Can Tennessee require existing red-light camera contracts to comply with future changes in state law without violating the Contract Clause?

Subject

Opinion No. 12-28, Contracts for unmanned traffic enforcement cameras, March 2, 2012

Plain-English summary

In the 2012 legislative session, Tennessee was wrestling with how its local governments contracted with private vendors for red-light cameras and other unmanned traffic enforcement systems. Senate Bill 2779 / House Bill 2993 would have required any contract between a local government and a camera vendor to include language that the contract "must conform to any changes in state law." The bill applied to new contracts, contract renewals, and existing contracts after the bill's effective date. Senator Randy McNally asked whether that requirement would survive a Contract Clause challenge under either the U.S. or Tennessee Constitution.

The opinion concluded that SB 2779, on its face, was defensible. The bill did not by itself extinguish any contractual right or impose any new substantive duty. It just inserted a conformity clause that essentially restated what parties were already deemed to know: that they contracted subject to the state's police power. The opinion did add a caution. The bill could not be used to bind a party to a future state law that was itself unconstitutional. If a later amendment substantively impaired a contract in a way that violated the Contract Clause, the conformity clause in SB 2779 wouldn't cure that defect.

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical background and statutory framework

The bill at issue

SB 2779 / HB 2993 proposed to amend Tenn. Code Ann. § 55-8-198 by adding a subsection requiring a local government to include in any contract involving unmanned traffic enforcement cameras a provision "that the contract must conform to any changes in state law." Both new and existing contracts, and renewals, would have been covered after the effective date of July 1, 2012.

This was the second time the AG's office had been asked about Tennessee's contracting around red-light cameras. The opinion referenced an earlier opinion, Op. Tenn. Att'y Gen. 11-61 (Aug. 8, 2011), which had considered a different bill placing new restrictions on how camera evidence could be used to support traffic citations. The 2011 opinion concluded such regulation was unlikely to substantially impair the vendor contracts because the operation of motor vehicles is subject to pervasive state regulation, and parties contracted in contemplation of that.

The Contract Clause framework

Both the U.S. Constitution (art. I, § 10, cl. 1) and the Tennessee Constitution (art. I, § 20) forbid state laws that impair the obligation of contracts. Under Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400 (1983), Contract Clause analysis proceeds in three steps:

1. Does the law substantially impair an existing contractual relationship?
2. If yes, does the state have a significant and legitimate public purpose?
3. If yes, is the adjustment of rights and responsibilities based on reasonable conditions and appropriate to the public purpose?

The Contract Clause has never been read as an absolute bar on amending statutes or even enacting retroactive legislation. U.S. Trust Co. v. New Jersey, 431 U.S. 1, 17 (1977). It only reaches retrospective, not prospective, effects. And under Hudson Water Co. v. McCarter, 209 U.S. 349, 357 (1908), "one whose rights, such as they are, are subject to state restriction, cannot remove them from the power of the State by making a contract about them."

Why SB 2779 survived the first prong

The AG concluded SB 2779 did not, on its face, substantially impair any contract. Although the bill required parties to add a conformity clause to existing contracts, the clause itself did not extinguish any right or impose any new obligation. Under Estate of Bell v. Shelby County Health Care Corp., 318 S.W.3d 823, 829 (Tenn. 2010), an impairment requires creating a "new obligation, impose[d] a new duty or attach[ed] a new disability." A clause saying "this contract complies with applicable state law" did none of those things, because parties were already deemed to know they contracted subject to police-power changes.

The caveat

The opinion took care to note that SB 2779 could not save a future statute that was itself a substantial impairment. If a later Tennessee law actually changed the rights of camera vendors or local governments in a way that ran afoul of the Contract Clause, no conformity clause inserted under SB 2779 could cure the constitutional defect. In other words: the bill defended itself, but it did not insulate future legislation from independent constitutional review.

Common questions

What was Senate Bill 2779 trying to do?

The bill responded to growing public skepticism about unmanned traffic enforcement cameras in Tennessee. By forcing every camera contract to include a conformity clause tied to future state law, the legislature was clearing the way to regulate these contracts more aggressively without running headfirst into Contract Clause objections from camera vendors. The clause essentially put vendors on notice that state law could change and the contract had to keep up.

Did the bill alone violate the Contract Clause?

No, according to the opinion. The AG said adding a conformity clause did not substantively impair any contractual right. It was a procedural overlay that restated what was already implicit: contracts are subject to the state's police power.

Could the legislature use SB 2779 to unilaterally rewrite vendor contracts later?

Not really, and that was the AG's caveat. SB 2779 could not be a workaround for the Contract Clause. If a later state law substantively impaired an existing contract, the conformity clause did not magically validate that impairment. A vendor could still challenge a later law as a substantial impairment without a legitimate public purpose or reasonable adjustment.

Why was the AG looking at the Contract Clause and not, say, the Takings Clause?

The Contract Clause was the natural fit because the question was about pre-existing camera contracts and whether forcing them to accept future law violated those contracts' obligations. A Takings Clause analysis would have been a different question (whether the state had effectively taken a property right). The opinion stayed focused on the contracts question.

Did the opinion say anything about whether red-light cameras themselves were lawful?

