Lecture Notes for Legal Environment of Business, 9th Edition

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Legal Environmentof BusinessNinth EditionHenry R. CheesemanInstructorsManual(Download only)forLegalEnvironment of BusinessRevised by:Jeffrey Penley

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1Chapter 1Legal Heritage and the Information AgeWhat is the meaning of“It’s the law”?I. Teacher to Teacher DialogueOne of the most common dilemmas facing instructors of business law is the issue of topicchoice. By the very nature of the subjects we teach, the breadth of materials is so wide thatchoosing what to focus on in the limited classroom time we have with our students can be a mostdaunting task. This problem is especially complicated when the topics we are dealing with are allof deep interest and can stand alone as separate courses.In this chapter, for example, we are asked to introduce students to topics ranging from thedefinitions and purposes of law to how our system affects business decisions, to some of the mostimportant provisions found in the United States Constitution. Any one of these subparts canprovide the raw materials for an entire course at the law school level. Our job must start with aself-evident, but sometimes forgotten, point: this isnotlaw school. We are here not to train futurelawyers but rather students who need to know enough about these issues to recognize that theyareissues. The technical legal problems they may be facing later will ultimately need to beresolved 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 teachingand research interests lie in the area of ethics and the schools of jurisprudential thought fromwhich they are derived, then by all means, run with it! Rather than trying to be all things to allpeople, 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 andincorporated in both your lecture and materials outline. But if you have a particular interest andexpertise in, for example, the Law and Economics School of jurisprudential thought, then usethem as focal points of comparison in the evolutionary process that seeks to distinguish the olderschools of jurisprudence from newer approaches to these issues. In any event, remember thatphilosophical studies of what law is and what its role is in the larger scheme of things havealways posed questions virtually impossible to answer. This chapter represents attempts by greatthinkers to answer the unanswerable. It would be far too presumptuous for us to think that we canteach, in a few hours, what the great philosophers of the world have tried to do over hundreds ofyears. Perhaps this is an early lesson in what wisdom is really all about: the more we know ofhistory, the more we know of our own limitations. If we can get that point across, the course is offto a good start!II. Chapter Objectives1.Definelaw.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 ofstare decisis.7.Describe how existing laws are being applied to the digital environment and how newlaws 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 Age29.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 ofbehavior is most appropriate? Does law codify the standard? Do one or more of theschools 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 OutlineThe first chapter objective is an introduction to the historical underpinnings of jurisprudentialthought. This would include not only the functions of law listed in the summary, but also an earlyopportunity to introduce the role of ethics based on the various schools of jurisprudencediscussed.Introduction to Legal Heritage and the Information AgeBusinesses that are organized in the United States are subject to its laws. They are also subject tothe laws of other countries in which they operate. Businesses organized in other countries mustobey the laws of the United States when doing business here. In addition, businesspeople owe aduty to act ethically in the conduct of their affairs, and businesses owe a responsibility not toharm society. This chapter discusses the nature and definition of law, theories about thedevelopment 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 otherorganizations within society.It is intended to protect persons and their property against unwanted interference fromothers.Law forbids persons from engaging in certain undesirable activities.It is often, but not always, fair.Law must be flexible.Definition ofLaw–According to Black’s Law Dictionary, “Law, in its generic sense, is a bodyof 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 isa 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Promotingsocialjustice–e.g.,enactingstatutesthatprohibitdiscriminationinemploymentMaintaining the status quo–e.g., passing laws preventing the forceful overthrow of thegovernment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 plantheir activities, allocate their resources, and assess their risks

