Chapter 4

Authority to Regulate Business

a/k/a Constitutional Authority

CHECKS AND BALANCES

• Federal Government: A form of government where states form a union and the sovereign (supreme) power is divided between the national government and the various states.

• Tri-Partite Government: The national government of the United States of America is composed of three separate branches, each of which acts as a check on the others’ power:

• The Executive Branch (i.e., the President), which has the power to veto legislation passed by Congress and to appoint the members of the Judiciary;

• The Legislative Branch (i.e., Congress), which may override the President’s veto and which may define the jurisdiction of the Judiciary and must confirm Judiciary appointees; and

• The Judicial Branch (i.e., the Supreme Court and the federal court system), which has the power to void the acts of the Executive and Legislative branches because they are unconstitutional.

THE COMMERCE CLAUSE

• Commerce Clause: Article I, Section 8 of the U.S. Constitution empowers Congress

“to regulate Commerce with foreign nations, and among the several States, and with the Indian Tribes.”

• Interstate and Intrastate Commerce: Since 1824, thanks to Gibbons v. Ogden, the Supreme Court has interpreted the Commerce Clause to permit Congress to regulate both

• Interstate Commerce (i.e., commerce between two or more states) and

• Intrastate Commerce (i.e., commerce within a single state),

as long as the intrastate commerce at issue “substantially affects” interstate commerce.

THE REGULATORY POWERS OF THE STATES

• Police Powers: As part of their sovereign powers, states possess the power to regulate private activities in order to protect or promote public order, health, safety, morals, and general welfare.

• Balancing the Commerce Clause with States’ Police Powers: When state regulations impinge on interstate commerce, courts must balance the state’s interest in the merits and purposes of the regulation against the burden the regulation places on interstate commerce. Generally speaking,

(1) state laws enacted pursuant to the state’s police powers are presumed to be valid notwithstanding their effect on interstate commerce; however,

(2) if the state law substantially interferes with interstate commerce, it will most likely be held to violate the Commerce Clause (i.e., to be unconstitutional).

THE SUPREMACY CLAUSE

• Federal constitutional and statutory law and treaties supersede their state counterparts due to the Supremacy Clause, Article VI, Clause 2 of the U.S. Constitution:

This Constitution, and the Laws of the United States which shall be made in Pursuance thereof;

and all Treaties made, or which shall be made, under the Authority of the United States,

shall be the Supreme Law of the Land; and the Judges in every State shall be bound thereby,

any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

• Preemption: When Congress chooses to act exclusively in an area otherwise subject to both federal and state regulation, federal law is said to preempt a conflicting state or local law, regulation, or ordinance (in other words supercede or override the other law). Preemption is generally presumed when:

(1) federal law is so pervasive, comprehensive, or detailed that it leaves state and local law no room to supplement it; and/or

(2) federal law creates a federal regulatory agency which is empowered to enforce federal law.

It is sometimes difficult to determine whether Congress intended to preempt the area, and therefore preclude plaintiffs from bringing claims under state law.

TAXING AND SPENDING POWERS

• Taxing Power: Article I, Section 8 empowers Congress to

“levy and collect Taxes...

Generally speaking, as long as a proposed measure bears a reasonable relationship to revenue production, it will be deemed to fall within Congress’ taxing authority.

• Uniformity of Taxes: Article I, Section 8 further provides that taxes

“shall be uniform throughout the United States.”

Therefore, Congress may not tax some states while not taxing others -- though, certainly, some taxes may affect some states more than others.

• Spending Power: Article I, Section 8 also empowers Congress

“to pay the Debts and provide for the common Defense and general welfare of the United States.”

• This combination of taxing and spending authority has led many to characterize Congress has having “the power of the purse-string” -- meaning that, no matter what policies the Executive proposes nor what reading of the law the Judiciary mandates, the Legislative Branch determines how the funds spent by the federal government are to be raised and how the funds raised by the federal government are to be spent.

THE BILL OF RIGHTS IN A NUTSHELL

• Most significantly, for our purposes, the Bill of Rights:

(1) guarantees freedom of religion, speech, and the press, as well as the rights to peaceably assemble, and to petition the government [Amend. 1];

(2) guarantees the right to keep and bear arms [Amend. 2];

(3) prohibits unreasonable searches and seizures of persons or property [Amend. 4] and guarantees fair payment for property taken for public use [Amend. 5];

(4) guarantees the rights to due process of law, including indictment by grand jury [Amend. 5], as well as the rights to a speedy and public (criminal) trial with the assistance of counsel and to cross-examine witnesses and to solicit favorable testimony [Amend. 6];

(5) guarantees the right to trial by jury in both criminal cases [Amend. 6] and civil cases involving more than $20 [Amend. 7]; and

(6) prohibits excessive bails and fines, as well as cruel and unusual punishment [Amend. 8].

