Types of Businesses That May be Regulated.

For a brief interval following the ratification of the Fourteenth Amendment, the Supreme Court found the Due Process Clause to impose no substantive restraint on the power of states to fix rates chargeable by any industry. Thus, in Munn v. Illinois,139 the first of the “Granger Cases,” maximum charges established by a state for Chicago grain elevator companies were challenged, not as being confiscatory in character, but rather as a regulation beyond the power of any state agency to impose.140 The Court, in an opinion that was largely dictum, declared that the Due Process Clause did not operate as a safeguard against oppressive rates, and that, if regulation was permissible, the severity of it was within legislative discretion and could be ameliorated only by resort to the polls. Not much time elapsed, however, before the Court effected a complete withdrawal from this position, and by 1890141 it had fully converted the Due Process Clause into a restriction on the power of state agencies to impose rates that, in a judge’s estimation, were arbitrary or unreasonable. This state of affairs continued for more than fifty years.

Prior to 1934, unless a business was “affected with a public interest,” control of its prices, rates, or conditions of service was viewed as an unconstitutional deprivation of liberty and property without due process of law. During the period of its application, however, the phrase, “business affected with a public interest,” never acquired any precise meaning, and as a consequence lawyers were never able to identify all those qualities or attributes that invariably distinguished a business so affected from one not so affected. The most coherent effort by the Court was the following classification prepared by Chief Justice Taft:142 “(1) Those [businesses] which are carried on under the authority of a public grant of privileges which either expressly or impliedly imposes the affirmative duty of rendering a public service demanded by any member of the public. Such are the railroads, other common carriers and public utilities. (2) Certain occupations, regarded as exceptional, the public interest attaching to which, recognized from earliest times, has survived the period of arbitrary laws by Parliament or Colonial legislatures for regulating all trades and callings. Such are those of the keepers of inns, cabs and grist mills. (3) Businesses which though not public at their inception may be fairly said to have risen to be such and have become subject in consequence to some government regulation. They have come to hold such a peculiar relation to the public that this is superimposed upon them. In the language of the cases, the owner by devoting his business to the public use, in effect grants the public an interest in that use and subjects himself to public regulation to the extent of that interest although the property continues to belong to its private owner and to be entitled to protection accordingly.”

Through application of this formula, the Court sustained state laws regulating charges made by grain elevators,143 stockyards,144 and tobacco warehouses,145 as well as fire insurance rates146 and commissions paid to fire insurance agents.147 The Court also voided statutes regulating business not “affected with a public interest,” including state statutes fixing the price at which gasoline may be sold,148 regulating the prices for which ticket brokers may resell theater tickets,149 and limiting competition in the manufacture and sale of ice through the withholding of licenses to engage in such business.150

In the 1934 case of Nebbia v. New York,151 however, the Court finally shelved the concept of “a business affected with a public interest,”152 upholding, by a vote of five-to-four, a depression-induced New York statute fixing fluid milk prices. “Price control, like any other form of regulation, is unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty.”153 Conceding that “the dairy industry is not, in the accepted sense of the phrase, a public utility,” that is, a business “affected with a public interest”, the Court in effect declared that price control is to be viewed merely as an exercise by the government of its police power, and as such is subject only to the restrictions that due process imposes on arbitrary interference with liberty and property. “The due process clause makes no mention of sales or of prices. . . .”154

Having thus concluded that it is no longer the nature of the business that determines the validity of a price regulation, the Court had little difficulty in upholding a state law prescribing the maximum commission that private employment agencies may charge. Rejecting contentions that the need for such protective legislation had not been shown, the Court, in Olsen v. Nebraska ex rel. Western Reference and Bond Ass’n155 held that differences of opinion as to the wisdom, need, or appropriateness of the legislation “suggest a choice which should be left to the States;” and that there was “no necessity for the State to demonstrate before us that evils persist despite the competition” between public, charitable, and private employment agencies.156

