Court Opinion

ID: 9722294
Source: CourtListenerOpinion
Date Created: 2023-08-26 09:23:39.677507+00
Date Added: 2024-06-11T18:24:33.477923
License: Public Domain

YETKA, Justice
(dissenting).
Although I concur with the majority’s analysis that Minn.Stat. § 473.592 (1980) is special legislation, I disagree with the conclusion that the proposed Charter Amendment, had it been adopted, would have violated the contract clause of the United States Constitution. Accordingly, I do not believe that the Minneapolis City Council was justified in refusing to submit the proposed Charter Amendment to the electorate for approval.
1. Art. 12, § 2 of the Minnesota Constitution and the provisions of Minn.Stat. §§ 645.021-.024 (1980) relating to special legislation were implied conditions in the contracts with the bondholders. As the Supreme Court stated in United States Trust Co. v. New Jersey, 431 U.S. 1, 19-20, n.17, 97 S.Ct. at 1516, n.17 (1977) (citations omitted):
The obligations of a contract long have been regarded as including not only the express terms but also the contemporaneous state law pertaining to interpretation and enforcement. * * * This principle presumes that the contracting parties adopt the terms of their bargain in reliance on the law in effect at the time the agreement is reached.
See also, Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413 (1934).
The majority’s argument that a legislative act does not operate as notice until it goes into effect misconstrues the issue involved here.1 In this regard, the fact that appellants attempted to supersede the spe*505cial legislation with the proposed Charter Amendment is neither legally significant nor the factor which placed the respondents on notice, although respondents were well aware of the situation. Rather, respondents had notice generally that the city had the right to modify or supersede the special legislation pursuant to Minn.Const. art. 12, § 2. The instant case is, thus, distinguishable from notice of legislation not yet passed. Nor is this the case of legislation which is adopted and subsequently repealed.2 The expectation here is that the special legislation — as part of the general process of adoption — is subject to later modification. Thus, Minn.Const. art. 12, § 2, was an implied condition of the contract. To hold otherwise would be to allow the legislature, in clear violation of Minn.Const. art. 12, § 2, to enact special legislation of a type the local unit affected would be prevented from later modifying or repealing.3
2. I also would hold that the proposed Charter Amendment would not impair the obligation of the city towards the bondholders in violation of the contract clause. It is a principle of long standing that not all legislation that repeals or modifies a contract is an impairment in violation of the contract clause. See W. B. Worthen Co. v. Kavanaugh, 295 U.S. 56, 55 S.Ct. 555, 79 L.Ed. 1298 (1935), Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed. 413 (1934). The scrutiny accorded modification of contracts between a state and a private party has been increased under United States Trust Co. v. New Jersey, 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977). The modifications contained in the proposed Charter Amendment, however, satisfy the requirements and concerns expressed in United States Trust.
In United States Trust, the Court struck down as an unconstitutional impairment of contract the repeal of a security provision contained in the contract between bondholders and the Port Authority of New York and New Jersey. The security provision pledged that the revenues from the Port Authority facilities would be held in reserve in the event that the Port Authority found itself unable to meet its bond obligations. In finding that the repeal constituted an “impairment” of contract, the Court explained:
[T]he State has made no effort to compensate the bondholders for any loss sustained by the repeal. As a security provision, the covenant was not superfluous *506* * * Nor was the covenant merely modified or replaced by an arguably comparable . security provision. Its outright repeal totally eliminated an important security provision, and thus impaired the obligation of the State’s contract.
Id. at 19, 97 S.Ct. at 1516 (footnote omitted) (emphasis added). The Court thus based its conclusion on three factors: (1) the importance of the bargained-for security provision; (2) the fact that the state made no effort to compensate the bondholders for any damages; and (3) the security provision was totally repealed and not just modified or otherwise replaced.4
The instant situation is demonstrably distinguishable. First, although the security provision is concededly important, the express language of the proposed Charter Amendment provides for compensation: “[t]he City Council may pay from the general fund any damages resulting from the impairment of the security of any bonds legally issued in reasonable reliance on an agreement terminated by subdivision 2.” Second, this express language indicates that the security provided the bondholders is not being totally eliminated. Rather, it is being replaced with at least an arguably comparable provision.
The majority characterizes this provision as a “vague authorization to pay damages.” I would not read the provision so restrictively. The general presumption is that legislative acts are presumed to be constitutional. The provision does not expressly limit the circumstances under which damages are to be paid; rather, it expressly recognizes the city’s obligation under the contract. Implicit within that recognition is the obligation to compensate the bondholders for any loss occasioned by the elimination of the security provision, including the damages provided by the security provision sought to be repealed. The effect, for any failure of the bonds to be repaid, is to provide the bondholders compensation from the general fund and not from a special sales tax.5 As the Supreme Court has noted in the context of the contract clause, “[t]he Constitution is ‘intended to preserve practical and substantial rights, not to maintain theories.’ ” Faitoute Iron & Steel Co. v. Asbury Park, 316 U.S. 502, 514, 62 S.Ct. 1129, 1135, 86 L.Ed. 1629 (1942). Nor is the Charter Amendment indicative of “studied indifference to the interests of the [bondholders or to their] appropriate protection.” W. B. Worthen Co. v. Kavanaugh, 295 U.S. 56, 60, 55 S.Ct. 555, 556, 79 L.Ed. 1298 (1935). Instead, the recognition of the city’s obligation to pay damages evinces the utmost solicitude and concern for the property rights of the affected bondholders.
