Introduction 

As the “supreme law of the land,” the U.S. Constitution influences all aspects of our government, its operation, and the people that it serves. It provides us with the structure of our government by creating the three main branches of government through the allocation and separation of powers among them. The Constitution prevents the federal government from taking certain actions, most particularly those restricting or violating individual rights without due process of law. The Constitution also provides protections for certain “artificial persons” such as corporations.  The United States operates under a federal system in which the national government and the governments of each of the states coexist. The federal government is one of limited or enumerated powers where the three branches of the government can only exercise those powers specifically granted to them by the U.S. Constitution. As a result, whenever the constitutionality of congressional legislation is at issue, some relationship to a specifically enumerated power in the constitutional text must be shown.  On the other hand, a state government possesses a general “police power,” i.e., broad authority to promulgate legislation for the “health, safety, morals, and general welfare” of its citizens. As a result, an action undertaken by a state government will be considered valid provided it does not violate some specific limitation imposed by the Constitution of the United States or the Constitution of the State.  At first glance, it may seem as if the federal government has very limited power since its powers are enumerated. However, in addition to the specific powers found in the Constitution, Congress is given the power to “make all laws which shall be necessary and proper for carrying into execution” the specific powers granted to the federal government. Accordingly, if Congress is seeking an objective that is within its specifically enumerated powers, then it can use a means that is rationally related to the objective it is trying to achieve. 

Doctrine of Separation of Powers

The United States Constitution provides for the allocation of distinct powers to three branches of government. Article I of the Constitution created the legislative branch and established a Congress made up of two bodies, the House of Representatives and the Senate. Congress has the sole power to legislate (or make laws) at the federal level. Article I, Section 8 establishes the means by which legislation is enacted by Congress.  The second branch of government is the executive branch, created in Article II of the Constitution. It establishes in the President the executive power to enforce or execute laws passed by Congress. Article II states that the President is the “commander-in-chief” of the armed forces. The President also has the power to make treaties and appoint ambassadors, subject to approval or confirmation by the United States Senate.  Article III states that “the judicial power of the United States shall be vested in one supreme court and in such inferior courts as the Congress may from time to time ordain and establish.” Article II also delineates the scope of federal judicial powers—termed jurisdiction—and the types of cases federal courts may decide. Generally, a federal court will have the power to hear cases where a federal law is at issue, where the United States is a party, where the case involves a “federal question” under the Constitution, or where a suit is between a state and a citizen of another state or between citizens of different states. 

Checks and Balances 

In addition to establishing the three branches of government and enumerating specific powers of the federal government, the Framers of the Constitution set up a system of checks and balances within Articles I, II, and III. For example, the President can veto legislation passed by Congress, but the Congress can override that veto by a two-thirds majority. In addition, the President, Vice President, federal judges, and other federal officials may be impeached and potentially removed from office; treaties made or negotiated by the President must be approved by the Senate, again by a two-thirds majority; and the President may appoint certain individuals (e.g., federal judges), but only with the “advice and consent” of the Senate. From the very early days of our Republic, the Supreme Court assumed to itself the power to strike down a statute that is in violation of the Constitution. In effect, the system of checks and balances prevents each of the three branches of government from overstepping the limitations of their enumerated or granted powers. 

Example The Supreme Court, relying on the “necessary and proper” clause, held that Congress had the power to create a national bank even though such a power was not specifically granted in the Constitution. The Court found that this power was incidental to the carrying out of one of the constitutionally enumerated powers, specifically Congress’ power to raise revenue. McCulloch v. Maryland, 17 U.S. 316 (1819). 

Supremacy and Preemption 

Article VI, Clause 2 of the Constitution is called the Supremacy Clause. It provides that the Constitution, any law enacted by Congress, and treaties entered into by the United States are the supreme law of the land. The Supremacy Clause is the keystone in establishing the order in the relationship between the federal and state governments. The Supremacy Clause provides that when a direct conflict exists between a federal law and a state law, the state law is invalid and the federal law is supreme. Some powers, however, may be shared by the states and the federal government. These are called concurrent powers. In the case of shared or concurrent powers, it may be necessary to determine which law—federal or state—should prevail. As a general rule, however, when concurrent federal and state powers are involved, a state law that conflicts with a federal law is invalid. A few general principles apply to this discussion.  A federal law enacted pursuant to a power specifically delegated to it by the Constitution will generally override a state law addressing the same action. When Congress expresses an intention to act in an exclusive manner in an area in which it shares power with the states, it may be said that Congress has preempted this area. Thus, a federal regulatory scheme preempts a state law every time there is a direct conflict between the two or when the state regulation interferes with a stated federal objective. 

PreemptIon 

The facts of any individual conflict, however, almost never lead to such a clear-cut delineation. Congress rarely makes obvious its intent to preempt an entire subject area against state regulation. It is often the job of the courts to decide whether Congress intended to exercise exclusive dominion over the area in question. The Commerce Clause, which will be discussed below in great detail, is an area where such conflict often occurs. Before ruling that federal  law preempts a state law, courts must first decide whether Congress intended to supersede or preempt state law. Such intent may be inferred if the federal law is so “pervasive, comprehensive, or detailed” that the states have no room to legislate in that area. Hence, it may be said that the federal law “occupies the field.” For example, issues relating to the storage of nuclear waste materials provide an example where it may be said that federal regulation clearly intends to “occupy the field” because of the problematic nature of inconsistent state laws on this subject. However, even the test itself is subject to interpretation. The use of guiding words such ‘pervasive’ and ‘comprehensive’ is open to a wide range of meaning as the following case illustrates.  It is difficult to determine the outcome of a preemption debate when a court applies a balancing test between state and federal interests. State law that is enacted pursuant to a state’s police power carries a strong presumption of validity or constitutionality. However, in two cases the Supreme Court invalidated state regulations limiting the length of trailer trucks traveling on interstate highways. In the first case, Raymond Motor Transportation, Inc. v. Rice, 434 U.S. 429 (1978), the Court determined that the statutes “place[d] a substantial burden on interstate commerce and they cannot be said to make more than the most speculative contribution to highway safety.” Later, in Kassel v. Consolidated Freightways Corp. of Delaware, 450 U.S. 662 (1981), the Court went even further by concluding that an Iowa law prohibiting 65-foot double trailers from entering the state discriminated against interstate commerce and was, therefore, invalid. Federal law was intended to occupy the field and state regulation was impermissible.  City of Burbank provides an interesting glimpse into the area of preemption.  

Case Summary 

City of Burbank v. Lockheed Air Terminal, Inc.

411 U.S. 624 (1973)

The owner-operator of the Hollywood Burbank Airport brought suit against the City of Burbank to enjoin enforcement of a city ordinance forbidding any pure jet aircraft from taking off from the airport between 11 p.m. of one day and 7 a.m. of the next, and forbidding the airport operator from permitting any such takeoffs. The District Court enjoined enforcement of the ordinance, and the appellate court affirmed. DOUGLAS, J. The Court in Cooley v. Board of Wardens, 12 How 299, first stated the rule of pre-emption which is the critical issue in the present case. Speaking through Mr. Justice Curtis, it said: “Now the power to regulate commerce, embraces a vast field, containing not only many, but exceedingly various subjects, quite unlike in their nature; some imperatively demanding a single uniform rule, operating equally on the commerce of the UnitedStates in every port; and some, like the subject now in question, as imperatively demanding that diversity, which alone can meet the local necessities of navigation. “. . . Whatever subjects of this power are in their nature national, or admit only of one uniform system, or plan of regulation, may justly be said to be of such a nature as to require exclusive legislation by Congress.”

* * * * *

Section 1508 provides in part, “The United States of America is declared to possess and exercise complete and exclusive national sovereignty in the airspace of the United States. …” By Sec. 1348(a), (c) the Administrator of the Federal Aviation Administration (FAA) has been given broad authority to regulate the use of the navigable airspace, “in order to insure the safety of aircraft and the efficient utilization of such airspace … “ and “for the protection of persons and property on the ground. …” The Solicitor General, though arguing against pre-emption, concedes that as respects “airspace management” there is pre-emption. That, however, is a fatal concession, for as the District Court found: “The imposition of curfew ordinances on a nationwide basis would result in a bunching of flights in those hours immediately preceding the curfew. This bunching of flights during these hours would have the twofold effect of increasing an already serious congestion problem and actually increasing, rather than relieving, the noise problem by increasing flights in the period of greatest annoyance to surrounding communities. Such a result is totally inconsistent with the objectives of the federal statutory and regulatory scheme.” It also found “[t]he imposition of curfew ordinances on a nationwide basis would cause a serious loss of efficiency in the use of the navigable airspace.”

* * * * *

There is, to be sure, no express provision of pre-emption in the 1972 [Noise Control] Act. That, however, is not decisive. As we stated in Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230: “Congress legislated here in a field which the States have traditionally occupied. … So we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress. … Such a purpose may be evidenced in several ways. The scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it. … Or the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject. … Likewise, the object sought to be obtained by the federal law and the character of obligations imposed by it may reveal the same purpose. … Or the state policy may produce a result inconsistent with the objective of the federal statute.” It is the pervasive nature of the scheme of federal regulation of aircraft noise that leads us to conclude that this is pre-emption. As Mr. Justice Jackson stated, concurring in Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 303: “Federal control is intensive and exclusive. Planes do not wander about in the sky like vagrant clouds. They move only by federal permission, subject to federal inspection, in the hands of federally certified personnel and under an intricate system of federal command. The moment a ship taxis onto a runway it is caught up in an elaborate and detailed system of controls.” Both the Senate and House Committees included in their Reports clear statements that the bills would not change the existing pre-emption rule. The House Report stated: “No provision of the bill is intended to alter in any way the relationship between the authority of the Federal Government and that of the State and local governments that existed with respect to matters covered by section 611 of the Federal Aviation Act of 1958 prior to the enactment of the bill.” The Senate Report stated: “States and local governments are pre-empted from establishing or enforcing noise emission standards for aircraft unless such standards are identical to standards prescribed under this bill. This does not address responsibilities or powers of airport operators, and no provision of the bill is intended to alterin any way the relationship between the authority of the Federal government and that of State and local governments that existed with respect to matters covered by section 611 of the Federal Aviation Act of 1958 prior to the enactment of the bill.” These statements do not avail [City of Burbank]. Prior to the 1972 Act, section 611(a) provided that the Administrator “shall prescribe and amend such rules and regulations as he may find necessary to provide for the control and abatement of aircraft noise and sonic boom.” Under section 611(b)(3) the Administrator was required to “consider whether any proposed standard, rule, or regulation is consistent with the highest degree of safety in air commerce or air transportation in the public interest.” When the legislation which added this section to the Federal Aviation Act was considered [it was asked] whether the proposed legislation would “to any degree preempt State and local government regulation of aircraft noise and sonic boom.” The Secretary [of Transportation] requested leave to submit a written opinion [in which] he stated: “The courts have held that the Federal Government presently preempts the field of noise regulation insofar as it involves controlling the flight of aircraft. … HR3400 would merely expand the Federal Government’s role in a field already preempted. It would not change this preemption. State and local governments will remain unable to use their police powers to control aircraft noise by regulating the flight of aircraft.” * * * * * According to the Senate Report, it was “not the intent of the committee inrecommending this legislation to effect any change in the existing apportionment of powers between the Federal and State and local governments,” and the Report concurred in the views set forth by the Secretary in his letter. * * * * * Our prior cases on preemption are not precise guide-lines in the present controversy, for each case turns on the peculiarities and special features of the federal regulatory scheme in question. Control of noise is of course deep seated in the police power of the States. Yet the pervasive control vested in EPA and in FAA under the 1972 Act seems to us to leave no room for local curfews or other local controls. What the ultimate remedy may be for aircraft noise which plagues many communities and tens of thousands of people is not known. The procedures under the 1972 Act are under way. In addition, the Administrator has imposed a variety of regulations relating to takeoff and landing procedures and runway preferences. The Federal Aviation Act requires a delicate balance between safety and efficiency, and the protection of persons on the ground. Any regulations adopted by the Administrator to control noise pollution must be consistent with the “highest degree of safety.” The interdependence of these factors requires a uniform and exclusive system of federal regulation if the congressional objectives underlying the Federal Aviation Act are to be fulfilled. If we were to uphold the Burbank ordinance and a significant number of municipalities followed suit, it is obvious that fractionalized control of the timing of take-offs and landings would severely limit the flexibility of the FAA in controlling air traffic flow. The difficulties of scheduling flights to avoid congestion and the concomitant decrease in safety would be compounded. In 1960 the FAA rejected a proposed restriction on jet operations at the Los Angeles airport between 10 p.m. and 7 a.m. because such restrictions could “create critically serious problems to all air transportation patterns. … This decision, announced in 1960, remains peculiarly within the competence of the FAA, supplemented now by the inputof the EPA. We are not at liberty to diffuse the powers given by Congress to FAA and EPA by letting the States or municipalities in on the planning. If that change is to be made, Congress alone must do it. AFFIRMED.

