Friday, April 27, 2012

Business Law Text And Cases, Chapter 4


Chapter 4


Constitutional Authority to
Regulate Business




TRUE/FALSE QUESTIONS

A1.      A federal form of government is a confederation of independent states with a central government of very limited powers.

            answer:    F                              PAGE:     77                             type:      N
                        NAT: AACSB Analytic                     AICPA Critical Thinking

B1.      The courts make the final determination on issues involving constitutional interpretation.

            answer:    T                              PAGE:     77                             type:      N
                        NAT: AACSB Analytic                     AICPA Legal

A2.      The federal government retains all powers not specifically delegated to the states.

            answer:    F                              PAGE:     77                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

B2.      The Articles of Confederation established a confederal form of government.

            answer:    T                              PAGE:     77                             type:      N
                        NAT: AACSB Analytic                     AICPA Legal

A3.      The state governments retain all powers not specifically delegated to the federal government.

            answer:    T                              PAGE:     77                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

B3.      Under their police powers, states can regulate private activities to protect or promote the public order, health, safety, morals, and general welfare.

            answer:    T                              PAGE:     77                             type:      N
                        NAT: AACSB Analytic                     AICPA Legal

A4.      Under their police powers, states can regulate only public activities, such as political demonstrations.

            answer:    F                              PAGE:     77                             type:      N
                        NAT: AACSB Analytic                     AICPA Critical Thinking

B4.      A state law that treats nonresidents different from residents may violate the privileges and immunities clause.

            ANSWER:    T                              PAGE:     78                             TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A5.      The checks and balances in the U.S. Constitution prevent any one branch of government from exercising too much power.

            answer:    t                              PAGE:     79                             type:      N
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking


B5.      Under the U.S. Constitution, each branch of government limits some actions of the other branches.

            ANSWER:    T                              PAGE:     79                             TYPE:      N
                        NAT: AACSB Analytic                     AICPA Legal

A6.      Congress can regulate all commerce in North America.

            answer:    F                              PAGE:     79                             type:      N
                        NAT: AACSB Analytic                     AICPA Critical Thinking

B6.      The executive branch can regulate any activity that substan­tially af­fects interstate commerce.

            answer:    t                              PAGE:     79                             type:      +
                        NAT: AACSB Analytic                     AICPA Critical Thinking

A7.      The Constitution expressly excludes state regulation of commerce.

            answer:    F                              PAGE:     80                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

B7.      Under the commerce clause, a state may charge a higher tax on out-of-state products shipped to in-state locations.

            ANSWER:    F                              PAGE:     80                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A8.      When there is a direct conflict between a federal and a state law, the state law is rendered invalid.

            ANSWER:    T                              PAGE:     82                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

B8.      The supremacy clause of the Constitution provides that a state law is in­valid when it directly conflicts with a federal law.

            answer:    t                              PAGE:     82                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

A9.      Whether the federal government has preempted a certain area is always clear.

            answer:    F                              PAGE:     82                             type:      =
                        NAT: AACSB Analytic                     AICPA Critical Thinking

B9.      Congress may tax some states and exempt others.

            answer:    F                              PAGE:     83                             type:      =
                        NAT: AACSB Analytic                     AICPA Critical Thinking

A10.    The taxing and spending clause of the U.S. Constitution has had a greater impact on business than any other clause in the Constitution.

            answer:    F                              PAGE:     83                             type:      N
                        NAT: AACSB Analytic                     AICPA Legal

B10.    The Bill of Rights consists of the first ten amendments to the Constitution.

            answer:    t                              PAGE:     83                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A11.    Some constitutional protections apply to business entities.

            answer:    T                              PAGE:     83                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B11.    The Bill of Rights protects individuals against various types of interfer­ence by the states and by the federal government.

            answer:    T                              PAGE:     84                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

A12.    The Bill of Rights confers absolute rights, not subject to interpretation by the United States Supreme Court.

            ANSWER:    F                              PAGE:     84                             TYPE:      =
                        NAT: AACSB Analytic                     AICPA Critical Thinking

B12.    The First Amendment protects symbolic speech.

            answer:    T                              PAGE:     85                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A13.    Political speech that would otherwise be protected by the First Amend­ment loses that protection if its source is a corporation.

            answer:    f                              PAGE:     86                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking


B13.    The courts determine when the laws restricting free speech are justified by the need to protect other rights.

