Case Title: CDA Dairy Queen, Inc. v. State Insurance Fund

Citation: 

Docket Number: 38492

State: idaho

Court: Idaho Supreme Court (civil)

Date: 2013-01-23T00:00:00Z

Document:
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IN THE SUPREME COURT OF THE STATE OF IDAHO 
 
Docket No. 38492 
 
CDA DAIRY QUEEN, INC., and  
DISCOVERY CARE CENTRE, LLC OF  
SALMON, 
 
       Plaintiffs-Appellants, 
 
v. 
 
STATE INSURANCE FUND, JAMES M.  
ALCORN, in his official capacity as its  
manager, and WILLIAM DEAL, WAYNE  
MEYER, GERALD GEDDES, JOHN  
GOEDDE, ELAINE MARTIN, MARK  
SNODGRASS, RODNEY A. HIGGINS,  
TERRY GESTRIN, and MAX BLACK, and  
STEVE LANDON, in their capacity as  
members of the Board of Directors of the  
State Insurance Fund, 
 
       Defendants-Respondents.                            
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Boise, August 2012 Term 
 
2013 Opinion No. 6 
 
Filed:  January 23, 2013 
 
Stephen Kenyon, Clerk 
 
Appeal from the District Court of the Third Judicial District of the State of Idaho,  
Canyon County.  Hon. Renae J. Hoff, District Judge. 
 
The judgment of the district court is reversed and the case is remanded for 
proceedings consistent with this opinion. 
 
Lojek Law Offices, Chtd., Boise, and Gordon Law Offices, Chtd., Boise, for    
appellants.  Bruce Bistline and Donald Lojek argued. 
 
Duke Scanlan & Hall, PLLC, Boise, for respondents.  Keely Duke argued.  
 
                     _______________________________________________ 
 
 
HORTON, Justice. 
CDA Dairy Queen, Inc. and Discovery Care Centre, LLC of Salmon (collectively, Dairy 
Queen) filed a class action against the Idaho State Insurance Fund (SIF) seeking a declaratory 
judgment that SIF violated Idaho Code § 72-915 by failing to distribute premium rate 
readjustments on a pro rata basis. The district court granted SIF’s motion for summary judgment, 
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finding that the Idaho Legislature’s retroactive repeal of Idaho Code § 72-915 was constitutional 
and that Dairy Queen’s action was thereby barred. Dairy Queen timely appeals and argues that 
the retroactive repeal violates article I, § 16 of the Idaho Constitution. Dairy Queen asks this 
Court to reverse the decision of the district court and remand for further proceedings consistent 
with the determination that the retroactive repeal is unconstitutional. We reverse. 
I. FACTUAL AND PROCEDURAL BACKGROUND 
In Farber v. Idaho State Insurance Fund, 147 Idaho 307, 311, 208 P.3d 289, 293 (2009) 
(Farber I), this Court held that Idaho Code § 72-915 required SIF to distribute any refund of its 
policyholders’ premiums on a pro rata basis, considering each policyholder’s proportion of total 
premiums paid. In response, the Legislature repealed Idaho Code § 72-915 retroactively to 
January 1, 2003. The repeal provided that its purpose was to address the Farber decision and 
maintain the continued viability of SIF as an efficient insurance provider. The repeal legislation 
was signed on May 6, 2009, and the Farber I decision became final on May 27, 2009. 
Dairy Queen filed a class action complaint against SIF, seeking declaratory relief and 
damages. Dairy Queen then moved for partial summary judgment on the grounds that, if applied 
retroactively, the repeal violates article I, § 16 of the Idaho Constitution. SIF also filed a motion 
for summary judgment on the ground that the retroactive repeal does not violate the constitution 
of either Idaho or the United States. The district court denied Dairy Queen’s motion and granted 
SIF’s motion. A judgment dismissing Dairy Queen’s claims with prejudice was entered on 
January 4, 2011. 
II. STANDARD OF REVIEW 
 
“Both constitutional questions and questions of statutory interpretation are questions of 
law over which this Court exercises free review.” Stuart v. State, 149 Idaho 35, 40, 232 P.3d 813, 
818 (2010) (citing Federated Publ’ns, Inc. v. Idaho Bus. Rev., Inc., 146 Idaho 207, 210, 192 P.3d 
1031, 1034 (2008)). “The party challenging a statute or ordinance on constitutional grounds 
bears the burden of establishing that the statute or ordinance is unconstitutional and must 
overcome a strong presumption of validity.” State v. Korn, 148 Idaho 413, 416, 224 P.3d 480, 
483 (2009) (citing State v. Reyes, 146 Idaho 778, 203 P.3d 708 (Ct.App.2009)). “The judicial 
power to declare legislative action unconstitutional should be exercised only in clear cases.” Am. 
Falls Reservoir Dist. No. 2 v. Idaho Dep’t Water Res., 143 Idaho 862, 869, 154 P.3d 433, 440 
(2007) (citation omitted).  
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III. ANALYSIS 
 
