The Constitution

The Constitution provides the legal framework for our nation. The articles of the Constitution set out the basic structure of our government and the respective roles of the state and federal governments. The Amendments to the Constitution, especially the first 10, were primarily designed to establish and protect individual rights.

Federalism

Underlying the system of government established by the Constitution is the principle of  federalism , which means that the authority to govern is divided between two sovereigns or supreme lawmakers. In the United States, these two sovereigns are the state and federal governments. Federalism allocates the power to control local matters to local governments. This allocation is embodied in the U.S. Constitution. Under the Constitution, all powers that are neither given exclusively to the federal government nor taken from the states are reserved to the states. The federal government has only those powers granted to it in the Constitution. Therefore, whenever federal legislation that affects business is passed, the question of the source of authority for that regulation always arises. The Commerce Clause is the predominant source of authority for the federal regulation of business, as we will see later.

federalism

A system of government in which power is divided between a central authority and constituent political units.

Critical Thinking About The Law

The Constitution secures numerous rights for U.S. citizens. If we did not have these rights, our lives would be very different. Furthermore, businesses would be forced to alter their practices because they would not enjoy the various constitutional protections. As you will soon learn, various components of the Constitution, such as the Commerce Clause and the Bill of Rights, offer guidance and protection for businesses. The following questions will help sharpen your critical thinking about the effects of the Constitution on business.

1. One of the basic elements in the Constitution is the separation of powers in the government. What ethical norm would guide the framers’ thinking in creating a system with a separation of powers and a system of checks and balances?

Clue:  Consider what might happen if one branch of government became too strong.

2. If the framers of the Constitution wanted to offer the protection of unrestricted speech to citizens and businesses, what ethical norm would they view as most important?

Clue:  Return to the list of ethical norms in  Chapter 1 . Which ethical norm might the framers view as least important in protecting unrestricted speech?

3. Why should you, as a future business manager, be knowledgeable about the basic protections offered by the Constitution?

Clue:  If you were ignorant of the constitutional protections, how might your business suffer?

In some areas, the state and federal governments have concurrent authority; that is, both governments have the power to regulate the matter in question. This situation arises when authority to regulate in an area has been expressly given to the federal government by the Constitution. In such cases, a state may regulate in the area as long as its regulation does not conflict with any federal regulation of the same subject matter. A conflict arises when a regulated party cannot comply with both the state and the federal laws at the same time. When the state law is more restrictive, such that compliance with the state law is automatically compliance with the federal law, the state law will usually be valid. For example, as discussed in  Chapter 22 , in many areas of environmental regulation, states may impose much more stringent pollution-control standards than those imposed by federal law.

Supremacy Clause

The outcome of conflicts between state and federal laws is dictated by the  Supremacy Clause . This clause, found in Article VI of the Constitution, provides that the Constitution, laws, and treaties of the United States constitute the supreme law of the land, “any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” This principle is known as the principle of  federal supremacy : Any state or local law that directly conflicts with the federal Constitution, laws, or treaties is void. Federal laws include rules promulgated by federal administrative agencies.  Exhibit 5-1  illustrates the application of the Supremacy Clause to state regulation.

Supremacy Clause

Provides that the U.S. Constitution and all laws and treaties of the United States constitute the supreme law of the land; found in Article VI.

federal supremacy

Principle declaring that any state or local law that directly conflicts with the federal Constitution, laws, or treaties is void.

Federal Preemption

The Supremacy Clause is also the basis for the doctrine of  federal preemption . This doctrine is used to strike down a state law that, although it does not directly conflict with a federal law, attempts to regulate an area in which federal legislation is so pervasive that it is evident that the U.S. Congress wanted only federal regulation in that general area. It is often said in these cases that federal law

Exhibit 5-1 Application of the Supremacy Clause to state Regulation

“preempts the field.” Cases of federal preemption are especially likely to arise in matters pertaining to interstate commerce, such as when a local regulation imposes a substantial burden on the flow of interstate commerce through a particular state. This situation is discussed in some detail in the section on the Commerce Clause.

federal preemption

Constitutional doctrine stating that in an area in which federal regulation is pervasive, state legislation cannot stand.

Separation of Powers

The U.S. Constitution, in its first three articles, establishes three independent branches of the federal government, each with its own predominant and independent power. These three are the legislative, executive, and judicial branches. Each branch was made independent of the others and was given a separate sphere of power to prevent any one source from obtaining too much power and consequently dominating the government.

The doctrine of  separation of powers  calls for Congress, the legislative branch, to enact legislation and appropriate funds. The president is commander-in-chief of the armed forces and is also charged with ensuring that the laws are faithfully executed. The judicial branch is charged with interpreting the laws in the course of applying them to particular disputes. No member of one branch owes his or her tenure in that position to a member of any other branch; no branch can encroach on the power of another. This system is often referred to as being a system of checks and balances; that is, the powers given to each branch operate to keep the other branches from being able to seize enough power to dominate the government.  Exhibit 5-2  provides a portrait of this system.

separation of powers

Constitutional doctrine whereby the legislative branch enacts laws and appropriates funds, the executive branch sees that the laws are faithfully executed, and the judicial branch interprets the laws.

Despite this delicate system of checks and balances, on numerous occasions a question has arisen as to whether one branch was attempting to encroach on the domain of another. This situation arose in an unusual context: a sexual harassment charge against President Bill Clinton.

 Case 5-1 William Jefferson Clinton v. Paula Corbin Jones

Supreme Court of the United States 520 U.S. 681 (1997)

Plaintiff Paula Jones filed a civil action against defendant (sitting) President Bill Clinton, alleging that he made “abhorrent” sexual advances. She sought $75,000 in actual damages and $100,000 in punitive damages.

Defendant Clinton sought to dismiss the claim on the ground of presidential immunity, or, alternatively, to delay the proceedings until his term of office had expired.

The district court denied the motion to dismiss and ordered discovery to proceed, but it also ordered that the trial be stayed until the end of Clinton’s term. The court of appeals affirmed the denial of the motion to dismiss and reversed the stay of the trial. President Clinton appealed to the U.S. Supreme Court.

Justice Stevens

Petitioner’s principal submission—that “in all but the most exceptional cases,” the Constitution affords the President temporary immunity from civil damages litigation arising out of events that occurred before he took office—cannot be sustained on the basis of precedent.

Only three sitting presidents have been defendants in civil litigation involving their actions prior to taking office. Complaints against Theodore Roosevelt and Harry Truman had been dismissed before they took office; the dismissals were affirmed after their respective inaugurations. Two companion cases arising out of an automobile accident were filed against John F. Kennedy in 1960 during the Presidential campaign. After taking office, he unsuccessfully argued that his status as Commander in Chief gave him a right to a stay. The motion for a stay was denied by the District Court, and the matter was settled out of court. Thus, none of those cases sheds any light on the constitutional issue before us.