As a further example, Congress enacted the Federal Telecommunications Act of 1996 (FTA) to open up competition within that industry. The FTA provided for the deregulation of the telephone industry and prohibited state and local governments from impeding entry into the rapidly expanding telecommunications market. To achieve Congress’ goals, the FTA prohibits any state or local law from “prohibit[ing] or having the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.” (Section 253). Under the Supremacy Clause, the FTA preempts any state or local law that comes into conflict with it. 

Judicial Review

Practically before the ink was dry on the Constitution, a constitutional crisis developed involving President Thomas Jefferson and his opponent in the election of 1801, President John Adams, whom Jefferson had defeated for reelection. A dispute arose relating to the appointment of a justice of the peace (a local magistrate) in the District of Columbia by President Adams during the waning hours of his Presidency when Jefferson’s Secretary of State James Madison refused to sign William Marbury’s judicial commission. The Supreme Court was asked to issue a writ of mandamus ordering Madison to sign the commission. The basis of the petition was a provision of the Judiciary Act of 1789 which authorized a plaintiff to seek the writ directly in the Supreme Court. In Marbury v. Madison, 5 U.S. 137 (1803), the United States Supreme Court held that this provision of the Judiciary Act of 1789 under which Marbury had sought relief was repugnant to the Constitution. The Court concluded that Congress had improperly expanded the original jurisdiction of the Court by permitting Marbury to seek a writ of mandamus directly in the United States Supreme Court. In striking down this provision of the Judiciary Act, Chief Justice John Marshall established the power of the Supreme Court to declare a law enacted by Congress unconstitutional. Known as the power of judicial review, it enables the United States Supreme Court to deny enforcement of laws or other governmental actions that it determines to be in violation of the United States Constitution and thus which are null and void.  Judicial review is not limited solely to review of federal actions and laws. It extends as well as to actions undertaken by states which are likewise repugnant to the Constitution. When the United States Supreme Court reviews the judgment of a state court, it is exercising its appellate, rather than its original, jurisdiction. However, in exercising this appellate jurisdiction, the Supreme Court’s review of a state court judgment is limited to cases involving a “federal question.” The Supreme Court will not ordinarily review a state court decision that merely relates to a question of state law. However, as the case of Bush v. Gore, 531 U.S. 98 (2000) may indicate, there is not always a “bright line” between a federal and a state question. 

Congressional Regulatory Authority

Article I, Section 8 of the Constitution delineates several important powers of the federal government: the power to regulate commerce among and between the states, the power to lay and collect taxes, and the power to spend money for the general welfare. These powers are especially relevant in the context of the regulation of businesses in the United States.

The Commerce Clause

Perhaps the most important of the express powers of Congress set forth in Article I, Section 8, is the commerce power, embedded in the Commerce Clause. The Commerce Clause grants Congress the power to “regulate commerce… among the several states.” It serves two distinct functions: (1) it acts as the source of Congressional regulatory authority; and, (2) it acts, implicitly, as an independent check on state regulation that unduly restricts or burdens interstate commerce.  During most of the 19th century, federal regulation of business was occasional and fairly limited. The theory of laissez faire dominated both the political and economic landscapes. It was the era of “Big Business” and the rise of the “Robber Barons” and trusts. The last decade of the 19th century and the early part of the 20th century, however, brought a rise in federal regulation of business, as abuses were regularly chronicled by the “Muckrakers” of the burgeoning Progressive era of American politics. As a result, the Supreme Court was increasingly called upon to define the limits and reaches of the commerce power by ruling on the constitutionality of a variety of state statutes which had been enacted to protect the rights of women and children in the workplace.  Throughout the 1920s, the Supreme Court was hostile to calls to reign-in even some of the worst abuses under the theory that to do so would impair the “freedom of contract” of individuals in the marketplace. By the late 1930s, however, the Supreme Court had removed almost all constitutional limitations placed on the regulation of a wide variety of commercial activities  by Congress and upheld what would once have been struck down as unconstitutional. What had changed? The Great Depression had brought a reappraisal of the role of the federal government in the economic life of the nation. The Supreme Court now contained justices who were sympathetic to regulation of business and who would find constitutional authority in the Congress to do so under this same Commerce Clause that had once been used to block most federal regulation of business. Not all welcomed this change. Critics argued that the Commerce Clause had been transformed into an all-encompassing exercise of police power which allowed Congress to reach most economic activities—even those within a state’s borders—that affected interstate commerce only in a broad sense. The Commerce Clause was no longer seen as a limitation on Congressional authority as it once had been. The era of regulation had begun.  During the next five decades prior to the Rehnquist Court (1986-2005) and the Roberts’ Court (2005- ), the Supreme Court routinely upheld legislation under a broad view of the Commerce Clause, so long as it found a rational basis for congressional action. The Court achieved this result by adopting various theories upon which legislation might be based, in addition to those areas involving the traditional “means and instrumentalities” of interstate commerce about which there was little disagreement and judicial consensus. 

Substantial Economic Effect Theory: The “Affectation” Doctrine

The first major expansion of the power of Congress under the Commerce Clause is termed the “substantial economic effect” theory, which provides that Congress may regulate activities having a “substantial economic effect” upon interstate commerce. The Court’s 1937 decision in NLRB v. Jones & Laughlin Steel Corp. marked the loosening of the nexus required between the regulation of an essentially local activity and interstate commerce and the genesis of the expansion of federal regulatory authority under the commerce clause.  

Case Summary

NLRB v. Jones & Laughlin Steel Corp. 

301 U.S. 1 (1937)

In a proceeding under the National Labor Relations Act [the Act] of 1935, the National Labor Relations Board [NLRB] found that Jones & Laughlin Steel Corporation violated the Act by engaging in unfair labor practices affecting commerce. These practices included discrimination against union members with regard to hiring and tenure of employment and coercion and intimidation of its employees in order to interfere with their self-organization. The discriminatory and coercive action alleged was the discharge of certain employees.  The NLRB sustained the charge and ordered Jones & Laughlin to cease and desist from such discrimination and coercion, to offer reinstatement to ten employees, to provide restitution for their pay losses, and to post a notice for 30 days stating that the corporation would not discharge or discriminate against members, or those desiring to become members, of the labor union. Jones & Laughlin failed to comply; the Board petitioned to the Circuit Court of Appeals to enforce the order. The court denied the petition, holding that the order was beyond the range of federal power. The Supreme Court granted certiorari.  HUGHES, C.J. … The scheme of the National Labor Relations Act … may be briefly stated. The first section sets forth findings with respect to the injury to commerce resulting from the denial by employers of the right of employees to organize and from the refusal of employers to accept the procedure of collective bargaining. There follows a declaration that it is the policy of the United States to eliminate these causes of obstruction to the free flow of commerce. The Act then defines the terms it uses, including the terms “commerce” and “affecting commerce.” Section 2. It creates the National Labor Relations Board and prescribes its organization. Sections 3-6. It sets forth the right of employees to self-organization and to bargain collectively through representatives of their own choosing. Section 7. It defines “unfair labor practices.” Section 8. It lays down rules as to the representation of employees for the purpose of collective bargaining. Section 9. The Board is empowered to prevent the described unfair labor practices affecting commerce and the Act prescribes the procedure to that end. … * * * * *  Contesting the ruling of the Board, the respondent [Jones & Laughlin] argues (1) that the Act is in reality a regulation of labor relations and not of interstate commerce; …  The facts as to the nature and scope of the business of the Jones & Laughlin Steel Corporation have been found by the Labor Board. * * * * *  Summarizing these operations, the Labor Board concluded that the works in Pittsburgh and Aliquippa “might be likened to the heart of a self-contained, highly integrated body. They draw in the raw materials from Michigan, Minnesota, West Virginia, Pennsylvania in part through arteries and by means controlled by the respondent; they transform the materials and then pump them out to all parts of the nation through the vast mechanism which the respondent has elaborated.” * * * * *  First. The Scope of the Act. — The Act is challenged in its entirety as an attempt to regulate all industry, thus invading the reserved powers of the States over their local concerns. . .  * * * * * The grant of authority to the Board does not purport to extend to the relationship between all industrial employees and employers. Its terms do not impose collective bargaining upon all industry regardless of effects upon interstate or foreign commerce. It purports to reach only what may be deemed to burden or obstruct that commerce and, thus qualified, it must be construed as contemplating the exercise of control within constitutional bounds. It is a familiar principle that acts which directly burden or obstruct interstate or foreign commerce, or its free flow, are within the reach of the congressional power. Acts having that effect are not rendered immune because they grow out of labor disputes.  … It is the effect upon commerce, not the source of the injury, which is the criterion. … Whether or not particular action does affect commerce in such a close and intimate fashion as to be subject to federal control, and hence to lie within the authority conferred upon the Board, is left by the statute to be determined as individual cases arise. * * * * *  Although activities may be intrastate in character when separately considered, if they have such a close and substantial relation to interstate commerce that their control is essential or appropriate to protect that commerce from burdens and obstructions, Congress cannot be denied the power to exercise that control. * * * * *  [T]he stoppage of [Jones & Laughlin’s] operations by industrial strife would have a most serious effect upon interstate commerce. In view of respondent’s far-flung activities, it is idle to say that the effect would be indirect or remote. It is obvious that it would be immediate and might be catastrophic. We are asked to shut our eyes to the plainest facts of our national life and to deal with the question of direct and indirect effects in an intellectual vacuum. Because there may be but indirect and remote effects upon interstate commerce in connection with a host of local enterprises throughout the country, it does not follow that other industrial activities do not have such a close and intimate relation to interstate commerce as to make the presence of industrial strife a matter of the most urgent national concern. When industries organize themselves on a national scale, making their relation to interstate commerce the dominant factor in their activities, how can it be maintained that their industrial labor relations constitute a forbidden field into which Congress may not enter when it is necessary to protect interstate commerce from the paralyzing consequences of industrial war? We have often said that interstate commerce itself is a practical conception. It is equally true that interferences with that commerce must be appraised by a judgment that does not ignore actual experience. * * * * *  Experience has abundantly demonstrated that the recognition of the right of employees to self-organization and to have representatives of their own choosing for the purpose of collective bargaining is often an essential condition of industrial peace. Refusal to confer and negotiate has been one of the most prolific causes of strife. … And of what avail is it to protect the facility of transportation, if interstate commerce is throttled with respect to the commodities to be transported! * * * * *  It is not necessary again to detail the facts as to respondent’s enterprise. … [I]t presents in a most striking way the close and intimate relation which a manufacturing industry may have to interstate commerce and we have no doubt that Congress had constitutional authority to safeguard the right of [Jones & Laughlin’s] employees to self-organization and freedom in the choice of representatives for collective bargaining. * * * * *  Our conclusion is that the order of the Board was within its competency and that the Act is valid as here applied. …  Judgment reversed, in favor of the NLRB. 

