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The Supreme Court's ‘Return’ to Economic Regulation

Published online by Cambridge University Press:  16 December 2008

Martin Shapiro
Martin Shapiro
Affiliation:
University of California, Berkeley
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Extract

There is a standard historical lore of the Supreme Court's role in the economy and it runs as follows. The due process clause, like the rest of the Fourteenth Amendment, was enacted after the Civil War to help blacks. The Supreme Court proceeded to empty the amendment of its protections for minorities and then, from the turn of the century on, used the due process clause to protect business from government regulation. It did so (1) by interpreting the word person in the amendment to include the corporation and (2) by finding that the clause not only for-bade the government from interfering with private property unless it followed fair procedures, but also forbade the government to do so unless it had a good, substantive reason. Substantive due process meant that no statute regulating property was constitutional unless it was reasonable, and the Court was the final arbiter of reasonableness. The Court's approach to reasonableness was that free market laissez-faire was the rule, and government regulation the exception.

Type
Research Article
Information
Studies in American Political Development , Volume 1 , Spring 1986 , pp. 91 - 141
Copyright
Copyright © Cambridge University Press 1986

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References

1. See Willson v. Blackbird Creek Marsh Co., 2 Pet. 245 (1829); Mayor of New York v. Miln, 11 Pet. 102 (1837); License Cases, 5 How. 504 (1847); Cooler v. Board of Port Wardens, 12 How. 299(1852).

2. See Currie, David, “The Constitution and the Supreme Court: The Protection of Economic Interests, 1889–1910,” University of Chicago Law Review 52 (1985): 324–88CrossRefGoogle Scholar.

3. See Hicklin v. Orbest, 437 U.S. 518 (1978).

4. See Shapiro, Martin, “Judicial Activism,” in The Third Century, ed. Lipset, S. M. (Chicago: University of Chicago Press, 1980)Google Scholar.

5. See Shapiro, Martin, “The Constitution and Economic Rights,” in Essays in the Constitution of the United States, ed. Harmon, M. Judd (Port Washington, N.Y.: Kennikat Press, 1978)Google Scholar.

6. 427 U.S. 297 (1976).

7. See Reich, Charles, “The New Property,” Yale Law Journal 73 (1964): 733–87CrossRefGoogle Scholar.

8. Adler v. Board of Education, 342 U.S. 485 (1952); Garner v. Board of Public Works, 341 U.S. 716 (1951); Wieman v. Updegraff 344 U.S. 183 (1952); Slochower v. Board of Higher Education, 350 U.S. 551 (1956); Lerner v. Casey, 357 U.S. 468 (1958); Belan v. Board of Education, 357 U.S. 399 (1958); Elfbrandt v. Russell, 384 U.S. 11 (1966); Keyishian v. Board of Regents, 385 U.S. 589 (1967).

9. Goldberg v. Kelly, 397 U.S. 254 (1970); Dept. of Agriculture v. Murry, 413 U.S. 508 (1973); Mathews v. Eldridge, 424 U.S. 319 (1976). Many of the government employment cases also turned on whether sufficient process had been granted. See Cafeteria and Restaurant Workers Union v. McElroy, 367 U.S. 886 (1961); Cleveland Board of Education v. La Fleur, 414 U.S. 632(1974).

10. 394 U.S. 618(1969).

11. A summary of the cases that, taken together, destroy the right-privilege distinction is to be found in Board of Regents v. Roth, 408 U.S. 564 (1972).

12. See Keyiskian v. Board of Regents, 385 U.S. 589 (1967).

13. See C.S.C. v. Letter Carriers, 413 U.S. 548 (1973).

14. See the cases cited in note 9.

15. See Gunther, Gerald. Constitutional Law, 11th ed. (Mineola, N.Y.: Foundation Press, 1985), 621–854Google Scholar.

16. See Harlan's, Justice dissent in Shapiro V. Thompson, 394 U.S. 618 (1969)Google Scholar. One of the major proponents of strict scrutiny characterizes it as “substantive equal protection” and acknowledges that it raises the same problems concerning the role of the court as did the pre-1937 substantive equal protection; see Karst, Kenneth, “Invidious Discrimination: Justice Douglas and the Return to the Natural-Law-Due-Process Formula,” U.C.L.A. Law Review 16 (1969): 716–49Google Scholar.

17. See Michelman, Frank, “Foreward: On Protecting the Poor through the Fourteenth Amendment,” Harvard Law Review 83 (1969): 7–108CrossRefGoogle Scholar.