The principal rationale for affording certain public servants immunity from suits for money damages arising out of their official acts is inapplicable to unofficial conduct. In cases involving prosecutors, legislators, and judges we have repeatedly explained that the immunity serves the public interest in enabling such officials to perform their designated functions effectively without fear that a particular decision may give rise to personal liability.

That rationale provided the principal basis for our holding that a former president of the United States was “entitled to absolute immunity from damages liability predicated on his official acts.” Our central concern was to avoid rendering the President “unduly cautious in the discharge of his official duties.”

This reasoning provides no support for an immunity for unofficial conduct. . . . “[T]he sphere of protected action must be related closely to the immunity’s justifying purposes.” But we have never suggested that the President, or any other official, has an immunity that extends beyond the scope of any action taken in an official capacity.

Moreover, when defining the scope of an immunity for acts clearly taken within an official capacity, we have applied a functional approach. “Frequently our decisions have held that an official’s absolute immunity should extend only to acts in performance of particular functions of his office.” Petitioner’s strongest argument supporting his immunity claim is based on the text and structure of the Constitution. The President argues for a postponement of the judicial proceedings that will determine whether he violated any law. His argument is grounded in the character of the office that was created by Article II of the Constitution and relies on separation-of-powers principles.

As a starting premise, petitioner contends that he occupies a unique office with powers and responsibilities so vast and important that the public interest demands that he devote his undivided time and attention to his public duties. He submits that—given the nature of the office—the doctrine of separation of powers places limits on the authority of the Federal Judiciary to interfere with the Executive Branch that would be transgressed by allowing this action to proceed.

We have no dispute with the initial premise of the argument. We have long recognized the “unique position in the constitutional scheme” that this office occupies.

It does not follow, however, that separation-of-powers principles would be violated by allowing this action to proceed. The doctrine of separation of powers is concerned with the allocation of official power among the three coequal branches of our Government. The Framers “built into the tripartite Federal Government . . . a self-executing safeguard against the encroachment or aggrandizement of one branch at the expense of the other.” Thus, for example, the Congress may not exercise the judicial power to revise final judgments, or the executive power to manage an airport.

. . . [I]n this case there is no suggestion that the Federal Judiciary is being asked to perform any function that might in some way be described as “executive.” Respondent is merely asking the courts to exercise their core Article III jurisdiction to decide cases and controversies. Whatever the outcome of this case, there is no possibility that the decision will curtail the scope of the official powers of the Executive Branch. The litigation of questions that relate entirely to the unofficial conduct of the individual who happens to be the President poses no perceptible risk of misallocation of either judicial power or executive power.

Rather than arguing that the decision of the case will produce either an aggrandizement of judicial power or a narrowing of executive power, petitioner contends that—as a by-product of an otherwise traditional exercise of judicial power—burdens will be placed on the President that will hamper the performance of his official duties. We have recognized that “[e]ven when a branch does not arrogate power to itself . . . the separation-of-powers doctrine requires that a branch not impair another in the performance of its constitutional duties.” As a factual matter, petitioner contends that this particular case—as well as the potential additional litigation that an affirmance of the Court of Appeals judgment might spawn—may impose an unacceptable burden on the President’s time and energy and thereby impair the effective performance of his office.

Petitioner’s predictive judgment finds little support in either history or the relatively narrow compass of the issues raised in this particular case. If the past is any indicator, it seems unlikely that a deluge of such litigation will ever engulf the presidency. As for the case at hand, if properly managed by the District Court, it appears to us highly unlikely to occupy any substantial amount of petitioner’s time.

Of greater significance, petitioner errs by presuming that interactions between the Judicial Branch and the Executive, even quite burdensome interactions, necessarily rise to the level of constitutionally forbidden impairment of the Executive’s ability to perform its constitutionally mandated functions. Separation of powers does not mean that the branches “ought to have no partial agency in, or no control over the acts of each other.” The fact that a federal court’s exercise of its traditional Article III jurisdiction may significantly burden the time and attention of the Chief Executive is not sufficient to establish a violation of the Constitution. Two long-settled propositions . . . support that conclusion.

First, we have long held that when the President takes official action, the Court has the authority to determine whether he has acted within the law. Perhaps the most dramatic example of such a case is our holding that President Truman exceeded his constitutional authority when he issued an order directing the Secretary of Commerce to take possession of and operate most of the Nation’s steel mills, in order to avert a national catastrophe. 1

1  Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952).

Second, it is also settled that the President is subject to judicial process in appropriate circumstances. We . . . held that President Nixon was obligated to comply with a subpoena commanding him to produce certain tape recordings of his conversations with his aides. As we explained, “neither the doctrine of separation of powers, nor the need for confidentiality of high-level communications, without more, can sustain an absolute, unqualified presidential privilege of immunity from judicial process under all circumstances.”

Sitting Presidents have responded to court orders to provide testimony and other information with sufficient frequency that such interactions between the Judicial and Executive Branches can scarcely be thought a novelty. President Ford complied with an order to give a deposition in a criminal trial, and President Clinton has twice given videotaped testimony in criminal proceedings.

“[I]t is settled law that the separation-of-powers doctrine does not bar every exercise of jurisdiction over the President of the United States.” If the Judiciary may severely burden the Executive Branch by reviewing the legality of the President’s official conduct, and if it may direct appropriate process to the President himself, it must follow that the federal courts have power to determine the legality of his unofficial conduct. The burden on the President’s time and energy that is a mere by-product of such review surely cannot be considered as onerous as the direct burden imposed by judicial review and the occasional invalidation of his official actions. We therefore hold that the doctrine of separation of powers does not require federal courts to stay all private actions against the President until he leaves office. *

*  William Jefferson Clinton v. Paula Corbin Jones, Supreme Court of the United States 520 U.S. 681 (1997). https://www.law.cornell.edu/supct/html/95-1853.ZO.html.

Reversed in part. Affirmed in part in favor of Respondent, Jones.

Comment:

After this case was sent back for trial on the merits, the case was ultimately dismissed on April 1, 1998, on a motion for summary judgment on the ground that the plaintiff’s allegations, even if true, failed to state a claim of criminal sexual assault or sexual harassment. It is ironic that despite the high court’s claim that the case would be “highly unlikely to occupy any substantial amount of the petitioner’s time,” matters arising out of this case managed to occupy so much of the president’s time and become such a focus of a media frenzy that many people were calling for the media to reduce coverage of the issues so the president could do his job. 2

2  Jones v. Clinton and Danny Ferguson, 12 F. Supp. 2d 931 (E.D. Ark. 1998).

Linking Law and Business Finance

The principle behind the separation of powers in government is also modeled in another realm of business. In your accounting class, you learned that internal controls are the policies and procedures used to create a greater assurance that the objectives of an organization will be met. One feature of internal controls is the separation of duties. This feature calls for the functions of authorization, recording, and custody to be exercised by different individuals. The likelihood of illegal acts by employees is reduced when the responsibility of completing a task is dependent on more than one person. If there are three people responsible for carrying out a particular task, then each person acts as a deterrent to the other two in regard to the possibility of embezzlement by one or more employees. Therefore, the chance of dishonest behavior is minimized when employees act as a check on the other employees involved in striving to meet organizational objectives

Exhibit 5-2 System of Checks and Balances

Cases like Jones v. Clinton are not common. The reason is not that each branch generally operates carefully within its own sphere of power. Rather, the explanation lies in the fact that because it is difficult to determine where one branch’s authority ends and another’s begins, each branch rarely challenges the power of its competing branches. The powers of each branch were established so that, although the branches are separate and independent, each branch still influences the actions of the others and there is still a substantial amount of interaction among them. You can review this system by examining  Exhibit 5-2 .

