Petitioner
Allied Structural Steel Company, an Illinois corporation
Respondent
Warren Spannaus, Attorney General of Minnesota
Petitioner's Claim
That a Minnesota statute governing pensions and benefits protection violatedthe Contract Clause in Article I, Section 10 of the Constitution.
Chief Lawyer for Petitioner
George B. Christensen
Chief Lawyer for Respondent
Byron E. Starns, Chief Deputy Attorney General of Minnesota
Justices for the Court
Warren E. Burger, Lewis F. Powell, Jr., William H. Rehnquist, John Paul Stevens, Potter Stewart (writing for the Court)
Justices Dissenting
William J. Brennan, Jr., Thurgood Marshall, Byron R. White (Harry A. Blackmundid not participate)
Place
Washington, D.C.
Date of Decision
28 June 1978
Decision
That the Minnesota Private Pension Benefits Protection Act violated the Contract Clause, which limits powers of the state to abridge existing contractualobligations, by imposing restrictions on the petitioner which created a "substantial and severe" impact. The Court ruled that the act could not be justified under the terms whereby other statutes had survived similar attacks, because it had not been enacted "to deal with a broad, generalized economic, or social problem."
Significance
Until United States Trust Co. v. New Jersey (1977), there had been nosignificant Contract Clause challenges before the Court since the 1930s. Allied Structural Steel Co. v. Spannaus, the next Contract Clause case ofnote after United States Trust, strengthened the impact of the clauseand proved that it was not, in Justice Stewart's words, "a dead letter."
Allied Is Finished with Minnesota--But Not Vice Versa
Allied Structural Steel, a company chartered in Illinois, had a Minnesota office in which it employed 30 persons. In 1963, the company adopted a general pension plan whereby a salaried employee who reached the age of 65 would be entitled to receive a monthly pension. The amount was computed by multiplying one percent of his or her average monthly earnings by the total number of years he or she had been employed; so if someone had worked for the company 20 years, earning an average of $2,000 a month in salary, the employee's pension would be $20 multiplied by 20 years, or $400 a month. There was no minimum length of service required by the company before employees were entitled to receive the pension. The size of the pension would, however, depend on the numberof years worked. The plan further stipulated that an employee would receivethe pension if he or she (1) had worked 15 years for the company and reachedthe age of 60; or (2) was at least 55 years of age, and the sum of his or herage and years of service with the company was at least 75; or (3) was less than 55 years of age, but the sum of the age and years of service was at least80. (For example, a 50 year-old employee who had worked 30 years for the company would qualify under the third option.)
Each year the company made contributions to the fund, according to the predictions its accountants made regarding eventual payout needs. Just as the company had voluntarily chosen to inaugurate the plan, it reserved the right to change the plan in whole or in part, or to terminate it at any time and for anyreason. If it did terminate the plan, however, Allied promised to distributethe funds, first to meet obligations it had made to employees who were already retired,and then to those eligible for retirement. Any remaining balance would be distributed to the employees under the plan who had not yet retired.The plan further stated, "No employee shall have any right to, or interest in, any part of the Trust's assets upon termination of his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable to such employee out of the assets of the Trust." Furthermore, the plan noted that the company could dismiss employees at any time and for any reason, and that the plan itself served as no guarantee that it would not do so. By most standards, it was a fair and equitable plan, given the fact that the company had entered into it voluntarily and that the funds came from the company, not from the employees. As Justice Stewart later observed, "In sum, an employee who did not die, did not quit, and was notdischarged before meeting one of the requirements of the plan would receivea fixed pension at age 65 if the company remained in business and elected tocontinue the pension plan in essentially its existing form."
In 1974, two events occurred which would ultimately lead to the Supreme Court's review of Allied Structural Steel Co. v. Spannaus. On April 9, theState of Minnesota passed its Private Pension Benefits Protection Act. The act imposed a "pension funding charge" on any private company that (1) employed100 or more people, at least one of whom was a Minnesota resident; (2) maintained a pension plan; (3) terminated the plan or closed a Minnesota office; and (4) did not have pension funds sufficient to cover full pensions for all employees who had worked for the company for at least ten years. Under the act, the employer would have to purchase deferred annuities, payable to the employees at normal retirement age, to satisfy the deficiency.
