CDA DAIRY QUEEN, INC., and Discovery Care Centre, LLC Of Salmon, Plaintiffs-Appellants, v. STATE INSURANCE FUND, James M. Alcorn, in his official capacity as its manager, and William Deal, Wayne Meyer, Gerald Geddes, John Goedde, Elaine Martin, Mark Snodgrass, Rodney A. Higgins, Terry Gestrin, and Max Black, and Steve Landon, in their capacity as members of the Board of Directors of the State Insurance Fund, Defendants-Respondents.
No. 38492.
Supreme Court of Idaho, Boise
Jan. 23, 2013.
As Modified on Denial of Rehearing April 9, 2013.
299 P.3d 186
August 2012 Term.
Duke Scanlan & Hall, PLLC, Boise, for respondents. Keely Duke argued.
HORTON, Justice.
CDA Dairy Queen, Inc. and Discovery Care Centre, LLC of Salmon (collectively, Dairy Queen) filed a class action against the Idaho State Insurance Fund (SIF) seeking a declaratory judgment that SIF violated
I. FACTUAL AND PROCEDURAL BACKGROUND
In Farber v. Idaho State Insurance Fund, 147 Idaho 307, 311, 208 P.3d 289, 293 (2009) (Farber I), this Court held that
Dairy Queen filed a class action complaint against SIF, seeking declaratory relief and damages. Dairy Queen then moved for partial summary judgment on the grounds that, if applied retroactively, the repeal violates
II. STANDARD OF REVIEW
“Both constitutional questions and questions of statutory interpretation are questions of law over which this Court exercises free review.” Stuart v. State, 149 Idaho 35, 40, 232 P.3d 813, 818 (2010) (citing Federated Publ‘ns, Inc. v. Idaho Bus. Rev., Inc., 146 Idaho 207, 210, 192 P.3d 1031, 1034 (2008)). “The party challenging a statute or ordinance on constitutional grounds bears the burden of establishing that the statute or ordinance is unconstitutional and must overcome a strong presumption of validity.” State v. Korn, 148 Idaho 413, 416, 224 P.3d 480, 483 (2009) (citing State v. Reyes, 146 Idaho 778, 203 P.3d 708 (Ct.App.2009)). “The judicial power to declare legislative action unconstitutional should be exercised only in clear cases.” Am. Falls Reservoir Dist. No. 2 v. Idaho Dep‘t Water Res., 143 Idaho 862, 869, 154 P.3d 433, 440 (2007) (citation omitted).
III. ANALYSIS
As a preliminary matter, we note that SIF argues that this Court should affirm the district court‘s finding that the retroactive repeal of
A. This Court will apply federal contract clause principles when determining whether a statute violates article I, § 16 of the Idaho Constitution.
Dairy Queen argues that the retroactive repeal of
SIF contends that the analytical framework federal courts use when deciding federal contracts clause cases is applicable in Idaho courts to determine whether a legislative act violates the contracts clause of the Idaho Constitution. Dairy Queen argues that the federal methodology is not relevant in challenges based upon the state constitution because Idaho precedent demonstrates that the Idaho Constitution provides greater protection than the United States Constitution. We hold that Idaho courts should apply federal analytical principles when deciding challenges under
1. This Court follows federal precedent and uses federal methodology when analyzing state constitutional issues unless the Idaho Constitution clearly provides greater protectiоn than the United States Constitution.
Generally, the federal framework is appropriate for analysis of state constitutional questions unless the state constitution, the unique nature of the state, or Idaho precedent clearly indicates that a different analysis applies. We explained the policy basis for this Court‘s preference for consistent interpretations of the state and federal constitutions in State v. Donato:
Although the United States Supreme Court establishes no more than the floor of constitutional protection, this Court has found there is “merit in having the same rule of law applicable within the borders of our state, whether an interpretation of the
Fourth Amendment or its counterpart—Article I, § 17 of the Idaho Constitution —is involved. Such consistency makes sense to the police and the public.”
135 Idaho 469, 471, 20 P.3d 5, 7 (2001) (quoting State v. Charpentier, 131 Idaho 649, 653, 962 P.2d 1033, 1037 (1998)). Thus, this Court will consider federal rules and methodology when interpreting parts of the Idaho Constitution that have an analogous federal provision.