The Impact of the Commerce Clause on Business

The Commerce Clause as a Source of Federal Authority

The primary powers of Congress are listed in Article I of the Constitution. It is important to remember that Congress has only limited legislative power. Congress possesses only that legislative power granted to it by the Constitution. Thus, all acts of Congress not specifically authorized by the Constitution or necessary to accomplish an authorized end are invalid.

The  Commerce Clause  provides the basis for most of the federal regulation of business today. This clause empowers the legislature to “regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” Early in our history, the Supreme Court was committed to a laissez-faire ideology, an ideology that was grounded in individualism. A narrow interpretation of the Commerce Clause means that only a limited amount of trade or exchange can be regulated by Congress.

Commerce Clause

Empowers Congress to regulate commerce with foreign nations, with Indian tribes, and among the states; found in Article I.

Under the Court’s initial narrow interpretation, the Commerce Clause was interpreted to apply only to the transportation of goods. Manufacturing of goods, even of goods that were going to be sold in another state, was not considered to have a direct effect on interstate commerce and, thus, was not subject to federal regulation. Businesses conducted solely in one state were similarly excluded from the authority of Congress. Under this restrictive interpretation, numerous federal regulations, such as laws attempting to regulate the use of child labor in manufacturing plants,3 were struck down.

3  Hammer v. Dagenhart, 247 U.S. 251 (1918).

During the 1930s, the Supreme Court’s interpretation of the Commerce Clause was broadened to allow a greater scope for federal regulations. In NLRB v. Jones & Laughlin Steel Corp.,4 for example, the Court said that:

4  301 U.S. 1 (1937).

Although activities may be intrastate in character when separately considered, if they have such a close and substantial relationship to interstate commerce that their control is essential or appropriate to protect that commerce from burdens or obstructions, Congress cannot be denied the power to exercise that control. *

*  NLRB v. Jones & Laughlin Steel Corp, 301 U.S. 1 (1937). https://supreme.justia.com/cases /federal/us/301/1/case.html.

Over the next several decades, the Supreme Court continued to expand Congress’s power under the Commerce Clause to regulate intrastate activities that affect interstate commerce. For example, in Perez v. United States, 5 loan-sharking, conducted on a local basis, was deemed to affect interstate commerce because of its connection to organized crime on a national scale, as the funds from loan-sharking help to pay for crime across the United States. According to the subsequent ruling in International House of Pancakes v. Theodore, 6  a locally owned and operated franchise located near two interstates and three hotels qualifies the restaurant as related to interstate commerce and thus subject to the Americans with Disabilities Act. This expansive view continued with United States v. Lake, 7  in which the court ruled that a locally operated coal mine that sells its coal locally and buys its supplies locally can still be subjected to federal regulations (Federal Mine Safety and Health Act) because the local activities of all coal mines help to influence the interstate market for coal.

5  402 U.S. 146 (1971).

6  844 F. Supp. 574 (S.D. Cal. 1993).

7  985 F.2d 265 (6th Cir. 1995).

As these cases illustrate, during most of the twentieth century, almost any activity, even if purely intrastate, could be regulated by the federal government if it substantially affected interstate commerce. The effect may be direct or indirect, as the U.S. Supreme Court demonstrated in the classic 1942 case of Wickard v. Filburn,8 when it upheld federal regulation of the production of wheat on a farm in Ohio that produced only 239 bushels of wheat solely for consumption on the farm. The Court’s rationale was that even though one wheat farmer’s activities might not matter, the combination of a lot of small farmers’ activities could have a substantial impact on the national wheat market. This broad interpretation of the Commerce Clause has made possible much of the legislation covered in other sections of this book.

8  317 U.S. 111 (1942).

Since the mid-1990s, however, the Supreme Court has appeared to be scrutinizing congressional attempts to regulate based on the Commerce Clause a little more closely. In the 1995 case of United States v. Lopez,9 the U.S. Supreme Court found that Congress had exceeded its authority under the Commerce Clause when it passed the Gun-Free School Zone Act, a law that banned the possession of guns within 1,000 feet of any school. The Court found the statute to be unconstitutional because Congress was attempting to regulate in an area that had “nothing to do with commerce, or any sort of economic enterprise.” At first, commentators did not see this case, decided in a 5–4 vote, as a major shift in the Supreme Court’s Commerce Clause interpretation. As the Court’s ruling in Brzonkala v. Morrison 10  demonstrates, however, Lopez may indeed have indicated that the courts are going to look more closely at congressional attempts to regulate interstate commerce, an action that seems consistent with the high court’s increasing tendency to support greater power for states in conflicts between the state and federal governments. In Morrison, the Court ruled that the Violence Against Women Act, which Congress justified through its Commerce Clause power, was unconstitutional. Despite the rulings in Lopez and Morrison, however, the following case, Gonzales v. Raich, shows that the Court may not be categorically opposed to an expansion of congressional power through the Commerce Clause.

9  514 U.S. 549 (1995).

10  529 U.S. 598 (2000).

 Case 5-2 Gonzales v. Raich

Supreme Court of the United States 545 U.S. 1 (2005)

In 1996, California voters passed the Compassionate Use Act of 1996, which allowed seriously ill residents of the state to have access to marijuana for medical purposes. Angel Raich and Diane Monson are California residents who were using medical marijuana pursuant to their doctors’ recommendations for their serious medical conditions.

County deputy sheriffs and federal Drug Enforcement Administration (DEA) agents investigated Raich’s and Monson’s use of medical marijuana. Although Raich and Monson were found to be in compliance with the state law, the federal agents seized and destroyed their cannabis plants.

Raich and Monson brought suit against the attorney general of the United States and the head of the DEA, seeking injunctive and declaratory relief prohibiting the enforcement of the federal Controlled Substances Act (CSA) to the extent it prevents them from possessing, obtaining, or manufacturing cannabis for their personal medical use. The district court denied the respondents’ motion for a preliminary injunction. A divided panel of the court of appeals for the Ninth Circuit reversed and ordered the district court to enter a preliminary injunction. The United States appealed.

