federalism A system ofgovernment in which power isdivided .docx

federalism A system of
government in which power is
divided between a central
authority and constituent
political units.
99
5
Constitutional Principles
! THE CONSTITUTION
! FEDERALISM
! SEPARATION OF POWERS
! THE IMPACT OF THE COMMERCE CLAUSE ON
BUSINESS
! THE TAXING AND SPENDING POWERS OF THE
FEDERAL
GOVERNMENT
! THE IMPACT OF THE AMENDMENTS ON BUSINESS
F
iercely independent, highly individualistic, and very proud of
their country
would be a good characterization of Americans. Many say there
is no place
they would rather live than the United States. Much of their
pride stems from

a belief that they have a strong Constitution, which secures for
all individuals
their most fundamental rights. Most people, however, are not
aware of precisely
what their constitutional rights are or of how to go about
enforcing those rights.
This chapter provides the future business manager with basic
knowledge of the
constitutional framework of our country, as well as an overview
of the signifi-
cant impact of some of the constitutional provisions on the legal
environment of
business.
The Constitution
The Constitution provides the legal framework for our nation.
The articles of the
Constitution set out the basic structure of our government and
the respective
roles of the state and federal governments. The Amendments to
the Constitution,
especially the first 10, were primarily designed to establish and
protect individ-
ual rights.
Federalism
Underlying the system of government established by the
Constitution is the prin-
ciple of federalism, which means that the authority to govern is
divided be-
tween two sovereigns or supreme lawmakers. In the United
States, these two
sovereigns are the state and federal governments. Federalism
allocates the power
to control local matters to local governments. This allocation is

embodied in the
U.S. Constitution. Under the Constitution, all powers that are
neither given ex-
clusively to the federal government nor taken from the states
are reserved to the
states. The federal government has only those powers granted to
it in the Con-
stitution. Therefore, whenever federal legislation that affects
business is passed,
the question of the source of authority for that regulation
always arises. The
Commerce Clause is the predominant source of authority for the
federal regula-
tion of business, as we will see later.
C H A P T E R 5 " Constitutional Principles 101
Does the state law directly
conflict with a federal law?
If yes, the state law is
invalid under the
Supremacy Clause.
If no, does the state law
attempt to regulate in an
area where federal law is
so pervasive that it appears
that Congress intended
only federal regulation in
that area?
If yes, the state law is
invalid under the doctrine

of federal preemption.
If no, the state law is valid.
EXHIBIT 5-1
APPLICATION OF THE
SUPREMACY CLAUSE TO
STATE REGULATION
pertaining to interstate commerce, such as when a local
regulation imposes a sub-
stantial burden on the flow of interstate commerce through a
particular state. This
situation is discussed in some detail in the section on the
Commerce Clause.
Separation of Powers
The U.S. Constitution, in its first three articles, establishes
three independent
branches of the federal government, each with its own
predominant and inde-
pendent power. These three are the legislative, executive, and
judicial branches.
Each branch was made independent of the others and was given
a separate
sphere of power to prevent any one source from obtaining too
much power and
consequently dominating the government.
The doctrine of separation of powers calls for Congress, the
legislative
branch, to enact legislation and appropriate funds. The president
is commander-
in-chief of the armed forces and is also charged with ensuring
that the laws are

faithfully executed. The judicial branch is charged with
interpreting the laws in
the course of applying them to particular disputes. No member
of one branch
owes his or her tenure in that position to a member of any other
branch; no
branch can encroach on the power of another. This system is
often referred to as
being a system of checks and balances; that is, the powers given
to each branch
operate to keep the other branches from being able to seize
enough power to
dominate the government. Exhibit 5-2 provides a portrait of this
system.
separation of powers
Constitutional doctrine
whereby the legislative branch
enacts laws and appropriates
funds, the executive branch
sees that the laws are faithfully
executed, and the judicial
branch interprets the laws.
• Proposes amendments
to overrule judicial
decisions
• Impeaches and removes
judges
• Establishes number of
judges
• Establishes lower
courts