            ANSWER:    T                              PAGE:     85                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

A14.    The First Amendment does not protect commercial speech as extensively as noncommercial speech.

            answer:    T                              PAGE:     86                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B14.    A restriction on commercial speech that implements a substantial government interest may be valid.

            ANSWER:    T                              PAGE:     86                             TYPE:      =
                        NAT: AACSB Analytic                     AICPA Critical Thinking

A15.    The establishment clause of the U.S. Constitution prohibits the federal government from establishing an official religion.

            answer:    T                              PAGE:     90                             type:      N
                        NAT: AACSB Analytic                     AICPA Legal

B15.    The First Amendment protects obscene speech.

            answer:    F                              PAGE:     90                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A16.    A government law that restricts a fundamental right will be held to vio­late substantive due pro­cess unless it promotes a compelling or overrid­ing state interest.

            answer:    T                              PAGE:     92                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

B16.    The First Amendment requires a complete separation of church and state.

            answer:    f                              PAGE:     90                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A17.    Any law that distinguishes between or among individuals violates the equal protection clause.

            answer:    F                              PAGE:     93                             type:      =
                        NAT: AACSB Analytic                     AICPA Critical Thinking

B17.    A law that restricts a fundamental right violates substantive due process unless it promotes a compelling or overriding state interest.

            ANSWER:    T                              PAGE:     92                             TYPE:      =
                        NAT: AACSB Analytic                     AICPA Legal

A18.    The terms “substantive due process” and “equal protection” mean the same thing.

            answer:    f                              PAGE:     93                             type:      =
                        NAT: AACSB Analytic                     AICPA Critical Thinking

B18.    Procedural due process requires that any taking of a person’s life, lib­erty, or property by government must be made equitably, or fairly.

            answer:    t                              PAGE:     92                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

A19.    Review of a law on a substantive due process basis and review of a law on an equal protection basis considers some similar questions.

            ANSWER:    T                              PAGE:     93                             TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B19.    Equal protection means that the government must treat similarly situ­ated individu­als differently.

            answer:    F                              PAGE:     93                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

A20.    There is a specific guarantee of a right to privacy in the Constitution.

            answer:    F                              PAGE:     94                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B20.    State laws often significantly protect individuals’ privacy rights.

            answer:    T                              PAGE:     94                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking




MULTIPLE CHOICE QUESTIONS

A1.      Business Markets Coalition (BMC), a political lobbying group, wants a certain policy enacted into law. If BMC’s policy conflicts with the U.S. Constitution, a law embodying it can be enacted by

a.         any state legislature and Congress.
b.         any state legislature but not Congress.
c.         Congress but not any state legislature.
d.         none of the choices.

            ANSWER:    D                              PAGE:     77                             TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B1.      Under the Constitution

a.         neither the national government nor the states have sovereign power.
b.         the national government and the states share sovereign power.
c.         the national government has all sovereign power.
d.         the states have all sovereign power.

            answer:    B                              PAGE:     77                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

A2.      The state of New York regulates private activities to protect or promote the public or­der, health, safety, and general welfare under its

            a.         police powers.
            b.         taxing powers.
            c.         spending powers.
            d.         supremacy powers.

            answer:    a                              PAGE:     77                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B2.      Under the Constitution, the legislative branch of the government

            a.         administers the laws.
            b.         enforces the laws.
            c.         interprets the laws.
            d.         makes the laws.

            answer:    D                              PAGE:     79                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

A3.      Eli, a citizen of Florida, wants to obtain a business license in Georgia. The Georgia state legislature enacts a law that imposes a $2,000 license fee on nonresidents. Georgia residents pay $0. This most likely violates

a.         no provision in the U.S. Constitution.
b.         the commerce clause.
c.         the full faith and credit clause.
d.         the privileges and immunities clause.

            ANSWER:    D                              PAGE:     78                             TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

B3.      Household Furnishings, Inc., distributes its merchandise on an inter­state basis. Under the commerce clause, Congress has the power to regulate

            a.         any commercial activity in the United States.
            b.         only activities that are in intrastate commerce.
            c.         only activities that are in local commerce.
            d.         only activities that are not in commerce.

            answer:    A                              PAGE:     79                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

A4.      Uma, a citizen of Virginia, wants to enforce in Washington certain rights that she has under a contract with Xtra Services Company. A Washington state court is most likely to enforce such rights under

a.         no provision in the U.S. Constitution.
b.         the commerce clause.
c.         the full faith and credit clause.
d.         the privileges and immunities clause.