Justice Stevens

Respondents in this case do not dispute that passage of the CSA, as part of the Comprehensive Drug Abuse Prevention and Control Act, was well within Congress’ commerce power. Nor do they contend that any provision or section of the CSA amounts to an unconstitutional exercise of congressional authority. Rather, respondents’ challenge is actually quite limited; they argue that the CSA’s categorical prohibition of the manufacture and possession of marijuana as applied to the intrastate manufacture and possession of marijuana for medical purposes pursuant to California law exceeds Congress’ authority under the Commerce Clause.

[There are] three general categories of regulation in which Congress is authorized to engage under its commerce power. First, Congress can regulate the channels of interstate commerce. Second, Congress has authority to regulate and protect the instrumentalities of interstate commerce and persons or things in interstate commerce. Third, Congress has the power to regulate activities that substantially affect interstate commerce. Only the third category is implicated in the case at hand.

Our case law firmly establishes Congress’ power to regulate purely local activities that are part of an economic “class of activities” that have a substantial effect on interstate commerce. As we stated in Wickard v. Filburn, 317 U.S. 111 (1942), “even if appellee’s activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce.” We have never required Congress to legislate with scientific exactitude. When Congress decides that the “total incidence” of a practice poses a threat to a national market, it may regulate the entire class.

Our decision in Wickard is of particular relevance. In Wickard, we upheld the application of regulations promulgated under the Agricultural Adjustment Act of 1938, which were designed to control the volume of wheat moving in interstate and foreign commerce in order to avoid surpluses and consequent abnormally low prices. The regulations established an allotment of 11.1 acres for Filburn’s 1941 wheat crop, but he sowed 23 acres, intending to use the excess by consuming it on his own farm. Filburn argued that even though we had sustained Congress’ power to regulate the production of goods for commerce, that power did not authorize “federal regulation [of] production not intended in any part for commerce but wholly for consumption on the farm.” Justice Jackson’s opinion for a unanimous Court rejected this submission. He wrote:

The effect of the statute before us is to restrict the amount which may be produced for market and the extent as well to which one may forestall resort to the market by producing to meet his own needs. That appellee’s own contribution to the demand for wheat may be trivial by itself is not enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated, is far from trivial.

Wickard thus establishes that Congress can regulate purely intrastate activity that is not itself “commercial,” in that it is not produced for sale, if it concludes that failure to regulate that class of activity would undercut the regulation of the interstate market in that commodity.

The similarities between this case and Wickard are striking. Like the farmer in Wickard, respondents are cultivating, for home consumption, a fungible commodity for which there is an established, albeit illegal, interstate market. Just as the Agricultural Adjustment Act was designed “to control the volume [of wheat] moving in interstate and foreign commerce in order to avoid surpluses . . .” and consequently control the market price, a primary purpose of the CSA is to control the supply and demand of controlled substances in both lawful and unlawful drug markets. In Wickard, we had no difficulty concluding that Congress had a rational basis for believing that, when viewed in the aggregate, leaving home-consumed wheat outside the regulatory scheme would have a substantial influence on price and market conditions. Here too, Congress had a rational basis for concluding that leaving home-consumed marijuana outside federal control would similarly affect price and market conditions.

More concretely, one concern prompting inclusion of wheat grown for home consumption in the 1938 Act was that rising market prices could draw such wheat into the interstate market, resulting in lower market prices. The parallel concern making it appropriate to include marijuana grown for home consumption in the CSA is the likelihood that the high demand in the interstate market will draw such marijuana into that market. While the diversion of homegrown wheat tended to frustrate the federal interest in stabilizing prices by regulating the volume of commercial transactions in the interstate market, the diversion of homegrown marijuana tends to frustrate the federal interest in eliminating commercial transactions in the interstate market in their entirety. In both cases, the regulation is squarely within Congress’ commerce power because production of the commodity meant for home consumption, be it wheat or marijuana, has a substantial effect on supply and demand in the national market for that commodity.

Nonetheless, respondents suggest that Wickard differs from this case in three respects: (1) the Agricultural Adjustment Act, unlike the CSA, exempted small farming operations; (2) Wickard involved a “quintessential economic activity”—a commercial farm—whereas respondents do not sell marijuana; and (3) the Wickard record made it clear that the aggregate production of wheat for use on farms had a significant impact on market prices. Those differences, though factually accurate, do not diminish the precedential force of this Court’s reasoning.

The fact that Wickard’s own impact on the market was “trivial by itself” was not a sufficient reason for removing him from the scope of federal regulation. That the Secretary of Agriculture elected to exempt even smaller farms from regulation does not speak to his power to regulate all those whose aggregated production was significant, nor did that fact play any role in the Court’s analysis. Moreover, even though Wickard was indeed a commercial farmer, the activity he was engaged in—the cultivation of wheat for home consumption—was not treated by the Court as part of his commercial farming operation.

In assessing the scope of Congress’ authority under the Commerce Clause, we stress that the task before us is a modest one. We need not determine whether respondents’ activities, taken in the aggregate, substantially affect interstate commerce in fact, but only whether a “rational basis” exists for so concluding. Given the enforcement difficulties that attend distinguishing between marijuana cultivated locally and marijuana grown elsewhere, and concerns about diversion into illicit channels, we have no difficulty concluding that Congress had a rational basis for believing that failure to regulate the intrastate manufacture and possession of marijuana would leave a gaping hole in the CSA. Thus, as in Wickard, when it enacted comprehensive legislation to regulate the interstate market in a fungible commodity, Congress was acting well within its authority to “make all Laws which shall be necessary and proper” to “regulate Commerce . . . among the several States.” That the regulation ensnares some purely intrastate activity is of no moment. As we have done many times before, we refuse to excise individual components of that larger scheme. *

*  Gonzales v. Raich, Supreme Court of the United States 545 U.S. 1 (2005). https://www.law .cornell.edu/supct/html/03-1454.ZO.html.

Reversed and remanded in favor of Attorney General Gonzalez.

Critical Thinking About The Law

Analogies are a standard method for creating a link between the case at hand and legal precedent.

Wickard v. Filburn is a long-established precedent. The court’s reasoning in  Case 5-2  is that the use of medical marijuana by the plaintiffs is sufficiently similar to the facts in Wickard to rely on this precedent.

1. What are the similarities between the case at hand and Wickard?

Clue: Try to make a large list of similarities. Later, after you have made a large list, think about the logic the analogy is trying to support. Eliminate those similarities that do not assist that logic because they are not relevant to an assessment of the quality of the analogy.

2. Are there significant differences that the Court ignores or downplays?

Clue: First think about the purpose this analogy is serving. Then think about the differences in the facts for this case and the facts for Wickard.

