MOREY, AUDITOR OF PUBLIC ACCOUNTS OF ILLINOIS, ET AL. v. DOUD ET AL., DOING BUSINESS AS BONDIFIED SYSTEMS, ET AL.
No. 475
Supreme Court of the United States
Argued April 24, 1957. - Decided June 24, 1957.
354 U.S. 457
G. Kent Yowell and John J. Yowell argued the cause and filed a brief for appellees.
MR. JUSTICE BURTON delivered the opinion of the Court.
This case concerns the validity of a provision in the Illinois Community Currency Exchanges Act, as amended,1 excepting money orders of the American Express Company from the requirement that any firm selling or issuing money orders in the State must secure a license and submit to state regulation. The objection raised is that this exception results in a denial of equal protection of the laws, guaranteed by the
The appellees in this case are Doud, McDonald and Carlson, partners doing business as Bondified Systems,
Fearing enforcement agаinst them of the provisions of the Act, these four individuals instituted this suit in the United States District Court for the Northern District of Illinois against the appellants, who are the Auditor of Public Accounts of the State of Illinois, the Attorney General of that State, and the State‘s Attorney of Cook County. The complaint alleged that the Act violated the Equal Protection Clause of the
After hearing evidence, the District Court dismissed the complaint on the ground that it lacked jurisdiction to determine the constitutional question in the absence of an authoritative determination of that question by the Supreme Court of Illinois. 127 F. Supp. 853. On appeal, this Court held that the District Court erred in dismissing the case for lack of jurisdiction, and remanded it to the District Court. 350 U. S. 485.
On remand, the District Court considered on the merits the evidence previously heard, and unanimously held that
During the early 1930‘s, the closing of many banks in the Chicago area led to the development of simple banking facilities called currency exchanges. The principal activities of these exchanges were the cashing of checks for a fee and the selling of money orders. The fact that many of these exchanges went into business without adequate capital and without sufficient sаfeguards to protect the public resulted in the enactment of the Illinois Community Currency Exchanges Act in 1943.
This Act and its amendments provide a comprehensive scheme for the licensing and regulation of currency exchanges. The operation of a community currency exchange without a license is made a crime. § 32. An applicant for a license must submit specified information and pay an investigation fee of $25. § 34. A license cannot be issued unless the State Auditor determines that its issuance will “promote the convenience and advantage of the community in which the business of the applicant is proposed to be conducted . . . .” § 34.1.4 A surety bond of between $3,000 and $25,000, and an insurance policy of between $2,500 and $35,000 must be
A licensed exchange must maintain a minimum of $3,000 available in cash for the uses and purposes of its business, plus an amount of liquid funds sufficient to pay on demand all outstanding money orders issued. § 37. Each exchange must be an entity, financed and conducted as a separate business unit, and not conducted as a department of another business. No community currency exchange “hereafter licensed for the first time shall share any room with any other business, trade or рrofession nor shall it occupy any room from which there is direct access to a room occupied by any other business, trade or profession.” § 38. Only one place of business may be maintained under one license, although more than one license may be issued to a licensee. § 43. Annual financial reports must be submitted and the State Auditor has a duty to investigate each exchange at least once a year. A fee of $20 must be paid for each day or part thereof of investigation. § 46.
