Chapter 4 Constitutional Authority to Regulate Business History

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. 2

§ 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. 3

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). 4

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. 5

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. 6

§ 2: Business and the 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 14 th amendment. 7

Free Speech Afforded highest protection by courts. Symbolic Speech. üGestures, movements articles of clothing. üTexas v. Johnson (1989). Commercial Speech: Advertising is protected speech. Any restriction must: üImplement substantial government interest; üDirectly advance that interest; and üGo no further than necessary. 8

Corporate Political Speech Afforded significant protection by the first amendment but not to the degree of speech of natural persons. üFirst National v. Bellotti (1978). üConsolidated Edison v. Public Service Commission (1980). 9

Unprotected Speech Certain types of speech are not protected by the first amendment: üSlander. üPornography, Obscenity. üFighting Words. What about “Hate Speech”? üDoe v. University of Michigan (1989). What about cyber obscenity and hate speech? 10

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. üZorach v. Clauson (1952). üLynch v. Donnelly (1984). 11

Freedom of Religion First amendment guarantees the “free exercise” of religion. Employers must reasonably accommodate beliefs as long as employee has sincerely held beliefs. üFrazee v. Illinois (1989). 12

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. üVerniero v. Beverly Hills Ltd (1998). 13

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. üMarshall v. Barlow’s (1978). 14

§ 3: Other Constitutional Protections Privileges and Immunities clause üArticle IV, Section 2 of the U. S. Constitution. üCitizens can engage in basic activities (work, marriage, property) in any state. Full Faith and Credit clause üArticle IV, Section 1. üThe Public Act or Record of another state shall be given equal weight in a sister state. 15

Due Process 5 th and 14 th amendments provide “no person shall be deprived of life, liberty or property without due process of law. ” Procedural and Substantive issues. 16

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. 17

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. ” 18

Equal Protection Strict Scrutiny. üLaws that affect the fundamental rights of similarly situated individuals in a different manner are subject to the “strict scrutiny” test. ü Any “suspect class” (race, national origin) must serve a “compelling state interest” which includes remedying past discrimination. 19

Equal Protection Intermediate Scrutiny. üApplied to laws involving gender or legitimacy. üTo be constitutional laws must be substantially related to important government objectives. • (EXAMPLE: Illegitimate teenage pregnancy). 20

Equal Protection Rational Basis Test. üApplied to matters of economic or social welfare. üLaws will be constitutional if there is a rational basis relating to legitimate government interest. 21

Privacy Fundamental right not expressly found in the constitution, but derived from 1 st, 5 th and 14 th amendments. Laws and policies affecting privacy are subject to the compelling state interest test. Online privacy. 22

Case 4. 1: Bad Frog v. NY State Liquor Authority FACTS: üBad Frog sells alcoholic beverages with labels that display a frog “giving the finger. ” üNYSLA denied approval of the label because children might see the labels in grocery and convenience stores. üBad Frog sued NYSLA in federal court asking for an injunction against this denial. üThe court granted a summary judgment in favor of the NYSLA. Bad Frog appealed. 23

Case 4. 1: Bad Frog v. NY State Liquor Authority HELD: FOR BAD FROG. REVERSED. üThe 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. ü“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. ” 24

Case 4. 2: Verniero v. Beverly Hills, Ltd. FACTS: üNew Jersey investigated the marketing practices of Beverly Hills Limited, Inc. üVerniero, NJ’s Attorney General, served a subpoena on Beverly Hills which ordered the production of business records. üBeverly Hills demanded guarantee of immunity before turning over the records. üVerniero sued to enforce the subpoena but the Court ruled in favor of Beverly Hills. üVerniero appealed. 25

Case 4. 2: Verniero v. Beverly Hills, Ltd. HELD: FOR VERNIERO. REVERSED. üA corporation could not invoke a privilege against self incrimination and ordered Defendant to produce the records. ü“[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. ” 26

Case 4. 3: WHS Realty v. Town of Morristown FACTS: üMorristown ordinance provided free garbage collection service for certain residences but excluded all multifamily dwellings with four or more units. üWHS owned an apartment complex that consisted of 140 units and thus did not receive the free service. üWHS sued Morristown claiming ordinance violated the equal protection clause. üThe court held the ordinance was unconstitutional, finding it was not rationally related to any legitimate state interest. 27

Case 4. 3: WHS Realty v. Town of Morristown HELD: AFFIRMED. FOR WHS. üThe Superior Court remanded for determination of damages. ü“[T]here is nothing about the mechanics or costs of solid waste collection that justifies differentiating between apartment complexes and other residents. ” üMorristown argued that “apartment units have a lesser value for tax assess ment purposes, ” justifying different service. The court responded that this was not a serious argument. 28

Case 4. 4: Reno v. Condon (Privacy Rights) FACTS: üFederal 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. üCondon, 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. ” üThe Court granted an injunction to prevent the DPPA’s enforcement, which the U. S. Court of Appeals for the Fourth Circuit upheld. Reno 29 appealed.

Case 4. 4: Reno v. Condon (Privacy Rights) HELD: REVERSED. FOR RENO/DPPA. üUS Supreme Court held DPPA was a proper exercise of Congress’s power under the commerce clause. ü“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. üThe information is also used in the stream of interstate commerce by various public and private entities for matters related to interstate motoring. ” üThe DPPA did not require South Carolina to assist in the enforcement of federal statutes regulating private individuals. ” 30