Over the years, this power was extended to cover a factory that produces goods within a state if the goods competed with goods produced in other states, because substandard working conditions may have an effect in other states. (United States v. Darby Lumber, 312 U.S. 100 (1941)). Further, a factory that produces goods to be sold both locally and interstate may have all of its working conditions regulated under the Commerce Clause, because labor strife that occurs among employees producing local goods may affect employees producing interstate goods. (Maryland v. Wirtz, 392 U.S. 183 (1968)). 

Cumulative Effect Theory 

The second theory under which the Court has expanded Congressional power under the Commerce Clause is termed the “cumulative effect” theory. This principle provides that Congress may regulate not only an activity which alone has a substantial effect on interstate commerce, but also an activity, which though not considered substantial in its own right, is one of an entire class of activities, if the class, taken as the whole, would have a substantial effect on commerce. The case which established the “cumulative effect” principle was Wickard v. Filburn, where the Court upheld federal legislation regulating the most local of all activities—production of wheat for personal consumption on the family farm—on the theory that these individual activities cumulatively would have an effect on interstate commerce and thus could be subject to regulation under the Commerce Clause.   

Case Summary 

Wickard v. Filburn

317 U.S. 111 (1942)

In 1938, Congress enacted the Agricultural Adjustment Act to stabilize agricultural production and so, give farmers reasonable minimum prices. The Act gave Claude Wickard, the Secretary of Agriculture, the power to pronounce a yearly national acreage allotment for the coming wheat crop. The allotment was apportioned among the states and their counties, and then among the farms within each county. Filburn was an Ohio farmer who raised a small portion of winter wheat. Some of it was sold but most of it was grown for personal use. Filburn’s permitted allocation for 1941 was 11.1 acres. However, he planted and harvested 23 acres. He was assessed a penalty of $117.11 for violating the regulation.  JACKSON, J. … It is urged that under the Commerce Clause, … Congress does not possess the power it has in this instance sought to exercise. The question would merit little consideration … except for the fact that this Act extends federal regulation to production not intended in any part for commerce but wholly for consumption on the farm. … Such activities are, [Filburn] urges, beyond the reach of congressional power under the Commerce Clause, since they are local in character, and their effects upon interstate commerce are at most “indirect.” In answer the Government argues that the statute regulates neither production nor consumption, but only marketing; and, in the alternative, that if the Act does go beyond the regulation of marketing it is sustainable as a “necessary and proper” implementation of the power of Congress over interstate commerce. * * * *  For nearly a century, … decisions of this Court dealt rarely with questions of what Congress might do in the exercise of its granted power under the Clause and almost entirely with the permissibility of state activity which it was claimed discriminated against or burdened interstate commerce. During this period there was perhaps little occasion for the affirmative exercise of the commerce power, and the influence of the Clause on American life and law was a negative one, resulting almost wholly from its operation as a restraint upon the powers of the states. * * * *  It was not until 1887, with the enactment of the Interstate Commerce Act, that the commerce power began to exert positive influence in American law and life. This … was followed in 1890 by the Sherman Anti-Trust Act and, thereafter, mainly after 1903, by many others. …  When it first dealt with this new legislation, the Court adhered to its earlier pronouncements, and allowed but little scope to the power of Congress. … [H] owever, other cases called forth broader interpretations of the Commerce Clause destined to supersede the earlier ones, and to bring about a return to the principles first enunciated by Chief Justice Marshall[.] … It was soon demonstrated that the effects of many kinds of intrastate activity upon interstate commerce were such as to make them a proper subject of federal regulation.  [Thus,] even if [Filburn’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, and this irrespective of whether such effect is what might at some earlier time have been defined as “direct” or “indirect.” * * * *  The effect of consumption of homegrown wheat on interstate commerce is due to the fact that it constitutes the most variable factor in the disappearance of the wheat crop. Consumption on the farm where grown appears to vary in an amount greater than 20 percent of average production. … That [Filburn’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. …  It is well established by decisions of this Court that the power to regulate commerce includes the power to regulate the prices at which commodities in that commerce are dealt and practices affecting such prices. One of the primary purposes of the Act in question was to increase the market price of wheat, and to that end to limit the volume thereof that could affect the market. It can hardly be denied that a factor of such volume and variability as home-consumed wheat would have a substantial influence on price and market conditions. This may arise because being in marketable condition such wheat overhangs the market and if induced by rising prices tends to flow into the market and check price increases. But if we assume that it is never marketed, it supplies a need of the man who grew it which would otherwise be reflected by purchases in the open market. … This record leaves us in no doubt Congress may properly have considered that wheat consumed on the farm where grown if wholly outside the scheme of regulation would have a substantial effect in defeating and obstructing its purpose to stimulate trade therein at increased prices. * * * *  Judgment for Wickard, reversing the decision of the lower court. 

Commerce-Prohibiting Acts: Acts Which Burden Interstate Commerce

The third theory by which the Court expanded the power of Congress under the Commerce Clause power is the “commerce-prohibiting” theory, which allows Congress to regulate local matters that have some negative effect on or which place a burden on interstate commerce. Without a doubt, the states hold a strong interest in regulating activities within their borders. States may exercise police powers to regulate private activities in order to protect or promote “public safety, health, morals, or general welfare of their citizens.” However, when a state regulation places a burden on interstate commerce, courts are required to balance the state’s interest against the burden it has placed on interstate commerce.  The “commerce-prohibiting” theory may be found in the case of Heart of Atlanta Motel v. United States, where the Supreme Court held that Congress has the power to prohibit racial discrimination in hotels and motels serving interstate travelers such discrimination may deter persons from traveling, thus having an effect on interstate commerce.  

Case Summary

Heart Of Atlanta Motel v. United States 

379 U.S. 241 (1964)

The owner of a motel, who refused to rent rooms to blacks, despite the Civil Rights Act of 1964, brought an action to have the Civil Rights Act of 1964 declared unconstitutional. The motel owner alleged that Congress, in passing the act, had exceeded its power to regulate commerce.  CLARK, J. … This is a declaratory judgment action … attacking the constitutionality of Title II of the Civil Rights Act of 1964. … Appellant owns and operates the Heart of Atlanta Motel which has 216 rooms available to transient guests. … It is readily accessible to interstate highways 75 and 85 and state highways 23 and 41. Appellant solicits patronage from outside the State of Georgia through various national advertising media, including magazines of national circulation; it maintains over 50 billboards and highway signs within the State, soliciting patronage for the motel; it accepts convention trade from outside Georgia and approximately 75 percent of its registered guests are from out of State. Prior to passage of the Act the motel had followed a practice of refusing to rent rooms to Negroes, and it alleged that it intended to continue to do so. In an effort to perpetuate that policy this suit was filed. …  The sole question posed is, therefore, the constitutionality of the Civil Rights Act of 1964 as applied to these facts. The legislative history of the Act indicates that Congress based the Act on Section 5 and the Equal Protection Clause of the Fourteenth Amendment as well as its power to regulate interstate commerce under Art. I, Sec. 8, cl. 3 of the Constitution.  The Senate Commerce Committee made it quite clear that the fundamental object of Title II was to vindicate “the deprivation of personal dignity that surely accompanies denials of equal access to public establishments.” At the same time, however, it noted that such an objective has been and could be readily achieved “by congressional action based on the commerce power of the Constitution.” Our study of the legislative record, made in the light of prior cases, has brought us to the conclusion that Congress possessed ample power in this regard, and we have therefore not considered the other grounds relied upon. …  While the Act as adopted carried no congressional findings, the record of its passage through each house is replete with evidence of the burdens that discrimination by race or color places upon interstate commerce. … This testimony included the fact that our people have become increasingly mobile with millions of all races traveling from State to State; that Negroes in particular have been the subject of discrimination in transient accommodations, having to travel great distances to secure the same; that often they have been unable to obtain accommodations and have had to call upon friends to put them up overnight. … These exclusionary practices were found to be nationwide, the Under Secretary of Commerce testifying that there is “no question that this discrimination in the North still exists to a large degree” and in the West and Midwest as well. … This testimony indicated a qualitative as well as quantitative effect on interstate travel by Negroes. The former was the obvious impairment of the Negro traveler’s pleasure and convenience that resulted when he continually was uncertain of finding lodging. As for the latter, there was evidence that this uncertainty stemming from racial discrimination had the effect of discouraging travel on the part of a substantial portion of the Negro community. … We shall not burden this opinion with further details since the voluminous testimony presents overwhelming evidence that discrimination by hotels and motels impedes interstate travel. * * * * *  The power of Congress to deal with these obstructions depends on the meaning of the Commerce Clause. … [T]he determinative test of the exercise of power by the Congress under the Commerce Clause is simply whether the activity sought to be regulated is “commerce which concerns more States than one” and has a real and substantial relation to the national interest. * * * * * That Congress was legislating against moral wrongs in many of these areas rendered its enactment no less valid. In framing Title II of this Act Congress was also dealing with what it considered a moral problem. But that fact does not detract from the overwhelming evidence of the disruptive effect that racial discrimination has had on commercial intercourse. * * * * *  It is said that the operation of the motel here is of a purely local character. But, assuming this to be true, “if it is interstate commerce that feels the pinch, it does not matter how local the operation that applies the squeeze.” Thus the power of Congress to promote interstate commerce also includes the power to regulate the local incidents thereof, including local activities in both the States of origin and destination, which might have a substantial and harmful effect upon that commerce. …  We, therefore, conclude that the action of the Congress in the adoption of the Act as applied here to a motel which concededly serves interstate travelers is within the power granted it by the Commerce Clause of the Constitution, as interpreted by this Court for 140 years. …  Judgment in favor of the United States. 

