Ch04 Constitutional Law For Business and E-Commerce.docx

Chapter 4 CONSTITUTIONAL LAW FOR BUSINESS AND E-COMMERCE Why can you not run into a crowded theater and yell “fire” when there is no fire? I. Overview The scales of justice have long been one of the key symbols of our judicial system. They represent the system’s effort to show evenhandedness and give fair weight to the evidence presented by competing parties. This symbol can also be used to illustrate the key learning objective of this chapter. Our founding fathers struggled long and hard to create a balance of power among the three branches of government in much the same way as the justice system attempts to weigh the evidence. This process of balancing among the competing sovereignties of federal, state, and local governments is a process of constant evolution and, like the scale, will constantly shift with the addition and deletion of new political, social, and demographic weights. What makes this constitutional balancing both fascinating and yet sometimes traumatic is that business people and their entities, represented by all sorts of firms from the smallest sole proprietorship to the largest multinational corporation, are caught in the middle of these sovereign "turf wars." In today's legal environment, there is little doubt about the power of the government to create, regulate, control, and even ban business activities. The real question appears to be which flag to salute--the federal government, the state, the local government, or some combination of all of the above? Where the rules of the game seem to shift almost daily between competing referees, it becomes most difficult for businesses to play the game. The basic ground rules for business are set out in the U.S. constitutional provisions directly addressed to business, such as the Commerce Clause, and in larger protections accorded to all persons in the Bill of Rights and other key amendments. Many business entities are classified as juristic persons (law created entities which are given a limited and controlled legal existence) such as corporations or trusts. Subsequent chapters will go into more detail on how and when these forms of doing business may be used. In the context of constitutional allocation of control over business activity, the most important provision is the Supremacy Clause. Under this clause, the national sovereign can preempt control over any particular form of business it chooses to. This clause, combined with very broad judicial interpretation of the Commerce Clause, has been a part of the process which attempts to create an even playing field for business, i.e., the federal sovereign has long believed that a states power to control commerce under its constitutional police power should be harnessed if it encumbers the national flow of commerce or if it somehow unduly favors local business at the cost of competing political entities such as other cities, states, or even regional interests. The balancing of the scale continues. What makes this process of setting out the business playing rules even more difficult is that many of our basic rights, set out in the Bill of Rights such as freedom of speech, press, religion, and assembly, have been held by our courts to apply in varying degrees to business enterprises. How, when, where, and to what extent these rights should apply to business continues to be both a source for constant academic debate and a regulatory dilemma for both government and business alike. Law works best where all the players involved have a "bright line" or clear signal to use as a guidepost for their actions. When that line is blurred, all are disserved. II. Multi-issue Essay Question Brew Ha Ha Brewery is located in New Salem, California, and is engaged in the business of producing specialized low alcohol products for specifically identified niche markets. It produces diet beers for the overweight crowd, young malts for the young at heart, and aged malts for the over-the-hill yuppie couch potatoes. Brew Ha Ha's newest product seeks to cash in on the latest craze, a revival of witchcraft! Their new product is named "The Devil Made Me Do It!" The "Devil" beer has the same low alcohol content as all its other products but is designed to look like a steamy caldron of some witch's brew that will conjure up images of the rich and diverse history of occult practices throughout the world. The Texas State Liquor Control Board took umbrage at this product's motives and felt that it would foster and encourage the practice of witchery in its fair state. It thus decided to ban the sale of "The Devil Made Me Do It!" within the state on the grounds that this product would undermine the morals of its citizens through the practice of witchcraft. The Board claims its actions are allowable under both the U.S. and local constitutions. Brew Ha Ha, in turn, claims its constitutional rights are being violated. What result? III. Outline Major Functions of the Constitution Creates the three branches of government Executive—carries out laws Legislative—makes laws Judicial—interprets laws Protects individual rights by limiting the government’s ability to restrict those rights Separation of Powers Article I Establishes the legislative branch of government—create federal courts Article II Establishes the executive branch of government—needs legislative approval for treaties Article III Establishes the judicial branch of government—reviews acts of other branches for constitutionality Supremacy