Chapter 4
Constitutional Authority
to Regulate Business
History
Before Revolutionary War, States wanted
a confederation with weak national
government and very limited powers.
After the war, in 1787, States voted to
amend Articles of Confederation and
create a new, federal government that
shared power with States.
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§1: Constitutional Powers
of Government
Constitution established a federal form of
government with checks and balances
among three branches: executive,
legislative and judicial.
National government has limited,
enumerated powers delegated from
States.
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U.S. Commerce Clause
Power to regulate interstate commerce defined
in Gibbons v. Ogden (1824).
Expansion to private businesses began with
Wickard v. Fillburn (1942).
Today, Commerce Clause authorizes the
national government to regulate virtually any
business enterprise, including internet.
Limits: U.S. v. Lopez (1995), Alden v. Maine
(1999).
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State Commerce
States possess inherent police powers to
regulate health, safety, public order,
morals and general welfare.
State laws that substantially interfere
with interstate commerce will be struck
down.
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U.S. Supremacy Clause
Article VI of the Constitution “Supreme
Law of the Land.”
In case of direct conflict between state
and federal law, state law is invalid.
Congress can preempt states.
Taxing Powers.
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§2: Business and the Bill of Rights
Bill of Rights are not absolute.
Originally the Bill of Rights was a limit
on the national government’s powers.
During the early 1900’s, the Supreme
Court applied the Bill of Rights to the
States via the “due process” clause of the
14th amendment.
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Free Speech
Afforded highest protection by courts.
Symbolic Speech.
Gestures, movements articles of clothing.
Texas v. Johnson (1989).
Commercial Speech: Advertising is protected
speech. Any restriction must:
Implement substantial government interest;
Directly advance that interest; and
Go no further than necessary.
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Corporate Political Speech
Afforded significant protection by the
first amendment but not to the degree of
speech of natural persons.
First National v. Bellotti (1978).
Consolidated Edison v. Public Service
Commission (1980).
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Unprotected Speech
Certain types of speech are not protected
by the first amendment:
Slander.
Pornography, Obscenity.
Fighting Words.
What about “Hate Speech”?
Doe v. University of Michigan (1989).
What about cyber obscenity and hate
speech?
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Freedom of Religion
First amendment many neither prohibit the
“establishment” nor prohibit the “free
exercise” of religion.
The first amendment does not require complete
“separation of church and state.”
First amendment mandates accommodation of
all religions and forbids hostility toward any.
Zorach v. Clauson (1952).
Lynch v. Donnelly (1984).
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Freedom of Religion
First amendment guarantees the “free
exercise” of religion.
Employers must reasonably
accommodate beliefs as long as employee
has sincerely held beliefs.
Frazee v. Illinois (1989).
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Self-Incrimination
Fifth amendment guarantees no person
can be compelled to testify against
himself in a criminal proceeding.
Does not apply to corporations or
partnerships.
Verniero v. Beverly Hills Ltd (1998).
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Searches and Seizures
Fourth amendment requires warrant
with “probable cause.”
Warrantless exceptions exist for
“evanescent” evidence.
Searches of Business: generally business
inspectors must have a warrant.
Marshall v. Barlow’s (1978).
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§ 3: Other Constitutional
Protections
Privileges and Immunities clause
Article IV, Section 2 of the U.S. Constitution.
Citizens can engage in basic activities (work,
marriage, property) in any state.
Full Faith and Credit clause
Article IV, Section 1.
The Public Act or Record of another state shall
be given equal weight in a sister state.
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Due Process
5th and 14th amendments provide “no
person shall be deprived of life, liberty or
property without due process of law.”
Procedural and Substantive issues.
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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.
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Substantive Due Process
Focuses on the content or substance of
legislation.
Laws limiting fundamental rights
(speech, privacy, religion) must have a
“compelling state interest.”
Laws limiting non-fundamental rights
require only a “rational basis.”
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Equal Protection
Strict Scrutiny.
Laws that affect the fundamental rights of
similarly situated individuals in a different manner
are subject to the “strict scrutiny” test.
 Any “suspect class” (race, national origin) must
serve a “compelling state interest” which includes
remedying past discrimination.
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Equal Protection
Intermediate Scrutiny.
Applied to laws involving gender or legitimacy.
To be constitutional laws must be substantially
related to important government objectives.
