Ferguson v. Skrupa

PETITIONER:Ferguson
RESPONDENT:Skrupa
LOCATION: Skrupa’s business

DOCKET NO.: 111
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 372 US 726 (1963)
ARGUED: Mar 20, 1963
DECIDED: Apr 22, 1963

Facts of the case

A Kansas statute made it a misdemeanor to enter into contracts for “debt adjusting” (a practice in which a debtor agrees to pay a monthly fee to an adjustor who then makes payments to the debtor’s creditor). Skrupa was in business as a “Credit Advisor” and engaged in this practice. A lower court held that the Kansas statute was an “unreasonable regulation of a lawful business” and struck it down.

Question

Did the Kansas regulation of debt adjusting violate the Due Process Clause of the Fourteenth Amendment?

Earl Warren:

No. 111 William M. Ferguson the Attorney General for the State of Kansas, et al Appellants versus Frank G. Skrupa.o

Attorney General Ferguson.

William M. Ferguson:

Mr. Chief Justice, may it please the Court.

This case involves the constitutionality of a Kansas Statute making it a misdemeanor to engage in the business of debt adjusting for a fee.

Statute has a proviso that the provisions of this act shall not apply to those situations involving debt adjusting as herein defined, incurred incidentally in the lawful practice of law in the state.

I might say to the court that debt adjusting is an activity, a business activity wherein the debtor turns the portion of his earnings over to the debt adjustor and is usually as a result of solicitation by advertising or some other means.

Then the adjustor distributes to the creditors of the debtor who will agree to the plan and the adjustor charges a fee and it is usually based upon the total amount of the debt.

Now this is a criminal statute, misdemeanor, and the statute does not affect those that charge no fee.

This case was brought in the Federal District Court, in the District of Kansas asking for an injunction and for declaratory judgment.

Action was brought against the Sedgwick County, county attorney and the Attorney General State of Kansas as Defendants.

Temporary restraining orders were issued and then there was an order for three-judge court.

The Wichita Bar Association filed an application to intervene on behalf of the state and it was granted.

There was a hearing and then a decision by the three-judge court, two-to-one, Judge Stanley dissenting, declared that the law violated due process and is unconstitutional.

I call the Court’s attention to the decision, it’s found on page 126 of the transcript, the court below said that the grounds upon which this action is predicated or that the act is void because it violates and infringes Plaintiff’s rights guaranteed by the Due Process Clause of Fourteenth Amendment of the United States Constitution.

The Court in its conclusion of law concluded that, the act in question is prohibitory and not regulatory, but went on to say that even if it’s construed as regulatory, it is unreasonable, unwarranted regulation of a lawful businesses and therefore constitutes a violation of the rights claimed as guaranteed by Due Process Clause in the Fourteenth Amendment.

The only question here involves measuring of this statute against the Due Process Clause of the Fourteenth Amendment.

How many states have got this statute on their books?

William M. Ferguson:

There are 13 states that have similar statutes.

Seven have regulatory statute, Your Honor.

Two of those 13 are purporting, they are formed to be regulatory, but are in fact prohibitory.

They are West Virginia and Ohio.

Potter Stewart:

And this is the criminal statute?

William M. Ferguson:

This is the criminal statute.

Potter Stewart:

So there are only two others, two other criminal statutes?

William M. Ferguson:

No, no.

Potter Stewart:

Are there more?

William M. Ferguson:

There are 12 others.

Potter Stewart:

Criminal statutes.

William M. Ferguson:

Yes [Inaudible]

William J. Brennan, Jr.:

[Inaudible]

William M. Ferguson:

Well, they vary, Your Honor, the –-

William J. Brennan, Jr.:

[Inaudible]

William M. Ferguson:

Yes, but Georgia is almost precisely like this in the same language.

Massachusetts involves — the practice of law makes — the fact makes it a practice of law in due debt adjusting, so does Virginia.

The New Jersey Statute is very similar to this one except that they spell out a few exceptions, but generally speaking the statutes are quite similar in all the states that prohibit, in the seven states that regulated there is a difference.

The Court then said that, the lower Court that we are in full accord with the reasoning and philosophy of the Pennsylvania Court.

What they were referring to there was Commonwealth versus Stone, which struck down a very similar statute upon the authority of Adams versus Tanner and of course the Court is quiet familiar with Adams versus Tanner, the Landmark Case of those cases involving substantive or commercial due process.

Now the Court below however recognized that there was an evil in this particular activity in saying that debt adjustment is by its very nature may lend itself to great abuses and because of this the state has power to regulate it, that the — and that its citizens may not be over reached by unscrupulous persons.

Then the Court holds, we conclude first that the act is prohibitory and not regulatory and that it prohibits anyone from engaging in the business of debt adjustment, but even if the exception is considered as regulatory it is an unreasonable regulation of lawful business.

Then the Court turns its attention to the exception involved with respect to lawyers and said this, “to say that the lawyer may adjust the debt solely as an incident to a case, which is otherwise before him is most unreasonable and the state of Kansas appealed.

Now, there are — is just one basic primary question here and that is whether or not this Court is going to return to it’s — the old philosophy of commercial or substantive due process of law.

There is a secondary question which I will discuss because it was so strongly urged by the appellee and that’s the question of the affect of the title of this particular act as measured by the Kansas Law.

We feel there is no particular significance, but I’ll discuss it if time allows.

Potter Stewart:

That is nothing — that’s not a Federal question.

William M. Ferguson:

Not a Federal question, not at all.

