The Constitution: Focus on

Application to Business

Chapter 4
Meiners, Ringleb and Edwards
The Legal Environment of Business, 13th Edition

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 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
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

 The Constitutional Amendments

The constitutional amendments began almost

immediately after it was ratified.

In 1791 the first 10 amendments were ratified by

the States. Called the Bill of Rights.

Proposed amendments must be passed by 2/3

vote in the House and Senate.

Then ratified by 3/4 of state legislatures

 COMMERCE CLAUSE
ART. I, SECTION 8

 Congress has power to: “Regulate Commerce

with foreign Nations, and among the several
States, and with the Indian Tribes”

 Congress can regulate foreign trade and

interstate commerce

 Federal Government supreme in regulating

business.
 Necessary and Proper Clause
(Clause 18, Article I, Section 8)

 Constitution lists specific Congressional

powers and grants

 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 strong Congressional control of
commerce.

 Most things are necessary and proper

 McCulloch v. Maryland (1819)
• Federal actions take
 Can Congress precedence over actions of
establish a National
Bank? other governments under
 Court Held: Yes, it is Federal Supremacy Clause.
constitutional under
the Necessary and
Proper Clause, • Maryland wanted to
which EXPANDS, regulate the National Bank
not restricts, • Court Held: No, under the
Congress’s powers.
Supremacy Clause Congress
has the power.
 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
 Federal controls on
production of wheat  HELD: Although this
 Farmer Filburn produced appears to be “intrastate”
239 bushels more than he and “trivial,” all small
farmers together would
was allowed. Sold none. impact “interstate
 He was fined and ordered commerce” and “market
not to plant more. conditions.”
 Congress may regulate all
 Filburn argued that production.
production was used to
feed his chickens and  Almost all business is
cows and for making defined as “interstate.”
bread – all consumed on
the farm. No commerce.
 KATZENBACH V. MCCLUNG
(USE OF COMMERCE CLAUSE IN NON- DISCRIMINATION)
1964 CASE

 Ollie’s Bar-B-Q, a family-owned local restaurant in

Birmingham, AL. Only white customers served.

 Title II of newly enacted 1964 Civil Rights Act

prohibits racial segregation in public
accommodations such as restaurants if in interstate
commerce.

 Is Title II constitutional?

 HELD: Yes, activity may “exert a substantial

economic effect on interstate commerce.” Even if
customers all in-state, goods used in restaurant come
 Federal and State Regulatory
Relations
States often 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.
 When State law impedes Interstate Commerce
Some Supreme Court Cases:
 Southern Railway Co v. Arizona – Court
struck down Arizona law which required  States have legitimate interest in
trains to be shortened for safety reasons. protecting public health, safety &
Said interstate commerce should be “free
other public policies
from interferences.”
 Chemical Waste Management v. Hunt –
Violates Commerce clause to charge more  However, regulation for these
for out-of-state generated hazardous goals must be designed to achieve
waste than for in state waste. its legitimate interest with minimal
 U.S. vs. Locke – Supreme Court struck impact on interstate business.
down WA state regss regarding tanker
design and operation. Congress has
uniform rules re: tanker operations in all  In some areas, states may add
waters. States can not intervene. their own rules to strengthen
 Wyoming v. Oklahoma – Oklahoma law impact of federal rule
requiring coal-burning power plants to
burn at least 10% Oklahoma-mined coal
was discriminatory & interfered with  As long as no conflict or intent to
interstate commerce. impede interstate commerce.
 Hughes v. Oklahoma
 Oklahoma prohibits Court Set Guideline:
shipping or selling  1) Does statute regulate
minnows out of state to evenhandedly with only
protect Oklahoma ”incidental” effects on
minnows. Hughes bought interstate commerce?
minnows in Oklahoma  2) Does statute serve a
and took them to Texas. legitimate ”local purpose,”
and if so,
 Convicted of violating  3) Could ”alternative
state law. OK Supreme means” promote local
Court upheld statute as purpose as well ”without
constitutional to protect discriminating against
OK natural resources. interstate commerce?”
Hughes appealed.
Fine to protect wildlife, but
 U.S. Supreme Court could be done in less
reversed. discriminatory way.
 TAXING POWER
ART. I, SECTION 8, CLAUSE 1

