Allgeyer v. Louisiana 1897

Petitioner: E. Allgeyer & Co.

Respondent: State of Louisiana

Petitioner's Claim: That states restricting the right of companies to contract with whom they choose violates the Fourteenth Amendment's Due Process Clause.

Chief Lawyer for Petitioner: Branch K. Miller

Chief Lawyer for Respondent: M. J. Cunningham

Justices for the Court: David J. Brewer, Henry B. Brown, William R. Day, Chief Justice Melville W. Fuller, Horace Gray, John Marshall Harlan I, Rufus W. Peckham, George Shiras, Jr., Edward D. White

Justices Dissenting: None

Date of Decision: March 1, 1897

Decision: Ruled in favor of Allgeyer and reversed a lower court ruling by finding that the Due Process Clause includes an unwritten liberty of contract that cannot be restricted by state law.

Significance: The decision created a new liberty under the Fourteenth Amendment, the liberty of contract. For the first time, the Court ruled a state law unconstitutional because it denied a person the right to make a contract. States were largely blocked from passing laws protecting their citizens and the general public from unfair or unsafe business practices for the next forty years until the Court shifted philosophy in 1937.

Through much of the nineteenth century, the federal government allowed states to freely regulate business activities within their borders. When laws were struck down by the U.S. Supreme Court for being unreasonable interference with business activities, it commonly used the Constitution's Commerce Clause or the Contracts Clause to justify its action. Regarding the Contract Clause, Article I, Section 10, Clause 3 of the U.S. Constitution states that "No state shall . . . pass any . . . law impairing the obligation of [responsibility to honor] contracts." The Commerce Clause is located in Article I, Section 8 and states that "The Congress shall have Power . . . To regulate Commerce [business activity] ... among the several States . . . "

Toward the end of the nineteenth century trade and industry were greatly expanding across the nation. As the states began passing more laws to protect their citizens and businesses, the courts became interested in protecting the economic and property interests of the new industries and related business. These interests included the right of employers and employees in determining the work conditions and their employment relationship to one another.

To protect insurance companies in the port of New Orleans from outside competition, the Louisiana legislature in 1894 passed Act No. 66. The act made it illegal for individuals and companies to sign insurance contracts by mail with companies operating outside the state of Louisiana. The act stated,

Be it enacted by the general assembly of the state of Louisiana, that any person, firm or corporation who shall fill up, sign or issue in this state any certificate of insurance under an open marine policy . . . for . . . insurance on property . . . in this state [with] . . . any marine insurance company which has not complied in all respects with the laws of this state, shall be subject to a fine of one thousand dollars for each offense . . . for the benefit of the charity hospitals.

Cotton for Europe

E. Allgeyer & Co. was a New Orleans cotton exporter that shipped cotton across the Atlantic Ocean to ports in Great Britain and other European countries. In 1894 Allgeyer purchased $200,000 of insurance coverage from the Atlantic Mutual Insurance Company of New York to guard against possible losses while shipping cotton. Atlantic Marine had no agent or place of business actually located in Louisiana. The contract was signed in New York. In preparation for shipping a hundred bales of cotton to Europe, Allgeyer mailed a notification to Atlantic Marine as the insurance contract required. In reaction, the state of Louisiana filed suit against Allgeyer in December of 1894 charging it had violated Act No. 66. Claiming that three violations had occurred, the state sought a $3,000 fine.

Allgeyer, in defense, claimed that the act was unconstitutional, depriving them of property without due process of law. Allgeyer asserted that since its business partner, Atlantic Mutual, was a New York company with offices in New York, then the insurance contract was actually a New York contract, not Louisiana. Further, Allgeyer claimed the Constitution protected the right to make contracts in other states.

The district court, although not necessarily agreeing with Allgeyer's arguments, nevertheless ruled against Louisiana. The court made several observations before issuing its decision. First, it did not deny that the state had authority to regulate companies conducting business within its boundaries. Furthermore, it recognized the validity of Article 236 of the Louisiana Constitution. The article prohibited insurance companies from other states doing business in Louisiana unless they had an actual place of business and authorized agent in the state. Regarding Allgeyer's contract, the court asserted that once it was signed in New Orleans, it became valid contract under New York law, even with the cotton still in Louisiana. But, to be legal in Louisiana, Atlantic Mutual must have purchased a license of the state and employed an agent in the state. Despite the uncertain nature of Allgeyer's insurance contract, the authority of the state, and the state's constitution, the court concluded the act violated Allgeyer's constitutional rights and overturned it.