This was clearly at odds with Allied's plan, and the situation came to a headthat summer, when the company set in motion a plan to close its Minnesota office--a plan which it had made before Minnesota passed its act. On 31 July, Allied dismissed 11 of its 30 Minnesota employees, and in August it notified the Minnesota Commissioner of Labor and Industry, in accordance with Minnesotalaw, that it was closing its Minnesota office. As it turned out, at least nine of the discharged employees had at least ten years' worth of service each.Though they did not yet qualify for the company's pension plan, they qualified for pensions under the Minnesota Act, and on August 18, the state presented Allied with a pension funding charge of some $185,000.
Allied brought a suit in federal district court asking for injunctive and declaratory relief. The Minnesota Act was unconstitutional, according to the company's legal counsel, because it impaired the company's contractual obligations under the pension agreement. At issue was the Contract Clause of the Constitution: "No State shall . . . pass any . . . Law impairing the Obligation ofContracts." The three-judge panel ruled that the Minnesota statute was constitutional as applied to Allied Structural Steel's pension plan. Allied appealed to the Supreme Court, and the Chamber of Commerce of the United States filed a brief of amicus curiae urging reversal.
Not a "Dead Letter"
The Court voted 5-3 for reversal. Justice Stewart, writing for the majority,held that the Contract Clause imposed limits on the power of a state to interfere in existing contractual relationships, and although the clause did not "obliterate" the state's police power, it did create limits "even in the exercise of [a state's] otherwise legitimate police power." The level of interference by the state in this situation, and the impact thereof, "was both substantial and severe." The act required Allied to retroactively change a plan it had had in place for the 11 years preceding the passing of Minnesota's statute, and furthermore, the retroactivity aspect of the act was applied selectively. It was directed "only to those employers who terminated their pension plans or who, like the appellant, closed their Minnesota offices, thus forcing the employer to make all the retroactive changes in its contractual obligationsat one time." Finally, the act had not been created to deal with a "broad, generalized economic or social problem," which constituted an emergency over alimited period of time. Such had been the case in 1934, when the Court reviewed Home Building & Loan Association v. Blaisdell; and it was not,in the view of the Court, the case now.
The Contract Clause, as Stewart explained, had once been "the strongest single constitutional check on state legislation." The passage of the Fourteenth Amendment in 1868, however, had diminished the power of the clause; thenceforth the Due Process Clause of that amendment had sufficed to protect individuals or corporations from interference by states. "Nonetheless," Stewart said, "the Contract Clause remains part of the Constitution. It is not a dead letter. And its basic contours are brought into focus by several of the Court's 20th-century decisions."
Most important among the latter was Home Building & Loan Association v. Blaisdell (1934). In that case, which ironically also involved Minnesota, the state had passed a law placing a moratorium on the requirements of individuals to make regular mortgage payments. The moratorium was a response tothe Depression, and to the fact that many people were unable to come up withthe money to pay their mortgages. It extended the grace period to 1 May 1935.When a mortgage company challenged the law, the Court upheld it for five reasons: the statute dealt with an emergency situation; it "was enacted to a protect a basic societal interest, not a favored group;" the relief was "appropriately tailored" to the emergency situation; the conditions it imposed were reasonable; and the legislation imposed a time limit on the emergency measures.
Three other cases reinforced the Court's decision in Home Building & Loan Association: W. B. Worthen Co. v. Thomas (1934), W. B. Worthen Co. v. Kavanaugh (1935), and Treigle v. Acme Homestead Assn. (1936). The first two dealt with Arkansas' laws, the third with a Louisiana statute; and in each case the Court found the laws invalid under the Contract Clause. The first of the Worthen cases involved an Arkansas' statute preventing creditors of a deceased person from making claims on the proceeds from that person's life insurance policy. Here the Court found that the provision "was not precisely and reasonably designed to meet a grave temporary emergency in the interest of the general welfare."
Just the year before Spannaus, the Court had considered United States Trust Co. v. New Jersey and again ruled against a state because its legislation "was neither necessary nor reasonable." In examining the Minnesotalaw, the only evidence of its original intent that the Court could find was astatement made by the district court, not the Minnesota legislature. The lower court had opined that the plant-closure problem had come to Minnesota's attention after the White Motor Corporation had closed a Minnesota plant. In all respects, "the Minnesota law simply does not possess the attributes of those state laws that in the past have survived challenge under the Contract Clause of the Constitution." In the narrowness of its aim, Stewart concluded, it"was leveled, not at every Minnesota employer . . . but only at those who hadin the past been sufficiently enlightened as voluntarily to agree to establish pension plans for their employees."