As a preliminary matter, we note that SIF argues that this Court should affirm the district 
court’s finding that the retroactive repeal of Idaho Code § 72-915 does not violate article I, § 10 
of the United States Constitution. While neither party raised this as an issue on appeal, Dairy 
Queen appeals from both the district court’s judgment in favor of SIF and from its order denying 
Dairy Queen’s motion for summary judgment. In that order, the district court found the 
retroactive repeal constitutional under both the state and federal constitutions. Thus, it appears 
that SIF requests this relief to prevent Dairy Queen from raising the issue in a subsequent appeal 
on federal grounds. Although the district court’s conclusion regarding the federal constitution is 
inconsistent with our holding today, we will not address this issue. Under the Idaho Appellate 
Rules, “an appellant’s failure to include in his initial appellate brief a fair statement of an issue 
presented for review results in waiver of the issue.” Weisel v. Beaver Springs Owners Ass’n, Inc., 
152 Idaho 519, 525, 272 P.3d 491, 497 (2012); Rule 35(a)(4). Because Dairy Queen did not 
address this issue in its opening brief, the issue is waived.  
A. This Court will apply federal contract clause principles when determining whether a 
statute violates article I, § 16 of the Idaho Constitution. 
 
Dairy Queen argues that the retroactive repeal of Idaho Code § 72-915 to January 1, 
2003, violates article I, § 16 of the Idaho Constitution because it impairs valid contracts that 
existed at the time the repeal was enacted. SIF responds that the retroactivity does not violate the 
Idaho Constitution because, even if some contract rights were affected, there was no substantial 
impairment of any right. However, before we can make this determination, the threshold 
question of whether the federal contracts clause analysis applies must be decided. 
SIF contends that the analytical framework federal courts use when deciding federal 
contracts clause cases is applicable in Idaho courts to determine whether a legislative act violates 
the contracts clause of the Idaho Constitution. Dairy Queen argues that the federal methodology 
is not relevant in challenges based upon the state constitution because Idaho precedent 
demonstrates that the Idaho Constitution provides greater protection than the United States 
Constitution. We hold that Idaho courts should apply federal analytical principles when deciding 
challenges under article I, § 16 of the Idaho Constitution because the state constitution is not 
more protective of contracts than the federal constitution. 
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1.  This Court follows federal precedent and uses federal methodology when analyzing 
state constitutional issues unless the Idaho Constitution clearly provides greater 
protection than the United States Constitution. 
Generally, the federal framework is appropriate for analysis of state constitutional 
questions unless the state constitution, the unique nature of the state, or Idaho precedent clearly 
indicates that a different analysis applies. We explained the policy basis for this Court’s 
preference for consistent interpretations of the state and federal constitutions in State v. Donato: 
Although the United States Supreme Court establishes no more than the floor of 
constitutional protection, this Court has found there is “merit in having the same 
rule of law applicable within the borders of our state, whether an interpretation of 
the Fourth Amendment or its counterpart-Article I, § 17 of the Idaho Constitution-
is involved. Such consistency makes sense to the police and the public. 
135 Idaho 469, 471, 20 P.3d 5, 7 (2001) (quoting State v. Charpentier, 131 Idaho 649, 653, 962 
P.2d 1033, 1037 (1998)). Thus, this Court will consider federal rules and methodology when 
interpreting parts of the Idaho Constitution that have an analogous federal provision.  
 
