ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, March 23, 2011

Contracts Clause Case in the Fourth Circuit

Note-writers take note!  This is a fascinating case and involves a Circuit split!!!

4th Cir In Crosby v. City of Gastonia, a Fourth Circuit panel that included retired Supreme Court Justice Sandra Day O'Connor affirmed the District Court's order, dismissing a Contracts Clause claim brought by retired members of the Gastonia police department.  The case arose over a retirement Fund for police officers established by the North Carolina Assembly in 1955.  In the early 1990s, the Fund began to experience financial difficulties.  There were various attempts to supplement the Fund's resources, all of which were inadequate.  In 2005, the Fund's assets were exhausted.  Along the way, the North Carolina legislature allowed active officers to cease their contributions to the Fund and to recover their prior contributions in their entirety prior to retirement.

 Plaintiffs brought suit alleging various state law claims but also claiming federal jurisdiction by making a § 1983 claim based on the City's alleged violation of the Contracts Clause.  The District Court found no impairment of obligation within the meaning of the Contracts Clause but retained jurisdiction over the remaining claims and granted the defendant City summary judgment on all claims.  

In affirming the District Court's judgment on the Contracts Clause issue, the Fourth Circuit discusses Carter v. Greenhow, an 1885 case in which a Richmond property owner engaged in a tax dispute tried to rely on the Contracts Clause to assert a civil rights violation -- i.e. a "deprivation of any rights, privileges or immunities secured by the Constitution" under color of law.  In that case, the Supreme Court ruled that, while plaintiff had indeed identified a potential civil rights violation, the clause in question did not provide him with a cause of action.  Rather, it seems, he could only rely on the Contracts Clause if the state had somehow impaired his ability to seek injunctive or declaratory relief in connection with his alleged deprivation of property.  

In 1991, in Dennis v. Higgins, the Supreme Court seemed to favor a narrow reading of Carter, suggesting that plaintiff's claim was unsuccessful in that case because he chose to plead a contracts claim rather than a "right secured to him by" the Contracts Clause.  The Ninth Circuit relied on this dictum in 2003 in ruling that § 1983 can give rise to claim sounding in the Contracts Clause.  The Fourth Circuit found the Supreme Court's dictum in Dennis unpersuasive because the Clause at issue in Dennis was the Commerce Clause and not the Contracts Clause.  

The Fourth Circuit acknowledges that Carter was decided largely on procedural grounds and did not "substantively explore the contours of a properly pleaded claim" and that Justice Matthews' opinion in Carter is thus "of limited utility in determining whether § 1983 might afford a remedy for infringement of federal rights not previously considered in that context."  Nonetheless, it concludes that this case is in the same procedural posture as Carter and therefore that they cannot rely on § 1983 to pursue a Contracts Clause claim.  That is, the plaintiffs cannot claim a violation of their civil rights because they do not allege that the City "impermissibly thwarted [them] in any prior attempt on their behalf to vindicate the application of the Contracts Clause to the parties' dispute by resort to the courts."

Frankly, the distinction is subtle, and neither the Fourth Circuit nor the Supreme Court have provided litigants with much guidance about what litigation strategy one ought to pursue in order to bring such an action.

Another interesting element of the opinion is that the Fourth Circuit's construction of plaintiffs' Contracts Clause claim is different from that of the District Court.  The District Court treated the claim, somewhat creatively, as a direct Contracts Clause claim and ignored the link to § 1983.  The District Court dismissed under Rule 12(b)(1) for lack of subject-matter jurisdiction.  The Fourth Circuit found this improper.  So why not just remand, especially since the Fourth Circuit notes that retention of jurisdiction over state law claims after dismissal on 12(b)(1) grounds is "problematic?" 


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