The Dormant Commerce Clause

What might be the result if the federal government chooses not to regulate an area that it may constitutionally regulate, and a state nevertheless chooses to enact a regulation in that area? The response to this question involves what is termed as the “dormant commerce” clause. Even though there had been no federal regulation, the state statute may not unduly burden interstate commerce. Since only Congress has the power to regulate interstate commerce, any state statute negatively affecting interstate commerce may be declared unconstitutional. In Huish Detergents, Inc. v. Warren County, Kentucky, et al., 214 F.3d 707 (2000), the Sixth Circuit held an ordinance enacted by Warren County, Kentucky, restricting the collection and processing of waste generated by the city of Bowling Green to a single contractor violated the Dormant Commerce Clause. Huish Detergents, a manufacturer of laundry detergent, sued in federal district court claiming the County could not force it to use and pay only the county approved company to dispose of its waste and no one else. Huish alleged that as a result of the county ordinance, other contractors, including those from other states, could not compete to collect and dispose solid waste. Relying upon precedent that state restrictions on the interstate travel of waste violates the Commerce Clause, the court held the ordinance requiring the waste only be processed at the city’s transfer station and nowhere else, violated the dormant commerce clause. It was an impermissible intrusion into the authority of Congress—even though Congress had chosen not to legislate on that question.  The following case, Family Winemakers of California v. Jenkins, also illustrates the application of the Dormant Commerce Clause.

Case Study 

Family Winemakers Of California v. Jenkins

592 F.3d 1 (1st cIr. 2010) 

Procedural Posture

Defendant Massachusetts officials appealed from a United States District Court for the District of Massachusetts injunction against Mass. Gen. Laws ch. 138, § 19F, which established differential methods for distributing wines. Plaintiffs, a group of California winemakers argued the statute discriminated against interstate commerce in light of both the Commerce Clause, U.S. Const. art. I, § 8, cl. 3, and U.S. Const. amend. XXI, § 2. Overview Section 19F only allows “small” wineries, defined by Massachusetts as those producing 30,000 gallons or less of grape wine a year, to obtain a “small winery shipping license.” This license allows them to sell their wines in Massachusetts in three ways: by shipping directly to consumers, through wholesaler distribution, and through retail distribution. All of Massachusetts’s wineries are “small” wineries. Some out-of-state wineries also meet this definition.  Wines from “small” Massachusetts wineries compete with wines from “large” wineries, which Massachusetts has defined as those producing more than 30,000 gallons of grape wine annually. These “large” wineries must choose between relying upon wholesalers to distribute their wines in-state or applying for a “large winery shipping license” to sell directly to Massachusetts consumers. They cannot, by law, use both methods to sell their wines in Massachusetts, and they cannot sell wines directly to retailers under either option. No “large” wineries are located inside Massachusetts.  Plaintiffs, a group of California winemakers and Massachusetts residents, assert §19F was designed with the purpose, and has the effect, of advantaging Massachusetts wineries to the detriment of those wineries that produce 98 percent of the country’s wine, in violation of the Commerce Clause. Massachusetts defends § 19F on the basis that its law has neither a discriminatory purpose nor a discriminatory effect. Massachusetts has not argued in its briefs that there are no legitimate alternative methods of regulation to serve § 19F’s asserted purposes. Massachusetts also argues that under the Twenty-first Amendment, state laws are immunized from Commerce Clause scrutiny unless the laws discriminate on their face.  The primary question before us is whether §19F unconstitutionally discriminates against interstate commerce in light of both the Commerce Clause,1 art. I, §8, cl. 3, and §2 of the Twenty-first Amendment. …  In 2006, the Massachusetts legislature enacted § 19F over then-Governor Romney’s veto. Section 19F does not distinguish on its face between in-state and out-of-state wineries’ eligibility for direct shipping licenses, but instead distinguishes between “small” or “large” wineries through the 30,000 gallon cap. …  [A]ll wineries producing over 30,000 gallons of wine-all of which are located outside Massachusetts-can apply for a “large winery shipment license[.]… “large” wineries can either choose to remain completely within the three-tier system and distribute their wines solely through wholesalers, or they can completely opt out of the three-tier system and sell their wines in Massachusetts exclusively through direct shipping. They cannot do both. … By contrast, “small” wineries can simultaneously use the traditional wholesaler distribution method, direct distribution to retailers, and direct shipping to reach consumers. …  The advantages afforded to “small” wineries by the expanded distribution options in Mass. Gen. Laws ch. 138, § 19F, bore little relation to the market challenges caused by size. Section 19F’s statutory context, legislative history, and other factors also yielded an unavoidable conclusion that the discrimination was purposeful. Nor did § 19F serve any legitimate local purpose that could be furthered by a nondiscriminatory alternative. “Large” wineries — all located outside Massachusetts and accounting for 98 percent of all United States wine — could not distribute directly to consumers unless they did not distribute to retailers. But “small” wineries could simultaneously distribute through wholesalers, direct to retailers, and ship direct to consumers. The Wilson Act of 1890, 27 U.S.C.S. § 121, and the Webb-Kenyon Act of 1913,27 U.S.C.S. § 122, did not protect facially neutral state liquor laws from Commerce Clause invalidation if they were discriminatory. The Twenty-first Amendment similarly did not exempt such laws with discriminatory effects from the Commerce Clause. Nor were such laws exempt if they also discriminated by design, as did the Massachusetts statute. 

Holding 

Discrimination under the Commerce Clause “means differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter,” as opposed to state laws that “regulate[ ] evenhandedly with only incidental effects on interstate commerce … . ***** State laws that alter conditions of competition to favor in-state interests over out-of-state competitors in a market have long been subject to invalidation. …  *****  Here, the totality of the evidence introduced by plaintiffs demonstrates that § 19F’s preferential treatment of “small” wineries that produce 30,000 gallons or less of grape wine is discriminatory. Its effect is to significantly alter the terms of competition between in-state and out-of-state wineries to the detriment of the out-of-state wineries that produce 98 percent of the country’s wine. …  *****  Section 19F confers a clear competitive advantage to “small” wineries, which include all Massachusetts’s wineries, and creates a comparative disadvantage for “large” wineries, none of which are in Massachusetts. “Small” wineries that obtain a § 19F(b) license can use direct shipping to consumers, retailer distribution, and wholesaler distribution simultaneously. Combining these distribution methods allows “small” wineries to sell their full range of wines at maximum efficiency because they serve complementary markets. “Small” wineries that produce higher-volume wines can continue distributing those wines through wholesaler relationships. They can obtain new markets for all their wines by distributing their wines directly to retailers, including individual bars, restaurants, and stores. They can also use direct shipping to offer their full range of wines directly to Massachusetts consumers, resulting in greater overall sales. …  *****  We conclude that §19F altered the competitive balance to favor Massachusetts’s wineries and disfavor out-of-state competition by design.  We affirm the judgment of the district court. 

Outcome 

The grant of injunctive relief was affirmed. 

Congress’ power to regulate interstate commerce also includes the power to create statutes that are “necessary and proper” in order to carry out that power. When Congress operates within its limited enumerated powers to pass federal statutes, any state statute that conflicts with a federal statute will be struck down under the Supremacy Clause. In the Gonzalez case, the United States Supreme Court found California’s medical marijuana statute conflicted with the Controlled Substances Act, because the statute interfered with Congressional regulation of interstate commerce.  

Case Study 

Gonzalez v. Raich 

545 U.S. 1 (2005) 

Procedural Posture 

Respondents, claiming a violation of the Commerce Clause, sought injunctive and declaratory relief prohibiting enforcement of the federal Controlled Substances Act (CSA), 21 U.S.C.S. § 801 et seq., to the extent it prevented them from possessing, obtaining, or manufacturing cannabis for their personal medical use. A district court denied a motion for a preliminary injunction, but the United States Court of Appeals for the Ninth Circuit reversed.  Overview  Respondents were California residents who suffered from a variety of serious medical conditions and had sought to avail themselves of medical marijuana pursuant to the terms of the Compassionate Use Act, Cal. Health & Safety Code § 11362.5 (2005). After an investigation, county officials concluded that one respondent’s use of marijuana was entirely lawful under California law; nevertheless, federal agents seized and destroyed all six of her cannabis plants. The Court held that the regulation of marijuana under the CSA was squarely within Congress’ commerce power because production of marijuana meant for home consumption had a substantial effect on supply and demand in the national market. Given the enforcement difficulties in distinguishing between marijuana cultivated locally and marijuana grown elsewhere, 21 U.S.C.S. § 801(5), and concerns about diversion into illicit channels, the Court had no difficulty concluding that Congress had a rational basis forbelieving that failure to regulate the intrastate manufacture and possession of marijuana would leave a gaping hole in the CSA. Congress was acting well within its authority of the Commerce Clause, U.S. Const., art. I, § 8.

Holding

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 … . 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. … In this vein, we have reiterated that when “ ‘a general regulatory statute bears a substantial relation to commerce, the de minimis character of individual instances arising under that statute is of no consequence.’ ”. … ***** 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. … ***** 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.” U.S. Const., Art. I, § 8. 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. ***** [T]he activities regulated by the CSA are quintessentially economic. “Economics” refers to “the production, distribution, and consumption of commodities.” Webster’s Third New International Dictionary 720 (1966). The CSA is a statute that regulates the production, distribution, and consumption of commodities for which there is an established, and lucrative, interstate market. Prohibiting the intrastate possession or manufacture of an article of commerce is a rational (and commonly utilized) means of regulating commerce in that product. … Because the CSA is a statute that directly regulates economic, commercial activity, our opinion in Morrison casts no doubt on its constitutionality. … ***** One need not have a degree in economics to understand why a nationwide exemption for the vast quantity of marijuana (or other drugs) locally cultivated for personal use (which presumably would include use by friends, neighbors, and family members) may have a substantial impact on the interstate market for this extraordinarily popular substance. . .

Outcome

The court vacated the judgment of the Court of Appeals finding that the CSA was a valid exercise of federal power under the commerce clause. The case was remanded for further proceedings.

A Changing View of the Commerce Clause

A number of cases decided by the U.S. Supreme Court under Chief Justice Rehnquist began to reign-in unlimited Congressional authority under a broad commerce clause analysis. In doing so, the Supreme Court held that the activity which is the object of regulation must itself be commercial in nature. Secondly, the regulated activity must itself be conducted in interstate commerce. Two cases exemplify this change in perspective. In U.S. v Lopez, 514 U.S. 549 (1995), the Court invalidated the Gun-Free School Zone Act. The Act made it a crime to knowingly possess a firearm within a certain distance of a school. Finding the Act neither regulated a commercial activity nor was it conducted in interstate commerce, the Court held that the Act exceeded the authority of Congress “[t]o regulate Commerce … among the several States ….” Five years later, in U.S. v. Morrison, 529 U.S. 598 (2000), the Court held that the Violence Against Women Act was unconstitutional because the activities sought to be criminalized were not commercial in nature and were not conducted in interstate commerce. The Court noted that, “gender-motivated crimes of violence are not, in any sense of the phrase, economic activity.” Further, the Court held that, “simply because Congress may conclude that a particular activity substantially affects interstate commerce does not necessarily make it so. Rather, whether particular operations affect interstate commerce sufficiently to come under the constitutional power of Congress to regulate them is ultimately a judicial rather than a legislative question, and can be settled finally only by the Court.”  Lopez and Morrison have called into question the entire line of cases which expanded the reach of the Commerce Clause since the 1930s. 