However, it is clear that the state constitution sometimes provides greater protection than 
the federal constitution. In those cases, this Court does not “blindly apply United States Supreme 
Court interpretation and methodology” when interpreting the state constitution. State v. Newman, 
108 Idaho 5, 11 n.6, 696 P.2d 856, 862 n.6 (1985) (citing Oregon v. Hass, 420 U.S. 714, 719 
(1975)), holding modified by State v. Bitt, 118 Idaho 584, 798 P.2d 43 (1990). For example, in 
Donato, the defendant admitted that the State’s search of trash he placed on the curb for 
collection was valid under federal interpretation of the Fourth Amendment, but argued that the 
search violated the prohibition against unreasonable searches and seizures found in article I, § 17 
of the Idaho Constitution because the state constitution provides greater protection against 
searches. 135 Idaho at 470-71, 20 P.3d at 6-7. In its analysis, this Court recognized that article I, 
§ 17 of the Idaho Constitution “in some instances, provides greater protection than the parallel 
provision in the Fourth Amendment of the U.S. Constitution.” Id. at 472, 20 P.3d at 8 (citations 
omitted). However, we then limited the circumstances in which we would find this kind of 
greater protection. In examining the cases where this Court had found greater protection in 
article I, § 17, we explained that “in these cases, we provided greater protection to Idaho citizens 
based on the uniqueness of our state, our Constitution, and our long-standing jurisprudence.” Id. 
The Court found that those factors did not apply in the context of searches of trash placed out in 
public, and adopted the federal rule as the proper interpretation of article I, § 17. Id. at 474, 20 
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P.3d at 10. Therefore, when interpreting the Idaho Constitution, this Court will use federal rules 
and methodology unless clear precedent or circumstances unique to the state of Idaho or its 
constitution indicates that Idaho’s constitution provides greater protection than the analogous 
federal provision. 
2.  Idaho’s contracts clause does not provide greater protection than the contracts 
clause in the United States Constitution. 
 
There is no clear evidence that article I, § 16 of the Idaho Constitution provides greater 
protection of contracts than article I, § 10 of the United States Constitution. First, the language of 
the Idaho contracts clause employs the language found in the federal contracts clause, albeit in a 
different sequence. The United States Constitution provides: “No State shall . . . pass any Bill of 
Attainder, ex post facto Law, or Law impairing the Obligation of Contracts . . . .” U.S. Const. art. 
I, § 10, cl. 1. In Idaho’s Constitution, the provision is: “No bill of attainder, ex post facto law, or 
law impairing the obligation of contracts shall ever be passed.” Idaho Const. art. I, § 16. Dairy 
Queen contends that the Idaho drafters’ addition of the word “ever” demonstrates that they found 
the protection provided by the federal contracts clause insufficient. However, there is no 
substantial basis for this argument. Read literally, both provisions absolutely ban laws that would 
impair “the obligation of contracts,” and an absolute prohibition cannot be made “more 
absolute.” The inclusion of an extra word, which merely makes the implicit duration of the ban 
into an explicit duration, does not suggest the drafters’ intent to provide greater protection. More 
importantly, the framers themselves apparently did not find the word “ever” to be remarkable. 
When article I, § 16 was adopted at the Idaho constitutional convention, there was no discussion 
of its language; the provision was read and adopted without debate. I.W. Hart, Proceedings & 
Debates of the Constitutional Convention of Idaho 1889 vol. I at 371; vol. II at 1634 (Caxton 
1912).  
Next, Idaho’s “uniqueness” does not have the same significance with respect to contracts 
that it does in the context of expectations of privacy. In State v. Webb, this Court held that when 
an Idaho trial court determines the extent of the curtilage in search and seizure cases, it should 
consider the factors used by federal courts, but “should apply them in the context of the setting or 
locality of the residence itself” and “take into consideration the differences in custom and terrain 
within different areas of the state when contemplating particular expectations of privacy.” 130 
Idaho 462, 467, 943 P.2d 52, 57 (1997). The Court then announced a “broader test” than used by 
federal courts, which provides greater protection of Idahoans’ reasonable expectations of 
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privacy. Id. at 468, 943 P.2d at 58. Our interpretation of article I, § 17 in Webb was based upon 
“the unique rural tradition and custom in Idaho that defines Idahoans’ sense of protected space, 
and expectation of privacy, within their property.” Donato, 135 Idaho at 472, 20 P.3d at 8. 
However, while we recognized that “the differences in a rural and suburban home for the 
purposes of defining curtilage is a special consideration in Idaho,” we held that protecting 
discarded trash is not such a consideration. Id. In this case, nothing about Idaho’s rural nature or 
in the geographical particulars of the state obviously supports a reading of its constitution that 
includes enhanced protection of contracts. 
 
Finally, no “long-standing” jurisprudence clearly suggests that the Idaho Constitution 
contains an absolute prohibition against any impairment of contracts. Dairy Queen does not cite 
any cases in which this Court has expressly held that the Idaho Constitution provides more 
protection than the federal constitution. Instead, it argues that Idaho precedent establishes an 
“absolutist” interpretation of article I, § 16, to which there are “no exceptions,” and that has 
remained “unquestioned” for 89 years. This argument is not persuasive as this Court has both 
recognized exceptions and generally followed federal interpretation of the contracts clause.  
 
