Raisins in the Sun: Federal Government Trying to Leave Farmers Out to Dry

Thomas Warns*

The Supreme Court heard oral arguments last Wednesday in a case that seems almost too absurd to be true – Horne v. Department of Agriculture. The background facts, centering around a New Deal-era law, are hard to believe, but here they are:

The Agricultural Marketing Agreement Act of 1937 granted the U.S. Department of Agriculture the authority to regulate the sale of certain agricultural products, including California-grown raisins, through the use of "marketing orders." The marketing order specific to California-grown raisins directs the Raisin Administrative Committee, a branch of the USDA, to establish a yearly raisin tonnage reserve requirement. The idea was that during the Great Depression, low raisin prices were hurting farmers, who would benefit if prices were stabilized (and raised). The government aimed to achieve this price hike and stabilization by taking farmers’ raisins and adding them to the raisin reserve; lower supply meant higher prices, and the raisins would be sold or given away at a later date they believed was more appropriate.

Every year in February, raisin farmers are told what percentage of their crop is the "reserve requirement" they must turn over to the Committee; failure to do so results in fines and penalties. In 2002 and 2003, the Horne family refused to comply with the USDA’s demands and was fined over $700,000. This case was actually before the Supreme Court two years ago on different grounds (whether they could raise a takings claim before they actually paid the fine), but now is on the docket again on the merits, as a takings question. The federal district court and the Ninth Circuit Court of Appeals have found that there was no “taking” by the government.

The Supreme Court heard oral arguments last Wednesday, and will have to answer three questions: (1) Whether the government's "categorical duty" under the Fifth Amendment to pay just compensation when it "physically takes possession of an interest in property" applies only to real property and not to personal property; (2) whether the government may avoid the categorical duty to pay just compensation for a physical taking of property by reserving to the property owner a contingent interest in a portion of the value of the property, set at the government's discretion; and (3) whether a governmental mandate to relinquish specific, identifiable property as a "condition" on permission to engage in commerce effects a per se taking.

The case looks like an easy win for the Horne family, and it should be. Further, they can take heart in the fact that court watchers found the Justices to be very skeptical of the idea that there was no taking.

The takings clause in the Fifth Amendment states that “nor shall private property be taken for public use, without just compensation.” Here, the government demanded the Horne family hand over their raisins, or pay enormous fines. How could this possibly be defended? The Ninth Circuit’s latest opinion on the case justified the government’s action by stating that the Takings Clause was meant to deal with takings of real property (i.e. land) and not personal property, and further that if it were a taking, the just compensation was the supposed stabilization and increase in price by the government.

Surely, the Fourth Amendment notion of property cannot be applied so narrowly that personal property is not protected – could the government also take one in every five cell phones that Samsung manufactures, without paying just compensation, because there was no "taking"? Doubtful. And in oral arguments, Justice Alito raised that very proposition. Theft does not become legal because the government engages in it. How come we have to pay taxes, you ask – isn’t the government “taking” our money? In the case of taxes, the Constitution explicitly permits Congress to levy them for the common defense and general welfare of the country under Article I.

The second proposition might be slightly stronger for the government – if it was a taking, the stabilized and elevated prices served as compensation. Justice Breyer hinted during oral arguments that the farmers may not have been hurt at all, or may have even been benefited beyond the value of their raisins, from the program. That may be the case, but it is hard to imagine the Horne family spending their time and money fighting this if the program was really such a great deal for them. Indeed, the Horne’s stated that in the year precipitating this legal battle, they surrendered 47% of their raisin crop; after the USDA sold the raisins (often they are sold to schools or prisons at a discount), the USDA took some money off the top for administrative expenses, and returned the Horne family with an amount lower than the total cost to produce the raisins. That does not sound like just compensation. Certainly at the very least, the Horne family could have sold their raisins to the schools and prisons without the compulsory middleman (who might also hurt the raisin farmers by conditioning that portion of the market to lay off market price raisins in favor of discounted ones from the government).

Another laughable defense raised in support of the program is that the government may condition entry into a market on having the ability to relinquish specific, identifiable property. Indeed, the 9th Circuit said that if the Horne family did not like the marketing orders of the USDA, they could plant another crop that was not regulated the same way. That not only ignores any number of personal reasons why the Horne family may prefer to grow raisins (their land is best suited for it, they have expertise from past experience, etc.), but it also destroys the personal autonomy we all ought to enjoy in a free country with a vibrant and open marketplace.

