Allied Structural Steel v Spannus [ Atty Gen of Minn ]
S. Ct. 1978
Author: Sam Biers

Contract Clause-Additions to the Due Process Limitation

Relevant Facts:  Appellant, Allied,  an Illinois corp, maintained an office in Minn with 30 employees. Under ant's pension plan, adopted in 1963 and qualified under § 401 of the Internal Revenue Code, employees were entitled to retire and receive a pension at age 65 regardless of length of service, and an employee's pension right became vested if he satisfied certain conditions as to length of service and age. In 1974, Minn enacted the Private Pension Benefits Protection Act (Act), a private employer of 100 employees or more was subject to a "pension funding charge" if he terminated the plan or closed a Minn office. Shortly thereafter, in a move planned before passage of the Act, Ant closed its Minn office, and several of its employees, who were then discharged, had no vested pension rights under Ant's plan but had worked for Ant for 10 years or more, thus qualifying as pension obligees under the Act. Subsequently, the State notified Ant that it owed a pension funding charge of $185,000 under the Act.

Legal Issue(s): Whether the application of Minnesota's Private Pension Benefits Protection Act to the appellant violates the Contract Clause of the United States Constitution?

Court’s Holding: Yes

Procedure:  Employer brought action challenging constitutionality of Minnesota's Private Pension Benefits Protection Act. D Ct upheld the Act as applied to the employer. The employer appealed

Reversed.

Law or Rule(s):  "No State shall . . . pass any . . . Law impairing the Obligation of Contracts." U.S.Const., Art. I, § 10.

Court Rationale: While the Contract Clause does not operate to obliterate the police power of the States, it does impose some limits upon the power of a State to abridge existing contractual relationships, even in the exercise of its otherwise legitimate police power. "Legislation adjusting the rights and responsibilities of contracting parties must be upon reasonable conditions and of a character appropriate to the public purpose justifying its adoption." The impact of the Act upon appellant's contractual obligations was both substantial and severe. Not only did the Act retroactively modify the compensation that appellant had agreed to pay its employees from 1963 to 1974, but it did so by changing appellant's obligations in an area where the element of reliance was vital--the funding of a pension plan. It was not even purportedly enacted to deal with a broad, generalized economic or social problem, but has an extremely narrow focus and enters an area never before subject to regulation by the State.

Plaintiff’s Argument: The Act unconstitutionally impaired Pl’s contractual obligations to its employees under its pension plan.

Defendant’s Argument: The Act is reasonable and necessary to protect the general welfare and health of public.

Appellant then brought suit in Federal District Court for injunctive and declaratory relief.