Fourteenth Amendment. Section 1: Privileges and immunities of citizenchip, due process and equal protection
Constitution of the United States (Annotated) (January 2000)
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All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and the State wherein they reside. No State shall make or enforce an...
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U.S. Code - Title 20: Education - 20 USC 1701 - Sec. 1701. Congressional declaration of policy
U.S. Code - Title 20: Education - 20 USC 1653 - Sec. 1653. Omitted
The Fourteenth Amendment and States' Rights
Citizens of the United States
Privileges or Immunities
Due Process of Law
Generally
Definitions
"Person"
"Property" and Police Power
"Liberty"
The Rise and Fall of Economic Substantive Due Process: Overview
Regulation of Labor Conditions
Liberty of Contract
Laws Regulating Working Conditions and Wages
Workers' Compensation Laws
Collective Bargaining
Regulation of Business Enterprises: Price Controls
Types of Businesses That May be Regulated
Substantive Review of Price Controls
Early Limitations on Review
History of the Valuation Question
Regulation of Public Utilities and Common Carriers
In General
Compulsory Expenditures: Grade Crossings, and the Like
Compellable Services
Imposition of Statutory Liabilities and Penalties Upon Common Carriers
Regulation of Businesses, Corporations, Professions, and Trades
Generally
Laws Prohibiting Trusts, Restraint of Trade or Fraud
Banking, Wage Assignments and Garnishment
Insurance
Miscellaneous Businesses and Professions
Protection of State Resources
Oil and Gas
Protection of Property and Agricultural Crops
Water, Fish and Game
Ownership of Real Property: Rights and Limitations
Zoning and Similar Actions
Estates, Succession, Abandoned Property
Health, Safety, and Morals
Health
Safety
Morality
Vested and Remedial Rights
State Control over Local Units of Government
Taxing Power
Generally
Jurisdiction to Tax
Generally
Real Property
Tangible Personalty
Intangible Personalty
Transfer (Inheritance, Estate, Gift) Taxes
Corporate Privilege Taxes
Individual Income Taxes
Corporate Income Taxes: Foreign Corporations
Insurance Company Taxes
Procedure in Taxation
Generally
Notice and Hearing in Relation to Taxes
Notice and Hearing in Relation to Assessments
Collection of Taxes
Sufficiency and Manner of Giving Notice
Sufficiency of Remedy
Laches
Eminent Domain
Fundamental Rights (Noneconomic Substantive Due Process)
Development of the Right of Privacy
Abortion
Privacy after Roe: Informational Privacy, Privacy of the Home or Personal Autonomy?
Family Relationships
Liberty Interests of the Retarded, Mentally Ill or Abnormal: Civil Commitment and Treatment
"Right to Die"
Procedural Due Process: Civil
Generally
Relevance of Historical Use
Non-Judicial Proceedings
The Requirements of Due Process
The Procedure Which Is Due Process
The Interests Protected: "Life, Liberty and Property"
The Property Interest
The Liberty Interest
Proceedings in Which Procedural Due Process Need Not Be Observed
When Process Is Due
Jurisdiction
Generally
In Personam Proceedings Against Individuals
Suing Out-of-State (Foreign) Corporations
Actions In Rem: Proceeding Against Property
Quasi in Rem: Attachment Proceedings
Actions in Rem: Estates, Trusts, Corporations
Notice: Service of Process
Power of the States to Regulate Procedure
Generally
Commencement of Actions
Defenses
Costs, Damages, and Penalties
Statutes of Limitation
Burden of Proof and Presumptions
Trials and Appeals
Procedural Due Process-Criminal
Generally: The Principle of Fundamental Fairness
The Elements of Due Process
Initiation of the Prosecution
Clarity in Criminal Statutes: The Void-for-Vagueness Doctrine
Entrapment
Criminal Identification Process
Fair Trial
Prosecutorial Misconduct
Proof, Burden of Proof, and Presumptions
The Problem of the Incompetent or Insane Defendant or Convict
Guilty Pleas
Sentencing
Corrective Process: Appeals and Other Remedies
Rights of Prisoners
Probation and Parole
The Problem of the Juvenile Offender
The Problem of Civil Commitment
Equal Protection of the Laws
Scope and Application
State Action
"Person"
"Within Its Jurisdiction"
Equal Protection: Judging Classifications by Law
The Traditional Standard: Restrained Review
The New Standards: Active Review
Testing Facially Neutral Classifications Which Impact on Minorities
Traditional equal protection: economic regulation and related exercises of the police power
Taxation
Classification for Purpose of Taxation
Foreign Corporations and Nonresidents
Income Taxes
Inheritance Taxes
Motor Vehicle Taxes
Property Taxes
Special Assessment
Police Power Regulation
Classification
Other Business and Employment Relations
Labor Relations
Monopolies and Unfair Trade Practices
Administrative Discretion
Social Welfare
Punishment of Crime
Equal Protection and Race
Overview
Education
Development and Application of "Separate But Equal"
Brown v. Board of Education
Brown's Aftermath
Implementation of School Desegregation
Northern Schools: Inter and Intradistrict Desegregation
Efforts to Curb Busing and Other Desegregation Remedies
Termination of Court Supervision
Juries
Capital Punishment
Housing
Other Areas of Discrimination
Transportation
Public Facilities
Marriage
Judicial System
Public Designation
Public Accommodations
Elections
Permissible Remedial Utilizations of Racial Classifications
The New Equal Protection
Classifications Meriting Close Scrutiny
Alienage and Nationality
Sex
Illegitimacy
Fundamental Interests: The Political Process
Voter Qualifications
Access to the Ballot
Apportionment and Districting
Counting and Weighing of Votes
The Right to Travel
Durational Residency Requirements
Marriage and Familial Relations
Sexual Orientation
Poverty and Fundamental Interests: The Intersection of Due Process and Equal Protection
Generally
Criminal Procedure
The Criminal Sentence
Voting
Access to Courts
Educational Opportunity
Abortion
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,[1]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.[2] Congress subsequently repudiated this concept of citizenship, first in section 1 of the Civil Rights Act of 1866[3] and then in section 1 of the Fourteenth Amendment.[4] In doing so, Congress set aside the Dred Scott holding, and restored the traditional precepts of citizenship by birth.[5]
Based on the first sentence of section 1,[6] 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.[7] 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,[8] or children of members of Indian tribes subject to tribal laws.[9] 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.[10] 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.[11]
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,[15] 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."[16] 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.[17] In Twining v. New Jersey,[18] the Court recognized "among the rights and privileges" of national citizenship the right to pass freely from State to State,[19]the right to petition Congress for a redress of grievances,[20] the right to vote for national officers,[21] the right to enter public lands,[22] the right to be protected against violence while in the lawful custody of a United States marshal,[23] and the right to inform the United States authorities of violation of its laws.[24] 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."[25]
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.[26] In Hague v. CIO,[27] 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[28] four Justices were prepared to rely on the clause.[29] In many other respects, however, claims based on this clause have been rejected.[30] 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,
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,[33] 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.[34] Despite suggestions that this opinion will open the door to "guaranteed equal access to all public benefits,"[35] 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.[36]
Due Process of Law
Generally
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,[37] 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.[38] 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.