Louisiana appealed the decision to the Louisiana Supreme Court which overturned the district court's decision. The court ruled that in violation of Act No. 66, Allgeyer, a Louisiana company, had indeed contracted for insurance for cotton located within Louisiana with an out-of-state company. The court found Allgeyer guilty of one violation of Act No. 66 and fined it $1,000. Allgeyer appealed the decision to the U.S. Supreme Court.

Liberty of Contract

In a unanimous decision, the Court reversed the Louisiana Supreme Court's decision and ruled Act No. 66 unconstitutional. Justice Rufus Peckham, in delivering the Court's ruling, defined a broad new unwritten right protected by the Due Process Clause of the Fourteenth Amendment, the liberty of contract. Peckham wrote,

the 'liberty' mentioned in that amendment . . . is deemed to embrace the right of the citizen to be free in the enjoyment of all his faculties; to be free to use them in all lawful ways; to live and work where he will; to earn his livelihood by any lawful calling; to pursue any livelihood or avocation [hobby]; and for that purpose to enter into all contracts which may be proper, necessary, and essential.

In regard to the specific facts of this case, Peckham noted,

The contract in this case was . . . a valid contract, made outside of the state [in New York], to be performed outside of the state [on the Atlantic Ocean], although the subject was property temporarily within the state [Louisiana]. As the contract was valid in the place where made and where it was to be performed, the party to the contract . . . must have the liberty to do that act and to give that notification within the limits of the state [of Louisiana].

Because Allgeyer had not actually signed the contract in Louisiana, the company had not violated Act No. 66. Only a notification had actually been sent in the mail from New Orleans. Furthermore, neither Allgeyer nor Atlantic Mutual had violated the state constitution because Atlantic Mutual had not conducted business in Louisiana. Nonetheless, Peckham held the act was unconstitutional because it inappropriately interfered with Allgeyer's liberty to sign a contract to insure its cotton shipment with whomever it chose. Peckham concluded, "In the privilege of pursuing an ordinary calling or trade, and of acquiring, holding, and selling property, must be embraced [accepted] the right to make all proper contracts in relation thereto . . . "

RUFUS WHEELER PECKHAM

Rufus Wheeler Peckham (1838–1909) was born in Albany, New York to a prominent family of lawyers and judges. His law training was by studying in his father's law firm. Peckham received an honorary degree from Columbia University in 1866. His public career in law began in 1869 as the district attorney for three years for Albany County, New York. After over a decade of private practice, in 1883 he was elected to the New York Supreme Court and in 1886 to the New York Court of Appeals. Peckham was nominated to the U.S. Supreme Court by President Grover Cleveland (1885–1889; 1893–1897) in 1895. His brother, Wheeler H. Peckham had been nominated the previous year, but was not approved by the U.S. Senate. Rufus Peckham, however, was readily approved.

With many corporate clients in his private practice, Peckham became well known for favoring property rights and contract rights on the Court. His two opinions for the majority in Allgeyer v. Louisiana (1895) and Lochner v. New York (1905) gained reputation through the years as substantial misinterpretations of the Fourteenth Amendment. Promoting an economic liberty, the rulings had far-reaching implications by leaving businesses essentially free to treat their employees as they desired. Peckham served on the Court until his death in October of 1909.

A Decline in State Powers

The Allgeyer decision marked a significant decrease in the power of states to regulate business activities within their boundaries. It also increased federal oversight of state government activities through the courts. The Due Process Clause for the first time was expanded to protect business activities from government regulation. Rather than protecting individual rights as intended when the Fourteenth Amendment was adopted in 1868 following the American Civil War (1861–1865), it now replaced the Commerce and Contract Clauses in protecting commercial activity. The decision was further developed in Lochner v. New York (1905) which struck down a New York law setting maximum bakers hours and setting sanitation standards.

Legislation regulating economic activities and protecting workers was discouraged for the next four decades until 1937 when the Court changed course again becoming much less protective of contract and business rights.

Suggestions for further reading

Covington, Robert N., and Kurt H. Decker. Individual Employee Rights in a Nutshell. St. Paul, MN: West Information Publishing Group, 1995.

Fick, Barbara J. American Bar Association Guide to Workplace Law: Everything You Need to Know About Your Rights as an Employee or Employer. New York: Times Books, 1997.