Source: https://www.law.cornell.edu/supremecourt/text/328/408/
Timestamp: 2018-06-24 22:51:34
Document Index: 622384022

Matched Legal Cases: ['§ 8', '§ 1011', '§ 8', '§ 1', '§ 8', '§ 1', '§ 2', '§ 1', '§ 151', '§ 201', '§ 861']

PRUDENTIAL INS. CO. v. BENJAMIN, Insurance Com'r of South Carolina. | LII / Legal Information Institute
328 U.S. 408 (66 S.Ct. 1142, 90 L.Ed. 1342)
Argued: March 8—11, 1946.
The specific effect asserted in this case is that South Carolina no longer can collect taxes from Prudential, a New Jersey corporation, which for years prior to 1945 the state had levied and the company had paid. The tax is laid on foreign insurance companies and must be paid annually as a condition of receiving a certificate of authority to carry on the business of insurance within the state. The exaction amounts to three per cent of the aggregate of premiums received from business done in South Carolina, without reference to its interstate or local character. 1 No similar tax is required of South Carolina corporations. 2
Prudential insists that the tax discriminates against interstate commerce and in favor of local business, since it is laid only on foreign corporations and is measured by their gross receipts from premiums derived from business done in the state, regardless of its interstate or local character. Accordingly it says the tax cannot stand consistently with many decisions of this Court outlawing state taxes which discriminate against interstate commerce. 3 South Carolina denies that the tax is discriminatory 4 or has been affected by the South-Eastern decision. But in any event it maintains that the tax is valid, more particularly in view of the McCarran Act, 5 by which it is claimed Congress has consented to continuance of this form of taxation and thus has removed any possible constitutional objection which otherwise might exist. This Prudential asserts Congress has not done and could not do.
The versatility with which argument inverts state and national power, each in alternation to ward off the other's incidence, 6 is not simply a product of protective selfinterest. It is a recurring manifestation of the continuing necessity in our federal system for accommodating the two great basic powers it comprehends. For this Court's part, from Gibbons v. Ogden, 9 Wheat. 1, 6 L.Ed. 23, no phase of that process has been more continuous or at times perplexing than reconciling the paramount national authority over commerce, created by Article I, § 8 of the Constitution, with appropriate exercise of the states' reserved powers touching the same or related subject matter. 7
The continuing adjustment has filled many of the great constitutional gaps of Marshall's time and later. 8 But not all of the filling has been lasting. Great emphases of national policy swinging between nation and states in historic conflicts have been reflected, variously and from time to time, in premise and therefore in conclusion of particular dispositions. 9 In turn, their sum has shifted and reshifted the general balance of authority, inevitably producing some anomaly of logic and of result in the decisions.
Essentially the problems these cases tender are of that character. It is not necessary to renew the controversy presented in South-Eastern. Whether or not that decision properly has been characterized as 'precedent-smashing,' 10 there was a reorientation of attitudes toward federal power in its relation to the business of insurance conducted across state lines. Necessarily this worked in two directions. As the opinion was at pains to note, 322 U.S. 533, 545 ff, 64 S.Ct. 1162, 88 L.Ed. 1440, no decision previously had held invalid an Act of Congress on the ground that such business was beyond reach of its power, because previously no attempted exercise of that authority had been brought here in litigation. But from Paul v. Virginia to New York Life Ins. Co. v. Deer Lodge County, 231 U.S. 495, 34 S.Ct. 167, 58 L.Ed. 332, negative implication from the commerce clause was held not to place any limitation upon state power over the business, however conducted with reference to state lines. And correlatively this was taken widely, although not universally, to nullify federal authority until the question was squarely presented and answered otherwise in the South-Eastern case.