The Taxing Power 

Article I, section 8 of the Constitution states that “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises.” Congress can use its taxing authority broadly as a “necessary and proper” means for effectuating one of its delegated powers. In practical terms, nearly every measure enacted in the form of a tax will have at least an incidental regulatory effect. For instance, if an excise tax on cigarettes is enacted, people may smoke fewer cigarettes— and that may be the exact result that regulators had intended. If the regulatory impact of the tax is one that could be achieved directly by use of one of the other enumerated powers (e.g., through the Commerce Clause), the fact that the tax has a regulatory effect is not of constitutional significance. Conversely, if the regulatory effect is one that could not have been achieved directly through the proper exercise of constitutional authority, then the tax may be stricken as an invalid regulation, disguised as a tax. The problem of distinguishing between a tax that is a valid revenue-raising measure, and one that has no real revenue purpose and is therefore invalid regulation disguised as a tax, presents a special problem. As long as a federal law is revenue producing on its face, the Court will not generally probe to discover a hidden regulatory motive and will not be overly concerned with whether the effects of the law trespass on the traditional state police power domain.  There is a twist to the discussion that could not have been anticipated. The Affordable Care Act (ACA) provides an interesting discussion of the relationship between the Commerce Clause and the taxing power. In National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012), a 5-4 vote with Chief Justice Roberts writing for the majority, the Supreme Court ruled that the ACA did not in fact regulate interstate commerce, rejecting a broad “affectation” principle which in another era would have most certainly been applied to health care which involves 17% or more of the total GNP of the United States. The Court stated that it was not a valid exercise under the Commerce Clause to force someone into commerce and then regulate that conduct. However, that was not the end of the discussion for the Supreme Court. In a 5-4 decision, again with the Chief Justice in the majority, the Supreme Court upheld the individual mandate portion of the ACA on the ground that it was enacted pursuant to Congress’ taxing authority, since it provided a penalty for those who did not have health insurance and who chose not to purchase it and imposed that penalty as part of the obligation to pay federal income taxes. 

The Spending Power

While Congress has no express power to legislate for the general welfare, Article I, section 8, gives Congress the power “to lay and collect Taxes … to pay the Debts and provide for the common Defense and general Welfare of the United States.” One can view the federal taxing power as a stick, and in turn, federal spending power as a reward. Congress’ power to spend is very broad; it can be used to promote regulatory ends for the general welfare and sometimes for particular purposes.  Since the 1940s, the United States Supreme Court has consistently upheld congressional regulation pursuant to its spending power. The Supreme Court, however, has viewed the use of the spending power for less than a general purpose with a critical eye. The exercise of the spending power must serve a general public purpose and not be directed at a specific interest. When Congress conditions the receipt of federal funds on specific requirements, it must do so constitutionally. Moreover, any conditions imposed upon a recipient must be reasonably related to the purpose for which the federal monies are spent. Arguably, federal spending power regulation is not as intrusive as other forms of federal regulation since a state has the option of not complying with a spending regulation and can decide not to accept federal funds.

Example  Congress, in order to prevent drivers under the age of 21 from drinking, withholds federal highway funds from states that permit individuals younger than 21 to purchase or possess in public any alcoholic beverage. South Dakota attacks the statute on the grounds that this condition interferes with its own exclusive power under the Tenth and Twenty-First Amendments. 

Due Process Clause 

The cardinal limitations against governmental interference with the fundamental rights of its citizens are found in the first ten amendments of the Constitution, commonly called the Bill of Rights. The principal purpose of the Bill of Rights is to protect individuals (and in some cases, businesses) against various forms of interference by the federal government without “due process of law.” Today, virtually all the fundamental guarantees of the Bill of Rights (with the exception of the use of a Grand Jury in state prosecutions and the requirement of a twelve-person jury in a state criminal case) have been incorporated into the Fourteenth Amendment, and therefore have been made applicable to the states. Held, that the statute is valid. Even if, arguendo, direct congressional setting of the drinking age for the entire country would be unconstitutional, Congress’ indirect use of its condi- tional spending power to achieve the same results is permissible. South Dakota v. Dole, 483 U.S. 203 (1987). 

Substantive Due Process

Substantive due process focuses on the content or substance of a law, that is, the rules that establish standards of behavior for our society. If a law is incompatible with the Constitution, it is said to violate substantive due process. Substantive due process requires that laws enacted by the government are clear and not overly broad. In the context of economic regulations, a statute must be enacted in furtherance of a legitimate state objective and there must be a rational relationship between the means chosen by the legislature and the objective of the regulation. In reality, virtually any statute dealing with “health, safety, morals, or general welfare” comes within the state’s police power and is thus “legitimate” under a substantive due process analysis. Such statutes are presumed to be constitutional, unless the legislation is completely arbitrary and irrational in its application. 

Example

The Court sustained against a due process attack on a federal prohibition on interstate shipment of “filled” milk, i.e. skimmed milk mixed with non-milk fat. The Court noted that Congress had acted upon findings of fact (e.g., committee reports) showing a public health danger from the filled milk. U.S. v. Carolene Products Co., 304 U.S. 144 (1938). 

Procedural Due Process 

Procedural due process focuses on the manner in which the government acts and the enforcement mechanisms it uses. When the government deprives a person of “life, liberty or property,” the Due Process Clauses of the Fifth and Fourteenth Amendments mandate procedural fairness. The requirements of procedural due process include the central premise that people must be given adequate notice of the government action to be instituted against them and to some form of hearing or trial before an action can follow.  Because a corporation has been determined to be a “person” under our Constitution, it is entitled to “due process” as well when its property is the subject of a law or regulation. The key concept in defining property today is a claim of “entitlement” to a benefit. When an individual is legally entitled to a benefit, it creates an expectancy that the benefit will not be arbitrarily terminated or interfered with without “due process of law.” The definition of property or of a property interest is very broad. “Property” can include real property, personal property, intellectual property, other intangible rights such as interests in a person’s reputation, or certain employment rights, e.g., requiring termination of a public employee only for good cause.  The concept of “liberty” embodies principles of freedom that lie at the roots of our legal system. Liberty interests generally fall under one of the following headings: 

1. freedom from bodily restraint or “physical liberty”;
2. substantive constitutional rights; and
3. other fundamental freedoms.

When physical freedom is curtailed by imprisonment or commitment to an institution, liberty interests are burdened, thus, requiring extensive procedural protections. Similarly, “liberty” also includes other rights such as freedom of expression and freedom of religion, as well as substantive rights including free association and belief and the right to privacy. Finally, “liberty” also encompasses a variety of fundamental interests relating to personal autonomy and choice. Some of these rights are found explicitly in the Constitution; others have been created by the Supreme Court to be within the “penumbras and emanations” of provisions of the Bill of Rights. (See Griswold v. Connecticut, 381 U.S. 479 (1965), establishing a right to privacy.)  In the following case, the Court’s opinion focuses on the notice required by procedural due process when the government deprives a person of property.  

Case Summary

Mennonite Board Of Missions v. Adams 

462 U.S. 791 (1983)

An Indiana Superior Court upheld the Indiana tax sale statute against constitutional challenge by the Mennonite Board of Missions (MBM), a mortgagee who contended that it had not received constitutionally adequate notice of the pending tax sale of and the opportunity to redeem the property following the tax sale since it was not informed of the pending sale either by the county auditor or by the mortgagor, who had been informed of the sale. The auditor, following the state law, had posted a notice of the sale in the county courthouse and published a notice once each week for three consecutive weeks. The Indiana Court of Appeals affirmed. On appeal, the U. S. Supreme Court reversed and remanded, holding that the manner of notice provided to the mortgagee did not meet the requirements of the due process clause of the Fourteenth Amendment.  MARSHALL, J. … In Mullane v. Central Hanover Bank & Trust Co., … this Court recognized that prior to an action which will affect an interest in life, liberty, or property protected by the Due Process Clause of the Fourteenth Amendment, a State must provide “notice reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Invoking this “elementary and fundamental requirement of due process,” the Court held that published notice of an action to settle the accounts of a common trust fund was not sufficient to inform beneficiaries of the trust whose names and addresses were known. The Court explained that notice by publication was not reasonably calculated to provide actual notice of the pending proceeding and was therefore inadequate to inform those whocould be notified by more effective means such as personal service or mailed notice[.] … ***** This case is controlled by the analysis in Mullane. To begin with, a mortgagee [MBM] possess (sic) a substantial property interest that is significantly affected by a tax sale. … Ultimately, the tax sale may result in the complete nullification of the mortgagee’s interest, since the purchaser acquires title free of all liens and other encumbrances at the conclusion of the redemption period. Since a mortgagee clearly has a legally protected property interest, he is entitled to notice reasonably calculated to apprise him of a pending tax sale. … When the mortgagee is identified in a mortgage that is publicly recorded, constructive notice by publication must be supplemented by notice mailed to the mortgagee’s last known available address, or by personal service. However, unless the mortgagee is not reasonably identifiable, constructive notice alone does not satisfy the mandate of Mullane. Neither notice by publication and posting, nor mailed notice to the property owner, are means “such as one desirous of actually informing the [mortgagee] might reasonably adopt to accomplish it.” … Because they are designed primarily to attract prospective purchasers to the tax sale, publication and posting are unlikely to reach those who, although they have an interest in the property, do not make special efforts to keep abreast of such notices. … Notice to the property owner, who is not in privity with his creditor and who has failed to take steps necessary to preserve his own property interest, also cannot be expected to lead to actual notice to the mortgagee. … The county’s use of these less reliable forms of notice is not reasonable where, as here, “an inexpensive and efficient mechanism such as mail service is available.” … Personal service or mailed notice is required even though sophisticated creditors have means at their disposal to discover whether property taxes have not been paid and whether tax sale proceedings are therefore likely to be initiated. In the first place, a mortgage need not involve a complex commercial transaction among knowledgeable parties, and it may well be the least sophisticated creditor whose security interest is threatened by a tax sale. More importantly, a party’s ability to safeguard its interests does not relieve the State of its constitutional obligation. …Notice by mail or other means as certain to ensure actual notice is a minimum constitutional precondition to a proceeding which will adversely affect the liberty or property interests of any party, whether unlettered or well versed in commercial practice, if its name and address are reasonably ascertainable. We therefore conclude that the manner of notice provided to [MBM] did not meet the requirements of the Due Process Clause of the Fourteenth Amendment. Accordingly, the judgment of the Indiana Court of Appeals is reversed[.] Judgment in favor of the Mennonite Board of Missions.

Takings Clause

Another important constitutional protection of a private economic interest is the ban on the taking of private property by the government without just compensation found in the Fifth Amendment. Both the federal and state governments (via the Fifth and Fourteenth Amendments respectively) have the right to take private property for public use, provided it pays “just compensation.” This power is known as “eminent domain” and the clause is referred to as the “Takings Clause.” The process can be a voluntary one or it can result from a condemnation action by the government. Under the Takings Clause, the government must pay reasonable or just compensation for any property it “takes.” On the other hand, if the government merely “regulates” property under its police power, then it does not need to pay compensation – even if the owner’s use of the property or its value is substantially diminished. Many disputes involving the takings clause revolve around determining what is a “public use” and whether the governmental action is a compensable “taking” or is it merely a non-compensable “regulation.”  Frequently, a problem will arise in the context of land-use regulation. For a land use regulation to avoid being classified as a taking, it must “substantially advance legitimate state interests” and it must not deny an owner the “viable use” of his land in an economic sense. Examples of a legitimate state interest include maintaining a residential character of a neighborhood through zoning; preserving landmarks or historical sites; actions designed to protect the environment; and surprisingly, preserving “youth” or “family values,” through restrictions placed on the number of non-related individuals who might occupy a house. Few land use regulations are likely to be found to deny the owner of the viable use of the land. Regulations, however, denying the owner the right to build any dwelling on the land would qualify as a taking, triggering the payment of reasonable compensation.  When the government makes or authorizes a permanent physical occupation of the property, it automatically constitutes a taking, no matter how minor the interference with the owner’s use and no matter how important the countervailing government interests.  Generally, the more drastic the reduction in value of the owner’s property due to the government regulation, the more likely a taking is to be found. However, note that a very drastic diminution in value, almost certainly much more than 50%, is generally required. 

