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U.S. Supreme Court
strikes blow to
judicial activism

THE ISSUE The court has overturned a federal judge's ruling that limits on rent that oil companies can charge Hawaii dealers are unconstitutional.

IN a ruling that will have a broad effect on government regulation of businesses, the U.S. Supreme Court has upheld the validity of Hawaii's cap on rents charged by oil companies to independent gasoline dealers. The high court properly ruled that judges may not substitute their own predictions for those of legislatures or regulatory agencies about the effectiveness of such rules.

Chevron U.S.A. contended that the rental caps authorized by a 1997 state law would violate the Fifth Amendment, which provides that private property cannot be "taken for public use without just compensation." The high court ruled in 1980 that a regulation can amount to a "taking" of property if it "does not substantially advance legitimate state interests."

The court, in a ruling authored by Justice Sandra Day O'Connor, unanimously overturned a 2002 decision by U.S. District Judge Susan Mollway voiding rental caps on the basis that they would not "substantially advance a legitimate state interest" because they would not result in lower gasoline prices. Chevron U.S.A. acknowledged that it would be able to recoup any loss of rental income by simply raising wholesale gasoline prices.

Mollway found Chevron's expert economist "more persuasive" than the state's expert at the end of a one-day bench trial, a proceeding described by O'Connor as "remarkable, to say the least." In this space we characterized Mollway's ruling as an example of judicial activism that needed to be struck down.

Allowing Mollway's ruling to stand and become legal precedent "would require courts to scrutinize the efficacy of a vast array of state and federal regulations -- a task for which courts are not well suited," O'Connor wrote. "Moreover, it would empower -- and might often require -- courts to substitute their predictive judgments for those of elected legislatures and expert agencies."

A much more controversial Hawaii law that has yet to take effect would cap wholesale gasoline prices, pegging them to the national average. If the law is implemented in September as scheduled, the caps could limit or deny oil companies the method stated by Chevron for recouping rental income losses.

The rental-cap decision will make it impossible for oil companies to use the "legitimate state interest" argument along with a claim that they will be damaged by gas price caps. Stillwater Associates, a consulting firm hired by the administration of former Gov. Ben Cayetano, predicted that the gas caps "would bring volatility, market distortions and opportunities for profiteers to game the market."

Opponents of the gas-cap law have cited the Stillwater report in criticizing it as ineffective, thus not serving a legitimate state interest

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