However, it is clear that the state constitution sometimes provides greater protection than the federal constitution. In those cases, this Court does not “blindly apply United States Supreme Court interpretation and methodology” when interpreting the state constitution. State v. Newman, 108 Idaho 5, 11 n. 6, 696 P.2d 856, 862 n. 6 (1985) (citing Oregon v. Hass, 420 U.S. 714, 719, 95 S.Ct. 1215, 1219, 43 L.Ed.2d 570, 575-76 (1975)), holding modified by State v. Bitt, 118 Idaho 584, 798 P.2d 43 (1990). For example, in Donato, the defendant admitted that the State‘s search of trash he placed on the curb for collection was valid under federal interpretation of the
2. Idaho‘s contracts clause does not provide greatеr protection than the contracts clause in the United States Constitution.
There is no clear evidence that
Next, Idaho‘s “uniqueness” does not have the same significance with respect to contracts that it does in the context of expectations of privacy. In State v. Webb, this Court held that when an Idaho trial court determines the extent of the curtilage in search and seizure cases, it should consider the factors used by federal courts, but “should apply them in the context of the setting or locality of the residence itself” and “take into consideration the differences in custom and terrain within different areas of the state when contemplating particular expectations of privacy.” 130 Idaho 462, 467, 943 P.2d 52, 57 (1997). The Court then announced a “broader test” than used by federal courts, which provides greater protection of Idahoans’ reasonable expectations of privacy. Id. at 468, 943 P.2d at 58. Our interpretation of
Finally, no “long-standing” jurisprudence clearly suggests that the Idaho Constitution contains an absolute prohibition against any impairment of contracts. Dairy Queen does not cite any cases in which this Court has expressly held that the Idaho Constitution
There is at least one recognized exception to the constitutional protection of contracts. For almost 100 years, this Court has recognized the police power exception to the contracts clause in the context of regulating labor contracts and public utilities.1 In 1916, the Court uphеld an Idaho statute permitting employees to claim up to thirty days’ wages from employers as a penalty for nonpayment of wages due, even if the labor contract between those parties did not contemplate such a penalty.2 The Court held that as “a legitimate exercise of the police power of the state,” the statute did not violate
Idaho cases also indicate that this Court does not interpret Idaho‘s contracts clause more strictly than federal courts interpret
Dairy Queen argues that in Penrose v. Commercial Travelers Insurance Company, 75 Idaho 524, 275 P.2d 969 (1954), this Court recognized that federal precedent was trending toward allowing limited exceptions to contracts clause protections and decided not to adopt this new federаl framework. The relevant issue in Penrose was the applicability of a statute requiring insurance companies to pay reasonable attorney fees to its policy holders in cases where the policyholder prevailed in an action to recover benefits. 75 Idaho at 529, 275 P.2d at 971. In that case, the policyholder prevailed in an action to recover certain policy benefits and was awarded attorney fees pursuant to the challenged statute, even though his policy was issued before the statute was enacted. Id. at 537, 275 P.2d at 976. On appeal, this Court vacated the award of attorney fees, holding that application of a statute enacted after the policy was issued would impair the obligation of the contract and thus violate
A few months prior to the Penrose decision, a federal court considered the same Idaho statute and held that it did not violate the federal contracts clause. In that case, the federal court held that all contracts are executed with the parties’ understanding of the state‘s police power, and therefore, if the legislature determines “that the public good demands that an insurance company unsuccessfully resisting payment should pay attorneys’ fees, there is no constitutional objection to their doing so.” Midwest Steel & Iron Works Co. v. Henly, 117 F.Supp. 928, 932 (D.Idaho 1954). The analysis in Midwest Steel indicates that the court considered the statute to act upon the “enforcement of the obligations assumed by the parties and to the giving of suitable relief for non-performance,” which it held did not affect the obligation of the contract because “parties make their contract with reference to the existence of the power of the state to provide remedies for enforcement and to secure adequate redress in case of breach.” Id. at 931 (citing Henley v. Myers, 215 U.S. 373, 30 S.Ct. 148, 54 L.Ed. 240 (1910); Osborn v. Ozlin, 310 U.S. 53, 60 S.Ct. 758, 84 L.Ed. 1074 (1940)).
