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CASE 4-3
DEPARTMENT OF REVENUE OF KENTUCKY v. DAVIS, ET AL.
United States Supreme Court, 2008
553 U.S. 328, 128 S.Ct. 1801, 170 L.Ed.2d 685
http://scholar.google.com/scholar_case?q=128+S.Ct.
+1801&hl=en&as_sdt=2,34&case=15768194217522904809&scilh=0
Souter, J.
Like most other States, the Commonwealth of Kentucky taxes its residents’ income. [Citation.]
The tax is assessed on “net income,” which excludes “interest on any State or local bond”
(“municipal bond,” for short), [citation]. Kentucky piggybacks on this exclusion, but only up to a
point: it adds “interest income derived from obligations of sister states and political subdivisions
thereof” back into the taxable net. [Citation.] Interest on bonds issued by Kentucky and its
political subdivisions is thus entirely exempt, whereas interest on municipal bonds of other States
and their subdivisions is taxable. (Interest on bonds issued by private entities is taxed by
Kentucky regardless of the private issuer’s home.)
The ostensible reason for this regime is the attractiveness of tax-exempt bonds at “lower rates
of interest … than that paid on taxable … bonds of comparable risk.” [Citation.] Under the
Internal Revenue Code, for example, [citation], “if the market rate of interest is 10 percent on a
comparable corporate bond, a municipality could pay only 6.5 percent on its debt and a purchaser
The significance of the scheme is immense. Between 1996 and 2002, Kentucky and its
subdivisions issued $7.7 billion in long-term bonds to pay for spending on transportation, public
safety, education, utilities, and environmental protection, among other things. [Citation.] Across
the Nation during the same period, States issued over $750 billion in long-term bonds, with nearly
a third of the money going to education, followed by transportation (13%) and utilities (11%).
[Citation.] Municipal bonds currently finance roughly two-thirds of capital expenditures by state
and local governments. [Citation.]
Funding the work of government this way follows a tradition going back as far as the 17th
century. [Citation.] * * *
* * *
“that had plagued relations among the Colonies and later among the States under the Articles of
Confederation,” [citation].
* * *
Under the resulting protocol for dormant Commerce Clause analysis, we ask whether a
challenged law discriminates against interstate commerce. [Citation.] A discriminatory law is
“virtually per se invalid,” [citation], and will survive only if it “advances a legitimate local
purpose that cannot be adequately served by reasonable nondiscriminatory alternatives,”
Some cases run a different course, however, and an exception covers States that go beyond
regulation and themselves “participat[e] in the market” so as to “exercis[e] the right to favor
[their] own citizens over others.” [Citation.] This “market participant” exception reflects a “basic
distinction … between States as market participants and States as market regulators,” [citation],
“[t]here [being] no indication of a constitutional plan to limit the ability of the States themselves to
operate freely in the free market,” [citations].
Our most recent look at the reach of the dormant Commerce Clause came just last Term, in a
case decided independently of the market participation precedents. UnitedHaulers upheld a “flow
control” ordinance requiring trash haulers to deliver solid waste to a processing plant owned and
operated by a public authority in New York State. We found “[c]ompelling reasons” for “treating
[the ordinance] differently from laws favoring particular private businesses over their
It follows a fortiori from United Haulers that Kentucky must prevail. In United Haulers, we
explained that a government function is not susceptible to standard dormant Commerce Clause
scrutiny owing to its likely motivation by legitimate objectives distinct from the simple economic
protectionism the Clause abhors, [citations]. This logic applies with even greater force to laws
favoring a State’s municipal bonds, given that the issuance of debt securities to pay for public
projects is a quintessentially public function, with the venerable history we have already sketched,
[citation]. By issuing bonds, state and local governments “sprea[d] the costs of public projects
over time,” [citation], much as one might buy a house with a loan subject to monthly payments.
Bonds place the cost of a project on the citizens who benefit from it over the years, * * * and they
* * * [T]he Kentucky tax scheme parallels the ordinance upheld in United Haulers: it
“benefit[s] a clearly public [issuer, that is, Kentucky], while treating all private [issuers] exactly
the same.” [Citation.]
* * * Kentucky’s tax exemption favors a traditional government function without any
differential treatment favoring local entities over substantially similar out-of-state interests. This
type of law does “not ‘discriminate against interstate commerce’ for purposes of the dormant
Commerce Clause.” [Citation.]
