CHAPTER 4
Business & the
Constitution
What is the U.S. Constitution?
The U.S. Constitution,
adopted in 1789, is a written
document establishing the
structure and powers of
American government, and it
is the “supreme law of the
land” (Art. VI, sec. 2)
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What is the U.S. Constitution?
The federal government has a constitution and each state
has its own constitution.
The North Carolina Constitution can be found at:
http://www.ncga.state.nc.us/Legislation/constitution/ncc
onstitution.html
Many other countries have either no constitution or no
written constitution.
When American judges/attorneys/law professors speak of
“the Constitution” they are usually referring to the United
States constitution.
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Separation of Powers
Separation Of Powers
 Horizontal- 3 Branches Of Gov’t
 Vertical- Federalism
 As Justice Brandeis once said, “The doctrine of
separation of powers was adopted by the
Convention of 1787, not to promote efficiency, but
to preclude the exercise of arbitrary power. The
purpose was, not to avoid friction, but by means of
the inevitable friction incident to the distribution of
the governmental powers among 3 departments, to
save the people from autocracy.”
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The Supremacy Clause
 Supremacy Clause
 Preemption: The U.S. Constitution is “the supreme law of the
land”, therefore, all laws, acts, and decisions not in
conformity with it are null and void. (see chart on p.145 for
examples of preemption)
 Savings Clause
 GEIER v. AMERICAN HONDA MOTOR COMPANY, INC.
 120 S.Ct. 1913 (2000)
• FACTS: Geier sued American Honda Motor Company,
Inc. after she sustained injuries when her 1987 Honda
collided with a tree. Geier’s car had shoulder and lap
belts but no airbags. Geier claims that Honda should
have equipped the car with airbags and is liable
because it did not. Honda relies on federal statutes
and regulations to absolve it from liability since the
federal authorities did not require, but permitted, the
installation of airbags in 1987 model cars.
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The Supremacy Clause
Supremacy Clause
 Savings Clause
 GEIER v. AMERICAN HONDA MOTOR COMPANY, INC.
 120 S.Ct. 1913 (2000)
• ISSUES:
• 1. Does the National Traffic and Motor Vehicle Safety
Act of 1966 preempt Geier’s lawsuit?
• 2. Does the 1984 version of the Federal Motor Vehicle
Safety Standard (FMVSS 208) preempt Geier’s suit?
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The Supremacy Clause
Supremacy Clause
 Savings Clause
 GEIER v. AMERICAN HONDA MOTOR COMPANY, INC.,
120 S.Ct. 1913 (2000)
• DECISION:
• 1. No. The 1966 Act does not preempt the lawsuit because it
has a savings clause that “does not exempt any person
from liability under common law.”
• 2. Yes. There exists a conflict between the FMVSS 208
safety standard allowing manufacturers discretion whether
to install airbags in 1987 models and a lawsuit claiming the
manufacturer is liable for failing to install airbags. The
conflict is resolved by finding the federal safety standard
preempts the state-based lawsuit.
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The Supremacy Clause
Supremacy Clause
• Crosby v. National Foreign Trade Council, p.79
 The Massachusetts statute that barred the state from
buying goods or services from companies that did
business in Burma (Myanmar) was unconstitutional.
The state law was preempted by federal law. The
state statute undermined the accomplishment of the
full purposes of the federal. If something is to be
done about problems like that occurring in Burma, it
is up to the federal government to issue the necessary
rules.
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The Supremacy Clause
 Supremacy Clause
• Barnett Bank bought a Florida licensed insurance
agency. The State of Florida Insurance
Commissioner ordered Barnett Bank to stop selling
insurance. Florida law prohibits any bank which is
affiliated with other banks from selling insurance.
Barnett Bank sought a declaratory judgment that the
federal law preempts Florida’s law. A 1916 federal law
allows banks in small towns (with less than 5,000 in
population) to sell insurance. Issue: Does the federal
law preempt the Florida law? Held: Yes. There is a
conflict between the meaning of the federal and
Florida laws. This conflict cannot be reconciled by
enforcing both laws. The federal law preempts the
Florida law under the Supremacy Clause. Barnett
Bank of Marion County, N.A. v. Nelson, 116 S.Ct. 1103
(1996).
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The Supremacy Clause
Supremacy Clause
• A New York statute requires hospitals to collect a surcharge
from patients covered by certain commercial insurers and
HMOs. Insureds under Blue Cross/Blue Shield plans were
not subject to the surcharge. Several insurance companies
and HMOs brought this action contending that the
Employee Retirement Income Security Act of 1974 (ERISA)
preempted the area of health insurance when such
coverage is purchased by an employee health-care plan
governed by ERISA. Issue: Are the health plans subject to
the New York law sufficiently related to employee benefit
plans to fall within ERISA's preemption? Held: No. New
York's surcharges affect only indirectly the relative prices
of insurance policies. This result is no different from many
state laws in areas traditionally subject to local regulation.
Congress could not possibly have intended to eliminate all
of these areas of regulation. New York Blue Cross Plans v.
Travelers Inc., 115 S.Ct. 1671 (1995).
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The Supremacy Clause
Supremacy Clause
• The U.S. Labor Department sought to
enforce minimum wage and overtime pay
standards against the mass transit system in
San Antonio, Texas. The case sought a
reversal of National League of Cities. Issue:
Does the federal law apply to these
employees of a local transit system? Held:
Yes. Public transit authorities are required
to comply with the overtime provisions of
federal law pursuant to congressional power
to regulate interstate commerce. Garcia v.
San Antonio Metropolitan Transit Authority,
105 S.Ct. 1005 (1985).
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The Supremacy Clause
Supremacy Clause
• The FCC regulates cable television. Oklahoma prohibited
the broadcasting of advertisements for alcoholic
beverages. Issue: Does the FCC preempt state regulation
of TV advertising? Held: Yes. Under supremacy clause,
enforcement of state regulation may be preempted by
federal law in several circumstances, i.e., first, when
Congress, in enacting federal statute has expressed clear
intent to preempt state law, second, when it is clear, despite
absence of explicit preemptive language, that Congress has
intended, by legislating comprehensively, to occupy entire
field of regulation and has thereby left no room for states to
supplement federal law, and, finally, when compliance with
both state and federal law is impossible or when state law
stands as an obstacle to accomplishment and execution of
full purposes and objectives of Congress. Capital Cities
Cable, Inc. v. Crisp, 104 S.Ct. 2694 (1984).
