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U.S. Supreme Court

Allied Structural Steel Co. v. Spannaus, 438 U.S. 234 (1978)

Allied Structural Steel Co. v. Spannaus

No. 77-747

Argued April 25, 1978

Decided June 28, 1978

438 U.S. 234


Appellant, an Illinois corporation, maintained an office in Minnesota with 30 employees. Under appellant'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. Appellant was the sole contributor to the pension trust fund, and each year made contributions to the fund based on actuarial predictions of eventual payout needs. But the plan neither required appellant to make specific contributions nor imposed any sanction on it for failing to make adequate contributions, and appellant retained a right not only to amend the plan, but also to terminate it at any time and for any reason. In 1974, Minnesota enacted the Private Pension Benefits Protection Act (Act), under which a private employer of 100 employees or more (at least one of whom was a Minnesota resident) who provided pension benefits under a plan meeting the qualifications of § 401 of the Internal Revenue Code, was subject to a "pension funding charge" if he terminated the plan or closed a Minnesota office. The charge was assessed if the pension funds were insufficient to cover full pensions for all employees who had worked at least 10 years, and periods of employment prior to the effective date of the Act were to be included in the 10-year employment criterion. Shortly thereafter, in a move planned before passage of the Act, appellant closed its Minnesota office, and several of its employees, who were then discharged, had no vested pension rights under appellant's plan, but had worked for appellant for 10 years or more, thus qualifying as pension obligees under the Act. Subsequently, the State notified appellant that it owed a pension funding charge of $185,000 under the Act. Appellant then brought suit in Federal District Court for injunctive and declaratory relief, claiming that the Act unconstitutionally impaired its contractual obligations to its employees under its pension plan, but the court upheld the Act as applied to appellant.

Held: The application of the Act to appellant violates the Contract Clause of the Constitution, which provides that "[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts." Pp. 438 U. S. 240-251.

Page 438 U. S. 235

(a) 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."

United States Trust Co. v. New Jersey, 431 U. S. 1, 431 U. S. 22. Pp. 438 U. S. 242-244.

(b) 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. Moreover, the retroactive state-imposed vesting requirement was applied only to those employers who terminated their pension plans or who, like appellant, closed their Minnesota offices, thus forcing the employer to make all the retroactive changes in its contractual obligations at one time. Pp. 438 U. S. 244-247.

(c) The Act does not possess the attributes of those state laws that have survived challenge under the Contract Clause. It was not even purportedly enacted to deal with a broad, generalized economic or social problem, cf. Home Building & Loan Assn. v. Blaisdell, 290 U. S. 398, 290 U. S. 445, but has an extremely narrow focus and enters an area never before subject to regulation by the State. Pp. 438 U. S. 247-250.

449 F.Supp. 644, reversed.

STEWART, J., delivered the opinion of the Court, in which BURGER, C.J.,and POWELL, REHNQUIST, and STEVENS, JJ., joined. BRENNAN, J., filed a dissenting opinion, in which WHITE and MARSHALL, JJ., joined, post, p. 438 U. S. 251. BLACKMUN, J., took no part in the consideration or decision of the case.

Page 438 U. S. 236

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