Lecture Notes for Legal Environment of Business, 9th Edition
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Legal Environment of Business Ninth Edition Henry R. Cheeseman Instructo rs Manual (Downl oad only) for Legal Environment of Business Revised b y : Jeffrey Penley
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1 Chapter 1 Legal Heritage and the Information Age What is the meaning of “It’s the law”? I. Teacher to Teacher Dialogue One of the most common dilemmas facing instructors of business law is the issue of topic choice. By the very nature of the subjects we teach, the breadth of materials is so wide that choosing what to focus on in the limited classroom time we have with our students can be a most daunting task. This problem is especially complicated when the topics we are dealing with are all of deep interest and can stand alone as separate courses. In this chapter, for example, we are asked to introduce students to topics ranging from the definitions and purposes of law to how our system affects business decisions, to some of the most important provisions found in the United States Constitution. Any one of these subparts can provide the raw materials for an entire course at the law school level. Our job must start with a self-evident, but sometimes forgotten, point: this is not law school. We are here not to train future lawyers but rather students who need to know enough about these issues to recognize that they are issues. The technical legal problems they may be facing later will ultimately need to be resolved using law and other practitioners. The plus side of this dilemma is that because we have such a diverse menu to select from, we are able to pick and choose our areas of emphasis. For example, if your particular teaching and research interests lie in the area of ethics and the schools of jurisprudential thought from which they are derived, then by all means, run with it! Rather than trying to be all things to all people, it is better to focus your efforts on your strengths. This does not mean that you can short- change the other material. All key objectives of the chapter should be fully outlined and incorporated in both your lecture and materials outline. But if you have a particular interest and expertise in, for example, the Law and Economics School of jurisprudential thought, then use them as focal points of comparison in the evolutionary process that seeks to distinguish the older schools of jurisprudence from newer approaches to these issues. In any event, remember that philosophical studies of what law is and what its role is in the larger scheme of things have always posed questions virtually impossible to answer. This chapter represents attempts by great thinkers to answer the unanswerable. It would be far too presumptuous for us to think that we can teach, in a few hours, what the great philosophers of the world have tried to do over hundreds of years. Perhaps this is an early lesson in what wisdom is really all about: the more we know of history, the more we know of our own limitations. If we can get that point across, the course is off to a good start! II. Chapter Objectives 1. Define law . 2. Describe the flexibility of the law. 3. List and describe the schools of judicial thought. 4. Learn the history and development of American law. 5. List and describe the sources of law in the United States. 6. Describe the doctrine of stare decisis . 7. Describe how existing laws are being applied to the digital environment and how new laws are being enacted that specifically address issues of the information age. 8. Learn what critical legal thinking is and how to apply it to analyzing legal cases.
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Legal Heritage and the Information Age 2 9. Learn how the material, cases, and lessons of this book will apply to your future career. III. Key Question Checklist What is law? Once you have identified the kind of societal expectation of behavior, what standard of behavior is most appropriate? Does law codify the standard? Do one or more of the schools of jurisprudence support the standard? What are the sources of law in the United States? What bodies of law and/or ethical standards apply? How would you apply these standards to the facts? IV. Chapter Outline The first chapter objective is an introduction to the historical underpinnings of jurisprudential thought. This would include not only the functions of law listed in the summary, but also an early opportunity to introduce the role of ethics based on the various schools of jurisprudence discussed. Introduction to Legal Heritage and the Information Age Businesses that are organized in the United States are subject to its laws. They are also subject to the laws of other countries in which they operate. Businesses organized in other countries must obey the laws of the United States when doing business here. In addition, businesspeople owe a duty to act ethically in the conduct of their affairs, and businesses owe a responsibility not to harm society. This chapter discusses the nature and definition of law, theories about the development of law, and the history and sources of law in the United States. What Is Law? Law consists of rules that regulate the conduct of individuals, businesses, and other organizations within society. It is intended to protect persons and their property against unwanted interference from others. Law forbids persons from engaging in certain undesirable activities. It is often, but not always, fair. Law must be flexible. Definition of Law – According to Black’s Law Dictionary, “Law, in its generic sense, is a body of rules of action or conduct prescribed by controlling authority, and having binding legal force. That which must be obeyed and followed by citizens subject to sanctions or legal consequences is a law.” Functions of the Law Keeping the peace – e.g., making certain activities crimes Shaping moral standards – e.g., enacting laws that discourage drug and alcohol abuse Promoting social justice – e.g., enacting statutes that prohibit discrimination in employment Maintaining the status quo – e.g., passing laws preventing the forceful overthrow of the government Facilitating orderly change – e.g., passing statutes only after considerable study, debate, and public input Facilitating planning – e.g., well-designed commercial laws allow businesses to plan their activities, allocate their resources, and assess their risks
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Chapter 1 3 Providing a basis for compromise – e.g., approximately 95 percent of all lawsuits are settled prior to trial Maximizing individual freedom – e.g., the rights of freedom of speech, religion, and association granted by the First Amendment to the U.S. Constitution Fairness of the Law – Overall, the United States legal system is one of the most comprehensive, fair, and democratic systems of law ever developed and enforced. However, some misuses and oversights of our legal system, including abuses of discretion and mistakes by judges and juries, unequal applications of the law, and procedural mishaps, allow some guilty parties to go unpunished. Flexibility of the Law – U.S. law has evolved and grown as a reflection of changes in society, technology, and commerce. The same general principles that established the foundation of our nation still exist; however, legal modifications exhibit the flexibility and maturity of our system to be able to adapt to the changing commercial, social, and ethical environments. Critical Legal Thinking: Brown v. Board of Education This section discusses the United Sta tes Supreme Court’s rejection of the “separate but equal” doctrine that endorsed separate schools for black children and white children. Schools of Jurisprudential Thought Natural Law School – Postulates that law is based on what is “correct” and that l aw should be based on morality and ethics Historical School – Believes that law is an aggregate of social traditions and customs Analytical School – Maintains that law is shaped by logic Sociological School – Asserts that law is a means of achieving and advancing certain sociological goals Command School – Believes that law is a set of rules developed, communicated, and enforced by the ruling party Critical Legal Studies School – Maintains that legal rules are unnecessary and that legal disputes should be solved by applying arbitrary rules based on fairness Law and Economics School – Believes that promoting market efficiency should be the central concern of legal decision making Global Law: Command School of Jurisprudence of Cuba In 1959, Fidel Castro led a revolution in Cuba. What followed was a communist/socialist government that expropriated and nationalized much private property, and installed a command economy and system of jurisprudence. Economic productivity fell substantially in Cuba as a result, with major shortages of essential goods and services. Cuba is now permitting limited free- market measures, but approximately 90 percent of workers are still government employees. History of American Law When the American colonies were first settled, the English system of law was generally adopted as the system of jurisprudence. This was the foundation from which American judges developed a common law in America. English Common Law Law developed by judges who issued their opinions when deciding a case The principles announced in these cases became precedent for later judges deciding similar cases The English common law can be divided into cases decided by the:
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Legal Heritage and the Information Age 4 Law courts Chancery (Equity) courts Merchant courts Landmark Law: Adoption of English Common Law in the United States Common law is discussed in this section. In the United States, law, equity, and merchant courts have been merged. Most U.S. courts permit the aggrieved party to seek both legal and equitable orders and remedies. Global Law: Civil Law System of France and Germany Romano-Germanic civil law system is the model for countries adopting civil codes. The Civil Code and the parliamentary statutes that expand and interpret it are the sole sources of law in most civil law countries. The adjudication of a case is the application of the code or the statutes to a particular set of facts. In some civil law countries, court decisions do not have the force of law. This is in contrast to Anglo-American common law, where laws are created by the judicial system and through congressional legislation. Sources of Law in the United States In the more than 200 years since the founding of the United States and the adoption of the English common law, U.S. lawmakers have developed a substantial body of law. The sources of modern law in the United States include the federal and state constitutions, federal treaties, federal and state statutes, local ordinances, executive orders, regulations and orders of administrative agencies, and judicial decisions. Constitutions The U.S. Constitution establishes the federal government and enumerates its powers Powers not given to the federal government are reserved to the states State constitutions establish state governments and enumerate their powers Treaties – The president, with the advice and consent of the Senate, may enter into treaties with foreign governments. Federal Statutes – Statutes are written laws that establish and enforce certain courses of conduct. Congress enacts federal statutes, while state legislatures enact state statutes. Federal statutes are organized by topic into code books. This is often referred to as codified law. Federal statutes can be found in these hardcopy books and online. State Statutes – State legislatures enact state statutes. Such statutes are placed in code books. State statutes can be assessed in these hardcopy code books or online. Contemporary Environment: How a Bill Becomes Law The U.S. Congress is composed of two chambers, the U.S. House of Representatives and the U.S. Senate. Thousands of bills are introduced in the U.S. Congress each year, but only a small percentage of them becomes law. First, a bill must be sponsored by a member of the U.S. House of Representative or the U.S. Senate. It is then referred to the appropriate committee for review and study. Bills that receive the vote of a committee are reported to the full chamber, where they are debated and subjected to vote. If the bill receives a majority vote from the full chamber and a subsequent second chamber, it is then forwarded to the U.S. president. The bill becomes law when it is signed by the president.