            answer:    C                              PAGE:     78                             type:      N
                        NAT: AACSB Reflective                                                   AICPA Legal


B4.      The state legislature of Michigan enacts a transportation statute that impinges on interstate commerce. This law will be

            a.         balanced in terms of the burden on the state against the merit and purpose of interstate commerce.
            b.         balanced in terms of the state’s interest in its merit and purpose against the burden placed on interstate commerce.
            c.         struck down.
            d.         upheld.

            answer:    B                              PAGE:     80                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A5.      The Constitution sets out the authority and the limits of the branches of the government. The term checks and balances means that

            a.         Congress writes checks and the president balances the budget.
            b.         each branch of government has some power to limit the actions of the other branches.
            c.         each branch of government may exercise the authority of the other branches.
            d.         the president “checks” the courts, which “balance” the laws.

            answer:    B                              PAGE:     79                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

B5.      Congress enacts a law prohibiting toys made in China from being sold in the United States. The Hawaii state legislature enacts a law allowing the sale of Chinese-made toys. Hawaii’s law will most likely be

            a.         rendered invalid under the supremacy clause.
            b.         rendered valid the equal protection clause.
            c.         struck down under the taxing and spending clause.
            d.         upheld under the commerce clause.

            answer:    A                              PAGE:     82                             type:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A6.      Tom files a suit against the state of Utah, claiming that a Utah state law violates the commerce clause. The court will agree if the statute

            a.         imposes a substantial burden on interstate commerce.
            b.         promotes the public order, health, safety, morals, or general welfare.
            c.         regulates activities within Utah’s borders.
            d.         regulates private activities.

            answer:    A                              PAGE:     80                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

B6.      A decision by the Environmental Protection Agency (EPA) on the amount of carbon that can be emitted from a car’s exhaust system conflicts with a California state law. In this situation

a.         both the decision and the law are invalid.
b.         both the decision and the law apply concurrently.
c.         California’s law takes precedence.
d.         the EPA’s decision takes precedence.

            answer:    D                              PAGE:     82                             type:      +
                        NAT: AACSB Reflective                                                   AICPA Legal

A7.      The Motor Vehicle Insurance Association wants the federal government to spend money to build a new highway. Congress can spend revenues

            a.         only to carry out Congress’s enumerated powers.
            b.         to promote any objective that Congress deems worthwhile.
            c.         without regard to whether the expense violates the Bill of Rights.
            d.         without regard to whether the expense violates the Constitution.

            answer:    B                              PAGE:     82                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

B7.      Congress enacts the Supplemental Income Tax Act (SITA) to exempt the citizens of Louisiana from their federal taxes until New Orleans is rebuilt from the ravages of Hurricane Katrina. SITA will most likely be

            a.         rendered invalid under the supremacy clause.
            b.         rendered valid the equal protection clause.
            c.         struck down under the taxing and spending clause.
            d.         upheld under the commerce clause.

            answer:    C                              PAGE:     83                             type:      N
                        NAT: AACSB Reflective                                                   AICPA Legal

A8.      Mike, an advocate of a certain religion, publishes an article in New Times magazine insisting that Congress base all federal law on his religion’s principles. The First Amendment guarantees Mike’s freedom of

a.         religion only.
b.         speech only.
c.         the press only.
d.         the press, speech, and religion.

            ANSWER:    D                              PAGE:     83                             TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal


B8.      Dru, a U.S. citizen, is the owner of Egret, Inc. Egret’s competitors include Feathered Friends Company (FFC), which is owned by Greg and Huey. The Bill of Rights embod­ies a series of protections for Dian against various types of interference by

            a.         FFC and its other competitors only.
            b.         FFC, Greg, Huey, others, and the government.
            c.         Greg, Huey, and other private individuals only.
            d.         the government only.

            answer:    D                              PAGE:     83                             type:      +
                        NAT: AACSB Reflective                                                   AICPA Legal

A9.      Len, a citizen of Maryland, obtains a federal license to operate a commercial fishing boat in Chesapeake Bay. The Maryland state legislature enacts a law that bans all commercial fishing in the bay. The state law most likely violates

a.         no provision in the U.S. Constitution.
b.         the commerce clause.
c.         the due process clause.
d.         the supremacy clause.

            answer:    D                              PAGE:     83                             type:      N
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B9.      Ron, the chief executive officer of Standard Business Corporation, claims that certain actions by the state of Texas infringe on rights guaranteed by the Bill of Rights. Most of these rights are held to limit state government actions under

a.         the commerce clause.
b.         the due process clause of the Fourteenth Amendment.
c.         the equal protection clause of the Fourteenth Amendment.
d.         the Tenth Amendment.