There is at least one recognized exception to the constitutional protection of contracts. 
For almost 100 years, this Court has recognized the police power exception to the contracts 
clause in the context of regulating labor contracts and public utilities.1 In 1916, the Court upheld 
an Idaho statute permitting employees to claim up to thirty days’ wages from employers as a 
penalty for non-payment of wages due, even if the labor contract between those parties did not 
contemplate such a penalty.2 The Court held that as “a legitimate exercise of the police power of 
the state,” the statute did not violate article I, § 16 of the Idaho Constitution. Olson v. Idora Hill 
                                                 
1 Like labor and public utilities, the insurance industry is highly regulated and its contracts are subject to the state’s 
police power because “[the insurance] business is affected with the public interest and the private rights of contract 
in relation thereto must be and are subjected to the valid exercise of the police power by the legislature.” Penrose v. 
Comm. Travelers Ins. Co., 75 Idaho 524, 537, 275 P.2d 969, 976 (1954) (citing Intermountain Lloyds v. Diefendorf, 
51 Idaho 304, 5 P.2d 730 (1931)). 
2 The law at issue provided that: 
Whenever any employer of labor shall hereafter discharge or lay off his or its [employees] without 
first paying them the amount of any wages or salary then due them, in cash, lawful money of the 
United States, or its equivalent, or shall fail or refuse on demand to pay them in like money, or its 
equivalent, the amount of any wages or salary at the time the same becomes due and owing to 
them under their contract of employment, whether employed by the hour, day, week or month, 
each of his or its [employees] may charge and collect wages in the sum agreed upon in the contract 
of employment for each day his employer is in default until he is paid in full, without rendering 
any service therefor: Provided, however, he shall cease to draw such wages or salary thirty (30) 
days after such default. 
Act of March 7, 1911, Session Laws 1911, Chapter 170 at 565. 
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Mining Co., 28 Idaho 504, 518, 155 P. 291, 296 (1916). In an earlier case, the Court stated that 
franchise contracts between the state and a public utility “must be held not to be protected by any 
provision of the state or federal Constitution against the proper exercise by the state of its police 
power.” Idaho Power & Light Co. v. Blomquist, 26 Idaho 222, 258, 141 P. 1083, 1094 (1914). 
The Court reiterated this exception in Agricultural Products Corporation v. Utah Power & Light 
Company, holding that the state’s regulation of utility rates pursuant to its police power, 
including statutory alteration of rates set by private contracts, was “not a violation of the 
constitutional prohibition against impairment of contractual obligations.” 98 Idaho 23, 29, 557 
P.2d 617, 623 (1976) (citing Law v. R.R. Comm’n of Calif., 184 Cal. 737, 195 P. 423 (1921)). Of 
course, the police power is not unlimited, “and the state may not interfere with a utility contract 
unless it finds that the rate ‘is so low as to adversely affect the public interest-as where it might 
impair the financial ability of the public utility to continue its service, cast upon other consumers 
an excessive burden, or be unduly discriminatory.’” Bunker Hill Co. v. Wash. Water Power Co., 
98 Idaho 249, 253, 561 P.2d 391, 395 (1977) (quoting Fed. Power Comm’n v. Sierra Pac. Power 
Co., 350 U.S. 348, 355 (1956)). Thus, the Court has recognized a limited exception, based upon 
the state’s police power, to the protection provided by article I, § 16 of the Idaho Constitution. 
 
Idaho cases also indicate that this Court does not interpret Idaho’s contracts clause more 
strictly than federal courts interpret article I, § 10 of the United States Constitution. In early 
cases, this Court consistently cited federal precedent when deciding challenges under article I, § 
16 of the Idaho Constitution. Highway Dist. No. 1 of Fremont Cnty. v. Fremont Cnty., 32 Idaho 
473, 476, 185 P. 66, 67 (1919) (“The obligation of a contract, in the constitutional sense, is the 
means provided by law by which it can be enforced; by which the parties can be obliged to 
perform it.”) (quoting State of Louisiana v. City of New Orleans, 102 U.S. 203 (1880)); In re 
Fidelity State Bank of Orofino, 35 Idaho 797, 811, 209 P. 449, 453 (1922) (holding that statutes 
causing material changes to a contract are void, as are laws that affect available remedies so as 
“substantially to impair and lessen the value of the contract . . .”) (quoting Edwards v. Kearzey, 
96 U. S. 595, 607 (1877)); Sanderson v. Salmon River Canal Co. 45 Idaho 244, 263 P. 32, 36 
(1927) (holding that laws affecting the value of a contract may nonetheless be constitutional 
because not “every statute which affects the value of a contract impair[s] its obligation”) 
(quoting Curtis v. Whitney, 80 U.S. 68, 69 (1871)); Steward v. Nelson, 54 Idaho 437, 443, 32 
P.2d 843, 846 (1934) (stating that a law denying or obstructing “the rights accruing by a contract, 
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though professing to act only on the remedy, is directly obnoxious to the prohibition of the 
Constitution”) (citing Brine v. Hartford Fire Ins. Co., 96 U.S. 627 (1877)). 
 