* * *
A look at the specific markets in which the exemption’s effects are felt both confirms the
conclusion that no traditionally forbidden discrimination is underway and points to the distinctive
character of the tax policy. The market as most broadly conceived is one of issuers and holders of
all fixed-income securities, whatever their source or ultimate destination. In this interstate market,
Kentucky treats income from municipal bonds of other States just like income from bonds
* * *
In sum, the differential tax scheme is critical to the operation of an identifiable segment of the
municipal financial market as it currently functions, and this fact alone demonstrates that the
unanimous desire of the States to preserve the tax feature is a far cry from the private
protectionism that has driven the development of the dormant Commerce Clause. * * *
The judgment of the Court of Appeals of Kentucky is reversed, and the case is remanded for
further proceedings not inconsistent with this opinion.
Taxation–The commerce clause in conjunction with the import-export
clause limits the power of the States to tax interstate commerce. The
import-export clause provides: "No State shall, without the Consent of the
The Patient Protection and A!ordable Care Act’s individual mandate
provision requires most Americans to maintain “minimum essential” health
insurance coverage or make a “shared responsibility payment” to the
federal government. The constitutionality of the individual mandate was
challenged as beyond the commerce and taxing powers of Congress. In
deciding the taxing power question, in a 5-4 vote the U.S. Supreme Court
held that requiring certain individuals to “pay a .nancial penalty for not
obtaining health insurance may reasonably be characterized as a tax.
Because the Constitution permits such a tax, it is not our role to forbid it, or
to pass upon its wisdom or fairness.” National Federation of Independent
Business v. Sebelius, 567 U. S. 1, (2012).
Federal Fiscal Powers
In addition to the powers granted in the commerce clause, the sources of
federal .scal regulatory power include (1) the power to tax; (2) the power
to spend; (3) the power to borrow and coin money; and (4) the power of
eminent domain.
Taxation –The federal government’s broad power to tax is limited in the
these ways: (1) direct taxes other than income taxes must be apportioned
Spending Power –The Constitution authorizes the federal government to
pay debts and spend for the common defense and general welfare of the
United States. The spending power of Congress is extremely broad and will
be upheld so long as it does not violate a speci.c constitution limitation on
federal power.
Borrowing and Coining Money–The U.S. Constitution also grants
Congress the power to borrow money on the credit of the United States and
to coin money. These two powers have enabled the federal government to
establish a national banking system, the Federal Reserve System, and
specialized federal lending programs such as the Federal Land Bank.
Eminent Domain–is the power of government to take private property for
public use upon payment of fair compensation. Although this amendment
C. LIMITATIONS ON GOVERNMENT
The constitutional limitations on government most applicable to business
are: (1) the contract clause; (2) the First Amendment; (3) due process; and
(4) equal protection. The .rst of these, the contract clause, applies only to
the actions of state governments while the other three apply to both
Federal government and the states. None of these restrictions operates as
Contract Clause
Article I, Section 10 of the Constitution provides: "No state shall . . . pass
any Law impairing the Obligation of Contracts. . . ” Although the contract
clause does not apply to the federal government, due process places
limitations on the its power to impair contracts.
*** Chapter Outcome ***
Explain the e!ect of the First Amendment on corporate political speech,
commercial speech and defamation.
First Amendment
The First Amendment contains a guarantee of free speech, but that
protection is not absolute. Some forms of speech, such as obscenity,
receive no protection.
CASE 4-4
BROWN v. ENTERTAINMENT MERCHANTS ASSOCIATION
Supreme Court of the United States, 2011
564 U.S. ____, 131 S.CT. 2729, 180 L.ED.2D 708 (2011)
http://scholar.google.com/scholar_case?q=131+S.Ct.
+2729+(2011)&hl=en&as_sdt=3,34&case=12960598670321445636&scilh=0
Scalia, J.
California Assembly Bill 1179 (2005), [citation], (Act), prohibits the sale or rental of “violent
video games” to minors, and requires their packaging to be labeled “18.” The Act covers games “in
interest of minors,” that is “patently offensive to prevailing standards in the community as to what
is suitable for minors,” and that “causes the game, as a whole, to lack serious literary, artistic,
political, or scientific value for minors.” [Citation.] Violation of the Act is punishable by a civil
fine of up to $1,000. [Citation.]
Respondents, representing the video-game and software industries, brought a preenforcement
challenge to the Act in the United States District Court for the Northern District of California.
That court concluded that the Act violated the First Amendment and permanently enjoined its
enforcement. [Citation.] The Court of Appeals affirmed, [citation], and we granted certiorari,
[citation].