Clause Establishes that the federal Constitution, treaties, federal laws, and federal regulations are the supreme law of the land. No state law can conflict with them. Geier v. American Honda Motor Company, Inc. illustrates how federal passive restraint law preempted District of Columbia tort law. Commerce Clause Grants Congress the power “to regulate commerce with foreign nations, and among the several states, and with Indian tribes” Gives the federal government authority to regulate interstate commerce within the state or substantially affects. State “Police Power” States can enact laws to protect or promote public health, safety, morals, and general welfare State and local laws cannot unduly burden interstate commerce or discriminate against interstate commerce Wisconsin law banning 55 ft. trucks while federal law banned 65 ft. trucks was unconstitutional. Incorporation Doctrine A doctrine that states that most fundamental guarantees contained in the Bill of Rights are applicable to state and local government action Bill of Rights Government cannot take away rights without reason. More fundamental the right, the stronger the reason must be. Freedom of Speech—written, spoken, and symbolic Fully protected speech Speech the government cannot prohibit or regulate due to lack of compelling reasons Limited protected speech Commercial speech—subject to proper time, place, and manner restrictions Offensive speech—subject to proper time, place, and manner restrictions Unprotected speech—no compelling reasons exist to prohibit Dangerous speech Fighting words Speech that incites the violent or revolutionary overthrow of the government Defamatory language Child pornography Obscene speech Certain sections of the Computer Decency Act were held unconstitutional limits on adult free speech. Freedom of Religion Establishment Clause Prohibits government from establishing a government sponsored religion or promoting one religion over others law must be neutral on its face (school voucher system constitutional) Free Exercise Clause Prohibits government from enacting laws that prohibit or inhibit people from participating in or practicing their chosen religion without a compelling reason Equal Protection Clause Strict scrutiny test or compelling interest test (needs compelling reason) Applied to classifications based on race Intermediate scrutiny test (needs reasonable relation to legitimate government purpose) Applied to classifications based on protected classes other than race (e.g. sex or age) Rational basis test (needs justifiable reason) Applied to classifications not involving a suspect or protected class Due Process Clause Substantive due process Requires governmental laws to be clear and not overly broad; the test is whether a reasonable person can understand the law Procedural due process Requires government to give people proper notice and hearing before depriving them of life, liberty, or property Privileges and Immunities Clause Prohibits states from enacting laws that unduly discriminate in favor of their residents when dealing with essential activities without substantial reason Relationship of Due Process and Equal Protection: Neither the State nor the Federal Government can take away someone’s rights or discriminate against someone without a good reason. The more fundamental the right or the more suspect the class the better the reason must be. Strict Scrutiny/Compelling Interest Test Intermediate Test Rational Basis Test ? ? ? used for fundamental rights used for non-fundamental rights or ? or Suspect Classes Special Classes Non-Suspect Classes ? ? ? compelling reason needed/narrowest application fair and substantial relation to important governmental objective reasonable basis needed ? ? ? e.g. religion, speech/race, religion discrimination gender discrimination education/poverty discrimination IV. Objective Questions: Terms: 1. Under the U.S. Constitution, the states delegated certain powers to the federal government. These powers are known as _______________ powers. 2. Under the U.S. Constitution, the three branches of government are given different powers. This is known as the doctrine of _______________ _______________ _________________. 3. When a state law conflicts with a federal law, the federal law takes precedent. This concept is known as the ________________ ________________. 4. The constitutional provision that addresses the issues of a national market and free trade among the states is known as the ________________ ________________. 5. The power the states retain to regulate private and business activity within their borders is the ________________ _______________. 6. Dangerous speech, defamatory language, and obscene speech are examples of _______________ ________________. 7. Examples of speech that are not prohibited under the First Amendment, but may be restricted are ________________ speech and ________________ speech. 8. The First Amendment contains two religion clauses. The _______________ ________________ prevents a state from establishing or promoting a state religion. The ________________ ________________ ________________ prohibits the government from prohibiting or inhibiting people from participating in their religion. 9. Although the freedom is not absolute, the ________________ is the only business given explicit constitutional protection. 10. The Fourteenth Amendment's Due Process Clause has two categories of due process; _______________ due process and ________________ due process. True/False: 1. ____ The Bill of Rights was part of the U.S. Constitution as originally adopted in 1787. 