FREEDOM OF SPEECH

• The First Amendment provides:

“Congress shall make no law abridging the freedom of speech, or of the press.”

• Nonetheless, certain types of speech and/or writing may be prohibited by law, for example:

(1) speech (i.e., slander) or writing (i.e., libel) that harms the good reputation of and/or defames another person;

(2) threatening or “fighting” words; and

(3) obscene and/or pornographic speech and/or writing.

• Commercial speech and/or writing (i.e., advertising) may be restricted as long as the restriction

• promotes a substantial government interest, directly advances said interest, and

• is no more restrictive than necessary in order to achieve the substantial government interest.

FREEDOM OF RELIGION

• The First Amendment provides:

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof. .. .“ (emphasis added).

• These two provisions are commonly referred to as the establishment clause and the free exercise clause.

• The key to analyzing a federal or state law or regulation as it relates to these provisions is to focus on the primary effect of the law or regulation, not any secondary effect. As long as the law or regulation does not promote or place a significant burden on religion, it will not be deemed unconstitutional simply because it has some impact on religion.

The establishment clause is a rather hot topic in the law, ranging from Blue Laws, nativity scenes in public places, etc.

The free exercise clause is illustrated in various cases dealing with compelling someone to do something that is contrary to their religious beliefs. This usually involves reasonable accommodation issues.

SELF-INCRIMINATION

• The Fifth Amendment guarantees that no person

“shall be compelled in any criminal case to be a witness against himself.”

• Unlike the Fourth Amendment’s protections against unreasonable search and seizure, the self-incrimination privilege does not extend to corporations or partnerships, but it does protect sole proprietorships and sole practitioners to the same extent as natural persons are protected.

SEARCHES AND SEIZURES

• The Fourth Amendment protects the

“right of the people to be secure in their persons, houses, papers, and effects.”

As a consequence, law enforcement officers must have probable cause before they may search and/or seize any person’s property, etc.

• In most instances, officers must obtain a search warrant, issued by a judge or other public official, and based on probable cause, before searching a person’s property.

• However, if an officer has probable cause and a genuine concern that the delay involved in obtaining a search warrant may result in the relocation or destruction of the property sought to be searched (most notably, an automobile), a warrantless search may be performed.

• Note: For Fourth Amendment purposes, a “person” includes a corporation, partnership, and other legal entities, although the standard for probable cause with respect to such entities is lower than required to search the person and/or property of a natural person.

“ARTICLE IV” RIGHTS

• The “Privileges and Immunities” Clause: Article IV of the U.S. Constitution provides that

“Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.”

• In other words, a state may not treat citizens of other states differently from citizens of its own state without a substantial reason that is substantially related to the purpose of the rule.

• The “Full Faith and Credit” Clause: Article IV also requires the states to afford

“Full Faith and Credit. . . to the public Acts, Records, and judicial Proceedings of every other State.”

• As a consequence, rights established under deeds, wills, contracts, and the like in one state must be recognized by other states.

· Likewise, a judgment of a competent court in one state must be recognized and enforced by the courts of another state.

DUE PROCESS OF LAW

• Due process has two elements --procedural due process and substantive due process.

• Procedural Due Process requires that any government decision to take life, liberty, or property must be made fairly, giving the person(s) from whom life, liberty, or property is to be taken prior notice and the opportunity to be heard by an impartial decision maker. It functions on the procedures that are taken to make sure the government decision is rational and equitable.

• Substantive Due Process requires that the interest of the state to be served by any law or other governmental action be weighed against the right of the individual(s) against whom the law or action is directed. It focuses on the content, or substance, or legislation.

• A fundamental right (e.g., free speech, interstate travel, privacy) will be protected unless the government can show a compelling state interest (e.g., public safety).

• In all other cases, a law or action will not violate substantive due process as long as it is rationally related to any legitimate governmental purpose.

EQUAL PROTECTION

• The Fourteenth and Fifth Amendments, respectively, prohibit any state or the federal government from denying

“any person within its jurisdiction the equal protection of the laws.”

• Like substantive due process, the equal protection clause(s) require the substantive effect of a law or other government action be weighed against the right of the individual(s) against whom the law or action is directed.

Notice the three levels of scrutiny:

• If the law or action inhibits a group of persons’ exercise of a fundamental right or if it embodies a classification based on a suspect trait (e.g., race, national origin), the law or action is subject to strict scrutiny, and will only be upheld if it serves a compelling state interest.

• If the law or action embodies a classification based on gender or legitimacy, it is subject to intermediate scrutiny, and will only be upheld if it is substantially related to important government objectives.

• If the law or action inhibits only rights related to economic or social welfare, it will be upheld so long as there is any rational basis (lower scrutiny) on which the classification might relate to a legitimate government interest.