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The Supremacy Clause
Supremacy Clause
• Arizona had a statute which provided for the
suspension of licenses of drivers who were unable to
satisfy judgments even if bankrupt. P had filed a
voluntary petition in bankruptcy and had duly
scheduled a judgment debt arising out of a traffic
accident. The court in bankruptcy discharged P. P
filed a complaint seeking to retain a driver's license.
Issue: Is the Arizona law in conflict with the federal
bankruptcy law? Held: Yes. The Arizona statute is
unconstitutional. The two provisions are in direct
conflict. The purpose of the Bankruptcy Act is to give
debtors new opportunity unhampered by the
pressure and discouragement of preexisting debt.
The challenged state statute stands as an obstacle to
the accomplishment and execution of the full
purposes and objectives of Congress. Perez v.
Campbell, 91 S.Ct. 1704 (1971).
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The Supremacy Clause
Supremacy Clause
• Pharmaceutical Research and
Manufacturers of America v. Walsh, 123 S.Ct.
1855 (2003) (Maine prescription drug
program does not violate commerce clause
and is not preempted by federal Medicare
program); Livadas v. Bradshaw, 114 S.Ct.
2068 (1994) (preemption by the National
Labor Relations Act) and Wisconsin Public
Intervenor v. Mortier, 111 S.Ct. 2476 (1991)
(no preemption by the Federal Insecticide,
Fungicide, and Rodenticide Act).
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Federal Preemption
Types of Federal Preemption
State Law Is Unconstitutional
If . . .
Express preemption
The federal law contains a
provision superceding all
state laws.
Field preemption
It can be implied from various
factors, such as the scope of
the federal law, that
Congress intended to
preempt the field.
Conflict preemption
The federal and state laws
actually conflict.
The Contract Clause
Contract Clause
“No State shall … pass any law impairing
the obligation of contracts.”
Note: This does not apply to the federal
government
Under the contract clause, the threshold
inquiry is whether the state law has, in fact,
operated as substantial impairment of
contractual relationship; the severity of
impairment is said to increase the level of
scrutiny to which legislation will be
subjected.
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The Contract Clause
Contract Clause
• Factors that may justify a state law that
•
•
•
•
•
impairs private contract rights are:
a. The law is enacted in an emergency situation.
b. The law is broad to protect basic societal
interests.
c. The relief is properly tailored to meet those
interests.
d. The conditions of the law are reasonable.
e. The law is limited to the duration of an
emergency.
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The Contract Clause
Contract Clause
• In 1980, Congress amended ERISA to
require employers withdrawing from a
multiemployer pension plan to pay a fixed
amount to cover unfunded benefits. The
law was made retroactive. Issue: Is this
application constitutional under the
contract clause? Held: Yes. The contract
clause does not apply, either by its own
terms or by convincing historical evidence,
to actions of the national government.
Pension Ben. Guar. Corp. v. R.A. Gray &
Co., 104 S.Ct. 2709 (1984).
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The Contract Clause
Contract Clause
• A state regulation restricted the income of a utility.
Issue: Is this state regulation a violation of the
contract clause? Held: No. The law does not
necessarily constitute substantial impairment for
purposes of the contract clause. If a substantial
impairment is found, the state, in justification,
must have a significant and legitimate public
purpose behind the regulation. Once such a
purpose has been identified, the adjustment of the
contracting parties' rights and responsibilities
must be based upon reasonable conditions and
must be of a character appropriate to the public
purpose justifying the legislation's adoption.
Energy Reserves Group, Inc. v. Kansas Power &
Light Co., 103 S.Ct. 697 (1983).
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The Commerce Clause
“Congress shall have Power …
to regulate Commerce with
foreign Nations, and among
the several States, and with
the Indian Tribes…” Article I,
Section 8 of the United States
Constitution.
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The Commerce Clause
1) Federal Regulation
a) Foreign Commerce
b) Interstate Commerce
Engaged in & Affecting
Undue Burden
Discrimination Against
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The Commerce Clause
The power to regulate interstate commerce was
first defined in Gibbons v. Ogden (1824). In that
case, Ogden had a ferry license, gave him right to
operate steam boats to and from N.Y argued
Gibson’s federal “coasting license” didn’t include
“landing rights” in New York. The Court
invalidated the New York licensing regulations
saying that federal regulation should take
precedence under the Supremacy Clause. This
decision strengthened the power of the U.S to
regulate any interstate business relationship.
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The Commerce Clause
The expansion of the power to
regulate private businesses began
with Wickard v. Fillburn (1942)
wherein the Court decided Congress
may regulate any activity that has a
substantial economic effect on
interstate commerce. In that case, the
Court held that wheat production by
an individual farmer, intended wholly
for consumption on his own farm was
still subject to Federal regulation
because the overall demand for wheat
was reduced by the farmer’s actions.6-23
The Commerce Clause
Later, in Heart of Atlanta Motel
v. U.S. (1964), the Court held
that a motel that provided
public accommodations to
guests from other states was
subject to federal civil rights
legislation.
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The Commerce Clause
Today, the Commerce
Clause authorizes the
national government to
regulate virtually any
business enterprise,
including internet.
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The Commerce Clause
Discrimination Against Interstate Commerce
SOUTH CENTRAL BELL TELEPHONE COMPANY v.
ALABAMA, 119 S.Ct. 1180 (1999)
FACTS: South Central Bell files this suit claiming the
franchise tax imposed by the State of Alabama is
unconstitutional under the Commerce Clause. The
company argues the tax discriminates against businesses
that are not formed under Alabama law. The State of
Alabama asserts that although the formulas used to
determine the amount of tax are different for in-state and
out-of-state companies, the result of such taxes are not
discriminatory.
ISSUE : Is the Alabama franchise tax unconstitutional?
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The Commerce Clause
Discrimination Against Interstate Commerce
SOUTH CENTRAL BELL TELEPHONE COMPANY v.