Although the current Supreme Court seems to prefer greater regulatory power for states, Gonzales v. Raich and another recent case stand as examples in which the Supreme Court upheld congressional acts on the basis of the Commerce Clause. In Pierce County v. Guillen,11 the Supreme Court held that the Hazard Elimination Program was a valid exercise of congressional authority under the Commerce Clause. This program provided funding to state and local governments to improve conditions of some of their most unsafe roads. To receive federal funding, however, state and local governments were required to regularly acquire information about potential road hazards. The state and local governments were reluctant to avail themselves of the program for fear that the information they acquired to receive funding would be used against them in lawsuits based on negligence. To alleviate these fears, Congress amended the program, allowing state and local governments to conduct engineering surveys without publicly disseminating the acquired information, even for discovery purposes in trials.

11  537 U.S. 129 (2003).

Following his spouse’s death in an automobile accident, Ignacio Guillen sued Pierce County and sought information related to previous accidents at the intersection where his wife died. The county argued that such information was protected under the provisions of the Hazard Elimination Program. Reversing the appellate court’s holding that Congress exceeded its powers when amending the act, the Supreme Court concluded that the amended act was valid under the Commerce Clause. The Supreme Court reasoned that Congress had a significant interest in assisting local and state governments in improving safety in the channels of interstate commerce, the interstate highways. The Court validated Congress’s belief that state and local governments would be more likely to collect relevant and accurate information about potential road hazards if those governments would not be required to provide such information in discovery. Hence, the Supreme Court held that the amended act of Congress was valid on the basis of the Commerce Clause.

Despite the Court’s ruling in Pierce County v. Guillen, many Supreme Court commentators had thought that the Court’s turn toward a more restrictive interpretation of the Commerce Clause would lead the Court to rule that Congress cannot justify regulating states’ decisions regarding medical marijuana through the Commerce Clause. Instead, Justice Stevens distinguished Gonzales v. Raich from United States v. Lopez and Brzonkala v. Morrison, explaining that the federal regulations at issue in Lopez and Morrison were not related to economic activity, even understood broadly, and thus in both cases Congress had overstepped its bounds. Raich’s activities, however, did involve economic activity, even if it is the economic activity of an illegal, controlled substance.  Exhibit 5-3

Exhibit 5-3 Modern Supreme Court Interpretations of the Commerce Clause

offers a summary of a number of Commerce Clause cases the Supreme Court has decided since Lopez. One inference a person could draw after examining the cases in  Exhibit 5-3  is that the Court is willing to limit congressional power but not necessarily in every instance where such restriction is possible.

The Commerce Clause as a Restriction on State Authority

Because the Commerce Clause grants authority to regulate commerce to the federal government, a conflict arises over the extent to which granting such authority to the federal government restricts the states’ authority to regulate commerce. The courts have attempted to resolve the conflict over the impact of the Commerce Clause on state regulation by distinguishing between regulations of commerce and regulations under the state police power.  Police power  means the residual powers retained by the state to enact legislation to safeguard the health and welfare of its citizenry. When the courts perceived state laws to be attempts to regulate interstate commerce, these laws would be struck down; however, when the courts found state laws to be based on the exercise of the state police power, the laws were upheld.

police power

The states’ retained authority to pass laws to protect the health, safety, and welfare of the community.

Since the mid-1930s, whenever states have enacted legislation that affects interstate commerce, the courts have applied a two-pronged test. First, they ask: Is the regulation rationally related to a legitimate state end? If it is, then they ask: Is the regulatory burden imposed on interstate commerce outweighed by the state interest in enforcing the legislation? If it is, the state’s regulation is upheld.  Case 5-3  is an example of a state statute that has been upheld by considering this two-pronged test.

 Case 5-3 Nat’l Ass’n of Optometrists & Opticians v. Brown

United States Court of Appeals for the Ninth District 682 F.3d 1144 (2012)

California had a regulation that prohibited licensed opticians from offering prescription eyewear in the same city or location where professional eye examinations are provided. The National Association of Optometrists and Opticians, LensCrafters, Inc., and EyeCare Centers of America, Inc. challenged this California statute, stating that it places a burden on interstate commerce that “excessively outweighs the local benefits of the law.” In this case, the district court granted the State’s motion for summary judgment. The plaintiff companies appealed.

Judge Hug

Plaintiffs challenge these laws to the extent they prohibit opticians and optical companies from offering prescription eyewear at the same location in which eye examinations are provided and from advertising that eyewear and eye examinations are available in the same location. The district court denied Plaintiffs’ motion for summary judgment and granted the State’s motion for summary judgment. The court effectively concluded that, based on the facts and the law, there were no genuine issues of material fact. Plaintiffs argued that the challenged laws impermissibly burdened interstate commerce because: (1) the challenged laws preclude an interstate company from offering one-stop shopping, which is the dominant form of eyewear retailing; and (2) interstate firms would incur a great financial loss as a result of the challenged laws. The district court concluded that it need not consider the evidence supporting these theories because both theories failed as a matter of law. In reaching this conclusion, the court reasoned that, because there was no cognizable burden on interstate commerce, it need not attempt to balance the “non-burden” against the putative local interests under the test derived from Plaintiffs timely appealed, and that appeal is now before us.

Modern dormant Commerce Clause jurisprudence primarily “is driven by concern about economic protectionism—that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.” “The principal objects of dormant Commerce Clause scrutiny are statutes that discriminate against interstate commerce.” “The central rationale for the rule against discrimination is to prohibit state or municipal laws whose object is local economic protectionism,” because these are the “laws that would excite those jealousies and retaliatory measures the Constitution was designed to prevent.”

Although dormant Commerce Clause jurisprudence protects against burdens on interstate commerce, it also respects federalism by protecting local autonomy. Thus, the Supreme Court has recognized that “under our constitutional scheme the States retain broad power to legislate protection for their citizens in matters of local concern such as public health” and has held that “not every exercise of local power is invalid merely because it affects in some way the flow of commerce between the States.”

In a long line of dormant Commerce Clause cases, the Supreme Court has sought to reconcile these competing interests of local autonomy and burdens on interstate commerce. In one of those cases, Pike v. Bruce Church, Inc., the Supreme Court set forth the following summary of dormant Commerce Clause law, stating:

Although the criteria for determining the validity of state statutes affecting interstate commerce have been variously stated, the general rule that emerges can be phrased as follows: Where the statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities.

Unfortunately, the Pike test has not turned out to be easy to apply. As the Supreme Court has acknowledged, there is “no clear line” in Supreme Court cases between cases involving discrimination and cases subject to Pike’s “clearly excessive” burden test. Justice Scalia has candidly observed that “once one gets beyond facial discrimination our negative-Commerce-Clause jurisprudence becomes (and long has been) a quag-mire.” According to the Supreme Court, only a small number of its cases invalidating laws under the dormant Commerce Clause have involved laws that were “genuinely nondiscriminatory, in the sense that they did not impose disparate treatment on similarly situated in-state and out-of-state interests.” The threshold issue in this appeal is whether Plaintiffs have produced sufficient evidence that the challenged laws, though non-discriminatory, impose a significant burden on interstate commerce. As discussed below, we hold that the Plaintiffs have not produced such evidence.