18. Gunther, Gerald, Constitutional Law, 9th ed. (Mineola, N.Y.: Foundation Press, 1975), 840–41Google Scholar.

19. 411 U.S. 1 (1973). See also James v. Valtierra, 402 U.S. 137(1971).

20. See, e.g., Plyler v. Doe, 457 U.S. 202 (1982).

21. See Gunther, Constitutional Law, 11th ed., 642–69, 678–83.

22. See, e.g., Weber v. Aetna Casualty and Surety Co., 406 U.S. 164 (1972); Mississippi University for Women v. Hogan, 458 U.S. 718 (1982); Massachusetts Board of Retirement v. Murgia, 427 U.S. 307(1976).

23. The cases are set out in Shapiro, Martin and Tresolini, Rocco, American Constitutional Law, 6th ed. (New York: Macmillan, 1983), 558–59Google Scholar.

24. See, e.g., Frontiero v. Richardson, 411 U.S. 677 (1973); Personnel Administrator v. Feeny, 442 U.S. 256 (1979); Califano v. Wescott, 443 U.S. 76 (1979); Jiminez v. Weinberger, 417 U.S. 628 (1974); Mathnus v. Lucas, 427 U.S. 495 (1976); Califano v. Boles, 443 U.S. 282 (1979); Weinberger v. Wiesenfeld, 420 U.S. 636 (1975); Califano v. Goldfarb, 430 U.S. 199 (1977); Califano v. Webster, 430 U.S. 313 (1977); Massachusetts Board of Retirement v. Murgia, 427 U.S. 307 (1976); Weberv. Aetna Casualty and Surety Co., 406 U.S. 164 (1972).

25. For example, Labine v. Vincent, 401 U.S. 532 (1971); Trimble v. Gordon, 430 U.S. 762 (1977); Reed v. Reed, 404 U.S. 71 (1971); Kirchberg v. Feenstra, 450 U.S. 455 (1981).

26. 105S.Ct. 3249(1985). See also Metropolitan Life Insurance Co. v. Ward, 105S.Ct. 1676 (1985).

27. Monaghan, Henry, “Constitutional Common Law,” Harvard Law Review 89 (1975): 1–45CrossRefGoogle Scholar. These bodies of law are derived by the judges directly from the Constitution without any statutory intermediary. Nevertheless, the justices themselves treat them as less permanent, less a matter of unchanging constitutional principle and more subject to changing pragmatic considerations than they pretend are their other contributions to constitutional law. A familiar example is the exclusionary rule, which is treated by a majority of justices not as an unchangeable constitutional principle but as a pragmatic method of judicial administration designed to enforce the Fourth Amendment.

28. For instance, in the Lincoln Mills case (353 U.S. 448 [1957]), the Court found that Congress had vested in the federal courts a new jurisdiction over labor-management contracts, that in doing so Congress had not enacted any substantive contract rules, and that state rules would be inappropriate. It concluded that Congress had required it to create a federal common law of labor contract.

29. The nature of these changes and their impact on older traditions of judicial self-restraint is discussed in Shapiro, “Judicial Activism”.

30. It does not seem particularly useful to footnote this section extensively and in detail, noting the dozens of major cases involved. The story can be followed in detail in Stewart, Richard, “The Reformation of American Administrative Law,” Harvard Law Review 88 (1975): 1667–1813CrossRefGoogle Scholar; Shapiro, Martin, “On Predicting the Future of Administrative Law,” Regulation (05-06 1982): 18–25Google Scholar; Cass Sunstein, “Deregulation and the Hard-Look Doctrine,” Supreme Court Review 1983: 177–215; and Garland, Merrick, “Deregulation and Judicial Review,” Harvard Law Review 98 (1985): 505–92CrossRefGoogle Scholar. Nearly all the details, but not the interpretation of them presented here, can be pursued in Davis, K. C., Administrative Law Treatise, 2d ed., 5 volumes (San Diego: K.C. Davis Publishing Co., 1978–1984Google Scholar, with annual supplements).

