The Constitution: Focus on
Application to Business
Chapter 2
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
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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:
“Regulate Commerce
w/foreign Nations &
among the several
States, and w/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, not restricts,
Congress’s powers
• Federal actions take precedence over
actions of other governments under Federal
Supremacy clause
• Maryland wanted to regulate National Bank
• NO. Violates Supremacy Clause
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 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.
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
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”
Katzenbach v. McClung
(Use of Commerce Clause in Nondiscrimination) 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.”
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.
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See Exhibit 4.1
Great Constitutional Moments
Bibb v. Navajo Freight Lines
• Arkansas required trucks to have straight mud flaps
• Illinois required trucks to have mudguards that
“contour the rear wheel, with inside surface being
relative parallel to the top 90 degrees of the rear and
180 degrees of the whole surface . . . . and must be
installed not more than 6 inches from the tire surface . .
. and must have a lip or flange on its outer edge of not
less than 2 inches.”
• Trucks ticketed in Illinois for having the wrong flap
• Held: Supreme Court said Arkansas flaps were more
common. Illinois mudguard law is a burden on
interstate movement.
When State Law Impedes Interstate
Commerce
• Southern Railway Co v.
Arizona – Court struck
• Chemical Waste
down Az law that required
Management v. Hunt –
trains to be shortened for
Violates Commerce clause to
safety reasons.
charge more for out-of-state
• Rowe v. NH Motor
generated hazardous waste
Transport – Ct. struck
than for in state waste
down a ME law requiring
• Wyoming v. Oklahoma – Ok
companies shipping
law requiring coal-burning
tobacco products into
power plants to burn at least
state to confirm that
10% Ok-mined coal was
recipients are of legal age.
discriminatory & interfered
U.S. Statutes specifically
with interstate commerce.
prohibit this state action.
Hughes v. Oklahoma
• Oklahoma prohibits shipping or selling minnows out of
state to protect Oklahoma minnows.
• Hughes bought minnows in OK and took them to Texas.
Convicted of violating OK state law. Appealed.
• OK Supreme Court upheld statute as constitutional to
protect OK natural resources. Hughes appealed.
• U.S. Supreme Court: Reversed in favor of Hughes.
• Established three part test to use in such cases:
1) Does statute regulate evenhandedly with only
“incidental” effects on interstate commerce?
2) Does statute serve a legitimate local purpose? 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
Imitation Not Allowed
• States may not copy federal regulations if
imitation inhibits interstate commerce.
• South-Central Timber Development v.
Wunnicke (S.Ct.)
– 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 only to Congress.
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
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State taxes cannot impede interstate or international commerce.
Baccus Imports v. Dias: Court struck down Hawaii’s 20% tax on all alcoholic
beverages except for local products.
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Davis v. Michigan Dept. of Treasury: Michigan exemption from state income
taxed the retirement benefits paid to state employees.
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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
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Same tax must be imposed regardless of origin.
Must have a physical presence in the state to be taxed
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.
Controversial area: States ability to tax internet businesses such as
Amazon.com
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.
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
• (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)
International Freedom of Speech
• All 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 in 2004 for
publishing articles alleging that members of
European Parliament engaged in fraud
Cookies Crushed By 1st
Amendment
• Zion Methodist Church arranged months in advance to
hold a bake sale at Chippewa County, Wisconsin
courthouse
• As time drew near, County legal experts decided
having church cookies sold in the courthouse would
violate 1st Amendment
– Requirement of the separation of church and state
• County Administrator said he felt like “The Grinch Who
Stole Christmas”
• But, the law is the law. Bake sale held elsewhere.
• Revenues were reported to be lower than expected.
Cyberlaw: “Freedom of
Speech on the Net”
• American Civil Liberties
Union of Georgia v. Miller
• Georgia statute makes 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.”