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Chapter 13Providing a basis for compromise–e.g., approximately 95 percent of all lawsuits aresettled prior to trialMaximizing individual freedom–e.g., the rights of freedom of speech, religion, andassociation granted by the First Amendment to the U.S. ConstitutionFairness 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 andoversights 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 gounpunished.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 ournation still exist; however, legal modifications exhibit the flexibility and maturity of our systemto be able to adapt to the changing commercial, social, and ethical environments.Critical Legal Thinking:Brown v. Board of EducationThis section discusses the United States Supreme Court’s rejection of the “separatebutequal”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 lawshould 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 certainsociological goalsCommand School–Believes that law is a set of rules developed, communicated, andenforced by the ruling partyCritical Legal Studies School–Maintains that legal rules are unnecessary and that legaldisputes should be solved by applying arbitrary rules based on fairnessLaw and Economics School–Believes that promoting market efficiency should be thecentral concern of legal decision makingGlobal Law:Command School of Jurisprudence of CubaIn 1959, Fidel Castro led a revolution in Cuba. What followed was a communist/socialistgovernment that expropriated and nationalized much private property, and installed a commandeconomy and system of jurisprudence. Economic productivity fell substantially in Cuba as aresult, 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 LawWhen the American colonies were first settled, the English system of law was generally adoptedas the system of jurisprudence. This was the foundation from which American judges developed acommon law in America.English Common LawLaw developed by judges who issued their opinions when deciding a caseThe principles announced in these cases becameprecedentfor later judges deciding similarcasesThe English common law can be divided into cases decided by the:

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Legal Heritage and the Information Age4Law courtsChancery (Equity) courtsMerchant courtsLandmark Law:Adoption of English Common Law in the United StatesCommon law is discussed in this section. In the United States, law, equity, and merchant courtshave been merged. Most U.S. courts permit the aggrieved party to seek both legal and equitableorders and remedies.Global Law:Civil Law System of France and GermanyRomano-Germanic civil law system is the model for countries adopting civil codes. The CivilCode and the parliamentary statutes that expand and interpret it are the sole sources of law inmost civil law countries. The adjudication of a case is the application of the code or the statutes toa 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 systemand through congressional legislation.Sources of Law in the United StatesIn the more than 200 years since the founding of the United States and the adoption of the Englishcommon law, U.S. lawmakers have developed a substantial body of law. The sources of modernlaw in the United States include the federal and state constitutions, federal treaties, federal andstate statutes, local ordinances, executive orders, regulations and orders of administrativeagencies, 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 powersTreaties–The president, with the advice and consent of the Senate, may enter into treaties withforeign 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 areorganized by topic into code books. This is often referred to as codified law. Federal statutes canbe 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 LawThe 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 smallpercentage of them becomes law. First, a bill must be sponsored by a member of the U.S. Houseof Representative or the U.S. Senate. It is then referred to the appropriate committee for reviewand study. Bills that receive the vote of a committee are reported to the full chamber, where theyare debated and subjected to vote. If the bill receives a majority vote from the full chamber and asubsequent second chamber, it is then forwarded to the U.S. president. The bill becomes lawwhen it is signed by the president.

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Chapter 15Ordinances–State legislatures often delegate lawmaking authority to local government bodies,including cities and municipalities, counties, school districts, water districts, and such. Thesegovernmental units are empowered to adopt ordinances. Ordinances are also codified.Executive Orders–The executive branch of the government (the U.S. president) is empoweredto issue executive orders.Regulations and Orders of Administrative Agencies–Administrative agencies are created bythe legislative and executive branches of government. They may adopt administrative regulationsand issue orders that regulate the conduct of covered parties.Judicial Decisions–When deciding individual lawsuits, federal and state courts issue judicialdecisions. In these written opinions, a judge usually explains the legal reasoning used to decidethe case. These opinions often include interpretations of statutes, ordinances, and administrativeregulations 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 overall other laws, followed by federal statutes and federal regulations. Federal law takes precedenceover conflicting state law, which has precedence over local laws. Similarly, state constitutionstake precedence over state statutes and regulations.Doctrine of Stare Decisis–Based on common law tradition, past court decisions becomeprecedent for deciding future cases. Lower courts must follow the precedent established by highercourts. All federal and state courts in the United States must follow the precedents established byU.S. Supreme Court decisions. Adherence to precedent is called the doctrine ofstare decisis(“tostand by the decision”). The doctrine ofstare decisispromotes uniformity of law within ajurisdiction, 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 thatwere unique and specific for this environment. Courts have applied existing laws to the newdigital environment by requiring interpretations and applications. In addition, new laws have beenwritten 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 ThinkingCritical thinking in law courses, referred to as critical legal thinking, is significant because in thelaw there is not always a “bright-line” answer.The need for critical thinking is especiallyimportant in solving legal disputes.Defining Critical Legal ThinkingCritical 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 andanswers and a “give-and-take” inquiry and debate between a professor and students.IRAC Method–The IRAC method is used to examine a law case. IRAC is an acronym thatstands for issue, rule, application, and conclusion. The process is dictated by four questions:1. (I) What is the legalissuein the case?2. (R) What is therule(law) of the case?3. (A) What is the court’sanalysisand rationale?