Potter Stewart:

So I don’t — offhand you would be speaking for myself alone, but it’s of no significance at all in this —

William M. Ferguson:

The State considers of no significant Your Honor.

Now there isn’t any question in this case of procedural due process.

The act was regularly adapted, there is no question of notice, there is no matter of vagueness, there is no violation of First Amendment guarantees, there is no invasion of the individual liberties.

It’s simply a question as to whether or not the Court is exercising its proper function when it measures its particular idea of legislation against that as a legislature.

In other words, the Court in this situation substitutes — substituted its judgment for that of the Kansas Legislature and doing so followed the Tanner case, 1916 case, where the Court in that case said that the Fourteenth Amendment proscribed the state of Washington from prohibiting, charging the fee in what the Court there found to be a lawful business, namely obtaining employment for a fee and as I had pointed out, the Tanner case is just among a number of cases that up until the middle 1930’s was used by the Court to strike down enactments of the various state legislatures and of the Congress for reason that measured against the Fourteenth Amendment the Court found that it was unreasonable and struck them down.

Among those cases of course were Lochner case, striking down maximum hours, Coppage versus Kansas, striking down the Yellow-dog contracts, Wolff Packing Company case, striking down the authority to fix wages in hours, yhe Lehman case on prices, and in our own state there is still some residue of the old doctrine of substantive due process, I might as well face up to it, Gilbert versus Matthews, which is very strongly relied upon by the appellee here.

There is — the Kansas Court there struck down a new goods auction law on the ground that it was unduly restrictive, and although I might point out to the Court that in that case there were some other matters including notice, and dual regulations, and unreasonable classifications and so on.

Now, turning to debt adjustments —

Arthur J. Goldberg:

[Inaudible]

William M. Ferguson:

No, Tanner has not been expressly overruled, opposed to Tanner still lingers.

It has been said to be undermined in several cases, but it has never been expressly overruled Your Honor.

Arthur J. Goldberg:

That has not?

William M. Ferguson:

It has been definitely undermined in a number of cases.

Turning now to debt adjustment itself, here the State has the authority to guard its people against evils what it feels to be inherent in this particular activity.

William M. Ferguson:

Generally the clients as they call them, they are debtors who go to these debt adjusters are low income, they’re uneducated, they’re debt ridden, they’re poverty stricken, and as a result of this they are particularly susceptible to the wiles of debt adjustment.

And of course people who are in financial difficulty are increasing everyday because the size of our consumer debt has now risen to over $61 billion.

And they advertise this way, on page 23 of the transcript is one of their advertisements, it says, “Bills pressing, installment payments on past due, bills are troubling you, let us consolidate and arrange to pay all your bills past due or not, with one low payment you can afford,” and then they go on to say, “If you owe a $1000 pay as low as $15 a week.”

“If you owe $2000 as low as $25 a week, $3000 as low as $30 a week,” and they say, “No security, no cosigners,” and they say, “If you have debt worries, see us.”

Then in their letter to the creditors they say that this released the creditors of the burden from your collection department, contact us concerning all payments on other manners.

In their propaganda to the debtors they say, “We will keep your creditors satisfied, you will avoid garnishments, you will have a peace of mind.”

Now these evils of or possible evils of debt adjustment were well known to the legislature.

AFL-CIO, the Executive Council said that Debt adjustment should be eliminated in 1961.

The National Better Business Bureau Incorporated has drawn attention to what they call a situation which is fast approaching a national scandal.

There are number of legal publications that have dealt with it.

The unauthorized practice news has an article on, “Should debt adjusters be outlawed.”

The Legal Aid Briefcase says — said to have spoken of debt adjustment as the meanest racket out.

Now turning to the other states —

That’s the basic vice in it?

William M. Ferguson:

I beg your pardon, sir.

What is the basic vice in it?

William M. Ferguson:

Well the basic vice is one of three things, assuming it’s —

Assuming it’s —

William M. Ferguson:

Either that the activity lends itself to fraud, because they — and the evidence in the transcript reveals that they very seldom ever finish these arrangements.

A man comes in, he turns over his books, his records of what his obligations are to the debt adjuster, the debt adjuster than computes a fee based upon the total amount of his debt and then the debt adjuster endeavors to make some kind of an arrangement with the creditors.

And if the creditors are unwilling or secured or for whatever reason, then there isn’t anything the debt adjuster can do.

And then he tells the debtor, well I’m sorry there isn’t anything we can do because some of your creditors won’t agree and we will make adjustments only with those who will and of course there is rather cold comfort too, someone who has been lured in to the debt adjuster on theory that he can get his bills arranged for without paying any interest and so on, that’s the first possibility of fraud.

Earl Warren:

And he has paid his fee to the adjuster?

William M. Ferguson:

Well he may or may not have, but in this case there was an indication that the fee was from 5% to 9% in this particular case, but he — and he becomes liable for the fee when he signs the contract and ordinarily only the debtor signs the contract, that debt adjuster becomes — is required by the contract to do nothing in particular.

Potter Stewart:

And the fee is generally taken out of the periodic payments on an installment basis, isn’t that?

William M. Ferguson:

That’s right and it isn’t always clear to the debtor of course that part of the fee is going to come out and when it’s going to come out, there is nothing in the contract ordinarily is, when the fees to be taken.

The evidence in the transcript shows that in the particular cases there that the fee taken out varied from 25% down to a smaller percent of a particular payment, to make a payment or two and then a man goes into bankruptcy or he is garnisheed or something and that thing is over.

Potter Stewart:

And the basic vice as I understand is that these people really don’t perform any service that the debtor himself couldn’t do whether they just by paying his bills on a periodic basis.