 Power to “lay and 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 activities
(such as sale of narcotics)
 If report income: evidence of illegal activity
 If don’t report, violate tax laws
 State Taxation
 State taxes cannot impede interstate or international commerce.
 Northwestern States Portland Cement Co. v. Minnesota: State cannot impose
taxes upon person passing through the state or coming into it merely for a
temporary purpose.
 Baccus Imports v. Dias: Court struck down Hawaii’s 20% tax on all alcoholic
beverages except for local products. Same tax must be imposed on all.
 Davis v. Michigan Dept. of Treasury: Michigan exemption from state income
taxed the retirement benefits paid to state employees.
 All other retirement income (i.e. federal government benefits) taxed.
 Taxes must apply equally to all retirement benefits.
 Comptroller v. Wynne: In 2015 the Court struck down Maryland income tax
scheme that allowed counties to impose higher taxes on income earned outside
the sate of Maryland than income earned within the state.
 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.
 State Taxes May Not Impede
Foreign Trade

 Constitution gives Congress power to regulate

international trade.

 State may not interfere with international commerce

through taxation.

 Japan Line v. County of Los Angeles: California

cities imposed property tax on cargo-shipping
containers used in international shipping and
owned by Japanese companies. Tax was
unconstitutional. Power over foreign commerce
rests with Congress.
 BUSINESS AND FREE SPEECH
1st AMENDMENT and FREEDOM OF SPEECH

 One area of cases: Commercial Speech

(advertisements)
 Other area of cases: Political statements by
corporations (public issues)
 Usually allowed
 Unless “compelling state interest” to prohibit
 For example: public health or safety
 Controversial: Supreme Court struck down
parts of McCain-Feingold Act prohibiting for-
profit and non-profit corporations and unions
from broadcasting “electioneering
communications.”
 Consolidated Edison Co. v. Public Service
Commission of NY (political speech)

 Con Ed mailed controversial statement supporting

nuclear power in monthly billing.
 Public Service Comm. of NY said: Can not do it as
customers are “captive audience” and should not be
subjected to Con Ed’s views.
 Supreme Court set standard: Was the state’s
prohibition 1) reasonable as to time, place & manner of
speech? 2) a permissible subject matter? 3) serving a
“compelling state interest”?

 HELD: Supreme Court reversed in favor of Con Ed.

 Customers may choose not to be exposed to material
by not reading it or throwing away.
 Central Hudson Gas & Electric v. Public
Service Comm. of NY (commercial speech)
The NY PSC ordered the end of advertising that promoted the
use of electricity because it was contrary to public interest.
Central Hudson contested the regulation. NY courts upheld.
U.S. Supreme Court held: Commercial speech receives less
protection than political speech but the ban was more extensive
than necessary to achieve the state’s objective and thus was
unconstitutional. Reversed in favor of Central Hudson.

Court set the standard for review in such cases:

1) Does the speech concern a lawful matter and is it truthful?
2) Does the government have a substantial interest?
3) Does the restriction directly advance the public interest?
4) Is the restriction no more extensive than is necessary?
 Business & Commercial Speech
Bigelow v. Virginia: Court
reversed conviction of VA
newspaper editor who
published ads about
availability of abortions in
NYC.
Virginia State Bd. Of
Pharmacy v. Virginia
Citizens Consumer Council:
Court struck down VA law
prohibiting advertising of
prices of prescription drugs.
 Shapiro v. Kentucky Bar Assn.:
Court held state bar association
violated 1st Amendment by
restrictions on truthful
advertising for professionals
services (e.g. lawyers or
doctors).
 Bd. Of Trustees of the State
University of NY v. Fox: Standard
for judging commercial speech
regulation is one that is “not
necessarily perfect but
reasonable” and “narrowly
tailored to achieve the desired
objective.”
 FREEDOM TO CRITICIZE
FREEDOM OF SPEECH VS.
DISPARAGEMENT

 Bose Corp. v. Consumers Union

 Consumer Reports 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: Review fine because no malice

 Similar cases regarding material published on Internet

 2nd Amendment Right to Bear Arms

 Restrictions government may place on gun ownership

and possession – not settled area
 Some jurisdictions (i.e. NYC) have very tight controls.

