word liberty in the Fourteenth Amendment is perverted when it is held to prevent the natural outcome of a dominant opinion, unless it can be said that a rational and fair man necessarily would admit that the statute proposed would infringe fundamental principles as they have been understood by the traditions of our people and our law."
It should be noted that Justice Holmes did not reject the basic concept of substantive due process, but rather the Court's presumption against economic regulation. Thus, Justice Holmes, whether consciously or not, was prepared to support, along with his opponents in the majority, a "perpetual censorship" over state legislation. The basic distinction, therefore, between the positions taken by Justice Peckham for the majority and Justice Holmes, for what was then the minority, was the use of the doctrine of judicial notice by the former and the doctrine of presumed validity by the latter.
The Holmes dissent soon bore fruit in Muller v. Oregon and Bunting v. Oregon, which allowed, respectively, regulation of hours worked by women and by men in certain industries. The doctrinal approach employed was to find that the regulation was supported by evidence despite the shift in the burden of proof entailed by application of the principle of judicial notice. Thus, counsel defending the constitutionality of social legislation developed the practice of submitting voluminous factual briefs, known as "Brandeis Briefs," replete with medical or other scientific data intended to establish beyond question a substantial relationship between the challenged statute and public health, safety, or morals. Whenever the Court was disposed to uphold measures pertaining to industrial relations, such as laws limiting hours of work, it generally intimated that the facts thus submitted by way of justification had been authenticated sufficiently for it to take judicial cognizance thereof. On the other hand, whenever it chose to invalidate comparable legislation, such as enactments establishing a minimum wage for women and children, it brushed aside such supporting data, proclaimed its inability to perceive any reasonable connection between the statute and the legitimate objectives of health or safety, and condemned the statute as an arbitrary interference with freedom of contract.
During the great Depression, however, the laissez faire tenet of self-help was replaced by the belief that it is peculiarly the duty of government to help those who are unable to help themselves. To sustain this remedial legislation, the Court had to extensively revise its previously formulated concepts of "liberty" under the due process clause. Thus, the Court, in overturning prior holdings and sustaining minimum wage legislation, took judicial notice of the demands for relief arising from the Depression. And, in upholding state legislation designed to protect workers in their efforts to organize and bargain collectively, the Court reconsidered the scope of an employer's liberty of contract, and recognized a correlative liberty of employees that state legislatures could protect.
To the extent that it acknowledged that liberty of the individual may be infringed by the coercive conduct of private individuals no less than by public officials, the Court in effect transformed the due process clause into a source of encouragement to state legislatures to intervene affirmatively to mitigate the effects of such coercion. By such modification of its views, liberty, in the constitutional sense of freedom resulting from restraint upon government, was replaced by the civil liberty which an individual enjoys by virtue of the restraints which government, in his behalf, imposes upon his neighbors.
Laws Regulating Working Conditions and Wages.-As noted, even during the Lochner era, the due process clause was construed as permitting enactment by the States of maximum hours laws applicable to women workers and to all workers in specified lines of work thought to be physically demanding or otherwise worthy of special protection. Similarly, the regulation of how wages were to be paid was allowed, including the form of payment, its frequency, and how such payment was to be calculated. And, because of the almost plenary powers of the State and its municipal subdivisions to determine the conditions for work on public projects, statutes limiting the hours of labor on public works were also upheld at a relatively early date. Further, states could prohibit the employment of persons under 16 years of age in dangerous occupations and require employers to ascertain whether their employees were in fact below that age.
The regulation of mines represented a further exception to the Lochner era's anti- discrimination tally. As such health and safety regulation was clearly within a State's police power, a State's laws providing for mining inspectors (paid for by mine owners), licensing mine managers and mine examiners, and imposing liability upon mine owners for failure to furnish a reasonably safe place for workmen were upheld during this period. Other similar regulations which were sustained included laws requiring that underground passageways meet or exceed a minimum width, that boundary pillars be installed between adjoining coal properties as a protection against flood in case of abandonment, and that washhouses be provided for employees.
One of the more significant negative holdings of the Lochner era was that states could not regulate how much wages were to be paid to employees. As with the other condition and wage issues, however, concern for the welfare of women and children seemed to weigh heavily on the justices, and restrictions on minimum wages for these groups were discarded in 1937. Ultimately, the reasoning of these cases was extended to more broadly based minimum wage laws, as the Court began to offer significant deference to the states to enact economic and social legislation benefitting labor.