Example A state land use regulation prevented private property owners from rebuilding their house on their beach front property unless they first gave the public an easement across a sandy strip of their property adjacent to the ocean so that the public could get to and from the public beaches north and south of the owner’s property (beaches which would be connected if the owner gave the public the required easement). Even though this easement would not have permitted the public to remain on the owners’ land, the Court found that it constituted a physical occupation and thus a taking of the owners’ property, providing compensation. Nollan v. California Coastal Commission, 483 U.S. 825 (1987). 

The Takings Clause protects more than land and interests in land. The clause has been applied to takings of personal property, liens, trade secrets, and contract rights. In 2005, the Supreme Court continued its expansion of the Takings Clause that had begun with the 1954 case of Berman v. Parker, 348 U.S. 26, in which the Supreme Court had literally changed the criteria found in the Constitution from “public use” to a broad “public purpose” so that the city of Washington, D.C., could “take” the property of a private party for purposes of the urban renewal of a blighted area, even though the property would then be sold to a private developer.  In 2000, the City of New London, Connecticut, adopted a plan that provided for taking the petitioners’ property for the purposes of affecting an economic development plan. There was no proof or allegation that the petitioner’s property was blighted. The City argued that the disposition of the property would nonetheless qualify as a “public use” within the meaning of the Takings Clause of the Fifth Amendment. Would the Court pay “deference to legislative judgments as to what public needs justify the use of the takings” or would it strike down the plan as a violation of the Fifth Amendment rights of the petitioner’s? The Supreme Court agreed with the position of New London, again in a 5-4 decision.  The Kelo decision has been subjected to severe criticism as the most egregious example of changing or perhaps ignoring the words of the Constitution in order to achieve a social goal. Since the Supreme Court’s decision, many states have rejected the use of eminent domain in these types of cases.  

Case Summary

Kelo et al. v. City Of New London et al. 

545 U.S. 469 (2005)

Summary: After approving an integrated development plan designed to revitalize its ailing economy, respondent city, through its development agent, purchased most of the property earmarked for the project from willing sellers, but initiated condemnation proceedings when petitioners, the owners of the rest of the property, refused to sell. Petitioners brought this state-court action claiming, inter alia, that the taking of their properties would violate the “public use” restriction in the Fifth Amendment’s  Takings Clause. The trial court granted a permanent restraining order prohibiting the taking of the some of the properties, but denying relief as to others. Relying on cases such as Hawaii Housing Authority v. Midkiff, 467 U.S. 229, and Berman v. Parker, 348 U.S. 26, the Connecticut Supreme Court affirmed in part and reversed in part, upholding all of the proposed takings. Held: The city’s proposed disposition of petitioners’propertyqualifiesasa“publicuse”within the meaning of the Takings Clause. (a) Though the city could not take petitioners’ land simply to confer a private benefit on a particular private party, see, e.g., Midkiff, 467 U.S., at 245, the takings at issue here would be executed pursuant to a carefully considered development plan, which was not adopted “to benefit a particular class of identifiable individuals,” ibid. Moreover, while the city is not planning to open the condemned land–at least not in its entirety–to use by the general public, this “Court long ago rejected any literal requirement that condemned property be put into use for the … public.” Id., at 244. Rather, it has embraced the broader and more natural interpretation of public use as “public purpose.” See, e.g., Fallbrook Irrigation Dist. v. Bradley, 164 U.S. 112, 158—164. Without exception, the Court has defined that concept broadly, reflecting its longstanding policy of deference to legislative judgments as to what public needs justify the use of the takings power. Berman, 348 U.S. 26; Midkiff, 467 U.S. 229; Ruckelshaus v. Monsanto Co., 467 U.S. 986. (b) The city’s determination that the area at issue was sufficiently distressed to justify a program of economic rejuvenation is entitled to deference. The city has carefully formulated a development plan that it believes will provide appreciable benefits to the community, including, but not limited to, new jobs and increased tax revenue. As with other exercises in urban planning and development, the city is trying to coordinate a variety of commercial, residential, and recreational land uses, with the hope that they will form a whole greater than the sum of its parts. To effectuate this plan, the city has invoked a state statute that specifically authorizes the use of eminent domain to promote economic development. Given the plan’s comprehensive character, the thorough deliberation that preceded its adoption, and the limited scope of this Court’s review in such cases, it is appropriate here, as it was in Berman, to resolve the challenges of the individual owners, not on a piecemeal basis, but rather in light of the entire plan. Because that plan unquestionably serves a public purpose, the takings challenged here satisfy the Fifth Amendment. (c) Petitioners’ proposal that the Court adopt a new bright-line rule that economic development does not qualify as a public use is supported by neither precedent nor logic. Promoting economic development is a traditional and long accepted governmental function, and there is no principled way of distinguishing it from the other public purposes the Court has recognized. See, e.g., Berman, 348 U.S., at 24. Also rejected is petitioners’ argument that for takings of this kind the Court should require a “reasonable certainty” that the expected public benefits will actually accrue. Such a rule would represent an even greater departure from the Court’s precedent. E.g., Midkiff, 467 U.S., at 242. The disadvantages of a heightened form of review are especially pronounced in this type of case, where orderly implementation of a comprehensive plan requires all interested parties’ legal rights to be established before new construction can commence. The Court declines to second-guess the wisdom of the means the city has selected to effectuate its plan. Berman, 348 U.S., at 26.

The Contract Clause 

Article I, Section 10 of the U.S. Constitution provides that “No State shall…pass any…Law impairing the Obligations of Contracts…” This clause, known as the Contracts Clause, prohibits states from passing legislation interfering with, or changing, the obligations of parties to a private contract, or contracts between states and private individuals or entities. What this means is that a state cannot alter the substance of a contract. However, a state can enact legislation that extends the time period of performance, or modifies specific payment terms. However, if a state passes a law that affects or abridges obligations in existing contracts, that law must be prospectively and not retroactively applied.  In pre-New Deal days, the principle of non-interference with a private contract was best exemplified in Lochner v. New York, 198 U.S. 45 (1905). In Lochner, the U.S. Supreme Court held that a New York statute limiting the number of hours that a baker could work per week violated the freedom of individuals to enter into contracts and was not a constitutional exercise of the state’s police powers. The Court stated that the law interfered with “the freedom of master and employee to contract in relation to their employment.” In 1934, during the Great Depression, the Court began to reverse its course and upheld a Minnesota statute that postponed foreclosure sales and extended the time for redemption on the basis that the law did not impair the obligations in the contract, but rather modified the remedy pursuant to the state’s police power in a time of economic emergency. (Home Bldg. & Loan Asso. v. Blaisdell, 290 U.S. 398 (1934)). Since the demise of Lochner, courts have upheld state laws related to preventing apartment evictions, prices of regulated goods and commodities, (e.g. gas, milk), or statutes which established rent controls on classes of rental property. Courts will defer to legislative judgments to respect economic and social regulations unless they are “demonstrably arbitrary or irrational.” (Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U.S. 59 (1978)).  Today, when analyzing a Contract Clause case, courts apply the following test: 

1. Is the state regulation a substantial impairment of the obligations of the contractual relationship?
2. Is there a legitimate public purpose behind the regulation?
3. Is the state regulation reasonable and appropriate for achieving the statute’s purpose, such as remedying a broad and general social or economic problem? (Energy Reserves Group v. Kan. Power & Light Co., 459 U.S. 400 (1983))

Example If the U.S. economy is in turmoil with a widespread number of home mortgage foreclosures, the Congress may temporarily order a lower interest rate on home mortgages, or impose a moratorium on mortgage foreclosures, without violating the Contract Clause.

Commercial Speech And The First Amendment 

The First Amendment provides, in part, that “Congress shall make no law … abridging the freedom of speech.” For the purposes of this chapter, the First Amendment will be analyzed in the context of commercial speech only.  A communication that furthers the economic interests of the speaker is referred to as commercial speech. Commercial speech, such as advertising, is entitled to First Amendment protection; however, this protection is more limited than the protections given to non-commercial speech, most especially political speech. Commercial speech is not entitled to unfettered, absolute freedom; but rather, the benefits of commercial speech are weighed against the benefits achieved by any government regulation of that speech. In commercial speech cases, the court foregoes the ordinary strict scrutiny standard of review (in which the government must show that its policy  is necessary to achieve a compelling state interest, and must demonstrate that the legislation is narrowly tailored to achieve the intended result) in favor of a less stringent balancing analysis.  Under these standards, truthful commercial speech will receive a limited First Amendment protection. On the other hand, false or deceptive commercial speech may be restricted or even banned by the government. Similarly, speech which advertises an illegal transaction (such as illegal internet gambling or the sale of marijuana), may also be banned or restricted.  At the same time, the use of some products is so tightly tied in with the exercise of constitutional rights that the sale of the product cannot constitutionally be banned. But what about the advertising of products or services that are lawful, but believed by the legislature to be harmful? The Supreme Court addressed this issue in Packer Corp. v. Utah, where the Court curtailed the advertising of cigarettes.   

Case Study 

Packer Corporation v. Utah 

285 U. S. 105 (1932) 

Procedural Posture

Defendant, a corporation engaged in billboard advertising, sought review of a judgment of the Supreme Court of Utah, which affirmed defendant’s conviction for displaying a billboard poster advertising cigarettes in violation of 1921 Utah Laws ch. 145, § 2, as amended by 1923 Utah Laws ch. 52, § 2 and 1929 Utah Laws ch. 92. 

Overview 

Defendant argued that 1921 Utah Laws ch. 145 violated the equal protection clause of the Fourteenth Amendment because its prohibition against the advertisement of cigarettes did not extend to newspapers, magazines, or periodicals. On review, the Court held that there was a difference which justified the classification between billboard advertising and advertising in newspapers, magazines, or periodicals. Unlike advertisements in newspapers and magazines, billboard advertisements were constantly before the eyes of observers on the streets and in street cars to be seen without the exercise of choice or volition on their part. The Court ruled that the statute did not unreasonably restrain interstate commerce because the statute’s operation was wholly intrastate. 