Whether Paul v. Virginia represented in its day an accommodation with or a departure from the preexisting evolution of commerce clause law and whether its ruling, together with later ones adhering to it, remained consonant with the subsequent general development of that law, may still be debated. But all may concede that the Paul case created for the business of insurance a special, if not a wholly unique, way of thinking and acting in the regulation of business done across state lines. See Ribble, State and National Power over Commerce (1937) 89, 186187. The aegis of federal commerce power continued to spread over and enfold other business so conducted, in both general and specific legislative exertions. Usually this was with judicial approval; and, despite notable instances of initial hostility, the history of judicial limitation of congressional power over commerce, when exercised affirmatively, has been more largely one of retreat than of ultimate victory. 11 The plain words of the grant havem ade courts caurts cautious, except possibly in some of the instances noted, about nullifying positive exertions of Congress' power over this broad and hard to define field. At the same time, physical and economic change in the way commerce is carried on has called forth a constantly increasing volume of legislation exercising that power. 12
Concurrently with this general expansion, however, from Paul to South-Eastern the states took over exclusively the function of regulating the insurance business in its specific legislative manifestations. Congress legislated only in terms applicable to commerce generally, without particularized reference to insurance. At the same time, on the rationalization that insurance was not commerce, yet was business affected with a vast public interest, 13 the states developed comprehensive regulatory and taxing systems. And litigation of their validity came to be freed of commerce clause objections, at any rate from Deer Lodge on to South-Eastern. Due process in its jurisdictional aspects remained to confine the reach of state power in relation to business affecting other states. 14 But the negative implications of the commerce clause became irrelevant, as such, for the valid exercise of state regulatory and taxing authority.
Meanwhile the business of insurance experienced a nation-wide expansion graphically depicted not only in the facts of the situation presented in the South-Eastern case but also in the operations of Prudential as described by its advocates in this cause. 15 These divergent facts, legal and economic, necessarily were reflected in state legislation. States grappling with nationwide, but nationally unregulated, business inevitably exerted their powers to limits and in ways not sought generally to be applied to other business held to be within the reach of the commerce clause's implied prohibition. Obvious and widespread examples are furnished in broad and detailed licensing provisions, for the doing of business within the states, and in connected or distinct taxing measures drawn in apparent reliance upon freedom from commerce clause limitations. 16
That the clause imposes some restraint upon state power has never been doubted. For otherwise the grant of power to Congress would be wholly ineffective. But the limitation not only is implied. It is open to different implications of meaning. And this accounts largely for variations in this field continuing almost from the beginning until now. 17 They started with Marshall and Taney, went forward from Waite to Fuller, and have been projected in later differences perhaps less broad, but hardly less controversial. 18 Consequently in its prohibitive, as in its affirmative or enabling, effects the history of the commerce clause has been one of very considerable judicial oscillation.
Moreover, the parallel encompasses the latest turn in the long-run trend. For concurrently with the broadening of the scope for permissible application of federal authority, 19 the tendency also has run toward sustaining state regulatory and taxing measures formerly regarded as inconsonant with Congress' unexercised power over commerce, 20 and to doing so by a new, or renewed, emphasis on facts and practical considerations rather than dogmatic logistic. 21 These facts are of great importance for disposing of such controversies. For in effect they have transferred the general problem of adjustment to a level more tolerant of both state and federal legislative action.
As has been stated, they are the cases which from Welton v. Missouri, 91 U.S. 275, 23 L.Ed. 347, until now have outlawed state taxes found to discriminate against interstate commerce. 22 No one of them involved a situation like that now here. In each the question of validity of the state taxing statute arose when Congress' power lay dormant. In none had Congress acted or purported to act, either by way of consenting to the state's tax or otherwise. Those cases therefore presented no question of the validity of such a tax where Congress had taken affirmative action consenting to it or purporting to give it validity. Nor, consequently, could they stand as controlling precedents for such a case.
Fundamentally it maintains that the commerce clause 'of its own force' and without reference to any action by Congress, whether through its silence 23 or otherwise, forbids discriminatory state taxation of interstate commerce. This is to say, in effect, that neither Congress acting affirmatively nor Congress and the states thus acting coordinately can validly impose any regulation which the Court has found or would find to be forbidden by the commerce clause, if laid only by state action taken while Congress' power lies dormant. In this view the limits of state power to regulate commerce in the absence of affirmative action by Congress are also the limits of Congress' permissible action in this respect, whether taken alone or in coordination with state legislation.
Merely to state the position in this way compels its rejection. So conceived, Congress' power over commerce would be nullified to a very large extent. 24 For in all the variations of commerce clause theory it has never been the law that what the states may do in the regulation of commerce, Congress being silent, is the full measure of its power. Much less has this boundary been thought to confine what Congress and the states acting together may accomplish. So to regard the matter would invert the constitutional grant into a limitation upon the very power it confers.