The modern theory regarding substantive due process and wage regulation was explained by Justice Douglas in 1952 in the following terms: "Our recent decisions make plain that we do not sit as a super legislature to weigh the wisdom of legislation nor to decide whether the policy which it expresses offends the public welfare. The legislative power has limits. . . . But the state legislatures have constitutional authority to experiment with new techniques; they are entitled to their own standard of the public welfare; they may within extremely broad limits control practices in the business-labor field, so long as specific constitutional prohibitions are not violated and so long as conflicts with valid and controlling federal laws are avoided."
The Justice further noted that "many forms of regulation reduce the net return of the enterprise. . . . Most regulations of business necessarily impose financial burdens on the enterprise for which no compensation is paid. Those are part of the costs of our civilization. Extreme cases are conjured up where an employer is required to pay wages for a period that has no relation to the legitimate end. Those cases can await decision as and when they arise. The present law has no such infirmity. It is designed to eliminate any penalty for exercising the right of suffrage and to remove a practical obstacle to getting out the vote. The public welfare is a broad and inclusive concept. The moral, social, economic, and physical well- being of the community is one part of it; the political well-being, another. The police power which is adequate to fix the financial burden for one is adequate for the other. The judgment of the legislature that time out for voting should cost the employee nothing may be a debatable one. It is indeed conceded by the opposition to be such. But if our recent cases mean anything, they leave debatable issues as respects business, economic, and social affairs to legislative decision. We could strike down this law only if we returned to the philosophy of the Lochner, Coppage, and Adkins cases."
Workers' Compensation Laws.-Workers' compensation laws also evaded the ravages of Lochner. The Court "repeatedly has upheld the authority of the States to establish by legislation departures from the fellow-servant rule and other common-law rules affecting the employer's liability for personal injuries to the employee." Accordingly, a state statute which provided an exclusive system to govern the liabilities of employers for disabling injuries and death caused by accident in certain hazardous occupations, irrespective of the doctrines of negligence, contributory negligence, assumption of risk, and negligence of fellow-servants, was held not to work a denial of due process. Likewise, an act which allowed an injured employee, though guilty of contributory negligence, an election of remedies between restricted recovery under a compensation law or full compensatory damages under the Employers' Liability Act, did not deprive an employer of his property without due process of law. A variety of other statutory schemes have also been upheld.
Even the imposition upon coal mine operators of the liability of compensating former employees who terminated work in the industry before passage of the law for black lung disabilities was sustained by the Court as a rational measure to spread the costs of the employees' disabilities to those who have profited from the fruits of their labor. Legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations, but it must take account of the realities previously existing, i.e., that the danger may not have been known or appreciated, or that actions might have been taken in reliance upon the current state of the law. Consequently, legislation imposing liability on the basis of deterrence or of blameworthiness might not have passed muster.
Collective Bargaining.-During the Lochner era, liberty of contract, as translated into what one Justice labeled the Allgeyer-Lochner-Adair-Coppage doctrine, was used to strike down legislation calculated to enhance the bargaining capacity of workers as against that already possessed by their employers. The Court did, however, on occasion sustain measures affecting the employment relationship, such as a statute requiring every corporation to furnish a departing employee a letter setting forth the nature and duration of the employee's service and the true cause for leaving. In Senn v. Tile Layers Union, however, the Court began to show a greater willingness to defer to legislative judgment as to the wisdom and need of such enactments.
The significance of Senn was, in part, that the case upheld a statute that was not appreciably different from a law voided five years earlier in Truax v. Corrigan. In Truax, the Court found that a statute forbidding injunctions on labor protest activities was unconstitutional as applied to a labor dispute involving picketing, libelous statements, and threats. The statute subsequently upheld in Senn, on the other hand, authorized publicizing labor disputes, declared peaceful picketing and patrolling lawful, and prohibited the granting of injunctions against such conduct. The difference between these statutes, according to the Court, was that the law in Senn applied to "peaceful" picketing only, while the law in Truax "was . . . applied to legalize conduct which was not simply peaceful picketing." Inasmuch as the enhancement of job opportunities for members of the union was a legitimate objective, the State was held competent to authorize the fostering of that end by peaceful picketing, and the fact that the sustaining of the union in its efforts at peaceful persuasion might have the effect of preventing Senn from continuing in business as an independent entrepreneur was declared to present an issue of public policy exclusively for legislative determination.