California correctly acknowledges that video games qualify for First Amendment protection.
The Free Speech Clause exists principally to protect discourse on public matters, but we have long
recognized that it is difficult to distinguish politics from entertainment, and dangerous to try. * * *
Like the protected books, plays, and movies that preceded them, video games communicate ideas
—and even social messages—through many familiar literary devices (such as characters,
dialogue, plot, and music) and through features distinctive to the medium (such as the player’s
The most basic of those principles is this: “[A]s a general matter, . . . government has no
power to restrict expression because of its message, its ideas, its subject matter, or its content.”
[Citation.] There are of course exceptions. “‘From 1791 to the present,’ . . . the First Amendment
has ‘permitted restrictions upon the content of speech in a few limited areas,’ and has never
‘include[d] a freedom to disregard these traditional limitations.’” [Citations.] These limited areas
—such as obscenity, [citation], incitement, [citation], and fighting words, [citation]—represent
“well-defined and narrowly limited classes of speech, the prevention and punishment of which
have never been thought to raise any Constitutional problem,” [citation].
Last Term, in [citation], we held that new categories of unprotected speech may not be added
to the list by a legislature that concludes certain speech is too harmful to be tolerated. * * *
* * *
The California Act * * * does not adjust the boundaries of an existing category of unprotected
speech to ensure that a definition designed for adults is not uncritically applied to children. * * *
Instead, it wishes to create a wholly new category of content-based regulation that is permissible
only for speech directed at children.
That is unprecedented and mistaken. “[M]inors are entitled to a significant measure of First
Amendment protection, and only in relatively narrow and well-defined circumstances may
government bar public dissemination of protected materials to them.” [Citation.] No doubt a State
outcome. The latter feature is nothing new * * * As for the argument that video games enable
participation in the violent action, that seems to us more a matter of degree than of kind. * * *
Because the Act imposes a restriction on the content of protected speech, it is invalid
unless California can demonstrate that it passes strict scrutiny—that is, unless it is justified by a
compelling government interest and is narrowly drawn to serve that interest. [Citation.] The State
* * *
California’s effort to regulate violent video games is the latest episode in a long series of
failed attempts to censor violent entertainment for minors. While we have pointed out above that
some of the evidence brought forward to support the harmfulness of video games is unpersuasive,
we do not mean to demean or disparage the concerns that underlie the attempt to regulate them—
concerns that may and doubtless do prompt a good deal of parental oversight. We have no business
passing judgment on the view of the California Legislature that violent video games (or, for that
matter, any other forms of speech) corrupt the young or harm their moral development. Our task is
only to say whether or not such works constitute a “well-defined and narrowly limited clas[s] of
speech, the prevention and punishment of which have never been thought to raise any
California’s legislation straddles the fence between (1) addressing a serious social problem
and (2) helping concerned parents control their children. Both ends are legitimate, but when they
affect First Amendment rights they must be pursued by means that are neither seriously
underinclusive nor seriously overinclusive. [Citation.] As a means of protecting children from
portrayals of violence, the legislation is seriously underinclusive, not only because it excludes
portrayals other than video games, but also because it permits a parental or avuncular veto. And as
Corporate Political Speech–The First Amendment guarantee of free
speech applies not only to individuals but also to corporations, which may
not be prohibited from speaking out on political issues. The Supreme Court,
in 1990, upheld a state statute which prohibits corporations, except media
corporations, from using general treasury funds to make independent
expenditures in elections for public o?ce. At that time, the Court ruled that
corporations may use segregated funds set aside solely for political
purposes to speak out on such issues. This limitation was removed in 2010
Commercial Speech–An expression related to the economic interests of
the speaker and his audience, such as advertisements of products and
services. Speech that does no more than propose a commercial transaction
is entitled to extensive protection but less protection than that accorded to
political speech.
Defamation–A civil wrong or tort consisting of a false communication that
injures a person's reputation. Because defamation involves a
communication, the protection generally extended to speech by the First
*** Chapter Outcome ***
Explain the di!erence between substantive and procedural due process.
Due Process
The Fifth and Fourteenth Amendments respectively prohibit the federal and
state governments from depriving any person of life, liberty, or property
without due process of law. Due process has two di!erent aspects:
substantive due process and procedural due process.
scrutiny test) the legislation to determine that it is necessary to promote a
compelling state interest.