Dairy Queen argues that in Penrose v. Commercial Travelers Insurance Company, 75 
Idaho 524, 275 P.2d 969 (1954), this Court recognized that federal precedent was trending 
toward allowing limited exceptions to contracts clause protections and decided not to adopt this 
new federal framework. The relevant issue in Penrose was the applicability of a statute requiring 
insurance companies to pay reasonable attorney fees to its policy holders in cases where the 
policyholder prevailed in an action to recover benefits. 75 Idaho at 529, 275 P.2d at 971. In that 
case, the policyholder prevailed in an action to recover certain policy benefits and was awarded 
attorney fees pursuant to the challenged statute, even though his policy was issued before the 
statute was enacted. Id. at 537, 275 P.2d at 976. On appeal, this Court vacated the award of 
attorney fees, holding that application of a statute enacted after the policy was issued would 
impair the obligation of the contract and thus violate article I, § 16. Id. at 540, 275 P.2d at 978. 
 
A few months prior to the Penrose decision, a federal court considered the same Idaho 
statute and held that it did not violate the federal contracts clause. In that case, the federal court 
held that all contracts are executed with the parties’ understanding of the state’s police power, 
and therefore, if the legislature determines “that the public good demands that an insurance 
company unsuccessfully resisting payment should pay attorneys’ fees, there is no constitutional 
objection to their doing so.” Midwest Steel & Iron Works Co. v. Henly, 117 F. Supp. 928, 932 (D. 
Idaho 1954). The analysis in Midwest Steel indicates that the court considered the statute to act 
upon the “enforcement of the obligations assumed by the parties and to the giving of suitable 
relief for non-performance,” which it held did not affect the obligation of the contract because 
“parties make their contract with reference to the existence of the power of the state to provide 
remedies for enforcement and to secure adequate redress in case of breach.” Id. at 931 (citing 
Henley v. Myers, 215 U.S. 373 (1910); Osborn v. Ozlin, 310 U.S. 53 (1940)).  
Dairy Queen thus contends that the decision in Penrose, in which this Court cited 
Midwest Steel while reaching the opposite conclusion, demonstrates that Idaho courts interpret 
article I, § 16 to provide more protection than the federal provision. Neither Penrose nor our 
decisions since support this argument. In Penrose, the dissent by Justice Givens was the majority 
on the contracts clause issue. 75 Idaho at 540, 275 P.2d at 978-79. However, Justice Givens 
merely states that the statute “impairs the obligation of contract,” and neither he nor the Justices 
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concurring with him cite any case or provide any other information regarding their underlying 
reasoning. Id. Instead, he writes that “[a]uthorities supporting this proposition [that the 
challenged statute impairs the obligation of contract] are cited in the majority opinion and it is 
unnecessary to add thereto, although there are others to like effect.” Id. at 540, 275 P.2d at 979. 
While the majority opinion does cite some cases in support of what it terms “the minority rule,” 
none of those cases are from Idaho. Id. at 538-39, 275 P.2d at 977-78. Without some explanation 
of the rationale for the decision, Penrose is simply a case in which this Court disagreed with a 
federal court’s interpretation of the Idaho Constitution. Consequently, Dairy Queen’s assertion – 
that Penrose signals a departure from this Court’s past adherence to federal precedent because 
Idaho’s contracts clause is more protective than the federal provision – is not supported by the 
conclusory analysis in the Penrose dissent. 
 
