The Constitution: Focus on
Application to Business
Chapter 4
Articles of the Constitution
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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
Constitutional
Amendments
• Amendments began almost immediately after
Constitution 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 must be ratified by 3/4 of state legislatures
COMMERCE CLAUSE
Art. I, Section 8
• Congress has power to:
“Regulate Commerce
with foreign Nations &
among the several
States, and with the
Indian Tribes”
• Deals with “interstate
commerce”
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.
• Most laws are necessary and proper!
McCulloch v. Maryland (1819)
• Can Congress establish a
National Bank?
• Yes, it is constitutional
under the Necessary and
Proper clause, which
expands Congress’s powers
• Constitutional federal actions take precedence
over actions of other governments under the
Supremacy clause
• Maryland wanted to regulate the National Bank
• NO. Violates Supremacy Clause
Wickard v. Filburn (1942)
• Federal controls on production of wheat
• Small farm in Ohio produces 239 bushels more than
farmer Filburn was allowed
• He is fined $117 and ordered not to plant more
• Filburn argues that production used to feed his
chickens and cows and for making bread – 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”
Federal and State Regulatory
Relations
Versus
• If states 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.
Katzenbach v. McClung
(Use of Commerce Clause in a
discrimination) 1964 Case
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Ollie’s Bar-B-Q
Family-owned restaurant in Birmingham, AL
220 seats for white customers only
New 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 to a local business?
• HELD: Yes, activity may “exert a substantial
economic effect on interstate commerce.”
When State Law Impedes Interstate Commerce
• Southern Railway Co v.
• Chemical Waste
Arizona – Court struck
Management v. Hunt –
down Az law that required
Violates Commerce clause to
trains to be shortened for
charge more for out-of-state
safety reasons.
generated hazardous waste
than for in state waste
• Rowe v. NH Motor
Transport – S. Ct. struck • Wyoming v. Oklahoma – Ok
down a ME law requiring
law requiring coal-burning
companies shipping
power plants to burn at least
tobacco products into
10% Ok-mined coal was
state to confirm that
discriminatory & interfered
recipients are of legal age. with interstate commerce.
U.S. Statutes specifically
prohibit this state action.
Hughes 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.
• Three part test in such cases:
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?
• Fine to protect wildlife, but could be done in less
discriminatory way by the state
Taxing Power
Art. 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 report, violate tax laws
State Taxation
• State taxes cannot impede interstate commerce.
• Baccus Imports v. Dias: Court struck down Hawaii’s 20%
tax on all alcoholic beverages except for local products.
• Davis v. Michigan Dept. of Treasury: Mich. exemption from
state income on retirement benefits to state employees.
– 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
• Controversial area: States ability to tax internet businesses
• Apportioning state tax burden: Supreme Court held
business income may be taxed by states as long states
use formulas that divide a company’s income fairly in
portion attributable to each state.
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 or health)
• Supreme Court struck down parts of McCainFeingold Act prohibiting for-profit and non-profit
corporations & unions from broadcasting
“electioneering communications”
• 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 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
• HELD: Supreme Court reversed in favor of Con Ed
• Test: Was the state’s prohibition 1) reasonable as to time,
place & manner of speech? 2) concerning a permissible
subject matter? 3) “narrowly-tailored” to serve a
“compelling state interest”?
• This is not a captive audience. Customers may choose not
to be exposed by not reading material or throwing away.
S.Ct.: Business & Commercial Speech
• Shapiro v. Kentucky Bar
• Bigelow v. Virginia: Court
Assn.: Held state bar
reversed conviction of VA
violated 1st Amendment by
newspaper editor who
restrictions on advertising
published ads re:
for professionals services
availability of low-cost
(e.g. lawyers or doctors)
abortions in NYC
• Trustees of the SUNY v.
• Virginia State Bd. Of
Fox: Standard for judging
Pharmacy v. Virginia
commercial speech
Citizens Consumer
regulation is one that is
Council: Struck down VA
“not necessarily perfect
law prohibiting advertising
but reasonable” and
of prices of prescription
“narrowly tailored to
drugs.
achieve the desired
objective.”
Central Hudson Gas & Electric v. Public
Service Comm. of New York
• The NY Public Service
Commission ordered the
end of advertising that
promoted the use of
electricity as contrary to
public interest.