Years later, after regulations protective of labor allowed unions to amass enormous economic power, many state legislatures attempted to control the abuse of this power, and the Court's new found deference to state labor regulation was also applied to restrictions on unions. Thus the Court upheld state prohibitions on racial discrimination by unions, rejecting claims that the measure interfered unlawfully with the union's right to choose its members, abridged its property rights, or violated its liberty of contract. Inasmuch as the union "[held] itself out to represent the general business needs of employees" and functioned "under the protection of the State," the union was deemed to have forfeited the right to claim exemption from legislation protecting workers against discriminatory exclusion.
Similarly, state laws outlawing closed shops were upheld in Lincoln Federal Labor Union v. Northwestern Iron & Metal Company and AFL v. American Sash & Door Co. When labor unions attempted to invoke freedom of contract, the Court, speaking through Justice Black, announced its refusal "to return . . . to . . . [a] due process philosophy that has been deliberately discarded. . . . The due process clause," it maintained, does not "forbid a State to pass laws clearly designed to safeguard the opportunity of non-union workers to get and hold jobs, free from discrimination against them because they are nonunion workers." considerable economic power but by virtue of such power were no longer dependent on the closed shop for survival. He would therefore leave to the legislatures the determination "whether it is preferable in the public interest that trade unions should be subjected to state intervention or left to the free play of social forces, whether experience has disclosed 'union unfair labor practices,' and if so, whether legislative correction is more appropriate than self- discipline and pressure of public opinion. . . ." Id. at 538, 549-50.
And, in UAW v. WERB, the Court upheld the Wisconsin Employment Peace Act, which had been used to proscribe unfair labor practices by a union. In UAW, the Union, acting after collective bargaining negotiations had become deadlocked, had attempted to coerce an employer through calling frequent, irregular, and unannounced union meetings during working hours, resulting in a slowdown in production. "No one," declared the Court, can question "the State's power to police coercion by . . . methods" which involve "considerable injury to property and intimidation of other employees by threats."
Regulation of Business Enterprises: Price Controls
In examining whether the due process clause allows the regulation of business prices, the Supreme Court, almost from the inception of the Fourteenth Amendment, has devoted itself to the examination of two questions: (1) whether the clause restricted such regulation to certain types of business, and (2) the nature of the regulation allowed as to those businesses.
Types of Businesses That May be Regulated.-For a brief interval following the ratification of the Fourteenth Amendment, the Supreme Court found the due process clause to impose no substantive restraint on the power of States to fix rates chargeable by any industry. Thus, in Munn v. Illinois, the first of the "Granger Cases," maximum charges established by a state for Chicago grain elevator companies were challenged, not as being confiscatory in character, but rather as a regulation beyond the power of any state agency to impose. The Court, in an opinion that was largely dictum, declared that the due process clause did not operate as a safeguard against oppressive rates, and that if regulation was permissible, the severity thereof was within legislative discretion and could be ameliorated only by resort to the polls. Not much time elapsed, however, before the Court effected a complete withdrawal from this position, and by 1890 it had fully converted the due process clause into a restriction on state agencies seeking to impose rates which, in a judge's estimation, were arbitrary or unreasonable. This state of affairs continued for more than fifty years.
Prior to 1934, unless a business was "affected with a public interest," control of its prices, rates, or conditions of service was viewed as an unconstitutional deprivation of liberty and property without due process of law. During the period of its application, however, this standard, "business affected with a public interest," never acquired any precise meaning, and as a consequence lawyers were never able to identify all those qualities or attributes which invariably distinguished a business so affected from one not so affected. The most coherent effort by the Court was the following classification prepared by Chief Justice Taft. "(1) Those [businesses] which are carried on under the authority of a public grant of privileges which either expressly or impliedly imposes the affirmative duty of rendering a public service demanded by any member of the public. Such are the railroads, other common carriers and public utilities. (2) Certain occupations, regarded as exceptional, the public interest attaching to which, recognized from earliest times, has survived the period of arbitrary laws by Parliament or Colonial legislatures for regulating all trades and callings. Such are those of the keepers of inns, cabs and grist mills. . . . (3) Businesses which though not public at their inception may be fairly said to have risen to be such and have become subject in consequence to some government regulation. They have come to hold such a peculiar relation to the public that this is superimposed upon them. In the language of the cases, the owner by devoting his business to the public use, in effect grants the public an interest in that use and subjects himself to public regulation to the extent of that interest although the property continues to belong to its private owner and to be entitled to protection accordingly."