It should be noted that if the charter provision did impair the obligation to the bondholders, it would not necessarily be unconstitutional. “[T]he prohibition is not an absolute one and is not to be read with literal exactness.” Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 428, 54 S.Ct. 231, 236, 78 L.Ed. 413 (1934). The standard is that the impairment is constitutional if it is “reasonable and necessary to serve an important public purpose.” United States Trust Co. v. New Jersey, 431 U.S. at 25, 97 S.Ct. at 1519. As the Court recognized in United States Trust, however, “[t]he extent of impairment is certainly a relevant factor in determining its reasonableness.” Id. at 27, 97 S.Ct. at 1520.
In the instant case, any possible impairment by the substitution of the protections afforded by the Charter Amendment for the repealed provisions would be insignificant.6 Although the majority indicated *507that the standard of scrutiny is no less strict where the harm to bondholders is minimal, it did indicate that the state retained the power to abrogate contracts pursuant to the powers of eminent domain, with just compensation. Id. at 29, n. 27, 97 S.Ct. at 1521, n. 27. Concededly, the city has not used its power of eminent domain here, but it has provided for compensation and damages. In this regard, the proposed Charter Amendment would afford the bondholders substantially the same protection as that afforded by the security provision.
3. Implicit in the conclusion that the proposed Charter Amendment would not impair the rights of the bondholders is that the instant situation concerns impairment of performance, not obligation. The rule is that the contract clause does not provide a remedy for breach of contract, but only for impairment of contract “[I]t is important to note the distinction between a statute that has the effect of violating or repudiating a contract previously made by the state and one that impairs its obligation.” Hays v. Port of Seattle, 251 U.S. 233, 237, 40 S.Ct. 125, 126, 64 L.Ed. 243 (1920); cf. St. Paul Gas Light Co. v. St. Paul, 181 U.S. 142, 21 S.Ct. 575, 45 L.Ed. 788 (1901).
In E & E Hauling, Inc. v. Forest Preserve District, 613 F.2d 675 (7th Cir. 1980), the United States Court of Appeals presented a thorough explanation of the significance of the difference between breach of contract and impairment of contract in the context of the contract clause:
The Supreme Court * * * has drawn a distinction between a breach of a contract and impairment of the obligation of the contract. The distinction depends on the availability of a remedy in damages in response to the state’s (or its subdivision’s) action. If the action of the state does not preclude a damage remedy the contract has been breached and the non-breaching party can be made whole. If this happens there has been no law impairing the obligation of the contract. * * * A state or its subdivision also may breach a contract and when it pays damages the obligation of the contract has also been dissolved. * * * Use of law normally will preclude a recovery of damages because the law will be a defense to a suit seeking damages unless it is clear the law is not to have that effect.
Id. at 679 (footnote omitted) (citations omitted).
Granted, the proposed Charter Amendment constitutes a breach of the city’s contract with the bondholders. It does not, however, impair the city’s obligation to compensate the affected bondholders; rather, the bondholders have available the right to bring suit for damages resulting from the breach. In the instant situation, there is no law which may be interposed as a defense against an action for damages: the Charter Amendment explicitly recognizes the obligation of the city to compensate the bondholders. Moreover, under Minn.Stat. §§ 465.13-14 (1980), municipalities are empowered to pay money judgments. There is also no indication that the city will be, or is, unwilling to compensate the bondholders as authorized or that the damage remedy is otherwise a sterile right. Because the Charter Amendment does not preclude a damage remedy — instead it provides for one — -the instant situation involves a breach of contract not within the ambit of the contract clause. The Charter Amendment, therefore, should not be read as an expression of an intent to terminate the city’s obligation. For these reasons, I would find that there has been no impairment of contract in violation of the contract clause and that the actions of the city in not submitting the Charter Amendment for referendum approval were unjustified.
I wish to add at this point that construction of the stadium is nearly completed. Thus, I am not concerned here with the merits of a domed stadium in Minneapolis, *508but I am concerned with the rights of citizens and taxpayers to have a voice in how construction of such a stadium is to be funded. The record is permeated with blatant efforts to avoid a citizen referendum, the effect of which was to circumvent the home rule amendment to the Minnesota Constitution. I fear the majority opinion has condoned that practice here and will encourage both the legislature and the local units of government to attempt further weakening of the home rule amendment. Accordingly, I dissent.

