Yale Law School Yale Law School Legal Scholarship Repository Faculty Scholarship Series Yale Law School Faculty Scholarship 1-1-1980 Constitutional Deregulation: Notes Toward a Public, Public Law Jerry L. Mashaw Yale Law School Follow this and additional works at:http://digitalcommons.law.yale.edu/fss_papers Part of theLaw Commons Recommended Citation Mashaw, Jerry L., "Constitutional Deregulation: Notes Toward a Public, Public Law" (1980).Faculty Scholarship Series.Paper 1155. http://digitalcommons.law.yale.edu/fss_papers/1155 This Article is brought to you for free and open access by the Yale Law School Faculty Scholarship at Yale Law School Legal Scholarship Repository. It has been accepted for inclusion in Faculty Scholarship Series by an authorized administrator of Yale Law School Legal Scholarship Repository. For more information, please [email protected]. CONSTITUTIONAL DEREGULATION: NOTES TOWARD A PUBLIC, PUBLIC LAW JERRY L. MASHAW* The struggle to maintain, to deepen, or to alienate the force of a legal text is called interpretation. -Mitchell Franklin** I Suppose some group ofmerchants decided to seek state leg islation protecting itself from competition. Because such protec tion could not be sought openly, the group developed a strategy that involved.the presentation ofits substantive case in terms of the group's need for protection from even more powerful eco nomic interests outside the state. This request for protection was, of course, not to be presented as self-interested, but rather as essential to the continuation of the group's current service to the consuming public. Suppose further that the strategy were successful. Legislation was passed which in fact provided sub stantial protection from competition, but in a statutory form ar guably (albeit mediately) related to the interests of the consum ing public. Would such a statute violate the U.S. Constitution? The cynical among you will by now be laughing, not up your sleeves, but openly. "Suppose?" you will say. "What do you' mean 'suppose'? That is state regulatory legislation as I know it. And you know darn well that so far as the federal courts are concerned it's constitutional. The Supreme Court has said so often and loudly, ever since 1937. 'Substantive due process' is dead where 'economic' issues are concerned." And, indeed, it is. I have done nothing in my little hypo thetical but describe an imaginary legislative scenario that we * B.A. 1962, LL.B. 1964, Tulane University. Ph.D. 1969, University ofEdinburgh. Professor of Law, Yale Law School. I should like to thank Bruce Ackerman, Robert Bennett, and Owen Fiss for helpful comments on a prior draft of this article. **.Franklin, The Ninth Amendment as CivilLaw Method and itsImplications for Republican Form of Government: Griswold v. Connecticut; South Carolina v. Katzen bach, 40 Tul. L. Rev. 487, 501 (19G6). 849 HeinOnline -- 54 Tul. L. Rev. 849 1979-1980 850 TULANE LAW REVIEW [Vol. 54 suspect is too often real and ask a constitutional question whose answer, unlike most questions of that genre, comes back crisp and clear. Am I trying to suggest that there is something to be discussed here? A tricky fact in the hypo, perhaps? Or am I merely one of those conservative constitutionalists who longs for Lochner,l whose eyes mist over at the mere mention of Mr. Justice McReynolds?2 Well, there is no trick and I confess that I have never counted Justice McReynolds among my heroes. But I do want to assert that there is something to be discussed. In fact I want to argue about it. I think anti-competitive regulation is a very seri ous problem. It is not just that such regulation distorts incen tives, feeds inflation, and makes most of us somewhat worse off. There is a different frame of reference for such legislation: It demoralizes many whose efforts should instead be praised. It confiscates talent. It invades people's rights. "Now, wait a minute.." you must be saying. "Aren't you veering off toward 'liberty of contract' or some such defunct no tion?S Surely, we've heard all ofthis before." And I must confess that in some sense you have. But wait awhile. For I want to make a particular sort of argument here-an argument some what more metho~ological than substantive. I want to convince you that there is a coherent approach to serious judicial review of economic legislation. Moreover, I want to argue that our re vulsion at "Lochneresque" review will not infect that approach. It need contain none of the objectionable elements that the crit ics of Lochner ascribe to that case and its progeny: No judicial second-guessing concerning the desirability of debatable legisla- 1. Lochnerv. NewYork, 198U.S. 45 (1905). On the continuedvitalityof"substan tive due process" as a state law doctrine for reviewing state social and economic legisla tion,see Note, State EconomicSubstantive DueProcess:A Proposed Approach, 88Yale L.J. 1487 (1979) and authorities cited therein. 