Further, in cases since Penrose, the Court has continued to cite federal precedent and has 
given no indication that it finds the state constitution more protective of contracts than the 
federal constitution. For example, in State v. Korn, we began our analysis of the defendant’s 
contracts clause claim by quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 241 
(1978). 148 Idaho 413, 415-16, 224 P.3d 480, 482-83 (2009). Additionally, in the context of the 
police power exception, we cited the United States Supreme Court in holding that a public utility 
commission may “annul or supersede contract rates between utilities and their customers.”3 
Agric. Prods. Corp., 98 Idaho at 29, 557 P.2d at 623 (citing Midland Realty Co. v. Kansas City 
Power & Light Co., 300 U.S. 109 (1937); Atlantic C. L. R. Co., v. Goldsboro, 232 U.S. 548 
(1914)). The following year, we again cited the Supreme Court of the United States in noting that 
the contracts clause limits that exception. Bunker Hill, 98 Idaho at 253, 561 P.2d at 395 (quoting 
Fed. Power Comm’n v. Sierra Pac. Power Co., 350 U.S. 348 (1956)). In none of these cases did 
our contracts clause analysis refer to Idaho authority.4 Consequently, because neither the 
constitution of Idaho, the nature of the state, nor long-standing precedent demonstrate that the 
                                                 
3 In addition to citing federal authority, the Court quoted article I, § 16 and explained that by its application, “[a]ny 
contract is thus assured some measure of protection from governmental interference.” Agric. Prods. Corp., 98 Idaho 
at 28-29, 557 P.2d at 622-23 (emphasis added). This language indicates that the Court interprets article I, § 16 as 
providing something less than absolute protection. 
4 In Agricultural Products, the Court did cite Idaho authority for the proposition that the state may regulate public 
utilities. 98 Idaho at 29, 557 P.2d at 623 (citing Sandpoint Water & Light Co., Ltd., v. City of Sandpoint, 31 Idaho 
498, 173 P. 972 (1918)). Bunker Hill subsequently cited Agricultural Products. Neither case cited Idaho contracts 
clause precedent. 
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protection provided by the Idaho Constitution is greater than the protection provided by the 
United States Constitution, we hold that challenges based upon article I, § 16 should be 
evaluated under the federal framework and rules. 
B. The retroactive repeal of Idaho Code § 72-915 violates the Idaho Constitution because it 
substantially impairs existing contracts. 
 
The federal framework for determining whether a legislative act violates the contracts 
clause is a three-step analysis. The first step is to determine whether the challenged legislative 
enactment “has ‘operated as a substantial impairment of a contractual relationship.’” Gen. 
Motors Corp. v. Romein, 503 U.S. 181, 186 (1992) (quoting Allied Structural Steel, 438 U.S. at 
244). This threshold inquiry also has three parts: 1) whether a contractual relationship exists, 2) 
whether the challenged legislative enactment impairs that relationship, and 3) whether that 
impairment is substantial. Id. When considering whether a contractual relationship exists, the test 
is not merely whether the parties have some contractual relationship, “but whether there was a 
‘contractual agreement regarding the specific . . . terms allegedly at issue.’” Id. at 187; see also 
Keystone Bituminous Coal Ass’n v. DeBenedictis, 480 U.S. 470, 504 (1987) (holding that the 
analysis begins “by identifying the precise contractual right that has been impaired.”). Therefore, 
a legislative act does not violate the contracts clause unless there is a contractual relationship 
between the parties regarding the specific terms at issue, the challenged act impairs an obligation 
under that contract, and that impairment is substantial. 
 
If the challenged legislative action is found to substantially impair a contract, the analysis 
then proceeds to the remaining two steps: whether the act serves “an important public purpose,” 
and whether the act is “reasonable and necessary” to advance that purpose. United States Trust 
Co. of New York v. New Jersey, 431 U.S. 1, 25 (1977). First, substantial impairment may be 
permissible where there is “a significant and legitimate public purpose behind the regulation, 
such as the remedying of a broad and general social or economic problem.” Energy Reserves 
Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411 (1983) (citations omitted). 
However, even if a legitimate public purpose exists, the Court must still determine whether the 
act is based “upon reasonable conditions and [is] of a character appropriate to the public purpose 
justifying its adoption.” U.S. Trust Co., 431 U.S. at 22 (citing Home Bldg. & Loan Ass’n v. 
Blaisdell, 290 U.S. 398, 445-47 (1934)). Thus, even substantial impairment may be permissible, 
but only where it is reasonable and necessary to advance a legitimate public purpose.  
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1. The retroactive repeal of Idaho Code § 72-915 substantially impairs Dairy Queen’s 
contract rights. 
 