Footnotes

139
94 U.S. 113 (1877). See also Davidson v. New Orleans, 96 U.S. 97 (1878); Peik v. Chicago & N.W. Ry., 94 U.S. 164 (1877); [Back to text]
140
The Court not only asserted that governmental regulation of rates charged by public utilities and allied businesses was within the states’ police power, but added that the determination of such rates by a legislature was conclusive and not subject to judicial review or revision. [Back to text]
141
Chicago, M. & St. P. Ry. v. Minnesota, 134 U.S. 418 (1890). [Back to text]
142
Wolff Packing Co. v. Industrial Court, 262 U.S. 522, 535–36 (1923) (citations omitted). [Back to text]
143
Munn v. Illinois, 94 U.S. 113 (1877); Budd v. New York, 143 U.S. 517, 546 (1892); Brass v. North Dakota ex rel. Stoesser, 153 U.S. 391 (1894). [Back to text]
144
Cotting v. Kansas City Stock Yards Co., 183 U.S. 79 (1901). [Back to text]
145
Townsend v. Yeomans, 301 U.S. 441 (1937). [Back to text]
146
German Alliance Ins. Co. v. Kansas, 233 U.S. 389 (1914); Aetna Insurance Co. v. Hyde, 275 U.S. 440 (1928). [Back to text]
147
O’Gorman & Young v. Hartford Ins. Co., 282 U.S. 251 (1931). [Back to text]
148
Williams v. Standard Oil Co., 278 U.S. 235 (1929). [Back to text]
149
Tyson & Bro. v. Banton, 273 U.S. 418 (1927). [Back to text]
150
New State Ice Co. v. Liebmann, 285 U.S. 262 (1932). See also Adams v. Tanner, 244 U.S. 590 (1917); Weaver v. Palmer Bros., 270 U.S. 402 (1926). [Back to text]
151
291 U.S. 502 (1934). [Back to text]
152
In reaching this conclusion the Court might be said to have elevated to the status of prevailing doctrine the views advanced in previous decisions by dissenting Justices. Thus, Justice Stone, dissenting in Ribnik v. McBride, 277 U.S. 350, 359–60 (1928), had declared: “Price regulation is within the State’s power whenever any combination of circumstances seriously curtails the regulative force of competition so that buyers or sellers are placed at such a disadvantage in the bargaining struggle that a legislature might reasonably anticipate serious consequences to the community as a whole.” In his dissenting opinion in New State Ice Co. v. Liebmann, 285 U.S. 262, 302–03 (1932), Justice Brandeis had also observed: “The notion of a distinct category of business ‘affected with a public interest’ employing property ‘devoted to a public use,’ rests upon historical error. . . . In my opinion, the true principle is that the State’s power extends to every regulation of any business reasonably required and appropriate for the public protection. I find in the due process clause no other limitation upon the character or the scope of regulation permissible.” [Back to text]
153
291 U.S. at 502. Older decisions overturning price regulation were now viewed as resting upon this basis, i.e., that due process was violated because the laws were arbitrary in their operation and effect. [Back to text]
154
291 U.S. at 531, 532. Justice McReynolds, dissenting, labeled the controls imposed by the challenged statute as a “fanciful scheme . . . to protect the farmer against undue exactions by prescribing the price at which milk disposed of by him at will may be resold!” 291 U.S. at 558. Intimating that the New York statute was as efficacious as a safety regulation that required “householders to pour oil on their roofs as a means of curbing the spread of fire when discovered in the neighborhood,” Justice McReynolds insisted that “this Court must have regard to the wisdom of the enactment,” and must “decide whether the means proposed have reasonable relation to something within legislative power.” 291 U.S. at 556. [Back to text]
155
313 U.S. 236, 246 (1941). [Back to text]
156
The older case of Ribnik v. McBride, 277 U.S. 350 (1928), which had invalidated similar legislation upon the now obsolete concept of a “business affected with a public interest,” was expressly overruled. Adams v. Tanner, 244 U.S. 590 (1917), was disapproved in Ferguson v. Skrupa, 372 U.S. 726 (1963), and Tyson & Bro. v. Banton, 273 U.S. 418 (1927), was effectively overruled in Gold v. DiCarlo, 380 U.S. 520 (1965), without the Court’s hearing argument on it. [Back to text]