Dairy Queen thus contends that the decision in Penrose, in which this Court cited Midwest Steel while reaching the opposite conclusion, demonstrates that Idaho courts interpret
Further, in cases since Penrose, the Court has continued to cite federal precedent and has given no indication that it finds the state constitution more protective of contracts than the federal constitution. For example, in State v. Korn, we began our analysis of the defendant‘s contracts clause claim by quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 241, 98 S.Ct. 2716, 2720-21, 57 L.Ed.2d 727, 734 (1978). 148 Idaho 413, 415-16, 224 P.3d 480, 482-83 (2009). Additionally, in the context of the police power exception, we cited the United States Supreme Court in holding that a public utility commission may “annul or supersede contract rates between utilities and their customers.”3 Agric. Prods. Corp., 98 Idaho at 29, 557 P.2d at 623 (citing Midland Realty Co. v. Kansas City Power & Light Co., 300 U.S. 109, 57 S.Ct. 345, 81 L.Ed. 540 (1937); Atlantic C.L.R. Co., v. Goldsboro, 232 U.S. 548, 34 S.Ct. 364, 58 L.Ed. 721 (1914)). The following year, we again cited the Supreme Court of the United States in noting that the contracts clause limits that exception. Bunker Hill, 98 Idaho at 253, 561 P.2d at 395 (quoting Fed. Power Comm‘n v. Sierra Pac. Power Co., 350 U.S. 348, 76 S.Ct. 368, 100 L.Ed. 388 (1956)). In none of these cases did our contracts clause analysis refer to Idaho authority.4 Consequently, because neither the constitution of Idaho, the nature of the state, nor long-standing precedent demonstrate that the protection provided by the Idaho Constitution is greater than the protection provided by the United States Constitution, we hold that challenges based upon article I, § 16 should be evaluated under the federal framework and rules.
B. The retroactive repeal of Idaho Code § 72-915 violates the Idaho Constitution because it substantially impairs existing contracts.
The federal framework for determining whether a legislative act violates the contracts clause is a three-step analysis. The first step is to determine whether the challenged legislative enactment “has ‘operated as a substantial impairment of a contractual relationship.‘” Gen. Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 1109, 117 L.Ed.2d 328, 337 (1992) (quoting Allied Structural Steel, 438 U.S. at 244, 98 S.Ct. at 2722, 57 L.Ed.2d at 736). This threshold inquiry also has three parts: 1) whether a contractual relationship exists, 2) whether the challenged legislative enactment impairs that relationship, and 3) whether that impairment is substantial. Id. When considering whether a contractual relationship exists, the test is not merely whether the parties have some contractual relationship, “but whether there was a ‘contractual agreement regarding the specific ... terms allegedly at issue.‘” Id. at 187, 112 S.Ct. at 1110, 117 L.Ed.2d at 337; see also Keystone Bituminous Coal Ass‘n v. DeBenedictis, 480 U.S. 470, 504, 107 S.Ct. 1232, 1251, 94 L.Ed.2d 472, 500 (1987) (holding that the analysis begins “by identifying the precise contractuаl right that has been impaired.“). Therefore, a legislative act does not violate the contracts clause unless there is a contractual relationship between the parties regarding the specific terms at issue, the challenged act impairs an obligation under that contract, and that impairment is substantial.
If the challenged legislative action is found to substantially impair a contract, the analysis then proceeds to the remaining two steps: whether the act serves “an important public purpose,” and whether
1. The retroactive repеal of Idaho Code § 72-915 substantially impairs Dairy Queen‘s contract rights.
Dairy Queen argues that its policy with the SIF includes a contractual right to a premium-based pro rata share of any dividends and that retroactive repeal of
a. The retroactive repeal impairs a contractual right.