We conclude that Supreme Court precedent establishes that there is not a significant burden on interstate commerce merely because a non-discriminatory regulation precludes a preferred, more profitable method of operating in a retail market. Where such a regulation does not regulate activities that inherently require a uniform system of regulation and does not otherwise impair the free flow of materials and products across state borders, there is not a significant burden on interstate commerce.

We find no support in the law for Plaintiffs’ proposition that there is a significant burden on interstate commerce whenever, as a result of nondiscriminatory retailer regulations, there is an incidental shift in sales and profits to in-state entities from retailers that operate in-state but are owned by companies incorporated out-of-state. In light of this law, it is apparent that, in the case before us, there is no material issue of fact regarding whether the challenged laws place a significant burden on interstate commerce. Plaintiffs have not produced evidence that the challenged laws interfere with the flow of eyewear into California; any optician, optometrist, or ophthalmologist remains free to import eyewear originating anywhere into California and sell it there. In addition, we are not concerned here with activities that require a uniform system of regulation. Thus, Plaintiffs have failed to raise a material issue of fact concerning whether there is a significant burden on interstate commerce. Relying on Pike, Plaintiffs argue that, in determining whether a regulation violates the dormant Commerce Clause, courts are required to examine the actual benefits of nondiscriminatory regulations. However, [HN20] Pike discusses whether the burden on interstate commerce is “clearly excessive in relation to the putative local benefits.” See Pike, 397 U.S. at 142. It does not mention actual benefits as part of the test for determining when a regulation violates the dormant Commerce Clause.

Even if Pike’s “clearly excessive” burden test were concerned with weighing actual benefits rather than “putative benefits,” we need not examine the benefits of the challenged laws because, as discussed above, the challenged laws do not impose a significant burden on interstate commerce. If a regulation merely has an effect on interstate commerce, but does not impose a significant burden on interstate commerce, it follows that there cannot be a burden on interstate commerce that is “clearly excessive in relation to the putative local benefits” under Pike. Accordingly, where, as here, there is no discrimination and there is no significant burden on interstate commerce, we need not examine the actual or putative benefits of the challenged statutes. For the foregoing reasons, the district court’s order granting the State’s motion for summary judgment and denying Plaintiffs’ motion for summary judgment is affirmed. *

*  Nat’l Ass’n of Optometrists & Opticians v. Brown, United States Court of Appeals for the Ninth District 682 F.3d 1144 (2012). http://cdn.ca9.uscourts.gov/datastore/opinions/2012/06/13/10-16233.pdf.

Affirmed.

Another example of a state statute that has been upheld is Chicago’s ban on the use of spray paint in the city. Paint retailers challenged the statute, arguing that it could have caused $55 million in lost sales over the next six years for spray paint retailers. The U.S. Court of Appeals eventually found the law to be constitutional. The state had a legitimate interest in trying to clean up graffiti, and it did not “discriminate against interstate commerce” nor violate the Commerce Clause. The appeals court reversed the previous ruling and allowed Chicago’s enactment of this ordinance to remain intact. 12  Despite the rulings in the United Haulers and Chicago cases, it is not necessarily easy to craft a state statute that affects interstate commerce that will be upheld. Frequently, the courts will find that state legislation that impinges upon interstate commerce in some way is an unconstitutional interference with interstate commerce.

12  National Paint & Coatings Association et al. v. City of Chicago, 45 F.3d 1124 (7th Cir. 1995).

The most recent illustration of the United States Supreme Court’s addressing a state’s attempt to evade the power of the dormant commerce clause occurred in 2015 in the case of Comptroller of the Treasury of Maryland v. Wynne et ux. 13  Maryland’s personal income tax on state residents consisted of a “state” tax and a “county” tax. Maryland residents who earned money in other states received a “state” tax credit for the taxes they paid to the state where the income was earned, but not a “county” tax credit, resulting in double taxation of out-of-state income.

13  135 S. Ct. 1787 (2015).

The law was challenged by the Wynnes, who claimed a tax credit for the taxes paid on their out-of-state earnings. The state comptroller denied their claim of a credit against their “county” tax and assessed them a deficiency. The appeals board of the comptroller’s office affirmed the assessment, as did the Maryland Tax Court, but the Court of Appeals for Howard County reversed on grounds that Maryland’s tax system violated the Constitution. The court applied the four-part test previously used by the Supreme Court in examing state tax systems, a test that asks whether a “tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State.” The court found that the law failed the fair apportionment test because if every state had a law like Maryland’s, interstate commerce would be taxed at a higher rate than intrastate commerce and create a risk for multiple taxation. It also failed the nondiscrimination part because by denying residents tax credit on interstate commerce it made them pay a higher tax rate on income earned on interstate commerce.

Noting that a state “may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State,” the Supreme Court affirmed the decision of the appellate court. In striking down Maryland’s law, the court reiterated the point that when a tax system has the potential to result in the discriminatory double taxation of income earned out of state, it creates a powerful incentive to engage in intrastate rather than interstate economic activity, and thereby places an undue burden on interstate commerce in violation of the dormant Commerce Clause.

Take a look at the cases described in  Table 5-1 . They further illustrate how the courts attempt to determine when a state statute that affects interstate commerce will be upheld.

Applying The Law To The Facts . . .

The Alabama legislature proposed an amendment to the state constitution that would require certain public works projects, such as highway construction and public transportation, to not be funded unless the company receiving the funds “is an Alabama based company or corporation employing only Alabama residents.” What is the potential constitutional problem with this proposed amendment?

Table 5-1 DORMANT COMMERCE CLAUSES CASES

The Taxing and Spending Powers of the Federal Government

Article I, Section 8, of the Constitution gives the federal government the “Power to lay and collect Taxes, Duties, Imports and Excises.” The taxes laid by Congress, however, must be uniform across the states. In other words, the U.S. government cannot impose higher taxes on residents of one state than another.

Although the collection of taxes is essential for the generation of revenue needed to provide essential government services, taxes can be used to serve additional functions. For example, the government may wish to encourage the development of certain industries and discourage the development of others, so it may provide tax credits for firms entering the favored industries. As long as the “motive of Congress and the effect of its legislative action are to secure revenue for the benefit of the general government,” 14  the tax will be upheld as constitutional. The fact that it also has what might be described as a regulatory impact will not affect the validity of the tax.