Dairy Queen argues that its policy with the SIF includes a contractual right to a premium-
based pro rata share of any dividends and that retroactive repeal of I.C. § 72-915 constituted a 
substantial impairment of that right. The SIF contends that there was no contractual right to 
dividends based upon that methodology, or alternatively, that if such a right did exist, the repeal 
did not substantially impair the contract. We hold that the retroactive repeal substantially impairs 
Dairy Queen’s contractual rights because the dividend is a part of the consideration. 
a. The retroactive repeal impairs a contractual right. 
A contractual relationship exists regarding the specific term at issue in this case. The 
United States Supreme Court has recognized the principle that “the laws which subsist at the 
time and place of the making of a contract . . . enter into and form a part of it . . . .” Gen. Motors, 
503 U.S. 181, 188 (1992) (quoting Home Bldg. & Loan Ass’n, 290 U.S. at 429-430). That Court 
also noted that in general, the only laws incorporated into a contract, absent the parties’ 
agreement, are those that affect “the validity, construction, and enforcement of” the contract. Id. 
at 189 (citing U.S. Trust Co., 431 U.S. at 19 n.17). In this case, Idaho’s workers’ compensation 
statutes create statutory contract rights related to SIF’s premium structure and rate readjustment 
procedures. We recently held that the premium provision set forth in Idaho Code Chapter 9, Title 
72, “are written into, and become an integral part of, SIF’s workers’ compensation insurance 
policies.” Farber v. State Ins. Fund, 152 Idaho 495, 498, 272 P.3d 467, 470 (2012) (Farber II). 
The statutes are essential to the contracts and their enforcement because the actual SIF policies 
do not mention the premium amount or how it is calculated and no valid contract could exist 
without the statutes. Id. at 497-98, 272 P.3d at 469-70. Thus, Dairy Queen’s contractual 
relationship with SIF includes the premium structure and dividend distribution provision as part 
of the consideration. 
 
The next question is whether the retroactive repeal of Idaho Code § 72-915 impairs the 
contractual relationship between Dairy Queen and SIF. To impair a contract is to “diminish the 
value of” the contract. Black’s Law Dictionary 819 (9th ed. 2009). In this case, under former 
Idaho Code § 72-915, the decision to offer a dividend or rate readjustment was within the 
Manager’s discretion. Former I.C. § 72–915 (Repealed by act effective May 6, 2009, ch. 294, § 
1(6)). Even so, repealing the statute that provides for the possibility of a premium refund reduces 
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the maximum possible value of the contract to Dairy Queen. Therefore, the retroactive repeal 
impairs the contract. 
b. The impairment is substantial. 
 
If a court determines that a legislative act has impaired a contract, the final step in the 
threshold inquiry is to decide whether the contractual impairment is substantial. In making this 
determination, courts consider several factors, such as whether the impairment eliminates an 
important contractual right, defeats an expectation of the parties, or creates a significant financial 
hardship for one party. Thus, in United States Trust Co., the United States Supreme Court 
invalidated the retroactive repeal of a statutory covenant that New York and New Jersey enacted 
to limit the Port Authority’s ability to use its reserves to pay future deficits created from 
operation of new facilities. 431 U.S. at 32. The statute was enacted to protect the interest of the 
holders of the bonds sold to finance the Port Authority and to promote investor confidence. Id. at 
9-10, 18. The Court held that the statute was a contract between the bondholders and the states 
and that its retroactive repeal substantially impaired the contract by eliminating an important 
security provision. Id. at 19. In another case involving bonds, voters in Washington State passed 
an initiative that restricted a state municipal corporation’s contractually-granted ability to sell 
bonds. Cont’l Ill. Nat. Bank & Trust Co. of Chicago v. Wash., 696 F.2d 692, 695-96 (9th Cir. 
1983). The Ninth Circuit held that the statute substantially impaired the contract because the 
ability to issue bonds “is essential to the performance of its contracts,” and restricting that ability 
“defeats the expectations of the parties under their contracts.” Id. at 700 (citing Allied Structural 
Steel Co., 438 U.S. at 246-48); see also S. Cal. Gas Co. v. City of Santa Ana, 336 F.3d 885, 890-
92 (9th Cir. 2003) (holding that because the statute affected “a right at the heart of the 
[contract],” the impairment was substantial even though the financial impact was “relatively 
small . . .”). 
 