William M. Ferguson:

Well, Your Honor there are two other aspects of this thing that I have not yet mentioned.

One is that the Legislatures may consider that he is getting improper legal advice from the debt adjustor, who is generally a layman and in this case –-

Potter Stewart:

In other words, for example, a lawyer might properly advice him to go into bankruptcy.

William M. Ferguson:

Still will take advantage, the wage earner plan or something of this type or that it’s vice because they don’t get sufficient legal advice.

I mean its either get improper legal advice or insufficient legal advice.

Arthur J. Goldberg:

General [Inaudible]

William M. Ferguson:

That’s our practice in the State of Kansas but we keep no record of the committee hearings.

We do not –-

Arthur J. Goldberg:

[Inaudible]

William M. Ferguson:

— most states, yes.

We keep only the scantiest kind, I served four terms in the legislature, and we keep only the scantiest kind of records of the action in committee.

Arthur J. Goldberg:

[Inaudible]

William M. Ferguson:

No, not ordinarily Your Honor.

The only Journal is that the motions that are made and the activity of the committee, the whole or whatever the particular action of the house is, the count of the votes those who voted, I know or would have known.

Tom C. Clark:

[Inaudible]

William M. Ferguson:

Well, this is one of the questions that have been raised.

It is the state’s contention that he could, but it’s the Lower Court’s contention that he could not.

And we think that it’s relatively immaterial if this Legislature wanted to say he could not work full time, devote full time, he is not in Oklahoma for instance, the lawyers are prescribed from debt adjusting, in other words they are not accepted from.

But the futility of this kind of service in due process is made clear by Pennsylvania for instance.

There the Court struck it down in 1959, and the Legislature in 1961 enacted a new act, which was substantially the same as the one that have been stricken down, except that they changed the language just a little bit and added a few more exceptions.

So, apparently in that state they felt that it was sufficiently important that when one act was struck down they reenacted another one.

William J. Brennan, Jr.:

[Inaudible]

William M. Ferguson:

Yes, State Court, Lower Court.

William J. Brennan, Jr.:

[Inaudible]

William M. Ferguson:

No Federal.

William J. Brennan, Jr.:

Federal?

William M. Ferguson:

Yes, on the basis of the Fourteenth Amendment, just as this one was and that Court there bottomed its decision on Adams versus Tanner and of course its our, that we submit to the court that —

I’m confused about the District Court’s opinion in this case, maybe you are going to come to it, but as I read its opinion the — what it said in effect was that if the Kansas Legislature had said nobody can do any debt adjusting except the lawyer, that might have been all right.

But what they seem to be bothered about is the way they read the act, Kansas has said, a lawyer can’t give up his practice and go into the business of debt adjusting and your position is if that’s an improper interpretation.

William M. Ferguson:

Well as I read the case, Your Honor they said that the act is prohibitory, it is not regulatory and —

Byron R. White:

[Inaudible]

William M. Ferguson:

Yes that’s correct, Your Honor, except they said that to say that a — or their particular language was that with respect to lawyers, they said that, to restrict the — to say that the lawyer may adjust debts only as an incident to a case, which is otherwise before him is most unreasonable.

William M. Ferguson:

Now, County Attorney Sam Burns’ brief argues that point and says that they’re not compelled by the language of the act to reach that conclusion, because the proviso doesn’t say regular practice of law, it says involving debt adjusting is herein defined incurred incidentally to the lawful practice of law in this state.

Now this language of course isn’t the same as the Georgia Court.

Our Court was little — the lower Court was a little confused about that and said that they knew of no other state that went this far.

A number of other states, Massachusetts go this far, except that they don’t tie it down to — incidentally to the lawful practice of the law.

But returning to Mr. Justice Harlan’s question, it would seem to me that the Court grounded its decision on the fact that this was prohibitory and not regulatory.

And then they said, but even if it is regulatory, this is an unreasonable regulation to say that a lawyer may not do it incidental to the practice of law.

Potter Stewart:

But as to this man it’s clearly, absolutely prohibitory?

William M. Ferguson:

It is.

There is no question about this.

Potter Stewart:

And it would be incumbent upon a lawyer as a proper party to test the meaning of the exception [Inaudible] the lawyer.

William M. Ferguson:

Yes, at least pretend that the layman has no standing to contend that the act is unconstitutional because of its regulation of the lawyers in a way —

Potter Stewart:

This man is not concerned with that exception in any event [Inaudible]

William M. Ferguson:

No, he is notified, there isn’t any question about that.

And this is what the legislature intended to do and that’s what they did do.

Hugo L. Black:

What was the legislature, what would you say is the heart of the act, what were they again — and what did they decide shouldn’t go on — and you would say?

William M. Ferguson:

They were against this debt adjusting by —

Hugo L. Black:

What do you mean by debt adjusting?

William M. Ferguson:

This activity whereby the debtor goes to a layman gives him his current records and papers and makes a contract with this layman to distribute a portion of his earnings to the creditors who will go along with the plan.

And generally, he talks it over with — the layman talks it over with the debtor.

Hugo L. Black:

Kind of a private adjustment of the debts, composition of debts, is that it?

William M. Ferguson:

Private marshaling in debts –-

Hugo L. Black:

Yes.

William M. Ferguson:

— this is what it is.

Hugo L. Black:

And do you have a Court procedure for that in your state for marshaling of debts?

William M. Ferguson:

Yes, we don’t use it.

Hugo L. Black:

What’s written on the bankruptcy law?

William M. Ferguson:

We rely generally on the bankruptcy law and on the wage earner plan and so on.

