Wednesday, March 20, 2013

Fifth Circuit Protects Liberty and Consumers from Crony Capitalism

Struck a Blow for Economic Liberty

Sustained Crony Capitalism

Earlier today the U.S. Court of Appeal for the Fifth Circuit struck a blow for economic liberty, efficiency and consumer welfare.  In St. Joseph Abbey v. Louisiana State Board of Embalmers and Funeral Directors, No. 11-30756 (March 20, 2013), the Fifth Circuit invalidated rules promulgated by the Louisiana State Board of Embalmers granting funeral homes the exclusive right to sell caskets and thus excluding St. Joseph Abbey and other so-called third party vendors from selling caskets at reasonable prices.  Among other things, the court found that the Abbey produced and sold two models of casket: "monastic" and "traditional," for $1500 and $2000 respectively, prices significantly lower than those charged by the state's funeral homes.

The Fifth Circuit held that Louisiana's regulations coercively excluding various producers from the market abridged St. Joseph Abbey's economic liberty without due process of law, thus contravening the 14th Amendment to the U.S. Constitution.  Writing for the court, Judge Patrick Higginbotham, pictured above, rejected Louisiana's remarkable claim that a bare desire to enrich the state's funeral homes at the expense of grieving families was, without more, a valid "rational basis" that would support such exclusionary legislation.  Simply put, the court said, "naked economic preferences are impermissible [bases for legislation] to the extent they harm consumers." 

After rejecting Louisiana's bid for the authority to destroy economic liberty for the sake of enriching incumbent producers, the court went on to reject two other purported bases for the regulation.  First, the court rejected Louisiana's claim that the regulations helped ensure that grieving consumers made a wise selection of caskets in light of what the court called "complexities that arise from burial conditions in any given area."  According to the court, Louisiana law already required funeral directors to provide their clients with such advice, in return for a mandatory "basic services fee."  Hence, requiring consumers also to purchase their caskets from such funeral homes could not enhance the quality of advice consumers might receive.  Second, the court rejected the state's claim that such coercive exclusion protected public health and safety.  As the court pointed out, Louisiana law does not require burial in a casket in the first place, regulate the construction or design of caskets or require funeral directors to have any "special expertise in caskets."   Thus, there was simply no plausible connection between the ban on the sale of caskets by independent sellers like the Abbey and public health or safety.   If anything, it seems, the flimsy and patently pretextual nature of Louisiana's asserted rationales helped confirm that the rule were the product of industry capture of the regulatory process.  Or, as the court put it, the regulation entailed "the taking of wealth and handing it to others . . . [for the] protection of rule makers." 

The decision is remarkable for at least two reasons. First, as already noted, Louisiana openly and notoriously asserted the right coercively to abridge the Abbey's economic liberty for the sole purpose of enriching funeral directors at the expense of grieving consumers. Apparently Crony Capitalism is alive and well in Louisiana. Second, the Fifth Circuit expressly rejected this contention, holding that the Due Process Clause itself imposes certain restrictions on legislative goals in addition to those restrictions contained in the Bill of Rights and other constitutional provisions.  In so doing the court implicitly rejected language to the contrary in Ferguson v. Skupra, 372 U.S. 726, 728-31 (1963).  In Skupra, the Justices sustained a ban on debt adjustment by non-lawyers, without identifying any rational basis for the coercive infringement on occupational liberty.  (As the Fifth Circuit noted, however, subsequent  Economic Due Process decisions have, in fact, identified rational bases when rejecting challenges to similar legislation.  See New Orleans v. Dukes, 427 U.S. 297 (1976).)

More fundamentally and equally remarkable, today's decision seems in tension with the poorly-reasoned Slaughterhouse Cases, 83 U.S. 36 (1872).  Slaughterhouse, some will recall, involved a challenge to a previous example of Louisiana Crony Capitalism, namely, the state's grant of a monopoly over the slaughterhouse business in the parishes of Orleans, Jefferson, and St. Bernard, totaling over 1100 square miles.  In an opinion by Justice Miller, also pictured above, the Court rejected claims that this coercive imposition of a monopoly contravened the Due Process Clause, Equal Protection Clause or Privileges and Immunities Clause, holding that the monopoly grant fell within the police power.  This holding does not withstand even minimal scrutiny, given that generally applicable regulations could have satisfied any valid health or safety interest.  Simply put, the statute challenged in Slaughterhouse simply enriched some at the expense of others and would not have survived the Fifth Circuit's more realistic analysis.

No doubt some will criticize the Fifth Circuit for purported "judicial activism" along the lines of Lochner v. New York, 198 U.S. 45 (1905).  Both Lochner and its progeny, of course, protected occupational liberty and liberty of contract from abridgments, including minimum wages, maximum hours, state price fixing and the like, that fell outside the police power, that is, did not combat externalities or other market failure.  See also Charles Wolff Packing Company v. Kansas Court of Industrial Relations, 262 U.S. 522, 535-42 (1923) (voiding state's regulation of the wages of meat packers in a highly competitive market) (Taft, C.J.) (unanimous).  In so doing, the Court invalidated numerous measures that, for instance, imposed disproportionate costs on small firms, advantaging large firms. Moreover, as previously explained on this blog, federal interference with the sort of liberty of contract that Lochner protected both deepened and lengthened the Great Depression, thereby creating unnecessary economic misery. In any event, the Fifth Circuit convincingly disclaimed any reliance upon Lochner and its progeny, which scrutinized both the means and ends of legislation more carefully than did the Fifth Circuit today.  Perhaps the Fifth Circuit's decision is the first step down the road toward revitalizing Lochner and greater protection for economic liberty.  If so, that road will be long indeed.