The commerce clause is in no sense a limitation upon the power of Congress over interstate and foreign commerce. On the contrary, it is, as Marshall declared in Gibbons v. Ogden, a grant to Congress of plenary and supreme authority over those subjects. The only limitation it places upon Congress' power is in respect to what constitutes commerce, including whatever rightly may be found to affect it sufficiently to make Congressional regulation necessary or appropriate. 25 This limitation, of course, is entirely distinct from the implied prohibition of the commerce clause. The one is concerned with defining commerce, with fixing the outer boundary of the field over which the authority granted shall govern. The other relates only to matters within the field of commerce, once this is defined, including whatever may fall within the 'affectation' doctrine. The one limitation bounds the power of Congress. The other confines only the powers of the states. And the two areas are not coextensive. The distinction is not always clearly observed, for both questions may and indeed att imes do arise in the same case and in close relationship. 26 But to blur them, and thereby equate the implied prohibition with the affirmative endowment is altogether fallacious. There is no such equivalence.
This appears most obviously perhaps in the cases most important for the decision in this cause. They are the ones involving situations where the silence of Congress or the dormancy of its power has been taken judicially, on one view or another of its constitutional effects, 27 as forbidding state action, only to have Congress later disclaim the prohibition or undertake to nullify it. 28 Not yet has this Court held such a disclaimer invalid or that state action supported by it could not stand. On the contrary in each instance it has given effect to the Congressional judgment contradicting its own previous one. 29
It is true that rationalizations have differed concerning those decisions, 30 indeed also that the judges participating in them differed in this respect. 31 But the results have been lasting and are at least as important, for the direction given to the process of accommodating federal and state authority, as the reasons stated for reaching them. None of the decisions conceded, because none involved any question of, the power of Congress to make conclusive its own mandate concerning what is commerce. But apart from that function of defining the outer boundary of its power, whenever Congress' judgment has been uttered affirmatively to contradict the Court's previously expressed view that specific action taken by the states in Congress' silence was forbidden by the commerce clause, this body has accommodated its previous judgment to Congress' expressed approval.
Some part of this readjustment may be explained in ways acceptable on any theory of the commerce clause and the relations of Congress and the Courts toward its functioning. 32 Such explanations, however, hardly go to the root of the matter. For the fact remains that, in these instances, the sustaining of Congress' overriding action has involved something beyond correction of erroneous factual judgment in deference to Congress' presumably better-informed view of the facts, 33 and als beyond giving due deference to its conception of the scope of its powers, when it repudiates, just as when its silence is thought to support, the inference that it has forbidden state action. 34
This it regards as operative not only in Congress' silence, but in the face of its positive expression by the McCarran Act that the continued regulation and taxation by the states of the business of insurance is in accordw ith Congress' policy That expression raises questions concerning its own validity and also concerning whether the policy stated extends to the kind of state legislation which is immediately in issue. But those questions are not answered, as Prudential seeks to have them answered, by any conception that Congress' declaration of policy adds nothing to the validity of what the states have done within the area covered by the declaration or, in other words, that it is mere brutum fulmen. For to do this not only would produce intolerable consequences for restricting Congress' power. It would ignore the very basis on which the second Wheeling Bridge case and indeed the Clark Distilling case have set the pattern of the law for governing situations like that now presented. 35 Accordingly we turn to the issues which are more alive and significant for the future.
By the same token, we need not consider, whether the tax, if operative in Congress' unilluminated silence, would be discriminatory in the sense of an exaction forbidden by the commerce clause, as Prudential categorically asserts, or not so, as South Carolina maintains with equal certitude. Much attention has been given both here and in the state court to these questions. But in the view we take of the case the controlling issues undercut them. Nor do we determine, as Prudential's argument seems to subsume, whether all of its business done in South Carolina and affected by the tax should be regarded as constituting interstate commerce so as to fall within the 'in commerce' classification or, on the other hand, some of it may properly be considered as being only local or intrastate business. 36 These questions we put to one side. And for present purposes we assume that the tax would be discriminatory in the sense of Prudential's contention and that all of its business done in South Carolina and affected by the tax is done 'in' or as a part of interstate commerce.
'(b) No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance. * * *' 59 Stat. 34, 15 U.S.C. 1011 1015, 15 U.S.C.A. §§ 10111015. 37
Obviously Congress' purpose was broadly to give support to the existing and future state systems for regulating and taxing the business of insurance. This was done in two ways. One was by removing obstructions which might be thought to flow from its own power, whether dormant or exercised, except as otherwise expressly provided in the Act itself or in future legislation. 38 The other was by declaring expressly and affirmatively that continued state regulation and taxation of this business is in the public interest and that the business and all who engage in it 'shall be subject to' the laws of the several states in these respects.