Hugo L. Black:

Does the record show who is responsible, what group is responsible for the passage of the law and to the lawyer?

William M. Ferguson:

No, the record doesn’t reveal anything about —

Hugo L. Black:

Somebody was against it, what is in particular — what are the group does it hit?

William M. Ferguson:

This is the only group that it hit, but I think probably the answer to your question that a group that is particularly interested in addition to the lawyers, because as I pointed out, Massachusetts and Virginia proscribes it as being a practice of the law, Vermont has said in a case that it is the practice of law, but the small loan companies are probably in impetus to it.

Hugo L. Black:

What?

William M. Ferguson:

The small loan companies were doubtlessly interested in it, although there is no evidence in the record.

Hugo L. Black:

Why are they against it?

William M. Ferguson:

I beg your pardon.

Hugo L. Black:

Why are they against it?

William M. Ferguson:

They would before the act, proscribing debt adjustment.

Hugo L. Black:

So it made it easier to do what?

William M. Ferguson:

Well, I suppose as they — if they couldn’t adjust the debts in this way, then they’d be more likely to come to the small loan companies and borrow the money and pay off their creditors, but they make — in debt adjusting of course, in their advertising as I pointed out, they make quite a point.

Hugo L. Black:

What’s provision of the constitution was it held about it?

William M. Ferguson:

Due process.

Hugo L. Black:

Is that all?

William M. Ferguson:

That’s all.

Hugo L. Black:

On the ground and it’s unreasonable?

William M. Ferguson:

And it’s prohibitory and —

Hugo L. Black:

And we have that – our question basically is whether it violates Federal Constitution law to be passed, which the Court thinks is unreasonable?

William M. Ferguson:

That’s exactly what happened here and our point is that in Kansas there had been a state case and a debut case where in 1936, the Court, the Supreme Court of Kansas had indicated that this kind of thing was a practice of law.

And on page 125 of the transcript, there had been Lower Court case where it had been suggested that this particular defendant had been involved in the practice of law.

I want to point out to this Court that the Court has abandoned this substantive due process concept that it had in the 1930’s and I don’t need to enumerate those cases, but the [Inaudible] Insurance, Milk Parish case on minimum wages, the Olsen versus Nebraska on minimum fees, the Sage Stores on Filled Milk.

Hugo L. Black:

You didn’t cite Olsen versus Nebraska, did you?

William M. Ferguson:

It’s in one of the cases Your Honor, it isn’t cited.

Hugo L. Black:

You didn’t cite it?

William M. Ferguson:

It isn’t cited in ours.

Hugo L. Black:

It is cited in some of those [Inaudible]

William M. Ferguson:

Yes, the Daniel versus Family Security in the proscribing undertakers from being in a life insurance business.

Lincoln versus Northwestern, now this is the case Mr. Justice Goldberg, where the Court said the Tanner was undermined.

Arthur J. Goldberg:

By whole [Inaudible]

William M. Ferguson:

Yes, that is correct sir.

Now the Tanner doctrine is a suggestion that the service must be useful and in this case they found that it was in Tanner and then, if it is useful they may — the State may regulate it, but may not prohibit it.

Now the dissent in that case was Brandeis and he said that there should be no distinction, and there should be no restriction on the state’s police power and they always should show us what is the evil and what is the remedy and that has been this Court’s position ever since the discarding of this concept of substantive due process.

William M. Ferguson:

I would just mention that the title question is no real concern here neither it is of any particular concern to the State of Kansas.

We found that there were 264 cases where this question that no bail should contain more than one subject and in 221 of them the Court brushed us aside.

There isn’t anyway we can harmonize these cases, but we don’t feel that it is significant here.

Earl Warren:

Mr. Gilmore?

Lawrence Weigand:

May it please the Court.

There are three matters the appellee would like to call to the attention of the Court in support of the Lower Court’s decision.

Pardon me.

There are three propositions which the appellee would like to call to the Court’s attention in support of the opinion below.

One —

Earl Warren:

Mr. Weigand I beg your pardon I called you Mr. Gilmore without looking.

I beg your pardon.

Lawrence Weigand:

The act in question is practically a verbatim copy of the Pennsylvania Statute.

The only change being that the Pennsylvanian Statute had a label they called it Budget Planning and Kansas changed it to Debt Adjusting and Pennsylvania imposed a fine of $500 and one year in jail and Kansas cut the jail sentence to six months, but they kept $500 plan.

Now, this act prior to its adoption in Kansas had been declared unconstitutional by the Pennsylvania Court and I have cited both Pennsylvania Law and the doctrine of Adams versus Tanner in support of the unconstitutionality of the act.

Therefore, when it came to the Court below, it had already had adjudication by a Judicial Tribunal that it was unconstitutional.

Now despite that fact and despite the fact that the particular definition, which is prohibited by the act, and the only thing that is prohibited is to make a contract express or implied with a particular debtor, whereby the debtor agrees to pay a certain amount of money periodically to the person engaged in the debt adjusting business, who shall for a consideration distribute the same among certain specified creditors in accordance of the plan agreed upon.

The act that’s involved and made criminal here is one that is a voluntary matter between a principal and an agent whereby the principal desire is to hire an agent to distribute his own money, the way the principal wants it distributed and that is the activity, which the Kansas Act seeks to make criminal.

Now that act, I submit is a lawful activity and while it is one that might be affected with the public interest and subject to stringent regulations is not under the doctrine of the Kansas Supreme Court and of this Court up to now, subject to prohibition but is subject to strict regulation, now —

Arthur J. Goldberg:

[Inaudible]

Lawrence Weigand:

I think it is very definite with respect to the act that is made illegal.