Through application of this formula, the Court sustained state laws regulating charges made by grain elevators, stockyards, and tobacco warehouses, and fire insurance rates and commissions paid to fire insurance agents. The Court also voided statutes regulating business not "affected with a public interest," including state statutes fixing the price at which gasoline may be sold, regulating the prices for which ticket brokers may resell theater tickets, and limiting competition in the manufacture and sale of ice through the withholding of licenses to engage therein.
In the 1934 case of Nebbia v. New York, however, the Court finally shelved the concept of "a business affected with a public interest," upholding, by a vote of five-to-four, a depression-induced New York statute fixing fluid milk prices. "Price control, like any other form of regulation, is [now] unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty." Conceding that "the dairy industry is not, in the accepted sense of the phrase, a public utility," that is, a "business affected with a public interest," the Court in effect declared that price control henceforth is to be viewed merely as an exercise by the government of its police power, and as such is subject only to the restrictions which due process imposes on arbitrary interference with liberty and property.
Having thus concluded that it is no longer the nature of the business that determines the validity of a price regulation, the Court had little difficulty in upholding a state law prescribing the maximum commission which private employment agencies may charge. Rejecting contentions that the need for such protective legislation had not been shown, the Court, in Olsen v. Nebraska held that differences of opinion as to the wisdom, need, or appropriateness of the legislation "suggest a choice which should be left to the States;" and that there was "no necessity for the State to demonstrate before us that evils persist despite the competition" between public, charitable, and private employment agencies.
Substantive Review of Price Controls.-Ironically, private businesses, once they had been found subject to price regulation, seemed to have less protection than public entities. Thus, unlike operators of public utilities who, in return for a government grant of virtually monopolistic privileges must provide continuous service, proprietors of other businesses receive no similar special advantages and accordingly are unrestricted in their right to liquidate and close. Owners of ordinary businesses, therefore, are at liberty to escape the consequences of publicly imposed charges by dissolution, and have been found less in need of protection through judicial review. Thus, case law upholding challenges to price controls deals predominantly with governmentally imposed rates and charges for public utilities.
In 1886, Chief Justice Waite, in the Railroad Commission Cases, warned that the "power to regulate is not a power to destroy; [and] the State cannot do that in law which amounts to a taking of property for public use without just compensation or without due process of law." In other words, a confiscatory rate could not be imposed by government on a regulated entity. By treating "due process of law" and "just compensation" as equivalents, the Court was in effect asserting that the imposition of a rate so low as to damage or diminish private property ceased to be an exercise of a State's police power and became one of eminent domain. Nevertheless, even this doctrine proved inadequate to satisfy public utilities, as it allowed courts to intervene only to prevent imposition of a confiscatory rate, i.e., a rate so low as to be productive of a loss and to amount to taking of property without just compensation. The utilities sought nothing less than a judicial acknowledgment that courts could review the "reasonableness" of legislative rates.
Although as late as 1888 the Court doubted that it possessed the requisite power to challenge this doctrine, it finally acceded to the wishes of the utilities in 1890 in Chicago, M. & St. P. Railway v. Minnesota. In this case, the Court ruled that "[t]he question of the reasonableness of rates . . . , involving as it does the element of reasonableness both as regards the company and as regards the public, is eminently a question for judicial investigation, requiring due process of law for its determination. If the company is deprived of the power of charging rates for the use of its property, and such deprivation takes place in the absence of an investigation by judicial machinery, it is deprived of the lawful use of its property, and thus, in substance and effect, of the property itself, without due process of law. . . ."
Although the Court made a last-ditch attempt to limit the ruling of Chicago, M. & S.P. Railway to rates fixed by a commission as opposed to rates imposed by a legislature, the Court in Reagan v. Farmer's Loan and Trust Co. finally removed all lingering doubts over the scope of judicial intervention. In Reagan, the Court declared that, "if a carrier . . . attempted to charge a shipper an unreasonable sum," the Court, in accordance with common law principles, would pass on the reasonableness of its rates, and has "jurisdiction . . . to award the shipper any amount exacted . . . in excess of a reasonable rate . . . . The province of the courts is not changed, nor the limit of judicial inquiry altered, because the legislature instead of a carrier prescribes the rates." Reiterating virtually the same principle in Smyth v. Ames, the Court not only obliterated the distinction between confiscatory and unreasonable rates but contributed the additional observation that the requirements of due process are not met unless a court further determines whether the rate permits the utility to earn a fair return on a fair valuation of its investment.