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Chapter 1 5 Ordinances – State legislatures often delegate lawmaking authority to local government bodies, including cities and municipalities, counties, school districts, water districts, and such. These governmental units are empowered to adopt ordinances. Ordinances are also codified. Executive Orders – The executive branch of the government (the U.S. president) is empowered to issue executive orders. Regulations and Orders of Administrative Agencies – Administrative agencies are created by the legislative and executive branches of government. They may adopt administrative regulations and issue orders that regulate the conduct of covered parties. Judicial Decisions – When deciding individual lawsuits, federal and state courts issue judicial decisions. In these written opinions, a judge usually explains the legal reasoning used to decide the case. These opinions often include interpretations of statutes, ordinances, and administrative regulations and the announcement of legal principles used to decide the case. Priority of Law in the United States – The U.S. Constitution and treaties take precedence over all other laws, followed by federal statutes and federal regulations. Federal law takes precedence over conflicting state law, which has precedence over local laws. Similarly, state constitutions take precedence over state statutes and regulations. Doctrine of Stare Decisis – Based on common law tradition, past court decisions become precedent for deciding future cases. Lower courts must follow the precedent established by higher courts. All federal and state courts in the United States must follow the precedents established by U.S. Supreme Court decisions. Adherence to precedent is called the doctrine of stare decisis (“to stand by the decision ” ). The doctrine of stare decisis promotes uniformity of law within a jurisdiction, makes the court system more efficient, and makes the law more predictable. Law in the Information Age – The electronic age arrived before new laws were written that were unique and specific for this environment. Courts have applied existing laws to the new digital environment by requiring interpretations and applications. In addition, new laws have been written that apply specifically to this new environment. The U.S. Congress has led the way, enacting many new federal statutes to regulate the digital environment. Critical Legal Thinking Critical thinking in law courses, referred to as critical legal thinking, is significant because in the law there is not always a “bright - line” answer. The need for critical thinking is especially important in solving legal disputes. Defining Critical Legal Thinking Critical legal thinking is a method of thinking that consists of investigating, analyzing, evaluating, and interpreting information to solve a legal issue or case. Socratic Method – The Socratic method is a process that consists of a series of questions and answers and a “give -and- take” inquiry and debate between a pro fessor and students. IRAC Method – The IRAC method is used to examine a law case. IRAC is an acronym that stands for issue, rule, application, and conclusion. The process is dictated by four questions: 1. (I) What is the legal issue in the case? 2. (R) What is the rule (law) of the case? 3. (A) What is the court’s analysis and rationale?
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Legal Heritage and the Information Age 6 4. (C) What was the conclusion or outcome of the case? V. Key Terms and Concepts Administrative agencies — Agencies (such as the Securities and Exchange Commission and the Federal Trade Commission) that the legislative and executive branches of federal and state governments are empowered to establish. Administrative rules and regulations — Used by administrative agencies to enforce statutes. These rules and regulations have the force of law. Analytical School — School of jurisprudence maintaining that the law is shaped by logic. Bills — Many bills are introduced each year in the U.S. Congress, from which only a few eventually become law. Brown v. Board of Education — A landmark Supreme Court case in which a unanimous decision reversed prior judicial precedent and held that the “ separate but equal ” doctrine violated the Equal Protection Clause of the Fourteenth Amendment to the U.S. Constitution. The decision led to the banning of school segregation. Chamber — The U.S. Congress is composed of two chambers, the U.S. House of Representatives and the U.S. Senate. Civil Law — A code of laws applicable to Romans. Also known as the Romano-Germanic civil law system. Code book — Federal statutes are organized by topic into code books. Codified law — Federal statutes that have been organized into code books. Command School — School of jurisprudence that believes that the law is a set of rules developed, communicated, and enforced by the ruling party rather than a reflection of the society’s morality, history, logic, or sociology. Committee — Bills from either of the two chambers of the U.S. Congress are reviewed and studied by an appropriate committee. The committee may reject the bill, report it to the full chamber for a vote, not act on it, or send it to a subcommittee for further study. Conference committee — A committee made up of members of both the U.S. House of Representatives and the U.S. Senate. Constitution of the United States of America — The supreme law of the United States. Court of Chancery (equity court) — Court that granted relief based on fairness. Critical Legal Studies School — School of jurisprudence that proposes legal rules are unnecessary and are used as an obstacle by the powerful to maintain the status quo. Critical legal thinking — A method of thinking that consists of investigating, analyzing, evaluating, and interpreting information to solve a legal issue or case. English common law — Law developed by judges who issued their opinions when deciding a case. The principles announced in these cases became precedent for later judges deciding similar cases. Executive branch (president) — A branch of the U.S. government that has the power to enforce the law. Executive orders — An order issued by a member of the executive branch of the government. Federal statute — Written laws, enacted by the U.S. Congress, that regulate foreign and interstate commerce. French Civil Code of 1804 (the Napoleonic Code) — One of the models used by countries that adopted civil codes. In most countries adhering to a civil law system, the civil code and parliamentary statutes are the sole sources of law.
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Chapter 1 7 German Civil Code of 1896 — One of the models used by countries that adopted civil codes. In most countries adhering to a civil law system, the civil code and parliamentary statutes are the sole sources of law. Historical School — School of jurisprudence that believes the law is an aggregate of social traditions and customs that have developed over the centuries. IRAC method — A method used t o examine a law case. “IRAC” stands for issue (What is the legal issue in the case?), rule (What is the law pertaining to the case?), application (What is the court’s analysis and rationale?), and conclusion (What was the conclusion or outcome of the case?). Judicial branch (courts) — A branch of the U.S. government that has the power to interpret and determine the validity of the law. Judicial decision — A decision about an individual lawsuit issued by federal and state courts. Jurisprudence — The philosophy or science of law. Law — That which must be obeyed and followed by citizens, subject to sanctions or legal consequences; a body of rules of action or conduct prescribed by a controlling authority and having binding legal force. Law and Economics School (Chicago School) — School of jurisprudence that believes that promoting market efficiency should be the central goal of legal decision making. Law courts — Courts that developed and administered a uniform set of laws decreed by the kings and queens after William the Conqueror; in this system of jurisprudence, legal procedure was emphasized over the particular merits of a case. Law Merchant — Rules based on based on common trade practices and usage that were applied by merchants around England and Europe, during the Middle Ages, to solve commercial disputes. Also known as the “law of merchants.” Legislative branch (Congress) — A branch of the U.S. government that has the power to enact the law. Merchant Court —The separate set of courts established to administer the “law of m erchants.” Moral theory of law — Theory proposing that the law should be based on morality and ethics. Natural Law School — School of jurisprudence postulating that the law is based on what is “correct.” Order — A decision of an administrative agency. Ordinance — Laws enacted by local government bodies, such as cities and municipalities, counties, school districts, and water districts. Precedent — A rule of law established in a court decision. Lower courts must follow the precedent established by higher courts. Romano-Germanic civil law system — Legal system dating back to 450 BCE when Rome adopted the Twelve Tables, a code of laws applicable to the Romans. Commonly known as civil law. Sociological School — School of jurisprudence asserting that the law is a means of achieving and advancing certain sociological goals. Socratic method — A process that consists of a series of questions and answers, and a give-and-take inquiry and debate between a professor and students. Stare decisis —Latin for “to stand by the decision.” Adher ence to precedent. State constitution — Constitution that establishes the legislative, executive, and judicial branches of state government and the powers of each branch. State statute — Statute enacted by state legislatures and placed in code books.
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Legal Heritage and the Information Age 8 Statute — Written law enacted by the legislative branch of the federal and state governments that establishes certain courses of conduct to which covered parties must adhere. Subcommittee — Studies bills sent by the committee. After review, the subcommittee may either let the bill expire or report it back to the full committee. Treaties — Compacts made between two or more nations. U.S. Congress — Branch of the government that creates federal law by enacting statutes. U.S. House of Representatives — One of two chambers of the U.S. Congress. U.S. Senate — One of two chambers of the U.S. Congress.
