Allgeyer v. Louisiana

Regarding business activities, before the latter part of the nineteenth century the Supreme Court commonly used the Constitution's Commerce Clause or Contracts Clause to overrule what it determined arbitrary and unreasonable interference with the freedom to establish business contracts. However, usually the federal government allowed states to rather freely regulate commerce within their borders. In the 1890s, as trade greatly expanded nationally and internationally, states increasingly passed laws designed to protect their citizens and businesses. The Louisiana legislature passed Act No. 66 of 1894 prohibiting individuals and corporations from contracting with marine insurance companies who did not conform with Louisiana law. The penalty for disobeying the law was a fine of $1000 for each offense paid to charity.

E. Allgeyer & Co., located in New Orleans, was a cotton exporter who sold to companies in Great Britain and greater Europe. They shipped the sold cotton from the port of New Orleans to foreign ports. On 27 October 1894, Allgeyer mailed an insurance certificate in New Orleans to Atlantic Mutual Insurance Company of New York for the purchase of $200,000 of insurance. The Atlantic Marine had no agent or place of business in the state of Louisiana at the time. The letter notified Atlantic Mutual that 100 bales of cotton had been shipped to foreign ports. In reaction, the state of Louisiana filed suit against Allgeyer in December of 1894 claiming that they violated Act No. 66. The state sought a $3000 fine for three alleged violations of the act.

Consistent with previous case law on the subject, Allgeyer responded that Act No. 66 was unconstitutional by depriving them of property without due process of law. In addition, they were not given equal protection of the laws in violation of the constitutions of both Louisiana and the United States. Allgeyer asserted that since its business partner, Atlantic Mutual, was a New York corporation with an office in the state of New York, the insurance contract was in the state of New York, not Louisiana. In fact, the initial open contract was signed in New York City. Allgeyer further argued that the U.S. Constitution protected the general right to execute contracts in other states.

The district court held that a state can impose conditions on companies operating businesses within its borders. Companies must comply with those conditions or violate the law. In addition, Article 236 of the Louisiana Constitution prohibited out-of-state insurance companies from conducting business in the state unless they have a place of business and an authorized agent in the state. Because the Allgeyer contract was considered legal in New York, it was in Louisiana as well. The moment the letter was mailed while still in New Orleans the cotton was legally insured. In addition, the court observed that at the time of mailing the contract, the 100 bales of cotton were in the state of Louisiana. To not have violated the law, New York citizens conducting business in another state must pay a license and employ an authorized agent in that state. However, the court asserted the case was not really about the contract itself, but the constitutional rights of Louisiana's citizens. Therefore, the trial court rejected Louisiana's argument, found Act No. 66 an unconstitutional restriction, and ruled in favor of Allgeyer.

Louisiana appealed the case to the state supreme court, which reversed the decision and ruled in favor of the state. The court based its opinion on the fact that Allgeyer, while in the state of Louisiana, insured cotton located in the state with an out-of-state insurance company. Since the cotton was insured the instant Allgeyer mailed the letter, Act No. 66 applied.

The Louisiana Supreme Court, in addressing the broader issue of liberty, wrote,

There is in the statute an apparent interference with the liberty of defendants in restricting their rights to place insurance on property of their own whenever and in what company they desired, but in exercising this liberty they would interfere with the policy of the state that forbids insurance companies which have not complied with the laws of the state from doing business within its limits. Individual liberty of action must give way to the greater right of the collective people in the assertion of well-defined policy, designed and intended for the general welfare.

The state supreme court found Allgeyer guilty of one violation of Act No. 66 and assessed a fine of $1,000. Allgeyer appealed to the U.S. Supreme Court, who agreed to hear its case.