Notes and Study Outline for

Assignment 4

 

The Constitution and Business

Administrative Regulation

 

Introduction

The constitution plays a major role in the legal environment of business. We have already examined one key example, personal jurisdiction. In this chapter, we well explore three other important examples: the commerce clause, the bill of rights and due process of law. Try to take a business perspective as you read about and discuss these issues. Remember that corporations are "persons" under the constitution.

 

I. The Commerce Clause

 

"Congress shall have the power to regulate Commerce with foreign Nations, and among the several states, and with the Indian Tribes; U. S. Const. Art. I, Sec. 8 [3].

 

• What is "interstate commerce"?’

 

As the Constitutional provision above suggests, Congress (and generally the federal government) has the power to regulate interstate commerce. This provision does not grant Congress the exclusive regulatory power over interstate commerce; states, as you will see, may concurrently regulate interstate activities. However, defining "interstate commerce" is very important. How far can the federal government go in regulating this area? For example, does a federal minimum wage law extend all the way down to your small janitorial services business in Norman? Are you compelled to follow the Occupational Safety and Health Act? What about the Civil Rights Act of 1964? Does it extend to a small barbeque café in Montgomery, Alabama? And, what about the Federal Control Substances Act (FCSA)?  Among the drugs regulated and prohibited under that act is marijuana. So, can the federal government restrict local growers of marijuana that can show that they sell only to in state retailers?   Here's a synthesis definition of interstate commerce based on U.S. Supreme Court decisions.

 

1.      Interstate commerce is interstate commerce!! i.e. when people, goods or services cross state lines for commercial reasons.

2.      Interstate commerce is intrastate commerce that substantially affects interstate commerce (civil rights, Perez etc.)

3.      Interstate commerce is intrastate commerce that, when viewed collectively, substantially affects interstate commerce.

 

• May States also Regulate Interstate Commerce?

Concurrent regulation/States' Police Powers

 

Under the 10th Amendment, all those powers not delegated to the Federal Government are retained by the states. The U.S. Supreme Court has labeled these retained powers Police Powers - the power to promote the health, welfare and safety of the people within that state. Key question: What are the constitutional constraints on State regulation (exercise of its police powers) over interstate commerce?

 

1. Federal Supremacy - "The Constitution, and the Laws of the United States...shall be the supreme Law of the Land: and the judges in every State shall be bound thereby..." (U.S. Constitution, Article 6) Therefore, state law may not contradict federal law.
2. Discrimination - Neither may state law discriminate against interstate commerce by, for example, giving preference to in-state citizens/businesses, unless the state can demonstrate a compelling and legitimate reason for such discrimination. States cannot place lower tax burdens or more stringent regulations on resident than on nonresident businesses. What about in-state v. out-of-state tuition differences?
3. Undue Burden - Finally, state rules cannot impose an undue burden on interstate commerce. What if a state can demonstrate that its law or regulation does promote the health, welfare, and safety of the people within the state? Does that insure the constitutionality of that law?

 

• State Taxation of Interstate Businesses

(an integration of Commerce Clause issues)

 

To what extent may states constitutionally tax businesses operating in interstate commerce?

 

1. The tax must be fairly apportioned; e.g. a state income tax may identify and tax that income derived from a firm's intrastate activities only.
2. There must be a physical nexus by the taxed entity within the taxing state. Question: Must the physical nexus relate to the state's tax? What about mail-order operations such as Lands End, Cabella's, L.L. Bean? What about internet accessible firms?
3. The tax cannot discriminate; i.e. a state cannot place a greater burden on out-of-state v. in-state firms.

 

For the Supreme Court's most recent pronouncement concerning a state's ability to impose sales or use taxes on interstate businesses, See Quill Corp. v. Heitkamp: Quill Corporation Case

           

Should the internet be subject to or free from taxation? Besides the federal or state governments, who would want to impose taxes on internet operations? 