Two conclusions, corollary in character and important for this case, must be drawn from Congress' action and the circumstances in which it was taken. One is that Congress intended to declare, and in effect declared, that uniformity of regulation, and of state taxation, 39 are not required in reference to the business of insurance, by the national public interest, except in the specific respects otherwise expressly provided for. This necessarily was a determination by Congress that state taxes, which in its silence might be held invalid as discriminatory, do not place on interstate insurance business a burden which it is unable generally to bear or should not bear in the competition with local business. Such taxes were not uncommon, among the states, 40 and the statute clearly included South Carolina's tax now in issue.
That judgment was one of policy and reflected long and clear experience. For, notwithstanding the long incidence of the tax and its payment by Prudential without question prior to the South-Eastern decision, the record of Prudential's continuous success in South Carolina over decades 41 refutes any idea that payment of the tax handicapped it in any way tending to exclude it from competition with local business or with domestic insurance companies. Indeed Prudential makes no contrary contention on any factual basis, nor could it well do so. For the South-Eastern decision did not, and could not, wipe out all this experience or its weight for bearing, as a matter of the practical consequences resulting from operation of the tax, upon that question. Robertson v. California, 328 U.S 440, 66 S.Ct. 1160.
In view of all these considerations, we would be going very far to rule that South Carolina no longer may collect her tax. To do so would flout the expressly declared policies of both Congress and the state. Moreover it would establish a ruling never heretofore made and in doing this would depart from the whole trend of decision in a great variety of situations most analogous to the one now presented. For, as we have already emphasized, the authorities most closely in point upon the problem are not, as appellant insists, those relating to discriminatory state taxes laid in the dormancy of Congress' power. They are rather the decisions which, in every instance thus far not later overturned, 42 have sustained coordinated action taken by Congress and the states in the regulation of commerce. 43
The power of Congress over commerce exercised entirely without reference to coordinated action of the states is not restricted, except as the Constitution expressly provides, 44 by any limitation which forbids it to discriminate against interstate commerce and in favor of local trade. Its plenary scope enables Congress not only to promote but also to prohibit interstate commerce, as it has done frequently and for a great variety of reasons. 45 That power does not run down a one-way street or one of narrowly fixed dimensions. Congress may keep the way open, confine it broadly or closely, or close it entirely, subject only to the restrictions placed upon its authority by other constitutional provisions and the requirement that it shall not invade the domains of action reserved exclusively for the states.
This broad authority Congress may exercise alone, subject to those limitations, or in conjunction with coordinated action by the states, 46 in which case limitations imposed for the preservation of their powers become inoperative and only those designed to forbid action altogether by any power or combination of powers in our governmental system remain effective. 47 Here both Congress and South Carolina have acted, and in complete coordination, to sustain the tax. It is therefore reinforced by the exercise of all the power of government residing in our scheme. 48 Clear and gross must be the evil which would nullify such an exertion, one which could arise only by exceeding beyond cavil some explicit and compelling limitation imposed by a constitutional provision or provisions designed and intended to outlaw the action taken entirely from our constitutional framework.
A word should be added in the latter respect. Prudential has not urged grounds founded upon other constitutional provisions than the commerce clause, except in relation to the McCarran Act and then only in the event it should be construed as having effect to validate continued exaction of the tax. As has been said, it regards the statute as neither intended nor effective to 'validate, authorize, or sanction state statutes which discriminate against interstate commerce.' But, against the event that the Act should be taken as intended to have such an effect, it puts forward the somewhat novel contentions that the statute would be in violation of the due process clause of the Fifth Amendment; of the first clause of Article I, § 8, requiring that 'all Duties, Imposts and Excises shall be uniform throughout the United States'; of Article I, § 1, 'which requires legislation to be enacted by Congress'; and, apparently of the Tenth Amendment, 'as a violation of the states' power to tax for purposes of raising revenue for their own use, which power is vested exclusively in the states.' 49
These arguments may be summarily disposed of. As for the due processc ontention, it was settled by a long line of authorities prior to the South-Eastern decision, that the similar provision of the Fourteenth Amendment, as well as that requiring equal protection of the laws, does not forbid the states to lay and collect such a tax as South Carolina's. 50 Certainly the Fifth Amendment does not more narrowly confine the power of Congress; nor do it and the Fourteenth taken together accomplish such a restriction upon the coordinated exercise of power by the Congress and the states.