I think it’s —

Arthur J. Goldberg:

[Inaudible]

Lawrence Weigand:

If we are correct in the assumption on what that is based that the act does say that whoever does this specific act that I have defined shall be guilty of a crime.

Now, if the decision of the Court would turn on the oblique matter, which local committee of the Bar at one time attempted to assert and which they have now not even attempted to come into this Court in support that the exception is a validating circumstance with respect to the matter, and it takes on the guise of regulation.

Then we get into several subsidiary questions such as, what does it enact, which expressly violates the constitution of the state with respect to the manner of its passage?

Is it not the enforcement of it in a criminal manner against an individual, a matter of depriving him of due process of law and that would get into the matter, Mr. Justice Stewart that you asked the Counsel about with respect to [Inaudible]

Potter Stewart:

So, as stated that makes it a federal offense.

Lawrence Weigand:

And only in that way.

Now —

Potter Stewart:

Yeah.

Arthur J. Goldberg:

[Inaudible]

Lawrence Weigand:

If I might add, my question — put it — my answer to your question, if Your Honor please that I know of no similar statute that you have upheld.

I know of no similar enactment, which has taken a lawful business activity and declared it to be criminal and prohibited it, which this Court has said that a state might do.

Hugo L. Black:

What about Olsen?

Lawrence Weigand:

I was going to discuss that Your Honor, Mr. Justice Black please.

In Olsen, they took and prescribed the rate — they regulated and prescribed the fees that could be charged.

Olsen and Adams versus Tanner I submit are sort of consistent with one another, if I might discuss it in this claim.

Hugo L. Black:

Adams versus Tanner?

Lawrence Weigand:

Adams versus Tanner said that the business of a man acting as agent for a man seeking employment was a lawful business activity and while it was subject to regulation could not be prohibited.

Olsen versus Nebraska took the very act of an employment agency and limited the charges that could be made and this court upheld Olsen as a regulatory measure and struck down Adams as a prohibition of the act.

Now again when —

Arthur J. Goldberg:

[Inaudible]

Lawrence Weigand:

That is a question where the matter was not — first, it was one of public help, and I think that there are different categories with respect to types of regulations that maybe more stringent or less stringent with respect to it.

And in the —

Arthur J. Goldberg:

[Inaudible]

Lawrence Weigand:

Yes, but the limitation that this Court has always put even as late as the Goldblatt case when it used the — upheld the zoning regulation.

It said in that case, if I might quote from it.

I don’t have it, but that the means adopted must be reasonable to protect against the abuse that was threatened.

Now to protect against fraud, you can have integrity background, no criminal records, you can have bonds that will reinstate for the person any amount of money of his that is embezzled.

You can have many safeguards against fraud.

If fraud — and the possibility of fraud is a means by which the state legislatures are permitted by this Court to prevent businesses then a real estate broker can be prohibited from that provisional activity, a banker can be prohibited because he has an opportunity to embezzle the funds.

Practically, every business transaction in the world, as long as human beings are conducting them are subject to fraud.

And with respect to ordinary activities, if we allow those to be prohibited rather than regulated with respect to it, I submit that the guarantees of the federal constitution are so narrow as to be a deprivation in due process in the pursuit of happiness and the liberty of which a citizen is otherwise guaranteed.

Hugo L. Black:

Then I’d be sure that, I want to be sure, as to what you are arguing.

As I understand your argument, when the state decides that it didn’t want at the particular kind of business activity to go on within its boundaries, legislature passes the law and the Governor signs it that we have a right, if we think it’s unreasonable to set it aside and say we did it under the guise of due process law.

Lawrence Weigand:

And I —

Hugo L. Black:

Is that not your argument?

Lawrence Weigand:

No, Your Honor.

Hugo L. Black:

Are you charging that it violates any specific Provision of the Constitution except due process?

Lawrence Weigand:

The due process and the equal protection clause of the Constitution —

Hugo L. Black:

Which one are you charging due process or equal protection?

Lawrence Weigand:

We charge both, if the Court pleases; I think the strongest position is with respect to due process of law.

Hugo L. Black:

That’s because, as I understand you want us to return to what we said we were leaving in the Northwestern case that Nebraska’s [Inaudible] you want us to leave the principle we said there, if we wouldn’t any longer strike down statutes regulating business on the ground that the Court felt they were unreasonable?

Lawrence Weigand:

I didn’t understand that this Court had ever said, while it held in substance what Your Honor has stated if I maybe at liberty to make this comment.

I don’t think this Court has ever said that the State could determine for itself, that it could prohibit an ordinary legal activity —

Hugo L. Black:

Wait a minute.

Lawrence Weigand:

Pardon me I didn’t mean legal — I mean an ordinary activity that in and of itself is lawful unless made criminal by the act.

Hugo L. Black:

Unless it makes it unlawful?

Lawrence Weigand:

Well, but I think there is another limitation.

It must be necessary or reasonably necessary for the State to prohibit it in order to protect itself against the abuses that are inherent in it.

Hugo L. Black:

But if the State decides in USA, a State decides deliberately through its Legislative body a certain type of activity like this, it wants to prohibit and bar, it cannot do it if a majority of this Court decides that it’s unreasonable but to do it.

Lawrence Weigand:

And I submit Your Honor that in Adams versus Tanner in New State Ice versus Liebmann.

Hugo L. Black:

I just want to be sure that’s what we have to — that’s what we have to meet.