ALABAMA, 119 S.Ct. 1180 (1999)

DECISION: Yes. Under the Commerce Clause, a state
regulation of business activity must not discriminate
against those businesses engaged in interstate
commerce. The Court finds that Alabama allows instate companies to determine their capitalization
through setting the par value of company stock. Since
the in-state businesses are taxed based on the amount
of capital, these companies can avoid some or all of
the tax. Since out-of-state businesses don’t have this
same opportunity to adjust the amount of tax paid, the
franchise tax is discriminatory and unconstitutional.
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The Commerce Clause
Discrimination Against Interstate Commerce
An Oklahoma law required coal-fired electric power plants to
use Oklahoma-mined coal for at least 10 percent of their fuel
needs. Previously, four Oklahoma utilities had purchased
almost all of their coal from Wyoming sources. Wyoming
brought suit against Oklahoma for damages contending that
the law caused it to lose coal severance taxes. Issue: Does
Wyoming have standing to sue? Held: Yes. A state's loss of
tax receipts due to another state's economic legislation gives
it standing to mount a Commerce Clause challenge to that
law. Wyoming v. Oklahoma, 112 S.Ct. 789 (1992).
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The Commerce Clause
Discrimination Against Interstate Commerce
A state law required out-of-state beer
distributors to attest that the prices
charged in the state are no higher than the
prices in bordering states. Issue: Is this a
violation of the Commerce Clause? Held:
Yes. It forces the distributors to take one
state's law into account in setting prices in
neighboring states. Healy v. Beer Institute,
109 S.Ct. 2491 (1989).
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Supreme Court Tests For
Interstate Commerce
Before the late 1930s:
• Did the regulated activity have a direct rather than
indirect impact on interstate commerce?
• Did the regulated activity concern something that was in
the stream of commerce?
Current tests:
• Does the regulation affect a channel of interstate
commerce?
• Does the regulation affect an instrumentality of interstate
commerce?
• Does the regulated activity have a substantial impact on
interstate commerce?
The Commerce Clause
2) Limitation
a) State Police Power
Health, Safety, Morals &
General Welfare
Exception: Nationwide
Uniformity e.g. FAA
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State Police Power
 Power
• Protect Public
• Dominant Commerce Clause
 Exclusively
• Federal
• Local
 Dual Regulation
• Federal Preemption
• Regulation But No Preemption
 Irreconcilable Conflicts
 Undue Burden
• No Federal Regulation
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State Police Power
State has inherent “police powers.”
• Police powers include right to
•
regulate health, safety, morals and
general welfare.
Includes licensing, building codes,
parking regulations and zoning
restrictions.
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The Commerce Clause
Police Power
Raich v. Ashcroft, p.82
•
Federal legislation made it unlawful to traffic in
marijuana. It was applied against California residents
(where state law permits marijuana use for medical
purposes) who were using, or supplying the marijuana,
for medical purposes. The court held that application of
the law against these people was unconstitutional because
it was not an activity that Congress could regulate under
the Commerce Clause.
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The Commerce Clause
Police Power - Limitation
In United States v. Lopez, 514 U.S. at 552 (1995), the U.S. Supreme Court struck down
a statute prohibiting possession of a gun at or near a school, rejecting an argument that
possession of firearms in school zones can be punished under the Commerce Clause
because it impairs the functioning of the national economy. Acceptance of this rationale,
the Court said, would eliminate "a[ny] distinction between what is truly national and what
is truly local," would convert Congress' commerce power into "a general police power of
the sort retained by the States," and would undermine the "first principle" that the
Federal Government is one of enumerated and limited powers. Application of the same
principle led five years later to the Court's decision in United States v. Morrison, 529 U.S.
598 (2000), invalidating a provision of the Violence Against Women Act (VAWA) that
created a federal cause of action for victims of gender-motivated violence. Congress
may not regulate "non-economic, violent criminal conduct based solely on that conduct's
aggregate effect on interstate commerce," the Court concluded. "[W]e can think of no
better example of the police power, which the Founders denied the National Government
and reposed in the States, than the suppression of violent crime and vindication of its
victims."
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The Commerce Clause
Dormant Commerce Clause
Washington v. Heckel, p.80
The court held that Washington’s statute prohibiting the out-of-state
spam from being emailed into the state did not unconstitutionally
burden interstate commerce. The state law had clear local benefits
and only burdened spammers by requiring that they be truthful in
their commercial communications. Points for The case lays out the
analytical scheme for examining the dormant commerce clause.
Note that early cases narrowly interpreted the Commerce Clause,
focusing more upon its negative power over state regulation and
restricting the federal government’s power to regulate business.
Subsequent decisions, however, significantly broadened the federal
power to regulate business by recognizing the federal government’s
power to regulate activities having a “substantial relationship” to
interstate commerce.
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The Commerce Clause
Dormant Commerce Clause
Granholm v. Heald, 544 U.S. ___(2005)
The Supreme Court by a 5-4 majority
ruled unconstitutional laws in New York
and Michigan that permitted in-state
wineries to ship wine directly to
consumers, but prohibited out-of-state
wineries from doing the same.
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State Taxation
 Form Of Regulation
 Limited By Commerce
Clause
 Apportionment
 Must Be Sufficient TieNexus Or Taxable Situs
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Commerce Clause
2) Limitation
b) State Taxation
•
HUNT-WESSON, INC. V. FRANCHISE TAX BOARD OF
CALIFORNIA, 120 S.Ct. 1022 (2000)

FACTS: California attempted to apportion Hunt-Wesson’s
and similarly situated companies’ income to determine what
part properly was subject to California’s income tax.
California limited companies’ use of a deduction for interest
payments by offsetting such payments by the amount of
income from non-related (nonunitary) business activities.
Hunt-Wesson challenged this limitation of the interest
deduction since the income from nonunitary sources were
unrelated to California.

ISSUE: Does California’s exception to the interest deduction
violate the constitutional requirements of nexus needed to
justify a state’s taxation of interstate commerce?
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Commerce Clause
2) Limitation
b) State Taxation
HUNT-WESSON, INC. V. FRANCHISE TAX BOARD OF
CALIFORNIA, 120 S.Ct. 1022 (2000)
DECISION: Yes. California fails to establish a
reasonable nexus or connection between its tax on
the income earned outside the state. Because there
is a lack of nexus, the California limitation on use of
the interest deduction violates the Commerce
Clause.
