The Constitution: Focus on
Application to Business
Chapter 4
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
Constitutional Amendments
• The constitutional amendments began almost immediately
after it was ratified.
• In 1791 the first 10 amendments were ratified by the
States. These are called the Bill of Rights.
• A proposed amendment must be passed by 2/3 vote in the
House and Senate
• Then ratified by 3/4 of state legislatures OR
• May be proposed by 2/3 of state legislatures by calling for
a constitutional convention
– This in turn must be ratified by 3/4 of state legislatures
COMMERCE CLAUSE
Art. I, Section 8
• Congress has power:
“Regulate Commerce
w/foreign Nations &
among the several
States, and w/the Indian
Tribes”
• Deals with “interstate
commerce”
• What constitutes
“interstate”?
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…”
• Almost everything is necessary and proper!!
Federal Supremacy:
The Supremacy Clause
Article 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. Maryland -- federal government
actions take precedence over actions of other
governments.
McCulloch v. Maryland (1819)
• Can Congress establish a
National Bank?
• Yes, it is constitutional
under the Necessary and
Proper clause, which
EXPANDS, not restricts,
Congress’s powers
Wickard v. Filburn (1942)
• Federal controls on production of wheat
• Small farm in Ohio produces 239 bushels more than the
farmer, Filburn, was allowed
• He is fined $117 and ordered not to plant more
• Filburn argues that production used to feed his animals
and family--all for consumption on farm
• HELD: Although this appears “intrastate” & “trivial”
• STILL, all small farmers together would impact
“interstate” commerce and “market conditions”
• Congress may regulate production
• Note: Almost all commerce is defined as “interstate”
When State law impedes Interstate
Commerce
Some Supreme Court Cases:
• Southern Railway Co v.
Arizona--Ct. struck down
Arizona law which required
trains to be shortened for
safety reasons
• Chemical Waste
Management v. Hunt-Violates Commerce clause
to charge more for out of
state generated hazardous
waste than for in state waste
• Morales v. Transworld
Airlines--State can’t sue
under consumer protection
statutes because Feds have
exclusive authority to
regulate airlines
• Wyoming v. Oklahoma--OK
law requiring coal-burning
power plants to burn at least
10% OK-mined coal was
discriminatory & interfered
w/interstate commerce
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.
Taxing Power
Art. I, Section 8, Clause 1
• “lay & collect taxes”
• Taxes used to raise
revenue and /or
deter/punish/encourage
certain behavior
• 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 taxes may
not use taxes to
impede interstate
or international
commerce
Business and Free Speech
U.S. First Amendment Freedom of Speech
•
•
•
•
Commercial Speech (advertisements)
Political statements by corporations (public issues)
Usually allowed
UNLESS “compelling state interest” to prohibit or
restrict
• (For example: public safety)
• See Consolidated Edison case (business & political
speech)
• See also Central Hudson case (business and
commercial speech)
Consolidated 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
• Supreme Court test: 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 forced to read message.
• Customers may choose not to be exposed to material by not
reading it or tossing it in the wastebasket.
Central 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
• US Supreme Court
HELD: Although
commercial speech does
accord lesser protection
than other guaranteed
expressions --
• 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 of Commercial and
Political Speech Abroad”
(Most nations more restrictive than U.S.)
• French court ordered
Yahoo! to block French
Internet users from
accessing auctions selling
Nazi artifacts.
• Yahoo! removed items.
• This is equivalent of the
U.S. government
prohibiting sale of
Osama bin Laden
artifacts in U.S.
• Germany upheld prison
sentence for Australian
citizen who posted
information on Australiabased web site that denied the
Holocaust occurred.
• Denying the Holocaust is
banned in Germany as hate
speech.
• This is equivalent of US S. Ct.
upholding a conviction of an
Iranian citizen who posted
material on an Iranian web
site claiming that the World
Trade Center terrorist
attacks never occurred.