Definitions
"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.[39] As early as the 1877 Granger Cases[40] 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.[41] While various decisions have held that the "liberty" guaranteed by the Fourteenth Amendment is the liberty of natural,[42] not artificial, persons,[43] nevertheless, in 1936, a newspaper corporation successfully objected that a state law deprived it of liberty of the press.[44]
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.[45] Similarly, municipal corporations have no standing "to invoke the provisions of the Fourteenth Amendment in opposition to the will of their creator," the State.[46] 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.[47]
"Property" and Police Power
States have an inherent "police power" to promote public safety, health, morals, public convenience, and general prosperity,[48] but the extent of the power may vary based on the subject matter over which it is exercised.[49] If a police power regulation goes too far, it will be recognized as a taking of property for which compensation must be paid.[50] 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.[51]
An ulterior public advantage, however, may justify a comparatively insignificant taking of private property for what seems to be a private use.[52] 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."[53] 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.[54] 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.[55]
"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.[56]Nonetheless, the Court is generally chary of expanding the concept absent statutorily recognized rights.[57]
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.[58] 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,[59] 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.[60]
Thus, early invocations of "substantive" due process were unsuccessful. In the Slaughter- House Cases,[61] discussed previously in the context of the Privileges or Immunities Clause,[62] 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,[63] 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,[64] 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,[65] 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,[66] namely, that state police power is solely a power to prevent injury to the "peace, good order, morals, and health of the community."[67] This reasoning was adopted by the Court in Mugler v. Kansas,[68] 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,[69] tentatively transformed ideas embodying the social compact and natural rights into constitutionally enforceable limitations upon government.[70] 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.[71]
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,[72] 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.[73] The original position could be seen in earlier cases such as Munn v. Illinois,[74] 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,[75] 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.[76] This opened the door for future Court appraisals of the facts which had induced the legislature to enact the statute.[77]
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[78]discarded this approach to economic legislation. The modern approach is exemplified by the 1955 decision, Williamson v. Lee Optical Co.,[79] 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."'[80] 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.[81] More recent decisions have limited this inquiry to whether the legislation is arbitrary or irrational, and have abandoned any requirement of "reasonableness."[82]
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,[83] and elevated to the status of accepted doctrine in Allgeyer v. Louisiana.[84] 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."[85]
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."[86]
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[87] and Lochner v. New York.[88] In Holden v. Hardy,[89] 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,[90] 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?"[91]
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."[92]
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."[93]
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.[94] 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[95] and Bunting v. Oregon,[96] 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,"[97] 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,[98] 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,[99] 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,[100] 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[101] and to all workers in specified lines of work thought to be physically demanding or otherwise worthy of special protection.[102]Similarly, the regulation of how wages were to be paid was allowed, including the form of payment,[103] its frequency,[104] and how such payment was to be calculated.[105] 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.[106] 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.[107]
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),[108]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.[109]Other similar regulations which were sustained included laws requiring that underground passageways meet or exceed a minimum width,[110] that boundary pillars be installed between adjoining coal properties as a protection against flood in case of abandonment,[111]and that washhouses be provided for employees.[112]
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.[113] 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.[114] 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."[115]
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."[116]
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."[117] 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,[118]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.[119] 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.[120] A variety of other statutory schemes have also been upheld.[121]
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.[122]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,[123] was used to strike down legislation calculated to enhance the bargaining capacity of workers as against that already possessed by their employers.[124] 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.[125] In Senn v. Tile Layers Union,[126]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[127] 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.[128] 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.[129] 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.[130]
Similarly, state laws outlawing closed shops were upheld in Lincoln Federal Labor Union v. Northwestern Iron & Metal Company[131] and AFL v. American Sash & Door Co.[132]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."[133]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,[134] 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."[135]
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,[136] 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.[137] 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[138] 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.[139] "(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,[140] stockyards,[141] and tobacco warehouses,[142] and fire insurance rates[143]and commissions paid to fire insurance agents.[144] 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,[145] regulating the prices for which ticket brokers may resell theater tickets,[146] and limiting competition in the manufacture and sale of ice through the withholding of licenses to engage therein.[147]
In the 1934 case of Nebbia v. New York,[148] however, the Court finally shelved the concept of "a business affected with a public interest,"[149] 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."[150] 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.[151]
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[152] 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.[153]
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,[154] 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,[155] 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,[156] it finally acceded to the wishes of the utilities in 1890 in Chicago, M. & St. P. Railway v. Minnesota.[157] 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,[158] the Court in Reagan v. Farmer's Loan and Trust Co.[159] 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."[160] Reiterating virtually the same principle in Smyth v. Ames,[161] 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."[162] 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.[163]
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,[164] but he must present a case of "manifest constitutional invalidity."[165] And, if, notwithstanding this effort, the question of confiscation remains in doubt, no relief will be granted.[166] Moreover, even the Court was inclined to withhold judgement on the application of a rate until the practical effect could be surmised.[167]
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,[168] 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[169]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."[170]
These standards of review were, however, abruptly rejected by the Court in Ohio Valley Co. v. Ben Avon Borough[171] 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,[172] 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."[173]
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,"[174] "reproduction cost,"[175] "prudent investment",[176]"depreciation",[177] "going concern value and good will",[178] "salvage value,"[179] and "past losses and gains"[180] only to emerge therefrom in 1944 at a point not very far removed from Munn v. Illinois and its deference to rate-making authorities.[181] By holding in FPC v. Natural Gas Pipeline Co.,[182] 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.,[183] 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.[184] Without surrendering the judicial power to declare rates unconstitutional on ground of a substantive deprivation of due process,[185] 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."[186]
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."[187]
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.[188] 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.[189] Thus, when a street railway company lost its franchise, the city could not simply take possession of its equipment,[190] 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.[191] 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,[192] although a city may compete with a company that has no exclusive charter.[193] 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.[194]
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.[195]
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.[196] 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.[197] 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.[198] 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.[199] 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.[200] 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.[201]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.[202] 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.[203] A company, however, cannot be compelled to operate its franchise at a loss, but must be at liberty to surrender it and discontinue operations.[204]
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.[205] 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.[206]
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[207]than regulations intended to facilitate the operations of a competitor,[208] and governmental power to regulate in the interest of safety has long been conceded.[209] 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.[210]
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,[211] or the connecting or delivering carrier,[212] 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.[213] 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.[214]
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.[215]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."[216]
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."[217]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.[218]
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.[219] 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.[220] 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,[221] or to consent to direct actions filed against it by persons injured in the host State are valid.[222]