Lawrence Weigand:

That is the first question that Court has to meet, but if the Court should determine that contrary to the contingents made by the appellees, I submit this Court must still uphold the lower court, because of another constitutional deprivation of this statute results in and that is that it was enacted contrary to the limitations imposed by the Kansas constitution, as clearly interpreted by the Kansas Supreme Court and that construction of the Kansas Constitution by the Kansas Supreme Court is not inhibited or prohibited by any Federal Constitutional Provision.

And so, that within the limits of the Federal Constitution, if a Kansas Constitution guarantees that we, no we shall not be subjected to the law, except that it meets certain prescribed conditions and what the Kansas Supreme Court says is a lawful Constitutional Provision of the State of Kansas and if this law does not meet that and if you will note Your Honor.

Hugo L. Black:

Are you saying that the State of — the Supreme Court of Kansas is held it by the Kansas Constitution that’s an adequate State ground?

Lawrence Weigand:

They did say that with respect to this specific statute, but they announced a rule of law seven months before this Legislature ignored it in the case of guilty —

William J. Brennan, Jr.:

[Inaudible]

Lawrence Weigand:

Yes.

William J. Brennan, Jr.:

[Inaudible]

Lawrence Weigand:

Yes being difficult —

William J. Brennan, Jr.:

[Inaudible]

Lawrence Weigand:

The Due Process Clause and the Equal Protection Clause of the Fourteenth Amendment of the Constitution safeguards a person against the Kansas legislature taking away his rights, which he has under the Kansas Constitution, because it thereby denies him equal protection of the Kansas Constitution, which is to be enforced against all people equally and so far is as applicable.

William J. Brennan, Jr.:

[Inaudible]

Lawrence Weigand:

Yes and the Due Process Clause, both.

Byron R. White:

[Inaudible]

Lawrence Weigand:

Well, we have no direct access to the Supreme Court of Kansas and we had to go through a local Judge who had already expressed — this is not in the record that’s why we didn’t go in, because this man is a non-resident of the State of Kansas and because of the Kansas Constitution entitles non-residents to the same protection of the constitution by specific provision, as it does to the residents, we were able to get into the Federal Court on two grounds.

Byron R. White:

Why couldn’t you have raised state grounds [Inaudible]

Lawrence Weigand:

Well I think we could have.

Byron R. White:

Why couldn’t you just said [Inaudible]

Lawrence Weigand:

We could, we could.

Byron R. White:

[Inaudible]

Lawrence Weigand:

The lower Court cited the case that I referred to in the opinion.

The opinion and I am speaking to all of the Federal Judges, which are rendered by two of the Circuit Judges of the Tenth Circuit Judge Hexman and Judge Dempsey Hill cited that Gilbert versus Matthews were the rule of Adams versus Tanner as I have enunciated it to the Court.

In other words, that a business while it was subject to public interest and was subject to regulation, the law in Kansas did not prohibit the legislature to prohibit that business even though they could regulate it.

And if you will note in the opinion of the Court below they cite Gilbert versus Matthews as the principles upon which they declared this unconstitutional and they cited them by reference the adoption of the rationale and the holding of the Pennsylvania Court with respect to the same statute and the Pennsylvania case of Commonwealth versus Stone in addition to citing Adams versus Tanner cited a Pennsylvania Supreme Court Case that announced the same rule with respect to that state that Kansas did in Gilbert versus Matthews.

In another words, Pennsylvania and Kansas Supreme Courts have both held that the legislature of the State of Kansas in exercise of its police power can regulate, but it cannot prohibit a lawful business activity.

So the only way that they can strike — uphold this act and strike down the majority opinion below is to convince Your Honors that one Adams versus Tanner that has no application and two, something about the reputation or undermining of Adams versus Tanner makes it impossible for a State Court to construe that rule of law is applicable to the exercise of police power by that state and I submit that this Court has never found any basis upon which to fail —

Byron R. White:

Suppose the [Inaudible] did raise the federal [Inaudible] and did you —

Lawrence Weigand:

Oh indeed.

Byron R. White:

And did you argue that [Inaudible]

Lawrence Weigand:

We did and we also argued in addition —

Byron R. White:

[Inaudible]

Lawrence Weigand:

Well, it cites as the principles of law applicable, they don’t say that they ground it solely on that, because I think the Court will definitely felt —

Byron R. White:

[Inaudible]

Lawrence Weigand:

It said the principles of law applicable to this case were enunciated in Gilbert versus Matthew’s, which is a the pronouncement of the —

William J. Brennan, Jr.:

[Inaudible]

Lawrence Weigand:

Well and Your Honor if I had failed to make my position clear, it’s the Federal Constitution that we think that protects us against the enforcement of a Kansas law that violates the Kansas Constitution.

I think —

William J. Brennan, Jr.:

I understand that but [Inaudible]

Lawrence Weigand:

Well, I have never had any doubt and I don’t think the majority of the Court below had any doubt that there was any divergence between the construction by the Kansas Supreme Court of the law applicable to the Kansas Legislature and that announcement this Court in Adams versus Tanner, which the cert that I made of it maybe inadequate was that this Court had never said, we hereby disapprove or we hereby over rule, the rule of law that a state in the exercise of its police power can take a lawful business activity and make it criminal where it can be regulated and that was the rule that is consistently announced both in Adams versus Tanner.

It was, I submit consistent with the holding of this court in Olsen versus Nebraska.

It wasn’t involved in the Lincoln Federal Labor matter.

Earl Warren:

We will recess and —

Lawrence Weigand:

Mr. Chief Justice, may it please the court.