Holding 

First. The contention mainly urged is that the statute violates the equal protection clause of the Fourteenth Amendment; that in discriminating between the display by appellant of tobacco advertisements upon billboards and the display by others of such advertisements in newspapers, magazines or periodicals, it makes an arbitrary classification. The history of the legislation shows that the charge is unfounded. In Utah no one may sell cigarettes or cigarette papers without a license. Since 1890, it has been the persistent policy, first of the Territory and then of the State, to prevent the use of tobacco by minors, and to discourage its use by adults. Giving tobacco to a minor, as well as selling it, is a misdemeanor. So is permitting a minor to frequent any place of business while in the act of using tobacco in any form. Mere possession of tobacco by the minor is made a crime. And smoking by anyone in any enclosed public place (except a public smoking room designated as such by a conspicuous sign at or near the entrance) is a misdemeanor. In 1921, the legislature enacted a general prohibition of the sale or giving away of cigarettes or cigarette papers to any person, and of their advertisement in any form. Laws of Utah, 1921, c. 145, §§ 1, 2. After two years, however, the plan of absolute prohibition of sale was abandoned in favor of a license system. Laws of Utah, 1923, c. 52, § 1. But the provision against advertisements was retained, broadened to include tobacco in most other forms. In 1926, this statute was held void under the commerce clause, as applied to an advertisement of cigarettes manufactured in another State, inserted in a Utah newspaper which circulated in other States. State v. Salt Lake Tribune Publishing Co., 68 Utah 187; 249 Pac. 474. Thereupon the legislature, unwilling to abandon altogether its declared policy, amended the law by striking out the provision which prohibited advertising in newspapers and periodicals. The classification alleged to be arbitrary was made in order to comply with the requirement of the Federal Constitution as interpreted and applied by the highest court of the State. Action by a State taken to observe one prohibition of the Constitution does not entail the violation of another. J. E. Raley & Bros. v. Richardson, 264 U.S. 157, 160; Des Moines Nat. Bank v. Fairweather, 263 U.S. 103, 116, 117. Compare Dolley v. Abilene Nat. Bank, 179 Fed. 461, 463, 464. It is a reasonable ground of classification that the State has power to legislate with respect to persons in certain situations and not with respect to those in a different one. Compare Williams v. Walsh, 222 U.S. 415, 420.  Moreover, as the state court has shown, there is a difference which justifies the classification between display advertising and that in periodicals or newspapers: “Billboards, street car signs, and placards and such are in a class by themselves. They are wholly intrastate, and the restrictions apply without discrimination to all in the same class. Advertisements of this sort are constantly before the eyes of observers on the streets and in street cars to be seen without the exercise of choice or volition on their part. Other forms of advertising are ordinarily seen as a matter of choice on the part of the observer. The young people as well as the adults have the message of the billboard thrust upon them by all the arts and devices that skill can produce. In the case of newspapers and magazines, there must be some seeking by the one who is to see and read the advertisement. The radio can be turned off, but not so the billboard or street car placard. These distinctions clearly place this kind of advertisement in a position to be classified so that regulations or prohibitions may be imposed upon all within the class. This is impossible with respect to newspapers and magazines.” 297 Pac. 1013, 1019. The legislature may recognize degrees of evil and adapt its legislation accordingly. Miller v. Wilson, 236 U.S. 373, 384; Truax v. Raich, 239 U.S. 33, 43.  Second. The defendant contends that to make it illegal to carry out the contract under which the advertisement was displayed takes its property without due process of law because it arbitrarily curtails liberty of contract. The contention is without merit. The law deals confessedly with a subject within the scope of the police power. No facts are brought to our attention which establish either that the evil aimed at does not exist or that the statutory remedy is inappropriate. O’Gorman & Young v. Hartford Fire Insurance Co., 282 U.S. 251, 257; Hardware Dealers Mutual Fire Insurance Co. v. Glidden Co., 284 U.S. 151.  Third. The defendant contends also that the statute imposes an unreasonable restraint upon interstate commerce because it prevents the display on billboards of posters shipped from another State. It does not appear from the record that the defendant is the owner of the posters. Its interest is merely in its billboards located in the State, upon which it displays advertisements for which it is paid. So far as the posters are concerned, assuming them to be articles of commerce, compare Charles A. Ramsay Co. v. Associated Bill Posters, 260 U.S. 501, 511, the statute is aimed, not at their importation, but at their use when affixed to billboards permanently located in the State. Compare Browning v. Waycross, 233 U.S. 16, 22, 23; General Railway Signal Co. v. Virginia, 246 U.S. 500, 510. The prohibition is non-discriminatory, applying regardless of the origin of the poster. Its operation is wholly intrastate, beginning after the interstate movement of the poster has ceased. Compare Hygrade Provision Co. v. Sherman, 266 U.S. 497, 503; Hebe Co. v. Shaw, 248 U.S. 297, 304. See also Corn Products Refining Co. v. Eddy, 249 U.S. 427, 433. To sustain the defendant’s contention would be to hold that the posters, because of their origin, were entitled to permanent immunity from the exercise of state regulatory power. The Federal Constitution does not so require. Compare Mutual Film Corp. v. Industrial Commission, 236 U.S. 230, 240, 241. So far as the articles advertised are concerned, the solicitation of the advertisements, it may be assumed, is directed toward intrastate sales. Compare Di Santo v. Pennsylvania, 273 U.S. 34.  Whatever may be the limitations upon the power of the State to regulate solicitation and advertisement incident to an exclusively interstate business, the commerce clause interposes no barrier to its effective control of advertising essentially local. Compare Jell-O Co. v. Landes, 20 F.2d 120, 121; International Text-Book Co. v. District of Columbia, 35 App. D. C. 307, 311, 312. 

Outcome 

The Court affirmed the lower court’s judgment. 

In Central Hudson Gas & Electric Co. v. Public Com’n, 447 U.S. 557 (1980), the Court held that a total state ban on promotional advertising by utilities was unconstitutional.

Case Study 

Central Hudson Gas & Electric Corp. v. Public Service Comm’n

447 U.S. 557 (1980) 

Procedural Posture 

Appellant challenged a judgment from the Court of Appeals of New York that upheld as constitutional a regulation promulgated by appellee that completely banned promotional advertising by an electrical utility such as appellant. Appellant contended that the regulation impermissibly restrained commercial speech in violation of U.S. Const. amends. I and XIV. 

Overview 

During the winter, in the time of a fuel shortage, the Public Service Commission of the State of New York ordered electric utilities in the state to cease all advertising promoting the use of electricity because the state’s interconnected utility system did not have sufficient fuel stocks or sources of supply to meet all customer demands for the winter. Three years later, once the fuel shortage had eased, the Commission proposed to continue the ban on advertising and sought comments from the public. Notwithstanding opposition to continuation of the ban by an electric utility in the state which argued that the advertising prohibition violated the First Amendment, the Commission extended the prohibition against “promotional” advertising (advertising intended to stimulate the purchase of utility services) on the basis of the state’s interests in conserving energy and ensuring fair and effective rates for electricity. The utility thereafter challenged the ban on advertising in the New York state courts, claiming that the Commission had restrained commercial speech in violation of the First and Fourteenth Amendments. Ultimately, the Court of Appeals of New York upheld the prohibition on advertising, concluding that the governmental interests in the prohibition outweighed the limited constitutional value of the commercial speech at issue (47 NY2d 94, 390 NE2d 749).  In an opinion by Powell, J., joined by Burger, Ch. J., and Stewart, White, and Marshall, JJ., it was held that the ban on promotional advertising by electric utilities imposed by the Public Service Commission violated the First Amendment, as applied to the states through the Fourteenth Amendment, since despite the substantial nature of the state’s asserted interests in prohibiting such advertising- -which advertising was concededly neither inaccurate nor related to unlawful activity, and which was a species of commercial speech protected by the First Amendment, notwithstanding the monopoly power of electric utilities in the state over the sale of electricity–the link between the advertising prohibition and the state’s interest in ensuring fair and efficient rates was too tenuous and speculative to justify the ban, and the prohibition, even though it directly related to the substantial state interest in conserving energy, was more extensive that necessary to further such state interest. Appellee promulgated a regulation that banned all promotional advertising by electric utility companies operating in the state. Appellant challenged a judgment from the state’s highest court that ruled that the regulation did not violate U.S. Const. amends. I and XIV rights. On appeal, the Court reversed after applying the four-prong analysis relevant to commercial speech cases. The Court: (1) noted that appellee did not claim that the expression at issue either was inaccurate or related to unlawful activity; (2) ruled that appellant’s promotional advertising was not unprotected commercial speech merely because appellant held a monopoly over electricity in its service area; (3) ruled that, while appellee’s interests in energy conservation and ensuring fair and efficient energy rates were substantial, the link between the advertising ban and appellant’s rate structure was, at most, tenuous, and; (4) ruled that, because the regulation reached all promotional advertising, it was more extensive than necessary to further appellee’s interest in energy conservation. As such, the regulation impermissibly infringed appellant’s First Amendment rights. 

Outcome 

The Court reversed a judgment that upheld as constitutional appellee’s regulation that completely banned promotional advertising by an electrical utility, such as appellant, because the regulation impermissibly restrained appellant’s First Amendment right of free speech. Appellee’s asserted state interest in ensuring fair and efficient utility rates was not sufficiently linked to the advertising ban. 

Central Hudson developed a four-part analysis for commercial speech cases. The court 

“… 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.” 

Despite the lack of a clearly fashioned definition of what constitutes “commercial speech,” the Central Hudson test remains the dominant approach for resolution of commercial speech problems. 

Corporate Political Speech 

Corporate speech, however, is not always commercial speech. Consider the case in which a corporation spends its funds to support a political candidate or advocates for the enactment or defeat of a specific piece of legislation. Previously, many states restricted the amount of advertising in which corporations could engage. Several states concluded that corporations, with the huge sums of money at their disposal, could unduly influence election outcomes. In First National Bank of Boston v. Bellotti, 435 U.S. 765 (1978), the U.S. Supreme Court, nonetheless, struck down a Massachusetts law that prohibited certain corporations from making contributions or expenditures influencing voters on any issues that would not materially affect the corporate assets or their business. In its decision, the Court stated, “the concept that the government may restrict speech of some elements of our society in order to enhance the relative voice of others is wholly foreign to the First Amendment.” Essentially, it ruled that corporate political speech is to be protected to the same extent and with the same zeal as is the political speech of ordinary citizens.  It was effectively overturned with the passage of the 2002 Bipartisan Campaign Reform Act, also known as McCain-Feingold, which provided that no “electioneering communication,” such as a broadcast, cable, or satellite communication, could mention a candidate for political office within 60 days of a general election or 30 days of a primary election.  Once again, the United States Supreme Court would enter the debate. The United States Supreme Court’s ruling in Citizens United v. FEC, 558 U.S. 310 (2010), significantly impacted the issue of “corporate political speech.” Citizens United, a nonprofit corporation, wanted to distribute a film via video-on-demand about Hillary Clinton, who at the time was a candidate for the Democratic Party’s nomination for President in 2008, and pay for it using money it raised from individuals and from for-profit and nonprofit corporations. Citizens United sued the  Federal Election Commission to enjoin it from applying §203 of the Bipartisan Campaign Reform Act of 2002 which prohibited corporations and unions from using general treasury funds to make direct contributions to candidates or independent expenditures that expressly advocate the election or defeat of a candidate, through any form of media, in connection with  certain qualified federal elections and also prohibited any “electioneering communication.”  On appeal, the Supreme Court invalidated the corporate speech restraints in §203. The Supreme Court held the law was an “outright ban” on corporate political speech, thus violating the First Amendment. The Court also held that the law’s “prohibition on corporate independent expenditures” was a ban on speech because the Government could not suppress political speech on the basis of the speaker’s identity as a nonprofit or for-profit corporation.  The ramifications of the Citizens United, and the future impact of unrestrained corporate funding of political candidates and issues, is a matter of intense political, legal, and social debate. 

