Leef highlights Supreme Court’s contracts clause controversy

George Leef’s latest Forbes column contends that the U.S. Supreme Court will decide soon whether to allow the U.S. Constitution’s contracts clause to survive.

In the first century or so of our national existence, one of the Constitution’s provisions that was most often at issue was the Contract Clause. But following New Deal era decisions that eviscerated it, hardly any cases have since centered on it. The clause has been so forgotten that few Americans even know it’s there, in Article I, Section 10, reading, “No state shall pass any law impairing the obligation of contracts.” …

… [I]magine if the Court had developed a robust, pro-contract jurisprudence based on the Contract Clause to match its pro-speech jurisprudence emanating the its favored First Amendment. Lots of governmental interference with people’s liberty to shape their lives through contracts they want — or don’t want — would have been prevented, such as minimum wage laws.

But that’s not what happened to the Contract Clause. The courts kept allowing the states to whittle away at it by devising a three-factor “balancing test” whereby the assertion of the slightest state interest in meddling with contracts was usually good enough. …

… Which brings us to the case at hand, Sveen v. Melin.

Mark Sveen and Kaye Melin were married in 1997 and lived in Minnesota. After their marriage, Sveen purchased a life insurance policy, naming Kaye as primary beneficiary and his children by a previous marriage as contingent beneficiaries. The couple divorced in 2007 and Sveen died in 2011.

The trouble arose out of the fact that the state changed its probate code in 2002. The law now provided that life insurance beneficiary designations would be revoked upon divorce. After the divorce, Mark did not change the beneficiary designation, leaving Kaye listed as the primary beneficiary when he died. Naturally, both Melin and the Sveen children want the proceeds, the latter arguing that under the new Minnesota law, they are entitled to the money. Hence the suit.

That’s where the Contract Clause enters the picture. Did Minnesota violate it when it in effect rewrote existing life insurance contracts with its revocation-upon-divorce statute? The federal district court upheld the statute and found for the Sveens, but on appeal, the Eighth Circuit reversed.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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