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Morey v. Doud

Supreme Court of the United States
354 U.S. 457, 1957 U.S. LEXIS 1731, 1 L. Ed. 2d 1485 (1957)
ELI5:

Rule of Law:

A statute that regulates a particular business but exempts a single, named competitor from its requirements violates the Equal Protection Clause of the Fourteenth Amendment if the classification is not rationally related to the statute's purpose and creates a closed class with significant economic advantages.


Facts:

  • Doud, McDonald, and Carlson, partners in Bondified Systems, acquired the exclusive right to sell 'Bondified' money orders in Illinois.
  • Their business model involved selling these money orders through agents, primarily located in retail drug and grocery stores.
  • Derrick, a drugstore proprietor, wished to operate a Bondified agency in his store.
  • The Illinois Community Currency Exchanges Act required any firm selling money orders to obtain a license and adhere to strict regulations.
  • These regulations included provisions that barred the sale of money orders as a department of another business, effectively preventing Bondified from using its intended business model.
  • The Act explicitly exempted money orders issued by the American Express Company from all of its licensing and regulatory requirements.
  • American Express sold its money orders in Illinois through agents in drug and grocery stores, the same business model Bondified sought to use.
  • Due to the exemption, American Express and its agents faced none of the costs or operational restrictions imposed on Bondified and other competitors.

Procedural Posture:

  • Doud and his partners (appellees) sued Illinois state officials (appellants) in the U.S. District Court for the Northern District of Illinois.
  • The suit sought an injunction against the enforcement of the Illinois Community Currency Exchanges Act, alleging it violated the Fourteenth Amendment's Equal Protection Clause.
  • A three-judge District Court was convened, which initially dismissed the complaint for lack of jurisdiction.
  • On a prior appeal, the U.S. Supreme Court reversed the dismissal and remanded the case.
  • On remand, the District Court found the Act unconstitutional as applied to the appellees and issued an injunction against its enforcement.
  • The Illinois state officials then brought a direct appeal to the U.S. Supreme Court.

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Issue:

Does an Illinois statute that regulates currency exchanges but explicitly exempts money orders sold by the American Express Company by name violate the Equal Protection Clause of the Fourteenth Amendment as applied to other money order sellers subject to the statute's regulations?


Opinions:

Majority - Mr. Justice Burton

Yes, the Illinois statute violates the Equal Protection Clause. A statutory discrimination must be based on differences that are reasonably related to the purposes of the Act. Here, the Act's purpose is to protect the public, but the blanket, permanent exception for American Express is not rationally related to that goal. The exception remains regardless of whether American Express retains its solvency or whether competitors become equally stable. This creates a 'closed class' by singling out one named company, granting it significant economic advantages and barring competitors from the market, which constitutes arbitrary and invidious discrimination.


Dissenting - Mr. Justice Black

No, the statute does not violate the Equal Protection Clause. The prohibition of the Equal Protection Clause extends only to 'invidious discrimination.' Exempting a company of known and unquestioned solvency, like American Express, from a regulatory scheme designed to ensure solvency is a reasonable distinction, not an invidious one. Courts should not use general constitutional provisions to restrict a state's power over its own domestic economic affairs, especially where no fundamental rights are at issue.


Dissenting - Mr. Justice Frankfurter

No, the statute does not violate the Equal Protection Clause. Legislation is inherently empirical and must address real-world differences. The legislature made a rational distinction based on the fact that American Express is a 'world-wide enterprise of unquestioned solvency,' which contains within itself the safeguards the statute seeks to impose on smaller, unknown entities. To strike down a law based on the speculative possibility that circumstances might change in the future is to engage in lifeless logic rather than to respect the legislature's judgment on existing facts. The Court should not act as a 'super-legislature' in matters of economic regulation.



Analysis:

This case is significant as a rare instance of the Supreme Court using the rational basis test to strike down an economic regulation during the post-Lochner era. By finding the exemption for a single named company to be arbitrary, the Court signaled that even under deferential review, a classification that creates a 'closed class' with no ongoing rational justification can violate the Equal Protection Clause. While the specific holding of Morey v. Doud was later overruled by City of New Orleans v. Dukes (1976), the case remains an important example of 'rational basis with bite' and is studied for its analysis of legislative classifications that create special economic privileges for a specific entity.

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