No. The opinion was narrow. It addressed only the constitutional defensibility of a particular conformity-clause bill. It did not opine on the legality of red-light cameras themselves, the substantive content of any contracts, or any specific local program.

Citations

• Tenn. Code Ann. § 55-8-198 (the section SB 2779 would have amended)
• U.S. Const. art. I, § 10, cl. 1 (federal Contract Clause)
• Tenn. Const. art. I, § 20 (Tennessee Contract Clause)
• Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400 (1983)
• U.S. Trust Co. of New York v. New Jersey, 431 U.S. 1 (1977)
• Local Div. 589, Amalgamated Transit Union v. Massachusetts, 666 F.2d 618 (1st Cir. 1981)
• Ogden v. Saunders, 6 L. Ed. 606 (1827)
• Hudson Water Co. v. McCarter, 209 U.S. 349 (1908)
• Estate of Bell v. Shelby County Health Care Corp., 318 S.W.3d 823 (Tenn. 2010)
• Op. Tenn. Att'y Gen. 11-61 (Aug. 8, 2011) (companion opinion on red-light camera evidence restrictions)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2012/op12-028.pdf

Original opinion text

Contracts for unmanned traffic enforcement cameras

QUESTION

Is Senate Bill 2779/House Bill 2993 of the 107th General Assembly of Tennessee (hereinafter "SB2779") defensible against a challenge that it unconstitutionally impairs the obligations of contracts?

OPINION

SB2779 requires that any contract involving unmanned traffic enforcement cameras shall provide that the contract must conform to any changes in state law. SB2779 does not itself substantially adjust the rights and responsibilities of parties to existing contracts in an unconstitutional manner. SB2779, however, should not be construed to require a party to be bound by a change in state law that is itself unconstitutional.

ANALYSIS

SB2779 proposes to amend Tenn. Code Ann. § 55-8-198 by adding the following subsection:

A local government shall include in any contract involving unmanned traffic enforcement cameras that the contract must conform to any changes in state law. New and existing contracts, as well as contract renewals occurring after the effective date of this act, shall contain a provision that the contract shall comply with all applicable revisions of state law.

S.B. 2779, 107th General Assembly, 2nd Sess. § 1 (Tenn. 2012). The law would take effect on July 1, 2012. Id. § 2.

The Tennessee Constitution and the Constitution of the United States both prohibit laws that impair the obligation of a contract. U.S. Const., art. I, § 10, cl. 1; Tenn. Const., art. I, § 20. These provisions are generally referred to as the "Contract Clause." Contract Clause analysis follows a three-part inquiry. As a threshold matter, the state law in question must, in fact, operate as a substantial impairment of a contractual relationship. Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411 (1983). If it does, the State, in justification, must have a significant and legitimate public purpose behind the regulation. Id. Once a legitimate public purpose has been identified, the third inquiry is whether the adjustment of the rights and responsibilities of the contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption. Id. at 412. Thus the Contract Clause does not prohibit the States from generally repealing or amending statutes, or even from enacting legislation with retroactive effects. United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 17 (1997). The Contract Clause also applies only to laws with retrospective, not prospective, effect. Local Div. 589, Amalgamated Transit Union v. Massachusetts, 666 F.2d 618, 637 (1st Cir. 1981) (citing Ogden v. Saunders, 6 L. Ed. 606 (1827)).

This Office previously concluded that a law that placed new restrictions on how unmanned traffic enforcement cameras could be used as evidence to support the issuance of a traffic citation was unlikely to be held to operate as a substantial impairment of contractual relationships between local governments and vendors of camera systems. Op. Tenn. Att'y Gen. 11-61, at 3 (Aug. 8, 2011). This determination was based, in part, on the fact that the operation of motor vehicles is subject to pervasive regulation by the State. Id. Because the parties are deemed to enter their obligations in contemplation of that regulatory authority, their legitimate contractual expectations were unlikely to be defeated by alterations to the rules of traffic enforcement. Id.

In general, a statute that merely confirms what the parties are already deemed to know — that they enter into contractual obligations subject to the State's legitimate exercise of its police powers — is unlikely to pose a constitutional problem. See, e.g., Hudson Water Co. v. McCarter, 209 U.S. 349, 357 (1908) (stating that "[o]ne whose rights, such as they are, are subject to state restriction, cannot remove them from the power of the State by making a contract about them."). SB2779, on its face, does not appear to adjust the rights and responsibilities of contracting parties in a substantial fashion. Although SB2779 requires alteration of existing contracts, that alteration — the inclusion of a provision "that the contract shall comply with all applicable revisions of state law" — does not of its own force extinguish any contractual right or "create a new obligation, impose a new duty or attach a new disability." Estate of Bell v. Shelby County Health Care Corp., 318 S.W.3d 823, 829 (Tenn. 2010). We note, however, that SB2779 is not specific as to the character of "changes in state law" that might transpire in the future. Given it is possible some changes to Tennessee law could amount to a retroactive substantial impairment of a contractual relationship running afoul of the Contract Clause, SB2779 would not cure any such constitutional defect. In other words, SB2779 cannot require a party to be bound by a statute that is otherwise constitutionally infirm.

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

JAMES E. GAYLORD
Assistant Attorney General

Requested by:
Senator Randy McNally
5th Senatorial District
307 War Memorial Building
Nashville, TN 37243-0205