• U.S. Supreme Court
HELD: Although
commercial speech does
receive lesser protection
than other guaranteed
expressions –
The ban more extensive than
necessary to achieve the state’s
objective, so unconstitutional.
Test: 1. Is regulated speech
lawful and truthful? 2. Is there a
substantial government interest
to advance? 3. Regulation
directly advance government
interest? 4. Regulation no more
than is necessary to serve
public interest?
• Reversed for Central Hudson
2nd Amendment Right to Bear Arms
• 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
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….”
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Does government (i.e. OSHA) need warrant?
Usually yes
Exception: closely regulated businesses
However, business usually agrees to search
Generally, closed places such as homes and
businesses are not subject to random police searches
Limits of Searches & 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.
• Skinner v. Railway Labor Executives’ Assn. RR
employees involved in train accidents or safety violations
can be searched for alcohol or drugs – closely regulated
industry
5th Amendment-Right
Against Self Incrimination
“No person shall be. . . compelled in any criminal
case to be a witness against himself.”
• 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
– But in practice business
records tied to persons
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? 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
get land desired by a private developer – legal in some states;
illegal in others—”blight” barn door exemption.
• 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 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.
(continued)
Kelo v. City of New London,
Connecticut
• 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.
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IJ—Kelo v. New London
6th, 7th & 8th Amendments
6th
Right to trial by jury in criminal
cases
7th
Right to trial by jury in common
law cases
8th
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.”
• 14th Amendment incorporates protections from the Bill of
Rights & applies them to state governments.
• Due process: violated when a 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
Pro’s Sports Bar & Grill v. City of
Country Club Hills
• Pro’s Sports Bar & Grill received a Class A liquor license from City
of Country Club Hills (suburb of Chicago)
– Allowed Pro’s to stay open until 2 AM Monday – Fridays
– Open until 3:00 AM Saturdays and Sundays
• Next year, owners reapplied for renewal.
• City council decided (without hearing or vote) to change liquor
license to require Pro’s to close at 11:30 PM on weekdays & 12:30
AM on the week-end.
• Owners sued– would have terrible impact on business
• District court issued a temporary injunction against City’s
enforcement of new license
• Court said there was a violation of due process.
• City appealed.
(Continued)
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Pro’s Sports Bar & Grill v.
City of Country Club Hills
• Two questions
– Whether plaintiffs were deprived of a protected liberty or property
interest.
– If so, whether deprivation occurred without due process.
• When license granted, this is a form of property under “due process.”
• Like a revocation of an existing license, nonrenewal requires cause
and a hearing
• Pro’s did not receive a pre-deprivation hearing or other protections of
the revocation process.
• Irreparable harm to Pro’s outweighs any interest in city.
• HELD: Preliminary injunction against the City’s actions upheld.
Reget v. City of La Crosse
• Reget owned John’s Auto Body in La Cross, Wisconsin since 1975.
• City ordinance: If you have 2 or more junked vehicles outdoors for
more than 30 days, you are a junk dealer & need fence to hide vehicles.
• He said that rule was unfair as it applied only to him.
• In 1996, City wanted to rezone Reget’s property from “heavy industrial”
to “commercial” – would force him to move his business.
• Reget and City fought. City agreed that Reget could stay if he built a
fence & complied w/ noise ordinance.
• Reget again complained that City was selectively enforcing its
ordinance.
• City agreed to enforce its ordinances against any violators.
• In 2003, no fence; city issued citation.
• Reget agreed to let City install a fence and to repay city for the costs
• In 2006, Reget sued City and officials for violating his equal-protection
rights by selectively enforcing its ordinance him and by targeting him
for rezoning.
(Continued)
Reget v. City of La Crosse
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District Court granted summary judgment for City. Reget appealed.
HELD: Affirmed Summary judgment for City, and dismissed Reget’s claims
Equal protection is violation even if there is so-called “class of one”
Plaintiff must prove:
1) state intentionally treated him different than others similarly situated
AND
2) there is no rational basis the difference in treatment.
Reget’s argument fails with first step of analysis.
Others compared to Reget must be similar in material aspects.
Reget did not produce evidence that other businesses failed to comply with
fence requirement. No evidence that other dealers were not cited.
Three citations against Reget were dismissed – unlike other junk dealers.
Reget volunteered to build fence with settlement of his rezoning dispute.
This voluntary agreement cannot support a class-of-one claim.
No evidence that City singled him out for rezoning.
City rezoned more than 100 properties as part of rezoning project.