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.[223] Thus, states could prohibit agreements to pool and fix prices, divide net earnings, and prevent competition in the purchase and sale of grain.[224] 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.[225] The Court also upheld a variety of statutes prohibiting activities taken by individual businesses intended to harm competitors[226] or restrain the trade of others.[227]
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.[228] 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.[229] 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.[230]
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.[231] 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.[232] 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.[233]
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[234] It may also forbid sales on margin for future delivery,[235] 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.[236] A prohibitive license fee upon the use of trading stamps is not unconstitutional,[237] 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.[238]
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.[239] 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.[240]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.[241]
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.[242] 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.[243]
Insurance
Those engaged in the insurance business[244] as well as the business itself have been peculiarly subject to supervision and control.[245] Even during the Lochner era the Court recognized that government may fix insurance rates and regulate the compensation of insurance agents,[246] 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]."'[247] 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.[248] 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.[249] 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.[250]
However, the Court has discerned some limitations to such regulations. A statute which prohibited the insured from contracting directly with a marine insurance company outside the State for coverage of property within the State was held invalid as a deprivation of liberty without due process of law.[251] For the same reason, the Court held, a State may not prevent a citizen from concluding a policy loan agreement with a foreign life insurance company at its home office whereby the policy on his life is pledged as collateral security for a cash loan to become due upon default in payment of premiums, in which case the entire policy reserve might be applied to discharge the indebtedness. Authority to subject such an agreement to the conflicting provisions of domestic law is not deducible from the power of a State to license a foreign insurance company as a condition of its doing business therein.[252]
A stipulation that policies of hail insurance shall take effect and become binding twenty- four hours after the hour in which an application is taken and further requiring notice by telegram of rejection of an application was upheld.[253] No unconstitutional restraint was imposed upon the liberty of contract of surety companies by a statute providing that, after enactment, any bond executed for the faithful performance of a building contract shall inure to the benefit of material men and laborers, notwithstanding any provision of the bond to the contrary.[254] Likewise constitutional was a law requiring that a motor vehicle liability policy shall provide that bankruptcy of the insured does not release the insurer from liability to an injured person.[255] There also is no denial of due process for a state to require that casualty companies, in case of total loss, pay the total amount for which the property was insured, less depreciation between the time of issuing the policy and the time of the loss, rather than the actual cash value of the property at the time of loss.[256]
Moreover, even though it had its attorney-in-fact located in Illinois, signed all its contracts there, and forwarded therefrom all checks in payment of losses, a reciprocal insurance association covering real property located in New York could be compelled to comply with New York regulations which required maintenance of an office in that State and the countersigning of policies by an agent resident therein.[257] Also, to discourage monopolies and to encourage rate competition, a State constitutionally may impose on all fire insurance companies connected with a tariff association fixing rates a liability or penalty to be collected by the insured of 25% in excess of actual loss or damage, stipulations in the insurance contract to the contrary notwithstanding.[258]
A state statute by which a life insurance company, if it fails to pay upon demand the amount due under a policy after death of the insured, is made liable in addition for fixed damages, reasonable in amount, and for a reasonable attorney's fee is not unconstitutional even though payment is resisted in good faith and upon reasonable grounds.[259] It is also proper by law to cut off a defense by a life insurance company based on false and fraudulent statements in the application, unless the matter misrepresented actually contributed to the death of the insured.[260] A provision that suicide, unless contemplated when the application for a policy was made, shall be no defense is equally valid.[261] When a cooperative life insurance association is reorganized so as to permit it to do a life insurance business of every kind, policyholders are not deprived of their property without due process of law.[262]Similarly, when the method of liquidation provided by a plan of rehabilitation of a mutual life insurance company is as favorable to dissenting policy-holders as would have been the sale of assets and pro rata distribution to all creditors, the dissenters are unable to show any taking without due process. Dissenting policyholders have no constitutional right to a particular form of remedy.[263]
Miscellaneous Businesses and Professions
The practice of medicine, using this word in its most general sense, has long been the subject of regulation.[264] A State may exclude osteopathic physicians from hospitals maintained by it or its municipalities,[265] or may regulate the practice of dentistry by prescribing qualifications that are reasonably necessary, requiring licenses, establishing a supervisory administrative board, and prohibiting certain advertising regardless of its truthfulness.[266] The Court has sustained a law establishing as a qualification for obtaining or retaining a pharmacy operating permit that one either be a registered pharmacist in good standing or that the corporation or association have a majority of its stock owned by registered pharmacists in good standing who were actively and regularly employed in and responsible for the management, supervision, and operation of such pharmacy.[267]
While statutes requiring pilots to be licensed[268] and setting reasonable competency standards (e.g., that railroad engineers pass color blindness tests) have been sustained,[269] an act making it a misdemeanor for a person to act as a railway passenger conductor without having had two years' experience as a freight conductor or brakeman was invalidated as not rationally distinguishing between those competent and those not competent to serve as conductor.[270] An act imposing license fees for operating employment agencies and prohibiting them from sending applicants to an employer who has not applied for labor does not deny due process of law.[271] Also, a state law prohibiting operation of a "debt pooling" or a "debt adjustment" business except as an incident to the legitimate practice of law is a valid exercise of legislative discretion.[272]
The Court has also upheld a variety of other licensing or regulatory legislation applicable to places of amusement,[273] grain elevators,[274] detective agencies,[275] the sale of cigarettes[276]or cosmetics,[277] and the resale of theatre tickets.[278] Restrictions on advertising have also been upheld, including absolute bans on the advertising of cigarettes[279] or the use of a representation of the United States flag on an advertising medium.[280] Similarly constitutional were prohibitions on the solicitation by a layman of the business of collecting and adjusting claims,[281] the keeping of private markets within six squares of a public market,[282] the keeping of billiard halls except in hotels,[283] or the purchase by junk dealers of wire, copper, and other items, without ascertaining the seller's right to sell.[284]
Protection of State Resources
Oil and Gas
A state may prohibit conduct that leads to the waste of natural resources without violating due process.[285] Thus, for instance, where there is a limited market for natural gas acquired attendant to oil production or where the pumping of oil and gas from one location may limit the ability of others to recover oil from a large reserve, a state may require that production of oil be limited or prorated among producers.[286] Generally, whether a system of proration is fair is a question for administrative and not judicial judgment.[287] On the other hand, where the evidence showed that an order prorating allowed production among several wells was actually intended to compel pipeline owners to furnish a market to those who had no pipeline connections, the order was held void as a taking of private property for private benefit.[288]
A state may act to conserve resources even if it works to the economic detriment of the producer. Thus, a State may forbid certain uses of natural gas, such as the production of carbon black, where the gas is burned without fully utilizing the heat therein for other manufacturing or domestic purposes. Such regulations were sustained even where the carbon black was more valuable than the gas from which it was extracted, and notwithstanding the fact that the producer had made significant investment in a plant for the manufacture of carbon black.[289] Likewise, for the purpose of regulating and adjusting coexisting rights of surface owners to underlying oil and gas, it is within the power of a State to prohibit the operators of wells from allowing natural gas, not conveniently necessary for other purposes, to come to the surface unless its lifting power was utilized to produce the greatest proportional quantity of oil.[290]
Protection of Property and Agricultural Crops
Special precautions may be required to avoid or compensate for harm caused by extraction of natural resources. Thus, a state may require the filing of a bond to secure payment for damages to any persons or property resulting from an oil and gas drilling or production operation.[291] On the other hand, in Pennsylvania Coal Co. v. Mahon,[292] a Pennsylvania statute which forbade the mining of coal under private dwellings or streets of cities by a grantor that had reserved the right to mine was viewed as too restrictive on the use of private property and hence a denial of due process and a "taking" without compensation.[293] Years later, however, a quite similar Pennsylvania statute was upheld, the Court finding that the new law no longer involved merely a balancing of private economic interests, but instead promoted such "important public interests" as conservation, protection of water supplies, and preservation of land values for taxation.[294]
A statute requiring the destruction of cedar trees within two miles of apple orchards in order to prevent damage to the orchards caused by cedar rust was upheld as not unreasonable even in the absence of compensation. Apple growing being one of the principal agricultural pursuits in Virginia and the value of cedar trees throughout the State being small as compared with that of apple orchards, the State was constitutionally competent to require the destruction of one class of property in order to save another which, in the judgment of its legislature, was of greater value to the public.[295] Similarly, Florida was held to possess constitutional authority to protect the reputation of one of its major industries by penalizing the delivery for shipment in interstate commerce of citrus fruits so immature as to be unfit for consumption.[296]
Also distinguished from Pennsylvania Coal was a challenge to an ordinance prohibiting sand and gravel excavation near the water table and imposing a duty to refill any existing excavation below that level. The ordinance was upheld; the fact that it prohibited a business that had been conducted for over 30 years did not give rise to a taking in the absence of proof that the land could not be used for other legitimate purposes. Goldblatt v. Town of Hempstead, 369 U.S. 590 (1962).
