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Still in Exile? The Current Status of the Contract Clause Still in Exile? The Current Status of the Contract Clause
James W. Ely
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STILL
IN
EXILE?
THE
CURRENT
STATUS
OF
THE
CONTRACT
CLAUSE
JAMES
W.
ELY,
JR.*
The
Contract
Clause
is
no
longer
the
subject
of
much
judicial
solici-
tude
or
academic
interest.'
Since
the
1930s
the
once
potent
Contract
Clause
has
been
largely
relegated
to
the
outer
reaches
of
constitu-
tional
law.
2
This,
of
course,
was
not
always
the
case.
On
the
contrary,
throughout
the
nineteenth
century
the
Contract
Clause
was
one
of
the
most
litigated
provisions
of
the
Constitution.
In
1896,
Justice
George
Shiras
astutely
commented:
"No
provision
of
the
constitution
of
the
United
States
has
received
more
frequent
consideration
by
this
court
than
that
which
provides
that
no
state
shall
pass
any
law
impairing
the
obligation
of
contracts."'
A
brief
survey
of
the
evolution
of
con-
tract
clause
jurisprudence
helps
to
put
into
perspective
the
current
desuetude
of
the
Clause.
I.
HISTORICAL
BACKGROUND
The
first
provision
protective
of
contractual
rights
was
contained
in
the
Northwest
Ordinance
of
July
1787.4
Its
adoption
anticipated
*
Milton
R.
Underwood
Professor
of
Law,
Emeritus,
and
Professor
of
History,
Emeritus,
Vanderbilt
University.
This
Article
is
an
expanded
version
of
remarks
presented
at
the
Fifteenth
Annual
Brigham-Kanner
Property
Rights
Conference
at
the
College
of
William
&
Mary
on
October
5,
2018.
I
want
to
thank
Katie
Hanschke
of
the
Massey
Law
Library
of
Vanderbilt
University
for
her
valuable
research
assistance.
I
also
wish
to
thank
David
F.
Forte
for
his
helpful
comments
on
an
earlier
version
of
this
Article.
1.
Article
I,
Section
10
of
the
Constitution
provides,
in
part:
"No
State
.
..
shall
pass
any...
Law
impairing
the
Obligation
of
Contracts...."
U.S.
CONST.
art.
I,
§
10.
2.
JAMES
W.
ELY,
JR.,
THE
CONTRACT
CLAUSE:
A
CONSTITUTIONAL
HISTORY
237
(2016)
("By
the
1940s
the
political
triumph
of
the
New
Deal
and
the
accompanying
growth
of
the
regulatory
state
relegated
the
contract
clause
to
the
periphery
of
constitutional
law.").
3.
Barnitz
v.
Beverly,
163
U.S.
118,
121
(1896).
4.
An
Ordinance
for
the
Government
of
the
Territory
of
the
United
States
North-West
of
the
River
Ohio,
art.
2
(July
13,
1787)
in
32
JOURNALS
OF
THE
CONTINENTAL
CONGRESS,
1774-1789,
340
("And,
in
the
just
preservation
of
rights
and
property,
it
is
understood
and
declared,
that
no
law
ought
ever
to
be
made
or
have
force
in
the
said
territory,
that
shall,
in
any
manner
whatever,
interfere
with
or
affect
private
contracts,
or
engagements,
bona
fide,
and
without
fraud
previously
formed.");
see
Denis
P.
Duffey,
The
Northwest
Ordinance
as
a
Constitutional
Document,
95
COLUM.
L.REV.
929,960
(1995);
Matthew
J.
Festa,
Property
and
Republicanism
in
the
Northwest
Ordinance,
45
ARIZ.
ST.
L.J.
409,
448-52
(2013).
93
PROPERTY
RIGHTS
JOURNAL
the
move
at
the
Constitutional
Convention
to
fashion
a
constitu-
tional
guarantee
of
agreements
from
state
abridgements.
Although
the
Contract
Clause
was
added
to
the
Constitution
late
in
the
delib-
erations
of
the
Convention
and
without
much
debate,
prominent
mem-
bers
of
that
body
stressed
the
importance
of
a
prohibition
on
state
interference
with
contracts
as
a
means
of
protecting
contractual
stability
and
promoting
commerce.'
The
measure
was
undoubtedly
a
response
to
the
unhappy
experiences
with
state
debt-relief
laws
passed
during
the
post-Revolutionary
Era.'
It
bears
emphasis
that
the
framers
thought
a
specific
ban
on
state
abridgement
of
agreements
was
so
essential
as
to
warrant
adoption
in
the
Constitution
at
the
same
time
they
were
arguing
that
a
bill
of
rights
was
unnecessary.'
There
were
harbingers
of
robust
contract
clause
jurisprudence
even
before
the
advent
of
John
Marshall
as
Chief
Justice
in
1801.*
At
the
same
time,
there
were
limitations
on
the
reach
of
the
pro-
vision.
By
its
express
language,
the
Contract
Clause
applied
only
to
the
states
and
not
to
Congress.
Thus,
Congress
was
free
to
abridge
contracts
should
circumstances
dictate
and
was
expressly
authorized
to
enact
bankruptcy
laws.?
Moreover,
as
James
Wilson
pointed
out
at
the
Constitutional
Convention,"
0
the
Clause
only
safeguarded
ante-
cedent
agreements
against
retroactive
legislation
and
did
not
limit
state
laws
pertaining
to
subsequent
agreements
made
after
the
5.
ELY,
supra
note
2,
at
12-17.
6.
ALLAN
NEVINS,
THE
AMERICAN
STATES
DURING
AND
AFTER
THE
REVOLUTION,
1775-1789
404-05,
537,
571
(1924);
Stuart
Bruchey,
The
Impact
of
Concern
for
the
Security
of
Property
Rights
on
the
Legal
System
of
the
Early
American
Republic,
1980
Wis.
L.
REv.
1135,
1137-40;
James
W.
Ely,
Jr.,
Economic
Liberties
and
the
Original
Meaning
of
the
Constitution,
45
SAN
DIEGO
L.
REv.
673,
698-700
[hereinafter
Ely,
Economic
Liberties].
7.
Bruce
Ackerman,
Constitutional
Politics/Constitutional
Law,
99
YALE
L.J.
453,
537
(1989)
('This
was
the
Federalist
effort
to
link
the
eighteenth
century's
affirmation
of
indi-
vidual
liberty
with
the
rhetoric
of
contract
and
private
property.
Thus,
the
Federalists
valued
market'freedom'
so
highly
that
they
forbade
the
states
from'impairing
the
obligation
of
Con-
tract'
in
the
original
1787
Constitution,
at
a
time
when
they
believed
an
elaborate
Bill
of
Rights
unnecessary.").
8.
ELY,
supra
note
2,
at
22-29.
9.
Hanover
Nat'l
Bank
v.
Moyses,
186
U.S.
181,
188
(1902)
(Fuller,
C.J.)
("The
subject
of
'bankruptcies'
includes
the
power
to
discharge
the
debtor
from
his
contracts
and
legal
lia-
bilities,
as
well
as
to
distribute
his
property.
The
grant
to
Congress
involves
the
power
to
impair
the
obligation
of
contracts,
and
this
the
states
were
forbidden
to
do.").
10.
Remarks
in
the
Federal
Convention
(August
28,
1787),
in
1
COLLECTED
WORKS
OF
JAMES
WILSON
158
(Kermit
L.