Early Limitations on Review.-Even while reviewing the reasonableness of rates the Court recognized some limits on judicial review. As early as 1894, the Court asserted that "[t]he courts are not authorized to revise or change the body of rates imposed by a legislature or a commission; they do not determine whether one rate is preferable to another, or what under all circumstances would be fair and reasonable as between the carriers and the shippers; they do not engage in any mere administrative work; . . . [however, there can be no doubt] of their power and duty to inquire whether a body of rates . . . is unjust and unreasonable . . . and if found so to be, to restrain its operation." One can also infer from these early holdings a distinction between unreviewable fact questions that relate only to the wisdom or expediency of a rate order, and reviewable factual determinations that bear on a commission's power to act.
Further, the Court placed various obstacles in the path of the complaining litigant. Thus, not only must a person challenging a rate assume the burden of proof, but he must present a case of "manifest constitutional invalidity." And, if, notwithstanding this effort, the question of confiscation remains in doubt, no relief will be granted. Moreover, even the Court was inclined to withhold judgement on the application of a rate until the practical effect could be surmised.
In the course of time this distinction solidified. Thus, the Court initially adopted the position that it would not disturb findings of fact insofar as these were supported by substantial evidence. For instance, in San Diego Land Company v. National City, the Court declared that after a legislative body had fairly and fully investigated and acted, by fixing what it believed to be reasonable rates, the courts cannot step in and set aside the action due to a different conclusion about the reasonableness of the rates. "Judicial interference should never occur unless the case presents, clearly and beyond all doubt, such a flagrant attack upon the rights of property under the guise of regulation as to compel the court to say that the rates prescribed will necessarily have the effect to deny just compensation for private property taken for the public use." And in a similar later case the Court expressed even more clearly its reluctance to reexamine ordinary factual determinations. It is not bound "to reexamine and weigh all the evidence . . . or to proceed according to . . . [its] independent opinion as to what are proper rates. It is enough if . . . [the Court] cannot say that it was impossible for a fair-minded board to come to the result which was reached."
These standards of review were, however, abruptly rejected by the Court in Ohio Valley Co. v. Ben Avon Borough as being no longer sufficient to satisfy the requirements of due process, ushering in a long period where courts substantively evaluated the reasonableness of rate settings. Although the state court in Ben Avon had in fact reviewed the evidence and ascertained that the state commission's findings of fact were supported by substantial evidence, it also construed the statute providing for review as denying to state courts "the power to pass upon the weight of such evidence." Largely on the strength of this interpretation of the applicable state statute, the Court held that when the order of a legislature, or of a commission, prescribing a schedule of maximum future rates is challenged as confiscatory, "the State must provide a fair opportunity for submitting that issue to a judicial tribunal for determination upon its own independent judgment as to both law and facts; otherwise the order is void because in conflict with the due process clause, Fourteenth Amendment."
History of the Valuation Question.-For almost fifty years the Court wandered through a maze of conflicting formulas and factors for valuing public service corporation property including "fair value," "reproduction cost," "prudent investment", "depreciation", "going concern value and good will", "salvage value," and "past losses and gains" only to emerge therefrom in 1944 at a point not very far removed from Munn v. Illinois and its deference to rate-making authorities. By holding in FPC v. Natural Gas Pipeline Co., that the "Constitution does not bind rate-making bodies to the service of any single formula or combination of formulas," and in FPC v. Hope Natural Gas Co., that "it is the result reached not the method employed which is controlling, . . . [that] it is not the theory but the impact of the rate order which counts, [and that] if the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the Act is at an end," the Court, in effect, abdicated from the position assumed in the Ben Avon case. Without surrendering the judicial power to declare rates unconstitutional on ground of a substantive deprivation of due process, the Court announced that it would not overturn a result it deemed to be just simply because "the method employed [by a commission] to reach that result may contain infirmities. . . . [A] Commission's order does not become suspect by reason of the fact that it is challenged. It is the product of expert judgment which carries a presumption of validity. And he who would upset the rate order . . . carries the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences."
In dispensing with the necessity of observing the old formulas for rate computation, the Court did not articulate any substitute guidance for ascertaining whether a so-called end result is unreasonable. It did intimate that rate-making "involves a balancing of the investor and consumer interests," which does not, however, "'insure that the business shall produce net revenues' . . . . From the investor or company point of view it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business. These include service on the debt and dividends on the stock. . . . By that standard the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital."