Water, Fish and Game
A statute making it unlawful for a riparian owner to divert water into another State was held not to deprive the property owner of due process. "The constitutional power of the State to insist that its natural advantages shall remain unimpaired by its citizens is not dependent upon any nice estimate of the extent of present use or speculation as to future needs. . . . What it has it may keep and give no one a reason for its will."[297] This holding has since been disapproved, but on interstate commerce rather than due process grounds.[298] States may, however, enact and enforce a variety of conservation measures for the protection of watersheds.[299]
Similarly, a State has sufficient control over fish and wild game found within its boundaries[300] so that it may regulate or prohibit fishing and hunting.[301] For the effective enforcement of such restrictions, a state may also forbid the possession within its borders of special instruments of violations, such as nets, traps, and seines, regardless of the time of acquisition or the protestations of lawful intentions on the part of a particular possessor.[302]The Court has also upheld a state law restricting a commercial reduction plant from accepting more fish than it could process without spoilage in order to conserve fish found within its waters, even allowing the application of such restriction to fish imported into the State from adjacent international waters.[303]
The Court's early decisions rested on the legal fiction that the states owned the fish and wild game within their borders, and thus could reserve these possessions for use by their own citizens. The Court soon backed away from the ownership fiction,[304] and in Hughes v. Oklahoma[305] it formally overruled prior case law, indicating that state conservation measures discriminating against outof-state persons were to be measured under the commerce clause. Although a state's "concerns for conservation and protection of wild animals" were still a "legitimate" basis for regulation, these concerns could not justify disproportionate burdens on interstate commerce.[306]
More recently still, in the context of recreational rather than commercial activity, the Court reached a result more deferential to state authority, holding that access to recreational big game hunting is not within the category of rights protected by the Privileges or Immunities Clause, and that consequently a state could charge out-of-staters significantly more than instaters for a hunting license.[307] Suffice it to say that similar cases involving a state's efforts to reserve its fish and game for its own inhabitants are likely to be challenged under commerce or privileges and immunities principles, rather than under substantive due process.
Ownership of Real Property: Rights and Limitations
Zoning and Similar Actions
It is now well established that states and municipalities have the police power to zone land for designated uses. Zoning authority gained judicial recognition early in the 20th century. Initially, an analogy was drawn to public nuisance law, so that States and their municipal subdivisions could declare that specific businesses, although not nuisances per se, were nuisances in fact and in law in particular circumstances and in particular localities.[308] Thus, a State could declare the emission of dense smoke in populous areas a nuisance and restrain it, even though this affected the use of property and subjected the owner to the expense of compliance.[309] Similarly, the Court upheld an ordinance that prohibited brick making in a designated area, even though the specified land contained valuable clay deposits which could not profitably be removed for processing elsewhere, was far more valuable for brick making than for any other purpose, had been acquired before it was annexed to the municipality, and had long been used as a brickyard.[310]
With increasing urbanization came a broadening of the philosophy of land-use regulation to protect not only health and safety but also the amenities of modern living.[311] Consequently, the Court has recognized the power of government, within the loose confines of the due process clause, to zone in many ways and for many purposes. Governments may regulate the height of buildings,[312] establish building setback requirements,[313] preserve open spaces (through density controls and restrictions on the numbers of houses),[314] and preserve historic structures.[315] The Court will generally uphold a challenged land-use plan unless it determines that either the overall plan is arbitrary and unreasonable with no substantial relation to the public health, safety, or general welfare,[316] or that the plan as applied amounts to a taking of property without just compensation.[317]
Applying these principles, the Court has held that the exclusion of apartment houses, retail stores, and billboards from a "residential district" in a village is a permissible exercise of municipal power.[318] Similarly, a housing ordinance in a community of single-family dwellings, in which any number of related persons (blood, adoption, or marriage) could occupy a house but only two unrelated persons could do so, was sustained in the absence of any showing that it was aimed at the deprivation of a "fundamental interest."[319] Such a fundamental interest, however, was found to be implicated in Moore v. City of East Cleveland[320] by a "single family" zoning ordinance which defined a "family" to exclude a grandmother who had been living with her two grandsons of different children. Similarly, black persons cannot be forbidden to occupy houses in blocks where the greater number of houses are occupied by white persons, or vice versa.[321]
In one aspect of zoning-the degree to which such decisions may be delegated to private persons-the Court has not been consistent. Thus, for instance, it invalidated a city ordinance which conferred the power to establish building setback lines upon the owners of two thirds of the property abutting any street.[322] Or, in another case, it struck down an ordinance which permitted the establishment of philanthropic homes for the aged in residential areas, but only upon the written consent of the owners of two-thirds of the property within 400 feet of the proposed facility.[323] In a decision falling chronologically between these two, however, the Court sustained an ordinance which permitted property owners to waive a municipal restriction prohibiting the construction of billboards.[324]
In its most recent decision, the Court upheld a city charter provision permitting a petition process by which a citywide referendum could be held on zoning changes and variances. The provision required a 55% approval vote in the referendum to sustain the commission's decision, and the Court distinguished between delegating such authority to a small group of affected landowners and the people's retention of the ultimate legislative power in themselves which for convenience they had delegated to a legislative body.[325]
Estates, Succession, Abandoned Property
The Due Process Clause does not prohibit a State from varying the rights of those receiving benefits under intestate laws. Thus, the Court held that the rights of an estate were not impaired where a New York Decedent Estate Law granted a surviving spouse the right to take as in intestacy, despite the fact that the spouse had waived any right to her husband's estate before the enactment of the law. Because rights of succession to property are of statutory creation, the Court explained, New York could have conditioned any further exercise of testamentary power upon the giving of right of election to the surviving spouse regardless of any waiver, however formally executed.[326]
Even after the creation of a testamentary trust, a State retains the power to devise new and reasonable directions to the trustee to meet new conditions arising during its administration. For instance, the Great Depression resulted in the default of numerous mortgages which were held by trusts, which had the affect of putting an unexpected accumulation of real property into those trusts. Under these circumstance, the Court upheld the retroactive application of a statute reallocating distribution within these trusts, even where the administration of the estate had already begun, and the new statute had the effect of taking away a remain-derman's right to judicial review of the trustee's computation of income.[327]
The states have significant discretion to regulate abandoned property. For instance, states have several jurisdictional bases to allow for the lawful application of escheat and abandoned property laws to out-of-state corporations. Thus, application of New York's Abandoned Property Law to New York residents' life insurance policies, even when issued by foreign corporations, did not deprive such companies of property without due process, where the insured persons had continued to be New York residents and the beneficiaries were resident at the maturity date of the policies. The relationship between New York and its residents who abandon claims against foreign insurance companies, and between New York and foreign insurance companies doing business therein, is sufficiently close to give New York jurisdiction.[328] Or, in Standard Oil Co. v. New Jersey,[329] a divided Court held that due process is not violated by a state statute escheating shares of stock in a domestic corporation, including unpaid dividends, even though the last known owners were nonresidents and the stock was issued and the dividends held in another State. The State's power over the debtor corporation gives it power to seize the debts or demands represented by the stock and dividends.