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Legal Heritage and the Information Age64. (C) What was theconclusionor outcome of the case?V. Key Terms and ConceptsAdministrative agencies—Agencies (such as the Securities and Exchange Commissionand the Federal Trade Commission) that the legislative and executive branches of federaland state governments are empowered to establish.Administrative rules and regulations—Used by administrative agencies to enforcestatutes.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 feweventually become law.Brown v. Board of Education—A landmark Supreme Court case in which a unanimousdecision reversed prior judicial precedent and held that the“separate but equal”doctrineviolated 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 ofRepresentatives and the U.S. Senate.Civil Law—A code of laws applicable to Romans. Also known as the Romano-Germaniccivil 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—Schoolof jurisprudence that believes that the law is a set of rulesdeveloped, communicated, and enforced by the ruling party rather than a reflection of thesociety’s morality, history, logic, or sociology.Committee—Bills from either of the two chambers of the U.S. Congress are reviewedand studied by an appropriate committee. The committee may reject the bill, report it tothe 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 ofRepresentatives 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 areunnecessary 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 whendeciding a case. The principles announced in these cases became precedent for laterjudges deciding similar cases.Executive branch (president)—A branch of the U.S. government that has the power toenforce the law.Executive orders—An order issued by a member of the executive branch of thegovernment.Federal statute—Written laws, enacted by the U.S. Congress, that regulate foreign andinterstate commerce.French Civil Code of 1804 (the Napoleonic Code)—One of the models used by countriesthat adopted civil codes. In most countries adhering to a civil law system, the civil codeand parliamentary statutes are the sole sources of law.