 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 theirpersons, houses, papers and
effects, against unreasonable searches and seizures, shall not be violated,
and no Warrants shall issue but upon probable cause….”

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.
Improperly obtained evidence may not be used in
court under the exclusionary rule.
 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 (including blood tests) for alcohol or drugs –
closely regulated industry.
 5th Amendment:
Right Against Self Incrimination
“No person shall be. . . compelled in any criminal case to
be a witness against himself.”

Does not apply to public records.

Corporate executives cannot be made to testify against

themselves—but must testify about corporate matters.

Business records must be produced even if might incriminate

the corporation.

Does self-reporting violate 5th Amendment?

 No, it applies to persons, not Corporations
 Braswell v. U.S.: President & sole stockholder of company must
report about company, even if it incriminates him
 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, schools, highways? 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% fall in value due to change in law 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
 Kelo v. City of New London, Connecticut
 City put together property along
riverfront for upscale housing, a
shopping center, and a facility for
the Pfizer Company.
 Some home owners refused to
sell, including Suzette Kelo, who
wanted to keep her home.
 City used power of eminent
domain to buy property and sell to
developers.
 Homeowners claimed this was a
5th Amendment violation of
“public use.”
 ISSUE Does the City’s
development plan serve a
“public purpose”?
 U.S. Supreme Court held:
 The takings satisfy the Fifth
Amendment requirements of
“takings for a public purpose”
(higher tax revenue from new
development). City wins.
 As a result of Kelo, many
states passed laws to restrict
use of eminent domain to
benefit private developers.
 Horne v. Department of Agriculture

 Federal law allows Dept. Of Agriculture to issue “marketing

orders” to maintain stable markets for ag products.
 Raisin Administrative Committee could require raisin
growers to “reserve” part of crop with no payment.
 Raisins usually destroyed.
 One year, growers required to give to government 47% of
crop.
 The Hornes refused.
 Contended this was unconstitutional taking of property.
 For public use without just compensation.
 Government fined Hornes $680,000. They appealed. Court
of Appeals upheld the regulation.
 Horne v. Department of Agriculture, Cont.

 Ct. of Appeals: Personal property, such as raisins,

receive little constitution protection. Hornes can plant
other crops – such as grapes to make wine.
 Hornes appealed to U.S. Supreme Court.
 Reversed.
 Grapes are private property under “Takings Clause.” It
does not distinguish among different types of property.
 Fact that they could plant other crops to avoid being
regulated is not good excuse by government.
 Hornes relieved of paying fine.
 6th, 7th & 8th Amendments

6th Right to trial by jury in criminal cases

7th Right to trial by jury in common law cases

8th Limits cruel & unusual punishments and

excessive fines
 14TH AMENDMENT

 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.”
 U.S. v. Virginia: Supreme Court held Virginia violated equal protection
clause by excluding women from attending the Virginia Military
Institute
 14th Amendment incorporates protections from the Bill of Rights &
applies them to state governments.
 Due process:
 Is 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: Governments must treat people equally.
 Labrayere v. Bohr Farms

 Missouri enacted statute eliminating right to common law

action for private nuisance when “alleged nuisance emanates
from property use for crop or animal productions purposes.”
 Purpose: Preclude damages for loss from odors from
concentrated animal feeding operations.
 Bohr had hog farm.
 On-site sewage treatment and system for composting dead hogs.
 Nearby property owners sued for: “Offensive odors, particulate
pathogens, hazardous substances, flies, and manure”
 Contended state statute was a violation of due process and
equal protection.
 Lower Courts: Held for Bohr. Cont.
 Labrayere v. Bohr Farms cont.
 Statute must survive “strict scrutiny” of constitutional claim.
 Two Steps:
 1) Identify the classification to ascertain appropriate level of scrutiny.
 2) Does law make distinction on basis of suspect classification and exercise
of fundamental right? THEN strict scrutiny applies.
 If no suspect classification, the court applies rational basis review to see if
law is related to a legitimate end.
 Rural landowners suffering from the smell are not a “suspect class”—those
are race, religion, etc.
 No fundamental rights violation such as movement, free speech or voting.
 Land use regulation not subject to heightened judicial scrutiny under equal
protection.
 Issue: Not that law is wise or desirable but if law is completely irrational.
 Affirmed.