A state's wide discretion to define abandoned property and dispose of abandoned property can be seen in Texaco v. Short.[330] There, an Indiana statute was upheld which terminated interests in coal, oil, gas, or other minerals which had not been used in twenty years and which provided for reversion to the owner of the interest out of which the mining interests had been carved. The "use" of a mineral interest which could prevent its extinction included the actual or attempted extraction of minerals, the payment of rents or royalties, and any payment of taxes. Indeed, merely filing a claim with the local recorder would preserve the interest.[331] The statute provided no notice to owners of interests, however, save for its own publication, nor did it require surface owners to notify owners of mineral interests that the interests were about to expire.[332] By a narrow margin, the Court sustained the statute, holding that the State's interest in encouraging production, securing timely notices of property ownership, and settling property titles provided a basis for enactment, and finding that due process did not require any actual notice to holders of unused mineral interests.[333]The State "may impose on an owner of a mineral interest the burden of using that interest or filing a current statement of interests" and it may similarly "impose on him the lesser burden of keeping informed of the use or nonuse of his own property."[334]
Health, Safety, and Morals
Health
Even under the narrowest concept of the police power as limited by substantive due process, it was generally conceded that states could exercise the power to protect the public health, safety, and morals.[335] For instance, an ordinance for incineration of garbage and refuse at a designated place as a means of protecting public health is not a taking of private property without just compensation, even though such garbage and refuse may have some elements of value for certain purposes.[336] Or, compelling property owners to connect with a publicly maintained system of sewers and enforcing that duty by criminal penalties does not violate the due process clause.[337]
There are few constitutional restrictions on the extensive state regulations on the production and distribution of food and drugs.[338] Statutes forbidding or regulating the manufacture of oleomargarine have been upheld,[339] as have statutes ordering the destruction of unsafe food[340] or confiscation of impure milk,[341] notwithstanding that, in the latter cases, such articles had a value for purposes other than food. There also can be no question of the authority of the State, in the interest of public health and welfare, to forbid the sale of drugs by itinerant vendors[342] or the sale of spectacles by an establishment where a physician or optometrist is not in charge.[343] Nor is it any longer possible to doubt the validity of state regulations pertaining to the administration, sale, prescription, and use of dangerous and habit-forming drugs.[344]
Equally valid as police power regulations are laws forbidding the sale of ice cream not containing a reasonable proportion of butter fat,[345] of condensed milk made from skimmed milk rather than whole milk,[346] or of food preservatives containing boric acid.[347] Similarly, a statute intended to prevent fraud and deception by prohibiting the sale of "filled milk" (milk to which has been added any fat or oil other than a milk fat) is valid, at least where such milk has the taste, consistency, and appearance of whole milk products. The Court reasoned that filled milk is inferior to whole milk in its nutritional content and cannot be served to children as a substitute for whole milk without producing a dietary deficiency.[348]
Even before the passage of the 21st Amendment, which granted states the specific authority to regulate alcoholic beverages, the Supreme Court had found that the states have significant authority in this regard.[349] A State may declare places where liquor is manufactured or kept to be common nuisances,[350] and may even subject an innocent owner to the forfeiture of his property if he allows it to be used for the illegal production or transportation of alcohol.[351]
Safety
Regulations designed to promote public safety are also well within a state's authority to implement. For instance, various measures designed to reduce fire hazards have been upheld. These include municipal ordinances that prohibit the storage of gasoline within 300 feet of any dwelling,[352] require that all gas storage tanks with a capacity of more than ten gallons be buried at least three feet under ground,[353] or prohibit washing and ironing in public laundries and wash houses within defined territorial limits from 10 p.m. to 6 a.m.[354] A city's demolition and removal of wooden buildings erected in violation of regulations was also consistent with the Fourteenth Amendment.[355] Construction of property in full compliance with existing laws, however, does not confer upon the owner an immunity against exercise of the police power. Thus, a 1944 amendment to a Multiple Dwelling Law, requiring installation of automatic sprinklers in lodging houses of non- fireproof construction, can be applied to a lodging house constructed in 1940, even though compliance entails an expenditure of $7,500 on a property worth only $25,000.[356]
States exercise extensive regulation over transportation safety. Although state highways are used primarily for private purposes, they are public property, and the use of a highway for financial gain may be prohibited by the legislature or conditioned as it sees fit.[357]Consequently, a State may reasonably provide that intrastate carriers who have furnished adequate, responsible, and continuous service over a given route from a specified date in the past shall be entitled to licenses as a matter of right, but that issuance to those whose service began later shall depend upon public convenience and necessity.[358] A state may require private contract carriers for hire to obtain a certificate of convenience and necessity, and decline to grant one if the service of common carriers is impaired thereby. A state may also fix minimum rates applicable to such private carriers, which are not less than those prescribed for common carriers, as a valid as a means of conserving highways.[359] In the absence of legislation by Congress, a State may, in protection of the public safety, deny an interstate motor carrier the use of an already congested highway.[360]
In exercising its authority over its highways, a State is not limited to the raising of revenue for maintenance and reconstruction or to regulating the manner in which vehicles shall be operated, but may also prevent the wear and hazards due to excessive size of vehicles and weight of load.[361] No less constitutional is a municipal traffic regulation which forbids the operation in the streets of any advertising vehicle, excepting vehicles displaying business notices or advertisements of the products of the owner and not used mainly for advertising; and such regulation may be validly enforced to prevent an express company from selling advertising space on the outside of its trucks.[362] A State may also provide that a driver who fails to pay a judgment for negligent operation shall have his license and registration suspended for three years, unless, in the meantime, the judgment is satisfied or discharged.[363] Compulsory automobile insurance is so plainly valid as to present no federal constitutional question.[364]
Morality
Legislatures have wide discretion in regulating "immoral" activities. Thus, legislation suppressing prostitution[365] or gambling[366] will be upheld by the Court as within the police power of a State. Accordingly, a state statute may provide that judgment against a party to recover illegal gambling winnings may be enforced by a lien on the property of the owner of the building where the gambling transaction was conducted when the owner knowingly consented to the gambling.[367] Similarly, a court may order a car used in an act of prostitution forfeited as a public nuisance, even if this works a deprivation on an innocent joint owner of the car.[368] For the same reason, lotteries, including those operated under a legislative grant, may be forbidden, regardless of any particular equities.[369]
Vested and Remedial Rights
As the Due Process Clause protects against arbitrary deprivation of "property," privileges or benefits that constitute property are entitled to protection.[370] Because an existing right of action to recover damages for an injury is property, that right of action is protected by the clause.[371] Thus, where repeal of a provision that made directors liable for moneys embezzled by corporate officers was applied retroactively, it deprived certain creditors of their property without due process of law.[372] A person, however, has no constitutionally protected property interest in any particular form of remedy and is guaranteed only the preservation of a substantial right to redress by an effective procedure.[373]
Similarly, a statute creating an additional remedy for enforcing liability is not, as applied to stockholders then holding stock, violative of due process.[374] Nor is a law that lifts a statute of limitations and makes possible a suit, theretofore barred, for the value of certain securities. "The Fourteenth Amendment does not make an act of state legislation void merely because it has some retrospective operation. . . . Some rules of law probably could not be changed retroactively without hardship and oppression . . . . Assuming that statutes of limitation, like other types of legislation, could be so manipulated that their retroactive effects would offend the constitution, certainly it cannot be said that lifting the bar of a statute of limitation so as to restore a remedy lost through mere lapse of time is per se an offense against the Fourteenth Amendment."[375]