            ANSWER:    B                              PAGE:     84                             TYPE:      =
                        NAT: AACSB Reflective               AICPA Legal

A10.    Serene City enacts an ordinance that bans the use of “sound amplifying systems” on public streets. Tom wants to campaign for a seat on the city council by broadcasting his message through speakers mounted on a truck. In Tom’s suit against the city, a court would likely hold this ordinance to be

            a.         constitutional under the First Amendment.
            b.         not subject to the U.S. Constitution.
            c.         unconstitutional under the commerce clause.
            d.         unconstitutional under the First Amendment.

            ANSWER:    A                              PAGE:     85                             TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B10.    Colorado enacts a statute that bans the distribution of anonymous politi­cal leaflets. A court would likely hold this to be

            a.         an unconstitutional restriction of speech.
            b.         constitutional under the First Amendment.
            c.         justified by the need to protect individual rights.
            d.         necessary to protect state interests.

            answer:    A                              PAGE:     86                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A11.    Beachside City enacts an ordinance that bans the distribu­tion of all printed materials on city streets. Carl opposes the city’s latest “revenue-enhancing” measure and wants to protest by distributing handbills. In his suit against the city, a court would likely hold the printed-materials ban to be

            a.         constitutional under the First Amendment.
            b.         not subject to the U.S. Constitution.
            c.         unconstitutional under the commerce clause.
            d.         unconstitutional under the First Amendment.

            answer:    D                              PAGE:     86                             type:      +
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking



B11.    Energy Corporation regularly expresses opinions on political issues. Under the First Amendment, corporate political speech is given

a.         little protection.
b.         no protection.
c.         significant protection.
d.         total protection.

            ANSWER:    C                              PAGE:     86                             TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A12.    Congress enacts the Tight Money Act (TMA) of 2006 to ban “major busi­ness entities” from making political contri­bu­tions that individuals can make. A court would likely hold the TMA to be

            a.         an unconstitutional restriction of speech.
            b.         constitutional under the First Amendment.
            c.         justified by the need to protect individual rights.
            d.         necessary to protect state interests.

            answer:    A                              PAGE:     86                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

B12.    Direct Mail Sales, Inc., regularly advertises its products. Under the First Amendment, with respect to noncommercial speech, these ads are given

a.         equal protection.
b.         less protection.
c.         more protection.
d.         no protection.

            ANSWER:    B                              PAGE:     86                             TYPE:      +
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A13.    Minnesota enacts a statute to ban advertising in “bad taste.” This stat­ute would likely be held by a court to be

            a.         an unconstitutional restriction of speech.
            b.         constitutional under the First Amendment.
            c.         justified by the need to protect individual rights.
            d.         necessary to protect state interests.

            answer:    A                              PAGE:     86                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

B13.    Congress enacts the Act to Restrict Commercial Speech (ARCS). The ARCS will be considered valid

a.         if it directly advances a substantial government interest but goes no further than necessary.
b.         if it directly advances a substantial government interest regard­less of how “far” it goes.
            c.         under any circumstances.
            d.         under no circumstances.

            answer:    A                              PAGE:     86                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

A14.    Xtreme Publications, Inc., disseminates obscene materials. This is

            a.         a crime under nu­merous state and federal statutes.
            b.         a privilege under Article IV, Section 2.
            c          a right under the commerce clause.
            d.         a right under the First Amendment.

            answer:    A                              PAGE:     90                             type:      =
                        NAT: AACSB Analytic                     AICPA Legal

B14.    Iowa enacts a law that restricts certain kinds of advertising to protect consumers from being misled. This law would likely be held by a court to be

            a.         an unconstitutional restriction of speech.
            b.         constitutional under the First Amendment.
            c.         justified by the need to protect individual rights.
            d.         necessary to protect state interests.

            ANSWER:    B                              PAGE:     86                             TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

A15.    The police obtain a search warrant and search Dave’s apartment. After yelling obscenities at the officers, Dave confesses to a crime and impli­cates his friends. The Constitution protects against

            a.         obscene speech only.
            b.         others’ implication only.
            c.         unreasonable searches only.
            d.         obscene speech, others’ implication, and unreasonable searches.

            answer:    C                              PAGE:     91                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Legal


B15.    Mona publishes an article in Now Hear This! magazine that harms Owen’s good reputation. The First Amendment protects Mona and others who engage in such speech

a.         all of the time.
b.         none of the time.
c.         only if it is commercial.
d.         only if it is political.