The decision in the Lower Court below quoted the following; a right to regulate does not carry with it the right to adopt unreasonable or unfair regulations.

The Kansas Supreme Court when they cited a support of that proposition had enacted this decision just seven months before the Legislature, ignoring it, passed this prohibitory law.

The Supreme Court of Kansas stated the business factor of public interest is subject to reasonable legislative restriction, and regulation to prevent abuses and frauds.

Requirements for the licensing in that case of auctioneers as well as other auction regulations which are reasonable and not wholly arbitrary have long been upheld, “the right to regulate and license the business does not however include the right to prohibit it directly or in effect to adopt unreasonable and unfair regulations or such regulations as would be oppressive or highly injurious to the business.”

Now that decision is of course very similar to the language and the ruling and the teaching of this Court in Adam versus Tanner.

[Inaudible]

Lawrence Weigand:

If that choice of words is determinative I have to submit that the use of those words in that decision was in a decision, which did not involve this type of regulation.

It involved a Right to Work bill where the converse of this proposition was being enforced by the Court.

And where they were saying that the legislature could guarantee to a man his right to employment, and could keep an employer and a union from combining to prevent this man an equal opportunity to employment, which I submit would make in a sense the use of the word undermining rather dicta.

Now, Olsen versus Nebraska, which was cited by the language there, was a case which we say, we would mind not at all if Kansas had imposed a regulation upon the fees or charges, which a man could charge for acting as agent for another and distributing his money in accordance of that’s man wishes, that would be a reasonable regulation, it would be designed to protect the man from overreaching, and coupled with the requirement for a bond, and a good business reputation or no criminal record, and any such, very stringent, but adequate regulations would not be contested at all.

As a matter of fact we have before the Judiciary Committee, the Judiciary Committee of the Senate of Kansas at the present time has a bill which they have introduced, which will regulate this business and which doesn’t prohibit it and which conforms with the title of the act in accordance with the Kansas Constitution.

I have no assurance that that will be passed because there are powerful interests that would like to eliminate this because of the — we have a 3% of funds — loan law in Kansas, which permits these, I would loosely use a language, loosely loan charts from making huge sums of money in advertising to people to consolidate their debts.

Now, one of the invidious discrimination that this act imposes upon an ordinary man of honesty and integrity is this; he cannot for a small consideration or for any consideration, distribute your money for you the way you’re asking to do it.

But a small loan company can take and by virtue of getting their consideration in usury or in interest rather, I shouldn’t say usury, in interest can take and distribute those –the money of that man to those debtors and it is not against the imposition or the criminal penalties of this act.

They get around it by the clever use of the word periodically.

They only do it once with each loan.

Whereas a man who has no money and doesn’t want to pay interest rates, takes from your salary an amount that permits he and his family to live adequately and with the desire to avoid bankruptcy and so forth he wants to pay and extract himself from a position which is economic in this country.

There is no regulation in Kansas against the extending of credit.

The ads will induce these poor people to buy a refrigerator today and start paying for it next Wednesday or next month or — and the need for this service is a real need, because a man has a right, I submit to Your Honor, to get the help of a man to do a simple thing without imposing legal penalties on him if the manner in which it is done does not overreach or abuse by fraud or similar matters that are subject to curtailment, but which this act makes no attempt at all in this arbitrary and capricious way to reach.

[Inaudible]

Lawrence Weigand:

That perhaps would be within the power.

I wouldn’t argue that because to do that in Kansas they would have to put in the title of the act, a warning so that I could go up and talk to the legislature and any member of the public could talk to the legislature and see if there was — able to persuade them, whether that was a reasonable regulation or not.

I don’t say that it would be without the power of the Kansas Legislature to classify any particular act to those who are best able to do it.

I submit to Your Honors that it wouldn’t be practical in this instance, the matter of distributing money for a debtor to various creditors is largely a clerical operation.

It’s not anything that involves — there is nothing in here about advice and counsel like there was in the Ferman Act of Massachusetts.

There is nothing in here that prevents advising counsel.

A man can under this act escape the penalties of illegal practice of law by advising those people what to do with respect to compositions as long as he don’t distribute their money for a consideration.

The thing that’s made criminal is the arbitrary and unreasonable act of allowing me to distribute your money for you the way you ask me to do it and that and that alone is what is that is, what the Court struck down in this act.

Hugo L. Black:

What was the vote on this bill in Senate and legislature?

Lawrence Weigand:

I have no idea, if I might be permitted to go off the record I talked to one of the members of the senates who passed it.

He was a former law partner of my esteem colleague, the Attorney General and he told me that he thought it was unconstitutional when it was passed, but it was brushed through as a bill desired by the local Bar Association meeting and, well I belong to the Sedgwick County Bar for over 35 years, I did not know of the existence of this bill or that the Chairman of the Ethics Committee, who also represents, well, I’m going far off field from a record and I perhaps should not go with respect to this but —

Hugo L. Black:

But you are asking us to hold that your legislature, State Senate, Governor who signed the bill has done something so unreasonable and arbitrary against the people of the state that we all override their judgment?

Lawrence Weigand:

Yes and I submit three things, if I may Your Honor in support of.

They adopted a bill almost verbatim that it already by judicial scrutiny been said to be unconstitutional.

Hugo L. Black:

Who said it?

Lawrence Weigand:

The Pennsylvania Court from where they got the act.

Now, if you look at the two acts and we put them side by side in the page in motion to affirm, so that the Court could see that it was nothing but the really adoption of the Pennsylvania Act after it had been declared unconstitutional.