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9 Chapter 2 Ethics and Social Responsibility of Business What is “right”? I. Teacher to Teacher Dialogue The study of ethics and law has been interwoven from the onset. Both disciplines stress the moral underpinnings of their respective efforts at defining proper human behavior. In spite of this long interaction, using business ethics issues as a freestanding chapter in mainline business law texts is a relatively recent phenomenon. The reasons for this vary, but one of them is, no doubt, the difficulty many traditional law teachers have had in adapting to the language of philosophers and other related social scientists. Given the obvious need for more emphasis on ethics training in all aspects of business education, this increase in emphasis on law/ethics issues has come none too soon. In this chapter, the author clearly outlines the key schools of ethical studies and then provides excellent case examples in which to test the various approaches discussed in the text. II. Chapter Objectives 1. Describe how law and ethics intertwine. 2. Describe and apply the moral theories of business ethics. 3. Describe and apply the theories of the social responsibility of business. 4. Define public benefit corporation and describe the social purposes served by these corporations. III. Key Question Checklist When corporate behavior is questioned, which school of ethics would be most appropriate to examine? Is the behavior unethical? What standard of ethical behavior should be applied? How could the corporate entity have prevented the behavior? If you were in a position of judgment to respond, what would you do? IV. Chapter Outline The study of ethics revolves around the examination of rules, conduct, and character through a morally-tinted microscope. That law should be grounded in some sort of morality-based foundation is self-evident. The goals of all the ethical schools of thought are to identify some sort of morally-based rationale for human behavior. This rationale may be found in outside sources as seen in schools of ethical fundamentalism, or in the rule that provides the greatest good to society as illustrated by utilitarianism. Others such as Kant and Rawls have sought to devise formulas of behavior based on universal rules or social contract, respectively. In all these systems, a morally- based methodology is sought as a guidepost for human behavior. If these guideposts are universally accepted, the odds are very high that they will no longer be advisory, but rather required by law. The process by which morally-based ethical behavior is first desired, then expected, and finally mandated is really the evolution of law. Because so many of our legal and economic activities are conducted in the corporate format, juristic (law-made) business entities cannot ignore this constant and dynamic tug and pull between ethics and law. The bottom line in the study of ethics is ultimately personal, and our job
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Chapter 2 10 as teachers is to help students prepare for these ethical challenges in both their professional and personal lives. Introduction to Ethics and Social Responsibility of Business Businesses organized in the United States are subject to its laws They are also subject to the laws of other countries in which they operate Business persons owe a duty to act ethically in the conduct of their affairs Businesses owe a social responsibility not to harm society Ethics and the Law Ethics – A set of moral principles or values that governs the conduct of an individual or a group – doing what is right What is lawful conduct is not always ethical conduct In some situations, the law may permit an act that is ethically wrong Business Ethics There do seem to be some universal rules about what conduct is ethical and what conduct is not. Five major theories of ethics include: (1) ethical fundamentalism; (2) utilitarianism; (3) Kantian ethics; (4) Rawl’s social justice theory; and (5) ethical relativism. Ethical Fundamentalism – Persons look to an outside source or central figure for ethical rules or commands. Utilitarianism – Dictates that people must choose the action or follow the rule that provides the greatest good to society. This moral theory does not necessarily ensure the greatest good for the greatest number of people. Kantian Ethics – A set of universal rules that establishes ethical duties. The rules are based on reasoning and require (1) consistency in application and (2) reversibility. Its proponent, Immanuel Kant, would have people behave according to the categorical imperative “Do unto others as you would have them do unto you.” Kantian ethics is also called duty ethics. U.S. Supreme Court Case Case 2.1 Moral Theory of Law and Ethics: POM Wonderful, LLC v. Coca-Cola Company Facts: POM Wonderful, LLC (POM) produces and sells a pomegranate-blueberry juice blend that consists of 85% pomegranate and 15% blueberry juices. The Coca-Cola Company (Coca- Cola) produces and sells a competing juice blend with a label that conspicuously displays the words “POMEGRANATE” and “BLUEBERRY.” Coca - Cola’s pomegranate blueberry juice is actually made of five different juices: 0.3% pomegranate, 0.2% blueberry, 0.1% raspberry, and 99.4% apple and grape juices. POM sued Coca-Cola under Section 43 of the federal Lanham Act, which allows one competitor to sue another to recover damages for unfair competition arising from false and misleading product descriptions. The U.S. district court and the U.S. court of appeals held in favor of Coca-Cola. POM appealed to the U.S. Supreme Court. Issue: Can a private party bring an unfair competition lawsuit under the Lanham Act against a competitor that challenges the truthfulness of a food label? Decision: The U.S. Supreme Court held that POM may proceed with its Lanham Act unfair competition lawsuit against Coca-Cola and remanded the case for further proceedings. Reason: The Lanham Act creates a private cause of action for unfair competition through misleading advertising and labeling. Ethics Questions: The facts do appear to indicate that Coca-Cola was trying to trick customers into buying cheaper apple-grape juice by prominently labeling it pomegranate-
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Ethics and Social Responsibility of Business 11 blueberry juice. There is a strong argument to be made that Coca-Cola did not act ethically in this case. Rawls’s Social Justice Theory – Moral duties are based on an implied social contract. This implied contract states, “I will keep the rules if everyone else does.” Fairness is the essence of justice. Rules are established from an “ original position .” This means that the principles of justice should be chosen by persons who do not yet know their station in society —thus, their “veil of ignorance” would permit the fairest possible principles to be selected. Ethical Relativism – Individuals decide what is ethical based on their own feelings as to what is right or wrong. Thus, there are no universal ethical rules to guide a person’s conduc t. U.S. Supreme Court Case Case 2.2 Nondisclosure of Evidence: Goodyear Tire & Rubber Company v. Haeger Facts: The Haegers sued the Goodyear Tire & Rubber Company to recover monetary damages for injuries they suffered after the family’s motorhome swerved off the road and flipped over. The plaintiffs alleged that a Goodyear G159 tire on the vehicle caused the accident because the tire was not designed to withstand the level of heat generated when the tire was used on a motorhome at highway speeds. The plaintiffs repeatedly demanded that Goodyear turn over internal test results for the G159, but the company’s responses were both slow and unrevealing in content. The parties finally settled the case for an undisclosed sum. Later, the plaintiffs’ lawyer learned that Goodyear had disclosed a set of test results in another case that had not been disclosed to the plaintiffs that showed that the G159 tire got unusually hot at speeds between 55 and 65 miles per hour. The plaintiffs sued Goodyear to recover their entire lawyer’s fees of $2.7 million they expended on their case. The U.S. district court awarded the plaintiffs this amount of damages, and the U.S. court of appeals affirmed the judgment. Goodyear appealed to the U.S. Supreme Court, alleging that the award of lawyer’s fees should not be the entire amount expended by the plaintiffs, but should be limited to an amount determined to be related to Goodyear’s misconduct. Issue: Should the plaintiffs recover their entire lawyer’s fees of $2.7 million? Decision: The U.S. Supreme Court held that the plaintiffs could not automatically recover the entire lawyer’s fees they spent on the case but could recover the amount of lawyer’s fees caused by Goodyear’s withholding of evidence. Reason: The U.S. Supreme Court agreed with the lower court that Goodyear had engaged in a years-long course of bad- faith behavior, and that the company’s conduct arose to a truly egregious level. The Court believed, however, that an award of attorney’s fees must be specifically limited to those fees incurred because of the conduct at issue, and that no such determination had been made with respect to the $2.7 million award. Ethics Questions: Although the record does indicate an ethical breach by Goodyear, the U.S. Supreme Court’s decision appears sound in terms of limiting the award of attorney’s fees to an amount specifically related to the ethical breach. Social Responsibility of Business Business does not operate in a vacuum Decisions made by business have far-reaching effects on society In the past, many business decisions were made solely on a cost-benefit analysis Such decisions may cause negative externalities for others Corporations are considered to owe some degree of social responsibility for their actions Maximize Profits – The traditional view of the social responsibility of business is that businesses should maximize profits for shareholders. This view holds that the interests of other
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Chapter 2 12 constituencies, such as employees, suppliers, and residents of the communities in which businesses are located, are not important in and of themselves. Critical Legal Thinking: Volkswagen Emissions Scandal In the early 2000s, Volkswagen produced a new diesel engine, but it was unable to develop one that met United States environmental standards which limited the amount of nitrogen oxide (NOx) pollution that an automobile could emit. In order to sell its new diesel cars in the United States, Volkswagen built into their diesel cars a device and software that could detect when their diesel automobiles were being tested by equipment of the U.S. Environmental Protection Agency (EPA). The company’s automobiles were programmed to falsely indicate that their emissions met EPA standards, when in fact Volkswagen’s diesel engines spewed NOx emissions 40 times greater than permitted by law. The U.S. government brought civil fraud and criminal charges against Volkswagen, and consumers who purchased the affected vehicles — which could not be driven because they violated emission standards — brought civil class action lawsuits against the company. Volkswagen eventually agreed to pay $16 billion to settle the class action civil claims, and in a 2017 settlement reached with the U.S. government, Volkswagen pleaded guilty to 3 criminal counts and agreed to pay $4.3 billion in civ il and criminal fines. Six of the company’s executives were criminally indicted for their participation in the deception. Moral Minimum – This theory of social responsibility contends that a corporation’s duty is to make a profit while avoiding causing harm to others. If a business avoids or corrects the social injury it causes, it has met its duty of social responsibility. Stakeholder Interest – Under this theory of social responsibility, a corporation must consider the interests of all stakeholders, including stockholders, employees, suppliers, customers, creditors, and the local community. Global Law: Is the Outsourcing of U.S. Jobs to Foreign Countries Ethical? U.S. companies often outsource the production of many goods that are eventually sold in the United States, primarily because it is much less expensive to produce goods in foreign countries. Usually, there are substantial labor cost savings abroad due to lower wages and lax workplace regulations (for example, occupational safety, workers’ compens ation, and fair labor standards laws). This section questions whether it is ethical for U.S. companies to capitalize on foreign workers who have few of the legal protections afforded workers in the United States. Ethics: Sarbanes-Oxley Act Requires Public Companies to Adopt Codes of Ethics The Sarbanes-Oxley Act of 2002, with its strict enforcement and punishment provisions against corporate financial fraud, should prompt companies and their officers to be more ethical. However, the entire corporate culture may need to change before an organization can be more ethical. Corporate Citizenship – This theory of social responsibility argues that business has a responsibility to do well, and is therefore responsible for helping to solve social problems it did little, if anything, to cause. Public Benefit Corporations This is a new form of corporation often referred to as a benefit corporation, B corporation, or B corp. A public benefit corporation is a for-profit corporation, but with missions additional to the pure profit motive. Such missions include general-public benefits like considering social issues and protecting the environment, and can include specific public benefit purposes such as reducing