2. Somemightobjecttothe exaltationofMcReynolds' role inconnectionwithsub stantive due process rather than Peckham, who authored the majority opinion in Loch ner and who had participated in the development of the doctrine at the state level in cases like People v. Gillson, 109 N.Y. 389, 17 N.E. 343 (1888). But for curmudgeonly loyalty tothesubstantivedueproj::essidea, particularlyindissent, McReynoldsissecond to none. See, e.g., Nebbia v. New York, 291 U.S. 502, 539 (1934) (McReynolds, J., dissenting). 3. There is some question, ofcourse, whether this notion should be considered de funct. Ithas a perfectlyrespectable intellectualhistory. For a grounding in the language ofthe Constitution, see, for example, Corwin, "The HigherLaw"Background ofAmeri can Constitutional Law, 42 Harv. L. Rev. 149 (1928); U.S. Const. art. I, § 10, cl. 1. HeinOnline -- 54 Tul. L. Rev. 850 1979-1980 1980] CONSTITUTIONAL DEREGULATION 851 tive goals, and no formalistic exaltation ofabstract economic lib erty (or any other value) in the face of a contradictory social reality:' Indeed, I will argue that the federal judiciary's current pos ture, abdication of review,ll comes closer to producing the ills ascribed to Lochner and its progeny than would serious judicial review of economic legislation. It ignores serious individual in terests that have an obvious constitutional basis. It implicitly exalts as fundamental a problematic constitutional value. It ig nores social and political reality. It cannot be applied consis tently. To remedy this situation I will propose a new cause of action, a claim to public-regarding legislation, that will permit such review-a cause of action grounded in no particular text, but in the Constitution as a whole. I shall further argue, but only cursorily, that the proposed cause of action is judicially manageable. II Let us begin again, this time with a real case. New Motor Vehicle Board v. Orrin W. Fox Co.ainvolved a California statute that required approval from the state's New Motor Vehicle Board for the opening or relocation of a retail automobile deal ership within the market area (314 square miles) of any existing dealership carrying the same make of car if the existing dealer objected to the location. Under the statute, objection by an ex~ isting dealer resulted in notice to the proposed dealership that its plans must be held in abeyance pending a hearing in which the objectors would attempt to establish "good cause" for not creating an additional franchise in that market area. The objec- 4. There is some doubt whetherLochnerand its progeny contained these faults to a degree greaterthan casesinvolvingotherareas ofjudicialreview. Buttheassociationof substantive due process with conceptions of "natural order" and laissez {aire made Lochnerparticularlyvulnerable to the attacks ofphilosophical relativists (the legal real ists) and to the emerging political consensus that'underlay the New Deal. For an excel lent short description, see L. Tribe, American Constitutional Law 446-55 (1978). 5. The abdication has never been formalized by a clear renunciation of "rational basis" review. See Bennett, "Mere"Rationality in Constitutional Law: Judicial Review and Democratic Theory, 67 Calif. L. Rev. 1049 (1979); McCloskey, Economic Due Pro cess and the Supreme Court: AnExhumation andReburial, 1962Sup. Ct. Rev. 34. The Court merely refuses to inquire seriously into the means and ends of state economic regulation. [d. at 36-40. 6. 439 U.S. 96 (1978). HeinOnline -- 54 Tul. L. Rev. 851 1979-1980 852 TULANE LAW REVIEW [Vol. 54 tors bore the burden of proof at the hearing, but had only to say "I protest" in order to secure the notice of hearing that would maintain the status quo. Fox, one of the plaintiffs, demonstrated at trial that the principal use of the statute was to delay the opening of new dealerships. Of 117 protests filed with the Board, only one had been sustained at hearing and two-thirds had been withdrawn. Nevertheless, the existing dealer's objection was sufficient to de fer Fox's opening for at least fifteen months-more than a com plete model year-and one of the plaintiffs had had its reloca tion completely stymied when delay forced it to default on its lease. Plaintiffs attacked