State Control over Local Units of Government
The Fourteenth Amendment does not deprive a State of the power to determine what duties may be performed by local officers, and whether they shall be appointed or popularly elected.[376] Nor does a statute requiring cities to indemnify owners of property damaged by mobs or during riots result in an unconstitutional deprivation of the property, even when the city could not have prevented the violence.[377] Likewise, a person obtaining a judgment against a municipality for damages resulting from a riot is not deprived of property without due process of law by an act which so limits the municipality's taxing power as to prevent collection of funds adequate to pay it. As long as the judgment continues as an existing liability no unconstitutional deprivation is experienced.[378]
Local units of government obliged to surrender property to other units newly created out of the territory of the former cannot successfully invoke the due process clause,[379] nor may taxpayers allege any unconstitutional deprivation as a result of changes in their tax burden attendant upon the consolidation of contiguous municipalities.[380] Nor is a statute requiring counties to reimburse cities of the first class but not cities of other classes for rebates allowed for prompt payment of taxes in conflict with the due process clause.[381]
Taxing Power
Generally
It was not contemplated that the adoption of the Fourteenth Amendment would restrain or cripple the taxing power of the States.[382] When the power to tax exists, the extent of the burden is a matter for the discretion of the lawmakers,[383] and the Court will refrain from condemning a tax solely on the ground that it is excessive.[384] Nor can the constitutionality of taxation be made to depend upon the taxpayer's enjoyment of any special benefits from use of the funds raised by taxation.[385]
Theoretically, public moneys cannot be expended for other than public purposes. Some early cases applied this principle by invalidating taxes judged to be imposed to raise money for purely private rather than public purposes.[386] However, modern notions of public purpose have expanded to the point where the limitation has little practical import.[387]Whether a use is public or private, while it is ultimately a judicial question, "is a practical question addressed to the law-making department, and it would require a plain case of departure from every public purpose which could reasonably be conceived to justify the intervention of a court."[388]
The authority of states to tax income is "universally recognized."[389] Years ago the Court explained that "[e]njoyment of the privileges of residence in the state and the attendant right to invoke the protection of its laws are inseparable from responsibility for sharing the costs of government. . . . A tax measured by the net income of residents is an equitable method of distributing the burdens of government among those who are privileged to enjoy its benefits."[390] Also, a tax on income is not constitutionally suspect because retroactive. The routine practice of making taxes retroactive for the entire year of the legislative session in which the tax is enacted has long been upheld,[391] and there are also situations in which courts have upheld retroactive application to the preceding year or two.[392]
A state also has broad tax authority over wills and inheritance. A State may apply an inheritance tax to the transmission of property by will or descent, or to the legal privilege of taking property by devise or descent,[393] although such tax must be consistent with other due process considerations.[394] Thus, an inheritance tax law, enacted after the death of a testator but before the distribution of his estate, constitutionally may be imposed on the shares of legatees, notwithstanding that under the law of the State in effect on the date of such enactment, ownership of the property passed to the legatees upon the testator's death.[395] Equally consistent with due process is a tax on an inter vivos transfer of property by deed intended to take effect upon the death of the grantor.[396]
The taxation of entities that are franchises within the jurisdiction of the governing body raises few concerns. Thus, a city ordinance imposing annual license taxes on light and power companies does not violate the due process clause merely because the city has entered the power business in competition with such companies.[397] Nor does a municipal charter authorizing the imposition upon a local telegraph company of a tax upon the lines of the company within its limits at the rate at which other property is taxed but upon an arbitrary valuation per mile, deprive the company of its property without due process of law, inasmuch as the tax is a mere franchise or privilege tax.[398]
States have significant discretion in how they value real property for tax purposes. Thus, assessment of properties for tax purposes over real market value is allowed as merely another way of achieving an increase in the rate of property tax, and does not violate due process.[399] Likewise, land subject to mortgage may be taxed for its full value without deduction of the mortgage debt from the valuation.[400]
A State also has wide discretion in how to apportion real property tax burdens. Thus, a State may defray the entire expense of creating, developing, and improving a political subdivision either from funds raised by general taxation, by apportioning the burden among the municipalities in which the improvements are made, or by creating (or authorizing the creation of) tax districts to meet sanctioned outlays.[401] Or, where a state statute authorizes municipal authorities to define the district to be benefitted by a street improvement and to assess the cost of the improvement upon the property within the district in proportion to benefits, their action in establishing the district and in fixing the assessments on included property, cannot, if not arbitrary or fraudulent, be reviewed under the Fourteenth Amendment upon the ground that other property benefitted by the improvement was not included.[402]
On the other hand, when the benefit to be derived by a railroad from the construction of a highway will be largely offset by the loss of local freight and passenger traffic, an assessment upon such railroad is violative of due process,[403] whereas any gains from increased traffic reasonably expected to result from a road improvement will suffice to sustain an assessment thereon.[404] Also the fact that the only use made of a lot abutting on a street improvement is for a railway right of way does not make invalid, for lack of benefits, an assessment thereon for grading, curbing, and paving.[405] However, when a high and dry island was included within the boundaries of a drainage district from which it could not be benefitted directly or indirectly, a tax imposed on the island land by the district was held to be a deprivation of property without due process of law.[406] Finally, a State may levy an assessment for special benefits resulting from an improvement already made[407] and may validate an assessment previously held void for want of authority.[408]
Jurisdiction to Tax
Generally
The operation of the Due Process Clause as a jurisdictional limitation on the taxing power of the states has been an issue in a variety of different contexts, but most involve one of two basic questions. First, is there a sufficient relationship between the state exercising taxing power and the object of the exercise of that power? Second, is the degree of contact sufficient to justify the state's imposition of a particular obligation? Illustrative of the factual settings in which such issues arise are 1) determining the scope of the business activity of a multi-jurisdictional entity that is subject to a state's taxing power; 2) application of wealth transfer taxes to gifts or bequests of nonresidents; 3) allocation of the income of multi-jurisdictional entities for tax purposes; 4) the scope of state authority to tax income of nonresidents; and 5) collection of state use taxes.
The Court's opinions in these cases have often discussed due process and dormant Commerce Clause issues as if they were indistinguishable.[409] A more recent decision in Quill Corp. v. North Dakota,[410] however, utilized a two-tier analysis that found sufficient contact to satisfy due process but not dormant Commerce Clause requirements. In Quill,[411]the Court struck down a state statute requiring an out-of-state mail order company with neither outlets nor sales representatives in the state to collect and transmit use taxes on sales to state residents, but did so based on Commerce Clause rather than due process grounds. Taxation of an interstate business does not offend due process, the Court held, if that business "purposefully avails itself of the benefits of an economic market in the [taxing] State . . . even if it has no physical presence in the State."[412] Thus, Quill may be read as implying that the more stringent Commerce Clause standard subsumes due process jurisdictional issues, and that consequently these due process issues need no longer be separately considered.[413] This interpretation has yet to be confirmed, however, and a detailed review of due process precedents may prove useful.
Real Property
Even prior to the ratification of the Fourteenth Amendment, it was a settled principle that a State could not tax land situated beyond its limits. Subsequently elaborating upon that principle, the Court has said that, "we know of no case where a legislature has assumed to impose a tax upon land within the jurisdiction of another State, much less where such action has been defended by a court."[414] Insofar as a tax payment may be viewed as an exaction for the maintenance of government in consideration of protection afforded, the logic sustaining this rule is self-evident.