2. ____ The federal government has the exclusive right to regulate foreign commerce. 3. ____ If a state’s law is in its best interest, it can preempt any relevant federal law. 4. ____ All provisions of the Bill of Rights are applicable only to the federal government. 5. ____ The Freedom of Speech Clause extends to protect both speech and conduct. 6. ____ Offensive speech, like obscene speech, can be forbidden under the First Amendment. 7. ____ Commercial speech can never be restricted under the First Amendment. 8. ____ Government action that "impacts" on religion, but does not "promote" it is valid. 9. ____ The requirements of the Due Process Clause apply to both state and federal government, but never to private individuals. 10. ____ The U.S. Supreme Court uses different standards when reviewing equal protection cases, depending on the classification affected. 11. ____ All countries of the world are democracies. Multiple Choice: 1. The federal government is given the power to set international trade policies in the U.S. Constitution under which doctrine or clause? A. Doctrine of Separation of Powers. B. Commerce Clause. C. Preemption Doctrine. D. Supremacy Clause. 2. Under the Miller v. California standard for determining whether speech is obscene, there is a three-part test that is analyzed from the viewpoint of: A. An objective standard. B. The person who produced the allegedly obscene speech. C. The person who is offended by the obscene material. D. Contemporary community standards. 3. If the government believes certain offensive language is inappropriate to air on a television program, the government: A. Can do nothing; even though it is offensive, it is completely protected by the First Amendment. B. Can completely ban the speech since offensive language is like obscene language and can be entirely forbidden. C. Can regulate the language, restricting it to certain times the language can be aired. D. Can use its discretion to do any of the above. 4. If the government believes certain commercial speech should be regulated, the government must: A. Prove a substantial interest in restricting the speech. B. Prove the restriction advances the government's interest. C. Prove the restrictions are not more extensive than necessary. D. All of the above. 5. Ian Informant calls Janet Journalism at the Daily Reporter to tip her off about a scandalous politician. Janet meets with Ian and writes a very controversial story on the politician. Assume a lawsuit arises under a state law and this state has a "shield law." A. Janet and the Daily Reporter are not protected by the First Amendment because a journalist can never write detrimental articles about politicians. B. Janet and the Daily Reporter are protected by the First Amendment and cannot be forced to reveal that Ian was the source because of the shield law. C. Janet and the Daily Reporter are protected by the First Amendment but can be forced to reveal that Ian was the source. D. None of the above. 6. Assume the same facts as in question 5 except that the suit is brought under a law allowing federal prosecution. A. Janet and the Daily Reporter are not protected by the First Amendment because a journalist can never write detrimental articles about politicians. B. Janet and the Daily Reporter are protected by the First Amendment and cannot be forced to reveal that Ian was the source because of the shield law. C. Janet and the Daily Reporter are protected by the First Amendment but can be forced to reveal that Ian was the source. D. None of the above. 7. State X passes a law requiring all Caucasian citizens to pay an additional fee of $20 when applying for a driver's license. In examining the constitutionality of this requirement, the Supreme Court is likely to use which standard? A. Strict scrutiny. B. Intermediate scrutiny. C. Rational basis. D. Any of the above. 8. State X passes a law requiring that all lifeguards hired for public swimming pools must be men. In examining the constitutionality of this law, the Supreme Court is likely to use which standard? A. Strict scrutiny. B. Intermediate scrutiny. C. Rational basis. D. Any of the above. 9. Patron Paul is thrown in jail by the police for thirty days without a hearing for allegedly punching Customer Carl at the Big Bear Bar. Have the police violated any constitutional provisions? A. No, because Carl told the police what happened, so the procedural due process requirement has been met. B. No, because a reasonable person could understand it is illegal to injure someone else, so the substantive due process requirement has been met. C. Yes, because procedural due process requires a notice and a hearing. D. Yes, because a law against punching someone in a bar violates substantive due process. 