the statute on several grounds. Their principal argument was that the automatic deferral of their pro posed action by the filing of a protest deprived them of due pro cess of law. In their view, the Board's failure at this stage to inquire into at least the plausibility of the protest and its pros pects for ultimate success denied them the individualized judg ment prior to the exercise of state power that is required by the Constitution. This procedural due process argument was com bined with an argument characterizing the "empty protest" mechanism as a standardless delegation ofstate power to private citizens. Plaintiffs further argued that, by giving effect to private attempts to restrain trade, the California statute conflicted with the Sherman Antitrust Act. Mr. Justice Brennan, writing for the majority, made short work of these arguments.'l In his view, the procedural due pro cess claim was really a disguised substantive due process argu ment. Because the statute gave the Board no discretion in scheduling a hearing, it was the statute that delayed plaintiffs' activities, and not a summary administrative order. Viewed as an attack on the statute, the question was whether the plaintiffs had some right to be free from state economic regulation that was expressly identified by the legislature as protecting "the general economy of the state and the public welfare."8 Quoting the language of Ferguson v. Skrupa that "[l]egislative bodies 7. [d. at 98-111. 8. [d. at 105 n.12. HeinOnline -- 54 Tul. L. Rev. 852 1979-1980 1980] CONSTITUTIONAL DEREGULATION 853 have broad scope to experiment with economic problems,"9 the Court answered with the usual resounding "No." Having thus characterized the basic claim, the delegation and antitrust ques tions were easy. Otherwise valid state regulation is not invalid merely because it employs private enforcement, or has anti-com petitive effects. A contrary holding on these two issues would lead, respectively, to the absurd conclusion that most schemes of state private law were unconstitutional and that states had vir tually no power to engage in economic regulation. Mr. Justice Brennan's opinion for the Court fully repre sented the views of only five Justices. Justice Powell joined in a concurrence authored by Justice Blackmun, Justice Marshall concurred specially, and Justice Stevens, alone, dissented. The Blackmun opinion, viewed the case very much as did the majority-an easy substantive due process claim.1o The only in teresting wrinkle is that Blackmun and Powell saw state regula tory power as so pervasive that the California statute should not be viewed as affecting any of the plaintiffs' liberty or property interests. The plaintiffs' procedural due process claim failed at the threshhold of the now conventional two-step analysis. Jus tice Marshall, on the other hand, saw the case in wholly proce dural terms.ll Yet for him, a simple statement of state and pri vate interests-the state interest in effective regulation versus the private concern with delays in permissible projects-was suf ficient to make it clear that a process giving the state interest greater weight, at least initially, did not strike an unreasonable balance. Justice Stevens, in dissent, vigorously objected to the major ity's characterization of the case as concerned fundamentally with the substantive validity of the California scheme.12 Indeed, he "assumed" that California would be able to prohibit the loca tion or relocation of automobile dealerships. Rather, in his words, "The case involves the validity of a procedure that grants private parties an exclusive right to cause harm to other private parties without even alleging that any general rule has been vio- 9. 372 U.S. 726, 730 (1963). 10. 439 U.S. at 113-14 (Blackmun, J., concurring). 11. [d..at 111-13 (Marshall, J., concurring). 12. [d. at 114-27 (Stevens, J., dissenting). HeinOnline -- 54 Tul. L. Rev. 853 1979-1980 854 TULANE LAW REVIEW [Vol. 54 lated."13 The dissenting opinion took a careful tour of the Cali fornia scheme to demonstrate that it indeed evidenced no gen eral intent to preclude, or even inhibit, the creation of new dealerships. Thus, the prohibition on franchise establishment that flowed from the simple filing of a protest did not immedi ately further any state interest. From this it was an easy matter for Stevens to conclude that the case was essentially on all fours with Fuentes v. Shevin, which, while invalidating°a state stat U ute permitting pre-judgment repossession, said: The statute, moreover, abdicates effective state control over state