Tangible Personalty
A State may tax tangible property located within its borders (either directly through an ad valorem tax or indirectly through death taxes) irrespective of the residence of the owner.[415] By the same token, if tangible personal property makes only occasional incursions into other States, its permanent situs remains in the State of origin, and, subject to certain exceptions, is taxable only by the latter.[416] The ancient maxim, mobilia sequuntur personam, which had its origin when personal property consisted in the main of articles appertaining to the person of the owner, yielded in modern times to the "law of the place where the property is kept and used." The tendency has been to treat tangible personal property as "having a situs of its own for the purpose of taxation, and correlatively to . . . exempt [it] at the domicile of its owner."[417]
Thus, when rolling stock is permanently located and used in a business outside the boundaries of a domiciliary State, the latter has no jurisdiction to tax it.[418] Further, vessels that merely touch briefly at numerous ports never acquire a taxable situs at any one of them, and are taxable in the domicile of their owners or not at all.[419] Thus, where airplanes are continuously in and out of a state during the course of a tax year, the entire fleet may be taxed by the domicile state.[420]
Conversely, a nondomiciliary State, although it may not tax property belonging to a foreign corporation which has never come within its borders, may levy a tax on movables which are regularly and habitually used and employed therein. Thus, while the fact that cars are loaded and reloaded at a refinery in a State outside the owner's domicile does not fix the situs of the entire fleet in that State, the State may nevertheless tax the number of cars which on the average are found to be present within its borders.[421] But no property of an interstate carrier can be taken into account unless it can be seen in some plain and fairly intelligible way that it adds to the value of the road and the rights exercised in the State.[422]Or, a state property tax on railroads, which is measured by gross earnings apportioned to mileage, is constitutional unless it exceeds what would be legitimate as an ordinary tax on the property valued as part of a going concern or is relatively higher than taxes on other kinds of property.[423]
Intangible Personalty
To determine whether a State, or States, may tax intangible personal property, the Court has applied the fiction mobilia sequuntur personam (movable property follows the person) and has also recognized that such property may acquire, for tax purposes, a permanent business or commercial situs. The Court, however, has never clearly disposed of the issue whether multiple personal property taxation of intangibles is consistent with due process. In the case of corporate stock, however, the Court has obliquely acknowledged that the owner thereof may be taxed at his own domicile, at the commercial situs of the issuing corporation, and at the latter's domicile. Constitutional lawyers speculated whether the Court would sustain a tax by all three jurisdictions, or by only two of them. If the latter, the question would be which two-the State of the commercial situs and of the issuing corporation's domicile, or the State of the owner's domicile and that of the commercial situs.[424]
Thus far, the Court has sustained the following personal property taxes on intangibles: (1) a debt held by a resident against a nonresident, evidenced by a bond of the debtor and secured by a mortgage on real estate in the State of the debtor's residence;[425] (2) a mortgage owned and kept outside the State by a nonresident but on land within the State;[426] (3) investments, in the form of loans to a resident, made by a resident agent of a nonresident creditor;[427] (4) deposits of a resident in a bank in another State, where he carries on a business and from which these deposits are derived, but belonging absolutely to him and not used in the business ;[428] (5) membership owned by a nonresident in a domestic exchange, known as a chamber of commerce;[429] (6) membership by a resident in a stock exchange located in another State;[430] (7) stock held by a resident in a foreign corporation that does no business and has no property within the taxing State;[431] (8) stock in a foreign corporation owned by another foreign corporation transacting its business within the taxing State;[432] (9) shares owned by nonresident shareholders in a domestic corporation, the tax being assessed on the basis of corporate assets and payable by the corporation either out of its general fund or by collection from the shareholder;[433] (10) dividends of a corporation distributed ratably among stockholders regardless of their residence outside the State;[434] (11) the transfer within the taxing State by one nonresident to another of stock certificates issued by a foreign corporation;[435] and (12) promissory notes executed by a domestic corporation, although payable to banks in other States.[436]
The following personal property taxes on intangibles have been invalidated: (1) debts evidenced by notes in safekeeping within the taxing State, but made and payable and secured by property in a second State and owned by a resident of a third State;[437] (2) a tax, measured by income, levied on trust certificates held by a resident, representing interests in various parcels of land (some inside the State and some outside), the holder of the certificates, though without a voice in the management of the property, being entitled to a share in the net income and, upon sale of the property, to the proceeds of the sale.[438]
The Court also invalidated a property tax sought to be collected from a life beneficiary on the corpus of a trust composed of property located in another State and as to which the beneficiary had neither control nor possession, apart from the receipt of income therefrom.[439] However, a personal property tax may be collected on one-half of the value of the corpus of a trust from a resident who is one of the two trustees thereof, not withstanding that the trust was created by the will of a resident of another State in respect of intangible property located in the latter State, at least where it does not appear that the trustee is exposed to the danger of other ad valorem taxes in another State.[440] The first case, Brooke v. Norfolk,[441] is distinguishable by virtue of the fact that the property tax therein voided was levied upon a resident beneficiary rather than upon a resident trustee in control of nonresident intangibles. Different too is Safe Deposit & T. Co. v. Virginia,[442]where a property tax was unsuccessfully demanded of a nonresident trustee with respect to nonresident intangibles under its control.
A State in which a foreign corporation has acquired a commercial domicile and in which it maintains its general business offices may tax the corporation's bank deposits and accounts receivable even though the deposits are outside the State and the accounts receivable arise from manufacturing activities in another State. Similarly, a nondomiciliary State in which a foreign corporation did business can tax the "corporate excess" arising from property employed and business done in the taxing State.[443] On the other hand, when the foreign corporation transacts only interstate commerce within a State, any excise tax on such excess is void, irrespective of the amount of the tax.[444]
Also a domiciliary State which imposes no franchise tax on a stock fire insurance corporation may assess a tax on the full amount of paid-in capital stock and surplus, less deductions for liabilities, notwithstanding that such domestic corporation concentrates its executive, accounting, and other business offices in New York, and maintains in the domiciliary State only a required registered office at which local claims are handled. Despite "the vicissitudes which the so-called 'jurisdiction-to-tax' doctrine has encountered . . . ," the presumption persists that intangible property is taxable by the State of origin.[445]
A property tax on the capital stock of a domestic company, however, which includes in the appraisal thereof the value of coal mined in the taxing State but located in another State awaiting sale deprives the corporation of its property without due process of law.[446] Also void for the same reason is a state tax on the franchise of a domestic ferry company which includes in the valuation thereof the worth of a franchise granted to the said company by another State.[447]
Transfer (Inheritance, Estate, Gift) Taxes
As a state has authority to regulate transfer of property by wills or inheritance, it may base its succession taxes upon either the transmission or receipt of property by will or by descent.[448] But whatever may be the justification of their power to levy such taxes, since 1905 the States have consistently found themselves restricted by the rule in Union Transit Co. v. Kentucky,[449] which precludes imposition of transfer taxes upon tangible which are permanently located or have an actual situs outside the State.