Hall
&
Mark
David
Hall
eds.,
2007)
("Mr.
Wilson.
The
answer
to
these
objections
is
that
retrospective
interferences
only
are
to
be
prohibited.").
94
[Vol.
8:093
2019]
THE
CURRENT
STATUS
OF
THE
CONTRACT
CLAUSE
effective
date
of
the
law."
The
Clause
had
no
prospective
application
to
future
contracts.
The
Contract
Clause
influenced
the
drafting
of
subsequent
state
constitutions.
Most
states,
as
they
revised
existing
or
adopted
new
con-
stitutions,
incorporated
language
to
safeguard
the
security
of
agree-
ments.
This
development
strengthened
the
high
standing
of
contracts
in
the
constitutional
order.
12
State
courts
regularly
enforced
the
con-
tract
clauses
in
both
federal
and
state
constitutions
throughout
the
nineteenth
century."
Both
John
Marshall
and
his
successor
Roger
B.
Taney
developed
the
Contract
Clause
into
a
muscular
restraint
on
state
authority.
Marshall
notably
construed
the
provision
to
cover
public
as
well
as
private
contracts.
14
In
a
line
of
famous
cases
he
ruled
that
the
Contract
Clause
reached
state
land
grants,
15
grants
of
tax
exemption,"
and
corporate
charters."
Marshall
also
applied
the
provision
to
protect
pri-
vate
contracts
in
the
face
of
state
debt-relief
laws.'"
Taney
moder-
ated
the
protection
afforded
corporations
under
the
Contract
Clause
by
strict
construction
of
the
privileges
contained
in
corporate
char-
ters,"
but
for
the
most
part
he
built
upon
Marshall's
jurisprudence.
For
example,
the
Court
under
Taney's
leadership
repeatedly
upheld
grants
of
tax
exemption
against
state-legislative
attempts
to
levy
taxes.
20
In
addition,
Taney
vigorously
wielded
the
Contract
Clause
to
vindicate
private
contracts
and
sustain
the
contractual
rights
of
11.
Ogden
v.
Saunders,
25
U.S.
(12
Wheat.)
213,
262
(1827);
see
also
id.
at
327
(Trimble,
J.)
(commenting
that
the
Contract
Clause
left
the
states
"full
liberty
to
legislate
upon
the
subjectof
all
future
contracts");
Edwards
v.
Kearzey,
96
U.S.
595,603
(1877)
("The
States
may
legislate
as
to
contracts
thereafter
made,
as
they
may
see
fit.
It
is
only
those
in
existence
when
the
hostile
law
is
passed
that
are
protected
from
its
effect.").
12.
Ely,
Economic
Liberties,
supra
note
6,
at
702.
13.
E.g.,
Jones
v.
Crittenden,
4
N.C.
55
(1814);
People
ex
rel.
Thorne
v.
Hayes,
4
Cal.
127
(1854),
overruled
in
part
by
Hooker
v.
Burr,
70
P.
778
(Cal.
1902);
Oatman
v,
Bond,
15
Wis.
20
(1862);
The
Homestead
Cases,
63
Va.
266
(1872);
Swinburne
v.
Mills,
50
P.489
(Wash.
1897).
14.
ELY,
supra
note
2,
at
32-43.
15.
Fletcher
v.
Peck,
10
U.S.
(6
Cranch)
87
(1810).
16.
New
Jersey
v.
Wilson,
11
U.S.
(7
Cranch)
164
(1812).
17.
Trustees
of
Dartmouth
Coll.
v.
Woodward,
17
U.S.
(4
Wheat.)
518
(1819).
18.
Sturges
v.
Crowninshield,
17
U.S.
(4
Wheat.)
122
(1819).
19.
Proprietors
of
Charles
River
Bridge
v.
Proprietors
of
Warren
Bridge,
36
U.S.
(11
Pet.)
420
(1837);
see
HERBERT
HOVENKAMP,
ENTERPRISE
AND
AMERICAN
LAW,
1836-1937,
112
(1991)
("The
real
effect
of
the
Charles
River
Bridge
case
was
to
give
entrepreneurs
what
they
bar-
gained
for.").
20.
ELY,
supra
note
2,
at
81-86.
95
PROPERTY
RIGHTS
JOURNAL
creditors.
He
explained
that
the
Clause
"was
undoubtedly
adopted
as
a
part
of
the
Constitution
for
a
great
and
useful
purpose.
It
was
to
maintain
the
integrity
of
contracts,
and
to
secure
their
faithful
exe-
cution
throughout
this
Union,
by
placing
them
under
the
protection
of
the
Constitution
of
the
United
States."
2
1
The
Civil
War
and
Reconstruction
generated
a
number
of
novel
contract
clause
claims
as
well
as
a
number
of
issues
similar
to
those
addressed
in
the
antebellum
years.
22
The
Supreme
Court
upheld
the
validity
of
contracts,
calling
for
payments
in
Confederate
currency
and
contracts
for
the
purchase
of
slave
property.
It
invalidated
the
retroactive
application
of
enlarged
homestead
exemptions
that
were
enacted
in
postbellum
Southern
states
as
impairments
of
anteced-
ent
agreements.
23
In
the
same
vein,
the
Court
sustained
legislative
tax-exemption
grants
as
within
the
shelter
of
the
Contract
Clause.
2
4
It
looked
skeptically
on
a
variety
of
legislative
schemes
to
repudiate
municipal
debt.
25
Adoption
of
the
Fourteenth
Amendment
in
1868
indirectly
impacted
the
role
of
the
Contract
Clause
in
the
late
nineteenth
century.
26
The
Contract
Clause
had
been
the
primary
vehicle
for
federal
judicial
re-
view
of
state
legislation
until
this
point.
That
would
gradually
change.
The
Due
Process
Clause
of
the
Fourteenth
Amendment
opened
the
door
for
an
additional
avenue
of
federal
court
review
and
in
time
would
partially
eclipse
the
Contract
Clause.
27
In
the
late
nineteenth
century,
courts
and
commentators
lavished
praise
on
the
pivotal
role
of
contracts
in
the
market
economy
and
the
vital
role
of
the
Contract
Clause.
Justice
William
Strong
insisted
21.
Bronson
v.
Kinzie,
42
U.S.
(1
How.)
311,
318
(1843).
22.
James
W.
Ely,
Jr.,
The
Contract
Clause
During
the
Civil
War
and
Reconstruction,
41
J.
Sup.
Cr.
HIST.
257
(2016).
23.
James
W.
Ely,
Jr.,
Homestead
Exemptions
in
Southern
Legal
Culture,
in
SIGNPOSTS:
NEW
DIRECTIONS
IN
SOuTHERN
LEGAL
HISTORY
289-314
(Sally
E.
Hadden
&
Patricia
Hagler
Minter
eds.,
2013).
24.
See,
e.g.,
Wilmington
R.R.
v.
Reid,
80
U.S.
(13
Wall.)
264
(1872);
Wash.
Univ.
v.
Rouse,
75
U.S.
(8
Wall.)
439
(1869);
Home
of
the
Friendless
v.
Rouse,
75
U.S.
(8
Wall.)
430
(1869).
25.
See,
e.g.,
Bd.
of
Liquidation
v.
McComb,
92
U.S.
531
(1871);
Von
Hoffman
v.
City
of
Quincy,
71
U.S.
(4
Wall.)
535
(1867).
26.
The
Fourteenth
Amendment
provides,
in
part,
that
no
state
shall
"deprive
any
person
of
life,
liberty,
or
property,
without
due
process
of
law."