power. Private parties, serving their own private ad vantage, may unilaterally invoke state power to replevY goods from another. No state official participates in the decision to seek a writ; no state official reviews the basis for the claim to repossession; and no state official evaluates the need for imme diate seizure. There is not even a requirement that the plaintiff provide any information to the court on these matters. The State acts largely in the dark. III III The straightforward characterization of the plaintiffs' com plaint is captured by the hypothetical scenario with which we began. The Fox dealership and its cohorts (and Justice Stevens) see private parties making use ofstate power to harrass competi tors. They want to know what justifies this disadvantage. Poten tial competitors are told, in effect, that their private interest must yield to the public interest. But the public interest is not to be discussed with any seriousness. If the state intones certain buzz words like "overreaching" or "ruinous competition"-or even "protection of the public"-the discussion is over. Although we shall return in a more systematic way to what might be "discussable" in such cases, we should note that the Fox plaintiffs had some prima facie plausible rebuttals to the state's buzz words. Ostensibly, the California scheme is meant to protect two groups: Franchisees from overreaching by manufac turers, and the public generally from the shoddy service that might attend "ruinous competition." But California has other 13. Id. at 115 (Stevens, J., dissenting). 14. 407 U.S. 67 (1972). 15. Id. at 93. HeinOnline -- 54 Tul. L. Rev. 854 1979-1980 1980] CONSTITUTIONAL DEREGULATION 855 legislation that directly serves both of those ends. Automobile dealers are licensed, and to obtain those licenses they must meet qualifications designed to assure adequate and responsible ser vice. There is also direct policing of the form and execution of franchise agreements. Given these regulations, the Fox plaintiffs might sensibly have wondered what the subject statute adds to consumer protection or franchising equity. Is a licensing scheme without competition better for consumers than a licensing scheme with competition? How do you persuade potential fran chisees to put up $100,000 or more of their own money to join manufacturers in a plot to "over-franchise" an area to the detri ment of the public and all franchise holders? What does the manufacturer say to induce this lemming-like behavior? "How would you like to get involved in some ruinous competition (in which you will probably be bankrupted) under the sponsorship of a manufacturer who uses multiple franchising to gouge the franchisees who survive?" But if the public-interest gains seem ephemeral, the private damages are real. And here I am not talking about general and widely-distributed economic harms. I mean focused and non transferable injuries to particular persons. People do not become automobile dealers, or much of anything else, by random choice of occupation. They do so because they have personal histories that fit them for the position-or at least seem to fit them better for that than for the alternatives. We needn't tell poignant tales of working one's way up from mechanic or clerk or salesman to branching out on one's own, to recognize that to thwart ambition is often to preclude the application of expertise garnered, per haps "hard-won," over a substantial portion of a working life.I6 The unhappy systemic effect ofthe individual harm is, ofcourse, the increasingly frequent blocking of the avenues of opportunity 16. Having abandoned "economic rationality" as a constitutional doctrine in the 1930s, the Court has perhaps missed one ofthe major developments in economic theory sincethattime-developments that earned HerbertSimonthe Nobel Prize. See, e.g., H. Simon, Models of Man (1957). Economic theory now recognizes that rationality is "bounded," that economic actors make decisions based on the special and often non transferable knowledge that they have. Thus, when some line of progression based on experience and knowledge is foreclosed, the worker or entrepreneur is often unable to make a lateral transfer into some larger field. Taking the "next best alternative" may involve larger rather than marginal losses, particularly where, as may be true generally, productive intelligence is very specifically related to work experience. See generally L. Thurow, Generating Inequality (1975). HeinOnline -- 54 Tul. L. Rev. 855 1979-1980 856 TULANE LAW REVIEW [Vol. 54 and self-realization that make