2. The Constitution: Focus on Application to Business Chapter 4

3. 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.”“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 CSee Appendix C

4. 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

5. Constitutional Amendments The constitutional amendments began almost immediately after it was ratified. In 1791 the first 10 amendments were ratified by the States. These are called the Bill of Rights. A proposed amendment must be passed by 2/3 vote in the House and Senate Then ratified by 3/4 of state legislatures OR May be proposed by 2/3 of state legislatures by calling for a constitutional convention –This in turn must be ratified by 3/4 of state legislatures

6. COMMERCE CLAUSE Art. I, Section 8 Congress has power: “Regulate Commerce w/foreign Nations & among the several States, and w/the Indian Tribes”Congress has power: “Regulate Commerce w/foreign Nations & among the several States, and w/the Indian Tribes” Deals with “interstate commerce”Deals with “interstate commerce” More power in State or Federal Government?More power in State or Federal Government?

7. McCulloch v. Maryland (1819) Can Congress establish a National Bank? Yes, it is constitutional under the Necessary and Proper clause, which EXPANDS, not restricts, Congress’s powers Federal actions take precedence over actions of other governments under Federal Supremacy clause Maryland wanted to regulate National Bank NO! Because of the Supremacy clause

8. Necessary and Proper Clause (Clause 18, Article I, Section 8) Necessary and Proper Clause (Clause 18, Article I, Section 8) Constitution enumerates list of Congressional powers - ANDConstitution enumerates list of Congressional powers - AND power “to make all Laws which shall be necessary and proper for carrying into Execution the forgoing Powers…”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 BROAD Congressional control of commerce.This power with the Commerce Clause provides BROAD Congressional control of commerce. Almost everything is necessary and proper!!Almost everything is necessary and proper!!

9. Wickard v. Filburn (1942) Federal controls on production of wheatFederal controls on production of wheat Small farm in Ohio produces 239 bushels more than the farmer, Filburn, was allowedSmall farm in Ohio produces 239 bushels more than the farmer, Filburn, was allowed He is fined $117 and ordered not to plant moreHe is fined $117 and ordered not to plant more Filburn argues that production used to feed his animals and family--all for consumption on farmFilburn argues that production used to feed his animals and family--all for consumption on farm HELD: Although this appears “intrastate” & “trivial”HELD: Although this appears “intrastate” & “trivial” STILL, all small farmers together would impact “interstate” commerce and “market conditions”STILL, all small farmers together would impact “interstate” commerce and “market conditions” Congress may regulate production Congress may regulate production Note: Almost all commerce is defined as “interstate”Note: Almost all commerce is defined as “interstate”

10. Katzenbach v. McClung (Use of Commerce Clause in Non- discrimination) 1964 Case Ollie’s Bar-B-QOllie’s Bar-B-Q Family-owned restaurant in Birmingham, ALFamily-owned restaurant in Birmingham, AL 220 seats for white customers only220 seats for white customers only Title II of 1964 Civil Rights Act prohibits racial segregation in public accommodations if serving interstate travelers or if food moved in interstate commerceTitle II of 1964 Civil Rights Act prohibits racial segregation in public accommodations if serving interstate travelers or if food moved in interstate commerce Does Title II apply?Does Title II apply? HELD: Yes, activity may “exert a substantial economic effect on interstate commerce.”HELD: Yes, activity may “exert a substantial economic effect on interstate commerce.”

11. When State law impedes Interstate Commerce Some Supreme Court Cases: Southern Railway Co v. Arizona--Ct. struck down Arizona law which required trains to be shortened for safety reasons Chemical Waste Management v. Hunt-- Violates Commerce clause to charge more for out of state generated hazardous waste than for in state waste Morales v. Transworld Airlines--State can’t sue under consumer protection statutes because Feds have exclusive authority to regulate airlines Wyoming v. Oklahoma--OK law requiring coal-burning power plants to burn at least 10% OK-mined coal was discriminatory & interfered w/interstate commerce

12. Hughes v. Oklahoma Oklahoma prohibits shipping or selling minnows out of state to protect OK minnows.Oklahoma prohibits shipping or selling minnows out of state to protect OK minnows. Hughes bought minnows in OK and took them to Texas. Convicted of violating state law.Hughes bought minnows in OK and took them to Texas. Convicted of violating state law. OK Supreme Court upheld statute as constitutional to protect OK natural resources. Hughes appealed.OK Supreme Court upheld statute as constitutional to protect OK natural resources. Hughes appealed. U.S. Supreme Court: Reversed for Hughes. Test for constitutionality of such regulations: Fine for state to protect wildlife, but could be done in less discriminatory way.

13. Imitation Not Allowed States may not copy federal regulations if imitation inhibits interstate commerce. South-Central Timber Development v. Wunnicke –Commerce clause long recognized as limiting power of states to pass laws “imposing substantial burdens on such [interstate and foreign] commerce.” –This power is granted to Congress.

