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Meiners, Ringleb & Edwards
The Legal Environment of Business, 12 th Edition
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“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
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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
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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
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(C LAUSE 18, A RTICLE I, S ECTION 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!!
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M C C ULLOCH V . M ARYLAND
Can Congress establish a National
Bank?
Court Held: Yes, it is constitutional under the
Necessary and Proper
Clause , which
EXPANDS, not restricts, Congress’s powers o Federal actions take precedence over actions of other governments under Federal Supremacy
Clause o Maryland wanted to regulate National Bank o Court Held: NO! under
Supremacy Clause
Congress has the power
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F EDERAL S UPREMACY :
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A RTICLE VI, P ARAGRAPH 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. Maryland states that when the federal government has power to act under the Constitution, its actions are “supreme”.
In such a case, federal government actions take precedence over actions of other governments.
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K ATZENBACH V . M C C LUNG
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.”
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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
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H UGHES V . O KLAHOMA
Oklahoma prohibits shipping or selling minnows out of state to protect Oklahoma minnows.
U.S. Supreme Court: Reversed in favor of Hughes.
Issues:
Hughes bought minnows in
Oklahoma and took them to
Texas. Convicted of violating state law.
(1) Does statute regulate evenhandedly with only “incidental” effects on interstate commerce?
OK Supreme Court upheld statute as constitutional to protect OK natural resources.
Hughes appealed.
(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 ?”
Fine to protect wildlife, but could be effected in less discriminatory way by the state
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I MITATION N OT A LLOWED
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.
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A RT . I, S ECTION 8, C LAUSE 1
“lay & collect taxes”
16 th 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
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S TATE T AXATION
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.
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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?”
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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 nonprofit corporations & unions from broadcasting
“electioneering communications” o See Consolidated Edison Case o See Central Hudson Case
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NTERNATIONAL
ERSPECTIVE
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
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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 sweeping in 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 far restricting 1st
Amendment rights
It was like “burning the house to roast the pig.”
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C ONSOLIDATED E DISON C O . V . P UBLIC S ERVICE
C OMMISSION 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.
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B USINESS AND C OMMERCIAL S PEECH
Bigelow v. Virginia : Court reversed conviction of VA newspaper editor who published ads re: availability of low-cost abortions in NYC
Shapiro v. Kentucky Bar Assn.
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Court held state bar association violated 1 st Amendment by restrictions on advertising for professionals services (e.g. lawyers or doctors)
Virginia State Bd. Of
Pharmacy v. Virginia Citizens
Consumer Council : Court struck down VA law prohibiting advertising of prices of prescription drugs.
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.”
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C ENTRAL H UDSON G AS & E LECTRIC V . P UBLIC
S ERVICE C OMM . OF N EW Y ORK
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 receive lesser 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
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F REEDOM TO C RITICIZE
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
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R IGHT TO B EAR A RMS
2 ND A MENDMENT
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
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4 TH A MENDMENT
“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
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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
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S ELF I NCRIMINATION
5 TH A MENDMENT
“No person shall be. . . compelled in any criminal case to be a witness against himself.”
Why was this added to Constitution?
No 5 th 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
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5 TH A MENDMENT
“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
See Kelo v. City of New London, Connecticut
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K ELO V . C ITY OF N EW L ONDON , C ONNECTICUT
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 domain to buy property and sell to developers.
Homeowners claimed this was a 5 th
Amendment violation of “ public use”.”
Connecticut courts held the taking was proper and home owners
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.
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6 th Right to trial by jury in criminal cases
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8 th th
Right to trial by jury in common law cases
Limits cruel & unusual
punishments and excessive fines
See U.S. v. Bajakajian
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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
14 th Amendment incorporates protections from the Bill of Rights & applies them to state governments.
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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
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F RESENIUS M EDICAL C ARE H OLDINGS , I NC . V .
T UCKER
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)
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F RESENIUS M EDICAL C ARE H OLDINGS , I NC . V .
T UCKER
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 .
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C OREY A IRPORT S ERVICES , I NC . V . C LEAR C HANNEL
O UTDOOR , I NC .
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 City to deprive Corey of its equal rights
Jury held for Corey.
Awarded millions in damages.
Defendants appealed.
(Continued)
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C OREY A IRPORT S ERVICES V . C LEAR C HANNEL O UTDOOR
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.
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