• (EXAMPLE: Illegitimate teenage pregnancy).
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Equal Protection
Rational Basis Test.
Applied to matters of economic or social
welfare.
Laws will be constitutional if there is a rational
basis relating to legitimate government interest.
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Privacy
Fundamental right not expressly found in
the constitution, but derived from 1st, 5th
and 14th amendments.
Laws and policies affecting privacy are
subject to the compelling state interest
test.
Online privacy.
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Case 4.1: Bad Frog v. NY State Liquor
Authority
FACTS:
Bad Frog sells alcoholic beverages with
labels that display a frog “giving the finger.”
NYSLA denied approval of the label because
children might see the labels in grocery and
convenience stores.
Bad Frog sued NYSLA in federal court asking
for an injunction against this denial.
The court granted a summary judgment in
favor of the NYSLA. Bad Frog appealed.
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Case 4.1: Bad Frog v. NY State Liquor
Authority
HELD: FOR BAD FROG. REVERSED.
The Second Circuit ruled that NYLSA’s ban on the
use of the labels lacked a “reasonable fit” with the
state’s interest in shielding minors from vulgarity,
and the NYSLA did not adequately consider
alternatives to the ban.
“In view of the wide currency of vulgar displays
throughout contemporary society * * * barring such
displays * * * cannot realistically be expected to
reduce children’s exposure to such displays to any
significant degree.”
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Case 4.2: Verniero v.
Beverly Hills, Ltd.
FACTS:
New Jersey investigated the marketing practices
of Beverly Hills Limited, Inc.
Verniero, NJ’s Attorney General, served a
subpoena on Beverly Hills which ordered the
production of business records.
Beverly Hills demanded guarantee of immunity
before turning over the records.
Verniero sued to enforce the subpoena but the
Court ruled in favor of Beverly Hills.
Verniero appealed.
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Case 4.2: Verniero v.
Beverly Hills, Ltd.
HELD: FOR VERNIERO. REVERSED.
A corporation could not invoke a privilege against
self-incrimination and ordered Defendant to
produce the records.
“[A] corporation may not invoke either the Fifth
Amendment or the New Jersey privilege against
self-incrimination. Moreover, a custodian of
corporate records may not rely upon his or her
personal privilege against self-incrimination as a
basis for refusing to produce corporate records.”
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Case 4.3: WHS Realty v.
Town of Morristown
FACTS:
Morristown ordinance provided free garbage
collection service for certain residences but
excluded all multifamily dwellings with four or
more units.
WHS owned an apartment complex that consisted
of 140 units and thus did not receive the free
service.
WHS sued Morristown claiming ordinance violated
the equal protection clause.
The court held the ordinance was unconstitutional,
finding it was not rationally related to any
legitimate state interest.
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Case 4.3: WHS Realty v.
Town of Morristown
HELD: AFFIRMED. FOR WHS.
The Superior Court remanded for determination of
damages.
“[T]here is nothing about the mechanics or costs
of solid waste collection that justifies differentiating
between apartment complexes and other
residents.”
Morristown argued that “apartment units have a
lesser value for tax assessment purposes,”
justifying different service. The court responded
that this was not a serious argument.
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Case 4.4: Reno v. Condon
(Privacy Rights)
FACTS:
Federal government passed Driver’s Privacy
Protection Act 1994 (DPPA) that required a driver
to “opt in” before a state could sell a driver’s
personal data.
Condon, South Carolina Attorney General, sued
Reno in federal court alleging DPPA violated the
Constitution. Under South Carolina state law, the
information may be released unless a driver “opts
out.”
The Court granted an injunction to prevent the
DPPA’s enforcement, which the U.S. Court of
Appeals for the Fourth Circuit upheld. Reno
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appealed.
Case 4.4: Reno v. Condon
(Privacy Rights)
HELD: REVERSED. FOR RENO/DPPA.
US Supreme Court held DPPA was a proper exercise of
Congress’s power under the commerce clause.
“The motor vehicle information which the States have
historically sold is used by insurers, manufacturers, direct
marketers, and others engaged in interstate commerce to
contact drivers with customized solicitations.
The information is also used in the stream of interstate
commerce by various public and private entities for
matters related to interstate motoring.”
The DPPA did not require South Carolina to assist in the
enforcement of federal statutes regulating private
individuals.”
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