14. Taxing Power Art. I, Section 8, Clause 1 lay & collect taxes”“lay & collect taxes” Taxes used to raise revenue and /or deter/punish/encourage certain behaviorTaxes used to raise revenue and /or deter/punish/encourage certain behavior Supreme Court: Upheld taxes on illegal gambling, narcotics & marijuana (illegal business activities)Supreme Court: Upheld taxes on illegal gambling, narcotics & marijuana (illegal business activities) If reported: evidence of illegal activityIf reported: evidence of illegal activity If don’t, violate tax lawsIf don’t, violate tax laws State taxes may not use taxes to impede interstate or international commerce

15. Business and Free Speech U.S. First Amendment Freedom of Speech Commercial Speech (advertisements) Political statements by corporations (public issues) Usually allowed UNLESS “compelling state interest” to prohibit or restrict (For example: public safety) See Consolidated Edison case (business & political speech)See Consolidated Edison case (business & political speech) See also Central Hudson case (business and commercial speech)See also Central Hudson case (business and commercial speech)

16. Consolidated Edison Co. v. Public Service Commission of NY Con Ed mailed controversial statement supporting nuclear power in monthly billingCon Ed mailed controversial statement supporting nuclear power in monthly billing Public Service Comm. of NY said: Can’t do it as customers are captive audience and should not be subjected to Con Ed’s viewsPublic Service Comm. of NY said: Can’t do it as customers are captive audience and should not be subjected to Con Ed’s views Supreme Court test: Was the state’s prohibition 1) reasonable time, place & manner of speech? 2) a permissible subject matter? 3) serving a “compelling state interest”?Supreme Court test: Was the state’s prohibition 1) reasonable 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 This is not a captive audience forced to read message. Customers may choose not to be exposed to material by not reading it or tossing it in the wastebasket.

17. Central Hudson Gas & Electric v. Public Service Comm. of New York The NY Public Service Commission ordered the end of all advertising that promoted the use of electricity because it was contrary to public interest at that time US Supreme Court HELD: Although commercial speech does accord lesser protection than other guaranteed expressions -- The court held that the commission’s ban was more extensive than necessary to achieve the state’s objective and thus was unconstitutional. Reversed in favor of Central Hudson

18. “Freedom of Commercial and Political Speech Abroad” (Most nations more restrictive than U.S.) French court ordered Yahoo! to block French Internet users from accessing auctions selling Nazi artifacts. Yahoo! removed items. This is equivalent of the U.S. government prohibiting sale of Osama bin Laden artifacts in U.S. Germany upheld prison sentence for Australian citizen who posted information on Australia- based web site that denied the Holocaust occurred. Denying the Holocaust is banned in Germany as hate speech. This is equivalent of US S. Ct. upholding a conviction of an Iranian citizen who posted material on an Iranian web site claiming that the World Trade Center terrorist attacks never occurred.

19. Freedom To Criticize Freedom of speech vs. disparagement Bose Corp. v. Consumers UnionBose Corp. v. Consumers Union –Consumer’s Report 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: Okay since no MALICE

20. 4th Amendment--Unreasonable Search & Seizure Does government (i.e. OSHA) need warrant?Does government (i.e. OSHA) need warrant? Usually yesUsually yes Exception: closely regulated businessesException: closely regulated businesses However, business usually agreesHowever, business usually agrees Generally, closed places such as homes and businesses are not subject to random police searchesGenerally, closed places such as homes and businesses are not subject to random police searches See also: No Right of Privacy in Chat Rooms”See also: No Right of Privacy in Chat Rooms” –Messages sent to chat rooms lose their privacy and can be used as evidence in child pornography case “ The right of the people to be secure in their persons, houses, papers and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue but upon probable cause….”

21. New York v. Burger Junkyard is searched without warrant under NY statutory scheme; stolen cars and parts are foundJunkyard is searched without warrant under NY statutory scheme; stolen cars and parts are found Owner tries to keep evidence out of trial as unconstitutional searchOwner tries to keep evidence out of trial as unconstitutional search To be OK for warrantless search:To be OK for warrantless search: –must have substantial government interest –searches must be necessary to further regulatory scheme –must have adequate substitute for a warrant (must advise owner and define scope) HELD: Search is constitutional as furthering NY statutory concerns regarding theftHELD: Search is constitutional as furthering NY statutory concerns regarding theft

22. 5th Amendment-Right Against Self Incrimination Why was this added to Constitution?Why was this added to Constitution? Does self-reporting violate 5th Amendment?Does self-reporting violate 5th Amendment? –Applies to PEOPLE, not Corporations –Braswell v. U.S.: President & sole stockholder must report, even if it incriminates him “No person shall be... compelled in any criminal case to be a witness against himself.”