            ANSWER:    B                              PAGE:     88                             TYPE:      =+
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A16.    River City enacts an ordinance that prohibits all churches from meeting within its city limits. This rule affects the residents’ right to

a.         engage in interstate commerce under the commerce clause.
b.         full faith and credit under Article IV, Section 1.
c.         privileges and immunities under Article IV, Section 2.
d.         substantive due process under the due process clauses.

            answer:    D                              PAGE:     92                             type:      N
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B16.    Adult Shoppe in Beach City sells a variety of publications, including child pornography. Beach City enacts an ordinance prohibiting the sale of such materials. This ordinance is most likely

a.         an invalid restriction of individuals’ privacy.
b.         an unconstitutional restriction of speech.
c.         a violation of adults’ rights to enjoy certain privileges and immunities.
d.         constitutional under the First Amendment.

            ANSWER:    D                              PAGE:     90                             TYPE:      N
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

A17.    Wyoming enacts a statute that limits the liberty of all persons, including corporations, to broadcast “annoying” radio commercials. This may violate

            a.         equal protection.
            b.         procedural due process.
            c.         substantive due process.
            d.         the right to privacy.

            answer:    C                              PAGE:     92                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B17.    Kansas enacts a law requiring all businesses in the state to donate 10 per­cent of their profits to Protestant churches that provide certain services to persons whose income is below the poverty level. Lo-Price Stores files a suit to block the law’s enforcement. The court would likely hold that this law violates

            a.         no clause in the U.S. Constitution.
            b.         the establishment clause.
            c.         the free exercise clause.
            d.         the supremacy clause.

            answer:    C                              PAGE:     91                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

A18.    Myra claims that a Nebraska state statute infringes on her “procedural due process” rights. This claim focuses on

            a.         procedures used in making decisions to take life, liberty, or property.
            b.         the content of the statute.
            c.         the similarity of the treatment of similarly situated individuals.
            d.         the steps to be taken to protect Mary’s privacy.

            ANSWER:    A                              PAGE:     92                             TYPE:      =
                        NAT: AACSB Reflective                                                   AICPA Legal

B18.    The requirement that no person be deprived of “life, liberty, or property without due process of law” is found in

            a.         no provision in the U.S. Constitution.
            b.         the First and Second Amendments.
            c.         the Third and Fourth Amendments.
            d.         the Fifth and Fourteenth Amendments.

            answer:    d                              PAGE:     92                             type:      +
                        NAT: AACSB Analytic                     AICPA Legal

A19.    South Carolina enacts a statute to impose a prison term, without a trial, on all street vendors who operate in certain areas. A court would likely hold this to be

            a.         constitutional under the due process clause.
            b.         constitutional under the equal protection clause.
            c.         unconstitutional under the due process clause.
            d.         unconstitutional under the equal protection clause.

            answer:    C                              PAGE:     92                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B19.    The Federal Communications Commission imposes a regulation that prohibits all businesspersons from appearing in their own television commercials. A court is most likely to hold this regulation

            a.         constitutional under the due process clause.
            b.         constitutional under the equal protection clause.
            c.         unconstitutional under the due process clause.
            d.         unconstitutional under the equal protection clause.

            answer:    C                              PAGE:     92                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Risk Analysis

A20.    Vacation Village enacts an ordinance to allow only a few street vendors to op­er­ate in certain areas, for the purpose of reducing traffic. A court would likely subject this ordinance to

a.         a police power test under the commerce clause.
b.         a “rational basis” test under the equal protection clause.
c.         intermediate scrutiny under the due process clause.
d.         strict scrutiny under the First Amendment.

            answer:    B                              PAGE:     94                             type:      N
                        NAT: AACSB Reflective                                                   AICPA Critical Thinking

B20.    Orin claims that a Pennsylvania state statute infringes on his “sub­stan­tive due process” rights. This claim focuses on

            a.         procedures used in making decisions to take life, liberty, or property.
            b.         the similarity of the treatment of similarly situated individuals.
            c.         the content, or substance, of the statute.
            d.         the steps to be taken to protect Orin’s privacy.

            answer:    C                              PAGE:     92                             type:      =
                        NAT: AACSB Reflective                                                   AICPA Legal


Essay Questions

A1.      Jen operates Jen’s Fruits & Vegetables, a small market stocked entirely with produce grown on her adjacent farm. Under what clause of the Constitution can the federal government regulate Jen’s activities? What is Jen’s best argument against federal regulation of her farm and business?