LEGISLATIVE
BRANCH
House of Representatives
Senate • Overrules president’s
vetoes
• Refuses to approve
treaties
• Refuses to approve
appointments by the
president
• Impeaches and removes
president
• Vetoes bills passed by
Congress
• Calls special sessions of
Congress
EXECUTIVE
BRANCH
President
Cabinet
• May declare laws
passed by Congress
unconstitutional
JUDICIAL
BRANCH

Supreme Court
Lower Federal Courts
• Appoints federal
judges
• Pardons federal
offenders
• May declare acts
by executive branch
unconstitutional
EXHIBIT 5-2
SYSTEM OF CHECKS AND BALANCES
106 P A R T O N E " Introduction to the Law and the Legal
Environment of Business
In 1996, California voters passed the Compassionate UseAct of
1996, which allowed seriously ill residents of the
state to have access to marijuana for medical purposes. An-
gel Raich and Diane Monson are California residents who
were using medical marijuana pursuant to their doctors’
recommendations for their serious medical conditions.
County deputy sheriffs and federal Drug Enforcement
Administration (DEA) agents investigated Raich’s and
Monson’s use of medical marijuana. Although Raich and
Monson were found to be in compliance with the state law,
the federal agents seized and destroyed their cannabis plants.

Raich and Monson brought suit against the attorney
general of the United States and the head of the DEA, seek-
ing injunctive and declaratory relief prohibiting the en-
forcement of the federal Controlled Substances Act (CSA)
to the extent it prevents them from possessing, obtaining,
or manufacturing cannabis for their personal medical use.
The district court denied respondents’ motion for a pre-
liminary injunction. A divided panel of the court of ap-
peals for the Ninth Circuit reversed and ordered the
district court to enter a preliminary injunction. The United
States appealed.
Justice Stevens
Respondents in this case do not dispute that passage of the
CSA, as part of the Comprehensive Drug Abuse Prevention
and Control Act, was well within Congress’ commerce
power. Nor do they contend that any provision or section
of the CSA amounts to an unconstitutional exercise of con-
gressional authority. Rather, respondents’ challenge is actu-
ally quite limited; they argue that the CSA’s categorical
prohibition of the manufacture and possession of marijuana
as applied to the intrastate manufacture and possession of
marijuana for medical purposes pursuant to California law
exceeds Congress’ authority under the Commerce Clause.
[There are] three general categories of regulation in
which Congress is authorized to engage under its com-
merce power. First, Congress can regulate the channels of
interstate commerce. Second, Congress has authority to
regulate and protect the instrumentalities of interstate
commerce and persons or things in interstate commerce.
Third, Congress has the power to regulate activities that
substantially affect interstate commerce. Only the third
category is implicated in the case at hand.
Our case law firmly establishes Congress’ power to reg-

ulate purely local activities that are part of an economic
“class of activities” that have a substantial effect on inter-
state commerce. As we stated in Wickard v. Filburn,
317 U.S. 111 (1942), “even if appellee’s activity be local
and though it may not be regarded as commerce, it may
still, whatever its nature, be reached by Congress if it exerts
a substantial economic effect on interstate commerce.” We
have never required Congress to legislate with scientific
exactitude. When Congress decides that the “total inci-
dence” of a practice poses a threat to a national market, it
may regulate the entire class.
Our decision in Wickard is of particular relevance. In
Wickard, we upheld the application of regulations prom-
ulgated under the Agricultural Adjustment Act of 1938,
which were designed to control the volume of wheat mov-
ing in interstate and foreign commerce in order to avoid
surpluses and consequent abnormally low prices. The reg-
ulations established an allotment of 11.1 acres for Filburn’s
1941 wheat crop, but he sowed 23 acres, intending to use
the excess by consuming it on his own farm. Filburn ar-
gued that even though we had sustained Congress’ power
to regulate the production of goods for commerce, that
power did not authorize “federal regulation [of] produc-
tion not intended in any part for commerce but wholly for
consumption on the farm.” Justice Jackson’s opinion for a
unanimous Court rejected this submission. He wrote:
The effect of the statute before us is to restrict the amount
which may be produced for market and the extent as
well to which one may forestall resort to the market by
producing to meet his own needs. That appellee’s own
contribution to the demand for wheat may be trivial
by itself is not enough to remove him from the scope
of federal regulation where, as here, his contribution,
taken together with that of many others similarly sit-