10. Competitive Car Company lobbies several Congress members to pass a law giving U.S. car companies a tax break. Is this action protected under the Constitution? A. Yes, it is protected by the freedom to petition. B. No, the freedom to petition only protects individuals, not companies. C. No, this issue is governed by the individual states. D. None of the above. Constitution Exercise: Name the clause from the constitution that is relevant for handling the cases listed below: Arizona statute suspends driver’s license for someone who can’t pay judgments while Federal Bankruptcy Law exists__________________ Alaskan statute requires that owners of Alaskan oil leases must hire Alaskans__________________ Federal Driver’s Privacy Protection Act prohibits states from selling personal information without consent____________________ Maryland statute stated that producers or refiners of petroleum products were not permitted to operate retail service stations in Maryland____________________ Federal Telecommunication Act of 1996 prohibits state and local governments from blocking entry into telecommunications industry____________________ Wheat grown by a farmer for home consumption can be regulated by the Federal Government____________________ The Telecommunications Act of 1996 requires cable operators not to transmit sexually explicit materials from 6AM to 10PM if signal bleed can occur____________________ Federal Communications Commission regulations prohibit the broadcast of gambling and lottery information over radio and television______________________ State high school policy permitting students of the high school to elect a student to give invocations over the public loud speaker at football games___________________________ V. Answers to Objective Questions: Terms: 1. Enumerated. These powers are expressly named or granted to the federal government by the Constitution. 2. Separation of powers. Under this doctrine, one branch is not permitted to encroach upon the domains of the other two branches. 3. Preemption doctrine. If certain matters are considered of national importance and the federal government has addressed the issue, states may not pass laws that are inconsistent with federal law. Federal law takes precedence over state law. 4. Commerce Clause. This provision is found in Article I, Section 8, Clause 3 of the U.S. Constitution and is the cornerstone of an enormous amount of exclusive legislative and regulatory power over interstate commerce by the federal government. 5. Police power. Based on the Tenth Amendment to the U.S. Constitution, the authority to secure the general health, safety, welfare and morals within their boundaries is conferred upon the states. 6. Unprotected speech. These are all forms of expression that have been found in varying degrees to be unprotected by the freedom of speech rights guaranteed by the First Amendment to the U.S. Constitution. 7. Offensive, commercial. Both of these forms of speech enjoy limited protection under the 1st Amendment. As such, they may not be totally barred, but are subject to restrictions on a case-by-case basis. 8. Establishment Clause, Free Exercise Clause. While not seeking to establish an “official” state religion, our system seeks to strongly protect the individual’s right to practice his or her own religious beliefs. 9. Press. Our founders appreciated the necessity for a free and open press. The press is sometimes called the “Fourth Estate.” 10. Substantive, procedural. Substantive goes to content, and procedural goes to application. In both cases, constitutional guarantees are sought to be meaningful in both context and application. They are based on the Fifth and Fourteenth Amendments. True/False: 1. False. The Bill of Rights was not part of the original Constitution and was not adopted until 1791. 2. True. The Commerce Clause of the U.S. Constitution grants the federal government the exclusive right to regulate commerce with foreign countries. 3. False. Under the Supremacy Clause of the U.S. Constitution, federal laws, treaties, and regulations are the supreme laws and may preempt any conflicting state laws. 4. False. Through the incorporation doctrine, the Supreme Court has held that most provisions of the Bill of Rights apply to the states as well as to the federal government. 5. False. The Freedom of Speech Clause protects oral, written, and symbolic speech, but not conduct. 6. False. Offensive speech can be restricted by the government, but cannot be completely forbidden. 7. False. Commercial speech, like offensive speech, can be subject to certain time, place, and manner restrictions. 8. True. Under the Establishment Clause, the government can impact on religion with laws that have a secular, as opposed to a religious, purpose. 9. True. The Due Process Clause imposes no duty on private individuals. 10. True. Depending on the classification that a given law may impact, the Court may apply a strict scrutiny, intermediate scrutiny, or rational basis test. 11. False. Kingdom of Nepal is a monarchy. Multiple Choice: 1. B. The Commerce Clause gives the federal government the exclusive power to establish and regulate international trade. 2. D. The Court in Miller set out a three-part test that requires application of "contemporary community standards" in determining whether certain speech appeals to prurient interest, is patently offensive, or has any social value. 3. C. Offensive speech has limited protection under the 1st Amendment. The government cannot forbid such speech, but can restrict it in certain ways. 4. D. For the government to be allowed to restrict commercial speech, it must prove A, B, and C. This is because commercial speech has limited protection under the 1st Amendment. Therefore, the government bears some burden in showing restriction of such speech is justified. 5. B. The press is the only business granted express protection under the First Amendment. Therefore, as long as Janet and the Daily Reporter act within the law, this speech is protected. The state's shield law protects Janet from having to divulge that Ian was the informant. However, this protection is not derived from the 1st Amendment. A is incorrect because the First Amendment does protect such speech provided it does not violate another law. C is incorrect because the shield law protects Janet's informants. 