bearable the constant need to ac commodate our personal desires to the rights of others in scarce resources. But none of this is talked about in Fox. The plaintiffs, no fools, were not about to frame their attack in terms of the ra tionality of the statute. A strategy was developed that avoided the substantive jugular and instead hacked away at the capilla ries-delegation, procedure, anti-trust. The Court's consistent refusal to consider substantive-rationality attacks on "economic" regulation, of course, invites this strategy. The majority's recharacterization of the claim in jugular terms thus must have been a shock. It also meant that the case was decided on a the ory that was never argued-indeed, is generally considered to be "nonarguable." Perhaps for this reason the substantive question is treated in its most general form, as a claim to freedom from state regulation. In that form it is not just a sure loser-it also infects the procedural claim. Ifthat's the liberty or property claim ~hat the plaintiff is putting forward,.then Justice Blackmun was correct to treat it as non-existent. And if it is, indeed, the power of the state to regulate that is to be we~ghed against private delay costs, then surely Justice Marshall was right to see the scales as clearly overbalanced in favor of state power. The general power of the state to regulate is obviously not what the plaintiffs in Fox wanted to talk about. They wanted to talk about their serious and substantial interest in .carrying on their occupations, about the opportunities the statute provides for potentially crippling harassment from competitors, and about the extremely modest public gains that flow from the leg islation. Yet somehow, even when they talked about these things in process terms, and seemed to be heard, they were heard through a substantive-claim filter that eliminated essential detail. Only Justice Stevens seemed to hear and respond in the specific terms that the plaintiffs demanded. He managed to do so by drawing an iron curtain between substance and procedure and then framing the procedural issue in analogical terms. Sup pose, he said, this were a private civil action and the state had given the hypothetical plaintiffs the right to an injunction on a mere complaint-a complaint that did not so much as allege HeinOnline -- 54 Tul. L. Rev. 856 1979-1980 1980] CONSTITUTIONAL DEREGULATION 857 that the defendants had engaged, or were about to· engage, in any wrongful conduct. Surely, such a procedure would violate due process. But, alas, the analogy won't wash-or rather it won't stand up to the majority's alternative analogical construction. For Jus tice Brennan answered Stevens specifically.17 This is not civil lit igation, said Brennan, this is a state licensing law. That appli cants for licenses must suffer some delay in processing their applications is endemic to a licensing system. Indeed, this scheme is more beneficial to the applicant than some. If no one objects there is no wait. Because Brennan's analogy is closer to the structure of the regulatory scheme than Stevens', it has a strong a priori claim to superiority. And using the voting in Fox as an empirical sample of analogical appeal, the superiority is on the order of five to one. At this point (because discussion of the substance of the regulation has been Ferguson v. Skrupa'd out of bounds) Ste vens, and the plaintiffs, are left with nothing to say. The funda mental issues have never been addressed. IV The methodological problems of avoiding substantive-ra tionality review are deeper still. As Mr. Justice Holmes pointed out in his Lochner dissent, the "Lochnerish" demand for suffi cient state purpose, appropriately pursued, in order to legitimize state regulation gives "freedom of contract" an unexamined and powerful constitutional status. Two critical positions are possible with respect to such judi cial assertions of constitutional values. One attempts to "neu tralize" analysis, to purge judicial review of value assertions. IS That approach seems doomed.19 The other asks, "Why that value?" and "Why that much weight in a contest with other val ues?" It views the quality of constitutional argument from the perspective of how convincing the answers are to those ques- 17. 439 U.S. at 108-09. 18. See, e.g., Wechsler, Toward Neutral Principles of Constitutional Law, 73 Harv. L. Rev. 1 (1959). 19. See, e.g., Deutsch, Neutrality, Legitimacy and the Supreme Court: Some In teractions between Law and Political Science, 20 Stan. L. Rev. 169, 178-98 (1968). HeinOnline -- 54 Tul. L. Rev. 857 1979-1980