Regulation of Public Utilities and Common Carriers
In General.-Because of the nature of the business they carry on and the public's interest in it, public utilities and common carriers are subject to state regulation, whether exerted directly by legislatures or under authority delegated to administrative bodies. But because the property of these entities remains under the full protection of the Constitution, it follows that due process is violated when the state regulates in a manner that infringes the right of ownership in what the Court considers to be an "arbitrary" or "unreasonable" way. Thus, when a street railway company lost its franchise, the city could not simply take possession of its equipment, although it could subject the company to the alternative of accepting an inadequate price for its property or of ceasing operations and removing its property from the streets. Likewise, a city wanting to establish a lighting system of its own may not remove, without compensation, the fixtures of a lighting company already occupying the streets under a franchise, although a city may compete with a company that has no exclusive charter. However, a municipal ordinance that demanded, as a condition for placing poles and conduits in city streets, that a telegraph company carry the city's wires free of charge, and that required that conduits be moved at company expense, was constitutional.
And, the fact that a State, by mere legislative or administrative fiat, cannot convert a private carrier into a common carrier will not protect a foreign corporation which has elected to enter a State which requires that it operate its local private pipe line as a common carrier. Such foreign corporation is viewed as having waived its constitutional right to be secure against imposition of conditions which amount to a taking of property without due process of law.
Compulsory Expenditures: Grade Crossings, and the Like.-Generally, the enforcement of uncompensated obedience to a regulation for the public health and safety is not an unconstitutional taking of property in violation of due process. Thus, where a water company laid its lines on an ungraded street, and the applicable rule at the time of the granting of its charter compelled the company to furnish connections at its own expense to one residing on such a street, due process is not violated. Or, where a gas company laid its pipes under city streets, it may validly be obligated to assume the cost of moving them to accommodate a municipal drainage system. Or, railroads may be required to help fund the elimination of grade crossings, even though commercial highway users, who make no contribution whatsoever, benefit from such improvements.
While the power of the State in this respect is not unlimited, and an "arbitrary" and "unreasonable" imposition on these businesses may be set aside, the Court's modern approach to substantive due process analysis makes this possibility far less likely than it once was. For instance, a 1935 case invalidated a requirement that railroads share 50% of the cost of grade separation, irrespective of the value of such improvements to the railroad, suggesting that railroads could not be required to subsidize competitive transportation modes. But in 1953 the Court distinguished this case, ruling that the costs of grade separation improvements need not be allocated solely on the basis of benefits that would accrue to railroad property. While the Court cautioned that "allocation of costs must be fair and reasonable," it was deferential to local governmental decisions, stating that in the exercise of the police power to meet transportation, safety, and convenience needs of a growing community, "the cost of such improvements may be allocated all to the railroads."
Compellable Services.-A State may require that common carriers such as railroads provide services in a manner suitable for the convenience of the communities they serve. Similarly, a primary duty of a public utility is to serve all those who desire the service it renders, and so it follows that a company cannot pick and choose to serve only those portions of its territory which it finds most profitable. Therefore, compelling a gas company to continue serving specified cities as long as it continues to do business in other parts of the State does not result in an unconstitutional deprivation. Likewise, requiring a railway to continue the service of a branch or part of a line is acceptable, even if that portion of the operation is an economic drain. A company, however, cannot be compelled to operate its franchise at a loss, but must be at liberty to surrender it and discontinue operations.
As the standard for regulation of a utility is whether a particular directive is reasonable, the question of whether a state order requiring the provision of services is reasonable could include a consideration of the likelihood of pecuniary loss, the nature, extent and productiveness of the carrier's intrastate business, the character of the service required, the public need for it, and its effect upon service already being rendered. An example of the kind of regulation where the issue of reasonableness would require an evaluation of numerous practical and economic factors is where railroads are required to lay tracks and otherwise provide the required equipment to facilitate the connection of separate track lines.