23. 5th Amendment- Just Compensation or Takings Clause Can government take property for public purposes-- oil pipelines, military bases, highways, sidewalks? Yes.Can government take property for public purposes-- oil pipelines, military bases, highways, sidewalks? Yes. Eminent domain – the right of governments to condemn private property for public usesEminent domain – the right of governments to condemn private property for public uses What is “just” compensation?What is “just” compensation? Destruction of property value through takings must be almost complete to receive compensationDestruction of property value through takings must be almost complete to receive compensation –i.e. 60% devaluation due to change in zoning laws 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 othersControversial economic development tactics: City uses power to piece together land desired by a private developer – legal in some states; illegal in others See Kelo v. City of New London, ConnecticutSee Kelo v. City of New London, Connecticut nor shall private property be taken for public use, without just compensation.” “nor shall private property be taken for public use, without just compensation.”

24. Kelo v. City of New London, Connecticut City of New London worked on plan to piece together property along riverfront for upscale housing, a new shopping center, and a facility for the Pfizer Company. Some home owners refused to sell, including Suzette Kelo, who wanted to keep her water front home, and Wilhemina Dery who was born in her home in 1918 and lived there all of her life. City used power of eminent domain to buy property and sell to developers. Homeowners claimed this was a 5 th Amendment violation of “public use”. Connecticut courts held the taking was proper and home owners appealed: ISSUE Does the City’s development plan serve a “public purpose”?

25. Kelo v. City of New London, Ct. ISSUE Does the City’s development plan serve a “public purpose”? This court favored giving legislatures broad latitude in determining the public needs through takings. Court will defer to the city’s determination for the need for “economic rejuvenation.” Look at benefits to the community, such as new jobs, increased tax revenue. HELD: The takings that are challenged satisfy the Fifth Amendment requirements of takings for a public purpose. City wins.

26. 6th, 7th & 8th Amendments

27. 14th Amendment--Due Process Clause and Equal Protection Clause “No state... shall deprive any person of life, liberty or property without due process of law;“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.”“nor deny to any person within its jurisdiction the equal protection of the laws.” Due process: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:Equal protection: governments must treat people equally

28. Philip Morris USA v. Williams Williams died from smoking-related lung cancer. His wife sued Philip Morris, maker of his favorite cigarette. Claimed that company knowing and falsely led him to believe smoking was safe. Jury awarded $821,000 in compensatory damages and $79.5 million in punitive damages. Oregon high court upheld the award. Philip Morris appealed to the U.S. Supreme Court. Judge’s instructions to the jury: “Punitive damages are awarded against a defendant to PUNISH misconduct and to DETER misconduct,” and “are not intended to compensate the plaintiff or anyone else for damages caused by the defendant’s conduct.” (emphasis added) (Continued on next slide)

29. Philip Morris USA v. Williams, cont. HELD: Due Process Clause requires that States assure that juries do NOT ask the wrong question – that is, not simply to determine reprehensibility but also punish for harm caused to strangers of the court. Punitive damages may be used to punish unlawful conduct and deter further unlawful conduct to others. HOWEVER, must avoid an arbitrary determination on the amount of the award. Proper standards must be used to control the jury’s discretionary authority. Guard against “arbitrary punishments”. If a defendant is punished to deter for possible misconduct on other or future parties, this leaves the jury open to speculation. Risks: arbitrariness, uncertainty, lack of notice and other due process concerns HELD: The Court’s standard used in determining punitive damages was improper. Case remanded.

30. Club Italia Soccer & Sports Organization, Inc. v. Charter Township of Shelby, Michigan Soccer City contacted Township of Shelby re: development of soccer facilities. Submitted a formal proposal to the town. Club Italia, a non-profit organization, got a copy of Soccer City’s proposal and complained about bidding process. Wanted to submit a proposal. Town board voted to accept other proposals, and gave interested parties 3 weeks to submit bids. Club Italia failed to bid in the time allowed. Contract went to Soccer City, the only bidder. Club Italia sued Town, claiming the bidding procedure violated Due Process and Equal Protection clauses. District Court granted summary judgment to the Town. Club Italia appealed. (Continued on next slide)

31. Club Italia Soccer & Sports Organization, Inc. v. Charter Township of Shelby, Michigan, cont. Club Italia claims that as a prospective bidder, it had a property or liberty interest in the bidding process. Claim is that the bidding regulations denied Club Italia of procedural due process under the 14 th Amendment. For the amendment to apply, plaintiff must show (1) deprivation of a protected liberty or property interest, and (2) deprivation occurred without due process. HELD: Due Process claim was properly dismissed. There is no 14 th Amendment violation. The City’s decision to deny Club Italia a single contract only is a restraint on business dealings. City’s decision did not “besmirch” plaintiff’s name or preclude future contracts. There is no deprivation of a liberty interest. No abuse of power by the City in awarding the contract Plaintiff didn’t submit the bid in the requisite time frame. “Invitation to compete” made by the City to Club Italia is not = to a property or liberty interest.