uated, is far from trivial.
Wickard thus establishes that Congress can regulate purely
intrastate activity that is not itself “commercial,” in that it is
not produced for sale, if it concludes that failure to regu-
late that class of activity would undercut the regulation of
the interstate market in that commodity.
The similarities between this case and Wickard are
striking. Like the farmer in Wickard, respondents are cul-
tivating, for home consumption, a fungible commodity for
C A S E 5-2
Gonzales v. Raich
Supreme Court of the United States 545 U.S. 1 (2005)
Violence Against Women Act, which Congress justified through
its Commerce
Clause power, was unconstitutional. Despite the rulings in
Lopez and Morrison,
however, the following case, Gonzales v. Raich, shows that the
Court may not
be categorically opposed to an expansion of congressional
power through the
Commerce Clause.
J. Arredondo
which there is an established, albeit illegal, interstate mar-
ket. 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 con-

sequently 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 reg-
ulatory scheme would have a substantial influence on
price and market conditions. Here too, Congress had a ra-
tional basis for concluding that leaving home-consumed
marijuana outside federal control would similarly affect
price and market conditions.
More concretely, one concern prompting inclusion of
wheat grown for home consumption in the 1938 Act was
that rising market prices could draw such wheat into the in-
terstate market, resulting in lower market prices. The par-
allel concern making it appropriate to include marijuana
grown for home consumption in the CSA is the likelihood
that the high demand in the interstate market will draw
such marijuana into that market. While the diversion of
homegrown wheat tended to frustrate the federal interest
in stabilizing prices by regulating the volume of commer-
cial transactions in the interstate market, the diversion of
homegrown marijuana tends to frustrate the federal inter-
est in eliminating commercial transactions in the interstate
market in their entirety. In both cases, the regulation is
squarely within Congress’ commerce power because pro-
duction of the commodity meant for home consumption,
be it wheat or marijuana, has a substantial effect on supply
and demand in the national market for that commodity.
Nonetheless, respondents suggest that Wickard differs
from this case in three respects: (1) the Agricultural Ad-
justment Act, unlike the CSA, exempted small farming op-
erations; (2) Wickard involved a “quintessential economic
activity”—a commercial farm—whereas respondents do

not sell marijuana; and (3) the Wickard record made it
clear that the aggregate production of wheat for use on
farms had a significant impact on market prices. Those dif-
ferences, though factually accurate, do not diminish the
precedential force of this Court’s reasoning.
The fact that Wickard’s own impact on the market was
“trivial by itself” was not a sufficient reason for removing
him from the scope of federal regulation. That the Secre-
tary of Agriculture elected to exempt even smaller farms
from regulation does not speak to his power to regulate all
those whose aggregated production was significant, nor
did that fact play any role in the Court’s analysis. Moreover,
even though Wickard was indeed a commercial farmer, the
activity he was engaged in—the cultivation of wheat for
home consumption—was not treated by the Court as part
of his commercial farming operation.
In assessing the scope of Congress’ authority under the
Commerce Clause, we stress that the task before us is a
modest one. We need not determine whether respon-
dents’ activities, taken in the aggregate, substantially affect
interstate commerce in fact, but only whether a “rational
basis” exists for so concluding. Given the enforcement dif-
ficulties that attend distinguishing between marijuana cul-
tivated 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 compre-
hensive legislation to regulate the interstate market in a
fungible commodity, Congress was acting well within its
authority to “make all Laws which shall be necessary and
proper” to “regulate Commerce . . . among the several