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Ethics and Social Responsibility of Business 13 the company’s carbon footprint, engaging in sustainability e fforts, and giving a designated percentage of the company’s profits to charity. V. Key Terms and Concepts Code of ethics — A code adopted by a company wherein the company sets forth rules of ethics for the company’s managers and employees to follow when dea ling with customers, employees, suppliers, and others. Corporate citizenship — A theory of social responsibility that says a business has a responsibility to do good. Ethical fundamentalism — When a person looks to an outside source for ethical rules or commands. Ethical relativism — A moral theory that holds individuals must decide what is ethical based on their own feelings as to what is right or wrong. Ethics — A set of moral principles or values that govern the conduct of an individual or a group. Ethics and the law — Ethics and the law are intertwined. Sometimes the rule of law and the rule of ethics demand the same response by a person confronted with a problem. Kantian ethics (duty ethics) — A moral theory that says people owe moral duties based on universal rule s such as the categorical imperative “Do unto others as you would have them do unto you.” Law — A set of enforceable standards that establishes a minimum degree of conduct expected by persons and businesses in society. Maximize profits — A theory of social responsibility that says a corporation owes a duty to take actions that maximize profits for shareholders. Moral minimum —A theory of social responsibility that says a corporation’s duty is to make a profit while avoiding harm to others. Public benefit corporation (benefit corporation or B corporation or B corp) — A corporation that requires its directors and officers to make decisions that accomplish general-public benefits and stipulated specific public benefits stated in its articles of incorporation, and to c onsider stakeholders other than the company’s shareholders, such as employees, customers, suppliers, and the community, when making corporate decisions. Rawls’s social justice theory— A moral theory that says each person is presumed to have entered into a social contract with all others in society to obey moral rules that are necessary for people to live in peace and harmony. Sarbanes-Oxley Act of 2002 — Makes certain conduct illegal and establishes criminal penalties for violations. Section 406 of the Sarbanes-Oxley Act — A section that requires a public company to disclose whether it has adopted a code of ethics for senior financial officers. Social responsibility of business — Requires corporations and businesses to act with an awareness of the consequences their decisions will have on others. Stakeholder interest — A theory of social responsibility that says a corporation must consider the effects its actions have on persons other than its stockholders. Utilitarianism — A moral theory that dictates people must choose the action or follow the rule that provides the greatest good to society.
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14 Chapter 3 Courts, Jurisdiction, and Administrative Law See you in Court! I. Teacher to Teacher Dialogues Twenty-first century technological advances have provided our students with all kinds of instant access to information. These devices have provided students with a variety of preconceptions. Among these is the average undergraduate’s notion of how trials are conducted and the role of attorneys in that process. Invariably these perceptions center on popular television series such as Law and Order and Better Call Saul . This is not all bad. Current media focus on numerous law- related issues has generated a whole new wave of public interest in the workings of our legal system. The downside is that the media has created many myths on the folklore of law and lawyers. In the world of pop culture, no one knows until the end who really did it until a surprise witness shows up to identify the bad guy. In more modern versions, the attorney first has a business relationship with the client and then proceeds to get him or her acquitted. Regardless of the outcome, the process is always full of glamour and intrigue. The problem is that a trial rarely resembles the goings on found in the entertainment media. Trials are long, tedious, emotionally and financially draining processes for all parties concerned. In many ways, a trial represents a failure by the parties to reach some sort of satisfactory solution of the issue beforehand. Rarely do the parties actually want to go through a labyrinth of pleadings, motions, and the like, feeling all the while totally dependent on the sometimes questionable competence of their attorneys. Unlike the make-believe world of entertainment, the job of an attorney is to keep his or her client out of court. (This often needs some reinforcement with the student.) The attorney’s professional advice should anticipate and resolve potential legal problems before, rather than after the fact if at all possible. It is against this backdrop that we should try to present a more realistic picture of how our system works. We can basically start by discussing how few controversies actually get to the trial stage and how even fewer of those are actually reported in the National Reporter System. Additionally, a fair amount of time should be spent reviewing the growing trend towards alternative dispute resolution (ADR). Personal experience examples might be helpful in illustrating the growing trends towards ADR. To complete the cycle, we can then proceed to itemize the key steps used in a court trial. Anyone who has dealt with a large governmental bureaucracy can readily appreciate the frustrations of trying to get through the maze with sanity intact. The go vernment’s burgeoning growth of administrative agencies at every level is indeed cause for concern for its constituents. According to statistics published by the U.S. Congress, the federal government alone has over 2 million civilian employees working as of 2018. In spite of constant calls to reduce the size of government’s role in the average pe rson’s affairs, that role has grown tremendously as reflected in these statistics. The media headlines may be focused on the goings on in the capitol, but the real functions of government are carried out “in the trenches” by this “fourth branch of governme nt” every day. This chapter seeks to outline the basic ground rules about how the agencies are created, how they are authorized to act, and what controls have been put in place so as to protect the rights of both citizens and the government. The basic function undertaken by these administrative agencies is to carry out the ministerial functions necessary to the operation of the government. These functions are first authorized by what are called organic statutes, which create the agency, and enabling statutes, which delegate certain
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Courts, Jurisdiction, and Administrative Law 15 powers to the agency to act for the executive, legislative, or judicial branches of government. It is interesting to note at the outset that the “clean functional lines” of the executive, legislative, and judicial branches can and do often become quickly blurred when examining the breadth and scope of administrative agency activities. Once the existence of the agency is settled upon and its scope of authority is established, you must then look to see if it is acting within the scope vis-à-vis the particular issue at hand. Remember the basic assumption here is that the executive branch, legislative branch, or judicial branch has chosen to designate and delegate a certain portion of its authority to act. This delegation is based on the presumption that the agency can be expected to have certain levels of expertise, scales of economy, and attention to detail which could not be readily expected of the policy makers. The next step is to see if the power in question was in fact truly delegated, and if so, is it being properly exercised by the agency? The mechanisms for control of agency powers are relatively sparse given the scope of agency activity. The key provisions for control of agency powers are found in the executive branch chain of command and in the overview powers vested in the judiciary. In addition, there have been a number of specific information access type statutes such as the Freedom of Information Act, Government in the Sunshine Act, and the Administrative Procedure Act to help persons dealing with these agencies to get through the labyrinth. II. Chapter Objectives 1. Describe state court systems. 2. Describe the federal court system. 3. Describe the U.S. Supreme Court and the types of cases it decides. 4. Explain the jurisdiction of federal courts and compare it with the jurisdiction of state courts. 5. Define standing to sue , jurisdiction , and venue . 6. Explain how jurisdiction is applied to digital commerce. 7. Describe administrative agencies and the main features of administrative law. III. Key Question Checklist If the dispute or controversy needs to be resolved in a court of law, which court has jurisdiction? Once jurisdiction is established, was the proper sequence of pretrial steps taken? Was the trial sequence properly followed? After the trial is completed, are any appeals from the decision applicable? Define administrative law. List and explain the functions of administrative agencies. Describe the provisions of the Administrative Procedure Act. IV. Chapter Outline The chapter discusses the federal court system, state court systems, jurisdiction of courts, and administrative agencies. Introduction to Courts, Jurisdiction, and Administrative Law There are two major court systems in the United States: (1) the federal court system and (2) the court systems of the 50 states, Washington, DC (District of Columbia), and territories of the United States. Each of these systems has jurisdiction to hear different types of lawsuits. State Court Systems Most state court systems include the following: (1) Limited-jurisdiction trial courts; (2) General-jurisdiction trial courts;