And the timing in which this act was put in by the Kansas Legislature was seven months after the publication of the decision in Gilbert versus Matthews, where our Supreme Court unequivocally said that this legislature did not under its police power have the right to prohibit an otherwise lawful activity.

Hugo L. Black:

What I can’t understand if this violates the Kansas Constitution, why you didn’t bring your suit in the State Court and charged this violation to the extent —

Lawrence Weigand:

Well we also thought it violated the constitution —

Hugo L. Black:

I understand that you are — whatever we decide if it violates the Kansas Constitution, the Kansas Court is still open to you.

Lawrence Weigand:

Yes, but why should a man be relegated to two forums for a determination of a question whether this Court has jurisdiction —

Hugo L. Black:

Well we can’t pass on whether it violates your State Constitution, that’s for your State to decide.

Lawrence Weigand:

Well I submit though that where the clarity of the state in pronouncement leaves no doubt that there is no reason to hold this in abeyance pending a declaration to that which is obviously clear.

Hugo L. Black:

Well if it was that clear, if it was that clear, after you read Northwestern and all of these other cases, you like to come in here why we have said all of this argument has been undermined, that our supervising State Legislation, if it is that clear I cannot yet understand why you didn’t go into the Court, when it’s so clear that even a child could read it and see it.

Lawrence Weigand:

Well we relied to some extent on Dodd versus Hodge, where you said that the Three Judge Federal Court could pass upon the unconstitutionality of an Illinois statute with respect to invidious discrimination and in [Inaudible] you upheld the —

Hugo L. Black:

[Inaudible] violates the — that’s a violation of the Federal Statute of the Constitution not the State.

Lawrence Weigand:

I think this is Your Honor.

I think that this by permitting the loan companies to do this act as long as it isn’t periodic and permitting everybody else to — unless the provision with respect now in constructing — in the construing of this statute, the lower court below had to take into consideration a presumption that they didn’t fly on the face of the Article 2, Section 16 of the Kansas Constitution that says “nothing in the subject matter of the Act, shall be included, which is not expressly clearly expressed in the title” and may I read?

Hugo L. Black:

That’s a state question.

Lawrence Weigand:

Yes.

But when a federal — three-judge federal court construes a statute to determine whether it violates the Kansas Constitution, it shouldn’t —

Hugo L. Black:

But they passed on that, didn’t they?

Lawrence Weigand:

They said it was arbitrary and unreasonable and —

Hugo L. Black:

That’s right, but they didn’t say it violates the State Constitution.

Lawrence Weigand:

No because —

Hugo L. Black:

Said it violates the Federal Constitution.

Lawrence Weigand:

Well and they —

Hugo L. Black:

When the Northwestern case was up here, millions of people in this country believed it’s unreasonable and arbitrary to pass what was called a right to work and some called it right to [Inaudible], they give it different labels.

And they ask us to hold it was unreasonable, we declined to do so and said the time has passed when we are going to strike down state statutes regulating business on the ground that we think they are unreasonable.

Lawrence Weigand:

Well I didn’t know that this Court had ever come to the final conclusion that an arbitrary and capricious regulation —

Hugo L. Black:

That’s a label.

Lawrence Weigand:

Well–

Hugo L. Black:

The Constitution was —

Lawrence Weigand:

Respectfully submit belongs to this Act of the Kansas Legislature and if it does, it certainly violates the Federal Constitution.

Hugo L. Black:

Which provision says that this Court shall have the right to invalidate all state legislations that it labels as arbitrary or capricious or unreasonable?

Lawrence Weigand:

Well the construction which this Court has previously given in the Fourteenth Amendment, I understood —

Hugo L. Black:

The construction which was refused to be followed in both Olsen and Northwestern.

Earl Warren:

Attorney General Ferguson?

William M. Ferguson:

May it please the Court.

I just point out that the State of Kansas could have regulated this activity, but it chose not to regulate it, it chose to prohibit it.

And it doesn’t seem to me that there is any magic in the fact State of Massachusetts, which has almost exactly the same kind of a law, says that it shall be deemed to be the practice of a law within the provisions of Section 46 of the Massachusetts Act, that this would make it good to do it the way we did it would make it fair.

Of course this Court is fully familiar with the Bird case, Daniel case where this particular Court has held that the state may, if it wishes prohibit an otherwise lawful activity.

This —

William J. Brennan, Jr.:

[Inaudible]

William M. Ferguson:

Yes I — the Gilbert versus Mathews case, it is relied to some extent on Adams versus Tanner, and so did the Stone case in Pennsylvania.

Both of these cases we feel were wrong, in as much as they were adopting the principle of substantive due process.

But the Mathews case in Kansas doesn’t necessarily mean that it’s gone so far as to say that Tanner is completely alive in Kansas and would govern this case.

I don’t think we can assume here that this case, this statute would be a violation of the Kansas Constitution.

I don’t think it is, simply on the basis of the Mathews case and for that reason, we can’t see that there is any difference in the concept in this Court of the matter of due process, the matter of equal protection.

This Court has said in the Sage case that they aren’t the same.

In the Sage Stores case versus Kansas, where they prohibited filled milk.

This argument was made that it prohibited the sale of a lawful product and a healthful product.

And in the Sage case this Court upheld the legislature of Kansas’ determination to prohibit filled milk, and in that case it took up the argument equal protection.

And it said that there is no difference between equal protection here and due process here.

We don’t measure business activity against the Fourteenth Amendment anymore and that’s in sum and substance of what is being tried to do here.

This Act is — the legislature of Kansas is trying to protect the poor debtors from nationally recognized evil and they did it the way they thought was prominent.