31. By pluralist political theory I mean the modification to New Deal majoritarian democratic theory that emphasized the role of interest groups as opposed to individual voters and their representatives in American politics. This theory became an orthodoxy of political analysis in the 1950s—expressed in such works as Latham, Earl, The Group Basis of Politics (1959)Google Scholar and Truman, David, The Governmental Process (1951)Google Scholar—and the dominant orthodoxy of the 1960s in the version called “polyarchy” in the multitudinous writings of Robert Dahl. One facet of pluralist theory is “capture” theory, the notion that a particular interest group may gain control of a particular agency of government and use it to its own advantage. By the late 1960s, it began to be widely argued that the group struggle in politics would not necessarily give us the best of all possible worlds because some groups were simply a lot stronger than others and their interests were likely to prevail unfairly. See Lowi, Theodore, The End of Liberalism (New York: Norton, 1969)Google Scholar. Political scientists sometimes make a great mystery about how such ideas get into the minds of judges and thence into law. There is no mystery. The orthodoxies of political analysis are shared by academics, journalists, popular writers, and textbook writers. Judges read. Many of them, especially those in Washington, are active participants in the social life of quasi-intellectual, political, and legal circles where most political orthodoxies and even some new political ideas are talked about at second hand. Lawyers and law teachers read too and what they read gets into their briefs and teaching. It would be truly remarkable if judges were the only readers of the New York Times and Washington Post who did not think about politics in the same ways that other educated persons active in governmental affairs think about politics.

32. For the application of incremental and synoptic decision theory to recent administrative law see Diver, Colin, “Policymaking Paradigms in Administrative Law,” Harvard Law Review 95 (1982): 393–421CrossRefGoogle Scholar; and Shapiro, “On Predicting the Future of Administrative Law”. On the application of such theory more generally to judicial review of agency action see Shapiro, Martin, The Supreme Court and Administrative Agencies (New York: Free Press, 1968), 73–91Google Scholar.

33. Recent literature relevant to this section is discussed in Diver, Colin, “Statutory Interpretation in the Administrative State,” University of Pennsylvania Law review 133 (1985): 549–99CrossRefGoogle Scholar. On the movement to substantive judicial review of the reasonableness of rules see Garland, Merrick, “Deregulation and Judicial Review,” Harvard Law Review 98 (1985): 505–91CrossRefGoogle Scholar, esp. 532–41.

34. Orren, Karen, “Standing to Sue: Interest Group Conflict in the Federal Courts,” American Political Science Review 70 (1976): 723–41CrossRefGoogle Scholar.

35. See the sources cited in note 30.

36. 412 U.S. 669(1973).

37. In that case, a group of Washington, D.C. students were allowed to challenge a railroad surcharge granted by the ICC without, according to the students, the detailed environmental impact statement required by the National Environmental Policy Act of 1969. The students argued that the surcharge would increase the cost of transporting recyclable materials, causing greater consumption of trees and other resources, resulting in more depletion and pollution of the environment, some possibly in the Washington, D.C. area. As hikers, campers, fishers, and so forth in the area, the students claimed to have suffered perceptible harm. The Court held that the students had been sufficiently injured in fact to justify standing.

38. Now in order to have standing a group must show that the indirect injury of which it complains is traceable to the government action it seeks standing to challenge and that its injury could be remedied by the court action which it seeks. See Duke Power Co. v. North Carolina Environmental Group, Inc., 438 U.S. 59 (1978).

39. 401 U.S. 402(1971).

40. Volpe was a challenge to an approval by the secretary of transportation of the plan submitted by local government authorities for routing an interstate highway through a city. The Court specifically rejected the argument that the secretary was legally bound by the APA procedural provisions for either adjudication or rulemaking, so nothing it said could bear directly on the growth of administrative common law in those areas.

41. It is difficult to prove this point without examining the statute and the facts of the case at length. Skeptical readers may read the opinion for themselves. At least to me the Court's approach seems pellucid. The congressional statute had sought to compromise and provide trade-offs among a number of values or interests, including building the interstate highway system at reasonable cost, preserving park land, preserving local neighborhoods, and preserving local industry. The language adopted to express the need for trade-offs was general and vague. Congress had clearly not wanted interstates to be routed through parks just because that was the easiest place to put them. On the other hand, it did not wish to avoid park routing at any and all costs. Its actual language was that interstates should not be routed through parks if a “feasible and prudent” alternative route existed. And this language was, of course, an amendment to the Highway Act, whose main purpose was to build a net of interstate roads serving all cities. The Supreme Court pretended to find a clear and absolute priority in favor of parks expressed in the statutory language. It held that Congress had intended to save the parks unless it was absolutely, physically impossible to build the roads anywhere else. Given this clear statutory standard, it was easy for the Court to determine that the secretary had made a “clear error” in approving a park routing and that his action was “unlawful”. Volpe is a crystal-clear lesson to the courts of appeals on how to do the substantive review they wanted to do.

42. 435 U.S. 519(1978).

43. Id. at 539.

44. National Resources Defense Council, the party challenging the Vermont Yankee license, expressly argued that the circuit had been creating new procedural rules beyond the requirements of the organic act and the APA and was right to do so.