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Chapter 17German Civil Code of 1896—One of the models used by countries that adopted civilcodes. In most countries adhering to a civil law system, the civil code and parliamentarystatutes are the sole sources of law.Historical School—School of jurisprudence that believes the law is an aggregate of socialtraditions and customs that have developed over the centuries.IRAC method—A method used to examine a law case. “IRAC” stands for issue (What isthe 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 oroutcome of the case?).Judicial branch (courts)—A branch of the U.S. government that has the power to interpretand determine the validity of the law.Judicial decision—A decision about an individual lawsuit issued by federal and statecourts.Jurisprudence—The philosophy or science of law.Law—That which must be obeyed and followed by citizens, subject to sanctions or legalconsequences; a body of rules of action or conduct prescribed by a controlling authorityand having binding legal force.Law and Economics School (Chicago School)—School of jurisprudence that believesthat 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 bythe kings and queens after William the Conqueror; in this system of jurisprudence, legalprocedure was emphasized over the particular merits of a case.Law Merchant—Rules based on based on common trade practices and usage that wereapplied by merchants around England and Europe, during the Middle Ages, to solvecommercial disputes. Also known as the“law of merchants.”Legislative branch (Congress)—A branch of the U.S. government that has the power toenact the law.Merchant Court—The separate set of courts established to administer the “law ofmerchants.”Moral theory of law—Theory proposing that the law should be based on morality andethics.Natural Law School—School of jurisprudence postulating that the law is based on whatis “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 theprecedent established by higher courts.Romano-Germanic civil law system—Legal system dating back to 450 BCE when Romeadopted the Twelve Tables, a code of laws applicable to the Romans. Commonly knownas civil law.Sociological School—School of jurisprudence asserting that the law is a means ofachieving and advancing certain sociological goals.Socratic method—A process that consists of a series of questions and answers, and agive-and-take inquiry and debate between a professor and students.Stare decisis—Latin for “to stand by the decision.” Adherence to precedent.State constitution—Constitution that establishes the legislative, executive, and judicialbranches 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 Age8Statute—Written law enacted by the legislative branch of the federal and stategovernments that establishes certain courses of conduct to which covered parties mustadhere.Subcommittee—Studies bills sent by the committee. After review, the subcommittee mayeither 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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9Chapter 2Ethics and Social Responsibility of BusinessWhat is “right”?I. Teacher to Teacher DialogueThe study of ethics and law has been interwoven from the onset. Both disciplines stress themoral underpinnings of their respective efforts at defining proper human behavior. In spite of thislong interaction, using business ethics issues as a freestanding chapter in mainline business lawtexts 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 philosophersand other related social scientists. Given the obvious need for more emphasis on ethics training inall aspects of business education, this increase in emphasis on law/ethics issues has come nonetoo soon.In this chapter, the author clearly outlines the key schools of ethical studies and then providesexcellent case examples in which to test the various approaches discussed in the text.II. Chapter Objectives1.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.Definepublic benefit corporationand describe the social purposes served by thesecorporations.III. Key Question ChecklistWhencorporatebehaviorisquestioned,whichschoolofethicswouldbemostappropriate 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 OutlineThe study of ethics revolves around the examination of rules, conduct, and character through amorally-tintedmicroscope.Thatlawshouldbegroundedinsomesortofmorality-basedfoundation is self-evident. The goals of all the ethical schools of thought are to identify some sortof morally-based rationale for human behavior. This rationale may be found in outside sources asseen in schools of ethical fundamentalism, or in the rule that provides the greatest good to societyas illustrated by utilitarianism. Others such as Kant and Rawls have sought to devise formulas ofbehavior 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 areuniversally accepted, the odds are very high that they will no longer be advisory, but ratherrequired by law. The process by which morally-based ethical behavior is first desired, thenexpected, 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 pullbetween ethics and law. The bottom line in the study of ethics is ultimately personal, and our job

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Chapter 210as teachers is to help students prepare for these ethical challenges in both their professional andpersonal 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 societyEthics and the LawEthics–A set of moral principles or values that governs the conduct of an individual or agroup–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 wrongBusiness EthicsThere 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) Kantianethics; (4) Rawl’s social justice theory; and (5) ethical relativism.Ethical Fundamentalism–Persons look to an outside source or central figure for ethical rules orcommands.Utilitarianism–Dictates that people must choose the action or follow the rule that provides thegreatest good to society. This moral theory does not necessarily ensure the greatest good for thegreatest number of people.Kantian Ethics–A set of universal rules that establishes ethical duties. The rules are based onreasoning and require (1) consistency in application and (2) reversibility. Its proponent, ImmanuelKant, would have people behave according to thecategorical imperative “Do unto others as youwould have them do unto you.”Kantian ethics is also called duty ethics.U.S. Supreme Court CaseCase 2.1 Moral Theory of Law and Ethics:POM Wonderful, LLC v. Coca-Cola CompanyFacts:POM Wonderful, LLC (POM) produces and sells a pomegranate-blueberry juice blendthat 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 thewords “POMEGRANATE” and “BLUEBERRY.” Coca-Cola’s pomegranate blueberry juice isactually made of five different juices: 0.3% pomegranate, 0.2% blueberry, 0.1% raspberry, and99.4% 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 arisingfrom false and misleading product descriptions. The U.S. district court and the U.S. court ofappeals 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 acompetitor that challenges the truthfulness of a food label?Decision:The U.S. Supreme Court held that POM may proceed with its Lanham Act unfaircompetition lawsuit against Coca-Cola and remanded the case for further proceedings.Reason:The Lanham Act creates a private cause of action for unfair competition throughmisleading advertising and labeling.Ethics Questions:The facts do appear to indicate that Coca-Cola was trying to trickcustomers into buying cheaper apple-grape juice by prominently labeling it pomegranate-