U.S.
CONST.
amend.
XIV.
27.
ELY,
supra
note
2,
at
155-57
(pointing
out
that
in
the
late
nineteenth
century
railroads
increasingly
relied
on
the
Due
Process
Clause
rather
than
the
Contract
Clause
in
challenges
to
state-imposed
rate
regulations).
96
[Vol.
8:093
97
2019]
THE
CURRENT
STATUS
OF
THE
CONTRACT
CLAUSE
in
1878:
"There
is
no
more
important
provision
in
the
Federal
Consti-
tution
than
the
one
which
prohibits
States
from
passing
laws
im-
pairing
the
obligation
of
contracts,
and
it
is
one
of
the
highest
duties
of
this
court
to
take
care
the
prohibition
shall
neither
be
evaded
nor
frittered
away."
2
8
State
courts
often
expressed
similar
sentiments.
The
Supreme
Court
of
Alabama,
for
instance,
declared
in
1881
that
the
purpose
of
the
contract
clauses
in
federal
and
state
constitutions
"was
to
preserve
sacred
the
principle
of
the
inviolability
of
contracts
against
that
legislative
interference
which
the
history
of
governments
has
shown
to
be
so
imminent,
in
view
of
the
frequent
engendering
of
popu-
lar
prejudice,
and
the
consequent
fluctuations
of
popular
opinion."
29
To
be
sure,
courts
continued
to
vindicate
private
contracts;
for
ex-
ample,
striking
down
statutes
that
substantially
impaired
the
rights
of
mortgagees
in
mortgage
contracts.'
At
the
same
time,
however,
the
Contract
Clause
began
to
gradually
fade
in
significance.
This
was
apparent
in
litigation
involving
public
contracts.
Although
paying
lip
service
to
Dartmouth
College,
3
1
the
Supreme
Court
adhered
to
the
strict
construction
principle
and
moved
away
from
the
notion
of
in-
violate
corporate
charters.
3
2
Moreover,
the
Court
gradually
embraced
the
concept
of
an
alienable
police
power
to
safeguard
public
health,
safety,
and
morals.
Accordingly,
a
state
could
not
relinquish
such
power
by
entering
a
contract.
3
3
State
regulatory
authority
increas-
ingly
prevailed
notwithstanding
language
in
public
contracts
or
corpo-
rate
charters.
As
the
Contract
Clause
waned
in
significance,
those',
challenging
state
legislation
came
more
and
more
to
argue
that
the
challenged
law
constituted
a
deprivation
of
liberty
or
property,
with-
out
due
process
of
law,
in
violation
of
the
Fourteenth
Amendment.
The
Contract
Clause
continued
to
decline
in
the
early
decades
of
the
twentieth
century.
34
The
number
of
such
cases
before
the
Supreme
28.
Murray
v.
City
of
Charleston,
96
U.S.
432,
448
(1878).
29.
Edwards
v.
Williamson,
70
Ala.
145,
151
(1881).
30.
E.g.,
Barnitz
v.
Beverly,
163
U.S.
118,
129-32
(1896);
Savings
Bank
of
San
Diego
v.
Barrett,
126
Cal.
413
(Cal.
1899).
31.
Dartmouth
Coll.
v.
Woodward,
17
U.S.
(4
Wheat.)
518
(1819).
32.
ELY,
supra
note
2,
at
152-55;
HOVENKAMP,
supra
note
19,
at
33
(observing
that
in
the
late
nineteenth
century
"the
notion
that
a
corporate
charter
was
a
contract
according
vested
privileges
to
the
corporation
substantially
fell
apart").
33.
See,
e.g.,
Fertilizing
Co.
v.
Hyde
Park,
97
U.S.
659
(1878);
Stone
v.
Mississippi,
101
U.S.
814
(1880);
New
York
&
New
England
R.R.
Co.
v.
Bristol,
151
U.S.
556
(1894).
34.
ELY,
supra
note
2,
at
192-93.
2019]
THE
CURRENT
STATUS
OF
THE
CONTRACT
CLAUSE
states
sought
to
protect
homes
and
farms
from
foreclosure
of
delin-
quent
mortgages.
These
laws
harkened
back
to
nineteenth-century
relief
laws.
Indeed,
laws
altering
the
terms
of
mortgages
were
rou-
tinely
struck
down
during
the
nineteenth
century
as
violations
of
the
Contract
Clause.
Nonetheless,
a
divided
Supreme
Court,
in
the
seminal
and
controversial
case
of
Home
Building
and
Loan
Associa-
tion
v.
Blaisdell
(1934),
upheld
a
Minnesota
moratorium
law,
reject-
ing
a
contract
clause
challenge.
40
Speaking
for
the
Court,
Chief
Justice
Charles
Evans
Hughes
stressed
the
existence
of
emergency
conditions
and
argued
that
the
State's
overriding
protective
power
could
justify
interference
with
agreements.
41
In
time,
his
broad
language
opened
the
door
to
virtually
reading
the
Contract
Clause
out
of
the
Constitu-
tion.
To
be
sure,
Hughes
attempted
to
cabin
the
reach
of
his
opinion
by
setting
forth
some
limitations.
Among
other
criteria,
he
pointed
out
that
the
Minnesota
law
was
temporary
in
operation
and
protected
the
security
interest
of
the
mortgagee.
4
2
In
a
forceful
dissent,
Justice
George
Sutherland
noted
that
the
Contract
Clause
was
adopted
during
a
period
of
economic
distress
and
strenuously
denied
that
an
emer-
gency
furnished
a
reason
for
avoiding
the
restrictions
of
that
provi-
sion.
He
presciently
warned
that
the
majority
opinion
paved
the
way
for
further
encroachments
on
both
private
and
public
contracts.
43
To
be
sure,
the
Contract
Clause
did
not
disappear
overnight.
In
the
late
1930s
and
early
1940s,
the
Supreme
Court
relied
on
the
Clause
several
times
to
invalidate
state
laws,
suggesting
that
the
scope
of.-
Blaisdell
might
be
confined.
4
4
But
it
turned
out,
however,
that
Blaisdell,
in
fact,
delivered
a
near-fatal
blow
to
the
efficacy
of
the
Contract
Clause.
As
the
Roosevelt
appointees
gained
control
of
the
Court,
they
treated
Blaisdell
as
the
governing
authority
and
ignored
both
the
limitations
expressed
by
Hughes
and
the
subsequent
deci-
sions
that
confined
its
application.
The
emphasis
on
emergency
situa-
tions
as
a
justification
for
contractual
impairment,
for
example,
was
40.
Home
Bldg.
&
Loan
Ass'n
v.
Blaisdell,
290
U.S.
398
(1934).
41.
Id.
at
437-41.
42.
Id.
at
444-47.
43.
Id.
at
448.
44.
E.g.,
Wood
v.
Lovett,
313
U.S.
362
(1941);
Treigle
v.
Acme
Homestead
Ass'n,
297
U.S.
189
(1936);
W.B.
Worthen
v.
Kavanaugh,
295
U.S.
56
(1935);
W.B.
Worthen
v.
Thomas,
292
U.S.
426
(1934);
see
David
F.
Forte,
Forgotten
Cases:
Worthen
v.
Thomas,
66
CLEV.
ST.
L.
REV.
705,
711-16
(2018)
[hereinafter
Forte,
Forgotten
Cases]
(arguing
that
in
these
cases
the
Supreme
Court
sought
to
narrow
the
emergency
exception
articulated
in
Blaisdell).