The Dissenters Take the Fourteenth
Justice Brennan filed a dissenting opinion in which he was joined by JusticesMarshall and White. Brennan, too, offered a look into the Court's historicalrecord with regard to states and contracts, but he viewed this not in lightof the Contract Clause, but from the perspective of the Fourteenth Amendment's Due Process Clause. Since he found nothing in the act which violated the latter, he voted to affirm the lower court's judgment.
The Contract Clause, Brennan wrote, had not been "intended to embody a broadconstitutional policy of protecting all reliance interests grounded in private contracts." Rather, it had arisen from "widespread dissatisfaction" over debtor-creditor contracts in force when the United States was created. "Thus, the several provisions of Article I, 10 . . . were targeted directly at this wide variety of debt relief measures." With its use of the Contract Clause, rather than the Fourteenth Amendment, as a means of interpreting contracts, theCourt "threaten[ed] to undermine the jurisprudence of property rights developed over the last 40 years," Brennan wrote.
When he addressed the present case from the perspective of the Due Process Clause, making reference to the Court's decision in Usery v. Turner ElkhornMining Co. (1976), Brennan found that Minnesota's act passed constitutional muster. In his view, the act did indeed "remedy a serious social problem:the utter frustration of an employee's expectations that can occur when he isterminated because his employer closes down his place of work." Furthermore,the act was "not wholly retrospective in its operation" since it only imposed the fine on companies who closed their plants after the enactment of the statute.
Impact
Expectations that Spannaus would inaugurate a new era for the ContractClause proved to be short-lived. In Exxon Corp. v. Eagerton (1983), the Court restricted the application of its Spannaus ruling to statuteswhose "sole effect" was "to alter contractual duties." Four years later, inKeystone Bituminous Coal Association v. DeBeni (1987), the Court rejected a Contract Clause challenge to a Pennsylvania law.
Related Cases
Allied Structural Steel Company, an Illinois corporation
Respondent
Warren Spannaus, Attorney General of Minnesota
Petitioner's Claim
That a Minnesota statute governing pensions and benefits protection violatedthe Contract Clause in Article I, Section 10 of the Constitution.
Chief Lawyer for Petitioner
George B. Christensen
Chief Lawyer for Respondent
Byron E. Starns, Chief Deputy Attorney General of Minnesota
Justices for the Court
Warren E. Burger, Lewis F. Powell, Jr., William H. Rehnquist, John Paul Stevens, Potter Stewart (writing for the Court)
Justices Dissenting
William J. Brennan, Jr., Thurgood Marshall, Byron R. White (Harry A. Blackmundid not participate)
Place
Washington, D.C.
Date of Decision
28 June 1978
Decision
That the Minnesota Private Pension Benefits Protection Act violated the Contract Clause, which limits powers of the state to abridge existing contractualobligations, by imposing restrictions on the petitioner which created a "substantial and severe" impact. The Court ruled that the act could not be justified under the terms whereby other statutes had survived similar attacks, because it had not been enacted "to deal with a broad, generalized economic, or social problem."
Significance
Until United States Trust Co. v. New Jersey (1977), there had been nosignificant Contract Clause challenges before the Court since the 1930s. Allied Structural Steel Co. v. Spannaus, the next Contract Clause case ofnote after United States Trust, strengthened the impact of the clauseand proved that it was not, in Justice Stewart's words, "a dead letter."
Allied Is Finished with Minnesota--But Not Vice Versa
Allied Structural Steel, a company chartered in Illinois, had a Minnesota office in which it employed 30 persons. In 1963, the company adopted a general pension plan whereby a salaried employee who reached the age of 65 would be entitled to receive a monthly pension. The amount was computed by multiplying one percent of his or her average monthly earnings by the total number of years he or she had been employed; so if someone had worked for the company 20 years, earning an average of $2,000 a month in salary, the employee's pension would be $20 multiplied by 20 years, or $400 a month. There was no minimum length of service required by the company before employees were entitled to receive the pension. The size of the pension would, however, depend on the numberof years worked. The plan further stipulated that an employee would receivethe pension if he or she (1) had worked 15 years for the company and reachedthe age of 60; or (2) was at least 55 years of age, and the sum of his or herage and years of service with the company was at least 75; or (3) was less than 55 years of age, but the sum of the age and years of service was at least80. (For example, a 50 year-old employee who had worked 30 years for the company would qualify under the third option.)
