United States Constitution On Business Regulations

http://www.urgentcustomessays.com/blog/2011/07/united-states-constitution-on-business-regulations/United States Constitution On Business RegulationsEssay Blog

Most of the numerous constraints imposed upon the federal and state governments by the U.S. Constitution, such as the prohibitions against denials of free speech, equal protection and due process of law, do not apply to private actors. With the exception of the Thirteenth Amendment’s prohibition of slavery, the Constitution itself “offers no shield” against wrongful private conduct. Jackson v. Metropolitan Edison Co., 419 U.S. 345, 349 (1974). Thus, while businesses may be subject to substantial regulatory burdens imposed by federal and state legislation, they generally have been free from the burdens imposed by increased judicial regulation of governmental activities under constitutional provisions such as the Due Process Clause of the Fourteenth Amendment. Courts have only subjected private actors to constitutional constraints where their action “may be fairly said to be that of the States.” Shelley v. Kraemer, 334 U.S. 1, 13 (1948). This “state action” doctrine has served as an important barrier to “constitutional regulation” of private commercial conduct.
A recent decision of the United States Court of Appeals for the Third Circuit, holding that workers’ compensation insurers who unilaterally suspend payment of disputed bills to health care providers are “state actors,” threatens to breach the barrier to constitutional regulation created by the state action doctrine. Sullivan v. Barnett, 139 F.3d 1 58 (3d Cir. 1998), petition for cert. pending, No. 97-2000. Although the decision specifically deals with regulated insurance companies, its reasoning has broader implications for all manner of regulated businesses, including self-insured employers and other heavily-regulated industries such as public utilities, telecommunications carriers, transportation companies, banks, and health care providers. If broadly construed, the Third Circuit’s decision could greatly expand the scope of private commercial conduct subject to the constitutional constraints heretofore imposed only on governmental entities or those specifically acting as agents of the government. The Third Circuit’s reasoning, its inconsistency with existing Supreme Court jurisprudence, and the implications of the Sullivan decision for regulated businesses are discussed in this paper.
THE PENNSYLVANIA WORKERS’ COMPENSATION SCHEME
Like all other states, Pennsylvania has a statutory workers’ compensation system under which employers are obligated to pay wage-replacement and medical care benefits for employees who suffer work-related injuries or occupationally related diseases. The system is based on a no-fault standard that pre-empts common law tort remedies and makes the statutory remedy exclusive. In order to secure the payment of benefits, the Pennsylvania statute requires employers either to purchase insurance or to qualify to self-insure. Thus, though based in a statutory scheme, employers and insurers entirely privately fund the Pennsylvania workers’ compensation insurance system. “No aspect of the workers’ compensation system is financed with public tax dollars.” Workers’ compensation insurers indemnify employers against their liability, for benefits payment. Provisions governing rates, policy terms, and eligibility for and scope of benefits extensively regulate insurers. Benefits disputes between insurers, injured workers and health care providers usually are subject to resolution through state-created administrative procedures. Nevertheless, the relationship between the insurer, insured employer, and injured employee arises out of a private contract of insurance voluntarily entered into by the insurer–and to which the state is not a party, only a regulator.
THE SULLIVAN DECISION
Plaintiffs, ten individuals employed in Pennsylvania, a labor union, and an employee advocacy group, filed a putative class action suit in the U.S. District Court for the Eastern District of Pennsylvania under 42 U.S.C. Section 1983, arguing that the 1993 legislation’s utilization review procedures violated the Due Process Clause of the Fourteenth Amendment. They contended that the statute denied workers due process because it permitted an insurer to suspend payment to medical care providers for disputed medical treatment without giving the employee an opportunity to be heard before the delay in payment. Defendants were various state officials who administered the workers’ compensation law, a state-owned insurer, a school district employer, and eight private workers’ compensation insurers. Plaintiffs sought declaratory and injunctive relief, compensatory and punitive damages, and restoration of allegedly terminated medical care benefits. The private insurance companies filed a motion to dismiss, arguing that they were not state actors and thus not subject to suit under the Due Process Clause or Section 1983. The district court agreed and granted the motion, concluding “the decision to cease paying medical benefits is entirely up to the insurer acting independent of any state involvement whatsoever.” Sullivan v. Barnett, 913 F. Supp. 895, 905 (E.D. Pa. 1996). The district court subsequently concluded that, as to the remaining state defendants, the statutory procedures did not violate due process under the balancing test of Mathews v. Eldridge, 424 U.S. 319 (1976). The Third Circuit reversed both decisions, holding that private insurers who suspend payments to medical care providers for disputed treatments are “state actors’ for constitutional purposes and that the Pennsylvania scheme violates the Due Process Clause. Sullivan, 139 F.3d 158 (3d Cir. 1998). Both the state and private defendants have petitioned the Supreme Court for review, with a decision on whether to accept the case expected in October 1998.
SULLIVAN’S POTENTIAL EFFECT ON REGULATED INDUSTRIES
The Sullivan court noted that state action analysis was highly fact-specific and expressly limited its holding “to the unique context in which the instant [suspension of payment] provisions arise.” Id. at 170-71. Indeed, the exclusive nature of the workers’ compensation remedy, upon which the court heavily relied, is not characteristic of consumer remedies in many (but not all) regulated markets. Nevertheless, Sullivan has troublesome implications for other regulated businesses because many of the “state action” characteristics found by the Third Circuit–all involving extensive regulation–are found in many regulated industries. Sullivan will most immediately affect self-insured employers, which perform most of the same functions as insurers and are subject to much of the same regulation. The appellate court’s decision thus would treat all types of private businesses as state actors in their capacity as employers subject to state workers’ compensation schemes. Carried to its limits, Sullivan might also support constitutional challenges by employees in disputes involving ERISA-regulated pension and health care plans. Although federally regulated plans would not be acting “under color of state law” and thus would not be subject to suit under 42 U.S.C. 1983, certain provisions of the Constitution, including the Due Process Clause of the Fifth Amendment, have been construed to imply a private right of action for damages. See Davis v. Passman, 442 U.S. 228 (1979).

Reference:

Stewart, Radcliff. Information Systems Management, Fall2007, Vol. 24 Issue 4, p343-344, 2p;

Skalberg, Randall K.. Transportation Journal, Summer2007, Vol. 46 Issue 3, p59-70, 12p;

Franzel, Jeanette. GAO Reports, 4/20/2007, p1, 19p

McCann, Gerard. Journal of Common Market Studies, Dec2005, Vol. 43 Issue 5, p1071-1092, 22p;

Watson, Thomas. Canadian Business, 5/23/2005, Vol. 78 Issue 11, p38-45, 8p, 9c, 2bw;

McConvill, James; Bagaric, Mirko. DePaul Business & Commercial Law Journal, Winter2005, Vol. 3 Issue 2, p255-319, 65p;

Tags: Business Regulations, United States Constitution