The Supreme Court did not even attempt to answer whether this is a public use. Public use has classically meant taking property so roadways or bridges or courthouses benefiting a whole city or state could be built, not taking raisins from farmers to keep prices higher for consumers. Indeed, if the stated goal of higher raisin prices has been achieved, then the program is benefiting private parties at the expense of the public – the exact opposite of a public use! Even the expansive (and heavily criticized) case on public use, Kelo v. City of New London, would be unlikely to bear such a definition of "public use". Fortunately, the Supreme Court has a chance to invigorate takings jurisprudence, even if it doesn't do so via a more robust "public use" analysis, and make keep us all safer from government’s intrusions.

Personal Note: I have thoroughly enjoyed writing for this blog for the last two years, but sadly my time on the Journal of Law & Liberty is nearing an end. I will graduate in May and hand over the position of Editor-in-Chief to my very capable replacement, Michael Stachiw. I hope to continue writing to the blog occasionally as a guest; however, this is likely to be my last post as a member of the Journal. For that reason, I would like to thank everyone who has been on the Journal the last two years. I have learned so much working with everyone on these blog posts, as well as all the articles we publish. I could not have asked for a better group of friends on the Journal, nor a more capable group of colleagues. To those who read the blog and have read my posts from time to time, thank you for your interest in our Journal, and please keep reading.

Sincerely,

Tom Warns

* Thomas Warns is a J.D. Candidate in the Class of 2015 at New York University, and the Editor-in-Chief for the N.Y.U. Journal of Law & Liberty.

Not Your Grandfather’s FBI

Andrew P. Napolitano*

JUDGE NAPOLITANO

JUDGE NAPOLITANO

Does the FBI manifest fidelity, bravery and integrity, or does it cut constitutional corners in order to incriminate? Can the FBI cut the cable television lines to your house and then show up pretending to be the cable guy and install listening devices? Can FBI agents and technicians testify falsely and cause the innocent to be convicted, incarcerated and, in some cases, executed?

In 2014, FBI agents in Las Vegas were on the trail of Wei Seng Phua, whom they believed was running an illegal gambling operation out of his hotel room at Caesars Palace. Instead of following him, asking questions about him and using other traditional investigative techniques, a few agents came up with the idea of planting a wiretap in Phua’s hotel room.

They bribed a hotel employee, who gave them access to a place in the hotel where they could disable the cable television wires to Phua’s room. When he called for repair, they showed up pretending to be cable guys, and he let them into his room. They repaired what they had disabled, but they also illegally wiretapped the phones in the room. Then they overheard his telephone conversations about his illegal gambling, and they arrested him. A grand jury indicted him based on what was overheard.

The grand jury was not told of the wire cutting and the con job, but a federal judge was. Last week, he criticized the FBI for conducting an illegal search of Phua’s room, in direct contravention of the Fourth Amendment, which the agents swore to uphold, and he barred the government from using the tapes of the telephone conversations as evidence against Phua. If the government can get away with this, he ruled, then constitutional guarantees are meaningless.

These lawless agents should have been indicted by a state grand jury for breaking and entering by false pretense, but Caesars declined to seek their prosecution. No surprise.

It was surprising, however, when the FBI was forced to admit last week that in the 1980s and 1990s, its agents and lab technicians who examined hair samples testified falsely in 257 of 268 cases that resulted in convictions. Of the convictions, 18 persons were sentenced to death, and of those, 12 have been executed.

Some of these cases were federal, but most were state prosecutions in which state and county prosecutors hired the FBI to perform lab tests and compare hair samples from a crime scene with a defendant’s known hair sample. The faulty lab work and erroneous testimony destroyed the freedom of hundreds and the lives of 12, squandered millions in tax dollars, and impaired the constitutional values we all embrace.

You probably did not hear about the FBI cable guys or the admitted 96-percent rate of false testimony in cases of conviction. That’s because the FBI skillfully diverted your attention.

In an effort to pick a front-page fight with the government of Poland, FBI Director James Comey revealed last week that the very concept of the Holocaust has moved him deeply -- so deeply that he has ordered all new FBI agents to spend quiet time at the Holocaust Museum contemplating its horrors. He argued that the terror of Nazi agents became so commonplace that its wrongness was no longer apparent to them. That’s probably true. The Nazis did so much killing that their acts of killing innocents became commonplace to the killers. Then he blamed the Poles for their own victimization because of the few among them who collaborated with their invaders. This brought the hoped-for fierce blowback from the Polish government and top-of-the-fold criticism of Comey for two days.

Earlier this week, the FBI announced the arrest of eight persons for attempting to leave the United States in order to join ISIS. The actual charge is attempting to provide material assistance to a terrorist organization. These ISIS people are truly monsters. Yet, Americans have a natural right to travel where they want and associate with whomever they please. The test of a truly free country is the right to leave it.