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Commerce Clause
The Massachusetts Commissioner of Food and Agriculture implemented
a system of assessments and distribution of collected funds in an
attempt to support dairy farmers. West Lynn Creamery purchases
approximately 97% of the raw milk it buys from out-of-state dairy
farmers. Upon being assessed a “premium payment” based on the total
amount it handles, West Lynn and one of its customers, LeComte’s Dairy,
inc., challenged the Commissioner’s plan as in violation of the
Commerce Clause. The Massachusetts courts found the
Commissioner’s program was constitutional. Issue: Does the
Massachusetts program of assessments and distribution of funds
discriminate against out-of-state milk producers? Is this program
unconstitutional in violation of the Commerce Clause? Held: Yes to
both questions. The Massachusetts pricing program imposes a “tax”
which makes out-of-state milk more expensive to produce. The program
enables higher-cost Massachusetts dairy farmers to compete with lowercost out-of-state dairy farmers. West Lynn Creamery, Inc. v. Healy, 114
S.Ct. 2205 (1994).
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Foreign Commerce
 Federal Gov’t Has Exclusive
Right To Regulate Foreign
Commerce
 State Can Regulate
Commerce If Occurs Entirely
Within State Boundaries
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Takings Clause
Ridge Line v. United States, p.85
The government owned property adjacent to a privatelyowned shopping center. After the government built a Post
Office on its lot, an increase in storm water run-off
caused considerable damage to the shopping center. The
appellate court held that the trial court was incorrect in
holding that no compensable taking had occurred because
the lower court wrongly found there to be no permanent
and exclusive occupation by the government. The
appellate court concluded that a permanent occupation
need not exclude the property owner to be compensable
and need not be continuous.
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Takings Clause
Kelo v. New London, 125 S.Ct. 2655 (2005)
The city used eminent domain to
condemn privately owned real property
so that it could be used as part of a
comprehensive redevelopment plan.
The Court held that "the city's
proposed disposition of this property
qualifies as a 'public use' within the
meaning of the Takings Clause of the
5th Amendment."
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Bill of Rights
 The “Bill of Rights”, or first 10 amendments
to the Constitution, drafted in 1789, states
in its preamble, as its fundamental purpose:
 “THE Conventions of a number of the
States, having at the time of their adopting
the Constitution, expressed a desire, in
order to prevent misconstruction or abuse
of its powers, that further declaratory and
restrictive clauses should be added: And as
extending the ground of public confidence
in the Government, will best ensure the
beneficent ends of its institution.”
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Bill of Rights
 In addition, the 10th
amendment states:
• “The enumeration in the
Constitution, of certain rights,
shall not be construed to deny or
disparage others retained by the
people.”
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Bill of Rights
 The “Plain Language” of the
preamble to the U.S. Constitution
and the first 10 Amendments
appear to suggest that the
limitations contained therein were
intended to be limitations upon the
actions of the federal government,
not upon actions of state
governments, and clearly not upon
the actions of individual citizens.
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First Amendment
 Freedoms:
• Religion
• Press
• Speech
• Assembly
 Right To Petition For Redress
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Freedom Of Religion
 The first amendments states:
 Congress shall make no law
respecting an establishment of
religion, or prohibiting the free
exercise thereof; or abridging the
freedom of speech, or of the
press; or the right of the people
peaceably to assemble, and to
petition the Government for a
redress of grievances.
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Freedom Of Religion
 In Barron v. Baltimore, 32 U.S. (7
Pet.) 243 (1833) and Permoli v.
New Orleans, 44 U.S. (3 How.)
589 (1845), the U.S. Supreme
Court specifically held that the
Free Exercise clause of the First
Amendment was inapplicable to
the states.
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Fourteenth Amendment
 Section 1 of Fourteenth Amendment,
passed by Congress following the
American Civil War on, June 13, 1866
and ratified July 9, 1868 states:
• “All persons born or naturalized in the
United States, and subject to the jurisdiction
thereof, are citizens of the United States
and of the State wherein they reside. No
State shall make or enforce any law which
shall abridge the privileges or immunities of
citizens of the United States; nor shall any
State 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.”
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Fourteenth Amendment
 Section 5 of Fourteenth
Amendment, adds that:
 “The Congress shall have
power to enforce, by
appropriate legislation, the
provisions of this article.”
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Fourteenth Amendment
 The “Privileges and Immunities”, “Due
Process” and “Equal Protection” clauses
of this section have all been used in
varying contexts to support the
argument that some or all of the
limitations placed upon the federal
government by the Bill of Rights should
also be extended to state governments.
This is commonly known as the doctrine
of “incorporation”.
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Privileges and Immunities
 Privileges & Immunities: Art. IV, Sec. 2,
Clause 1 states that the “citizens of
each state shall be entitled to all
privileges and immunities of citizens in
the several states.”
• Therefore, each state must offer same
privileges to a person from another state
as it would to its citizens
• For business, that essentially means that
rights established under deeds and
contracts and court orders in one state will
be honored by other states
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Incorporation Doctrine—Timeline
1833
The Bill of Rights did not apply to state and local governments.
1857
Slaves were not citizens and not entitled to any constitutional protection.
1868
States were prohibited from denying their citizens due process, equal protection,
or privileges and immunities.
1872
The Privileges and Immunities Clause of the Fourteenth Amendment did not
incorporate any of the Bill of Rights.
1864
In holding that due process did not require a grand jury hearing, the Supreme
Court did not rule out the possibility that some of the Bill of Rights might be
included in the concept of due process.
1908
Rights that are a fundamental principle of liberty and justice, which inhere in the
very idea of free government, and are the inalienable rights of a citizen of such a
government are protected by due process. (Here, due process did not apply to
self-incrimination, although this was later changed.)
Current
View
The Fourteenth Amendment Due Process Clause extends most of the Bill of
Rights protections against action by State (the Incorporation Doctrine).
Incorporation Doctrine
 The first time the incorporation doctrine was
utilized to make the restrictions of the First
Amendment applicable to state and local
governments was in the 1940 case of Cantwell
v. Connecticut. In Cantwell, a Jehovah's
Witness was arrested in the course of
proselytizing on the streets of New Haven, and
was convicted for inciting a breach of the
peace. The Supreme Court reversed the
conviction and found that Cantwell's behavior
did not breach the peace. The Court went on to
state that the statute he was convicted under
was sweeping and included a great variety of
constitutionally protected conduct, including
Cantwell's free exercise of religion.