But manifestly that does not mean that a Commission may compel them to build branch lines, so as to connect roads lying at a distance from each other; nor does it mean that they may be required to make connections at every point where their tracks come close together in city, town and country, regardless of the amount of business to be done, or the number of persons who may utilize the connection if built. The question in each case must be determined in the light of all the facts and with a just regard to the advantage to be derived by the public and the expense to be incurred by the carrier. . . . If the order involves the use of property needed in the discharge of those duties which the carrier is bound to perform, then, upon proof of the necessity, the order will be granted, even though 'the furnishing of such necessary facilities may occasion an incidental pecuniary loss.' . . . Where, however, the proceeding is brought to compel a carrier to furnish a facility not included within its absolute duties, the question of expense is of more controlling importance. In determining the reasonableness of such an order the Court must consider all the facts-the places and persons interested, the volume of business to be affected, the saving in time and expense to the shipper, as against the cost and loss to the carrier." Washington ex rel. Oregon R.R. & Nav. Co. v. Fairchild, 224 U.S. 510 , 528 -29 (1912). See also Michigan Cent. R.R. v. Michigan R.R. Comm'n, 236 U.S. 615 (1915); Seaboard Air Line R.R. v. Georgia R.R. Comm'n, 240 U.S. 324 , 327 (1916).
Generally, regulation of a utility's service to commercial customers attracts less scrutiny than regulations intended to facilitate the operations of a competitor, and governmental power to regulate in the interest of safety has long been conceded. Requirements for service having no substantial relation to a utility's regulated function, however, have been voided, such as requiring railroads to maintain scales to facilitate trading in cattle, or a prohibiting letting down an unoccupied upper berth on a rail car while the lower berth was occupied.
Imposition of Statutory Liabilities and Penalties Upon Common Carriers.-Legislators have considerable latitude to impose legal burdens upon common carriers, as long as the carriers are not precluded from shifting such burdens. Thus, a statute may make an initial rail carrier, or the connecting or delivering carrier, liable to the shipper for the nondelivery of goods which results from the fault of another, as long as the carrier has a subrogated right to proceed against the carrier at fault. Similarly, a railroad may be held responsible for damages to the owner of property injured by fire caused by locomotive engines, as the statute also granted the railroad an insurable interest in such property along its route, allowing the railroad to procure insurance against such liability. Equally consistent with the requirements of due process are enactments imposing on all common carriers a penalty for failure to settle claims for freight lost or damaged in shipment within a reasonable specified period.
The Court has, however, established some limits on the imposition of penalties on common carriers. During the Lochner era, the Court invalidated an award of $500 in liquidated damages plus reasonable attorney's fees imposed on a carrier that had collected transportation charges in excess of established maximum rates as disproportionate. The Court also noted that the penalty was exacted under conditions not affording the carrier an adequate opportunity to test the constitutionality of the rates before liability attached. Where the carrier did have an opportunity to challenge the reasonableness of the rate, however, the Court indicated that the validity of the penalty imposed need not be determined by comparison with the amount of the overcharge. Inasmuch as a penalty is imposed as punishment for violation of law, the legislature may adjust its amount to the public wrong rather than the private injury, and the only limitation which the Fourteenth Amendment imposes is that the penalty prescribed shall not be "so severe and oppressive as to be wholly disproportionate to the offense and obviously unreasonable."
Regulation of Businesses, Corporations, Professions, and Trades
Generally.-States may impose significant regulations on businesses without violating due process. "The Constitution does not guarantee the unrestricted privilege to engage in a business or to conduct it as one pleases. Certain kinds of business may be prohibited; and the right to conduct a business, or to pursue a calling, may be conditioned. . . . Statutes prescribing the terms upon which those conducting certain businesses may contract, or imposing terms if they do enter into agreements, are within the State's competency." Still, the fact the State reserves the power to amend or repeal corporate charters does not support the taking of corporate property without due process of law, as termination of the corporate structure merely results in turning over corporate property to the stockholders after liquidation.
Foreign (out-of-state) corporations also enjoy the protection under the due process clauses, but this does not grant them an unconditional right to enter another State or to continue to do business therein. Language in some early cases suggested that States had plenary power to exclude or to expel a foreign corporation. This power is clearly limited by the modern doctrine of the "negative" commerce clause, which constrains states' authority to discriminate against foreign corporations in favor of local commerce. Still, it has always been acknowledged that states may subject corporate entry or continued operation to reasonable, non-discriminatory conditions. Thus, for instance, a state law which requires the filing of articles with a local official as a prerequisite to the validity of conveyances of local realty to such corporations is not violative of due process. Or, statutes which require a foreign insurance company to maintain reserves computed by a specific percentage of premiums (including membership fees) received in all States, or to consent to direct actions filed against it by persons injured in the host State are valid.