Moreover, this was a controlled FBI sting. The defendants were instigated by and under the watchful eyes of FBI undercover agents. The FBI admits that the defendants never posed any harm. How can it be a crime -- or harmful -- for people to leave the U.S.? If people with evil inclinations want to leave, let them go; arrest them when they return if they cause harm.

For 600 years of Anglo-American jurisprudence, the definition of crime has included the element of harm. No one was harmed by this sting except the taxpayers. Yet, this announcement dominated the news cycle as hoped for.

Why chastise the Poles, who suffered egregiously under the Nazis, in 2015 for the few who collaborated with them in 1942? Why entrap losers who harmed no one into thinking they could freely leave the country and join an army of monsters and then announce their arrest during a bad week? To change the subject; that’s why.

Will FBI agents who lie, cheat, break the law and testify falsely be brought to justice? Will their superiors who condone this be made to answer? Does the FBI work for us, or do we work for it?

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.

The Problem With NYC’s Landmark Preservation Laws

Richard Epstein*

RICHARD EPSTEIN

RICHARD EPSTEIN

This year, the New York City Landmark Preservation Commission is celebrating its fiftieth anniversary with, not surprisingly, a triumphant summation of its many achievements: fostering civic pride, protecting property values, attracting tourists, and strengthening New York’s economy.

The Commission’s activities over the past fifty years have indeed altered the landscape of the city. There are now some 1,347 individual landmarks, 114 historic districts, and 10 scenic and 117 interior landmarks. Today, about 27 percent of buildings in Manhattan have the dubious honor of landmark status—dubious because of the enormous costs associated with that designation. Surely, New York has many buildings worth preserving for the cultural and aesthetic benefits that they bring to the city. But it is one thing to accept as legitimate the public ends of the landmark statute and it is quite another to endorse the heavy-handed methods that the Commission uses to apply its mandate.

The law creating the New York City Landmark Preservation Commission was passed in 1965. New York City Mayor Robert F. Wagner signed the legislation in the wake of the 1963 demolition of the old Pennsylvania Station—a Beaux-Arts masterpiece by the great architectural firm of McKim, Mead & White—that made way for the new Madison Square Garden. The purpose of the law was to supposedly preserve New York City’s great and historic buildings from the crass utilitarian dictates of the marketplace.

Though the law was originally well intended, the current rules under which the Commission operates regulate everything from the process by which landmarks are designated to the extensive restrictions on the ability of their owners to make any exterior or interior changes in their structures, down to the last ventilation duct, awning, window opening, and fire escape. The simplest way to think about landmark designation is that it puts the city in the position of part owner of the affected buildings, which then lets it decide how these buildings are maintained and altered, without having to bear anything close to the full financial burden of its decisions. Yet, at the same time, the city only has a tiny budget—under $6 million for the current fiscal year—to manage this far flung enterprise.

The key question here is the touchy matter of who should pay for the benefits that the city imposes. As matters now stand, those costs are born largely by the private property owners, who must bear the losses in market value that come from landmark designation established through a complex political process in which they participate, albeit without effective control. The demand for the extension of these laws—whether by adding new properties to the list, or by tightening the restrictions on the use and renovation of existing properties—is high because the price of that regulation is currently set at zero.

Rest assured that the behavior of landmark commissions and landmark preservationists alike would change rapidly if they had to raise public or private money to fund their prized projects. At this point preservationists, like everyone else, would have to learn to live within a budget, at which point they would moderate their demands so that only the best projects would be landmarked, and only in a way which minimizes the financial burdens to their owners.

This is not so under current practices, that let activists list, or “calendar,” various buildings for landmark designation, at which point their owners must gain Commission approval in order to get work permits for the site, leading to a deterioration in the very properties that need preservation. In an effort to reduce the backlog to that overload, Landmarks Chairwoman, Meenakshi Srinivasan, proposed to remove over 100 buildings from the roster in order to let the Commission devote its limited budget to key properties.

Her sensible proposal was buried under an avalanche of criticism so that the status quo continues. A recent New York Times editorial praises the law on the one hand while lamenting its defects on the other. The Times writes as if scarcity were irrelevant. Mayor de Blasio, the paper contends, has to speed up the creation of new affordable housing units while preserving more of the city’s historic cultures. But at no point does the Times understand that the chief defect of the New York Landmarks Law is its want of a pricing mechanism in making key decisions.