The following definition of a “community currency exchange” is crucial to this case:
“‘Community currency exchange’ means any person, firm, association, partnership or corporation, except banks incorporated under the laws of this State and National Banks organized pursuant to the laws of the United States, engaged at a fixed and permanent place of business, in the business or service of, and providing facilities for, cashing checks, drafts, money orders or any other evidences of money acceptable to such community currency exchange, for a fee or service charge or other consideration, or engaged in the business of selling or issuing money orders under his or their or its name, or any other money orders (other than United States Post Office money orders, American Express Company money
order[s], Postal Telegraph Company money orders, or Western Union Telegraph Company money orders), or engaged in both such businesses, or engaged in performing any one or more of the foregoing services.” (Emphasis supplied.) § 31.5
As the activities of appellees concededly come within this definition of a “community currency exchange,” the partnership and its druggist agent are subject to the licensing and regulatory provisions of the Act. Consequently, since the Act bars the sale of money orders as a part of another business, the partnership is precluded from establishing outlets for the sale of “Bondified” money orders in drug and grocery stores, and Derrick is unable to secure a license for the sale of those money orders in his store. § 38. Even if the partnership establishes outlets which are not a part of other businesses, those outlets will be licensed to sell “Bondified” money orders only if they show that the “convenience and advantage of the community” in which they propose to do business will be promoted by the issuance of licenses to them. § 34.1. Finally, any “Bondified” outlets will each have tо pay the specified licensing and inspection fees and each will have to secure the required surety bond and insurance policy.
In determining the constitutionality of the Act‘s application to appellees in the light of its exception of American Express money orders, we start with the established proposition that the “prohibition of the Equal Protection Clause goes no further than the invidious discrimination.” Williamson v. Lee Optical Co., 348 U. S. 483, 489. The rules for testing a discrimination have been summarized as follows:
“1. The equal protection clause of the Fourteenth Amendment does not take from the State the power to classify in the adoption of police laws, but admits of the exercise of a wide scope of discretion in that regard, and avoids what is done only when it is without any reasonable basis and therefore is purely arbitrary. 2. A classification having some reasonable basis does not offend against that clause merely because it is not made with mathematical nicety or because in practice it results in some inequality.
3. When the classification in such a law is called in question, if any state of facts reasonably can be conceived that would sustain it, the existence of that state of facts at the time the law was enacted must be assumed. 4. One who assails the classification in such a law must carry the burden of showing that it does not rest upon any reasonable basis, but is essentially arbitrary.” Lindsley v. Natural Carbonic Gas Co., 220 U. S. 61, 78-79.
To these rules we add the caution that “Discriminations of an unusual character especially suggest careful consideration to determine whether they are obnoxious to the constitutional provision.” Louisville Gas Co. v. Coleman, 277 U. S. 32, 37-38; Hartford Co. v. Harrison, 301 U. S. 459, 462.
The Act creates a statutory class of sellers of money orders. The money orders sold by one company, American Express, are excepted from that class. There is but one “American Express Company.” If the exception is to be upheld, it must be on the basis on which it is cast—an exception of a particular business entity and not of a generic category.
The purpose of the Act‘s licensing and regulatory provisions clearly is to protect the public when dealing with currency exchanges.6 Because the American Express Company is a world-wide enterprise of unquestioned solvency and high financial standing, the State argues that the legislative classification is reasonable. It contends that the special characteristics of the American Express Company justify excepting its money orders from the requirements of an Act aimed at local companies do-
That the Equal Protection Clause does not require that every state regulatory statute apply to all in the same business is a truism. For example, where size is an index to the evil at which the law is directed, discriminations between the large and the small are permissible.8 Moreover, we have repeatedly recognized that “reform may take one step at a time, addressing itself to the phase of the problem which seems most acute to the legislative mind.” Williamson v. Lee Optical Co., 348 U. S. 483, 489. On the other hand, a statutory discrimination must be based on differences that are reasonably related to the purposes of the Act in which it is found.9 Smith v. Cahoon, 283 U. S. 553, involved a state statute which required motor vehicles, operating on local highways as carriers for hire, to furnish bonds or insurance policies for the protection of the public against injuries received through negligence in these operations. The Act excepted motor vehicles carrying specified products. This Court held that
Of course, distinctions in the treatment of business entities engaged in the same business activity may be justified by genuinely different characteristics of the business involved.10 This is so even where the discrimination is by name.11 But distinctions cannot be so justified if the “discrimination has no reasonable relation to these differences.” Hartford Co. v. Harrison, 301 U. S. 459, 463. In that case, this Court held that a state statute which permitted mutual insurance companies to act through salaried resident employees, but which excluded stock insurance companies from the same privilegе, violated the Equal Protection Clause.