Laws Prohibiting Trusts, Restraint of Trade or Fraud.- Even during the period when the Court was invalidating statutes under liberty of contract principles, it recognized the right of states to prohibit combinations in restraint of trade. Thus, states could prohibit agreements to pool and fix prices, divide net earnings, and prevent competition in the purchase and sale of grain. Further, the Court held that the Fourteenth Amendment does not preclude a State from adopting a policy prohibiting competing corporations from combinations, even when such combinations were induced by good intentions and from which benefit and no injury have resulted. The Court also upheld a variety of statutes prohibiting activities taken by individual businesses intended to harm competitors or restrain the trade of others.
Laws and ordinances tending to prevent frauds by requiring honest weights and measures in the sale of articles of general consumption have long been considered lawful exertions of the police power. Thus, a prohibition on the issuance or sale by other than an authorized weigher of any weight certificate for grain weighed at any warehouse or elevator where state weighers are stationed is not unconstitutional. Similarly, the power of a State to prescribe standard containers to protect buyers from deception as well as to facilitate trading and to preserve the condition of the merchandise is not open to question.
A variety of other business regulations which tend to prevent fraud have withstood constitutional scrutiny. Thus, a State may require that the nature of a product be fairly set forth, despite the right of a manufacturer to maintain secrecy as to his compounds. Or, a statute providing that the purchaser of harvesting or threshing machinery for his own use shall have a reasonable time after delivery for inspecting and testing it, and may rescind the contract if the machinery does not prove reasonably adequate, does not violate the due process clause. Further, in the exercise of its power to prevent fraud and imposition, a State may regulate trading in securities within its borders, require a license of those engaging in such dealing, make issuance of a license dependent on the good repute of the applicants, and permit, subject to judicial review of his findings, revocation of the license.
The power to regulate also includes the power to forbid certain business practices. Thus, a State may forbid the giving of options to sell or buy any commodity at a future time It may also forbid sales on margin for future delivery, and may prohibit the keeping of places where stocks, grain, and the like, are sold but not paid for at the time, unless a record of the same be made and a stamp tax paid. A prohibitive license fee upon the use of trading stamps is not unconstitutional, nor is imposing criminal penalties for any deductions by purchasers from the actual weight of grain, hay, seed, or coal purchased, even when such deduction is made under a claim of custom or under a rule of a board of trade.
Banking, Wage Assignments and Garnishment.-Regulation of banks and banking has always been considered well within the police power of states, and the Fourteenth Amendment did not eliminate this regulatory authority. A variety of regulations have been upheld over the years. For example, state banks are not deprived of property without due process by a statute subjecting them to assessments for a depositors' guaranty fund. Also, a law requiring savings banks to turn over deposits inactive for thirty years to the State (when the depositor cannot be found), with provision for payment to the depositor or his heirs on establishment of the right, does not effect an invalid taking of the property of said banks; nor does a statute requiring banks to turn over to the protective custody of the State deposits that, depending on the nature of the deposit, have been inactive ten or twenty- five years.
A State is acting clearly within its police power in fixing maximum rates of interest on money loaned within its border, and such regulation is within legislative discretion if not unreasonable or arbitrary. Equally valid is a requirement that assignments of future wages as security for debts of less than $200, to be valid, must be accepted in writing by the employer, consented to by the assign-ors, and filed in public office. Such a requirement deprives neither the borrower nor the lender of his property without due process of law.
Insurance.-Those engaged in the insurance business as well as the business itself have been peculiarly subject to supervision and control. Even during the Lochner era the Court recognized that government may fix insurance rates and regulate the compensation of insurance agents, and over the years the Court has upheld a wide variety of regulation. For instance, a state may impose a fine on "any person 'who shall act in any manner in the negotiation or transaction of unlawful insurance . . . with a foreign insurance company not admitted to do business [within said State]."' Or, a state may forbid life insurance companies and their agents to engage in the undertaking business and undertakers to serve as life insurance agents. Further, foreign casualty and surety insurers were not deprived of due process by a Virginia law which prohibited the making of contracts of casualty or surety insurance except through registered agents, which required that such contracts applicable to persons or property in the State be countersigned by a registered local agent, and which prohibited such agents from sharing more than 50% of a commission with a nonresident broker. And just as all banks may be required to contribute to a depositors' guaranty fund, so may automobile liability insurers be required to submit to the equitable apportionment among them of applicants who are in good faith entitled to, but are financially unable to, procure such insurance through ordinary methods.