The Constitution: Focus on Application to Business

The Constitution: Focus on Application to Business Chapter 4 Meiners, Ringleb & Edwards The Legal Environment of Business, 12th Edition

The Constitution of the United States “We the people of the United States, in Order to form a more perfect a Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.” See Appendix C

Articles of the Constitution • I. Composition and powers of Congress • II. Selection and powers of the President • III. Creation and powers of the federal judiciary • IV. Role of the states in the federal system • V. Methods of amending the Constitution • VI. Declaring the Constitution to be supreme law of the land • VII. Method for ratifying the Constitution

The Commerce ClauseArt. I, Section 8 • Congress has power: “Regulate Commerce with foreign Nations and among the several States, and with the Indian Tribes” • Deals with “interstate commerce” • More power in State or Federal Government? • Federal Government

The Necessary and Proper Clause(Clause 18, Article I, Section 8) • Constitution enumerates list of Congressional powers – AND • Power “to make all Laws which shall be necessary and proper for carrying into Execution the forgoing Powers…” • This power with the Commerce Clause provides BROAD Congressional control of commerce. • Almost everything is necessary and proper!!

McCulloch v. Maryland • Can Congress establish a National Bank? • Court Held: Yes, it is constitutional under theNecessary and Proper Clause, which EXPANDS, not restricts, Congress’s powers • Federal actions take precedence over actions of other governments under Federal Supremacy Clause • Maryland wanted to regulate National Bank • Court Held: NO! under Supremacy Clause Congress has the power

Federal Supremacy: The Supremacy ClauseArticle VI, Paragraph 2 • “The Constitution, and the Laws of the United States . . . Shall be the supreme Law of the Land; and the judges in every State shall be bound thereby. . . . “ • McCulloch v. Marylandstates that when the federal government has power to act under the Constitution, its actions are “supreme”. • In such a case, federal government actions take precedenceover actions of other governments.

CaseKatzenbach v. McClung • Ollie’s Bar-B-Q • Family-owned restaurant in Birmingham, AL • 220 seats for white customers only • Title II of 1964 Civil Rights Act prohibits racial segregation in public accommodations if serving interstate travelers or if food moved in interstate commerce • Does Title II apply? • HELD: Yes, activity may “exert a substantial economic effect on interstate commerce.”

Federal and State Regulatory Relations • States often legislate on a matter on which Congress has legislated. • Federal regulation takes precedence over state regulation. • State regulations may not contradict federal law standards. • State may not enact laws that burden interstate commerce by imposing restrictions on business from other states. • See Exhibit 4.1

CaseHughes v. Oklahoma • Oklahoma prohibits shipping or selling minnows out of state to protect Oklahoma minnows. • Hughes bought minnows in Oklahoma and took them to Texas. Convicted of violating state law. • OK Supreme Court upheld statute as constitutional to protect OK natural resources. Hughes appealed. • U.S. Supreme Court: Reversed in favor of Hughes. • Issues: • (1) Does statute regulate evenhandedly with only “incidental” effects on interstate commerce? • (2) Does statute serve a legitimate “local purpose”, and if so • (3) Could “alternative means” promote this local purpose as well “without discriminating against interstate commerce?” • Fineto protect wildlife, but could be effected in less discriminatory way by the state

Imitation Not Allowed • States may not copy federal regulations if imitation inhibits interstate commerce. • South-Central Timber Development v. Wunnicke • Commerce clause long recognized as limiting power of states to pass laws “imposing substantial burdens on such [interstate and foreign] commerce.” • This power is granted to Congress.