States.” That the regulation ensnares some purely intrastate
activity is of no moment. As we have done many times be-
fore, we refuse to excise individual components of that
larger scheme.
Reversed and remanded in favor of
Attorney General Gonzalez.
C R I T I C A L T H I N K I N G A B O U T T H E L AW
Analogies are a standard method for creating a link between the
case at hand and legal precedent.
Wickard v. Filburn is a long-established precedent. The court’s
reasoning in Case 5-2 is that the use of medical
marijuana by the plaintiffs is sufficiently similar to the facts in
Wickard to rely on this precedent.
1. What are the similarities between the case at hand and
Wickard?
Clue: Try to make a large list of similarities. Later after you
have made a large list, think about the logic the
analogy is trying to support. Eliminate those similarities that do
not assist that logic because they are not rele-
vant to an assessment of the quality of the analogy.
2. Are there significant differences that the Court ignores or
downplays?
Clue: First think about the purpose this analogy is serving. Then
think about the differences in the facts for this
case and the facts for Wickard.

Although the current Supreme Court seems to prefer greater
regulatory
power for states, Gonzales v. Raich and another recent case
stand as examples
in which the Supreme Court upheld congressional acts on the
basis of the Com-
merce Clause. In Pierce County v. Guillen,11 the Supreme
Court held that the
Hazard Elimination Program was a valid exercise of
congressional authority un-
der the Commerce Clause. This program provided funding to
state and local gov-
ernments to improve conditions of some of their most unsafe
roads. To receive
federal funding, however, state and local governments were
required to regu-
larly acquire information about potential road hazards. The state
and local gov-
ernments were reluctant to avail themselves of the program for
fear that the
information they acquired to receive funding would be used
against them in law-
suits based on negligence. To alleviate these fears, Congress
amended the pro-
gram, allowing state and local governments to conduct
engineering surveys
without publicly disseminating the acquired information, even
for discovery pur-
poses in trials.
Following his spouse’s death in an automobile accident, Ignacio
Guillen
sued Pierce County and sought information related to previous

accidents at the
intersection where his wife died. The county argued that such
information was
protected under the provisions of the Hazard Elimination
Program. Reversing
the appellate court’s holding that Congress exceeded its powers
when amend-
ing the act, the Supreme Court concluded that the amended act
was valid under
the Commerce Clause. The Supreme Court reasoned that
Congress had a signif-
icant interest in assisting local and state governments in
improving safety in the
channels of interstate commerce, the interstate highways. The
Court validated
Congress’s belief that state and local governments would be
more likely to collect
relevant and accurate information about potential road hazards
if those govern-
ments would not be required to provide such information in
discovery. Hence,
the Supreme Court held that the amended act of Congress was
valid on the basis
of the Commerce Clause.
Despite the Court’s ruling in Pierce County v. Guillen, many
Supreme Court
commentators had thought that the Court’s turn toward a more
restrictive inter-
pretation of the Commerce Clause would lead the Court to rule
that Congress
cannot justify regulating states’ decisions regarding medical
marijuana through
the Commerce Clause. Instead, Justice Stevens distinguished
Gonzales v. Raich
from United States v. Lopez and Brzonkala v. Morrison,

explaining that the
federal regulations at issue in Lopez and Morrison were not
related to economic
activity, even understood broadly, and thus in both cases
Congress had over-
stepped its bounds. Raich’s activities, however, did involve
economic activity,
even if it is the economic activity of an illegal, controlled
substance. Exhibit 5-3
offers a summary of a number of Commerce Clause cases the
Supreme Court
has decided since Lopez. One inference a person could draw
after examining
the cases in Exhibit 5-3 is that the Court is willing to limit
congressional power
but not necessarily in every instance where such restriction is
possible.
THE COMMERCE CLAUSE AS A RESTRICTION
ON STATE AUTHORITY
Because the Commerce Clause grants authority to regulate
commerce to the fed-
eral government, a conflict arises over the extent to which
granting such au-
thority to the federal government restricts the states’ authority
to regulate
commerce. The courts have attempted to resolve the conflict
over the impact of
11 537 U.S. 129 (2003).
Case Summary Significance of the Case

