6 The Constitution And Business
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)
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/ncconstitution.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.
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.”
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), p.146. • 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.
The Supremacy Clause • Supremacy Clause • Savings Clause • GEIER v. AMERICAN HONDA MOTOR COMPANY, INC. • 120 S.Ct. 1913 (2000), p.146. • 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?
The Supremacy Clause • Supremacy Clause • Savings Clause • GEIER v. AMERICAN HONDA MOTOR COMPANY, INC., 120 S.Ct. 1913 (2000), p.146. • 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.
The Supremacy Clause • Supremacy Clause • Crosby v. National Foreign Trade Council • 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.
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).
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).
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).
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).
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).
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).
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.
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.
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).
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).
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.
The Commerce Clause • Federal Regulation • Foreign Commerce • Interstate Commerce Engaged in & Affecting Undue Burden Discrimination Against
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.
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.
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.
The Commerce Clause Today, the Commerce Clause authorizes the national government to regulate virtually any business enterprise, including internet.
The Commerce Clause Discrimination Against Interstate Commerce SOUTH CENTRAL BELL TELEPHONE COMPANY v. ALABAMA, 119 S.Ct. 1180 (1999), p.152. 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?
The Commerce Clause Discrimination Against Interstate Commerce SOUTH CENTRAL BELL TELEPHONE COMPANY v. ALABAMA, 119 S.Ct. 1180 (1999), p.152. • 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 in-state 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.
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).
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).
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 • State Police Power Health, Safety, Morals & General Welfare Exception: Nationwide Uniformity e.g. FAA
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
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.
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.
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."
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.
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.
State Taxation • Form Of Regulation • Limited By Commerce Clause • Apportionment • Must Be Sufficient Tie- Nexus Or Taxable Situs
Commerce Clause 2) Limitation b) State Taxation HUNT-WESSON, INC. V. FRANCHISE TAX BOARD OF CALIFORNIA, 120 S.Ct. 1022 (2000), p. 155. • 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?
Commerce Clause 2) Limitation b) State Taxation HUNT-WESSON, INC. V. FRANCHISE TAX BOARD OF CALIFORNIA, 120 S.Ct. 1022 (2000), p. 155. 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.
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 lower-cost out-of-state dairy farmers. West Lynn Creamery, Inc. v. Healy, 114 S.Ct. 2205 (1994).
Foreign Commerce • Federal Gov’t Has Exclusive Right To Regulate Foreign Commerce • State Can Regulate Commerce If Occurs Entirely Within State Boundaries
Takings Clause Ridge Line v. United States, The government owned property adjacent to a privately-owned 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.
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."
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 itspowers, 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.”
Bill of Rights • In addition, the 10th amendment states: • “The enumeration in the Constitution, of certain rights, shall not be construed to denyor disparage others retained by the people.”
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.
First Amendment • Freedoms: • Religion • Press • Speech • Assembly • Right To Petition For Redress
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.
Freedom Of Religion • In Barron v. Baltimore, 32 U.S. (7 Pet.) 243 (1833) and Permoli v. NewOrleans, 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.