The argument grounded upon the first clause of Article I, § 8, requiring that excises shall be uniform throughout the United States, identifies the state exaction with the laying of an excise by Congress, to which alone the limitation applies. This is done on the theory that no more has occurred than that Congress has 'adopted' the tax as its own, a conception which obviously ignores the state's exertion of its own power and, furthermore, seeks to restrict the coordinated exercise of federal and state authority by a limitation applicable only to the federal taxing power when it is exerted without reference to any state action. 51 The same observation applies also to the contention based on Article I, § 1.
No such anomalous consequence follows from the division of legislative power into the respective spheres of federal and state authority. There are limitations applicable to each of these separately and some to their coordinated exercise. But neither the former nor the latter are to be found merely in the fact that the authority is thus divided. Such a conception would reduce the joint exercise of power by Congress and the states to achieve common ends in the regulation of our society below the effective range of either power separately exerted, without basis in specific constitutional limitation or otherwise than in the division itself. 52 We know of no grounding, in either constitutional experience or spirit, for such a restriction. For great reasons of policy and history not now necessary to restate, these great powers were separated. They were not forbidden to cooperate or by doing so to achieve legislative consequences, particularly in the great fields of regulating commerce and taxation, which, to some extent at least, neither could accomplish in isolated exertion. 53
See Allgeyer v. Louisiana, 165 U.S. 578, 17 S.Ct. 427, 41 L.Ed. 832; New York Life Ins. Co. v. Head, 234 U.S. 149, 34 S.Ct. 879, 58 L.Ed. 1259; Fidelity & Deposit Co. of Maryland v. Tafoya, 270 U.S. 426, 46 S.Ct. 331, 76 L.Ed. 664; St. Louis Cotton Compress Co. v. Arkansas, 260 U.S. 346, 43 S.Ct. 125, 67 L.Ed. 297; Hoopeston Co. v. Cullen, 318 U.S. 313, 63 S.Ct. 602, 87 L.Ed. 1722, 145 A.L.R. 1113; Powell, The Supreme Court and State Public Power, 19221930 (1932) 140 et seq.; also St. Louis Southwestern R. Co. of Texas v. Alexander, 227 U.S. 218, 33 S.Ct. 245, 57 L.Ed. 486, Ann.Cas.1915B, 77, with which compare Henderson, The Position of Foreign Corporations in American Constitutional Law (1918) c. V. Cf. International Harvester Co. v. Dept. of Treasury, 322 U.S. 340, concurring opinion 349, at page 353 ff., 64 S.Ct. 1019, concurring opinion 1030, at page 1032 ff., 88 L.Ed. 1313, and see International ShoeC o. v. Washington, 326 U.S. 310, 66 S.Ct. 154.
'Mr. Madison. Whether the States are now restrained from laying tonnage duties depends on the extent of the power 'to regulate commerce.' These terms are vague but seem to exclude this power of the States.They may certainly be restrained by Treaty. He observed that there were other projects for tonnage duties as the support of Seamen &c. He was more & more convinced that the regulation of Commerce was in its nature indivisible and ought to be wholly under one authority.
'N.H.ay Mas. ay. Ct. divd. N.J. ay. Pa. no. Del. ay. Md. ay. Va. no. N-C no S-C ay Geo. no. (Ayes6; nos.4; divided1.)' Farrand, Records of the Federal Constitutional Convention of 1787 (1937), Vol. II, 625-626.
'* * * except for State acts designed to impose discriminatory burdens on interstate commerce because it is interstateCongress alone must 'determine how far (interstate cm merce) * * * shall be free and untrammeled, how far it shall be burdened by duties and imposts and how far it shall be prohibited.' Id., 305 U.S., at page 455, 59 S.Ct. at page 335, 83 L.Ed. 272.
The remainder of the statute, including a proviso to § 2(b), relates to applicability of the Sherman Act, 15 U.S.C.A. §§ 17, 15 note, and other related federal statutes to the business of insurance before and after January 1, 1948; provides that the McCarran Act shall not affect in any manner the application to that business of the National Labor Relations Act, 29 U.S.C.A. § 151 et seq., the Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq., or the Merchant Marine Act of 1920, 46 U.S.C.A. § 861 et seq.; extends the term 'State' as used in the Act to include specified territories and the District of Columbia; and provides for severability.