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Incorporation Doctrine
 Later in Everson v. Board of Ed.,
330 U.S. 1 (1947), the U.S.
Supreme Court, citing Cantwell and
other Free Exercise and Free
Speech cases, held that the
Establishment Clause was
incorporated and made applicable
to the States via the Due Process
clause of the 14th Amendment.
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Freedom of Religion
 Frazee refused a temporary position offered to him by Kelly
Services because the job would have required him to work on
Sunday. He was denied unemployment compensation benefits
since he was not a member of an established religious sect or
church and did not claim that his refusal to work resulted from a
tenet, belief, or teaching of an established religious body.
Issue: Does the denial of compensation constitute a violation of
the Free Exercise Clause? Held: Yes. While membership in a
sect would simplify the problem of identifying sincerely held
beliefs, the notion that one must be responding to the
commands of a particular religious organization to claim the
protection of the Free Exercise Clause is rejected. The fact that
Sunday work has become a way of life does not constitute a
state interest sufficiently compelling to override a legitimate free
exercise claim, since there is no evidence that there will be a
mass movement away from Sunday employment if appellant
succeeds on his claim. Frazee v. Illinois Department of
Employment Security, 109 S.Ct. 1514 (1989).
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Freedom of Religion
 Plaintiff, a Jehovah witness, was initially hired to work in his employer's roll
foundry, but when the foundry was closed, he was transferred to a
department that fabricated turrets for military tanks. Plaintiff asserted that
his religious beliefs prevented him from participating in the production of
weapons. His employer offered no other non-war production jobs. Plaintiff
requested to be laid off, but when his request was denied, he quit. Plaintiff
subsequently applied for but was denied unemployment compensation.
Indiana state law requires applicants for unemployment compensation to
show that they left work for a good cause in connection with the work.
Issue: Is the denial a violation of the First Amendment? Held: Yes. When
the state conditions receipt of an important benefit upon conduct
proscribed by a religious belief, thereby putting substantial pressure on an
adherent to modify his behavior and to violate his beliefs, a burden upon
religion exists. The state may justify an inroad on religious liberty by
showing that it is the least restrictive means of achieving some compelling
state interest. However, only those interests of the highest order can
overbalance legitimate claims to the free exercise of religion. The interests
advanced by the state to avoid widespread unemployment and to avoid a
detailed probing by employers into job applicants' religious beliefs do not
justify the burden placed on free exercise of religion. Thomas v. Review Bd.
of Indiana Employment Sec., 100 S.Ct. 1425 (1981).
6-59
Freedom of Religion
 California's imposition of its general 6 percent
sales and use taxes on religious merchandise
sold in the state by religious organizations does
not violate the First Amendment. A generally
applicable sales and use tax, which is not a flat
license tax, which constitutes only a small part
of the sale price, and which is applied neutrally
without regard to the nature of the seller or
purchaser, does not place an onerous burden on
religious activity. Jimmy Swaggart Industries v.
Board of Equalization of California, 110 S.Ct. 688
(1990).
6-60
Freedom of Religion
 When a state denies the receipt of a benefit because of
conduct mandated by religious belief, a burden on the
exercise of religion exists. Not only is it apparent that
Hobbie's declared ineligibility for benefits derived solely
from the practice of religion, but also the pressure on her
to forego that practice (not working on her Sabbath) is
unmistakable. The First Amendment protects the free
exercise rights of employees who adopt religious beliefs
or convert from one faith to another after they are hired.
The timing of Hobbie's conversation is immaterial to our
determination that her free exercise rights have been
burdened. Hobbie v. Unemployment Appeals of Florida,
107 S.Ct. 1046 (1987).
6-61
Freedom of Religion
 A Connecticut statute which provided
Sabbath observers with absolute and
unqualified right not to work on their
Sabbath, violated the establishment
clause. It imposed on employers and
employees an absolute duty to conform
their business practices to a particular
religious practice of the employee by
enforcing observances of the Sabbath the
employee unilaterally designated.
Thornton v. Caldor, 105 S.Ct. 2914 (1985).
6-62
Freedom Of Press
 Generally, No Prior Restraints
(Censorship)
 Not Absolute
• (e.g. Obscenity, Defamation,
National Security)
6-63
Freedom Of Speech
 Covers both verbal & written communications
 Symbolic Speech
• (e.g. Picketing, Flag Burning)
 Commercial Speech
• Historically Less Protected, but more protections
since the 1970’s
• Protects Corporations
• Protects Listener & Speaker
• Includes Freedom Of Information (FOIA)
6-64
Freedom Of Speech
• A local ordinance in Forsyth County, Ga.,
required permit applicants to pay fees of as
much as $1,000, based on the estimated police
and administrative costs associated with their
protests or marches. The Forsyth County
ordinance violated the First Amendment
because it gave officials considerable
discretion to set permit fees based on how
much opposition a demonstration is expected
to stir up. Forsyth County v. Nationalist
Movement, 112 S.Ct. 2395 (1992).
6-65
Freedom Of Speech
• A St. Paul ordinance made it a crime to burn a
cross or do other acts that can arouse "anger,
alarm or resentment" on the basis of race,
religion or gender. The law wrongly singled out
for censorship the expression of particular
ideas. However objectionable those ideas
might be, "The First Amendment does not
permit St. Paul to impose special prohibitions
on those speakers who express views on
disfavored subjects." R.A.V. v. St. Paul, 112
S.Ct. 2538 (1992).
6-66
Freedom Of Speech
 Overbreadth Doctrine
• Overly broad restrictions usually prohibited
• A Missouri statute that prohibits the display, rental, or sale to minors
of video cassettes that appeal to a "morbid interest in violence," or
that depict violence in a manner that is "patently offensive" by
"contemporary adult community standards." (Video Software
Dealers Association v. Webster, 773 F.Supp. 1275 (W.D. Mo. 1991).
Unlike obscenity, violent expression is protected by the First
Amendment. Therefore, any regulation must be justified by a
compelling interest and narrowly tailored to achieve that interest.
The legislature's failure to articulate precisely the type of violence it
considers to be detrimental to minors makes it virtually impossible
to determine if the statute is narrowly drawn to regulate only that
expression. The words "morbid interest in violence" and
"contemporaneous adult standards" do not express with clarity what
the legislature was attempting to regulate.