14  J. W. Hampton Co. v. United States, 276 U.S. 394 (1928).

While we may all think we know what a tax is, sometimes a tax is not easy to recognize. For example, in 2012, many commentators were surprised when the United States Supreme Court determined that the penalty imposed by the Affordable Care Act (ACA) on those who did not purchase health insurance was a tax. 15  Chief Justice Roberts explained that even though the imposition of the tax payment was designed to encourage certain behavior, taxes may legitimately be used by the federal government to encourage behavior. Nothing in the ACA made the failure to purchase insurance a violation of any law; it simply imposed the payment of a tax, collected by the IRS like all other taxes, on those who opted to not purchase health care insurance. The fact that the ACA referred to the tax as a penalty did not change the fundamental nature of the payment as a tax.

15  National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566 (2012).

This finding that the payment was a tax was an important decision because it preserved the constitutionality of the ACA, which most commentators thought would have been upheld not as a tax, but rather as an exercise of the federal government’s authority to regulate interstate commerce under the Commerce Clause. In fact, the high court rejected the argument that the ACA constituted an exercise of congressional authority under the Commerce Clause.

Article I, Section 8, also gives Congress its spending power by authorizing it to “pay the Debts and provide for the common Defence and general Welfare of the United States.” Just as Congress can indirectly use its power to tax to achieve certain social welfare objectives, it can do the same with its spending power. For example, the U.S. Supreme Court in 1987 upheld the right of Congress to condition the states’ receipt of federal highway funds on their passing state legislation making 21 the legal drinking age.

Taxation of the Internet?

The rapid rise in Internet commerce has many states wondering how they will collect their fair share of sales taxes. According to the U.S. Department of Commerce, Internet retail sales have continued to increase. U.S. retail e-commerce sales reached almost $142 billion in 2008, up from a revised $137 billion in 2007—an annual gain of 3.3 percent. From 2002 to 2008, retail e-sales increased at an average annual growth rate of 21.0 percent, compared with 4.0 percent for total retail sales. Although Internet sales constituted only 3.7 percent of overall retail sales in the United States during 2009, advocates of taxes on Internet sales insist that states are losing a considerable amount of revenue each year. 16

16  U.S. Census Bureau, E-Stats, May 27, 2010; access to these statistics is available at  http://www .census.gov/econ/estats/2008/2008reportfinal.pdf .

Currently, states are only allowed to require a business to submit sales tax payments if the business has a store or distribution center in the state. Otherwise, states are prohibited from collecting sales taxes, although residents are supposed to report the taxes on personal income tax returns. In addition to the e-commerce business, increased access to the Internet has some clamoring for a use tax on Internet access, in addition to a sales tax on Internet purchases.

In 1998, Congress approved the Internet Tax Freedom Act, which established a moratorium on Internet taxes until November 2001. The 1998 bill provided a grandfather clause that allowed several states to continue levying taxes on Internet access if those taxes were established before the Internet Tax Freedom Act was passed. In November 2001, Congress extended the moratorium for two more years to allow for more discussion and research on the effects of the ban on state governments.

In September 2003, the House of Representatives passed the Internet Tax Nondiscrimination Act (H.R. 49), a bill designed to replace the Internet Tax Freedom Act that would have expired in November 2003 with a permanent ban on taxes on Internet access and a permanent extension of the moratorium on multiple and discriminatory taxes on electronic commerce. On April 29, 2004, the Senate passed a different version of the Internet Tax Nondiscrimination Act (S. 150) that extended the moratorium on Internet taxes until November 2007. The Senate bill was a compromise between supporters of a permanent Internet tax ban and a group of senators who questioned how a permanent ban would affect state and local budgets.

The final version of the legislation, signed into law by President George W. Bush on December 3, 2004, had two different grandfather exemptions. States that taxed Internet service before October 1, 1998, were allowed to continue their taxes until November 1, 2007, whereas states that taxed Internet service before October 1, 2003, were allowed to continue their taxes until November 1, 2005. The law banned all other states from imposing Internet taxes from November 1, 2003 to November 1, 2007.

In 2007, Congress and the president extended the act until November 1, 2014, with the Internet Tax Nondiscrimination Act.

The Impact of the Amendments on Business

The first 10 amendments to the U.S. Constitution, known as the Bill of Rights, have a substantial impact on governmental regulation of the legal environment of business. These amendments prohibit the federal government from infringing on certain freedoms that are guaranteed to individuals living in our society. The  Fourteenth Amendment  extends most of the provisions in the Bill of Rights to the behavior of states, prohibiting their interference in the exercise of those rights. Many of the first 10 amendments have also been held to apply to corporations because corporations are treated, in most cases, as “artificial persons.” The activities protected by the Bill of Rights and the Fourteenth Amendment are not only those that occur in one’s private life, but also those that take place in a commercial setting. Several of these amendments have a significant impact on the regulatory environment of business, and they are discussed in the remainder of this chapter.

Fourteenth Amendment

Applies the entire Bill of Rights, excepting parts of the Fifth Amendment, to the states.

The First Amendment

The  First Amendment  guarantees freedom of speech and of the press. It also prohibits abridgment of the right to assemble peacefully and to petition for redress of grievances. Finally, it prohibits the government from aiding the establishment of a religion and from interfering with the free exercise of religion.

First Amendment

Guarantees freedom of speech, press, and religion and the right to peacefully assemble and to petition the government for redress of grievances.

Although we say these rights are guaranteed, they obviously cannot be absolute. Most people would agree that a person does not have the right to yell “Fire!” in a crowded theater. Nor does one’s right of free speech extend to making false statements about another that would be injurious to that person’s reputation. Because of the difficulty in determining the boundaries of individual rights, a large number of First Amendment cases have been decided by the courts.

Not surprisingly, student speech has given rise to a number of free speech cases. For example, in Tinker v. Des Moines Independent School District, 17  the Court ruled that a school policy that prohibited students from wearing antiwar armbands was unconstitutional because the students’ message was political and was not disruptive to normal school activities. In Tinker, the Court famously stated that students do not “shed their constitutional rights . . . at the schoolhouse gate.” 18  Subsequently, the Court ruled in Bethel School District No. 403 v. Fraser 19  that speech that would otherwise be protected can be restricted within the school context. Fraser gave a speech at a school assembly that contained a graphic and extended sexual metaphor. The Court held that, although the speech would have been protected if given in the public forum, the fact that the speech was delivered at school allowed for administrators to censor the speech and restrict Fraser’s right to give the speech. Most recently, relying upon their rulings in Tinker and Fraser, the Court ruled in Morse v. Frederick 20  that student speech advocating drug use during a school function can constitutionally be restricted. Morse v. Frederick is the much-discussed “Bong Hits 4 Jesus” case. The Court determined that the “Bong Hits 4 Jesus” banner clearly advocated drug use, and because the poster was displayed at a school function, the students responsible could be punished. Furthermore, the banner did not portray a political or religious message and thus was not protected speech.

17  393 U.S. 503 (1969).

18  Id. at 506.

19  478 U.S. 675 (1986).

20  127 S. Ct. 2618 (2007).