45. Courts may go beyond statutory minima if there are “constitutional constraints,” “extremely compelling circumstances,” rulemakings that are “quasi-judicial” determinations in which “a very small number of persons are exceptionally affected, in each case upon individual grounds,” or in the event of a “totally unjustified departure from well-settled agency procedures of long standing”. Id. at 543–44.

46. “[N]othing … permitted … the [D.C. circuit] court to … overturn the rule making proceeding on the basis of the procedural devices employed (or not employed) by the Commission as long as the Commission employed at least the statutory minima, a matter about which there is no doubt in this case.” 435 U.S. at 549.

47. Consumers Power Co. v. Aeschliman, 435 U.S. 519 (1978).

48. Quoted Id. 551. As in so many instances of satisfying its creative urges, the D.C. circuit rested this one on a particular new statute that, the court could argue, required more than had previously been required of rulemakers under the APA and previous statutes. In this instance it seized on the National Environmental Protection Act requirement of “a detailed statement by the responsible official on … alternatives to the proposed action”. Given the circuit's track record, however, there is no doubt that whatever law it made would soon float free and cover all rulemaking.

49. Id. at 554.

50. Id. at 553–54.

51. See, e.g., National Lime Association v. Environmental Protection Agency, 627 F.2d 416 (1980).

52. 448 U.S. 607(1980).

53. 452 U.S. 490(1981).

54. Id. at 513, quoting OSHA Act Sect 3(8).

55. 452 U.S. 490(1981).

56. Easterbrook, Frank, “The Court and the Economic System,” Harvard Law Review 98 (1984): 4–60Google Scholar.

57. 103 S.Ct. 2856(1983).

58. Like most Supreme Court decisions, this one can be given a broad or narrow reading. The broad one is, I believe, the correct one. But here are some quibbles that can be used to narrow it. The statute specifies that vehicle safety standards shall be made upon “a rule-making record”. So the Court's prominent announcement of a rulemaking record requirement in this case might not necessarily mean that it fully endorses the circuits' creation of such a requirement for rulemaking proceedings governed by statutes that do not contain any reference to a rulemaking record. Moreover, this statute requires that vehicle safety standards be supported by “substantial evidence”. That language in a statute usually conveys Congress' desire that courts exercise a higher level of review than they do under, an arbitrary and capricious standard. So the Court's use of the clear error language could be an attempt to tailor its level of review to the particular statute. And finally, in a line of older cases the Supreme Court had held that while an agency that had long held to a certain policy was not for that reason estopped from changing policies, it must give reasons for making a change. The Court treated the rescission of an earlier standard as falling into this line of administrative estoppel precedents. So it might be argued that the Court's insistence that the agency give good reasons and lots of them for a rescission was not a general endorsement of the hard look doctrine. It might have been only a limited “reasons” requirement for rescissions, not for new rules when there had been none before. All these arguments will be made by the agencies in future cases, but all our past experience indicates they will not work. Federal administrative law has typically developed by courts announcing new, more judicially activist doctrines in the context of specific statutory language or other circumstances that peculiarly justify them. Then in later cases they let the doctrines float free of their specific justifications.

59. 103 S.Ct. at 2867.

60. Id. at 2870.

61. Id. at 2871.

62. Ibid.

63. Id. at 2872.

64. Id. at 2871.

65. Ibid.

66. Ibid.

67. 221 U.S. 1 (1911).

68. For instance, a supply contract in which a coal mine agrees to deliver a certain tonnage of coal at a certain price each month for one year to a steel mill is an agreement that restrains trade. It precludes the steel mill from buying that tonnage from some other mine at some other price in each of the eleven months succeeding that in which the contract was made. Thus competing mines are cut out of the trade with that mill for those months.

69. A tieing agreement is one in which a manufacturer or other supplier refuses to supply one of its products to a distributor or retailer unless the distributor or retailer agrees to buy other products as well. One common form of tieing agreement existed between refiners and gasoline stations: the station had to agree to buy the refiner's brand of tires, batteries, etc., in order to get its gasoline.