The principles controlling in the Smith and Hartford Co. cases, supra, are applicable here. The provisions in the Illinois Act, such as those requiring an annual inspection of licensed community currency exchanges by the State Auditor, make it clear that the statute was intended to afford the public continuing protection. The discrimination in favor of the American Express Company does not conform to this purpose. The exception of its money
The effect of the discrimination is to create a closed class by singling out American Express money orders. The singling out of the money orders of one company is in a sense the converse of a case like Cotting v. Kansas City Stock Yards Co., 183 U. S. 79, 114-115. See also, McFarland v. American Sugar Co., 241 U. S. 79. In the Cotting case this Court held that a regulatory statutе that in fact applied to only one stockyard in a State violated the Equal Protection Clause. Although statutory discriminations creating a closed class have been upheld,12
a statute which established a closed class was held to violate the Equal Protection Clause where, on its face, it was “an attempt to give an economic advantage to those engaged in a given business at an arbitrary date as against all those who enter the industry after that date.” Mayflower Farms, Inc. v. Ten Eyck, 297 U. S. 266, 274. The statute involved in that case granted a differential from the regulated price at which dealers could sell milk to those dealеrs in a specified class who were in business before April 10, 1933.
Unlike the American Express Company, appellees and others are barred from selling money orders in retail establishments. Even if competing outlets can successfully be established as separate businesses, their ability to secure licenses depends upon a showing of “convenience and advantage.” Perhaps such a showing could not be made because the unregulated American Express Company had already established outlets in the community. And even if licenses were secured, the licensees would be required to pay licensing and investigatory fees and purchase surety bonds and insurance policies—costs that the American Express Company and its agents are not required to bear.13 The fact that the activities of the American Express Company are far-flung does not minimize the impact on local affairs and on competitors of its sale of money orders in Illinois. This is not a case in which the
Taking all of these factors in conjunction—the remote relationship of the statutory classification to the Act‘s purpose or to business characteristics, and the creation of a closed class by the singling out of the money orders of a named company, with accompanying economic advantages—we hold that the application of the Act to appellees deprives them of equal protection of the laws.14
The State urges that if the exception of American Express money orders is unconstitutional, the case should be remitted to the Illinois courts for a determination whether the exception can be severed from the Act under its severability clause. § 56.3. However, even if such
The judgment of the District Court is
Affirmed.
MR. JUSTICE BLACK, dissenting.
The Illinois statute involved here provides a state-wide regulatory plan to protect the public from irresponsible and insolvent sеllers of money orders. The Act specifically exempts the American Express Company‘s money orders from its regulatory provisions because, as the Court recognizes, that company “is a world-wide enter-
I think state regulation should be viewed quite differently where it touches or involves freedom of speech, press, religion, petition, assembly, or other specific safeguards of the Bill of Rights. It is the duty of this Court to be alert to see that these constitutionally preferred rights are not abridged.2 But the Illinois statute here
MR. JUSTICE FRANKFURTER, whom MR. JUSTICE HARLAN joins, dissenting.
The sole question before the Court is whether the
The more complicated society becomes, the greater the diversity of its problems and the more does legislation direct itself to the diversities. Stаtutes, that is, are directed to less than universal situations. Law reflects distinctions that exist in fact or at least appear to exist in the judgment of legislators—those who have the responsibility for making law fit fact. Legislation is essentially empiric. It addresses itself to the more or less crude outside world and not to the neat, logical models of the mind. Classification is inherent in legislation; the Equal Protection Clause has not forbidden it. To recognize marked differences that exist in fact is living law; to disregard practical differences and concentrate on some abstract identities is lifeless logic.
