Trail Mountain Coal Co. v. Utah Division of State Lands & Forestry: Can States Retroactively Alter Their Own Contractual Obligations?

I. INTRODUCTION Article I, Section 10 of the United States Constitution (the Contract Clause) prohibits the States from passing any "Law impairing the Obligation of Contracts." Like most other constitutional protections, the limits of the Contract Clause are often difficult to define. In a recent decision, Trail Mountain Coal Co. v. Utah Division of State Lands & Forestry,1 the Utah Supreme Court declined to apply Contract Clause scrutiny to Utah's default prejudgment interest rate statute.2 In so doing, the court dismissed over 150 years of Contract Clause jurisprudence and opened the constitutional door for states to alter their own contractual obligations by retroactively changing the law. This Note discusses the background, reasoning, and implications of the Trail Mountain decision. Section II provides a brief overview of the United States Supreme Court's Contract Clause jurisprudence. Section III outlines the factual background of the Trail Mountain dispute. Section IV summarizes the court's decision in the case. Section V evaluates the court's reasoning, arguing that the Trail Mountain decision was based upon an incorrect interpretation of the Contract Clause. This Note concludes that the Utah Supreme Court's decision could dramatically loosen the restrictions of the Contract Clause, thereby permitting states to modify their own contractual obligations so long as they can articulate a justification based upon state law. II. BACKGROUND Throughout the 1800s, the Contract Clause-as a portion of Article I, Section 10 has come to be known-was generally considered "the major [constitutional] restraint on state economic regulation."3 In fact, legal historians note that during the early years of our nation's history, "the Contract Clause was the constitutional rule most frequently invoked to strike down state legislation."4 The "glory days" of the Contract Clause came to a screeching halt in the 1930s with the Court's decision in Home Building & Loan Ass'n v. Blaisdell.5 In that case, the Court rejected a Contract Clause challenge to a Minnesota statute that extended the period of time that a mortgage holder could be in default before the lender could force a foreclosure sale.6 The Court based its conclusion on the argument that the state was justified in interfering with contractual obligations when an economic emergency demanded that the State enact such a statute in order to protect a community's general welfare. The Court concluded that the economic emergency that existed at the time the statute was passed-the Great Depression-"furnished a proper occasion for the exercise of the reserved power of the State to protect the vital interests of the community."7 Since earlier cases had been driven by a nondeferential analysis, Blaisdell constituted a dramatic departure from the Court's previously onerous Contract Clause scrutiny, opening the constitutional door for more economically restrictive state regulations.8 In 1977, the Court's Contract Clause jurisprudence reached an important turning point in United States Trust Co. v. New Jersey9 when, for the first time in almost forty years, the Court invalidated a state law under the Contract Clause. The dispute in United States Trust arose when New Jersey rescinded its statutory covenant not to subsidize (through the Port Authority of New York and New Jersey) rail passenger transportation with bond revenues and reserves.10 Bondholders brought suit, claiming that the rescission constituted a violation of the Contract Clause since, in purchasing Port Authority bonds, they had relied on the State's covenant not to use bond money to subsidize traditionally unprofitable endeavors like railway passenger transportation.11 In United States Trust, the Court held that laws impairing a state's own contractual obligations are entitled to less deference under the Contract Clause than are laws that merely affect private contracts to which the state is not a party. …