The original and conscious omission of a compensation requirement from the 1965 law led to a famous constitutional challenge of the New York City Landmark Law, which culminated in what ranks as the single most influential “takings” decision of recent times—the United States Supreme Court’s 1978 decision Penn Central Transportation Co. v. City of New York, which offers a textbook illustration of everything that can go wrong in constitutional adjudication.

At issue in Penn Central was a decision by the New York City Landmarks Commission to refuse to allow Penn Central, as owner of Grand Central Station, to build an impressive Marcel Breuer Tower over the station. Simply stated, the claim of Penn Central was that the city took its air rights without compensation, which it had to pay for its plan to go forward. In upholding the city’s position, Justice Brennan twisted the law of takings in ways from which it has yet to recover.

The simplest way to approach the case was to note that the development rights over the terminal were, under New York law (and indeed everywhere else), a recognized interest in property that was routinely bought, sold, mortgage and leased. Indeed, without a strong system of air rights, it would be impossible to sell condominiums or lease office space in any high-rise building.

Normally, the state law of property determines the interests that receive protection from expropriation under the takings clause that provides: “nor shall private property be taken for public use without just compensation.” The clause’s broad sweep applies to all of the many types of property interests, not just the outright ownership of a given parcel of land by a single owner.

In dealing with these takings issues, the traditional lodestar was a famous 1960 maxim of Justice Hugo Black in Armstrong v. United States, that the takings clause “was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” In this instance, the ostensible benefits of taking the development rights were, as everyone insists, for the benefit of New York City as a whole. The city need not pay the construction costs for a building that was never constructed. But if it takes the air rights, it should pay for them, at which point there will be responsible public deliberations of whether the light and view thereby preserved are worth the financial costs they impose on the city. The on-budget nature of the deliberation improves the operation of the democratic political processes.

Justice Brennan would have none of this. His first move was to insist wrongly that Justice Black’s maxim could not apply to complex forms of regulation that had to be governed by what he termed “ad hoc rules.” He further argued that those ad hoc rules did not require per se compensation for the taking of a partial interest in land. Instead, he urged a complex inquiry to determine whether the “investment-backed expectations” of the property owner merit compensation in light of the city’s public objectives in imposing these restrictive regulations on land use. From there he wrongly concluded that the “primary expectation” of Penn Central had to be the present use of its facility.

Therefore, so long as it received some return from the “parcel as a whole,” it could not complain of the loss of its future development rights, which were fully protected under New York law. He thus took the odd position that the government did not have to pay for the property interests that it took, so long as it left something of value behind, which is in flat contradiction to the standard rule that the government should pay for the property it takes, no matter how much it leaves behind.

As a legal matter, Penn Central opened up an intellectual can of worms that remains unresolved today. No one knows how Justice Brennan determined why the development of air rights didn’t matter to their owner, just because its current operations may have mattered more. Nor did his formulation give any guidance as to what the government should do with various land use provisions on parcels where current operations cannot cover their costs, or indeed, where the land was not developed at all, so that the only expectation had to be in development rights. Nor does anyone have any idea of what counts as the “parcel of land” when a single plot of land is subdivided into many lots, or multiple separate parcels of land are assembled into a whole.

The bottom line, however, is that the Court has, for the most part, let local governments impose extensive land use restrictions on all sorts of vacant and developed parcels, without the slightest assurance that the social gains from these regulations exceed the costs that they have imposed. The political pressures to get something for nothing are hard for local governments to resist.

The intellectual wreckage of Penn Central has made it impossible to introduce any sensible reforms on land use designation in New York City. The key to any sensible reform is to put all the government claims on budget, so that the public can deliberate sensibly about how much should be spent on landmark preservation and which projects should be selected for their the aesthetic and civic virtues.

The only way to achieve that focus is to require the state to pay for whatever it takes. Once that is done, grandiose claims will no longer be sustainable. In addition, fiscal restraint will compel public bodies to look for better ways to minimize the dislocations on current owners. With government resources limited, private groups can raise money to preserve key structures and monuments, spurred on by a charitable deduction that operates as a matching public grant.

Come to think about it, are we really sure that New York City is the better for not having a world class tower over Grand Central Station, when the view up and down Park Avenue was at the time already partially blocked by the (then) Pan Am building? It is surely worth asking whether the tough land-marking restrictions now in place are thwarting the creation of new landmarks, which current landmark regulations can easily do across entire districts. It is not for the courts to dictate the budgets or select the projects for landmark preservation. But by insisting on compensation for property taken by regulation, it can improve the deliberative processes and thereby ease the logjams, inequities, and factional struggles that luxuriate under the current statutory framework. 