The Taxing PowerArt. I, Section 8, Clause 1 • “lay & collect taxes” • 16th Amendment gave federal government power to impose income taxes • Taxes used to raise revenue and /or deter/punish/encourage certain behavior • Supreme Court: “the power to tax includes the power to destroy” • Supreme Court: Upheld taxes on illegal gambling, narcotics & marijuana (illegal business activities) • If reported: evidence of illegal activity • If don’t, violate tax laws

State Taxation • State taxes cannot impede interstate or international commerce. • Northwestern States Portland Cement Co. v. Minnesota: State cannot impose taxes upon person passing through the state or coming into it merely for a temporary purpose. • Baccus Imports v. Dias: Court struck down Hawaii’s 20% tax on all alcoholic beverages except for local products. • Same tax must be imposed regardless of origin. • Davis v. Michigan Dept. of Treasury: Michigan exemption from state income taxed the retirement benefits paid to state employees. • All other retirement income (i.e. federal government employees’ benefits) were taxed. • Taxes must apply equally to all retirement benefits. • Quill Corp. v. North Dakota: State sales taxes imposed on out-of-state firms doing mail-order business with ND residents were stricken • Must have a physical presence in the state to be taxed • However, firms like Amazon do much retailing – the “physical presence rule” has come under question • Online retailers are collecting sales taxes rather than fight the states • Goldberg v. Sweet: 5% tax on long-distances calls to or from the state unless taxpayer can show that another state has billed the call, then the IL tax is refunded. Violation of commerce clause. • Apportioning state tax burden: Supreme Court held business income may be taxed by states as long as they use formulas that divide a company’s income fairly in the portion attributable to its state.

State Taxes May Not Impede Foreign Trade • States may not interfere with interstate commerce through taxing schemes • Constitution gives Congress power to regulate international trade • State may not interfere with international commerce through taxation • Japan Line v. County of Los Angeles: California cities imposed property tax on cargo-shipping containers used in international shipping and owned by Japanese companies. Tax was unconstitutional as power over foreign commerce rests with Congress • See Issue Spotter “Unconstitutional Business Activity?”

Business and Free Speech • First Amendment Freedom of Speech • Commercial Speech (advertisements) • Political statements by corporations (public issues) • Usually allowed • UNLESS “compelling state interest” to prohibit • For example: public safety • Controversial: Supreme Court struck down parts of McCain-Feingold Act prohibiting for-profit and non-profit corporations & unions from broadcasting “electioneering communications” • See Consolidated Edison Case • See Central Hudson Case

International Perspective“FREEDOM OF SPEECH” • Other countries have more restrictive practices in freedom of speech in the media • In United Kingdom, politicians can successfully sue the media for defamation • In many European countries, books that contain “hateful material” may not be published • In Belgium, journalists must reveal their sources • Reporter for leading German magazine, Die Stern arrested in Brussels for publishing articles alleging that members of European Parliament engaged in fraud

Cyber Law“FREEDOM OF SPEECH ON THE NET” • American Civil Liberties Union of Georgia v. Miller • Georgia passes a statute making it a crime for “any person . . . knowingly to transmit any data through a computer network . . . if such data uses an individual name . . . to falsely identify the person.” • Violated the 1st Amendment • Statute was too sweepingin it’s coverage. • Reno v. American Civil Liberties Union • Supreme Court struck down the Communications Decency Act of 1996 • Purpose of law was to restrict pornography for children on the Web • Law went too farrestricting 1st Amendment rights • It was like “burning the house to roast the pig.”

CaseConsolidated Edison Co. v. Public Service Commission of NY • Con Ed mailed controversial statement supporting nuclear power in monthly billing • Public Service Comm. of NY said: Can’t do it as customers are “captive audience” and should not be subjected to Con Ed’s views • Was the state’s prohibition (1) reasonable time, place & manner of speech? (2) a permissible subject matter? (3) serving a “compelling state interest”? • HELD: Supreme Court reversed in favor of Con Ed • This is not a “captive audience”. • Customers may choose not to be exposed to material by not reading it or tossing it in the wastebasket.

Business and Commercial Speech • Bigelow v. Virginia: Court reversed conviction of VA newspaper editor who published ads re: availability of low-cost abortions in NYC • Virginia State Bd. Of Pharmacy v. Virginia Citizens Consumer Council: Court struck down VA law prohibiting advertising of prices of prescription drugs. • Shapiro v. Kentucky Bar Assn.: Court held state bar association violated 1st Amendment by restrictions on advertising for professionals services (e.g. lawyers or doctors) • Bd. Of Trustees of the State University of NY v. Fox:Standard for judging commercial speech regulation is one that is “not necessarily perfect but reasonable” and narrowly tailored to achieve the desired objective.”