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Chapter 3 16 (3) Intermediate appellate courts; and (4) A highest state court. Limited-Jurisdiction Trial Courts – Hear matters of a specialized nature Traffic courts Juvenile courts Justice-of-the-peace courts Probate courts Family law courts Courts that hear misdemeanor criminal law cases General-Jurisdiction Trial Courts – Hear cases of a general nature that are not within the jurisdiction of limited jurisdiction courts. Testimony and evidence at trial are recorded and stored for future reference. Intermediate Appellate Courts – Intermediate courts that hear appeals from trial courts. Review the trial court record to determine if there have been any errors at trial that would require reversal or modification of the decision. Highest State Court – Hears appeals from intermediate state courts. Business Environment: Delaware Court Specializes in Business Disputes Delaware has created a special Chancery Court to decide business litigation, with a reputation for handling corporate matters. Delaware’s laws also tend to favor corporate management, so together with the Chancery Court, the state has created an environment that encourages incorporation in that state. Other states are beginn ing to follow suit and create their own variation of Delaware’s Chancery Court. Federal Court System Special federal courts U.S. district courts U.S. courts of appeals U.S. Supreme Court Special Federal Courts – Federal courts that hear matters of specialized or limited jurisdiction. They include: (1) U.S. Tax Court — hears cases that involve federal tax laws (2) U.S. Court of Federal Claims — hears cases brought against the United States (3) U.S. Court of International Trade — hears civil cases arising out of customs and international trade laws of the United States (4) U.S. Bankruptcy Court — hears cases that involve federal bankruptcy laws (5) U.S. Court of Appeals for the Armed Forces — exercises appellate jurisdiction over members of the armed services (6) U.S. Court of Appeals for Veterans Claims — exercises jurisdiction over decisions of the Department of Veterans Affairs Contemporary Environment: Foreign Intelligence Surveillance Court In 1978, Congress created the Foreign Intelligence Surveillance (FISA) Court, which is located in Washington, DC. The FISA Court hears requests by federal law enforcement agencies, such as the Federal Bureau of Investigation (FBI) and National Security Agency (NSA), for warrants, called
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Courts, Jurisdiction, and Administrative Law 17 FISA warrants, to conduct physical searches and electronic surveillance of Americans or foreigners in the United States who are deemed a threat to national security. U.S. District Courts – The federal court system’s trial courts of general jurisdiction Most federal cases originate in federal district court They are empowered to: Impanel juries Receive evidence Hear testimony Decide cases U.S. Courts of Appeals – The federal court system’s intermediate appellate courts These courts hear appeals from the district courts located in their circuit These courts review the record of the lower court or administrative agency proceedings to determine if there has been any error that would warrant reversal or modification of the lower court decision No new evidence or testimony is heard Supreme Court of the United States The United States Supreme Court is composed of nine justices who are nominated by the president and confirmed by the U.S. Senate. The president appoints one as the chief justice who is responsible for the administration of the Court, while the other eight are considered associate justices. Contemporary Environment: Process of Choosing a U.S. Supreme Court Justice The president appoints Supreme Court justices, with the advice and consent of the Senate (majority vote). This allows a form of balance of power between the executive and legislative branches of the government. Jurisdiction of the U.S. Supreme Court – The Supreme Court hears appeals from the federal district courts and from the highest state courts. Legal briefs are filed, oral arguments are made, lower court records are reviewed, but neither new evidence nor testimony is heard. The Supreme Court ’s decision is final. Decisions of the U.S. Supreme Court – The U.S. Constitution gives Congress the authority to establish rules for the appellate review of cases by the Supreme Court, except in the rare case in which mandatory review is required. Congress has given the Supreme Court discretion to decide what cases it will hear. Petitioners file a petition for certiorari asking for the Supreme Court to review their case. If the court decides to consider the matter, it issues a writ of certiorari . The court hears about 100 cases each year. The U.S. Supreme Court can issue several types of decisions: Unanimous decision – In this case, all of the justices voting agree as to both the outcome and the reasoning. Such a decision becomes precedent. Majority decision – A decision by the Supreme Court is considered a majority decision if a majority of the justices agree on the outcome and reasoning. This decision becomes precedent. Plurality decision – A plurality decision is when the majority of the justices agree on the outcome, but not the reasoning. This settles the case, but does not serve as precedent. Tie decision – In this case, the winner in the lower court prevails. This does not serve as precedent.
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Chapter 3 18 Concurring opinion – When a justice agrees with the outcome of the majority but not the reasoning, the justice will issue a concurring opinion explaining his or her stand. Dissenting opinion – Any justice who does not agree with the decision may state his or her opinion. Contemporary Environment: “ I’ll Take You to the U.S. Supreme Court!” This discusses the process necessary to win a review by the U.S. Supreme Court. Having a case heard by the natio n’s highest court is rare. Each year, approximately 10,000 petitioners ask the Supreme Court to hear their cases, while fewer than 100 of these cases are accepted for full review in a particular term. Jurisdiction of Federal and State Courts Article III, Section 2 of the United States Constitution sets forth the jurisdiction of federal courts. Federal courts have limited jurisdiction to hear cases involving a federal question or diversity of citizenship. Federal Question – Federal courts have limited jurisdiction to hear cases involving federal questions with no dollar amount limit. Diversity of Citizenship – The federal courts have jurisdiction to hear cases involving diversity of citizenship. Diversity of citizenship occurs if a lawsuit involves (1) citizens of different states or (2) a citizen of a state and a citizen or subject of a foreign country. The amount in controversy must be over $75,000. Jurisdiction of State Courts – State courts hear cases that the federal courts do not have the jurisdiction to hear. Federal courts may have concurrent jurisdiction with state courts to hear cases involving diversity of citizenship. Full Faith and Credit Clause Under the Full Faith and Credit Clause of the United States Constitution (Article IV, Section 1), a judgment of a court of one state must be given “full faith and credit” by the courts of another state. Standing to Sue, Jurisdiction, and Venue To bring a lawsuit in a court, the plaintiff must have standing to sue, the court must have personal jurisdiction or other jurisdiction to hear the case, and the case must be brought in the proper venue. Standing to Sue – The plaintiff must have a stake in the outcome of the lawsuit. In Personam Jurisdiction – In personam jurisdiction over the person is achieved by the plaintiff filing a lawsuit with a court and by serving a summons on the defendant. If personal service is unavailable, notice of the case by mail or publication in newspapers is allowed. Defendants disputing the jurisdiction of a court may make a special appearance to argue their case, and cannot be served while making this appearance. Long-Arm Statute In most states, a state court can obtain jurisdiction in a civil lawsuit over persons and businesses located in another state or country through the state’s long -are statute. These statutes extend a state’s jurisdiction to nonresidents who are not served a summons within the state. The nonresident defendant in the civil lawsuit must have had some minimum contact with the state such that the maintenance of that lawsuit in that state does not offend traditional notions of fair play and substantial justice.
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Courts, Jurisdiction, and Administrative Law 19 Critical Legal Thinking: International Shoe Company v. State of Washington In this case, the United States Supreme Court addressed the question of how far a state can go to require a person or business to defend him-, her-, or itself in a court of law in that state. The International Shoe Company was a Delaware corporation that had its principal place of business in St. Louis, Missouri. In the state of Washington, the company’s sales representative did not have a specific office but sold the shoes door-to-door and sometimes at temporary locations. The state of Washington assessed an unemployment tax on International Shoe. International Shoe made a special appearance in the Washington court to argue that it did not do sufficient business in Washington to warrant having to pay unemployment taxes in that state. In its decision, the Supreme Court stated that in order to comply with “traditional notions of fa ir play and substantial justice,” due process only requires that a defendant have “minimum contacts” with a particular state in order for the court of that state to subject the defendant to in personam jurisdiction . The “minimum contacts” standard is not a “bright - line” test, so if in personam jurisdiction is challenged in a particular case, the facts of that case will determine whether such jurisdiction exists. In Rem Jurisdiction – Courts may have jurisdiction over property found within the state, based on in rem jurisdiction (“jurisdiction over the thing”) . Quasi in Rem Jurisdiction – Attachment jurisdiction occurs when a plaintiff who has obtained a judgment attempts to satisfy the judgment by attaching property located in another state. Venue – The court with the jurisdiction that is located closest to where the incident occurred or where the parties live should hear the lawsuit. Pretrial publicity may prejudice jurors and may lead to a request for a change of venue in order to get a more impartial jury. Forum shopping is the process of looking for a more favorable court without a valid reason, and is frowned upon by most courts. Forum-Selection and Choice-of-Law Clauses – Because many business agreements are formed between people from different states and different countries, many contracts have clauses that specifically address the state’s or country’s laws that will be applied in case of a dispute, in what are known as choice-of-law clauses. Additionally, through a forum-selection clause, the parties agree which court will have jurisdiction over a dispute if one should arise in their course of dealings. Federal Court Case Case 3.1 Forum-Selection Clause: Carter’s of New Bedford, Inc. v. Nike, Inc. Facts: Nike, Inc. is a worldwide seller of shoes, apparel, and other items carrying the Nike brand. Nike’s headquarters is in Beaverton, Oregon. Carter’s of New Bedford, Inc. is a family -owned retail clothing and footware business that operates two stores in Massachusetts. Carter’s has sold Nike products fo r 28 years. The agreement between Nike and Carter’s is contained in the invoices that Nike provides to Carter’s, which are agree d to by both parties. The invoice agreements include a forum-selection clause that requires any claims that Carter ’ s has with Nike to be brought in Oregon, not Massachusetts. When Nike notified Carter’s that i t was terminating the parties’ business relationship, Carter’s sued Nike in Massachusetts court alleging that Nike breached its agreement with Carter’s. Nike argued that any claim Carter’s has against Nike must be brought in Oregon pursuant to the forum- selection clause and moved to have Carter’s Massachusetts lawsuit dismissed. The U.S. district court dismissed the lawsuit, and Carter’s appealed. Issue: Is the forum-selection clause enforceable? Decision: The U.S. Court of appeals affirmed the district court’s decision that enforced the forum - selection clause and dismissed Carter’s Massachusetts lawsuit against Nike.