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

Watch the Symposium on Economic Liberties and State Constitutions

Weren't able to attend the the Symposium on Economic Liberties and State Constitutions? You can still catch the action! View the Keynote Address & Panels by clicking the links below.

Keynote Address featuring Hon. Robert Smith, formerly of the New York State Court of Appeals

Panel 1: “Historical Roots of the Protection, and Regulation, of Economic Liberties”

Panel 2: Modern Applications of State Constitutions to Economic Liberties: Realities and Pitfalls"

Can the President Kill Americans?

Judge Andrew P. Napolitano*

JUDGE NAPOLITANO

JUDGE NAPOLITANO

Can the president kill you? The short answer is: Yes, but not legally. Yet, President Obama has established a secret process that involves officials from the Departments of Justice and Defense, the CIA, and the White House senior staff whereby candidates are proposed for execution, and the collective wisdom of the officials then recommends execution to the president, who then accepts or rejects the recommendation.

If the recommendation is to kill and the president rejects the recommendation, the CIA is directed to arrest the person. If the president accepts the recommendation to kill, then death is ordered. This is not unlike the procedure used in the reign of the monstrous British King Henry VIII, except that the king himself delegated the final say to his chancellor so that he could publicly disavow participation in the government murders.

Obama does not disavow them; he defends them. But the Constitution he swore to uphold makes clear that whenever the government wants the life, liberty or property of anyone, it must follow due process. Stated differently, it must either sue the person for his property or prosecute him for his life or liberty, and the law that forms the basis for the lawsuit or the prosecution must have existed before the person did whatever the government says he did that resulted in its pursuit of him. The whole reason for the requirement of due process was to prevent what Henry VIII did and Obama is doing from ever happening here.

It is happening here.

In 2011, Obama ordered the CIA to murder Anwar al-Awlaki, an American born in New Mexico. When the CIA’s drones murdered Awlaki, he was within eyesight in Yemen of about 12 Yemeni intelligence agents and four CIA agents, all of whom collectively could have arrested him. He was not engaged in any unlawful behavior. He was unarmed and sitting at an outdoor cafe with a friend and his teenage son and the son’s friend. All four -- Americans all -- were murdered by the drones dispatched from Virginia.

When word of this got out, the president came under heavy criticism. He responded by claiming he had the lawful authority to kill any dangerous person whose arrest was impractical. He also claimed he had a legal opinion from Attorney General Eric Holder that justified the killings. He then dispatched Holder to explain the lawful basis for the killings at a speech at Northwestern Law School. The speech produced even more criticism and, eventually, the revelation of a portion of the legal opinion.

The legal opinion is hogwash. It relies on cases of hot pursuit in which police may lawfully use deadly force to stop an armed and dangerous person who is an imminent danger of causing deadly harm to someone else -- an armed robber fleeing a bank he has just robbed and shooting at his pursuers may of course be shot at lawfully by the police. In the Awlaki case, the government had not even alleged that he committed a crime. Without that allegation, those 16 intelligence agents who were following him for the final 48 hours of his life could not have lawfully arrested him. The government concedes this; so it decided to kill him.

All this resurfaced last week in a Brooklyn federal courtroom where another American, Mohanad Mahmoud al-Farekh, born in Texas, was charged with providing material assistance to a terrorist organization while he was in Pakistan. It was revealed that the Department of Defense nominated Farekh for execution, the CIA seconded the nomination (you cannot make this stuff up), and the president vetoed it because he did not want to offend the Pakistanis, over whose land he has dispatched more than 3,000 drones, a practice he promised to stop.

The president did not decline to order the murder of Farekh because it was morally wrong or unconstitutional or a violation of federal law, but because he feared it would upset officials in a foreign government. We also learned last week that the House and Senate committees on intelligence -- the members of which receive classified briefings that they cannot share with their constituents or colleagues -- demanded Farekh’s execution, but the president refused.

What a sad, sorry, unconstitutional state of affairs this Obama presidency and its enablers in Congress have brought us. Like Awlaki, Farekh was not engaged in an act of violence when intelligence agents pursued him. Why did one of these pursuits result in due process and the other in murder? Because of the political calculations of the president. That is not the rule of law. That is a gross violation of basic American values.

While all this has been going on, the president has negotiated a deal with Iran that has many in Congress up in arms. They think he gave away the store, and they are in the process of enacting legislation over his likely veto that would prohibit him from entering into agreements on nuclear weapons without their consent. Have you heard any of these self-proclaimed congressional patriots offer legislation to prohibit the president from murdering Americans? Who will be nominated for execution next?