Freedom To Criticize
Freedom of speech vs. disparagement
• 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
4th Amendment--Unreasonable
Search & Seizure
“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
• 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
New York v. Burger
• Junkyard is searched without warrant under NY
statutory scheme; stolen cars and parts are found
• Owner tries to keep evidence out of trial as
unconstitutional search
• To be OK for warrantless search:
– must have substantial government interest
– searches must be necessary to further regulatory scheme
– must have adequate substitute for a warrant (must
advise owner and define scope)
• HELD: Search is constitutional as furthering NY
statutory concerns regarding theft
5th Amendment-Right Against
Self Incrimination
“No person shall be. . . compelled in any criminal case to
be a witness against himself.”
• Why was this added to
Constitution?
• 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
5th Amendment- Just
Compensation or Takings
Clause
“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?
• 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
Kelo 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 domain to 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”?
Kelo v. City of New London, Ct.
• 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.
• HELD: The takings that are challenged satisfy the
Fifth Amendment requirements of takings for a public
purpose. City wins.
6th, 7th & 8th Amendments
6
th
Right to trial by jury in
criminal cases
7
th
Right to trial by jury in
common law cases
8
th
Limits cruel & unusual
punishments and excessive
fines
14th Amendment--Due Process
Clause and Equal Protection
Clause
• “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.”
• 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
Philip Morris USA v.
Williams
• Williams died from smoking-related lung cancer. His
wife sued Philip Morris, maker of his favorite cigarette.
• Claimed that company knowing and falsely led him to
believe smoking was safe.
• Jury awarded $821,000 in compensatory damages and
$79.5 million in punitive damages. Oregon high court
upheld the award. Philip Morris appealed to the U.S.
Supreme Court.
• Judge’s instructions to the jury: “Punitive damages are
awarded against a defendant to PUNISH misconduct
and to DETER misconduct,” and “are not intended to
compensate the plaintiff or anyone else for damages
caused by the defendant’s conduct.” (emphasis added)
• (Continued on next slide)
Philip Morris USA v.
Williams, cont.
• HELD: Due Process Clause requires that States assure that juries do
NOT ask the wrong question – that is, not simply to determine
reprehensibility but also punish for harm caused to strangers of the
court.
• Punitive damages may be used to punish unlawful conduct and deter
further unlawful conduct to others.
• HOWEVER, must avoid an arbitrary determination on the amount of
the award.
• Proper standards must be used to control the jury’s discretionary
authority. Guard against “arbitrary punishments”.
• If a defendant is punished to deter for possible misconduct on other or
future parties, this leaves the jury open to speculation.
• Risks: arbitrariness, uncertainty, lack of notice and other due process
concerns
• HELD: The Court’s standard used in determining punitive
damages was improper. Case remanded.
Club Italia Soccer & Sports
Organization , Inc. v. Charter
Township of Shelby, Michigan
• Soccer City contacted Township of Shelby re: development of soccer
facilities. Submitted a formal proposal to the town.
• Club Italia, a non-profit organization, got a copy of Soccer City’s
proposal and complained about bidding process. Wanted to submit a
proposal.
• Town board voted to accept other proposals, and gave interested
parties 3 weeks to submit bids.
• Club Italia failed to bid in the time allowed.
• Contract went to Soccer City, the only bidder.
• Club Italia sued Town, claiming the bidding procedure violated Due
Process and Equal Protection clauses.
• District Court granted summary judgment to the Town.
• Club Italia appealed.
• (Continued on next slide)
Club Italia Soccer & Sports
Organization , Inc. v. Charter
Township of Shelby, Michigan, cont.
•
•
•
•
•
•
•
•
•
•
Club Italia claims that as a prospective bidder, it had a property or liberty
interest in the bidding process.
Claim is that the bidding regulations denied Club Italia of procedural due
process under the 14th Amendment.
For the amendment to apply, plaintiff must show (1) deprivation of a protected
liberty or property interest, and (2) deprivation occurred without due process.
HELD: Due Process claim was properly dismissed. There is no 14th Amendment
violation.
The City’s decision to deny Club Italia a single contract only is a restraint on
business dealings.
City’s decision did not “besmirch” plaintiff’s name or preclude future contracts.
There is no deprivation of a liberty interest.
No abuse of power by the City in awarding the contract
Plaintiff didn’t submit the bid in the requisite time frame.
“Invitation to compete” made by the City to Club Italia is not = to a property or
liberty interest.