CaseCentral Hudson Gas & Electric v. Public Service Comm. of New York • The NY Public Service Commission ordered the end of all advertising that promoted the use of electricity because it was contrary to public interest at that time • U.S. Supreme Court HELD: Although commercial speech does receivelesser protection than other speech, a 4 part test will be applied: 1. Does the speech concern lawful matter? 2. Does the government have a substantial interest? 3. Does the restriction directly advance the government interest? 4. Is the restriction no more extensive than is necessary? • The court held that the commission’s ban was more extensive than necessary to achieve the state’s objective and thus was unconstitutional. • Reversed in favor of Central Hudson

Freedom to Criticize • Internet Based Free Speech • Federal Appeals Courts: Have held Web sites dedicated to mocking or posting negative opinions about business are protected speech • Must show actual malice regarding an actual falsehood • Bose Corp. v. Consumers Union • Consumer’s Report gave bad review of Bose speakers. • Product disparagement or truthful reporting? • To show defamation must show actual malice in publishing a knowing and reckless falsehood. • Supreme Court HELD: Okay since NO MALICE

Right to Bear Arms 2nd Amendment • Restrictions government may place on gun ownership & possession – not settled area • Some jurisdictions (i.e. NYC) have very tight controls • Others do not • Some employers & business ban the possession of firearms anywhere on company property • State of Oklahoma: Passed statute prohibiting employers from preventing employees from storing firearms in their personal, locked vehicles on company property

Unreasonable Search and Seizure 4th Amendment “The right of the people to be secure in their persons, houses, papers and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue but upon probable cause….” • Does government (i.e. OSHA) need warrant? • Usually, yes • Exception: closely regulated businesses • However, business usually agrees • Generally, closed places such as homes and businesses are not subject to random police searches • Improperly obtained evidence may not be used in court under the exclusionary rule • See New York v. Burger • See also “No Right of Privacy in Chat Rooms” • Messages sent to chat rooms lose their privacy and can be used as evidence in child pornography case

Limits of Searches and Inspections • Government inspectors who come to business for a warrantless inspection • Marshall v. Barlow • OSHA inspector asks to search work areas. • Barlow refused admission unless inspector got a warrant. • HELD: Inspector must get a warrant. • However, most business allow warrantless searches. • Skinner v. Railway Labor Executives’ Assn.: RR employees involved in train accidents or safety violations can be searched re: alcohol or drugs – closely regulated industry

Self Incrimination5th Amendment “No person shall be. . . compelled in any criminal case to be a witness against himself.” • Why was this added to Constitution? • No 5th Amendment Protection to public records • Does self-reporting violate 5th Amendment? • Applies to PEOPLE, not Corporations • Braswell v. U.S.: President & sole stockholder must report, even if it incriminates him

Just Compensation or Takings Clause 5th Amendment “Regulatory Takings”“nor shall private property be taken for public use, without just compensation.” • Can government take property for public purposes – oil pipelines, military bases, highways, sidewalks? Yes. • Eminent domain – the right of governments to condemn private property for public uses • What is “just” compensation? Usually “fair market value”. • Destruction of property value through takings must be almost complete to receive compensation • i.e. 60% devaluation due to change in zoning laws does not require governmental compensation to affected owners. • Controversial economic development tactics: City uses power to piece together land desired by a private developer – legal in some states; illegal in others • SeeKelo v. City of New London, Connecticut

CaseKelo v. City of New London, Connecticut • City of New London worked on plan to piece together property along riverfront for upscale housing, a new shopping center, and a facility for the Pfizer Company. • Some home owners refused to sell, including Suzette Kelo, who wanted to keep her water-front home, and Wilhemina Dery who was born in her home in 1918 and lived there all of her life. • City used power of eminent domainto buy property and sell to developers. • Homeowners claimed this was a 5th Amendment violation of “public use”.” • Connecticut courts held the taking was proper and home owners appealed: • ISSUE Does the City’s development plan serve a “public purpose”? • This court favored giving legislatures broad latitude in determining the “public needs through takings.” • Court will defer to the city’s determination for the need for “economic rejuvenation.” • Look at benefits to the community, such as new jobs, increased tax revenue. • U.S. Supreme Court HELD: The takings that are challenged satisfy the Fifth Amendment requirements of “takings for a public purpose.” City wins.