When the president acts like a king and Congress looks the other way, it is as culpable as he is.

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.

The Problem With Antidiscrimination Laws

Richard Epstein*

RICHARD EPSTEIN

RICHARD EPSTEIN

My column of last week, The War Against Religious Liberty, addressed the combustible mixture of the antidiscrimination norm and religious liberty, as it applies to ordinary businesses that do ordinary things, like taking photographs and baking wedding cakes. In dealing with that issue, I implicitly accepted the common premise that the antidiscrimination laws as they apply to public accommodations are an acceptable part of the American legal culture, so that the one remaining serious question is what governments should do when small businesses in competitive markets are asked to perform services that cut against their sincere religious beliefs. For the most part, these conflicts are rare, but they do occur with regularity when religious Christians object on grounds of conscience to providing services for same-sex marriages and similar commitment ceremonies.

The standard method for dealing with these conflicts is to introduce a three-step balancing test under both the federal and state versions of the Religious Freedom Restoration Act. The first step asks whether a presumptive exemption is appropriate because the law places a substantial burden on the exercise of a religious liberty. That question is answered in the affirmative when individuals are asked to engage in close collaborative efforts. But it is answered in the negative when the transaction involves only the sale of prepackaged and standardized goods in routine market transactions. Next, where the burden is substantial, does the state have a compelling interest in imposing its antidiscrimination law? All too often today that interest is found, which leads to a simple decree that the service must be provided on pain of a fine or other sanctions, even for services readily available elsewhere. Finally, that state interest is to be satisfied in the least restrictive possible manner, which in this context means offering the requested service or going out of business.

This conventional approach sets up a large and persistent clash between the antidiscrimination law and religious liberty. Much of that problem rightly disappears if we ask the right fundamental question: why and when do we have any antidiscrimination law at all? In examining this issue, it is critical to return to fundamental legal principles that antedate the passage of the Civil Rights Act of 1964, which extended the antidiscrimination principle first to “public accommodations” under Title II of the Act, and then to employment relations under Title VII.

Historically, the nondiscrimination rule was applied first to common carriers and then to public utilities because both were typically supplied by firms that had a monopoly position in the relevant market, which meant that a refusal of the operator of those facilities to supply the service to all comers left disappointed customers quite literally out in the cold. Nonetheless, the antidiscrimination principle was confined to those cases, so that in competitive markets any person could for any reason offer whatever goods and services he or she had on whatever terms and conditions that he or she saw fit to make.

The basic rule was stated with commendable clarity by Lord Ellenborough in England as early as 1810. In Allnutt v. Inglis, he wrote that in general every person “may fix what price he pleases on his own property,” but “if he will take the benefit of a monopoly, he must as an equivalent perform the duty attached to it on reasonable terms.” That principle worked its way into American public utility regulation as a constitutional matter in the 1876 decision of Munn v. Illinois. Over time its full elaboration denied that any common carrier or public utility had the power to turn away customers who had no reasonable alternative for obtaining service.

Yet, by the same token, that monopolist cannot be required to operate that service at a loss, and therefore is entitled to charge reasonable and nondiscriminatory rates. The first of these two terms signals that the monopolist’s profits should, on a risk-adjusted basis, be held down to competitive levels, without forcing it to operate at a loss. The second contains the core of the nondiscrimination principle, which states that the monopolist cannot play favorites among its customers in a given class (e.g. residential versus commercial services, or freight versus passenger service) by selectively boosting rates, most especially on grounds of race or sex. The only permissible rate differential reflects a differential cost of providing service.

In this context, the key predicate for the application of the nondiscrimination rule is the control over monopoly power. It follows therefore by this logic that in competitive markets there is no place for the antidiscrimination norm, so that the elaborate accommodations under a Religious Freedom Restoration Act need not be made at all.

The key inquiry therefore is how best to identify when those competitive conditions hold. In the run-up to the 1964 Civil Rights Act the great impetus behind the passage of Title II was the widespread and conspicuous stories of motels and restaurants refusing to provide service to their black customers on equal terms with white customers, assuming that they were willing to provide for them at all. At this point, there is an evident breakdown in the operation of competitive markets, because it seems evident that some merchants—most notably national restaurant and hotel chains—that provided open service in the North were unable to do so in the South. The explanation in large measure rested on the combined threats of a segregationist establishment backed by private violence, which made entry of new businesses into the market to serve disfavored groups a near impossibility. The great achievement of the Civil Rights Act of 1964 was to smash these official and private barriers to open services. Once released, competitive forces took over, and the short-term crisis came to an end.