. Under Minn.Stat. § 645.02 (1980), special laws required to be approved by a local unit are effective upon filing of the certificate of approval. Special laws enacted under Minn.Stat. § 645.023(a) (1980) allowing a local government to exercise authority not granted by general law become effective without the approval of the affected local government unit. The majority indicates in dicta that the tax imposed under Minn.Stat. § 473.592 (1980) provides a *505power not granted under general law and thus is covered by § 645.023(a). Notice, however, is not concerned with the effective date of legislation but with the power of a city to modify special legislation at a later date.

. The argument that the instant situation is analogous to an “implied” expectation that regular legislation may always be later repealed also must fail. In that situation, the legislature is — and can — bind itself. Here, however, special legislation affects a particular local government unit. For that reason, a double tiered system of adoption is used, involving approval or subsequent disapproval by the affected unit. As noted by the majority, the legislature could otherwise pass legislation which the affected local government unit would not approve. See, Note, Home Rule and Special Legislation in Minnesota, Al Minn.L.Rev. 621, 635 (1963).

. The instant case is distinguishable from Stearns v. Minnesota, 179 U.S. 223, 21 S.Ct. 73, 45 L.Ed. 162 (1900). In that case, art. 4, § 32a of the Minnesota Constitution of 1907 provided that no laws respecting any change of taxation of railroads could be repealed save by popular vote. By referendum, the state repealed a statute in part, requiring railroads to pay a three percent tax, but ending a tax exemption previously granted by contract. The Court held that the action impaired a contractual obligation in violation of the contract clause. The Court proscribed the ability of the state to totally impair the obligation of contract — forcing the appellant railroad to continue to perform — under the reserved power to amend, and at the same time, reducing the state’s obligation under the contract. As will be discussed below, however, the Davies provision does not impair the obligation of the contract. Moreover, Stearns also concerned an action by the state in total disregard of the railroad’s contractual rights. Significantly, the Court noted that section 32a granted the state the reserved power to amend rates, not to end or otherwise modify the railroad’s exemption without corresponding consideration. While I would hold that the contract in the instant case incorporated art. 12, § 2 of the Minnesota Constitution, the power to modify or amend does not give the affected local unit the power to seriously impair or violate the property rights of contracting parties.

.The Court noted, at this juncture, that among those factors presumed to be bargained for is contemporaneous state law. Id. at 19, n.17, 97 S.Ct. at 1516, n.17. This issue was discussed in the previous section.

. There is no impairment of security insofar as security is now provided from general funds rather than a special tax. General funds were not pledged as security before, nor is there any indication that the City is insolvent or otherwise unable to pay damages out of the general fund.

. Because there is a substitute provision with damages provided for, this is also not the situation proscribed in United States Trust where an impairment is upheld merely because it does *507not totally destroy the bondholders’ rights. See United States Trust Co. v. New Jersey, 431 U.S. at 27, 97 S.Ct. at 1520.