99
PROPERTY
RIGHTS
JOURNAL
specifically
rejected.
45
Instead,
the
New
Deal
Court
stressed
the
legisla-
ture's
wide
discretion
to
set
economic
policy
and
override
contracts
via
the
police
power
without
regard
to
emergency
conditions.
It
repeat-
edly
demonstrated
a
dismissive
attitude
toward
the
Contract
Clause.
In
effect,
the
Court
adopted
a
balancing
test,
heavily
weighted
in
favor
of
state
authority,
in
assessing
violations
of
the
provision.
Largely
ignored
and
serving
no
meaningful
purpose,
the
Contract
Clause
was
not
invoked
again
by
the
Supreme
Court
for
more
than
thirty
years.
Despite
this
period
of
neglect
at
the
federal
level,
the
Contract
Clause
retained
some
modest
efficacy
at
the
state
level,
where
courts
some-
times
relied
on
contract
clauses
in
state
constitutions.
II.
THE
CONTRACT
CLAUSE'S
DOUBTFUL
REVIVAL
In
the
late
1970s,
the
Supreme
Court
expressed
a
fleeting
interest
in
the
provision
4
6
but
in
so
doing
promulgated
a
convoluted
multi-
factor
test
that
did
more
to
obfuscate
than
to
clarify
contract
clause
jurisprudence.
47
In
practice,
the
analytical
framework
established
by
the
Supreme
Court
did
more
to
uphold
state
regulatory
authority
than
protect
the
rights
of
contracting
parties
from
state
interference.
As
an
aside,
this
multipart
formula
is
reminiscent
of
the
equally
fuzzy
balancing
test
articulated
in
Penn
Central
to
determine
the
existence
of
a
regulatory
taking
of
property.
4
9
45.
Veix
v.
Sixth
Ward
Building
and
Loan
Association,
310
U.S.
32,
38-40
(1940).
46.
See,
e.g.,
U.
S.
Tr.
Co.
v.
New
Jersey,
431
U.S.
1
(1977)
(invalidating
repeal
of
covenant
in
bond
agreement);
Allied
Structural
Steel
Co.
v.
Spannaus,
438
U.S.
234
(1978)
(striking
down
law
retroactively
imposing
change
in
company's
pension
plan).
47.
The
current
test
asks
three
questions:
(1)
Has
a
change
in
state
law
operated
as
a
substantial
impairment
of
a contract?
(2)
If
the
impairment
is
substantial,
does
the
law
serve
a
legitimate
public
purpose,
such
as
remedying
a
broad
social
or
economic
problem?
(3)
Are
the
means
chosen
to
accomplish
this
purpose
reasonable
and
appropriate
to
the
public
purpose?
Energy
Reserves
Grp.
v.
Kansas
Power
&
Light
Co.,
459
U.S.
400,
411-13
(1983).
For
a
discussion
of
the
standard
of
review,
see
ELY,
supra
note
2,
at
241-48.
48.
Forte,
Forgotten
Cases,
supra
note
44,
at
722
(cogently
concluding
that
"all
that
re-
mains
of
the
Contract
Clause's
protective
sweep
is
an
asymmetric
middle-tier
test
that
has
little
analytic
benefit
and
virtually
no
legal
effect").
49.
Penn
Cent.
Transp.
Co.
v.
City
of
New
York,
438
U.S.
104,
124
(1987);
see
Steven
J.
Eagle,
The
Four-Factor
Penn
Central
Regulatory
Takings
Test,
118
PENN
ST.
L.
REV.
601,604
(2014)
(finding
Penn
Central
test
to
be
incoherent);
Gideon
Kanner,
Making
Laws
and
Sausages:A
Quarter-Century
Retrospective
on
Penn
Central
Transportation
Co.
v.
City
ofNew
York,
13
WM.
&
MARY
BILL
RTS.
J.
679
(2005);
see
also
Steven
J.
Eagle,
Land
Use
Regulation
and
Good
Intentions,
33
J.
LAND
USE
&
ENVTL.
L.
87,
138
(2017)
("In
practice,
the
Penn
Central
ad
hoc,
multifactor
balancing
test
has
not
proved
auspicious
for
property
owners.").
100
[Vol.
8:093
2019]
THE
CURRENT
STATUS
OF
THE
CONTRACT
CLAUSE
To
compound
the
muddle,
the
Supreme
Court
imposed
a
higher
standard
of
review
when
a
state
abridges
its
own
contracts.
It
main-
tained
that
"complete
deference"
to
a
legislative
determination
of
reasonableness
and
necessity
was
inappropriate
when
the
state's
self-interest
was
involved.'
This
dual
standard
is
problematic
on
several
grounds.
There
is
no
textual
or
historical
basis
to
differenti-
ate
between
the
scrutiny
given
to
private
and
public
contracts."
Moreover,
the
Court
has
never
made
clear
what
level
of
scrutiny
is
appropriate
for
public
contracts,
and
lower
courts
have
wrestled
with
this
without
guidance.
Cases
dealing
with
public-employee
contracts
often
raise
the
issue
of
the
standard
of
review.
To
be
sure,
some
state
courts
have
shown
a
willingness
to
more
vigorously
enforce
the
constitutional
ban
on
legislative
impairment
of
existing
agreements.5
But
the
fact
remains
that
the
Supreme
Court
has
not
invoked
the
Contract
Clause
to
invalidate
a
state
law
in
over
forty
years.
Little
wonder,
then,
that
in
1995
Judge
Douglas
Ginsburg
pictured
the
provision-along
with
other
neglected
parts
of
the
Constitution-as
part
of
the
"Constitution-in-exile,"
provisions
"banished
for
standing
in
opposition
to
unlimited
government."
5
3
III.
THE
CONTEMPORARY
MUDDLE
The
Supreme
Court's
most
recent
foray
into
contract
clause
juris-
prudence,
Sveen
v.
Melin,
decided
in
June
of
2018,
did
little
to
alter
this
bleak
scene.'
At
issue
in
Sveen
was
a
Minnesota
statute
that
50.
U.S.
Tr.
Co.
of
New
York,
431
U.S.
at
22-23.
51.
ELY,
supra
note
2,
at
242;
see
also
Michael
W.
McConnell,
Contract
Rights
and
Property
Rights:
A
Case
Study
in
the
Relationship
Between
Individual
Liberties
and
Con-
stitutional
Structure,
76
CALIF.
L.
REV.
267,
293-94
(1988)
("[T]he
modern
thrust
of
contracts
clause
jurisprudence
is
precisely
backwards....
[I]t
is
interference
with
private
contracts
that
lies
at
the
heart
of
the
clause.");
Thomas
W.
Merrill,
Public
Contracts,
Private
Contracts,
and
the
Transformation
of
the
Constitutional
Order,
37
CASE
W.
RES.
L.
REV.
597,
609
(1987)
("[Tihe
modern
Court
has
in
effect
turned
the
contract
clause
of
both
the
framers
and
the
post
-CharlesRiverBridge
era
on
its
head.
The
prior
understanding
was
that
private
contracts
were
protected
from
state
interference
with
more
rigor
than
public
contracts.").
52.
Brian
A.
Schar,
Note,
Contract
Clause
Law
Under
State
Constitutions:
A
Model
for
Heightened
Scrutiny,
1
TEX.
REV.
L.
&
POL.
123
(1997).
53.
Douglas
H.