6-67
Freedom Of Speech
 Overbreadth Doctrine
• Overly broad restrictions usually prohibited
• The University of Wisconsin's student conduct code calls for
disciplining students who engage in discriminatory speech or other
expressive conduct. The rule seeks to eliminate "racist or
discriminatory comments, epithets or other expressive behavior
directed at an individual" if such comments "demean" the race, sex,
religion, or other attribute of an individual and create an
"intimidating, hostile or demeaning environment." Speech can be
regulated only if it threatens to incite an immediate breach of the
peace. The trouble with the challenged rule is that it applies to many
situations where a breach of the peace is unlikely to occur. Speech
that creates an "intimidating" or "hostile" environment may tend to
stifle rather than provoke immediate reaction. The UWM Post Inc. v.
Board of Regents of the University of Wisconsin System, 774 F.Supp.
1163 (E.D. Wis. 1991).
6-68
Freedom Of Speech
 Overbreadth Doctrine
• Overly broad restrictions usually prohibited
• The Los Angeles International Airport
commissioners banned all "First Amendment
activities" within the "central terminal area." The
resolution was facially unconstitutional under First
Amendment overbreadth doctrine, regardless of
whether airport was considered a nonpublic forum,
because no conceivable governmental interest
could justify such an absolute prohibition of
speech. Airport Com'rs of Los Angeles v. Jews for
Jesus, 107 S.Ct. 2568 (1987).
6-69
Commercial Speech
• SECRETARY OF HEALTH AND HUMAN SERVICES v.
WESTERN MEDICAL CENTER, 122 S.Ct. 1497 (2002)
• FACTS: The Food and Drug Administration Modernization Act
(FDAMA) of 1997 allows drug compounding and allows the
advertisement of such services. However, this law prohibits the
advertising or any other promotional announcement that a specific
compounded drug is available. Pharmacists, fearing their
promotional materials related to drug compounds might be found to
violate the FDAMA, sought a declaratory judgment that this law’s
prohibition on advertising specific compounded drugs was
unconstitutional.
•
ISSUE: Does the FDAMA unconstitutionally infringe upon the
pharmacists’ right to engage in commercial speech?
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Commercial Speech
• SECRETARY OF HEALTH AND HUMAN SERVICES v.
WESTERN MEDICAL CENTER, 122 S.Ct. 1497 (2002)
• DECISION: Yes. The Supreme Court reviews the four tests
established in Central Hudson. The compounding of drugs, as
practiced by the pharmacists involved in this case, is a lawful
activity. The government’s interests in limiting the availability of
compound drugs, which are not thoroughly tested by the FDA, are
significant and substantial. The ban on advertisement of specific
compound drugs does directly relate to the government’s interest
stated above. However, the Court discusses numerous examples
how the FDA could meet its interest without resorting to a restriction
on commercial advertisement. Since the FDA didn’t show why these
less restrictive examples weren’t feasible, the Court affirms the lower
courts’ decisions that the FDAMA violates the First Amendment’s
Free Speech clause.
6-71
Commercial Speech
• The Federal Communications Commission (FCC) seeks to
prohibit the advertising of lotteries by radio and television
stations in Louisiana since these ads may be heard or seen in
neighboring Texas and Arkansas where lotteries are illegal. The
Greater New Orleans Broadcasting Association seeks to have
the FCC restrictions declared in violation of the First
Amendment’s protection of commercial speech. Issue: Are the
FCC restrictions sufficiently narrow in scope to meet
constitutional requirements? Held: No. The Supreme Court
reaffirms the four-step analysis announced in Central Hudson.
The Court rejects the FCC’s argument that its restrictions on
lottery advertising are sufficiently narrow. The advertiser and
the listening/viewing public, not the government, should be
allowed to assess the value of accurate and nonmisleading
information about lawful conduct. Greater New Orleans
Broadcasting Association, Inc. v. United States, 119 S.Ct. 1923
(1999).
6-72
Commercial Speech
• The State of Rhode Island allows advertising of alcoholic beverages
prices only in the stores where the alcohol is sold. State law bans such
advertising “outside the licensed premises.” 44 Liquormart, Inc., a
licensed retailer, ran a newspaper ad stating the low prices at which
peanuts, potato chips, and Schweppes mixers were being offered,
identifying various brands of packaged liquor, and including the word
“WOW” in large letters next to pictures of vodka and rum bottles. As a
result of this ad, the Rhode Island Liquor Control Administrator
assessed 44 Liquormart a fine of $400. Liquormart paid the fine and
sought a declaratory judgment in Federal District Court that the Rhode
Island law prohibiting off-premise advertising was in violation of the
First Amendment’s free speech protection. Issue: Is the Rhode Island
limitation on alcohol pricing advertisements unconstitutional? Held:
Yes. Rhode Island failed to produce credible evidence that its
restriction on advertising of alcohol prices reduced consumption of
alcohol. There are other, perhaps more effective, methods of regulating
the use of alcohol. A ban on truthful, nonmisleading commercial
speech is not supported under these facts. 44 Liquormart, Inc. v.
Rhode Island, 116 S.Ct. 1495 (1996).
6-73
Commercial Speech
• The Federal Alcohol Administration Act prohibits beer labels
from displaying the alcohol content. Coors proposed to include
such content on its label, and the Bureau of Alcohol, Tobacco
and Firearms refused to grant Coors's application for this label.
Issue: Is this restriction a violation of Coors's First Amendment
rights? Held: Yes. To regulate commercial speech that is
truthful and not misleading, the government's interest must be
substantial and directly related to the interest being sought.
Here, the government's concern to limit "strength wars" between
breweries is substantial; however, restricting the contents of the
labels on beer cans will do little good when the breweries are
allowed to advertise the alcohol content of their beer in other
ways. Thus the label restrictions are in violation of the First
Amendment. Rubin v. Coors Brewing Co., 63 U.S.L.W. 4319
(1995).
6-74
Due Process
 Due Process
• Procedural- Proper Notice
& Hearing
• SubstantiveProperty/Rights Affected
By Gov’t Action
• 5th Amendment- Federal
• 14th Amendment- Extended
to State Local
6-75
Due Process
5th Amendment “no person
shall be deprived of life, liberty
or property without due
process of law.”
Due Process includes both
Procedural and Substantive
issues.