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Ethics and Social Responsibility of Business11blueberry juice. There is a strong argument to be made that Coca-Cola did not act ethically inthis case.Rawls’s Social Justice Theory–Moral duties are based on an implied social contract. Thisimplied contract states, “I will keep the rules if everyone else does.”Fairness is the essence ofjustice. Rules are established from an“original position.” This means that the principles of justiceshould be chosen by persons who do not yet know their station in society—thus, their “veil ofignorance” would permit the fairest possible principles to be selected.Ethical Relativism–Individuals decide what is ethical based on their own feelings as to what isright or wrong.Thus, there are no universal ethical rules to guide a person’s conduct.U.S. Supreme Court CaseCase 2.2 Nondisclosure of Evidence:Goodyear Tire & Rubber Company v. HaegerFacts:The Haegers sued the Goodyear Tire & Rubber Company to recover monetary damagesfor injuries they suffered after the family’s motorhome swervedoff the road and flipped over. Theplaintiffs alleged that a Goodyear G159 tire on the vehicle caused the accident because the tirewas not designed to withstand the level of heat generated when the tire was used on a motorhomeat highway speeds. The plaintiffs repeatedly demanded that Goodyear turn over internal testresults 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 learnedthat Goodyear had disclosed a set of test results in anothercase that had not been disclosed to the plaintiffs that showed that the G159 tire got unusually hotat speeds between 55 and 65 miles per hour. The plaintiffs sued Goodyear to recover their entirelawyer’s fees of $2.7 million they expended on their case. The U.S. district court awarded theplaintiffs this amount of damages, and the U.S. court of appeals affirmed the judgment. Goodyearappealed to the U.S. Supreme Court, alleging that the award oflawyer’s fees should not be theentire amount expended by the plaintiffs, but should be limited to an amount determined to berelated 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 theentire lawyer’s fees they spent on the case but could recover the amount of lawyer’s fees causedby Goodyear’s withholding of evidence.Reason:The U.S. Supreme Court agreed with the lower court that Goodyear had engaged in ayears-long course of bad-faith behavior, and that the company’s conduct arose to a trulyegregious level. The Court believed, however, that an award of attorney’s fees must bespecifically limited to those fees incurred because of the conduct at issue, and that no suchdetermination 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 appearssound in terms of limiting the award of attorney’s fees to anamount 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 actionsMaximize Profits–The traditional view of the social responsibility of business is that businessesshould maximize profits for shareholders. This view holds that the interests of other

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Chapter 212constituencies, such as employees, suppliers, and residents of the communities in whichbusinesses are located, are not important in and of themselves.Critical Legal Thinking:Volkswagen Emissions ScandalIn the early 2000s, Volkswagen produced a new diesel engine, but it was unable to develop onethat 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 UnitedStates, Volkswagen built into their diesel cars a device and software that could detect when theirdiesel automobiles were being tested by equipment of the U.S. Environmental Protection Agency(EPA). The company’s automobiles were programmed to falsely indicatethat their emissions metEPA standards, when in fact Volkswagen’s diesel engines spewed NOx emissions 40 timesgreater than permitted by law.The U.S. government brought civil fraud and criminal charges against Volkswagen, andconsumers who purchased the affected vehicles—which could not be driven because theyviolated 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 a2017 settlement reached with the U.S. government, Volkswagen pleaded guilty to 3 criminalcounts and agreed to pay $4.3 billion in civil and criminal fines. Six of the company’s executiveswere criminally indicted for their participation in the deception.Moral Minimum–This theory of social responsibility contends that a corporation’s duty is tomake a profit while avoiding causing harm to others. If a business avoids or corrects the socialinjury it causes, it has met its duty of social responsibility.Stakeholder Interest–Under this theory of social responsibility, a corporation must consider theinterests 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 theUnited 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 workplaceregulations (for example, occupational safety, workers’ compensation, and fair labor standardslaws). This section questions whether it is ethical for U.S. companies to capitalize on foreignworkers who have few of the legal protections afforded workers in the United States.Ethics:Sarbanes-Oxley Act Requires Public Companies to Adopt Codes of EthicsThe Sarbanes-Oxley Act of 2002, with its strict enforcement and punishment provisions againstcorporate 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 moreethical.Corporate Citizenship–This theory of social responsibility argues that business has aresponsibility to do well, and is therefore responsible for helping to solve social problems it didlittle, if anything, to cause.Public Benefit CorporationsThis is a new form of corporation often referred to as a benefit corporation, B corporation, or Bcorp. A public benefit corporation is a for-profit corporation, but with missions additional to thepure profit motive. Such missions include general-public benefits like considering social issuesand protecting the environment, and can include specific public benefit purposes such as reducing