Ginsburg,
Delegation
Running
Riot,
1995
REG.
79,
80
(1995)
(reviewing
DAVID
SCHOENBROD,
POWER
WITHOUT
RESPONSIBILITY:
How
CONGRESS
ABUSES
THE
PEOPLE
THROUGH
DELEGATION
(1993)).
54.
Sveen
v.
Melin,
138
S.
Ct.
1815
(2018).
I
submitted
an
amicus
brief
in
Sveen
supporting
the
respondent.
101
THE
CURRENT
STATUS
OF
THE
CONTRACT
CLAUSE
Dissenting
alone,
Justice
Neil
Gorsuch
maintained
that
the
retro-
active
application
of
the
statute
to
an
insurance
policy
purchased
before
its
enactment
ran
afoul
of
the
Contract
Clause.'
More
impor-
tantly,
he
was
receptive
to
a far-reaching
re-examination
of
current
contract
clause
jurisprudence.
He
pointed
out
that
historically
the
Supreme
Court
had
interpreted
the
provision
to
bar
any
legislative
interference
with
contracts.
6
'
Further,
Gorsuch
declared
that
the
cur-
rent
multifactor
test
"seems
hard
to
square
with
the
Constitution's
original
public
meaning."
6
2
Echoing
Justice
Hugo
Black,"
Gorsuch
expressed
concern
that
the
Court
had
reduced
the
protection
af-
forded
agreements
by
the
Contract
Clause
to
an
uncertain
balancing
test.
"Should
we
worry,"
he
asked,
"that
a
balancing
test
risks
invest-
ing
judges
with
discretion
to
choose
which
contracts
to
enforce-a
discretion
that
might
be
exercised
with
an
eye
to
the
identity
(and
popularity)
of
the
parties
or
contracts
at
hand?"
Even
applying
the
current
test,
however,
Gorsuch
found
a
contract
clause
violation.
He
insisted
that
the
choice
of
a
beneficiary
was
at
the
heart
of
a
life
insurance
contract
and
that
a
law
undoing
this
designation
was
a
substantial
impairment.
Gorsuch
added
that
this
impairment
was
not
reasonable
because
the
state
could
have
achieved
its
goal
by
more
moderate
and
less
intrusive
means.65
Perhaps
the
Gorsuch-dissenting
opinion
will
spark
a
fundamental
reconsideration
of
the
Contract
Clause
by
the
Supreme
Court.
But
such
an
attitudinal
sea
change
does
not
seem
imminent.
It
is
more
likely
that
the
Justices
will
adhere
to
the
pattern
of
generally
ignor-
ing
the
provision
and
employing
tests
that
make
successful
contract
clause
claims
very
difficult.
Even
before
Sveen,
commentators
pro-
claimed
that
the
Contract
Clause
was
virtually
dead.
6
6
60.
Sveen,
138
S.
Ct.
at
1826
(Gorsuch,
J.,
dissenting).
61.
Id.
at
1827-28.
62.
Id.
63.
City
of
El
Paso
v.
Simmons,
379
U.S.
497,
533
(1965)
(Black,
J.,
dissenting)
("[Cion-
stitutional
adjudication
under
the
balancing
method
becomes
simply
a
matter
of
this
Court's
deciding
for
itself
which
result
in
a
particular
case
seems
in
the
circumstances
the
more
acceptable
governmental
policy
and
then
stating
the
facts
in
such
a
way
that
the
considera-
tions
in
the
balance
lead
to
the
result.").
64.
Sveen,
138
S.
Ct.
at
1827
(Gorsuch,
J.,
dissenting).
65.
Id.
at
1828-29.
66.
See,
e.g.,
Richard
Funston,
Requiescat
in
Pace:
A
Memorial
to
the
Contract
Clause,
3
TEX.
S.
U.
L.
REV.
12,
24
(1973)
("Swallowed
up
by
due
process,
the
contract
clause
is
no
longer
103
2019]
105
2019]
THE
CURRENT
STATUS
OF
THE
CONTRACT
CLAUSE
have
indicated
that
their
state
constitutions
should
be
read
to
pro-
vide
a more
robust
safeguard
for
agreements.
Courts
in
Arizona,
Florida,
Indiana,
Texas,
and
Virginia,
for
example,
have
articulated
such
a
position.
7 2
These
differing
approaches,
of
course,
speak
to
the
larger
issue
of
determining
the
extent
state
courts
should
construe
state-rights
guarantees
more
broadly
than
federal
doctrines."
Although
the
majority
of
contract
clause
challenges
in
recent
years
have
been
rejected,
state
courts
have
invoked
the
provision
to
strike
down
legislation
in
a
variety
of
situations.
In
2016,
the
Supreme
Court
of
North
Carolina
ruled
that
a
state
law
retroactively
revoking
the
tenured
status
of
public
school
teachers
violated
the
Federal
Con-
tract
Clause.
74
It
found
that
the
elimination
of
tenure
in
favor
of
terms-of-years
contracts
was
a
substantial
impairment
of
contrac-
tual
benefits
pertaining
to
job
security.
The
state
justified
the
repeal
as
a
means
of
eliminating
underperforming
teachers.
The
court,
how-
ever,
concluded
that
this
was
not
a
reasonable
means
of
achieving
a
legitimate
public
purpose,
in
view
of
less
drastic
alternatives.
Con-
sistent
with
the
principle
that
the
Contract
Clause
does
not
have
prospective
application,
the
court
confined
its
ruling
to
the
repeal
of
tenured
status
earned
prior
to
the
effective
date
of
the
statute
and
did
not
bar
application
of
the
repeal
law
to
probationary
teachers."
In
sync
with
U.S.
Trust,
7
6
state
courts
have
looked
skeptically
at
state
efforts
to
evade
their
financial
obligations.
At
issue
in
Maze
v.
Board
of
Directors
for
Commonwealth
Postsecondary
Education
greater
protection
of
agreements
than
the
United
State
Constitution
and
adopting
three-step
federal
framework);
Mearns
v.
Scharbach,
103
Wash.
App.
498,
512,
12
P.3d
1048,
1055
(Wash.
Ct.
App.
2000),
petition
for
rev.
den.
143
Wash.2d
1101,
21
P.3d
291
(Apr.
10,
2001)
("The
two
clauses
are
substantially
similar
and
are
given
the
same
effect.").
72.
ELY,
supra
note
2,
at
252-53;
see,
e.g.,
Sears,
Roebuck
&
Co.
v.
Forbes/Cohen
Florida
Props.,
223
So.
3d
292,
299
(Fla.
Dist.
Ct.
App.
2017)
("The
Florida
Constitution
offers
greater
protection
for
the
rights
derived
from
the
Contract
Clause
than
the
United
States
Constitution.");
see
also
Maze
v.
Bd.
of
Dirs.
for
Commonwealth
Postsecondary
Educ.
Prepaid
Tuition
Tr.
Fund,
559
S.W.3d
354,
369
(Ky.
2018)
(declaring
that
"Kentucky
jurisprudence
takes
a
more
restrictive
view
on
the
legislature's
power
to
impose
changes
to
existing
con-
tractual
benefits
and
obligations
than
the
pronouncements
of
the
federal
courts,"
but
applying
three-part
federal
test
derived
from
U.S.
Trust).
73.
See
Clint
Bolick,
State
Constitutions:
Freedom's
Frontier,
2016-2017
CATO
SUP.
CT.
REV.
