Opinion ID: 795813
Heading Depth: 3
Heading Rank: 1

Heading: Kinds of Deference

Text: 20 Since Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 4 L.Ed. 629 (1819), it has been familiar law that the Contracts Clause applies to public contracts as well as to private contracts. Id. at 694 (recognizing that salary contracts of public officers are entitled to Contracts Clause protection) (Marshall, C.J.); see U.S. Trust Co., 431 U.S. at 17, 97 S.Ct. 1505, 52 L.Ed.2d 92. However, in analyzing public contracts courts use a different approach than that employed in analyzing private ones. When a law impairs a private contract, substantial deference is accorded, see Sal Tinnerello & Sons, Inc. v. Town of Stonington, 141 F.3d 46, 54 (2d Cir.1998), to the legislature's judgment[s] as to the necessity and reasonableness of a particular measure, U.S. Trust Co., 431 U.S. at 23, 97 S.Ct. 1505. Public contracts are examined through a more discerning lens. When the state itself is a party to a contract, complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the [s]tate's self-interest is at stake. Id. at 26, 97 S.Ct. 1505. When a state's legislation is self-serving and impairs the obligations of its own contracts, courts are less deferential to the state's assessment of reasonableness and necessity. Condell v. Bress, 983 F.2d 415, 418 (2d Cir.1993). 21 The parties disagree with respect to what level of deference we should apply. Plaintiffs argue that we owe little deference to the state's decision because the Act is, in their view, self-serving to the state, while defendants insist we owe substantial deference to the legislative judgment. Of particular significance in the case at hand is the absence of a contract to which New York State is a party. Defendants contend that substantial deference is due because New York State is not a party to the contracts that are being impaired, that is, the state did not impair the obligations of its own contracts. Id. at 418. Plaintiffs concede that their contracts are with the City of Buffalo and that no state contracts or obligations run to them or to the City. But, they assert, that absence of a state contract does not preclude heightened scrutiny. The plaintiff unions urge us to focus on the alleged self-serving nature of the Act and the wage freeze. They argue that a less deferential standard applies because the wage freeze is in plaintiffs' view, self-serving insofar as it may save the state money by reducing future aid the state may feel obliged to give to the City. 22 Our initial comment is that the presence or absence of a state as a party to the contract is not determinative of the deference issue. Defendants ignore that a public contract is in fact being impaired albeit through state rather than local law. Were we to adopt defendants' reading, state legislatures could delegate to an agency the power to impair a public contract of a government subdivision that the subdivision itself would have more difficulty impairing. Lawmakers could fashion the powers delegated to the agency in a manner to insulate the agency's actions from constitutional attack. We decline to open such an end-run around Contracts Clause law. The better rule therefore calls for focusing on whether the contract-impairing law is self-serving, where existence of a state contract is some indicia of self-interest, but the absence of a state contract does not lead to the converse conclusion. 23 In other words, the absence of a contract with the state does not mean we thereby believe the wage freeze cannot be self-serving to the state. To the contrary, it can be. But, in the end, we do not think this is the sort of case in which the state legislature welches on its obligations as a matter of political expediency, see Surrogates, 940 F.2d at 773; Guido Calabresi, Retroactivity: Paramount Powers & Contractual Changes, 71 Yale L.J. 1191, 1201-02 (1962), but rather, the state was genuinely acting for the public good, see Blaisdell, 290 U.S. at 445, 54 S.Ct. 231; Calabresi, 71 Yale L.J. at 1202. For the purposes of this appeal, we need not resolve what level of deference to apply. Instead, we will assume that the lower level of deference applies because, as discussed below, the wage freeze is reasonable and necessary even under the less deferential standard.