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
Chicago, Milwaukee, and St. Paul Railway Co. v. Minnesota
Due process, substantive
Munn v. Illinois