 

II. The Bill of Rights and Business - A very Brief History of the Bill of Rights - The Bill of Rights was not part of the original constitution, but rather represented a compromise between the federalists (those favoring a strong central government) and the anti-federalists (those who conceded the need for a stronger central government than under the Articles of Confederation but were wary of unrestrained national power). Anti-federalists (Jefferson, Madison) were willing to support the new constitution, but only if the federalists (Marshall, Jay) were willing to support the later adoption of the Bill of Rights, which constrained federal power (e.g. 1st Amend.: Congress shall make no law..."). Important Note: The Bill of rights constrains governmental, not private action. It constrains federal action and, because of the Incorporation Doctrine, an evolving interpretation of the 14th Amendment, also constrains state actions (i.e. the 1st, 4th, 5th, 6th, 8th, and 9th Amendments, although they are addressed to the federal government, have been extended through evolving judicial interpretation to the states).

 

• Freedom of Expression - "Congress shall make no law...abridging freedom of speech or of the press." U.S. Const. Amendment I. 

 

Government can ban misleading commercial speech.  Government may regulate truthful commercial speech if its interest in regulating is substantial, its regulation directly and materially advances the government’s interest, and  if the means of regulation is no more restrictive than necessary to achieve the regulatory goal.  Coors Brewing Co. asked the Bureau of Alcohol, Tobacco and Firearms to approval the company's plan to put the alcohol content of its beer on the label. The agency refused, citing a federal law that prohibited this disclosure. Coors claimed that this law violated its 1st Amendment rights.

Why would Coors want to provide this information on its product's labels?

Why would federal law prohibit this?

                        For the result, see Rubin v. Coors Brewing Co.

Ever heard about Bad Frog beer? Is this protected speech?

http://www.badfrog.com/

 

III. Due Process of Law

 

Historical Introduction - "[No person shall] be deprived of life, liberty, or property without due process of law; U.S. Const. Amendment V. "...nor shall any State deprive any person of life, liberty, or property, without due process of law"; U.S. Const. Amendment XIV. Remember, we've already applied the fundamental fairness requirement of due process to personal jurisdiction cases ("minimum constitutional contacts")

Procedural Due Process - Neither the federal (5th) nor the state (14th) government can deprive a person of life, liberty or property without due process of law. Generally means that such deprivation must be preceded by:

1. Notice - actual notice is presumptively required with limited exceptions.  Fair hearing - right to an impartial forum and to confront adverse witnesses.
2. What does procedural due process mean in criminal cases? civil cases? administrative proceedings?
3. An application: Creditor repossession of collateral when the Debtor defaults (state replevin/sequestration laws).

 

Administrative Regulation

 

·         Introduction

 

Administrative agencies play an important role in the activities of businesses and some individuals. At the federal level, organizations such as the Federal Trade commission, Environmental Protection Agency, National Labor Relations Board and Equal Employment Opportunity Commission play major roles in the regulatory environment. State and local agencies such as Health Departments, Workers' Compensation Boards, and Corporation Commissions do the same at the state level.

 

·         What Are the Basic Elements of Administrative Law?

 

 

Powers / Limits on Powers

The Typical Agency

            Rule Making	            Enforcement	            Adjudicating
Power to make rules, consistent with delegated mandate; must publish proposed rules in Federal Register; Public hearings required.	Power to enforce rules; investigate, impose civil fines, issue cease and desist orders, enjoin activities, etc.	Has quasi-judicial function; conducts hearings; makes decisions on facts and rules; respondents must exhaust all remedies within agency before taking issue to court.

 

[Note.] The powers noted above vary among agencies; however, it is important to note that most federal administrative agencies enjoy the powers that the constitution scrupulously divided among the three branches of government.

 

• The Exhaustion Doctrine (see adjudication above) - Any individual affected by an administrative action who wishes to contest that action must first exhaust all remedies within the agency before seeking judicial review. (sometimes called the "teeth" of administrative regulation). Exceptions: constitutional issues, irreparable harm.

 

• Limits on Administrative Power

 

1. Fiscal - always subject to legislative allocative decisions.
2. Political - powers given can be usurped by creator. Public can acquire access to most documents through Freedom of Information Act.
3. Legal - constrained by constitution, Administrative Procedures Act, enabling legislation and judicial review (see #4)
4. Judicial Review - Courts may review agencies' actions. Limited.

 

 

Attachments:

• 1508782104-Handout 6.docx