Chapter 4 Constitutional Authority to Regulate Business

1. Chapter 4Constitutional Authority to Regulate Business

2. History Before Revolutionary War, States wanted a confederation with weak national government and very limited powers. After the war, in 1787, States voted to amend Articles of Confederation and create a new, federal government that shared power with States.

3. §1: Constitutional Powers of Government • Constitution established a federal form of government with checks and balances among three branches: executive, legislative and judicial. • National government has limited, enumerated powers delegated from States.

4. U.S. Commerce Clause • Power to regulate interstate commerce defined in Gibbons v. Ogden (1824). • Expansion to private businesses began with Wickard v. Fillburn (1942). • Today, Commerce Clause authorizes the national government to regulate virtually any business enterprise, including internet. • Limits: U.S. v. Lopez (1995), Alden v. Maine (1999).

5. State Commerce • States possess inherent police powers to regulate health, safety, public order, morals and general welfare. • State laws that substantially interfere with interstate commerce will be struck down.

6. U.S. Supremacy Clause • Article VI of the Constitution “Supreme Law of the Land.” • In case of direct conflict between state and federal law, state law is invalid. • Congress can preempt states. • Taxing Powers.

7. §2: Business and the Bill of Rights • Bill of Rights are not absolute. • Originally the Bill of Rights was a limit on the national government’s powers. • During the early 1900’s, the Supreme Court applied the Bill of Rights to the States via the “due process” clause of the 14th amendment.

8. Free Speech • Afforded highest protection by courts. • Symbolic Speech. • Gestures, movements articles of clothing. • Texas v. Johnson (1989). • Commercial Speech: Advertising is protected speech. Any restriction must: • Implement substantial government interest; • Directly advance that interest; and • Go no further than necessary.

9. Corporate Political Speech Afforded significant protection by the first amendment but not to the degree of speech of natural persons. • First National v. Bellotti (1978). • Consolidated Edison v. Public Service Commission (1980).

10. Unprotected Speech • Certain types of speech are not protected by the first amendment: • Slander. • Pornography, Obscenity. • Fighting Words. • What about “Hate Speech”? • Doe v. University of Michigan (1989). • What about cyber obscenity and hate speech?

11. Freedom of Religion • First amendment many neither prohibit the “establishment” nor prohibit the “free exercise” of religion. • The first amendment does not require complete “separation of church and state.” • First amendment mandates accommodation of all religions and forbids hostility toward any. • Zorach v. Clauson (1952). • Lynch v. Donnelly (1984).

12. Freedom of Religion • First amendment guarantees the “free exercise” of religion. • Employers must reasonably accommodate beliefs as long as employee has sincerely held beliefs. • Frazee v. Illinois (1989).

13. Self-Incrimination • Fifth amendment guarantees no person can be compelled to testify against himself in a criminal proceeding. • Does not apply to corporations or partnerships. • Verniero v. Beverly Hills Ltd (1998).

14. Searches and Seizures • Fourth amendment requires warrant with “probable cause.” • Warrantless exceptions exist for “evanescent” evidence. • Searches of Business: generally business inspectors must have a warrant. • Marshall v. Barlow’s (1978).

15. § 3: Other Constitutional Protections • Privileges and Immunities clause • Article IV, Section 2 of the U.S. Constitution. • Citizens can engage in basic activities (work, marriage, property) in any state. • Full Faith and Credit clause • Article IV, Section 1. • The Public Act or Record of another state shall be given equal weight in a sister state.

16. Due Process • 5th and 14th amendments provide “no person shall be deprived of life, liberty or property without due process of law.” • Procedural and Substantive issues.

17. Procedural Due Process • Procedures depriving an individual of her rights must be fair and equitable. • Constitution requires adequate notice and a fair and impartial hearing before a disinterested magistrate.

18. Substantive Due Process • Focuses on the content or substance of legislation. • Laws limiting fundamental rights (speech, privacy, religion) must have a “compelling state interest.” • Laws limiting non-fundamental rights require only a “rational basis.”

19. Equal Protection Strict Scrutiny. • Laws that affect the fundamental rights of similarly situated individuals in a different manner are subject to the “strict scrutiny” test. • Any “suspect class” (race, national origin) must serve a “compelling state interest” which includes remedying past discrimination.