15,
21-23
(2017)
(noting
that
state
constitutional
law
may
provide
enhanced
protection
for
private-property
rights
and
economic
liberty,
among
other
individual
rights).
74.
North
Carolina
Ass'n
of
Educators
v.
State,
786
S.E.2d
255
(N.C.
2016).
75.
Id.
For
an
analysis
of
this
case,
see
Tommy
Tobin,
Far
from
a
'Dead
Letter":
The
Contract
Clause
and
North
Carolina
Association
of
Educators
v.
State,
96
N.C.
L.
REV.
1681
(2018).
76.
U.S.
Tr.
Co.
of
New
York
v.
New
Jersey,
431
U.S.
1
(1977).
PROPERTY
RIGHTS
JOURNAL
Prepaid
Tuition
Trust
Fund,
for
example,
were
legislative
changes
imposed
retroactively
on
contracts
made
pursuant
to
the
Kentucky
Affordable
Prepaid
Tuition
Fund
("KAPT")."
The
program
"allowed
families
..
.
to
'lock
in'
the
current
tuition
rates
for
future
attendance"
at
Kentucky
public
universities.1
8
Financial
miscalculations
in
ad-
ministering
the
program,
coupled
with
significant
tuition
increases,
resulted
in
a
"substantial
unfunded
liability."'
In
response,
the
legis-
lature
adopted
a
series
of
amendments
that
placed
time
limitations
on
KAPT
contracts
and
curtailed
the
coverage
for
future
tuition
in-
creases.'
The
effect
was
to
devalue
the
economic
benefits
promised
in
the
KAPT
contracts.
The
State
sought
to
justify
its
actions
as
dic-
tated
by
"economic
necessity."a"
The
Supreme
Court
of
Kentucky
struck
down
the
retroactive
appli-
cation
of
the
amendments
because
they
extinguished
the
contractual
rights
of
KAPT-contract
purchasers
to
promised
benefits.
Invoking
a
stricter
standard
because
the
State
was
a
party
to
the
agreement,
it
found
that
the
retroactive
amendments
amounted
to
an
impair-
ment
of
contract
in
violation
of
both
the
United
States
and
Kentucky
Constitutions.
Concluding
that
the
legislature
could
not
demon-
strate
a
legitimate
public
purpose
behind
the
law,
the
court
stressed
that
lawmakers
could
not
"self-servingly
renounce"
debts.
82
Other
retroactive
changes
in
prevailing
law
have
also
triggered
contract
clause
scrutiny.
For
example,
a
Florida
District
Court
of
Ap-
peals
invalidated
a municipal
resolution
that
prevented
a
commercial-
mall
tenant
from
subleasing
part
of
its
leased
space
without
the
approval
of
both
the
mall
owner
and
the
city.
It
concluded
that
the
resolution
diminished
the
value
of
the
contract
and
failed
to
serve
a
public
purpose.'
Moreover,
the
Supreme
Court
of
Idaho
struck
down
a
state
law
retroactively
changing
the
formula
governing
the
distribution
of
workers
compensation-fund
dividends
as
a
violation
of
the
state
contract
clause.'
77.
Maze
v.
Bd.
of
Dirs.
Commonwealth
Postsecondary
Educ.
Prepaid
Tuition
Tr.
Fund,
559
S.W.3d
354
(Ky.
2018).
78.
Id.
at
360.
79.
Id.
at
362.
80.
Id.
at
361-62.
81.
Id.
at
371.
82.
Id.
at
373.
83.
Sears,
Roebuck
&
Co.
v.
Forbes/Cohen
Florida
Props.,
223
So.
3d
292,
300
(Fla.
Dist.
Ct.
App.
2017).
84.
CDA
Dairy
Queen,
Inc
v.
State
Ins.
Fund,
299
P.3d
186
(Idaho
2013).
106
[Vol.
8:093
2019]
THE
CURRENT
STATUS
OF
THE
CONTRACT
CIAUSE
This
brief
survey
of
recent
contract
clause
decisions
in
the
lower
federal
and
state
courts
demonstrates
that
the
Clause
retains
a
modest
degree
of
vitality.
But
qualifications
are
in
order.
Few
of
these
cases
present
the
kind
of
far-reaching
contractual
issues
ad-
dressed
by
courts
in
the
nineteenth
and
early
twentieth
centuries.
None
called
into
question
the
pervasive
regulation
of
the
economy.
Indeed,
both
federal
and
state
courts
seemed,
on
the
whole,
more
con-
cerned
with
upholding
state
police
power
than
vindicating
contrac-
85
tual
arrangements.
The
most
frequently
litigated
contract
clause
claims
today
arise
from
the
ongoing
financial
crises
experienced
by
many
states
and
localities.
8
"
Most
commentators
agree
that
the
large
and
growing
shortfall
in
funding
for
public-employee
pensions
and
health
bene-
fits
is
a
primary
source
of
financial
distress.
There
are
estimates
that
in
the
aggregate
such
pension
plans
are
underfunded
by
five
trillion
dollars."
Faced
with
such
staggering
deficits,
many
state
and
local*
governments
have
taken
steps
to
trim
benefits
from
both
current
and
retired
public-sector
employees.'
These
moves
have
triggered'
a
torrent
of
litigation,
alleging
violations
of
the
contract
clauses
in
both
the
state
and
federal
constitutions.
Given
the
malleable
charac-
ter
of
the
prevailing
multifactor
test,
the
uncertainty
over
the
stan-
dard
of
review
for
alleged
impairments
of
public
contracts,
and
the
wording
of
different
benefit
schemes,
it
is
hardly
surprising
that
courts
have
reached
conflicting
results.
In
these
brief
comments
I
cannot
assess
the
full
range
of
these
decisions.
As
with
any
contract
clause
dispute,
the
initial
inquiry
is
whether
the
claimed
employee
benefits
are
contractual
in
nature.
A
number
of
such
claims
in
recent
years
have
failed
because
courts
have
not
found
an
impairment
of
a
contractual
right
to
the
particular
benefit
at
issue.
In
reaching
this
conclusion,
courts
have
stressed
that
the
principal
function
of
legislature
is
to
establish
policy,
not
make
contracts.
8
9
It
85.
ELY,
supra
note
2,
at
258-60.
86.
For
the
background
of
this
controversy,
see
James
W.
Ely,
Jr.,
Public
Employees
and
the
Curious
Mini-Revival
of
Contract
Clause
Jurisprudence,
2
BRIGHAM-KANNER
PROP.
RTs.
CONF.
J.
37
(2013)
[hereinafter
Ely,
Public
Employees].
87.
Sarah
Krouse,
State
and
Local
Pension
Woes
Are
Starting
to
Bite,
WALL
ST.
J.,
July
31,
2018.
88.
Id.
89.
Dodge
v.
Bd.
of
Edue.
of
Chicago,
302
U.S.
74,
79
(1937)
('The
presumption
is
that
such
a
law
is
not
intended
to
create
private
contractual
or
vested
rights,
but
merely
declares
107
108
PROPERTY
RIGHTS
JOURNAL
[Vol.
8:093
follows
that
only
when
state
lawmakers
express
an
unequivocal
in-
tent
to
create
contractual
rights
in
a
statute
would
such
a
law
amount
to
a
binding
contractual
commitment.
0
In
2019,
the
Supreme
Court
of
California
applied
these
principles
in
a case
arising
out
of
a
California
law
revising
public-employee
pensions
and
eliminating
the
opportunity
for
public
employees
to
purchase
additional
retirement
service
credits.
