ALLIED STRUCTURAL STEEL COMPANY v. SPANNAUS 438 U.S. 234 (1978)

The modern revival of the contract clause began with united states trust company v. new jersey (1977), a case in which the Supreme Court showed its willingness to make states live up to their own obligations as contracting parties. Spannaus carried the new doctrine further, imposing the contract clause as a significant limitation on the power of a state to regulate relations between private contracting parties.

Minnesota law required certain large employers, when they terminated pension plans or left the state, to provide for the funding of pensions for employees with ten years' service. Allied, in its pension plan, had reserved the right to terminate the plan and distribute the fund's assets to retired and current employees. On closing its Minnesota office, under the law Allied had to provide about $185,000 to fund pensions for its ten-year employees. The Supreme Court, 5–3, held the law unconstitutional as an impairment of the obligation of contracts.

Justice potter stewart wrote for the Court. Much of his opinion was devoted to distinguishing home building & loan association v. blaisdell (1934). Here the law did not deal with a "broad, generalized economic or social problem" but focused narrowly, not on all employers or even all who left the state, but on those who previously had voluntarily established pension plans. The law did not merely temporarily alter contractual relationships but "worked a severe, permanent and immediate change in those relationships—irrevocably and retroactively." The law also "invaded an area never before subject to regulation by the State," thus invading reliance interests to a greater degree than would result from a more common (and hence foreseeable) type of regulation.

Justice william j. brennan, for the dissenters, correctly noted that the Court's opinion amounted to a major change in the judicial role in supervising state economic regulation, demanding strict scrutiny under the contract clause to protect contract-based expectations.

Spannaus seemed to invite businesses to challenge all manner of economic regulations on the ground of excessive interference with contractual expectations. In Exxon Corp. v. Eagerton (1983), however, the Court sought to exorcise the ghost of freedom of contract. Exxon sharply limited the Spannaus principle to laws whose "sole effect" is "to alter contractual duties."

Kenneth L. Karst
(1986)