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Chapter 3 20 Reason: The court concluded that Carter’s did not meet i ts burden to show that the forum-selection clause would deprive Carter’s of its day in court. Carter’s failed to persuade the court that enforcement of the forum-selection clause would make it practically impossible for it to litigate in Oregon. Ethics Questions: While it is legal for Nike to contractually require its business affiliates to litigate against the company only in Oregon, some may question the ethics of such a requirement. Nevertheless, Nike’s business affiliates are charged with the responsibility of reading the terms of any proposed contract with Nike, and understanding that a forum-selectin clause is generally binding as a matter of contract law. Jurisdiction in Digital Commerce Today, with the advent of the internet and the ability of persons and businesses to reach millions of people in other states electronically, particularly through websites, modern issues arise as to whether courts have jurisdiction in cyberspace. Zippo Manufacturing Company v. Zippo Dot Com, Inc . is an important case that established a test for determining when a court has jurisdiction over the owner or operator of an interactive, semi-interactive, or passive website. Information Technology: Jurisdiction Over an Internet eBay Seller Odil Ostonakulov, a resident of Tennessee, operates Motorcars of Nashville, Inc. (MNI), a Tennessee corporation. The company sells used automobiles to residents of 50 states on eBay, averaging 12-35 cars for sale every day on eBay. Samantha Guffey, a resident of Oklahoma, was the winning bidder on a used Volvo automobile listed by MNI on eBay. In addition to Guffey, MNI made sales of vehicles to other residents of Oklahoma. After receiving the automobile, Guffey determined that the automobile was not in the condition advertised and sued Ostonakulov and MNI in Oklahoma court alleging that the defendants had committed fraud. The defendants filed a motion with the Oklahoma court to have the case dismissed, alleging that Oklahoma lacked personal jurisdiction over the defendants because they did not possess minimum contacts with Oklahoma to be subject to Oklahoma’s long -arm statute. The trial court dismissed the lawsuit, finding that Oklahoma lacked personal jurisdiction over the defendants. Guffey appealed. The Supreme Court of Oklahoma held that Oklahoma possessed personal jurisdiction over the Tennessee defendants. The court stated, “Internet forums such as eBay expand the seller’s market literally to the world and sellers know that, and avail themselves of the benefits of this greatly expanded marketplace. Sellers cannot expect to avail themselves of the benefits of the internet- created world market that the purposely exploit and profit from without accepting the concomitant legal responsibilities that such an expanded market may bring with it. ” Guffey v. Ostonakulov , 321 P.3d 971 (Supreme Court of Oklahoma, 2014) Administrative Law Administrative law is a combination of substantive law and procedural law. Administrative Agencies – Federal administrative agencies are created by either Congress or the executive branch, and have broad regulatory powers. State administrative agencies have a profound effect on business. State administrative agencies are empowered to enforce state statutes. They have the power to adopt rules and regulations to interpret the statutes they are empowered to administer. Local governments such as cities, municipalities, and counties create local administrative agencies to administer local regulatory law. Cabinet-Level Departments – These are federal departments that advise the president and are responsible for enforcing specific administrative statutes enacted by the U.S. Congress.
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Courts, Jurisdiction, and Administrative Law 21 Powers of Administrative Agencies – The delegation doctrine states that an administrative agency can be delegated powers to act in the stead of the legislative, executive, or judicial branches. Acts outside their assigned scope have been declared unconstitutional. Rule-making – Statutes have given administrative agencies the power to issue substantive rules, provided that they follow the procedures established by the APA. They can also issue rules that interpret existing statutes, as well as statements of policy explaining their proposed courses of action. Judicial authority – Administrative agencies often have the power to adjudicate issues through administrative procedures, provided the procedural Due Process Clause of the federal and state governments is followed. Executive power – Administrative agencies are usually granted powers of investigation and prosecution of violations of statutes and administrative rules and orders. They are also granted subpoena power in order to acquire the necessary information. Licensing – In order to enter into certain types of industries, statutes often require licenses be acquired from administrative agencies. Landmark Law: Administrative Procedure Act The Administrative Procedure Act (APA) enacted by the U.S. Congress in 1946, establishes procedures federal administrative agencies must follow in conducting their affairs. The APA establishes notice requirements of actions a federal agency plans on taking. It requires hearings to be held in most cases, and requires certain procedural safeguards and protocols to be followed at these proceedings. Administrative Law Judge – Administrative proceedings employ an employee of the agency, an ALJ, as the sole determiner in each case. They issue an order stating the reason for their decisions, which become final if not appealed. Global Law: Judicial System of Japan Comparatively speaking, there are much fewer lawyers and lawsuits in Japan than in the United States. Culturally, Japan believes that confrontation should be avoided. In Japan, clients must usually pay a large, up-front fee (rather than a contingency fee) for lawyers to represent them, and plaintiffs must pay a court filing fee based on the amount claimed (rather than a flat fee). V. Key Terms and Concepts Administrative agencies — Agencies that the legislative and executive branches of federal and state governments establish. Administrative law — Law that governments enact to regulate industries, businesses, and professionals. Administrative law judge (ALJ) — A judge, presiding over administrative proceedings, who decides questions of law and fact concerning the case. Administrative order —An ALJ’s decision is issued in the form of an administrative order. The order must state the reasons for the ALJ’s decision. The order becomes final if it is not appealed. Administrative Procedure Act (APA) — An act that establishes certain administrative procedures that federal administrative agencies must follow in conducting their affairs. Administrative subpoena — An order that directs the subject of the subpoena to disclose the requested information. Article III of the U.S. Constitution — P rovides that the federal government’s judicial power is vested in one “Supreme Court.” This court is the U.S. Supreme Court.
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Chapter 3 22 Associate Justices of the U.S. Supreme Court — The eight other justices apart from the Chief Justice of the U.S. Supreme Court. Cabinet-level federal departments — Federal departments that advise the president and are responsible for enforcing specific administrative statutes enacted by Congress. Change of venue — In certain circumstances, when pretrial publicity may prejudice jurors, a change of venue may be requested so that a more impartial jury can be found. Chief Justice of the U.S. Supreme Court — Appointed by the president and responsible for administration of the U.S. Supreme Court. Choice-of-law clause — A contract provision that d esignates a certain state’s law or country’s law that will be applied in any dispute concerning nonperformance of the contract. Circuit — The geographical area served by each U.S. court of appeals. Concurrent jurisdiction — Jurisdiction shared by two or more courts. Concurring opinion — An opinion that can be issued by a justice of the Supreme Court who agrees with the outcome of a case but not the reason proffered by the other justices. Delaware Court of Chancery — A special court which decides cases involving corporate governance, fiduciary duties of corporate officers and directors, mergers and acquisitions, and other business issues. Dissenting opinion — An opinion which sets forth the reason why a justice of the Supreme Court does not agree with a decision. District — The geographical area served by a U.S. district court. Diversity of citizenship — A case between (1) citizens of different states and (2) a citizen of a state and a citizen or subject of a foreign country. En banc review — A review that can be requested by a petitioner in the U.S. court of appeals after a decision is rendered by a three-judge panel. Exclusive jurisdiction — Jurisdiction held by only one court. Executive power — Administrative agencies are usually granted executive powers, such as the power to investigate and prosecute possible violations of statutes and rules. This often includes the power to issue an administrative subpoena to a business or person to obtain information. Federal administrative agencies — Agencies created by the federal government to enforce federal regulatory statutes. Examples include the Food and Drug Administration (FDA), the National Labor Relations Board (NLRB), and the Equal Employment Opportunity Commission (EEOC). Federal question case — A case arising under the U.S. Constitution, treaties, and federal statutes and regulations. FISA warrant — Empowers a federal administrative agency, such as the Federal Bureau of Investigation (FBI) or the National Security Agency (NSA), to conduct physical searches and electronic surveillance of Americans or foreigners in the United States who are deemed a threat to national security. Forum-selection clause (choice-of-forum clause) — Contract provision that designates a certain court to hear any dispute concerning nonperformance of the contract. Forum shopping — Looking for a favorable court without a valid reason. Full Faith and Credit Clause — A clause of the U.S. Constitution under which a judgment of a court of one state must be given “full faith and credit” by the courts of another state. General-jurisdiction trial court (court of record) — A court that hears cases of a general nature that are not within the jurisdiction of limited-jurisdiction trial courts. Testimony and evidence at trial are recorded and stored for future reference.