Reno v. Condon,
528 U.S. 141
(2000)
Supreme Court upheld the Driver Privacy Protection
Act (DPPA), which prevented intentional disclosure
of personal information obtained by the Department
of Motor Vehicles (DMV) about another person.
The personal information of drivers, and
the subsequent sale of said information,
was deemed to be a valid part of interstate
commerce and thus within Congress’s
regulatory reach.
United States v.
Morrison, 529
U.S. 598 (2000)
Congressional law that added a federal civil penalty
to gender-motivated crimes was ruled to be
unconstitutional.
Under its Commerce Clause power,
Congress cannot regulate gender-motivated
violence that is in no way economic activity.
Solid Waste Agency
of Northern Cook
County v. United
States Army Corps
of Engineers, 531
U.S. 159 (2001)
An abandoned sand-and-gravel pit that had subsequently

been filled with water forming an intrastate body of
water was deemed out of the regulatory reach of
Congress and the Army Corps of Engineers, which
sought to regulate the water under the Clean Water Act
through Congress’s Commerce Clause power.
The Supreme Court effectively limited
Congress’s power to regulate intrastate
waterways through the elimination of the
Migratory Bird Rule provision of the Clean
Water Act.
Pierce County v.
Guillen, 537 U.S.
129 (2003)
The federal Hazard Elimination Program, which
requires states to collect information regarding danger-
ous roadways, contains a provision that prevents the
data from being used as evidence in state or federal
courts.The Supreme Court ruled that the protection
does not violate Congress’s Commerce Clause powers.
Although not expanding Congress’s
Commerce Clause powers per se, the
Court’s ruling did not limit the power
Congress has over the regulation of road-
ways and the dissemination of information
regarding the safety of roadways.
Gonzales v. Raich,
545 U.S. 1 (2005)
The California medicinal marijuana laws were ruled
to violate the Constitution’s Commerce Clause, as
Congress has the power to regulate illegal drugs.

Congress’s Commerce Clause power
includes the ability to regulate illegal
substances, whereas states do not have a
reciprocal ability to do so.
Granholm v.
Heald, 544 U.S.
460 (2005)
New York and Michigan state laws that allow in-state
wineries to ship wine directly to consumers, but
that prohibit out-of-state wineries from engaging in
the same practice, were ruled to unconstitutionally
violate the Commerce Clause by discriminating
against interstate commerce.
The 21st Amendment, which ended prohi-
bition, does not allow states to interfere
with interstate commerce associated with
the sale of wine.
American Trucking
Assocication, Inc. v.
Michigan Public
Service
Commission, 545
U.S. 429 (2005)
The Supreme Court ruled that a flat $100 fee that
Michigan imposed on all in-state truck deliveries did
not discriminate against interstate commerce and
thus did not violate the Commerce Clause.
State regulations that apply to in-state and
out-of-state groups equally do not violate

the Commerce Clause.
Rapanos v. United
States, 126 S. Ct.
2208 (2006)
The expanded use of the term navigable waters by
the Army Corps of Engineers in order to regulate an
increased number of waterways violates Congress’s
Commerce Clause powers.
The Supreme Court greatly restricted
Congress’s ability to regulate waterways
under the Clean Water Act, thus diminishing
Congress’s Commerce Clause authority.
United Haulers
Assocication, Inc. v.
Oneida-Herkimer
Solid Waste
Management
Authority, 127 S.
Ct. 1786 (2007)
State flow control ordinances regulating solid waste
disposal that favor an in-state public facility were
upheld, as they do not violate the Commerce Clause.
When state laws validly favor a public
facility, and consequently treat in-state and
out-of-state businesses the same, there is no
unconstitutional interference with
interstate commerce.
EXHIBIT 5-3