6-76
Due Process
 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.
6-77
Due Process
 Procedural Due Process
• National Council of Resistance of Iran v. Albright,
p.86
 The U.S. policy for determining if a foreign entity is a
foreign terrorist organization violates procedural due
process of law. The U.S. did not provide the court with
any interests that would support failure to provide notice
and a hearing before designating an entity as a terrorist
organization. In the wake of the September 11th terrorist
attacks, this case has taken on added importance.
6-78
Due Process
 Substantive Due Process
• Focuses on the content or substance
of legislation.
• e.g. Laws limiting fundamental rights
(speech, privacy, religion) must have a
“compelling state interest.”
• e.g. Laws limiting non-fundamental
rights require only a “rational basis”.
6-79
Due Process
 Due Process requires that criminal
statutes be clearly worded (so that they
put an ordinary person on notice).
• Chicago v. Morales, 527 U.S. 41, 1999.
 The Court finds The Court finds Chicago’s
Gang Congregation (Anti-loitering) Ordinance
which was passed to help control street-gang
activity and thereby decrease the murder
rate, unconstitutionally vague and gives the
police officer too much discretion.
 Note: In Chicago v. Youkhana The Court
found that the freedom to loiter for innocent
purposes is part of the constitutionally
protected liberty interest.
6-80
Due Process
 STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
v. CAMPBELL, 123 S.Ct. 1513 (2003)
 FACTS: The Campbells had their car insured with State Farm. The
Campbells were involved in a car accident and were sued. A State
Farm representative told the Campbells that their insurance would
protect them and that they did not need their own lawyer. The
Campbells were found liable for an amount greater than their
insurance coverage. The Campbells then sued State Farm claiming
the company’s bad faith misrepresentations resulted in the
Campbells’ damages. Using evidence that State Farm had been
involved in similar claims throughout the United States, the
Campbells won a jury verdict of $2.6 million in compensatory
damages and $145 million in punitive damages. The trial judge
reduced the compensatory damages to $1 million and the punitive
damages to $25 million. Following appeals, the Utah Supreme Court
reinstated the $145 million in punitive damages. State Farm asked
the U.S. Supreme Court to declare that these punitive damages
violated the Due Process Clause of the Fourteenth Amendment.

6-81
Due Process
 STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
v. CAMPBELL, 123 S.Ct. 1513 (2003), p.164

ISSUE: In this factual situation, does the Due Process clause
prohibit this level of punitive damages?

DECISION: Yes. The U.S. Supreme Court reviews the principles
established in BMW of North America, Inc. v. Gore. The Court
expresses concern that the degree of reprehensibility of State Farm’s
bad faith is unreasonably increased by the evidence from cases
outside of Utah. In addressing a proper ratio of punitive damages to
compensatory damages, the Court seems to want to limit such ratio
to a single digit. In light of Utah’s civil sanction for State Farm’s bad
faith being limited to $10,000, the Court finds the $145 million in
punitive damages is unreasonable, arbitrary, and unconstitutional
under the Fourteenth Amendment’s Due Process Clause.
6-82
Due Process

.
 Dr. Ira Gore purchased in Birmingham, Alabama, a new BMW automobile for
$40,750.88. After nine months, Dr. Gore noticed that the paint was flawed. He
was told by the proprietor of “Slick Finish” that his car had been repainted.
Upon inquiring at the BMW dealership where he purchased the car, Dr. Gore was
told that his car had been repainted prior to its sale. BMW acknowledged that it
had a nationwide policy that if the cost of repairing damages done during
manufacturing or transportation did not exceed 3% of the retail value, the car
was sold as new. If such repairs exceeded the 3% figure, the car was used by
the company for a period of time and then sold as a used vehicle. The actual
cost of repairs to Dr. Gore’s car was $601.37. Since this was well below the 3%
stated in BMW’s policy, the car was sold as new, and Dr. Gore was not informed
of the repairs. Feeling that he had been defrauded, Dr. Gore filed a lawsuit
against BMW. A jury awarded Dr. Gore $4,000 in compensatory damages and $4
million in punitive damages. BMW appealed the award of punitive damages and
argued that this amount was constitutionally excessive. The Alabama Supreme
Court reduced the punitive damages by half but upheld an award of $2,000,000.
Issue: Is this award of punitive damages unconstitutional? Held: Yes, this
award violates the due process clause. There are three standards that apply to
ensure that a defendant is properly notified of the magnitude of a possible
sanction. These standards include (a) a reasonable relationship between the
potential punitive damages and the degree of reprehensibility of the defendant’s
action; (b) an appropriate ratio between the punitive damages and the actual
harm caused by the defendant; and (c) a reasonable comparison among the
punitive damages awarded and comparable sanctions in similar cases. Under
these standards, the Alabama courts’ award is unconstitutionally excessive.
BMW of North America, Inc. v. Gore, 116 S.Ct. 1589 (1996).
6-83
Due Process
 An Oklahoma law required contract creditors
of deceased persons to file claims within 2
months of the publication of a notice advising
creditors of probate proceedings. Issue: Is
this State action a denial of due process?
Held: Yes. Creditors who are either known to
the estate or whose identities are reasonably
ascertainable are entitled by the Due Process
Clause to receive notice by mail or other
means certain to assure actual notice. The
claim is a property interest and the probate
procedures are state action. Tulsa
Professional Collection Services v. Pope, 108
S.Ct. 1340 (1988).
6-84
Equal Protection
 Prohibits Arbitrary Discrimination
 Tests
• Minimum Rationality Test – Rational connection to a
permissible state purpose
• Strict Scrutiny Test- Compelling State Purpose. Applies
where a suspect class or fundamental right is involved.
Generally applied in cases involving race, voting, etc.
• Quasi-Strict Scrutiny Test –Substantially related to an
important state purpose. Often applied in “gender” cases.
• Note: Which test the court chooses to apply often determines
the outcome of the case
6-85
Equal Protection
 Ashcroft v. American Civil Liberties Union, p. 91
• The Supreme Court enjoined enforcement of the Child Online Protection
Act. The statute, which was designed to shield minors from harmful
speech, could not pass the strict scrutiny test. Specifically, the Court
believed there to be less restrictive alternatives to the statute. Strict
scrutiny places the burden on the government to demonstrate that its
actions are furthering a compelling interest in a manner that intrudes on
protected rights no more than is absolutely necessary. Compelling
interests are objectives that are just as important as the fundamental
rights that are abridged by a statute. First amendment rights are
considered one of our most fundamental constitutional rights and are,
therefore, accorded strict scrutiny.
