Chapter 2 Constitutional Law for Business

The United States Constitution Agreed to in the Constitutional Convention of 1787, and ratified by the states in The U.S. Constitution serves two major functions: 1.It creates the three branches of the federal government (i.e. the executive, legislative, and judicial branches) and allocates powers to these branches. 2.It protects individual rights by limiting the government’s ability to restrict those rights.

Basic Constitutional Concepts ConceptDescription FederalismThe Constitution created the federal government. The federal government in Washington, DC and the 50 state governments share powers. Delegated PowersWhen the states ratified the Constitution, they delegated certain powers to the federal government. These are called enumerated powers. Reserved PowersThose powers not specifically granted to the federal government by the Constitution are reserved to the states.

Basic Constitutional Concepts Cont. Separation ofEach branch of the federal government has separate Powerspowers. These powers are: a. Legislative branch—power to make law. b. Executive branch—power to enforce the law. c. Judicial branch—power to interpret the law. Checks and Certain checks and balances are built into the balancesConstitution to ensure that no one branch of the federal government becomes too powerful. For example, the judicial branch has authority to examine the acts of the other two branches of government and determine whether those acts are constitutional. And the legislative branch is authorized to create federal courts and determine their jurisdiction and to enact statutes that change judicially made law.

Supremacy Clause The Supremacy Clause establishes that the federal Constitution, treaties, federal laws, and federal regulations are the supreme law of the land. State and local laws that conflict with valid federal law are unconstitutional. The concept of federal law taking precedence over state or local law is commonly called the preemption doctrine. Congress may expressly provide that a particular federal statute exclusively regulates a specific area or activity. No state or local law regulating the area or activity is valid if there is such a statute. More often, though, federal statutes do not expressly provide for exclusive jurisdiction. In these instances, state and local governments have concurrent jurisdiction to regulate the area or activity. However, any state or local law that “directly and substantially” conflicts with valid federal law is preempted under the Supremacy Clause.

Commerce Clause The Commerce Clause of the U.S. Constitution grants Congress the power “to regulate commerce with foreign nations, and among the several states, and with Indian tribes.” Because this clause authorizes the federal government to regulate commerce, it has a greater impact on business than any other provision in the Constitution. Among other things, this clause is intended to foster the development of a national market and free trade among the states. Native Americans The Commerce Clause along with various treaties regulates commerce on Native American lands. Generally, Native American tribes are self-governing and considered “domestic dependents” of the Federal Government. Foreign Commerce Clause The Commerce Clause gives the federal government the exclusive power to regulate commerce with foreign nations.

Case LawForeign Commerce Clause Crosby, Secretary of Administration and Finance of Massachusetts v. National Foreign Trade Council (2000) Facts of the Case In 1996, the Massachusetts Burma Law, which restricted state entities from buying goods or services from companies doing business with Burma, was passed. Afterwards, Congress also imposed mandatory and conditional sanctions on Burma. Businesses with ties to Burma landed on Massachusetts' "restricted trade" list. The list came to include 34 members of the National Foreign Trade Council (Council), a non- profit advocate for American companies that do business abroad. The Council filed suit against Stephen Crosby, the Massachusetts Secretary of Administration and Finance, and other state officials in federal court, claiming that the state act unconstitutionally infringes on the federal foreign affairs power, violates the Foreign Commerce Clause, and is preempted by the Federal Burma Law. The District Court permanently enjoined the state act's enforcement, and the Court of Appeals affirmed. The court also found that the Massachusetts Burma Law violated the Supremacy Clause because the state was acting in an area of unique federal concern, foreign policy, through a balanced, tailored approach.

Crosby v. National Foreign Trade Council cont. The Issue Is the Massachusetts Burma Law, which restricts the authority of its agencies to purchase goods or services from companies doing business with Burma, unconstitutional under the Supremacy Clause? The Decision Yes. The Court held that "the state Act is preempted, and its application unconstitutional, under the Supremacy Clause." The Court maintained that Massachusetts' law created an obstacle to the President's discretion to control economic sanctions against Burma, interfered with Congress's intention to limit economic pressure against the Burmese Government, and was at odds with the President's authority to speak for the United States among the world's nations to develop a comprehensive, multilateral Burma strategy. Therefore, the Massachusetts Burma Law "is invalid under the Supremacy Clause...owing to its threat of frustrating federal statutory objectives."

Commerce Clause cont. Interstate Commerce The Commerce Clause gives the federal government the authority to regulate interstate commerce. Originally, the courts interpreted this clause to mean that the federal government could only regulate commerce that moved in interstate commerce. The modern rule, however, allows the federal government to regulate activities that affect interstate commerce. Under the effects on interstate commerce test, the regulated activity does not itself have to be in interstate commerce. Thus, any local (intrastate) activity that has an effect on interstate commerce is subject to federal regulation. Theoretically, this test subjects a substantial amount of business activity in the United States to federal regulation.

Case Law Interstate Commerce Clause Heart of Atlanta Motel, Inc. v. United States Facts Congress passed the Civil Rights of 1964, a portion of which banned racial discrimination in public places with public accommodations, citing the interstate commerce clause as their authority. Plaintiff rented a large motel in Atlanta and refused to offer rooms to African Americans. The owner sued, stating that the act exceeded Congress’s ability to regulate interstate commerce. The US government argued that the travel of African Americans between states was impacted by their inability to stay in public accommodations. The trial court sided with the US government and ordered the Plaintiff to serve African Americans. Issue Whether Congress may force a private business owner to serve African Americans based on their constitutional ability to regulate interstate commerce.

Heart of Atlanta Motel, Inc. v. United States cont. Holding Yes, affirmed. Roughly 75 percent of Plaintiff’s clientele come from out of state and was clearly located near two major federal, interstate highways. The business’s location and public nature clearly accommodate and impact interstate commerce, according to the court. The court wrote that “…the power of Congress to promote interstate commerce also includes the power to regulate the local incidents thereof, including local activities in both the States of origin and destination, which might have a substantial and harmful effect upon that commerce. One need only examine the evidence which we have discussed above to see that Congress may—as it has—prohibit racial discrimination by motels serving travelers, however ‘local’ their operations may appear.” The American population is becoming more and more mobile and African American population’s inability to find an accommodation for travel represents a substantial and harmful effect upon commerce.