Plaintiffs
challenged
the
law
as
a
violation
of
the
contract
clause
in
the
California
Consti-
tution.
Citing
both
federal
and
state
authority,
the
court
stressed
that
the
primary
function
of
legislatures
was
to
determine
policy,
inherently
subject
to
revision,
and
not
to
make
contracts.
It
found
no
basis
on
which
to
conclude
that
the
legislature
intended
to
establish
a
contractual
right
to
purchase
any
additional
retirement
credit.
Since
there
was
no
contract,
the
court
had
no
occasion
to
consider
whether
the
elimination
of
the
purchase
option
amounted
to
an
unconstitu-
tional
impairment
of
contract.
1
When
a
contract
governing
employee
benefits
is
involved,
courts
have
split
as
to
whether
state
alteration
of
such
agreements
have
run
afoul
of
the
Contract
Clause.
One
line
of
cases
has
sustained
a
policy
to
be
pursued
until
the
Legislature
shall
ordain
otherwise.
He
who
asserts
the
creation
of
a
contract
with
the
state
in
such
a
case
has
the
burden
of
overcoming
the
presumption.")
Nat'l
R.R.
Passenger
Corp.
v.
Atchison,
Topeka
&
Santa
Fe
Ry.
Co.,
470
U.S.
451,
466
(1985)
(declaring
that
the
principal
function
of
a
legislature
is
not
to
make
contracts
but
to
enact
laws
that
establish
policy,
which
are
subject
to
revision).
90.
See,
e.g.,
Cranston
Firefighters
v.
Raimondo,
880
F.3d
44
(1st
Cir.
2018)
(holding
thatleg-
islative
modification
of
state
pension
plans
for
government
employees
did
not
run
afoul
of
con-
tract
clause
because
state
had
made
no
binding
commitment);
Dodd
v.
City
of
Chattanooga,
846
F.3d
180,
186
(6th
Cir.
2017)
(stressing
"the
fundamental
assumption
in
Contract
Clause
analysis
that
legislation
merely
expresses
current
government
policy-and
future
legislatures
are
free
to
change
that
policy-rather
than
creating
contractual
obligations,"
and
ruling
that
municipal
employee
had
no
contractual
right
to
default
death
benefit);
Schwein
v.
Bd.
of
Ed.
of
Riverview
Cmty.
Dist.,
335
F.
Supp.
3d
964
(E.D.
Mich.
2018)
(concluding
that
Michigan
Teacher
Tenure
Act
did
not
grant
teacher
a
contract
and
rejecting
contract
clause
claim);
Lake
v.
State
Health
Plan
for
Teachers
&
State
Emps.,
825
S.E.
2d
645,
650-56
(N.C.
Ct.
App.
2019)
(finding
no
contractual
right
to
unalterable
health
insurance
benefits);
Terry
v.
State,
2017
WL
491930
at
*5
(N.C.
Ct.
App.
2017)
(noting
"the
existence
of
a
presumption
under
North
Carolina
law
that
no
contractual
rights
are
created
by
statute"
and
finding
no
con-
tractual
right
to
future
salary
increases),
review
denied,
369
N.C.
751
(June
2017);
State
ex
rel.
Horvath
v.
State
Teachers
Ret.
Bd.,
697
N.E.2d
644
(Ohio
1998)
(employees
had
no
contractual
rights
to
prospective
benefits
until
benefits
vested
by
the
operation
of
law).
91.
Cal
Fire
Local
2881
v.
Cal.
Pub.
Emps.
Ret.
Sys.,
6
Cal.
5th
965,
435
P.3d
433
(2019).
The
court
differentiated
between
the
opportunity
to
purchase
additional
retirement
credit
and
the
implied
contractual
right
for
public
employees
to
receive
statutory
pension
benefits,
be-
cause
the
later
constitute
a
form
of
deferred
compensation.
2019]
THE
CURRENT
STATUS
OF
THE
CONTRACT
CLAUSE
legislative
efforts
to
revamp
employment
contracts,
granting
deference
to
legislative
policy
and
stressing
the
severity
of
budgetary
problems.
9
2
Yet
other
decisions
have
concluded
that
such
actions
violated
the
Contract
Clause,
reasoning
that
the
reduction
of
employee
benefits
was
neither
reasonable
nor
necessary
and
determining
that
less
weight
should
be
given
to
state
and
municipal
financial
crises.
This
line
of
cases
highlights
an
ironic
twist:
having
lectured
for
decades
that
courts
should
not
second
guess
social
and
economic
policies,
some
courts
now
take
the
position
that
they
have
the
duty
to
probe
the
reasonableness
of
legislative
policy
regarding
public-employee
contacts."
This
approach
clearly
entangles
courts
in
policy
matters
and
raises
the
troublesome
question
of
whether
public-employee
contracts
are
being
singled
out
for
more
favorable
treatment
than
is
accorded
other
agreements.
94
It
recalls
Justice
Gorsuch's
warning
that
a
pliable
balancing
test,
in
effect,
confers
on
judges
the
discre-
tion
to
decide
which
agreements
should
be
enforced.
IV.
IMPAIRMENT
DISTINGUISHED
FROM
BREACH
OF
CONTRACT
Although
states
are
held
to
a
higher
standard
of
scrutiny
when
abridging
their
own
contracts,
not
every
dispute
over
the
meaning
of
a
public
contract
gives
rise
to
a
contract
clause
violation.
It
has
long
been
held
that
cases
involving
the
construction
of
state
agree-
ments
with
individuals
do
not,
standing
alone,
implicate
the
Contract
Clause
even
if
the
state
denies
liability
under
the
contract.'
Thus,
a
breach
of
contract
by
the
state,
as
distinguished
from
an
impair-
ment,
leaves
the
parties
free
to
seek
a
remedy
in
the
state
courts.
92.
ELY,
supra
note
2,
at
262.
93.
Id.
94.
See
Nila
M.
Merola,
Judicial
Review
of
State
Legislation
An
Ironic
Return
to
Lochnerian
Ideology
When
Public
Sector
Labor
Contracts
Are
Impaired,
84
ST.
JOHN's
L.
REV.
1179,
1211
(2010)
(asserting
that
"enormous
public
interest
.
..
demands
that
strict
scrutiny
be
applied
to
laws
that
impair
public
sector
labor
contracts"
and
insisting
that
"public
employees
deserve
the
utmost
protection").
95.
See
supra
notes
50-51
and
accompanying
text.
96.
See,
e.g.,
St.
Paul
Gaslight
Co.
v.
City
of
St.
Paul,
181
U.S.
142,
149,
151
(1901)
(finding
there
was
no
impairment
of
contract
with
the
municipality,
and
stating
that
"it
follows
that
the
record
involves
solely
an
interpretation
of
the
contract,
and
therefore
presents
no
con-
troversy
within
the
jurisdiction
of
this
court").
97.
See
Hays
v.
Port
of
Seattle,
251
U.S.
233,
237
(1920)
(distinguishing
between
a
law
violating
a
contract
and
one
impairing
its
obligation,
and
asserting
that
if
the
contract
at
issue
109
PROPERTY
RIGHTS
JOURNAL
The
absence
of
an
effective
remedy
to
enforce
the
contract,
on
the
other
hand,
might
trigger
contract
clause
review.
This
rule
found
application
in
a
2018
decision
by
the
Ninth
Cir-
cuit
Court
of
Appeals."