Other Amendments 6thRight to trial by jury in criminal cases 7thRight to trial by jury in common law cases 8thLimits cruel & unusual punishmentsand excessive fines SeeU.S. v. Bajakajian

Fourteenth Amendment • No state . . . shall deprive any person of life, liberty or property without due process of law; • “nor deny to any person within its jurisdiction the equal protection of the laws.” • U.S. v. Virginia: Supreme Court HELD--Virginia violated equal protection clause by excluding women from attending the Virginia Military Institute • 14th Amendment incorporates protections from the Bill of Rights & applies them to state governments.

Due Process Clause and Equal Protection • Due process: • Is violated when state infringes on fundamental liberty interests without narrowly tailoring to meet the compelling state interest • Is offended when state action shocks the conscience or offends judicial notions of fairness and human dignity • Equal protection: governments must treat people equally • See Fresenius Medical Care Holdings Inc. v. Tucker • See Corey Airport Services

CaseFresenius Medical Care Holdings, Inc. v. Tucker • Florida’s “Patient Self-Referral Act”: Florida MD’s cannot refer their patients for services to businesses where they have financial interest • Unless the MD owns a small share in large company • Fresenius Medical Care & other companies provide renal (kidney) dialysis services & lab work • Various MD’s owned parts of companies providing services • Couldn’t refer patients to those companies • MD’s sued: Sought declaration that Florida Act is unconstitutional • Violates Due Process • Said law was not effective • Actually reduces competition in medical services • District Court held for Florida. MD’s appealed (Continued)

CaseFresenius Medical Care Holdings, Inc. v. Tucker • Court reviews substantive due process challenges under the rational basis standard • This standard requires that the Florida Act’s prohibition on physician self referrals is rationally related to the Florida Legislature’s goal • Of reducing conflicts of interest, lowering health care costs and improving the quality of health care services • MD’s bear burden that demonstrates the law lacks rational basis. • HELD: Affirmed • No matter how ineffective the law might actually be, it is not irrational for the Florida Legislature to conclude that the law would accomplish the statutory objectives identified • It is reasonably conceivable that Florida patients would be better served if their MD’s could not make self referrals to associated laboratories • The Florida Act survives. • Law does not deprive MD’s of their right to substantive due process.

CaseCorey Airport Services, Inc. v. Clear Channel Outdoor, Inc. • City of Atlanta requested bids for 5-year advertising contract at Atlanta airport. • Winning bidder would manage hundreds of advertising displays at airport. • Before the bid request, Clear Channel held the advertising concession. • Three companies bid for the new concession. • Clear Chanel won; Corey was second. • Corey appealed the bid process, but appeal was rejected • Corey sued in federal court. • Contended that Clear Channel conspired with the Cityto deprive Corey of its equal rights • Jury held for Corey. • Awarded millions in damages. • Defendants appealed. (Continued)

CaseCorey Airport Services v. Clear Channel Outdoor • Underlying conspiracy claim is City violated Corey’s equal protection rights • By bias in selecting Clear Channel’s bid for advertising contract • Usual equal protection concern is with governmental classification and treatment toward an identifiable group of citizens • That the treatment of one group is different from another group • “Identifiable Group” is important to this type of claim • Corey attempted to identify itself as a “member of a group of bidders who were not ‘politically connected’ to the City or influential government persons” • Contends it lost the bid based on this “status” of not being politically connected • “Groups” usually based on discrete groups that clearly ID persons that have suffered discrimination • Examples are race and sex; Example can be longer-term and discrete affiliation, i.e. Republican vs. non-Republican, Democrat vs. Non-Democrat • Corey tries to ID the groups here as “insiders” and “outsiders”. • These categories are too loose, too shifting to be used by a court. • Every government bid process has winners & losers. • If court defines “bid-losers” as a basis for Equal Protection claim, every government bid would support in theory claim re: equal protection • HELD: Claim fails. No sufficient identifiable group.

The Constitution: Focus on Application to Business