Each year the company made contributions to the fund, according to the predictions its accountants made regarding eventual payout needs. Just as the company had voluntarily chosen to inaugurate the plan, it reserved the right to change the plan in whole or in part, or to terminate it at any time and for anyreason. If it did terminate the plan, however, Allied promised to distributethe funds, first to meet obligations it had made to employees who were already retired,and then to those eligible for retirement. Any remaining balance would be distributed to the employees under the plan who had not yet retired.The plan further stated, "No employee shall have any right to, or interest in, any part of the Trust's assets upon termination of his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable to such employee out of the assets of the Trust." Furthermore, the plan noted that the company could dismiss employees at any time and for any reason, and that the plan itself served as no guarantee that it would not do so. By most standards, it was a fair and equitable plan, given the fact that the company had entered into it voluntarily and that the funds came from the company, not from the employees. As Justice Stewart later observed, "In sum, an employee who did not die, did not quit, and was notdischarged before meeting one of the requirements of the plan would receivea fixed pension at age 65 if the company remained in business and elected tocontinue the pension plan in essentially its existing form."
In 1974, two events occurred which would ultimately lead to the Supreme Court's review of Allied Structural Steel Co. v. Spannaus. On April 9, theState of Minnesota passed its Private Pension Benefits Protection Act. The act imposed a "pension funding charge" on any private company that (1) employed100 or more people, at least one of whom was a Minnesota resident; (2) maintained a pension plan; (3) terminated the plan or closed a Minnesota office; and (4) did not have pension funds sufficient to cover full pensions for all employees who had worked for the company for at least ten years. Under the act, the employer would have to purchase deferred annuities, payable to the employees at normal retirement age, to satisfy the deficiency.
This was clearly at odds with Allied's plan, and the situation came to a headthat summer, when the company set in motion a plan to close its Minnesota office--a plan which it had made before Minnesota passed its act. On 31 July, Allied dismissed 11 of its 30 Minnesota employees, and in August it notified the Minnesota Commissioner of Labor and Industry, in accordance with Minnesotalaw, that it was closing its Minnesota office. As it turned out, at least nine of the discharged employees had at least ten years' worth of service each.Though they did not yet qualify for the company's pension plan, they qualified for pensions under the Minnesota Act, and on August 18, the state presented Allied with a pension funding charge of some $185,000.
Allied brought a suit in federal district court asking for injunctive and declaratory relief. The Minnesota Act was unconstitutional, according to the company's legal counsel, because it impaired the company's contractual obligations under the pension agreement. At issue was the Contract Clause of the Constitution: "No State shall . . . pass any . . . Law impairing the Obligation ofContracts." The three-judge panel ruled that the Minnesota statute was constitutional as applied to Allied Structural Steel's pension plan. Allied appealed to the Supreme Court, and the Chamber of Commerce of the United States filed a brief of amicus curiae urging reversal.
Not a "Dead Letter"
The Court voted 5-3 for reversal. Justice Stewart, writing for the majority,held that the Contract Clause imposed limits on the power of a state to interfere in existing contractual relationships, and although the clause did not "obliterate" the state's police power, it did create limits "even in the exercise of [a state's] otherwise legitimate police power." The level of interference by the state in this situation, and the impact thereof, "was both substantial and severe." The act required Allied to retroactively change a plan it had had in place for the 11 years preceding the passing of Minnesota's statute, and furthermore, the retroactivity aspect of the act was applied selectively. It was directed "only to those employers who terminated their pension plans or who, like the appellant, closed their Minnesota offices, thus forcing the employer to make all the retroactive changes in its contractual obligationsat one time." Finally, the act had not been created to deal with a "broad, generalized economic or social problem," which constituted an emergency over alimited period of time. Such had been the case in 1934, when the Court reviewed Home Building & Loan Association v. Blaisdell; and it was not,in the view of the Court, the case now.
The Contract Clause, as Stewart explained, had once been "the strongest single constitutional check on state legislation." The passage of the Fourteenth Amendment in 1868, however, had diminished the power of the clause; thenceforth the Due Process Clause of that amendment had sufficed to protect individuals or corporations from interference by states. "Nonetheless," Stewart said, "the Contract Clause remains part of the Constitution. It is not a dead letter. And its basic contours are brought into focus by several of the Court's 20th-century decisions."