6. C. State shield laws only protect the press under state law. If a suit is brought under a federal law, the First Amendment protects the speech, but not Ian's identity. A is incorrect because the 1st Amendment does generally protect such speech. B is incorrect because the shield law is not effective in a federal court. 7. A. This law classifies persons based on race, which is a suspect class. Therefore, strict scrutiny would be the appropriate test. B is incorrect because intermediate scrutiny is used for other protected classes such as sex, age, or national heritage. C is incorrect because rational basis applies when the classification is neither suspect or protected. 8. B. Because this classification is based on gender, the appropriate test is intermediate scrutiny. A is incorrect because strict scrutiny is generally used for the suspect class of race. C is incorrect because rational basis applies when the classification is neither suspect or protected. 9. C. Regardless of the facts of this punching incident, Paul is entitled to notice and a hearing before he is jailed. A is incorrect because Carl's recitation of the facts does not satisfy the procedural due process requirement of a notice and hearing. B is incorrect because even if substantive due process is satisfied, this alone is not enough to put Paul in jail. D is incorrect because such a law does not violate substantive due process. However, procedural due process must also be satisfied. 10. A. The freedom to petition applies to both individuals and businesses. C is incorrect because the states must provide their citizens this freedom under the 1st Amendment. Constitution Exercise: Supremacy Clause. Frustrated federal law without the intent to do so. Privileges and Immunities Clause. Unconstitutionally bars essential activities without substantial reason. Commerce Clause. Reno v. Condon, Information is an item in interstate commerce. Commerce Clause. Exxon v. Governor of Maryland, Constitutional since no undue burden on commerce or no discrimination. Supremacy Clause. Conflicting laws preempted. Commerce Clause. Wickard v. Filburn, Affects wheat available in interstate commerce. Freedom of Speech. U.S. v. Playboy, Unconstitutional as an overly broad restriction on content-based speech. Freedom of Speech. Greater New Orleans Broadcasting Association, Inc. v. U.S., Rules violate commercial free speech rules since ads are not misleading or about unlawful activities. Establishment Clause. Santa Fe Independent School District v. Jane and John Doe, State affirmatively sponsoring a particular religious practice violates Establishment Clause. VI. Answers to Essay Question: The issue of the regulation and control of the sale of alcoholic products has had a long and controversial history in the U.S. In 1919, Congress passed the Eighteenth Amendment to the U.S. Constitution that banned the manufacture, sale, or transportation of intoxicating liquors in the U.S. After years of futile efforts to enforce this ban, the Eighteenth Amendment was repealed in 1933 by the Twenty-First Amendment to the U.S. Constitution. As part of the repeal of the Eighteenth Amendment, Section 2 of the Twenty-First Amendment allowed state and local jurisdictions the option to regulate the transportation, importation, or possession of intoxicating liquors within their jurisdictions. Because the Twenty-First Amendment specifically gave states local options over the control and regulation of the sale of intoxicating liquors, it appears that the Texas Liquor Board does have the presumptive power to act on this issue. In addition, traditional police powers to protect the health, safety, and morals of its citizens are also entrusted to state and local authorities. States have very broad powers regarding the control of intoxicating products, as was seen in the Capital Cities Cable Case, but this power is not absolute. There is an expectation by the federal government that any exercise of the local option power of liquor control will be suspect and preempted by the national goals of free commerce required by the Commerce Clause. Thus, even though the state may be the first to act in these types of cases, it may not always have the last word in these matters. In addition to concerns over power-sharing between national and state governments in cases involving the sale of intoxicating commercial products, we have a possible “larger” issue--that of free speech. Any attempt to limit free speech, albeit by a commercial entity rather than a private person, is always subject to great scrutiny by the courts. This question was based on a real incident that occurred in Texas in 1991. The Dixie Brewing Co. of New Orleans sought to market a beer in Texas called “Blackened Voodoo Lager.” The Texas liquor authorities sought to ban the product because it believed the lager would promote occult practices. It later rescinded the proposed ban for fear of legal challenges. Those challenges would most likely have been made on the grounds of commercial free speech and interference with the free flow of goods in interstate commerce. At a minimum, the state of Texas would have the burden of proof in showing that the sale of this product would damage the health, safety, morals, and welfare of its citizens as required under the use of its state police powers.