In another case, the Ninth Circuit held that a statute constituted a substantial impairment 
of an employment contract because the statute permitted the state to delay its employees’ pay 
dates and excepted the provision from the negotiation process. Univ. of Haw. Prof'l Assembly v. 
Cayetano, 183 F.3d 1096, 1099 (9th Cir. 1999). The court agreed with the district court’s 
conclusion that a “pay lag would likely impose a substantial hardship on many employees who 
would not be able to meet their financial obligations such as mortgage payments in a timely 
manner,” reasoning that the employees had the right to rely on timely payment and that “[e]ven a 
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brief delay in getting paid can cause financial embarrassment and displacement . . . .” Id. at 
1104-06. Idaho cases have also considered impairments that affected important terms or involved 
the complete elimination of an important right. See, e.g., Curtis v. Firth, 123 Idaho 598, 610, 850 
P.2d 749, 761 (1993) (holding that a change to the statute governing actions on notes secured by 
deeds of trust was unconstitutional because it eliminated one remedy, the right to sue on the note 
without first foreclosing on the deed of trust); Steward v. Nelson, 54 Idaho 437, 442-43, 32 P.2d 
843, 845 (1934) (holding that statutes that reduced the time during which a mortgage-holder 
could foreclose, even if the debt was still owing, violated the contracts clause because they 
would “take away the remedy of foreclosure . . . and leave[] no remedy of equal or similar value” 
to replace it, effectively destroying “the prevailing consideration for the contracts in so far as the 
mortgagee was concerned”). Thus, impairment may be substantial where a legislative act impairs 
essential rights, defeats a party’s expectations, or has significant financial consequences for a 
party. 
 
In this case, Dairy Queen argues that retroactive repeal of I.C. § 72-915 substantially 
impairs its contracts because the dividend payments are essentially a partial refund of the 
consideration Dairy Queen paid for the insurance. SIF contends that the contracts are primarily 
about insurance in exchange for premiums and that partial, discretionary refunds are not an 
important part of the contracts. We held in Farber II that the statutes in Chapter 9, Title 72 “are 
essential to establish the consideration to be paid by the insured, and to be received by SIF,” 
without which “there could be no valid contract.”  Farber II, 152 Idaho at 498, 272 P.3d at 470 
(citing Vanderford Co., Inc. v. Knudson, 150 Idaho 664, 672, 249 P.3d 857, 865 (2011)). 
Consideration is a necessary element to forming a valid contract.  Sirius LC v. Erickson, 150 
Idaho 80, 85, 244 P.3d 224, 229 (2010). Consequently, the legislative act at issue in this case, as 
in U.S. Trust and Continental Illinois, adversely affects an essential element of the contracts 
between the parties. We therefore hold that the retroactive repeal of Idaho Code § 72-915 
substantially impairs those contracts.  
2. The retroactive repeal of Idaho Code § 72-915 is not reasonable and necessary to 
support a significant and legitimate public purpose. 
This Court has held that SIF serves a “public purpose.” Selkirk Seed Co. v. Forney, 134 
Idaho 98, 103-04, 996 P.2d 798, 803-04 (2000) (quoting State ex rel. Williams v. Musgrave, 84 
Idaho 77, 85, 370 P.2d 778, 782 (1962)).  However, to survive application of the contracts clause 
where a state law substantially impairs a contract, the law must have a “significant and legitimate 
14 
 
public purpose,” to ensure that it is an exercise of the state’s police power and not merely 
“providing a benefit to special interests.” RUI One Corp. v. City of Berkeley, 371 F.3d 1137, 
1147 (quoting Energy Reserves, 459 U.S. at 412). Thus, the legislative act under review must 
itself be reasonable and necessary to advance an important public purpose. 
Here, we cannot glean a legitimate public purpose for the retroactive repeal from the 
legislative history. The statement of purpose in the act repealing Idaho Code § 72-915 indicates 
that the repeal was in response to this Court’s decision in Farber I, which required that rate 
readjustments be paid on a pro rata basis, in order to “clarify the law regarding the payment of 
dividends . . . .” In text of the repeal itself, the legislative intent is “that the State Insurance Fund 
should operate like an efficient insurance company . . . .” The statutes governing SIF require its 
board of directors to “direct the policies and operation of the state insurance fund to assure that 
the state insurance fund is run as an efficient insurance company, remains actuarially sound and 
maintains the public purposes for which the state insurance fund was created.” I.C. § 72-901(3). 
While SIF itself exists to serve a public purpose, the same cannot be said of the repeal of Idaho 
Code § 72-915. 
IV. CONCLUSION 
We reverse the district court’s order finding the repeal of Idaho Code § 72-915 
constitutional and its judgment dismissing all of Dairy Queen’s claims and remand this case for 
proceedings consistent with this opinion. Costs to Dairy Queen. 
 
Chief Justice BURDICK and Justices J. JONES, W. JONES and Justice Pro Tem 
KIDWELL CONCUR.