Smyth v. Ames
"Smyth v. Ames" is a significant Supreme Court case from the late 1890s that addressed the regulation of railroad charges by state legislatures. The Court ruled unanimously that the low rates enforced by the Nebraska legislature deprived the railroad company of its property without due process, highlighting the tension between state regulation and property rights. This decision emphasized that regulated businesses are entitled to a "fair return" on their current value, establishing a legal framework for determining reasonable rates. The Court's rationale reflected a strong commitment to property rights under the Fourteenth Amendment, particularly through a substantive due process lens. Critics of the decision argued that the logic was flawed, as the value of a business is inherently linked to the rates it charges. Ultimately, the principles outlined in "Smyth v. Ames" were later challenged and modified in subsequent rulings, such as in the case of "Federal Power Commission v. Hope Natural Gas Co." in 1944. The case remains an important reference point in discussions about the balance between regulation and the rights of businesses.
Smyth v. Ames
Date: March 7, 1898
Citation: 169 U.S. 466
Issue: Regulation of business
Significance: The Supreme Court ruled that a state law setting unreasonably low rates for certain businesses violated the Fourteenth Amendment, and it prescribed a complex method for determining reasonable rates.
During the 1890’s the Supreme Court overruled a number of state laws regulating railroads and utilities. Among other things, it held that regulated businesses were constitutionally entitled to charge a reasonable rate and that the determination of reasonableness was a judiciary question. In Smyth v. Ames, the Court unanimously agreed that the low railroad charges set by the Nebraska legislature amounted to a deprivation of property without due process of law. In addition, the Court held that a regulated business was entitled to a “fair return” on its current value and even prescribed a specific formula to ascertain the value. Critics argued that the Court’s reasoning was illogical because the value of a business was determined in part by the rates it charged. Reflecting the Court’s commitment to property rights during the late nineteenth century, the Smyth decision was based on a substantive due process reading of the Fourteenth Amendment. The Court finally abandoned Smyth’s fair-value standard for calculating charges in Federal Power Commission v. Hope Natural Gas Co. (1944).