20. Equal Protection • Intermediate Scrutiny. • Applied to laws involving gender or legitimacy. • To be constitutional laws must be substantially related to important government objectives. • (EXAMPLE: Illegitimate teenage pregnancy).

21. Equal Protection Rational Basis Test. • Applied to matters of economic or social welfare. • Laws will be constitutional if there is a rational basis relating to legitimate government interest.

22. Privacy • Fundamental right not expressly found in the constitution, but derived from 1st, 5th and 14th amendments. • Laws and policies affecting privacy are subject to the compelling state interest test. • Online privacy.

23. Case 4.1: Bad Frog v. NY State Liquor Authority • FACTS: • Bad Frog sells alcoholic beverages with labels that display a frog “giving the finger.” • NYSLA denied approval of the label because children might see the labels in grocery and convenience stores. • Bad Frog sued NYSLA in federal court asking for an injunction against this denial. • The court granted a summary judgment in favor of the NYSLA. Bad Frog appealed.

24. Case 4.1: Bad Frog v. NY State Liquor Authority • HELD: FOR BAD FROG. REVERSED. • The Second Circuit ruled that NYLSA’s ban on the use of the labels lacked a “reasonable fit” with the state’s interest in shielding minors from vulgarity, and the NYSLA did not adequately consider alternatives to the ban. • “In view of the wide currency of vulgar displays throughout contemporary society * * * barring such displays * * * cannot realistically be expected to reduce children’s exposure to such displays to any significant degree.”  

25. Case 4.2: Verniero v. Beverly Hills, Ltd. • FACTS: • New Jersey investigated the marketing practices of Beverly Hills Limited, Inc. • Verniero, NJ’s Attorney General, served a subpoena on Beverly Hills which ordered the production of business records. • Beverly Hills demanded guarantee of immunity before turning over the records. • Verniero sued to enforce the subpoena but the Court ruled in favor of Beverly Hills. • Verniero appealed.

26. Case 4.2: Verniero v. Beverly Hills, Ltd. • HELD: FOR VERNIERO. REVERSED. • A corporation could not invoke a privilege against self-incrimination and ordered Defendant to produce the records. • “[A] corporation may not invoke either the Fifth Amendment or the New Jersey privilege against self‑incrimination. Moreover, a custodian of corporate records may not rely upon his or her personal privilege against self‑incrimination as a basis for refusing to produce corporate records.”

27. Case 4.3: WHS Realty v. Town of Morristown • FACTS: • Morristown ordinance provided free garbage collection service for certain residences but excluded all multifamily dwellings with four or more units. • WHS owned an apartment complex that consisted of 140 units and thus did not receive the free service. • WHS sued Morristown claiming ordinance violated the equal protection clause. • The court held the ordinance was unconstitutional, finding it was not rationally related to any legitimate state interest.

28. Case 4.3: WHS Realty v. Town of Morristown • HELD: AFFIRMED. FOR WHS. • The Superior Court remanded for determination of damages. • “[T]here is nothing about the mechanics or costs of solid waste collection that justifies differentiating between apartment complexes and other residents.” • Morristown argued that “apartment units have a lesser value for tax assess­ment purposes,” justifying different service. The court responded that this was not a serious argument.

29. Case 4.4: Reno v. Condon (Privacy Rights) • FACTS: • Federal government passed Driver’s Privacy Protection Act 1994 (DPPA) that required a driver to “opt in” before a state could sell a driver’s personal data. • Condon, South Carolina Attorney General, sued Reno in federal court alleging DPPA violated the Constitution. Under South Carolina state law, the information may be released unless a driver “opts out.” • The Court granted an injunction to prevent the DPPA’s enforcement, which the U.S. Court of Appeals for the Fourth Circuit upheld. Reno appealed.

30. Case 4.4: Reno v. Condon (Privacy Rights) • HELD: REVERSED. FOR RENO/DPPA. • US Supreme Court held DPPA was a proper exercise of Congress’s power under the commerce clause. • “The motor vehicle information which the States have historically sold is used by insurers, manufacturers, direct marketers, and others engaged in interstate commerce to contact drivers with customized solicitations. • The information is also used in the stream of interstate commerce by various public and private entities for matters related to interstate motoring.” • The DPPA did not require South Carolina to assist in the enforcement of federal statutes regulating private individuals.”