In the case of intangibles, however, the Court has oscillated in upholding, then rejecting, and again sustaining the levy by more than one State of death taxes upon intangibles. Until 1930, transfer taxes upon intangibles by either the domiciliary or the situs (but nondomiciliary) State, were with rare exceptions approved. Thus, in Bullen v. Wisconsin,[450]the domiciliary State of the creator of a trust was held competent to levy an inheritance tax on an out-of-state trust fund consisting of stocks, bonds, and notes, as the settlor reserved the right to control disposition and to direct payment of income for life. The Court reasoned that such reserved powers were the equivalent to a fee in the property. Cognizance was taken of the fact that the State in which these intangibles had their situs had also taxed the trust.[451]
On the other hand, the mere ownership by a foreign corporation of property in a nondomiciliary State was held insufficient to support a tax by that State on the succession to shares of stock in that corporation owned by a nonresident decedent.[452] Also against the trend was Blodgett v. Silberman,[453] wherein the Court defeated collection of a transfer tax by the domiciliary State by treating coins and bank notes deposited by a decedent in a safe deposit box in another State as tangible property.[454]
In the course of about two years following the Depression, the Court handed down a group of four decisions which placed the stamp of disapproval upon multiple transfer taxes and- by inference-other multiple taxation of intangibles.[455] The Court found that "practical considerations of wisdom, convenience and justice alike dictate the desirability of a uniform rule confining the jurisdiction to impose death transfer taxes as to intangibles to the State of the [owner's] domicile."[456] Thus, the Court proceeded to deny the right of nondomiciliary States to tax intangibles, rejecting jurisdictional claims founded upon such bases as control, benefit, protection or situs. During this interval, 1930-1932, multiple transfer taxation of intangibles came to be viewed, not merely as undesirable, but as so arbitrary and unreasonable as to be prohibited by the due processclause.
The Court has expressly overruled only one of these four decisions condemning multiple succession taxation of intangibles. In 1939, in Curry v. McCanless,[457] the Court announced a departure from the "doctrine, of recent origin, that the Fourteenth Amendment precludes the taxation of any interest in the same intangible in more than one State. . . ." Taking cognizance of the fact that this doctrine had never been extended to the field of income taxation or consistently applied in the field of property taxation, the Court declared that a correct interpretation of constitutional requirements would dictate the following conclusions: "From the beginning of our constitutional system control over the person at the place of his domicile and his duty there, common to all citizens, to contribute to the support of government have been deemed to afford an adequate constitutional basis for imposing on him a tax on the use and enjoyment of rights in intangibles measured by their value. . . . But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another State, in such a way as to bring his person or . . . [his intangibles] within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, . . . [However], the State of domicile is not deprived, by the taxpayer's activities, elsewhere, of its constitutional jurisdiction to tax."
In accordance with this line of reasoning, the domicile of a decedent (Tennessee) and the state where a trust received securities conveyed from the decedent by will (Alabama) were both allowed to impose a tax on the transfer of these securities. "In effecting her purposes," the testatrix was viewed as having "brought some of the legal interests which she created within the control of one State by selecting a trustee there, and others within the control of the other State, by making her domicile there." She had found it necessary to invoke "the aid of the law of both States and her legatees" were subject to the same necessity.[458]
On the authority of Curry v. McCanless, the Court, in Pearson v. McGraw[459] sustained the application of an Oregon transfer tax to intangibles handled by an Illinois trust company, although the property was never physically present in Oregon. Jurisdiction to tax was viewed as dependent, not on the location of the property in the State, but on the fact that the owner was a resident of Oregon. In Graves v. Elliott,[460] the Court upheld the power of New York, in computing its estate tax, to include in the gross estate of a domiciled decedent the value of a trust of bonds managed in Colorado by a Colorado trust company and already taxed on its transfer by Colorado, which trust the decedent had established while in Colorado and concerning which he had never exercised any of his reserved powers of revocation or change of beneficiaries. It was observed that "the power of disposition of property is the equivalent of ownership, . . . and its exercise in the case of intangibles is . . . [an] appropriate subject of taxation at the place of the domicile of the owner of the power. Relinquishment at death, in consequence of the nonexercise in life, of a power to revoke a trust created by a decedent is likewise an appropriate subject of taxation."[461]
The costliness of multiple taxation of estates comprising intangibles can be appreciably aggravated if one or more States find that the decedent died domiciled within its borders. In such cases, contesting States may discover that the assets of the estate are insufficient to satisfy their claims. Thus, in Texas v. Florida,[462] the State of Texas filed an original petition in the Supreme Court against three other states who claimed to be the domicile of the decedent, noting that the portion of the estate within Texas alone would not suffice to discharge its own tax, and that its efforts to collect its tax might be defeated by adjudications of domicile by the other States. The Supreme Court disposed of this controversy by sustaining a finding that the decedent had been domiciled in Massachusetts, but intimated that thereafter it would take jurisdiction in like situations only in the event that an estate was valued less than the total of the demands of the several States, so that the latter were confronted with a prospective inability to collect.
Corporate Privilege Taxes
A domestic corporation may be subjected to a privilege tax graduated according to paid-up capital stock, even though the stock represents capital not subject to the taxing power of the State, since the tax is levied not on property but on the privilege of doing business in corporate form.[463] However, a State cannot tax property beyond its borders under the guise of taxing the privilege of doing an intrastate business. Therefore, a license tax based on the authorized capital stock of an out-of-state corporation is void,[464] even though there is a maximum fee,[465] unless the tax is apportioned based on property interests in the taxing state.[466] On the other hand, a fee collected only once as the price of admission to do intrastate business is distinguishable from a tax and accordingly may be levied on an out-of-state corporation based on the amount of its authorized capital stock.[467]
A municipal license tax imposed on a foreign corporation for goods sold within and without the State, but manufactured in the city, is not a tax on business transactions or property outside the city and therefore does not violate the due process clause.[468] But a State lacks jurisdiction to extend its privilege tax to the gross receipts of a foreign contracting corporation for fabricating equipment outside the taxing State, even if the equipment is later installed in the taxing State. Unless the activities which are the subject of the tax are carried on within its territorial limits, a State is not competent to impose such a privilege tax.[469]
Individual Income Taxes
A State may tax annually the entire net income of resident individuals from whatever source received,[470] as jurisdiction is founded upon the rights and privileges incident to domicile. A State may also tax the portion of a non-resident's net income which is derived from property owned, and from any business, trade, or profession carried on, by him within its borders,[471] based upon the State's dominion over the property or activity from which it is derived and the obligation to contribute to the support of a government which secures the collection of such income. Accordingly, a State may tax residents on income from rents of land located outside the State; from interest on bonds physically without the State and secured by mortgage upon lands similarly situated;[472] and from a trust created and administered in another State, and not directly taxable to the trustee.[473] Further, the fact that another State has lawfully taxed identical income in the hands of trustees operating therein does not necessarily destroy a domiciliary State's right to tax the receipt of income by a resident beneficiary.[474]
Corporate Income Taxes: Foreign Corporations
A tax based on the income of a foreign corporation may be determined by allocating to the State a proportion of the total,[475] unless the income attributed to the State is out of all appropriate proportion to the business there transacted.[476] Thus, a franchise tax on a foreign corporation may be measured by income, not just from business within the state, but also on net income from interstate and foreign business.[477] Inasmuch as the privilege granted by a State to a foreign corporation of carrying on business supports a tax by that State, it followed that a Wisconsin privilege dividend tax, could be applied to a Delaware corporation despite it having its principal offices in New York, holding its meetings and voting its dividends in New York, and drawing its dividend checks on New York bank accounts. The tax could be imposed on the "privilege of declaring and receiving dividends" out of income derived from property located and business transacted in Wisconsin, equal to a specified percentage of such dividends, the corporation being required to deduct the tax from dividends payable to resident and nonresident shareholders.[478]