MODERN SUPREME COURT INTERPRETATIONS OF THE
COMMERCE CLAUSE
the Commerce Clause on state regulation by distinguishing
between regulations
of commerce and regulations under the state police power.
Police power means
the residual powers retained by the state to enact legislation to
safeguard the
health and welfare of its citizenry. When the courts perceived
state laws to be
attempts to regulate interstate commerce, these laws would be
struck down;
however, when the courts found state laws to be based on the
exercise of the
state police power, the laws were upheld.
Since the mid-1930s, whenever states have enacted legislation
that affects in-
terstate commerce, the courts have applied a two-pronged test.
First, they ask:
Is the regulation rationally related to a legitimate state end? If it
is, then they ask:
Is the regulatory burden imposed on interstate commerce
outweighed by the
state interest in enforcing the legislation? If it is, the state’s
regulation is upheld.
The following case provides an illustration of the Court’s
examination of a state
law that was ultimately found not to unconstitutionally interfere
with interstate

commerce.
In 1989, the Oneida-Herkimer Solid Waste
ManagementAuthority (Authority) and Oneida and Herkimer
Counties
entered into a solid waste management agreement, under
which the Authority agreed to manage all solid waste
within the counties. The Authority collected “tipping
fees” to cover its operating and maintenance costs, but
these fees were significantly higher than typical open-market
fees. In addition to landfill transportation and solid waste
disposal, the fees enabled the Authority to provide recy-
cling of 33 kinds of materials, as well as composting,
household hazardous waste disposal, and a number of
other services.
The counties enacted “flow control” ordinances requir-
ing that all solid waste generated within the counties be de-
livered to the Authority’s processing sites. Under the
ordinance, private haulers had to obtain a permit from the
Authority to collect waste in the counties. United Haulers,
a trade association made up of solid waste management
companies and haulers operating in Oneida and Herkimer
Counties, brought suit alleging that the flow control laws
violate the Commerce Clause by discriminating against in-
terstate commerce. The district court ruled in favor of the
haulers, but the Second Circuit reversed and remanded.
After further proceedings, the Second Circuit’s previous
ruling in favor of the counties stood. The Second Circuit’s
ruling was in opposition to an opinion given by the Sixth
Circuit in National Solid Wastes Management Associa-
tion v. Daviess County, 434 F.3d 898 (6th Cir. 2006), so the
Supreme Court agreed to hear the case.
Chief Justice Roberts
“Flow control” ordinances require trash haulers to deliver

solid waste to a particular waste processing facility. In C &
A Carbone, Inc. v. Clarkstown, 511 U.S. 383 (1994), this
Court struck down under the Commerce Clause a flow
control ordinance that forced haulers to deliver waste to a
particular private processing facility. In this case, we face
flow control ordinances quite similar to the one invali-
dated in Carbone. The only salient difference is that the
laws at issue here require haulers to bring waste to facili-
ties owned and operated by a state-created public benefit
corporation. We find this difference constitutionally sig-
nificant. Disposing of trash has been a traditional govern-
ment activity for years, and laws that favor the government
in such areas—but treat every private business, whether
in-state or out-of-state, exactly the same—do not discrimi-
nate against interstate commerce for purposes of the Com-
merce Clause. Applying the Commerce Clause test
reserved for regulations that do not discriminate against in-
terstate commerce, we uphold these ordinances because
any incidental burden they may have on interstate com-
merce does not outweigh the benefits they confer on the
citizens of Oneida and Herkimer Counties.
II
A
The Commerce Clause provides that “Congress shall have
Power . . . to regulate Commerce with foreign Nations, and
among the several States.” Although the Constitution does
not in [its] terms limit the power of States to regulate com-
merce, we have long interpreted the Commerce Clause as
an implicit restraint on state authority, even in the absence
of a conflicting federal statute.
To determine whether a law violates this so-called “dor-
mant”aspect of the Commerce Clause, we first ask whether
it discriminates on its face against interstate commerce. In

this context, “‘discrimination’ simply means differential
treatment of in-state and out-of-state economic interests
C A S E 5-3
United Haulers Association, Inc. v. Oneida-Herkimer
Solid Waste Management Authority
Supreme Court of the United States 127 S. Ct. 1786 (2007)
police power The state’s
retained authority to pass laws
to protect the health, safety,
and welfare of the community.

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