ANSWER:    Under the commerce clause, according to earlier decisions by the United States Supreme Court, Congress has the power to regulate any activity—interstate or intrastate—that affects interstate commerce. Thus, under that clause, it could be argued that a farmer’s growing and selling of produce is subject to federal regulation because these activities affect interstate commerce. The farmer-vendor’s best argument against federal regulation of her farm and business is that in her case, these ac­tivities and their effects are purely local. Because of the economic char­ac­ter of these activities, and hence an effect on interstate commerce, de­spite their local character, it is unlikely that a court would accept this ar­gu­ment, however.

PAGES:         79–82                                                 type:            =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

B1.      A state legislature enacts a statute that prohibits the advertising of video games “because the games might be harmful to minors.” Despite this new statute, the president of Games Marketing, Inc. (GMI), orders GMI marketers to place ads in any media. When a GMI ad appears on HDTV, a local television station, GMI and HDTV are charged with violating the statute. What is the defendants’ best defense against a conviction?

            ANSWER:   GMI and HDTV cannot be convicted because a state legislature cannot enact a statute that restricts commercial speech (in this problem, marketing video games) to this extent. The First Amendment protects commercial speech. Commercial speech is not as protected as much as noncommercial speech, however, so states can place some restraints on the former. For example, to protect consumers, a state may ban certain kinds of marketing practices, such as deceptive or misleading advertising. Generally, a restriction on commercial speech will be considered valid as long as it (1) seeks to implement a substantial government interest, (2) directly advances that interest, and (3) goes no further than necessary to accomplish the objective. Here, the complete ban on video ads “because the games might be harmful to minors” is too restrictive: it goes too far in attempting to protect minors for an apparently unsubstantiated purpose.

PAGES:         85–88                         type:   =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

A2.      Old Oak Brewery, Inc., makes and sells alcoholic beverages with labels that display a drawing of a squirrel making the gesture generally known as “giving the finger.” Old Oak applies to the Ohio State Liquor Authority (OSLA) for brand-label approval to sell the beer in Ohio. Without consid­er­ing alternatives, OSLA denies approval because “the label could ap­pear in grocery stores, with obvious exposure on the shelf to children of tender age.” Why would a court hold that the denial of Old Oak’s applica­tion vio­lates the First Amendment?

ANSWER:    A court would most likely reason that OSLA’s ban on the use of the labels lacks a “reasonable fit” with the state’s interest in shielding minors from vulgarity, and OSLA did not adequately consider alterna­tives to the ban. The interest of OSLA, as a state agency, in pro­tecting children from vulgar advertising is “substantial.” The question is whether banning Old Oak’s labels “directly advances” that interest. A court might reason that barring the label at issue in this problem can­not realis­tically be expected to reduce children’s exposure to such dis­plays to any significant degree, considering such displays’ wide cur­rency in society.  Also, as to whether the ban on the labels is more exten­sive than necessary to serve such an interest, a court would likely point out that there may be many, less intrusive alternatives.  For example, OSLA might restrict the locations where Old Oak’s products may be dis­played in stores.

PAGES:         86–88                                                 type:            =
                        NAT: AACSB Reflective                                                   AICPA Decision Modeling

B2.      The Alabama Consumer Protection Agency (ACPA) investigates the marketing practices of Beta Sales, Inc. The ACPA serves a subpoena on Beta, ordering the firm to provide certain business records, including its marketing agreements with other companies. Beta refuses to comply with the subpoena. On what is Beta most likely basing its refusal? Is a court likely to support Beta’s position? Why or why not?

            ANSWER:   Beta is most likely refusing to comply with the subpoena on the ground that it has a constitutional privilege against self-incrimination A corporation cannot invoke the U.S. Constitution’s privilege against self-incrimination as a basis for refusing to produce documents in response to a subpoena, however, which means that a court is most likely to rule against Beta. A corporation can be compelled to comply with such a subpoena, because a corporation is a legal entity and not a natural person. The Fifth Amendment’s guarantee extends only to natural persons. Also, an employee of the corporation in charge of the corporate records cannot rely on his or her personal privilege against self‑incrimination as a basis for refusing to produce the records.

PAGES:         91–92                         type:   =
               NAT: AACSB Reflective                        AICPA Decision Modeling

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