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Courts, Jurisdiction, and Administrative Law 23 Highest state court — The highest court in a state court system; it hears appeals from intermediate appellate state courts and certain trial courts. In personam jurisdiction (personal jurisdiction) — Jurisdiction over the parties to a lawsuit. In rem jurisdiction — Jurisdiction to hear a case because of jurisdiction over the property of the lawsuit. Intermediate appellate court (appellate court or court of appeals) — An intermediate court that hears appeals from trial courts. International Shoe Company v. State of Washington — A landmark U.S. Supreme Court case that established the minimum contacts standard. Judicial authority — Authority of an administrative agency to adjudicate cases in an administrative proceeding. Judicial review of administrative agency actions — Where an enabling statute does not provide for review, the APA authorizes judicial review of federal administrative agency actions. License — Many administrative agencies are empowered to issue a license before a person can engage in certain professions or businesses. For example, the Office of the Comptroller of the Currency (OCC), a federal government agency, issues charters for national banks. Limited-jurisdiction trial court (inferior trial court) — A court that hears matters of a specialized or limited nature. Local administrative agencies — Agencies created by cities, municipalities, and counties to administer local regulatory law. Long-arm statute —A statute that extends a state’s jurisdiction to nonresidents who were not served a summons within the state. Majority decision — A decision of the U.S. Supreme Court where a majority of the justices agree as to the outcome and reasoning used to decide a case. Minimum contact — A nonresident defendant in a civil lawsuit must have had some minimum contact with the state such that the maintenance of that lawsuit in that state does not offend traditional notions of fair play and substantial justice. Petition for certiorari —A petition asking the Supreme Court to hear one’s case. Plurality decision — A decision of the U.S. Supreme Court where a majority of the justices agree as to the outcome of a case but not as to the reasoning for reaching the outcome. Procedural administrative law — Establishes the procedures that must be followed by an administrative agency while enforcing substantive laws. Quasi in rem jurisdiction (attachment jurisdiction) — Jurisdiction allowed a plaintiff who obtains a judgment in one state to try to collect the judgment by attaching property of the defendant located in another state. Rule of four — The votes of four justices are necessary to grant an appeal and schedule an oral argument before the Supreme Court. Rules and regulations — Adopted by administrative agencies to interpret the statutes that they are authorized to enforce. Service of process — A summons is served on the defendant to obtain personal jurisdiction over him or her. Small claims court — A court that hears civil cases involving small dollar amounts. Special federal courts — Federal courts that hear matters of specialized or limited jurisdiction. Standing to sue — The plaintiff must have some stake in the outcome of the lawsuit. State administrative agencies — Administrative agencies that states create to enforce and interpret state law.
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Chapter 3 24 State courts — A separate court system that is present in each state, Washington, DC and each territory of the United States. It includes limited-jurisdiction trial courts, general- jurisdiction trial courts, intermediate appellate courts, and a supreme court. State supreme court — The highest court in a state court system; it hears appeals from intermediate state courts and certain trail courts. Substantive administrative law — Law that an administrative agency enforces — federal statutes enacted by Congress or state statutes enacted by state legislatures. Substantive rules — Rules issued by an administrative agency that have the force of law and to which covered persons and businesses must adhere. Supreme Court of the United States (U.S. Supreme Court) — The highest court in the land, located in Washington, DC. Tie decision — A Supreme Court decision where the number of votes cast by the justices leads to a tie and the decision of the lower court is affirmed. It occurs when all nine judges are not present. Unanimous decision — A Supreme Court decision where all of the justices voting agree as to the outcome and reasoning used to decide a case. U.S. Bankruptcy Court — A special federal court that hears cases involving federal bankruptcy laws. U.S. Court of Appeals —The federal court system’s intermediate appellate court. U.S. Court of Appeals for the Armed Forces — A special federal court that exercises appellate jurisdiction over members of the armed services. U.S. Court of Appeals for the Federal Circuit — A U.S. Court of Appeals in Washington, DC that has special appellate jurisdiction to review the decisions of the Court of Federal Claims, the Patent and Trademark Office, and the Court of International Trade. U.S. Court of Appeals for Veterans Claims — A special federal court that exercises jurisdiction over decisions of the Department of Veterans Affairs. U.S. Court of Federal Claims — A special federal court that hears cases brought against the United States. U.S. Court of International Trade — A special federal court that handles cases involving tariffs and international trade disputes. U.S. district courts — The federa l court system’s trial courts of general jurisdiction. U.S. District of Columbia Circuit — The 12 th circuit court, located in Washington, DC. U.S. Foreign Intelligence Surveillance Court (FISA Court) — A court located in Washington, DC that hears requests by federal law enforcement agencies, such as the Federal Bureau of Investigation (FBI) and the National Security Agency (NSA), for FISA warrants. U.S. Foreign Intelligence Court of Review (FISCR) — If the U.S. Foreign Intelligence Surveillance Court (FISA Court) denies a government application for a FISA warrant, the government may appeal the decision to this entity. U.S. Tax Court — A special federal court that hears cases involving federal tax laws. Venue — A concept that requires lawsuits to be heard by the court with jurisdiction that is nearest the location in which the incident occurred or where the parties reside. Writ of certiorari — An official notice that the U.S. Supreme Court will review one’s case. Zippo Manufacturing Company v. Zippo Dot Com, Inc. — An important case that established a test for determining when a court has jurisdiction over the owner or operator of an interactive, semi-interactive, or passive website.
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25 Chapter 4 Judicial, Alternative, and E-Dispute Resolution Why don’t I want to see you in court? I. Teacher to Teacher Dialogue Only a small percentage of cases make it to trial. The reality is that most cases settle at some point in the process. Settling is safer, quicker, and usually less costly. In my practice, I can remember having several cases settle while the jury was out deliberating. I try to present a more realistic picture of how our system works. I basically start by presenting statistics on how few controversies actually get to the trial stage and how even fewer of those are actually reported in the National Reporter System. In addition, I spend a fair amount of time reviewing the growing trend toward alternative dispute resolution (ADR). I illustrate the key identifying features of each method of ADR, and I use both experiential examples, as well as local statutory enactments, to help illustrate the increasing use of ADR. Given the reality that litigants may not resolve their dispute through ADR, and that civil litigation may be inevitable in a particular case, it is important to itemize the key steps used in a court trial. For those of you who are practicing trial attorneys or who have worked in that arena before coming to academia, this material gives you an obvious area of focus and further elaboration. In any event, I always try to use this opportunity to ask students about their own personal contact with our court system. I do, however, preface these conversations with the caveat that they need not volunteer information that might be embarrassing, confidential, or inappropriate. II. Chapter Objectives 1. Describe how attorneys are compensated. 2. Describe the pretrial litigation process. 3. Define complaint , summons , and answer , and describe the pleading process. 4. Define class action and describe the requirements for bringing a class action lawsuit. 5. Describe the discovery process and the various methods of discovery. 6. Contrast the different types of pretrial motions. 7. Describe the goals and procedures of a settlement conference. 8. Describe the trial process. III. Key Question Checklist Does the dispute or controversy lend itself to an out-of-court resolution? If the dispute or controversy needs to be resolved in a court of law, which court has jurisdiction? Once jurisdiction is established, was the proper sequence of pretrial steps taken? Was the trial sequence properly followed? After the trial is completed, are any appeals from the decision applicable? IV. Chapter Outline Introduction to Judicial, Alternative, and E-Dispute Resolution One objective of this chapter is to familiarize students with the court trial sequence. Litigation is the process of bringing, maintaining, and defending lawsuits. Because it is often difficult and
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Chapter 4 26 expensive, people turn to various forms of non-judicial dispute resolution, or alternative dispute resolution. Attorney Representation Lawyers most often charge an hourly rate for their services. The fees charged reflect the attorney’s experience, cost of operations, and the location of his or her practice. Attorneys often require a client to pay a retainer, a specified dollar amount deposited by the client before the lawyer proceeds, which is placed in a trust account. The lawyer’s fees are taken from the trust account as he or she provides hourly services. Fees are also charged for paralegals who work on the case, for expenses such as copying documents, filing fees with the court, fees for expert witnesses, and other fees associated with the case or legal transaction. Where a legal matter is straightforward and well-defined, attorneys often charge a flat fee. This fee arrangement is often used to draft wills and trusts, form small corporations and limited liability companies, file simple bankruptcy proceedings, settle uncontested divorces, and the like. In certain types of cases, attorneys work on a contingency-fee basis. Under this arrangement, the lawyer receives a percentage of the amount recovered by winning or settling a case. In criminal cases, the government is represented by a prosecutor. A defendant in a criminal case can hire his or her own attorney. If the defendant cannot afford an attorney, the government will provide an attorney to represent the defendant free of charge. Pretrial Litigation Process The pretrial litigation process can be divided into the following major phases: pleadings, discovery, pretrial motions, and settlement conference.
