Opinion ID: 1947223
Heading Depth: 1
Heading Rank: 2

Heading: The Evolving Reasonableness Test

Text: In City of El Paso v. Simmons, 379 U.S. 497, 85 S.Ct. 577 (1965), the Court stated that it would not even pause to consider ... again the dividing line under federal law between `remedy' and `obligation'... . [17] Instead, the majority noted that decisions dating from [ Blaisdell ] have not placed critical reliance on the distinction between obligation and remedy, and proceeded to demonstrate that its post-Depression rulings had been made without any regard to whether the measure was substantive or remedial. [18] Recognizing that `[t]he Constitution is intended to preserve practical and substantial rights, not to maintain theories,' [19] the Court in Simmons clearly refuted the notion that statutes could be properly measured by any criteria other than reasonableness: This Court's decisions have never given a law which imposes unforeseen advantages or burdens on a contracting party constitutional immunity against change... . Laws which restrict a party to those gains reasonably to be expected from the contract are not subject to attack under the Contract Clause, notwithstanding that they technically alter an obligation of a contract. [20] In resolving the controversy before it, the Simmons majority applied what Justice Black decried in dissent as a balancing test, [21] giving due consideration for the buyer's undertaking, whether the buyer was substantially induced to enter into these contracts because of the promise, and the significance of the State's vital interest, [22] and concluded that the Texas statute at issue was constitutionally permissible because [t]he measure taken ... was a mild one indeed, hardly burdensome to the purchaser ..., but nonetheless an important one to the State's interest. [23] The next major decision in the interpretive development of the contract clause was United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505 (1977). [24] The Court's analysis in United States Trust both expanded upon the balancing test of Simmons and refined the reasonableness standard of Blaisdell: [a] finding that there has been a technical impairment is merely a preliminary step in resolving the more difficult question whether that impairment is permitted under the Constitution. ... [T]he Contract Clause limits otherwise legitimate exercises of state legislative authority, and the existence of an important public interest is not always sufficient to overcome that limitation. .. . Moreover, the scope of the State's reserved power depends on the nature of the contractual relationship with which the challenged law conflicts. .... ... The Court in Blaisdell recognized that laws intended to regulate existing contractual relationships must serve a legitimate public purpose.... Legislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption. [25] The Court concluded that the correct standard to be employed in assessing the validity of legislation affecting a state's own contracts is that: [a]s with laws impairing the obligations of private contracts, an impairment may be constitutional if it is reasonable and necessary to serve an important public purpose. [26] In finding that the challenged statute did not satisfy this test, the Court emphasized that while [t]he extent of impairment is certainly a relevant factor in determining its reasonableness, an enactment cannot be considered necessary if the legislature without modifying the covenant at all, ... could have adopted alternative means of achieving their ... goals, because a State is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well. [27] In its most recent pronouncement on the subject, Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 98 S.Ct. 2716 (1978), the Court invalidated a Minnesota law which retroactively imposed upon certain private companies with voluntary pension plans additional obligations as to employees who would not have been entitled to such benefits under the original terms of the plan. Without any mention of the obligation-remedy distinction, the majority reviewed the underpinnings of the Court's post Blaisdell decisions and formulated its statement of the proper approach to contract clause challenges thusly: In applying these principles to the present case, the first inquiry must be whether the state law has, in fact, operated as a substantial impairment of a contractual relationship. The severity of the impairment measures the height of the hurdle the state legislation must clear. Minimal alteration of contractual obligations may end the inquiry at its first stage. Severe impairment, on the other hand, will push the inquiry to a careful examination of the nature and purpose of the state legislation. [28] Several factors to be considered in this balancing test were identified in Spannaus: (a) Was the law enacted to deal with a broad, generalized economic or social problem? [29] (b) Does the law operate in an area which was already subject to state regulation at the time the parties' contractual obligations were originally undertaken, or does it invade an area never before subject to regulation by the state? [30] (c) Does the law effect a temporary alteration of the contractual relationships of those within its coverage, or does it work a severe, permanent, and immediate change in those relationships  irrevocably and retroactively? [31]