In regulating its banking facilities, Illinois was drawing on one of the oldest and most far-reaching of legislative powers. The public needs to be protected in the issuing and selling of money orders, and people with limited means are especially to be safeguarded. If Illinois chose, the State itself could take over the money order business. See Noble State Bank v. Haskell, 219 U. S. 104, 113. Just as it was found that there was nothing in the Constitution of the United States to bar a State from engaging in the businesses of manufacturing and marketing farm products and of providing homes for its people, Green v. Frazier, 253 U. S. 233, so, surely, there is nothing to prevent Illinois from engаging in this business directly, or through a money dispensary similar to the mode by which some States engage in the liquor business. I know of nothing in the
I regretfully find myself unable to appreciate why the State, instead of thus dealing with the problem, may not choose to allow small units to carry on a business so fraught with public interests under the regulations devised by the statute under review, while at the same time it finds such measures of control needlеss in a case of “a world-wide enterprise of unquestioned solvency and high financial standing.” The rational differentiation is of course that the latter enterprise contains within itself, in the judgment of Illinois, the necessary safeguards for solvency and reliability in issuing money orders and redeeming them. Surely this is a distinction of significance in fact that the law cannot view with a glass eye.
But it is suggested that the American Express Co. may not continue to retain “its present characteristics,” while sellers of competing money orders may continue to be subject to the Act, even though their characteristics become “substantially identical with those the American Express Co. now has.” What is this but to deny a State the right to legislate on the basis of circumstances that exist because a State may not in speculatively different circumstances that may never come to pass have such right? Surely there is time enough to strike down legislation when its constitutional justification is gone. Invalidating legislation is serious business and it ought not to be indulged in because in a situation not now before the Court, nor even remotely probable, a valid statute may lose its foundation. The Court has had occasion to deal with such contingency more than once. Regulatory meаsures have been sustained that later, in changed circumstances, were found to be unconstitutional. Compare Willcox v. Consolidated Gas Co., 212 U. S. 19,
“Legislation which regulates business may well make distinctions depend upon the degree of evil.” Heath & Milligan Mfg. Co. v. Worst, 207 U. S. 338, 355, 356. It is true, no doubt, that where size is not an index to an admitted evil the law cannot discriminate between the great and small. But in this case size is an index.” Engel v. O‘Malley, 219 U. S. 128, 138. Neither the record nor our own judicial information affords any basis for concluding that Illinois may not put the United States Post Office, the Western Union Co., and the American Express Co. in one class and all the other money order issuers in another. Illinois may not the less relieve the American Express Co. from regulations to which multitudinous small issuers are subject because that company has its own reliabilities that may well be different from those of the United States Post Office and the Western Union Telegraph Co. The vital fact is that the American Express Co. is decisively different from those money order issuers that are within the regulatory scheme.
Sociologically one may think what one may of the State‘s recognition of the special financial position obviously enjoyed by the American Express Co. Whatever one may think is none of this Court‘s business. In applying the Equal Protection Clause, we must be fastidiоusly careful to observe the admonition of Mr. Justice Brandeis, Mr. Justice Stone, and Mr. Justice Cardozo that we do not “sit as a super-legislature.” (See their dissenting opinion in the ill-fated case of Colgate v. Harvey, 296 U. S. 404, 441. See also Asbury Hospital v. Cass County, 326 U. S. 207, 214-215.)
Notes
The Wedesweiler case was distinguished by the Supreme Court of Illinois in McDougall v. Lueder, 389 Ill. 141, 150, 58 N. E. 2d 899, 904, on the ground that in the earlier case the regulated firms were “in direct competition” with the excepted companies. Apparently the court treated the regulated firm in the McDougall case as not being in direct competition with the American Express Company since the firm was engaged in the business of cashing checks, as well as in that of selling money orders, while the American Express Company merely sold money orders. Such a distinction is not involved in the facts of this case and we express no opinion on it.
As the question of severability is a question of state law, the judgment of the Supreme Court of Illinois is binding here. See Dorchy v. Kansas, 264 U. S. 286, 290; Chas. Wolff Packing Co. v. Court of Industrial Relations, 267 U. S. 552, 562.