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Ethics and Social Responsibility of Business13the company’s carbon footprint, engaging in sustainability efforts, and giving a designatedpercentage 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 ofethics for the company’s managers and employees to follow when dealing withcustomers, employees, suppliers, and others.Corporate citizenship—A theory of social responsibility that says a business has aresponsibility to do good.Ethical fundamentalism—When a person looks to an outside source for ethical rules orcommands.Ethical relativism—A moral theory that holds individuals must decide what is ethicalbased 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 agroup.Ethics and the law—Ethics and the law are intertwined. Sometimes the rule of law andthe 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 onuniversal rules such as the categorical imperative “Do unto others as you would havethem do unto you.”Law—A set of enforceable standards that establishes a minimum degree of conductexpected by persons and businesses in society.Maximize profits—A theory of social responsibility that says a corporation owes a dutyto take actions that maximize profits for shareholders.Moral minimum—A theory of social responsibility that says a corporation’s duty is tomake a profit while avoiding harm to others.Public benefit corporation (benefit corporation or B corporation or B corp)—Acorporation that requires its directors and officers to make decisions that accomplishgeneral-public benefits and stipulated specific public benefits stated in its articles ofincorporation, and to consider stakeholders other than the company’s shareholders, suchas employees, customers, suppliers, and the community, when making corporatedecisions.Rawls’s social justice theory—A moral theory that says each person is presumed to haveentered into a social contract with all others in society to obey moral rules that arenecessary for people to live in peace and harmony.Sarbanes-Oxley Act of 2002—Makes certain conduct illegal and establishes criminalpenalties for violations.Section 406 of the Sarbanes-Oxley Act—A section that requires a public company todisclose whether it has adopted a code of ethics for senior financial officers.Social responsibility of business—Requires corporations and businesses to act with anawareness of the consequences their decisions will have on others.Stakeholder interest—A theory of social responsibility that says a corporation mustconsider the effects its actions have on persons other than its stockholders.Utilitarianism—A moral theory that dictates people must choose the action or follow therule that provides the greatest good to society.

Lecture Notes for Legal Environment of Business, 9th Edition - Page 16 preview image

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14Chapter 3Courts, Jurisdiction, and Administrative LawSee you in Court!I. Teacher to Teacher DialoguesTwenty-first century technological advances have provided our students with all kinds of instantaccess 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 roleofattorneys in that process. Invariably these perceptions center on popular television series such asLaw and OrderandBetter 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 legalsystem. 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 witnessshows up to identify the bad guy. In more modern versions, the attorney first has a businessrelationship with the client and then proceeds to get him or her acquitted. Regardless of theoutcome, 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. Inmany ways, a trial represents a failure by the parties to reach some sort of satisfactory solution ofthe 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 questionablecompetence of their attorneys. Unlike the make-believe world of entertainment, the job of anattorney is to keep his or her client out of court. (This often needs some reinforcement with thestudent.) The attorney’s professional advice should anticipate and resolve potential legalproblemsbefore, 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 oursystem works. We can basically start by discussing how few controversies actually get to the trialstage 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 towardsalternative dispute resolution (ADR). Personal experience examples might be helpful in illustratingthe growing trends towards ADR. To complete the cycle, we can then proceed to itemize the keysteps used in a court trial.Anyone who has dealt with a large governmental bureaucracy can readily appreciate thefrustrations of trying to get through the maze with sanity intact. The government’s burgeoninggrowth 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 2million civilian employees working as of 2018. In spite of constant calls to reduce the size ofgovernment’srole in the average person’s affairs, that role has grown tremendously asreflected inthese statistics. The media headlines may be focused on the goings on in the capitol, but the realfunctions ofgovernment are carried out “in the trenches” by this “fourth branchof government”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 ofboth citizens and the government.The basic function undertaken by these administrative agencies is to carry out the ministerialfunctions necessary to the operation of the government. These functions are first authorized by whatare called organic statutes, which create the agency, and enabling statutes, which delegate certain