Most important among the latter was Home Building & Loan Association v. Blaisdell (1934). In that case, which ironically also involved Minnesota, the state had passed a law placing a moratorium on the requirements of individuals to make regular mortgage payments. The moratorium was a response tothe Depression, and to the fact that many people were unable to come up withthe money to pay their mortgages. It extended the grace period to 1 May 1935.When a mortgage company challenged the law, the Court upheld it for five reasons: the statute dealt with an emergency situation; it "was enacted to a protect a basic societal interest, not a favored group;" the relief was "appropriately tailored" to the emergency situation; the conditions it imposed were reasonable; and the legislation imposed a time limit on the emergency measures.
Three other cases reinforced the Court's decision in Home Building & Loan Association: W. B. Worthen Co. v. Thomas (1934), W. B. Worthen Co. v. Kavanaugh (1935), and Treigle v. Acme Homestead Assn. (1936). The first two dealt with Arkansas' laws, the third with a Louisiana statute; and in each case the Court found the laws invalid under the Contract Clause. The first of the Worthen cases involved an Arkansas' statute preventing creditors of a deceased person from making claims on the proceeds from that person's life insurance policy. Here the Court found that the provision "was not precisely and reasonably designed to meet a grave temporary emergency in the interest of the general welfare."
Just the year before Spannaus, the Court had considered United States Trust Co. v. New Jersey and again ruled against a state because its legislation "was neither necessary nor reasonable." In examining the Minnesotalaw, the only evidence of its original intent that the Court could find was astatement made by the district court, not the Minnesota legislature. The lower court had opined that the plant-closure problem had come to Minnesota's attention after the White Motor Corporation had closed a Minnesota plant. In all respects, "the Minnesota law simply does not possess the attributes of those state laws that in the past have survived challenge under the Contract Clause of the Constitution." In the narrowness of its aim, Stewart concluded, it"was leveled, not at every Minnesota employer . . . but only at those who hadin the past been sufficiently enlightened as voluntarily to agree to establish pension plans for their employees."
The Dissenters Take the Fourteenth
Justice Brennan filed a dissenting opinion in which he was joined by JusticesMarshall and White. Brennan, too, offered a look into the Court's historicalrecord with regard to states and contracts, but he viewed this not in lightof the Contract Clause, but from the perspective of the Fourteenth Amendment's Due Process Clause. Since he found nothing in the act which violated the latter, he voted to affirm the lower court's judgment.
The Contract Clause, Brennan wrote, had not been "intended to embody a broadconstitutional policy of protecting all reliance interests grounded in private contracts." Rather, it had arisen from "widespread dissatisfaction" over debtor-creditor contracts in force when the United States was created. "Thus, the several provisions of Article I, 10 . . . were targeted directly at this wide variety of debt relief measures." With its use of the Contract Clause, rather than the Fourteenth Amendment, as a means of interpreting contracts, theCourt "threaten[ed] to undermine the jurisprudence of property rights developed over the last 40 years," Brennan wrote.
When he addressed the present case from the perspective of the Due Process Clause, making reference to the Court's decision in Usery v. Turner ElkhornMining Co. (1976), Brennan found that Minnesota's act passed constitutional muster. In his view, the act did indeed "remedy a serious social problem:the utter frustration of an employee's expectations that can occur when he isterminated because his employer closes down his place of work." Furthermore,the act was "not wholly retrospective in its operation" since it only imposed the fine on companies who closed their plants after the enactment of the statute.
Impact
Expectations that Spannaus would inaugurate a new era for the ContractClause proved to be short-lived. In Exxon Corp. v. Eagerton (1983), the Court restricted the application of its Spannaus ruling to statuteswhose "sole effect" was "to alter contractual duties." Four years later, inKeystone Bituminous Coal Association v. DeBeni (1987), the Court rejected a Contract Clause challenge to a Pennsylvania law.
Related Cases
- Euclid v. Ambler Realty Co., 272 U.S. 365 (1926).
- Home Building & Loan Association v. Blaisdell, 290 U.S. 398 (1934).
- W. B. Worthen Co. v. Thomas, 292 U.S. 426 (1934).
- W. B. Worthen Co. v. Kavanaugh, 295 U.S. 56 (1935).
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