It is important, however, to draw the right lesson from the horrific experience of segregation. That lesson is that if competitive market forces are allowed to work, the problem of discrimination will be solved by the entry of new firms who will cater to mass markets, wholly without legal compulsion. That was certainly the case in Indiana before the passage of its Religious Freedom Restoration Act. There were no legal rules that prohibited discrimination in public accommodations against gays and lesbians, and there was no want of service.

Marriage markets are of course different, because now the identity of the parties really matters along the lines of race and sex, which are the primary targets of antidiscrimination laws in public markets. It is well known that there is an active market that competes vigorously for same-sex-marriage couples in explicit and unmistakable terms. A quick Google search for “same sex wedding venues” revealed about 369,000 entries in that niche. For example, GayDestinationWeddings is “created expressly to serve the needs and exceed the expectations of the LGBTQ community.” From the website, it appears that it discriminates against traditional heterosexual couples. This reads like a flat-out violation of the new civil rights laws, but who cares? The fact that every entrepreneur does not choose to enter every niche in the larger wedding market is at most an irrelevant detail to the overall health of the market. The abundance of competitive alternatives means that federal and state governments never have a legitimate interest in forcing unwilling people into business with others. Thus, the need for the complex RFRA structure collapses.

But at this point, the response will be to play the race card. If you allow firms to refuse to service gay and lesbian individuals, then it becomes legal to refuse service to black persons as well. Precisely—at least if the legal principle is correctly stated. It would be a gross injustice of the first order to say that white people could refuse to service black people, but that black people were duty-bound to service white people. But the principle of freedom of association does not take that one-sided view of the problem. It says rather that all individuals can choose their trading partners as they see fit. This principle in effect allows for all sorts of associations to flourish.

Another quick Google search got me to Black Bride, “The Premier Online Resource for Brides of Color,” an attractive web site whose very existence looks like a per se violation of the Civil Rights Act. It is an open question of whether a strict color-blind principle could allow such important businesses to flourish. But as matters pan out, it takes but a single click to get the interested customer to a website that is devoted to multicultural interracial weddings, and then realize that a strict public accommodation law is a real threat to social diversity.

This particular rule is not confined to weddings. One of the great debates of the modern era is whether the color-blind principle of the Civil Rights Act renders affirmative action programs illegal for private businesses, colleges, and charitable institutions that wish to implement them. The worst approach to this question is to say that these institutions are allowed to follow their policies only if they can make out some special reason for doing so. That will only clutter the issue with claims about the vast benefits of diversity, which could be true in some cases, even if they are false in others. But why should institutions have to make these claims to do what they want? Just let any private institution that wants to deviate from a color- or sex-blind principle do so, which means that private colleges and universities should be free of the yoke of Title IX, whose antidiscrimination diktats have thrown a huge monkey-wrench into college athletics. University administrators will not be tone-deaf on these issues, even without the government peering over their shoulders.

The great mistake of the public accommodations provision of the 1964 Civil Rights Act is that it cut too broadly in covering all hotels, restaurants, and places of entertainment. Now that organized segregation and the systematic violence that enforced it have been vanquished, I am willing to bear indignant cries from anyone who objects to my effort to limit the nondiscrimination principle of Title II to common carriers and public utilities, where they blunt the risks of monopoly power in the provision of standardized services. To be sure, as a matter of political economy, it is unwise to mount a legal revolution to attack on principle a widely supported statute whose basic application causes no harm. But by the same token, the uncritical acceptance of the view that these public accommodation laws are so important that they should sweep everything else aside has produced serious dislocations where there is a horrible fit between the legal command and the social practice.

It is for that reason that it is important in the current environment to play the balancing game in the correct fashion, which means that we have to be very chary of expanding the notion of “compelling state interest” so that it becomes a weapon to create a two-tier society that privileges the claims of black voters, as in the recent Alabama Black Caucus case, and of gay and lesbian consumers, as in the battle over the Indiana RFRA law. The one safe principle is to allow competition to flourish in the market for goods and services, and to keep to the color-blind principle in the public dispensation of goods and services for all citizens, regardless of their legitimate claims of self-identification. 

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

Thank You To All Who Attended Our Symposium on Economic Liberties & State Constitutions

JLL would like to thank our readers who attended our symposium on economic liberties and state constitutions. We had a great turnout, and we hope to see you at our future events!

We would also like to sincerely thank the Institute For Justice, as the symposium would not have been possible without their support. We hope to do more events with IJ in the future, and encourage our readers to check out the excellent work they have been doing across the country!