6-86
Equal Protection
 Mainstream Marketing Services v. Federal Trade
Commission, p.93
• Congress enacted a do-not-call registry that created a list of
telephone numbers of people who do not wish to receive
unsolicited calls from commercial telemarketers. The court
upheld the registry, concluding that its restrictions on
commercial speech passed the intermediate scrutiny test. Not
only does the registry protect the privacy rights of
individuals and protect against fraudulent and abusive calls,
but it does not suppress and excessive amount of speech.
Commercial speech is less protected than noncommercial
speech. Talk them through the four-step test and contrast it
with the strict scrutiny test used for restrictions on
noncommercial speech.
6-87
Equal Protection
• ADARAND CONSTRUCTORS, INC. v. PENA, 115 S.Ct. 2097 (1995)
• FACTS: Mountain Gravel & Construction Company was awarded the prime
contract for a highway construction project in Colorado. Mountain Gravel
then solicited bids from subcontractors for the guardrail portion of the
contract. Adarand, a Colorado-based highway construction company
specializing in guardrail work, submitted the low bid. Gonzales Construction
Company also submitted a bid. Mountain Gravel awarded the subcontract to
Gonzales since Gonzales qualified as a minority contractor and Adarand did
not. The prime contract’s terms provide that Mountain Gravel would receive
additional compensation if it hired subcontractors certified as small
businesses controlled by “socially and economically disadvantaged
individuals.” After losing the guardrail subcontract to Gonzales, Adarand
filed suit claiming that the race-based presumptions involved in the use of
subcontracting compensation clauses violate Adarand’s right to equal
protection. The District Court granted the Government’s motion for
summary judgment. The Court of Appeals for the Tenth Circuit affirmed.
•
•
ISSUE: What is the standard review when considering race-based
actions by governmental units?
6-88
Equal Protection
• ADARAND CONSTRUCTORS, INC. v. PENA,
115 S.Ct. 2097 (1995)
• DECISION: Applies Strict scrutiny. The
Court examined its various decisions
addressing this issue, including Bakke
(1978), Fullilove (1980), Wygant (1986),
Croson (1989), and Metro Broadcasting
(1990). To clarify the various holdings, this
Court reached a majority opinion that all
racial classifications, imposed by any level
of government, must be analyzed by a
reviewing court under strict scrutiny.
6-89
Equal Protection
• The State of Iowa passed a law allowing slot machines to be
placed on riverboats. The proceeds from these machines
were taxed at the rate of 20%. Subsequently, Iowa permitted
slot machines to be placed at race tracks. The proceeds from
these machines were taxed at a rate as high as 36%. The
race tracks owners filed suit arguing that the higher tax rate
on their slot machines denied them the equal protection of
laws. Issue: Does the existence of two tax rates on similar
slot machines violate the Equal Protection Clause of the
Fourteenth Amendment? Held: No. The Supreme Court
holds that Iowa is regulating economic activities in this case.
Therefore, the test of equal protection is based on minimal
scrutiny. Since a rational basis can be found (such as not
wanting to encourage as many slot machines at race tracks
as on riverboats), the two tax rates are upheld. Fitzgerald v.
Racing Association of Central Iowa, 123 S.Ct. 2156 (2003).
6-90
Equal Protection
 City of Cleburne v. Cleburne Living Ctr.,
Inc. 473 U.S. 432 (1985)
 Facts: Respondent Cleburne Living Center, Inc. (CLC), which anticipated
leasing a certain building for the operation of a group home for the
mentally retarded, was informed by petitioner city that a special use permit
would be required, the city having concluded that the proposed group
home should be classified as a “hospital for the feebleminded” under the
zoning ordinance covering the area in which the proposed home would be
located. Accordingly, CLC applied for a special use permit, but the City
Council, after a public hearing, denied the permit. CLC and others (also
respondents here) then filed suit against the city and a number of its
officials, alleging that the zoning ordinance, on its face and as applied,
violated the equal protection rights of CLC and its potential residents.
6-91
Equal Protection
 City of Cleburne v. Cleburne Living Ctr.,
Inc. 473 U.S. 432 (1985)
 Procedural History: The District Court held the ordinance and its
application constitutional. The Court of Appeals reversed, holding that
mental retardation is a “quasi-suspect” classification; that, under the
applicable “heightened-scrutiny” equal protection test, the ordinance was
facially invalid because it did not substantially further an important
governmental purpose; and that the ordinance was also invalid as applied.
 Holding: 1. The Court of Appeals erred in holding mental retardation a
quasi-suspect classification calling for a more exacting standard of judicial
review than is normally accorded economic and social legislation.
 2. Requiring a special use permit for the proposed group home here
deprives respondents of the equal protection of the laws, and thus it is
unnecessary to decide whether the ordinance’s permit requirement is
facially invalid where the mentally retarded are involved.
6-92
Some Equal Protection Issues
1. Legislative
2.
3.
4.
Apportionment
Real EstateRacial
Segregation
Rights Of
Legitimates &
Illegitimates
Jury Makeup
5. Voting
6.
7.
8.
Requirements
Welfare
Residency
Rights Of
Aliens
Property Tax
To Finance
Schools
6-93
Constitutional Interpretation
 Should the Constitution be
interpreted according to its
“plain meaning” or is the
Constitution a “living” or
“evolving” document whose
meaning changes according to
the times?
6-94
Constitutional Interpretation
 Its primary architect, James
Madison, said that “(If) the
sense in which the
Constitution was accepted
and ratified by the Nation …
be not the guide in
expounding it, there can be
no security for a faithful
exercise of its powers.”
(The Writings of James
Madison, ed. G. Hunt,
p.191)
6-95
Constitutional Interpretation
 Former Harvard Law
Professor and Supreme
Court Justice Joseph Story
said, “A constitution of
government is addressed to
the common sense of the
people, and never was
designed for trials of logical
skill, or visionary
speculation.” (Commentaries
on the Constitution of the
United States, 3rd ed.
(Boston, 1858))
6-96