Consolidated Edison Co. v. Public
Service Commission of NY
• Con Ed mailed statement supporting nuclear power in
monthly electric bill to customers
• Public Service Comm. of NY said: Can’t do that 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 in favor of Central
Hudson
“Freedom of Bark But Not
Burn in Ohio”
• Police dog was sitting in an unattended police car
• Gilchrist was charged with taunting the dog
• He argued, not taunting but engaged in
“unrestrained late-night enthusiasm”
• (Besides, the dog barked first)
• Ohio appeals court upheld dismissal of charges
• ANOTHER Ohio appeals court held that:
– Burning a rainbow flag at a gay pride parade
was not protected speech
– Burners did not obtain a burn permit first
– Requiring the permit is “unquestionably within
the city’s constitutional power”
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
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
See Test Yourself, p. 102
The (Partially) Unwritten Constitution
of the United Kingdom
• Unlike U.S. Constitution, the UK constitution is made of a collection
of laws, treaties, statutes and unwritten principles
• Law making up constitution of UK are no different from
Parliamentary Acts
– The “c” of constitution of UK not even capitalized
– They can be amended by Parliament at any time
• UK constitution has two central principles
– The rule of law
– Supremacy of Parliament
• Parliament is supreme
– Different from the separation of powers in the U.S. Constitution
• The majority of votes in Parliament can do almost anything it wishes
– Limited by tradition & popular opinion
(Continued)
The (Partially) Unwritten Constitution
of the United Kingdom, cont.
Key parts to the constitution of the United Kingdom
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Magna Carta (1215): Limits monarch’s power over the nobility
– Protects against imprisonment or takings without judgment by
one’s equals.
– No delay of justice
Bill of Right (1689): Prohibits monarch from interfering with the law
Act of Settlement (1701:) Established succession to British throne
– Still bars Roman Catholics from the throne
Act of Union (1707): United England and Wales with Scotland
– Scottish National Party trying to undo this
Constitution of UK much different than it was 100 years ago.
In U.S., a law may be declared “unconstitutional”
In UK if there is an “incompatibility” with the constitution, statute is not
stricken from the books
– Instead creates an unenforceable obligation on the government to
alter it to conform to the law
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
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See also Cyberlaw: No Right of Privacy in Chat Rooms”
– Messages sent to chat rooms lose their privacy and can be
used as evidence in child pornography case
Limits of Searches & 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
New York v. Burger
(in text)
• Junkyard is searched without warrant under NY
statutory scheme; stolen cars and parts are found
• Owner tries to keep evidence out of trial as an
unconstitutional search
• To be okay for warrantless search:
– must have substantial government interest
– searches 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 car theft
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
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 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.
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
U.S. v. Bajakajian (in text)
Bajakajians were leaving the country with $357,144 cash.
Money was legally earned.
Taking money to repay relatives who helped them start
their business.
They could take the money out of the country, but failed to
report they were leaving with more than $10,000.
Government seized all their money for “not reporting the
fact.”
Court held: This was an “excessive fine” violating the 8th
Amendment. Was grossly disproportional to the
seriousness of the offense.
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 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: state 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 protested – would have terrible impact on business
• Sued City
• 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, cont.
• Two questions
– Whether plaintiffs were deprived of a protected liberty or
property interest.
– If so, whether deprivation occurred without due process.
• When license was 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.
“Drop That Fry! Hands
Over Your Head!”
• 12-year-old Ansche Hedgepeth was arrested for
eating French fries at a Washington D.C. subway
(Metro) station.
• Violation of Metro rules
• She was searched; arms handcuffed behind her
back; shoelaces removed.
• Released to her mother several hours later
• She sued for violation of equal protection
• HELD: She lost.
• “There is no fundamental right to freedom from
physical restraint in cases where probable cause
for arrest is present.”
Reget v. City of La Crosse
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Reget owned John’s Auto Body in La Cross, Wisconsin since 1975.
City ordinance: If you have 2 or more junked vehicles stored outdoors for more
than 30 days, you were a junk dealer. Had to build a fence to hide vehicles.
Reget received several citations for failure to build fence.
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 if they were violated by other businesses
in the area.
In 2003, no fence; city issued another citation.
Reget agreed to let City install a fence and to repay city for the costs over time
City then dismissed the citation.
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, cont.
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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 if there is so-called “class of one”
Plaintiff must prove:
– 1) state actor intentional 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.
Other individuals compared to Reget must be identical or directly comparable
to him in all material aspects.
Reget did not produce evidence that other businesses failed to comply with
fence requirement.
No evidence that other dealers in some other way yet 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.