Justin Pearson (left), Professor Stephen Calabresi (middle), and Professor Richard Epstein (right). 

Justin Pearson (left), Professor Stephen Calabresi (middle), and Professor Richard Epstein (right). 

Shooting Themselves in the Foot

Judge Andrew P. Napolitano*

JUDGE NAPOLITANO

JUDGE NAPOLITANO

The turmoil over the efforts by the State of Indiana to make lawful the decisions by operators of public accommodations to decline their services based on their stated religious views has died down because the legislature amended the offending parts of its legislation so that the new law prohibits denying services based on sexual orientation, yet its affirmations of religious liberty are meaningless.

The statute as amended last week basically states that in Indiana all persons have the right to the free exercise of their religion, and if that right clashes with any other claimed right, the courts must take both claims into account and analyze the free exercise of religion claim by using legal standards intended to recognize that it is fundamental.

That is already the law of the land everywhere in the United States by virtue of the Free Exercise Clause of the Constitution, which may not be expanded by any state legislature without offending the Establishment Clause. The free exercise of religion is a fundamental liberty; it is fundamental because it is a natural right and is expressly protected by the Constitution. It is intentionally juxtaposed to be at tension with the Establishment Clause. The two clauses together mean that government may not aid religion, may not harm it, may not advance it and may not interfere with it.

The Indiana firestorm was the consequence of a governmental solution for no problem. It is absurd for a state to pronounce in its positive law the truism that rights guaranteed by the U.S. Constitution shall be honored in that state. I say “absurd” because that already is the law of the land and any effort to restate it is superfluous and no doubt intended to mislead the people into believing that somehow, in Indiana, there is more religious freedom than elsewhere in the U.S. There isn’t, and there cannot be.

This misrepresentation occurred when Indiana’s original Religious Freedom Restoration Act stated that religious beliefs can trump legal obligations when the operator of a public accommodation is deciding whether to deliver his goods or services to a person whose status, past behavior or contemplated behavior runs counter to the operator’s religious beliefs.

By permitting the rejection of services because of sexual orientation, so long as that rejection was based on a religious belief, Indiana was effectively making discrimination based on sexual orientation lawful. No other state had done that.

When the owner of a northern Indiana pizza restaurant said she would decline to deliver pizza to a same-sex wedding reception because her religious views prohibit same-sex weddings, it was a lawful statement, and if she had carried through on her promise, her behavior in Indiana at the time the original statute was in force would have been lawful.

Should the pizza restaurant owner have been able to make that promise and carry through with it?

Before you answer, consider where this could have gone. Suppose the couple seeking the pizza at their wedding was not only same sex, but also of two different races, and the pizza shop owner claimed a religious aversion to mixed-race marriages. Could she have followed through on her promise to deny the pizza? Or suppose she objected on religious grounds to weddings of those who had been previously married? Could she lawfully have denied pizza to them? Or suppose she claimed a religious view that prohibited her from serving pizza to anyone whose skin color was darker than hers? Is there no limit to her ability to refuse service so long as she claims a religious basis for doing so?

One can see the slippery slope that the original Indiana statute could have begun by offering state legal protection to the refusal to deal based on religion, even when it is contrary to federal law. Under the law, no one needs to prove the prior existence of a religious creed or decree in order to claim it for one’s own, and the courts may not inquire of the origin, centrality, rationality or sincerity of one’s religious beliefs. Hence, the Indiana law on its face could be used to claim the right to deny any person any service in any public accommodation, so long as the denial was based on the denier’s stated religious views.

But the statute runs counter to standard First Amendment jurisprudence. The U.S. Supreme Court has addressed this twice in recent years and both times ruled that religious beliefs cannot trump the obligation to comply with the general law of the land. The Indiana legislature should have known this.

Before 1964, all public accommodations could refuse service to anyone for any reason. But the Civil Rights Act of 1964 and its amendments put an end to that for all immutable characteristics of birth, except sexual orientation. If the Indiana legislature wanted to bring back the bad old days with respect to sexual orientation and public accommodations, one can understand the firestorm it got. If it was just trying to boast that it was defending the same religious liberties the Constitution already requires it to defend, its efforts were clumsy, unnecessary and wasteful.

Why do politicians support legislation and not concern themselves with whether it is constitutional? Why do they trick innocent voters into thinking they are getting something unique? Why do we return them to office when they shoot themselves in the foot?

*Andrew P. Napolitano, a former judge of the Superior Court of New Jersey, is the senior judicial analyst at Fox News Channel. Judge Napolitano has written seven books on the U.S. Constitution.