A contractual relationship exists regarding the specific term at issue in this case. The United States Supreme Court has recognized the principle that “the laws which subsist at the time and place of the making of a contract ... enter into and form a part of it....” Gen. Motors, 503 U.S. 181, 188, 112 S.Ct. 1105, 1110, 117 L.Ed.2d 328, 338 (1992) (quoting Home Bldg. & Loan Ass‘n, 290 U.S. at 429-30, 54 S.Ct. at 237, 78 L.Ed. at 424). That Court also noted that in general, the only laws incorporated into a contract, absent the parties’ agreement, are those that affect “the validity, construction, and enforcement of” the contract. Id. at 189, 112 S.Ct. at 1111, 117 L.Ed.2d at 338 (citing U.S. Trust Co., 431 U.S. at 19 n. 17, 97 S.Ct. at 1516 n. 17, 52 L.Ed.2d at 108 n. 17). In this case, Idaho‘s workers’ compensation statutes create statutory contract rights related to SIF‘s premium structure and rate readjustment procedures. We recently held that the premium provision set forth in
The next question is whether the retroactive repeal of
b. The impairment is substantial.
If a court determines that a legislative act has impaired a contract, the final step in the threshold inquiry is to decide
In another case, the Ninth Circuit held that a statute constituted a substantial impairment of an employment contract because the statute permitted the state to delay its employees’ pay dates and excepted the provision from the negotiation process. Univ. of Haw. Prof‘l Assembly v. Cayetano, 183 F.3d 1096, 1099 (9th Cir.1999). The court agreed with the district court‘s conclusion that a “pay lag would likely impose a substantial hardship on many employees who would not be able to meet their financial obligations such as mortgage payments in a timely manner,” reasoning that the employees had the right to rely on timely payment and that “[e]ven a brief delay in getting paid can cause financial embarrassment and displacement....” Id. at 1104-06. Idaho cases have also considered impairments that affected important terms or involved the complete elimination of an important right. See, e.g., Curtis v. Firth, 123 Idaho 598, 610, 850 P.2d 749, 761 (1993) (holding that a change to the statute governing actions on notes secured by deeds of trust was unconstitutional because it eliminated one remedy, the right to sue on the note without first foreclosing on the deed of trust); Steward v. Nelson, 54 Idaho 437, 442-43, 32 P.2d 843, 845 (1934) (holding that statutes that reduced the time during which a mortgage-holder could foreclose, even if the debt was still owing, violated the contracts clause because they would “take away the remedy of foreclosure and leave[] no remedy of equal or similar value” to replace it, effectively destroying “the prevailing consideration for the contracts in so far as the mortgagee was concerned“). Thus, impairment may be substantial where a legislative act impairs essential rights, defeats a party‘s expectations, or has significant financial consequences for a party.
In this case, Dairy Queen argues that retroactive repeal of
2. The retroactive repeal of Idaho Code § 72-915 is not reasonable and necessary to support a significant and legitimate public purpose.
This Court has held that SIF serves a “public purpose.” Selkirk Seed Co. v. Forney, 134 Idaho 98, 103-04, 996 P.2d 798, 803-04 (2000) (quoting State ex rel. Williams v. Musgrave, 84 Idaho 77, 85, 370 P.2d 778, 782 (1962)). However, to survive application of the contracts clause where a state law substantially impairs a contract, the law must have a “significant and legitimate public purpose,” to ensure that it is an exercise of the state‘s police power and not merely “providing a benefit to special interests.” RUI One Corp. v. City of Berkeley, 371 F.3d 1137, 1147 (9th Cir. 2004) (quoting Energy Reserves, 459 U.S. at 412, 103 S.Ct. at 704-05, 74 L.Ed.2d at 581). Thus, the legislative act under review must itself be reasonable and necessary to advance an important public purpose.
Here, we cannot glean a legitimate public purpose for the retroactive repeal from the legislative history. The statement of purpose in the act repealing
Dairy Queen recognizes, as do we, that the repeal of
IV. CONCLUSION
We reverse the district court‘s order finding the retroactive reрeal of
Chief Justice BURDICK and Justices J. JONES, W. JONES and Justice Pro Tem KIDWELL concur.
ALTRUA HEALTHSHARE, INC., Petitioner-Appellant, v. Bill DEAL, in his capacity as Director of the Idaho Department of Insurance, and the Idaho Department of Insurance, Respondents.
No. 39388.
Supreme Court of Idaho, Boise
Feb. 25, 2013.
299 P.3d 197
December 2012 Term.