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Judicial, Alternative, and E-Dispute Resolution 27 Pleadings The paperwork filed to initiate and respond to a lawsuit is known as the pleadings. These include the complaint and summons, the answer, and any cross-complaints and replies, as well as interventions and consolidation requests. Complaint and Summons – To initiate a lawsuit, the party who is suing (the plaintiff) must file a complaint in the proper court. A summons is a court order directing the defendant to appear in court and answer the complaint. The complaint and summons are served on the defendant. This is called service of process. Answer – The defendant, the party who is being sued, must file an answer to the plaintiff’s complaint. Cross-Complaint and Reply – A defendant who believes he or she has been injured by the plaintiff can file a cross-complaint against the plaintiff in addition to an answer. The original plaintiff must file a reply (answer) to the cross-complaint. Intervention and Consolidation – If other persons have an interest in a lawsuit, they may intervene and become parties to the lawsuit. This is called intervention. If several plaintiffs have filed separate lawsuits stemming from the same fact situation against the same defendant, the court can consolidate the cases into one case if doing so would not cause undue prejudice to the parties. Critical Legal Thinking: Statute of Limitations A statute of limitations establishes the period during which a plaintiff must bring a lawsuit against a defendant. If a lawsuit is not filed within this time, the plaintiff loses the right to sue. A statute of limitations begins to “run” at the time the plaintiff first has the right to sue the defendant. Class Action – A class action occurs when a group of plaintiffs collectively bring a lawsuit against a defendant. Class Action Fairness Act (CAFA) – In 2005, the U.S. Congress enacted the Class Action Fairness Act that gives federal courts jurisdiction to hear class action lawsuits that would otherwise be heard by state courts. The act is designed to reduce many abuses in class action lawsuits previously brought in state courts, particularly plaintiffs forum shopping for sympathetic state courts. U.S. Supreme Court Case Case 4.1 Class Action: Tyson Foods, Inc. v. Bouaphakeo Facts: Tyson Foods, Inc. is a major food processor that operates a pork processing plant in Storm Lake, Iowa. The plaintiff employees slaughter and trim hogs and prepare the meat for shipment. Tyson paid these employees for the 40 hours they worked each week, but did not pay them for time spent donning and doffing their protective gear. The affected employees filed a class action lawsuit in U.S. district court alleging that Tyson violated the overtime pay requirements of the Fair Labor Standards Act (FLSA) by not paying them overtime pay for the time spent putting on and taking off their protective equipment. Tyson argued that the class should not be certified and that the plaintiffs’ o nly recourse is to bring individual lawsuits against Tyson. The U.S. district court certified the class and the jury awarded $2.9 million in compensatory damages against Tyson for violation of the FLSA. The U.S. court of appeals upheld the U.S. district co urt’s decision, and Tyson appealed to the U.S. Supreme Court.
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Chapter 4 28 Issue: Should the class action be certified? Decision: The U.S. Supreme Court upheld the U.S. court of appeal’s decision to certify the class. Reasoning: The U.S. Supreme Court noted that before a class is certified, a district court must find that questions of law or fact common to class members predominate over any questions affecting only individual members. In the subject case, the Court noted that each employee worked in the same facility, did similar work, and was paid under the same policy. Ethics Questions: While some students may argue that the sufficient commonality of interest requirement for certification of a class action is a legitimate question on appeal in this case, others may contend that the question is easily resolved by the fact that all employees were affected by Tyson’s practice of not paying them for the time they spent putting on and taking off their protective equipment. Arguably, Tyson’s attempt to block the class action certification and thereby require that the plaintiffs pursue individual lawsuits was simply an attempt by the corporation to dissuade litigation. Discovery A legal process during which both parties engage in various activities to discover facts of the case from the other party and from witnesses prior to trial. Examples include depositions and interrogatories. Deposition – A deposition is oral testimony given by a party or witness prior to trial. The person giving a deposition is called the deponent. Interrogatories – Interrogatories are written questions submitted by one party to a lawsuit to another party. Production of Documents – One party to a lawsuit may request that the other party produce all documents that are relevant to the case prior to trial. This is called production of documents. Information Technology: E-Discovery Electronic discovery, or e-discovery, is the process whereby relevant electronic documents are discovered, exchanged, collected preserved, and processed during a lawsuit. Rule 34 of the Federal Rules of Civil Procedure requires that electronically stored information (ESI) be produced by the parties in federal court proceedings. Discoverable ESI includes Microsoft Word documents, Excel spreadsheets, emails, instant messages, text messages, and the like. Information Technology: Cellphone Texts are Discoverable Evidence in an Automobile Accident Case A vehicle driven by Tabitha Antico collided with a truck owned by Sindt Trucking, Inc. Antico was killed in the accident. The personal representative of Antico brought a civil wrongful death action against Sindt Trucking. The company denied liability, alleging that Antico was either solely or partially at fault for the accident because she was distracted by texting or otherwise using her cellphone while driving. Testimony from two witnesses and responding troopers indicated that Antico had been utilizing her cellphone at the time of the accident. Sindt made a motion to the trial court to permit an expert to inspect the cellphone’s data, i ncluding text messages, internet website access history, and other use of Antico’s cellphone o n the day of the accident. The plaintiff countered that the discovery would violate Antico’s privacy rights. The trial court approved the discovery of the cellphone data, limiting the discovery to the 9-hour period preceding and including the time of the accident. The court of appeals affirmed the trial court’s ruling permitting inspection of the cellphone for a 9-hour period on the day of the accident. The court s tated, “Petitioner considers the inspection an improper fishing expedition in a digital ocean. Contrary to petitioner’s argument, privacy rights
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Judicial, Alternative, and E-Dispute Resolution 29 do not completely foreclose the prospect of discovery of data stored on electronic devices.” Antico v. Sindt Trucking, Inc. , 148 So.3d 163, 2014 Fla. App. Lexis 16746 (District Court of Appeal of Florida 2014) Information Technology: Social Media Postings and Photographs are Discoverable Evidence Maria Nucci claimed that when she was in a store owned by Target Corporation, she slipped and fell on a foreign substance on the store’s floor. Nucci sued Target to recover damages for her alleged injuries. Nucci claimed that she was seriously injured, experiences pain from the injury, suffers emotional pain and suffering, and suffers permanent and continuing injuries. After the incident, Target obtained surveillance videos that showed Nucci carrying heavy items and doing other physical acts that refute her claim of serious personal injury. Target served Nucci with a Request for Production of Electronic Media to obtain photographs of her from her social media accounts for the two years prior to the date of the incident to the present. The trial court issued an order compelling discovery of the photographs from Nucci’s social media sites. In upholding the order, the court of appeals stated, “The information sought, photographs of Nucci posted on Nucci’s social media sites, is highly relevant. If a photograph is worth a thousand words, there is no better portrayal of what an in dividual’s life was like than those photographs the individual has chosen to share through social media.” Nucci v. Target Corporation , 162 So.3d 146, 2015 Fla. App. Lexis 153 (District Court of Appeal of Florida 2015) Physical or Mental Examination – In cases that concern the physical or mental condition of a party, a court can order the party to submit to certain physical or mental examinations to determine the extent of the alleged injuries. Pretrial Motions Pretrial motions like a motion for judgment on the pleadings and a motion for summary judgment are used to try to dispose of all or part of the lawsuit prior to trial. Motion for Judgment on the Pleadings – Motion that alleges that if all the facts presented in the pleadings are taken as true, the party making the motion would win the lawsuit when the proper law is applied to these asserted facts. Motion for Summary Judgment – Motion asserting that there are no factual disputes to be decided by the jury; if so, the judge can apply the proper law to the undisputed facts and decide the case without a jury. State Court Case Case 4.2 Summary Judgment: Wade v. Wal-Mart Stores, Inc. Facts: Leslie Wade and her two children went shopping at a Wal-Mart store in Savoy, Illinois. Wade parked her SUV in the Wal-Mart parking lot. At approximately 7:30 p.m., Wade and her children returned to the SUV with a cart full of groceries. It was a clear, dry night, and the parking lot was well lit. After Wade unloaded the groceries into the SUV and returned the shopping cart, her left foot fell into a pothole, causing her to fall and suffer a broken foot. The pothole was a couple of feet long and a few inches deep. Wade sued Wal-Mart, seeking compensation for her injuries. Wal-Mart filed a motion for summary judgment, arguing that it did not owe Wade a duty because the pothole was an open and obvious hazard. The trial court granted summary judgment in Wal- Mart’s favor, and Wade appealed. Issue: Should Wal-Mart be granted summary judgment? Decision: The appellate court affirm ed the trial court’s grant of summary judgment in Wal - Mart’s favor.
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