The Constitution’s Contracts Clause protects a party's contractual rights from being retroactively modified by state legislation. In his “Federalist Paper No. 10,” James Madison cautioned that, absent such protection, state lawmakers might abuse the legislative process by passing laws that impair the vested contractual rights of their political adversaries.
A recent circuit split has emerged over whether parties may use 42 U.S.C. § 1983 as a vessel for bringing claims against state entities for alleged violations of the Contract Clause.
Earlier this year in Crosby v. City of Gastonia, the Fourth Circuit concluded that a “§ 1983 action alleging state impairment of a private contract will not lie.” 635 F.3d 634, 641 (4th Cir. 2011).
The court acknowledged, however, that “one of [its] sister circuits ha[d previously] reached the opposite conclusion,” citing the Ninth Circuit’s Southern California Gas Co. v. City of Santa Ana, 336 F.3d 885, 887 (9th Cir. 2003) (per curiam). According to the Ninth Circuit’s opinion in City of Santa Ana,
Section 1983 provides for liability against any person acting under color of law who deprives another "of any rights, privileges, or immunities secured by the Constitution and laws" of the United States. 42 U.S.C. § 1983.
The right of a party not to have a State, or a political subdivision thereof, impair its obligations of contract is a right secured by the first article of the United States Constitution. A deprivation of that right may therefore give rise to a cause of action under section 1983.
A few months after the Fourth Circuit issued its opinion in Crosby, the District of Nebraska noted that "the Third Circuit Court of Appeals [has] held that a cause of action under § 1983 lies for impairment of contract under the contract[s] clause of the United States Constitution as applied to states under the Fourteenth Amendment when state law attempted to take away vested retiree health benefits for a judge. Larsen v. Senate of the Commonwealth of Pennsylvania, 154 F.3d 82 (3d Cir. 1998)," adding,
The court further notes that the Crosby case is not persuasive. The Crosby court relied on the limited holding in Carter and determined that contract[s] clause cases are not subject to § 1983. This court disagrees and will follow the reasoning of Higgins, Larsen, and City of Santa Ana,absent a directive from the Eighth Circuit to do otherwise.
Professional Firefighters Ass'n of Omaha, Local 385 v. City of Omaha, No. 8:10-CV-198 (D. Neb. June 7, 2011). Then in October 2011, the First Circuit issued an opinion appearing to endorse the Fourth Circuit's conclusion in Crosby. See Redondo Constr. Corp. v. Izquierdo, No. 09-2565 (1st Cir. 2011) (citing Crosby v. City of Gastonia, 635 F.3d 634, 640 (4th Cir. 2011)).
One interesting side note (actually, one interesting footnote to be exact). Back in April, the Constitutional Law Prof Blog and Professor Jay Wexler called attention to a peculiar footnote in Crosby v. City of Gastonia, which reads:
n.2 The Clause provides, in pertinent part, that "[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts." U.S. Const. art. I, § 10, cl. 1. The Supreme Court and nearly all federal courts have, over the years, inconsistently denominated this key provision of Article I as both the "Contract Clause" and the "Contracts Clause." Because the text of the Constitution speaks of the obligation of "contracts" in the plural, we will use that form of the noun to refer to the Clause in this opinion.
(ellipsis in original). The Constitutional Law Prof Blog goes on to report that a study conducted by "Professor Jay Wexler reveals that federal courts are about five times more likely to use the term 'Contract Clause' than 'Contracts Clause' - - - 4,800 to 900 cases in the 'allfeds' database."