At
issue
was
a
Montana
statute
that
altered
the
price
schedule
for
liquor
sold
to
retailers
by
a
state
agency,
pur-
suant
to
franchise
agreements.
The
plaintiff
liquor
store
had
a
ten-
year
contract
with
the
agency
to
purchase
liquor
at
a
fixed
rate,
and
was
disadvantaged
by
the
unilateral
change.
It
brought
suit
alleging
both
a
breach
of
the
contract
and
a
contractual
impairment
in
viola-
tion
of
the
Contract
Clause.
Plaintiff
contended
that
the
state
agency
had
contractually
promised
not
to
alter
the
rates
without
the
plain-
tiffs
consent.
In
its
defense,
the
State
maintained
that
the
agree-
ment
expressly
provided
that
the
established
rate
was
subject
to
modification
by
state
law
and
therefore
the
price
adjustment
was
consistent
with
the
terms
of
the
agreement.
Thus,
there
was
a
dis-
pute
over
the
interpretation
of
the
agreement.
The
court
insisted
that
"an
interpretative
disagreement
over
a
contract"
did
not
run
afoul
of
the
Contract
Clause.'
"At
bottom,"
the
court
observed,
"the
parties'
arguments
amount
to
dueling
interpretations
between
the
parties
over
the
proper
meaning
of
their
agreement."'oo
It
declared
that
such
a
public-contract
dispute
did
not
impair
the
agreement
so
long
as
the
plaintiff
could
pursue
a
breach-of-contract
claim
against
the
State
for
any
injury
suffered.
01
Of
particular
interest,
however,
was
the
Ninth
Circuit's
emphatic
rejection
of
Montana's
argument
that
a
state
could
unilaterally
modify
contractual
terms
as
an
exercise
of
its
sovereign
power.
"An
assertion,"
the
court
maintained,
"that
the
state
always
has
the
uni-
lateral
authority
to
modify
the
provisions
of
a
contract
is
inconsistent
was
still
in
force
"its
obligation
remained
as
before,
and
formed
the
measure
of
[the]
right
to
recover
from
the
state
for
the
damages
sustained");
E
&
E
Hauling,
Inc.
v.
Forest
Preserve
Dist.
of
DuPage
Cty.,
613
F.2d
675,
679
(7th
Cir.
1980)
("The
Supreme
Court
in
the
context
of
the
contract
clause
has
drawn
a
distinction
between
a
breach
of
contract
and
impairment
of
the
obligation
of
the
contract.
The
distinction
depends
on
the
availability
of
a remedy
in
damages
in
response
to
the
state's
(or
its
subdivision's)
action.
If
the
action
of
the
state
does
not
preclude
a
damage
remedy
the
contract
has
been
breached
and
the
non-breaching
party
can
be
made
whole.
If this
happens
there
has
been
no
law
impairing
the
obligation
of
the
contract.").
98.
LL
Liquor,
Inc.
v.
Montana,
912
F.3d
533
(9th
Cir.
2018).
99.
Id.
at
537.
100.
Id.
at
539.
101.
Id.
at
538-39.
110
,
[Vol.
8:093
2019]
THE
CURRENT
STATUS
OF
THE
CONTRACT
CLAUSE
with
the
requirements
of
the
Contracts
Clause
....
102
Although
recognizing
that
a
state
does
not
relinquish
its
sovereign
power
to
regulate
by
entering
contracts,
the
court
nonetheless
stressed
that
a
state
cannot
avoid
financial
liability
if
a
change
in
the
law
results
in
financial
harm
to
a
contracting
party.os
It
added:
"Again,
if
state
law
did
allow
Montana
unilaterally
to
modify
contracts
between
it-
self
and
others
without
providing
a
damages
remedy,
then
the
federal
Contracts
Clause
would
be
squarely
implicated."
1
04
V.
PROSPECTS
FOR
REVITALIZATION
So
we
are
left
with
a
diminished
Contract
Clause
that,
although
frequently
ignored,
is
occasionally
trotted
out
in
unpredictable
and
unprincipled
ways
to
oversee
state
laws.
10
This
is
a
curious
result
for
a
provision
that,
as
Lawrence
M.
Friedman
has
reminded
us,
was
framed
to
guarantee
the
stability
of
agreements.
0
o
Yet
the
chances
for
a
meaningful
revival
of
the
Contract
Clause,
at
least
at
the
federal
level,
seem
remote
at
the
time
of
this
writing.
As
discussed
above,
the
Supreme
Court
has
endorsed
tests
that
virtually
eliminate
the
Clause
from
the
Constitution.
The
road
to
reform
will
not
be
easy.
Nonetheless,
I
propose
some
steps
that
would
make
the
judicial
reconstruction
of
the
Contract
Clause
more
consis-
tent
with
its
text,
history,
and
purpose.
Any
move
to
restore
the
provision
as
a
significant
restraint
on
states'
interference
with
agreements
should
start
with
the
abandon-
ment
of
the
murky
multiprong
formula.
This
test,
with
its
near-supine
deference
to
legislative
decisions
regarding
agreements,
falls
woe-
fully
short
of
achieving
vigorous
enforcement
of
the
Clause.
The
Constitution
does
not
provide
that
states
may
abridge
contracts
whenever
they
can
devise
a
reason.
102.
Id.
at
541.
103.
Id.
at
541-42.
104.
Id.
at
541
n.7.
105.
See
Douglas
W.
Kmiec
&
John
0.
McGinnis,
The
Contract
Clause:
A
Return
to
the
Original
Understanding,
14
HASTINGS
CONST.
L.Q.
525,
559
(1987)
(observing
that
under
the
current
test
"the
Supreme
Court
has
interpreted
a
constitutional
provision
that
was
designed
to
provide
certainty
to
contracting
parties
in
a
manner
that
maximizes
the
unpredictability
of
its
application").
106.
LAWRENCE
M.
FRIEDMAN,
A
HISTORY
OF
AMERICAN
LAW
203
(3d
ed.
2005).
111
PROPERTY
RIGHTS
JOURNAL
The
second
step
is
to
employ
the
same
standard
of
review
for
both
private
and
public
contracts.
Consistent
with
the
text
and
historical
understanding
of
the
Clause,
all
agreements
should
be
on
a
level
playing
field.
The
third
move
would
be
to
look
skeptically
at
economic
distress
as
an
excuse
for
laws
interfering
with
contracts-whether
mortgages,
debts,
bonds,
or
benefits
promised
to
public
employees.
This
was
the
position
that
generally
prevailed
before
Blaisdell."o'
It
follows
that
the
Blaisdell
decision
should
be
overruled
as
out
of
step
with
the
con-
stitutional
ban
on
contractual
impairment.
These
brief
proposals
hardly
resolve
all
the
interpretative
issues
pertaining
to
the
Contract
Clause,
but
they
would
put
us
on
a
path
to
restore
the
Clause
as
a
vital
part
of
the
Constitution.'o
107.
See,
e.g.,
State
ex
rel.
Cleveringa
v.
Klein,
249
N.W.
118,
124-28,
128
(N.D.
1933)
(brush-
ing
aside
an
argument
that
an
economic
emergency
justified
legislation
enlarging
the
period
of
redemption
from
mortgage
foreclosure,
and
declaring
that
"[i]t
must
not
be
forgotten
that
the
right
of
private
contracts
is
no
small
part
of
the
liberty
of
the
citizen").
108.
For
a
more
complete
analysis
of
my
proposals,
see
Ely,
Public
Employees,
supra
note
86,
at
56-60.
112
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