Procedural Due Process–Requires that governmental action depriving a
person of life, liberty, or property be done through a fair procedure. Liberty
generally includes the ability of individuals to engage in freedom of action
Equal Protection
The Fourteenth Amendment requires that similarly situated persons be
treated similarly by state government action. The Supreme Court has
interpreted the due process clause of the Fifth Amendment to subject
federal actions to the same standards of review. When governmental
*** Chapter Outcome ***
Distinguish the three levels of scrutiny used by the courts to determine
the constitutionality of governmental action.
Rational Relationship Test–The rational relationship test applies to
economic regulation and requires that it is conceivable that the
classi.cation bears some rational relationship to a legitimate governmental
interest furthered by the classi.cation. Courts will overturn the
governmental action only if clear and convincing evidence shows that there
is no reasonable basis justifying the action.
Strict Scrutiny Test–The strict scrutiny test is the most exacting test.
Under this test, the courts independently determine whether the
classi.cation is constitutionally permissible. This test is applied when the
governmental action a!ects fundamental rights or involves suspect
CASE 4-5
BROWN v. BOARD OF EDUCATION OF TOPEKA
Supreme Court of the United States, 1954
347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873
http://scholar.google.com/scholar_case?q=74+S.Ct.
+686&hl=en&as_sdt=2,34&case=12120372216939101759&scilh=0
Warren, C. J.
These cases come to us from the States of Kansas, South Carolina, Virginia, and Delaware. They
are premised on different facts and different local conditions, but a common legal question justifies
their consideration together in this consolidated opinion.
plaintiffs on the socalled “separate but equal” doctrine announced by this Court in Plessy v.
Ferguson, [citation]. Under that doctrine, equality of treatment is accorded when the races are
provided substantially equal facilities, even though these facilities be separate. In the Delaware
case, the Supreme Court of Delaware adhered to that doctrine, but ordered that the plaintiffs be
admitted to the white schools because of their superiority to the Negro schools.
The plaintiffs contend that segregated public schools are not “equal” and cannot be made
“equal” and that hence they are deprived of the equal protection of the laws. Because of the
obvious importance of the question presented, the Court took jurisdiction. * * *
Reargument was largely devoted to the circumstances surrounding the adoption of the
Fourteenth Amendment in 1868. It covered exhaustively consideration of the Amendment in
forbidden by law in some states. Today, in contrast, many Negroes have achieved outstanding
success in the arts and sciences as well as in the business and professional world. It is true that
public school education at the time of the Amendment had advanced further in the North, but the
effect of the Amendment on Northern States was generally ignored in the congressional debates.
In the first cases in this Court construing the Fourteenth Amendment, decided shortly after its
adoption, the Court interpreted it as proscribing all state-imposed discriminations against the
Negro race. The doctrine of “separate but equal” did not make its appearance in this Court until
1896 in the case of Plessy v. Ferguson, involving not education but transportation. American courts
have since labored with the doctrine for over half a century. In this Court, there have been six
cases involving the “separate but equal” doctrine in the field of public education. * * * In none of
these cases was it necessary to reexamine the doctrine to grant relief to the Negro plaintiff. And in
Sweatt v. Painter, [citation], the Court expressly reserved decision on the question whether Plessy
v. Ferguson should be held inapplicable to public education.
* * *
Today, education is perhaps the most important function of state and local governments.
Compulsory school attendance laws and the great expenditures for education both demonstrate our
recognition of the importance of education to our democratic society. It is required in the
performance of our most basic public responsibilities, even service in the armed forces. It is the
very foundation of good citizenship. Today it is a principal instrument in awakening the child to
cultural values, in preparing him for later professional training, and in helping him to adjust
normally to his environment. In these days, it is doubtful that any child may reasonably be
expected to succeed in life if he is denied the opportunity of an education. Such an opportunity,
considerations: “ * * * his ability to study, to engage in discussions and exchange views with other
students, and, in general, to learn his profession.” Such considerations apply with added force to
children in grade and high schools. To separate them from others of similar age and qualifications
solely because of their race generates a feeling of inferiority as to their status in the community
that may affect their hearts and minds in a way unlikely ever to be undone. The effect of this
separation on their educational opportunities was well stated by a finding in the Kansas case by a
court which nevertheless felt compelled to rule against the Negro plaintiffs:
Segregation of white and colored children in public schools has a detrimental effect upon the
colored children. The impact is greater when it has the sanction of the law, for the policy of
separating the races is usually interpreted as denoting the inferiority of the Negro group. A
sense of inferiority affects the motivation of a child to learn. Segregation with the sanction of