Business and Religious Liberty

The First Amendment protects an individual’s right to freedom of religion. The Establishment Clause of the First Amendment prohibits the government from establishing a national religion. The Free Exercise Clause protects an individual’s right to freely exercise his or her religion and prohibits the government from unreasonable intrusion on these rights. In 2014, by a vote of 5-4 in Burwell v. Hobby Lobby Stores, Inc., a sharply divided Supreme Court recognized certain corporations’ rights to religious freedom. The Court was called upon to balance the Establishment Clause with the Free Exercise Clause. It was no easy task and was not met with unanimous approval.  The U.S. Supreme Court held that the regulations adopted by HHS violated the RFRA, which prohibited the federal government from taking any action that substantially burdened the exercise of religion unless it constituted the least restrictive means of serving a compelling government interest. The Court rejected HHS’s argument that the owners of the companies forfeited all RFRA protection when they organized their businesses as corporations. The Court concluded that the challenged HHS regulations substantially burdened the exercise of religion because compliance would be contrary to the owners’ religious objections to abortion and there was a heavy financial penalty for noncompliance. Assuming that the regulations served a compelling government interest, the Court found that they were not the least restrictive means of serving that interest because there were other ways to ensure that every woman had cost-free access to certain contraceptives.  It should be recognized that Hobby Lobby was decided in the context of a closely held corporation in which the plaintiffs were able to show the “sincerely held religious beliefs of the companies’ owners.” 

Case Study

Burwell v. Hobby Lobby Stores, Inc.

573 U.S. __ (2014), 134 S.Ct. 2751 (2014) 

Procedural Posture 

Plaintiff owners of closely held corporations with sincere religious beliefs about contraception sued arguing that regulations requiring them to provide health insurance coverage for certain contraception violated the Religious Freedom Restoration Act of 1993 (RFRA), 42 U.S.C.S. § 2000bb et seq. The U.S. Court of Appeals for the Third and Tenth Circuits rendered opposite rulings regarding these claims. The U.S. Supreme Court granted certiorari. 

Overview 

The issue was whether the RFRA permitted the U.S. Department of Health and Human Services (HHS) to require that these corporations provide health insurance coverage for contraception that violated the sincerely held religious beliefs of the companies’ owners. The Patient Protection and Affordable Care Act of 2010 (ACA) generally requires employers with 50 or more full-time employees to offer a group health plan or group health insurance coverage that provides minimum essential coverage. 26 U.S.C.S. § 5000A(f)(2); 26 U.S.C.S. §§ 4980H(a), (c)(2). Any covered employer that does not provide such coverage must pay a substantial price. Specifically, if a covered employer provides group health insurance but its plan fails to comply with ACA’s group-health-plan requirements, the employer may be required to pay $100 per day for each affected “individual.” 26 U.S.C.S.   §§ 4980D(a)-(b). And if the employer decides to stop providing health insurance altogether and at least one full-time employee enrolls in a health plan and qualifies for a subsidy on one of the government-run ACA exchanges, the employer must pay $2,000 per year for each of its full-time employees. The Patient Protection and Affordable Care Act of 2010 also requires an employer’s group health plan or group-health-insurance coverage to furnish “preventive care and screenings” for women without “any cost sharing requirements. 42 U.S.C.S. § 300gg-13(a) (4). Congress did not specify what types of preventive care must be covered but instead, authorized the Health Resources and Services Administration, a component of Health Human Services, to make that important and sensitive decision. …The Health Resources and Services Administration promulgated the Women’s Preventive Services Guidelines. The Guidelines provide that nonexempt employers are generally required to provide coverage, without cost sharing for all Food and Drug Administration (FDA) approved contraceptive methods, sterilization procedures, and patient education and counseling. Certain employers, identified as religions nonprofit organizations, described under HHS regulations as “eligible organizations,” were exempt from the contraceptive mandate.  The owners of three closely held for-profit corporations [asserted] sincere Christian beliefs that life begins at conception and that it would violate their religion to facilitate access to contraceptive drugs or devices that operate after that point. In separate actions, they sued HHS and other federal officials and agencies (collectively HHS) under RFRA and the Free Exercise Clause, seeking to enjoin application of the contraceptive mandate insofar as it requires them to provide health coverage for the four objectionable contraceptives. 

Holding 

[Congress passed the Religious Freedom Restoration Act in 1993. The law states the “[g]overnment shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability,” unless the government can show the law furthers a compelling government interest by the least restrictive means.]  In holding that the HHS mandate is unlawful, we reject HHS’s argument that the owners of the companies forfeited all RFRA protection when they decided to organize their businesses as corporations rather than sole proprietorships or general partnerships. The plain terms of RFRA make it perfectly clear that Congress did not discriminate in this way against men and women who wish to run their businesses as for-profit corporations in the manner required by their religious beliefs. …  David and Barbara Green and their three children are Christians who own and operate two family businesses. Forty-five years ago, David Green started an arts-and-crafts store that has grown into a nationwide chain called Hobby Lobby. There are now 500 Hobby Lobby stores, and the company has more than 13,000 employees. … Hobby Lobby is organized as a for-profit corporation under Oklahoma law.  One of David’s sons started an affiliated business, Mardel, which operates 35 Christian bookstores and employs close to 400 people. Ibid. Mardel is also organized as a for-profit corporation under Oklahoma law.  Though these two businesses have expanded over the years, they remain closely held, and David, Barbara, and their children retain exclusive control of both companies. … David serves as the CEO of Hobby Lobby, and his three children serve as the president, vice president, and vice CEO. …  Hobby Lobby’s statement of purpose commits the Greens to “[h]onoring the Lord in all [they] do by operating the company in a manner consistent with Biblical principles.” … Each family member has signed a pledge to run the businesses in accordance with the family’s religious beliefs and to use the family assets to support Christian ministries. … In accordance with those commitments, Hobby Lobby and Mardel stores close on Sundays, even though the Greens calculate that they lose millions in sales annually by doing so. … The businesses refuse to engage in profitable transactions that facilitate or promote alcohol use; they contribute profits to Christian missionaries and ministries; and they buy hundreds of full-page newspaper ads inviting people to “know Jesus as Lord and Savior.” …  [T]he Greens believe that life begins at conception and that it would violate their religion to facilitate access to contraceptive drugs or devices that operate after that point. … They specifically object to the same four contraceptive methods … and … they have no objection to the other 16 FDA-approved methods of birth control. … Although their group-health-insurance plan predates the enactment of ACA, it is not a grandfathered plan because Hobby Lobby elected not to retain grandfathered status before the contraceptive mandate was proposed. …  As we have noted, the … Greens have a sincere religious belief that life begins at conception. They therefore object on religious grounds to providing health insurance that covers methods of birth control that, as HHS acknowledges … may result in the destruction of an embryo. By requiring the … Greens and their companies to arrange for such coverage, the HHS mandate demands that they engage in conduct that seriously violates their religious beliefs.  If the … Greens and their companies do not yield to this demand, the economic consequences will be severe. If the companies continue to offer group health plans that do not cover the contraceptives at issue, they will be taxed $100 per day for each affected individual. … For Hobby Lobby, the bill could amount to $1.3 million per day or about $475 million per year; for Conestoga, the assessment could be  $90,000 per day or $33 million per year; and for Mardel, it could be $40,000 per day or about $15 million per year. These sums are surely substantial. …  Here … the plaintiffs do assert that funding the specific contraceptive methods at issue violates their religious beliefs, and HHS does not question their sincerity. Because the contraceptive mandate forces them to pay an enormous sum of money – as much as $475 million per year in the case of Hobby Lobby – if they insist on providing insurance coverage in accordance with their religious beliefs, the mandate clearly imposes a substantial burden on those beliefs. …  The objecting parties contend that HHS has not shown that the mandate serves a compelling government interest, and it is arguable that there are features of ACA that support that view. … The least-restrictive-means standard is exceptionally demanding … and it is not satisfied here. HHS has not shown that it lacks other means of achieving its desired goal without imposing a substantial burden on the exercise of religion by the objecting parties in these cases. … 

Outcome 

Decisions affirmed in part and reversed and remanded in part.   

Ethical Considerations

Questions 

1. Explain the Necessary and Proper Clause.
2. What is the meaning of “checks and balances?”
3. Discuss the purpose of judicial review.
4. Critique this statement: “Congress has absolute power over interstate commerce.”
5. Nowhere in the U.S. Constitution is the power of Congress to establish a bank or create a corporation stated. Nevertheless, the Supreme Court declared a Maryland law imposing a tax on the Bank of the United States unconstitutional. By what means was the Court able to make such a decision? What clause in the Constitution was pivotal in reaching this decision? Explain.
6. Define the term stare decisis.
7. In NLRB v. Jones & Laughlin Steel Corp., the Supreme Court held that purely intrastate activities could be regulated by Congress. The Court concluded that the steel corporation had violated its employees’ rights to organize and determined that the National Labor Relations Act was valid. How did it reach this result?
8. By what means did the Supreme Court expand Congress’ commerce power in Heart of Atlanta Motel v. United States.
9. Review NLRB v. Jones & Laughlin Steel Corp., decided in 1937; Wickard v. Filburn, decided in 1942; and Heart of Atlanta Motel v. United States, decided in 1964. These cases provide examples of the expansion of Congress’ power to regulate commerce. Why do you think the Supreme Court ruled as it did in these cases? In forming your answer, consider the prevailing economic and social conditions of these times.
10. Explain the difference between the Commerce Clause and the Dormant Commerce Clause.
11. Why did the Court affirm the lower court ruling to enjoin the City of Burbank from enforcing a city ordinance forbidding any pure jet aircraft from taking off between 11 p.m. of one day and 7 a.m. of the next, and forbidding the airport operator from permitting any such takeoffs?
12. In Family Winemakers of California v. Jenkins, why did the court hold the Massachusetts law a violation of the dormant commerce clause? Should a state be allowed to decide how it regulates commerce within its borders, for example, passing laws to help small business within their state in the absence of a federal regulation?
13. In U.S. v. Lopez, what was the majority’s critique of Justice Breyer’s dissent? What was at issue in that case? Was the passing of the law restricting firearms in a school zone a proper exercise of Congress’ commerce power?
14. What was at issue in Gonzales v. Raich? Did the case preserve the federal government’s power to regulate illegal drugs?
15. Explain the difference between procedural due process and substantive due process.
16. What are the requirements of procedural due process?
17. What was the notice requirement in the Mennonite Board case?
18. What is eminent domain? When does a “taking” occur under the Fifth Amendment? Differentiate between a physical taking and a regulatory taking.
19. Explain how the U.S. Constitution protects the right of ownership of private property from being taken by the government. What was the Court’s ruling in the Kelo case?
20. What does the Contracts Clause in the Constitution provide?
21. What protections are afforded to commercial speech under the Constitution? Name the elements to the Central Hudson balancing test.
22. Explain the issue and ruling in the Packer case.
23. What did the Court say about political speech in the Citizens United case?
24. What did the Court rule in the Hobby Lobby case? How does freedom of religion apply to corporations?

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