Attempts to regulate new technologies also raise First Amendment issues. For example, Congress passed the Communications Decency Act of 1996 (CDA) to protect minors from harmful material on the Internet; however, the U.S. Supreme Court found that provisions of the CDA that criminalized and prohibited the “knowing” transmission of “obscene or indecent” messages to any recipient under age 18 by means of telecommunications devices or through the use of interactive computer services were content-based blanket restrictions on freedom of speech. Because these provisions of the statute were too vague and overly broad, repressing speech that adults have the right to make, these provisions were found to be unconstitutional. 21

21  Reno v. American Civil Liberties Union, 521 U.S. 844 (1997).

After the Supreme Court held that the CDA was unconstitutional, Congress responded by passing the Child Online Protection Act (COPA), which imposed a $50,000 fine and six months of imprisonment on individuals who posted material for commercial purposes that was harmful to minors. Websites that required individuals to submit a credit card number or some other form of age verification, however, were not in violation of the act. Nevertheless, the Supreme Court ruled that this act was also unconstitutional, as the provisions of the act likely violated the First Amendment. 22  The Court reasoned that COPA was not narrowly tailored to meet a compelling governmental interest, and the regulations were not the least restrictive methods of regulating in this area, as filtering programs could more easily restrict minors’ access to obscene material than could criminal penalties.

22  Ashcroft v. ACLU, 124 S. Ct. 2783 (2004).

Congress also passed the Child Internet Protection Act (CIPA), requiring libraries to implement filtering software to prevent minors from accessing pornography or other obscene and potentially harmful material. Libraries that did not comply with the provisions of CIPA would not receive federal funding for Internet access. In United States v. American Library Association,23 numerous libraries and website publishers brought suit, claiming that the CIPA was unconstitutional. Reversing the district court’s decision that the act was unconstitutional because it violated the First Amendment, the Supreme Court ruled in a split decision that the act was constitutional. Although six justices ruled that the act was not unconstitutional, there was greater disagreement about the Court’s opinion. The majority reasoned that the act did not violate an individual’s First Amendment rights, as libraries are afforded broad discretion about the kinds of materials they may include in their collections. In other words, a library is not a public forum in the traditional sense.

23  539 U.S. 194 (2003).

An interesting issue that has arisen on many campuses is whether so-called hate speech—derogatory speech directed at members of another group, such as another race—is unprotected speech that can be banned. Thus far, hate-speech codes on campuses that were challenged as unconstitutional have been struck down by state courts or federal appeals courts, although the issue has not yet reached the Supreme Court. Hate speech is a serious issue that affects more than 1 million students every year, prompting 60 percent of universities to ban verbal abuse and verbal harassment and 28 percent of universities to ban advocacy of an offensive viewpoint. 24  Because universities are often viewed as breeding grounds for ideas and citizen development, courts have not looked favorably on limits to speech on campuses.

24  Timothy C. Shiell, Campus Hate Speech on Trial 2, 49 (Lawrence: University Press of Kansas, 1998).

The international community has been quicker than the United States to call hate speech unprotected, with a declaration from the United Nations and laws in several countries passed years ago. 25  In October 22, 2009, however, the House and Senate passed the federal Matthew Shepard and James Byrd, Jr. Hate Crime Prevention Statute, and on October 28, 2009, President Obama signed the legislation. 26  Under the law, a hate crime is defined as a crime of violence that is motivated by hatred of the group to which the victim belongs. Protected groups are those based on race, color, religion, national origin, gender, disability, sexual orientation, and gender identity.

25  Id. at 32.

26  Matthew Shepard and James Byrd, Jr. Hate Crimes Prevention Act. Accessed December 7, 2010 at http://www.hrc.org/laws_and_elections/5660.htm.

Corporate Commercial Speech

Numerous cases have arisen over the extent to which First Amendment guarantees are applicable to corporate commercial speech. The doctrine currently used to analyze commercial speech is discussed in the following case.

 Case 5-4 Central Hudson Gas & Electric Corp. v. Public Service Commission of New York

Supreme Court of the United States 447 U.S. 557 (1980)

Plaintiff Central Hudson Gas and Electric Corporation filed an action against Public Service Commission of New York to challenge the constitutionality of a regulation that completely banned promotional advertising by the utility but permitted “informational” ads—those designed to encourage shifting consumption from peak to nonpeak times. The regulation was upheld by the trial court. On appeal by the utility, the New York Court of Appeals sustained the regulation, concluding that governmental interests outweighed the limited constitutional value of the commercial speech at issue. The utility appealed.

Justice Powell

The Commission’s order [enforcing the regulation’s advertising ban] restricts only commercial speech, that is, expression related solely to the economic interests of the speaker and its audience. The First Amendment, as applied to the States through the Fourteenth Amendment, protects commercial speech from unwarranted governmental regulation. Commercial expression not only serves the economic interest of the speaker, but also assists consumers and furthers the societal interest in the fullest possible dissemination of information. In applying the First Amendment to this area, we have rejected the “highly paternalistic” view that government has complete power to suppress or regulate commercial speech. Even when advertising communicates only an incomplete version of the relevant facts, the First Amendment presumes that some accurate information is better than no information at all. Nevertheless, our decisions have recognized “the ‘common sense’ distinction between speech proposing a commercial transaction, which occurs in an area traditionally subject to government regulation, and other varieties of speech.”

The Constitution therefore accords a lesser protection to commercial speech than to other constitutionally guaranteed expression. The protection available for particular commercial expression turns on the nature both of the expression and of the governmental interests served by its regulation. Two features of commercial speech permit regulation of its content. First, commercial speakers have extensive knowledge of both the market and their products. Thus, they are well situated to evaluate the accuracy of their messages and the lawfulness of the underlying activity. In addition, commercial speech, the offspring of economic self-interest, is a hardy breed of expression that is not “particularly susceptible to being crushed by overbroad regulation.”

If the communication is neither misleading nor related to unlawful activity, the government’s power is more circumscribed. The State must assert a substantial interest to be achieved by restrictions on commercial speech. Moreover, the regulatory technique must be in proportion to that interest. The limitation on expression must be designed carefully to achieve the State’s goal. Compliance with this requirement may be measured by two criteria. First, the restriction must directly advance the state interest involved; the regulation may not be sustained if it provides only ineffective or remote support for the government’s purpose. Second, if the governmental interest could be served as well by a more limited restriction on commercial speech, the excessive restrictions cannot survive.

The second criterion recognizes that the First Amendment mandates that speech restrictions be “narrowly drawn.” The regulatory technique may extend only as far as the interest it serves. The State cannot regulate speech that poses no danger to the asserted state interest, nor can it completely suppress information when narrower restrictions on expression would serve its interest as well. In commercial speech cases, then, a four-part analysis has developed. At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted and whether it is not more extensive than is necessary to serve that interest.