70. See Shapiro, Martin, Law and Politics in the Supreme Court (New York: Free Press, 1964)Google Scholar, chap. 6.

71. Continental T.V. Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977).

72. See, e.g., Board of Education v. Rowley, 458 U.S. 176 (1982). The Education for All Handicapped Children's Act requires that such children be provided with “free appropriate public education”. A deaf child was being “mainstreamed” with unhandicapped children in a regular classroom. She was performing better than the average child in her class and was receiving some individual assistance. She nevertheless demanded that the school provide her with her own sign-language interpreter. The school refused because of the high cost. A federal district court found for her (483 F. Supp. 528, 534 [1980]). It read the statute as imposing on school boards the duty to insure that the physically handicapped do as well in school as they would have done without the handicap (483 F. Supp. 528, 534 [1980]). The marginal utility of investment for this purpose would often be infinitesimal. The last $100,000 spent to enable an armless student to perform himself the routine test-tube chemistry experiments that he could have watched others do might have bought the school its first good microscopes and so allowed all the students, including the handi-capped student, their first decent biology course. The district court standard preferred that the handicapped student receive equal treatment. The Supreme Court rejected this essentially civil rights approach and read the statute as requiring that instruction must “be reasonably calculated to enable the child to achieve passing marks and advance from grade to grade” (458 U.S. at 203–04). Rowley goes further than Benzine. For Benzine only said that the agency might not demand very high expenditure to achieve an extremely uncertain benefit. Rowley says that a school need not make very high expenditures even to achieve quite certain benefits so long as it is achieving a reasonable benefit at lower costs.

73. I have chosen these cases because of the very thorough analysis of them by Leslie Gerwin of the Cardozo School of Law of Yeshiva University in an unpublished paper entitled “Delegation Delicto: Judicial Review of Executive Law”.

74. The Court has, in fact, always maintained two equal and opposite lines of precedent on this issue. See Gellhorn, Walter, Byse, Clark, and Strauss, Peter, Administrative Law, 9th ed. (Mineola, N.Y.: Foundation Press, 1979), 297–343Google Scholar. One line says that courts must be the ultimate interpreters of statutes in situations where determining the meaning of a statute is necessary to deciding a case. The other says that where a statute delegates a broad scope of decisionmaking to an agency because of its expertise, courts should defer to the agency's interpretation of the statute. This second line never says that courts should absolutely defer. Nor does it say just how much they should defer. And this deference line must and does accede to the APA position that courts must overrule any agency action that is “unlawful,” “arbitrary and capricious,” or an “abuse of discretion”. Voila, we are back where we started. In reality what typically happens is this. If a court decides to contradict an agency's statutory interpretation, it writes an opinion that simply assumes that statutory interpretation questions are ultimately for the courts; somewhere in the opinion it says that of course courts ought to defer to agency interpretations unless they are wrong, but in this case the agency is wrong. If, on the other hand, the court decides it wants to support the agency interpretation, it writes an opinion that is all about deferring to agency interpretations; somewhere in that opinion it says that of course in this instance the agency actually happens to have adopted a quite reasonable interpretation.

75. 104 S.Ct. 2778(1984).

76. 82 L.Ed. 2d 158(1984).

77. The Banking Act prohibits commercial banks from underwriting “securities or stock”. A bank began marketing some of its corporate customers' commercial paper. The Board and the dissenters thought that this commercial paper ought not to be considered “securities” within the meaning of the act. The majority of the Court thought that it should be.

78. 82 L.Ed. 2d 107 (1984). The Bank Holding Company Act of 1956 authorizes the Board to approve nonbanking activities of a bank holding company if they are “so closely related to banking … as to be a proper incident thereto”. All the justices agreed that, under this statute and the Banking Act, it was reasonable for the Board to approve a bank holding company's acquisition of a stock brokerage house. Case over, but with the ultimate question of reasonableness remaining firmly in the justices' hands. There may be some case in which the Court says, We really think that the agency has adopted a poor policy, but we nonetheless defer to the agency because we think the policy, though wrong, is reasonable. But Securities II is not that case. The policy looks good to the Court. So the Court defers. What's the difference between agreeing and deferring? The Court really can't tell us.

79. This is not to say that the agencies' rules are very frequently overturned. They are not, but they are not because the agencies now take enormous time and effort to satisfy the courts that they are acting reasonably.

80. See Shapiro, Martin, “APA: Past, Present, Future,” Virginia Law Review 72 (1986): 447–92CrossRefGoogle Scholar.

81. See Shapiro, Martin, “Administrative Discretion: The Next Stage,” Yale Law Journal 92 (1983): 1487–1522CrossRefGoogle Scholar, esp. 1505–07.

82. See Shapiro, Martin, “The Presidency and the Federal Courts,” in Politics and the Oval Office, ed. Meltsner, Arnold (San Francisco: Institute for Contemporary Studies, 1981)Google Scholar and in Journal of Contemporary Studies 4 (1981): 5–14.