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Courts, Jurisdiction, and Administrative Law15powers to the agency to act for the executive, legislative, or judicial branches of government. It isinteresting to note at the outset that the “clean functional lines” ofthe executive, legislative, andjudicial branches can and do often become quickly blurred when examining the breadth and scopeof administrative agency activities.Once the existence of the agency is settled upon and its scope of authority is established, youmust then look to see if it is acting within the scope vis-à-vis the particular issue at hand. Rememberthe basic assumption here is that the executive branch, legislative branch, or judicial branch haschosen to designate and delegate a certain portion of its authority to act. This delegation is based onthe presumption that the agency can be expected to have certain levels of expertise, scales ofeconomy, and attention to detail which could not be readily expected of the policy makers. The nextstep is to see if the power in question was in fact truly delegated, and if so, is it being properlyexercised by the agency?The mechanisms for control of agency powers are relatively sparse given the scope of agencyactivity. The key provisions for control of agency powers are found in the executive branch chain ofcommand and in the overview powers vested in the judiciary. In addition, there have been a numberof specific information access type statutes such as the Freedom of Information Act, Government inthe Sunshine Act, and the Administrative Procedure Act to help persons dealing with these agenciesto get through the labyrinth.II. Chapter Objectives1.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.Definestanding to sue,jurisdiction, andvenue.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 hasjurisdiction?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 OutlineThe chapter discusses the federal court system, state court systems, jurisdiction of courts, andadministrative agencies.Introduction to Courts, Jurisdiction, and Administrative LawThere are two major court systems in the United States: (1) the federal court system and (2) thecourt systems of the 50 states, Washington, DC (District of Columbia), and territories of the UnitedStates. Each of these systems has jurisdiction to hear different types of lawsuits.State Court SystemsMost state court systems include the following:(1) Limited-jurisdiction trial courts;(2) General-jurisdiction trial courts;

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Chapter 316(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 casesGeneral-Jurisdiction Trial Courts–Hear cases of a general nature that are not within thejurisdiction of limited jurisdiction courts. Testimony and evidence at trial are recorded and storedfor future reference.Intermediate Appellate Courts–Intermediate courts that hear appeals from trial courts. Reviewthe trial court record to determine if there have been any errors at trial that would require reversal ormodification of the decision.Highest State Court–Hears appeals from intermediate state courts.Business Environment:Delaware Court Specializes in Business DisputesDelaware has created a special Chancery Court to decide business litigation, with a reputation forhandling corporate matters. Delaware’s laws also tend to favor corporate management, so togetherwith the Chancery Court, the state has created an environment that encourages incorporation in thatstate. Other states are beginning to follow suit and create their own variation of Delaware’sChancery Court.Federal Court SystemSpecial federal courtsU.S. district courtsU.S. courts of appealsU.S. Supreme CourtSpecial 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 internationaltrade 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 membersof the armed services(6) U.S. Court of Appeals for Veterans Claims—exercises jurisdiction over decisions of theDepartment of Veterans AffairsContemporary Environment:Foreign Intelligence Surveillance CourtIn 1978, Congress created the Foreign Intelligence Surveillance (FISA) Court, which is located inWashington, DC. The FISA Court hears requests by federal law enforcement agencies, such as theFederal Bureau of Investigation (FBI) and National Security Agency (NSA), for warrants, called

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Courts, Jurisdiction, and Administrative Law17FISA warrants, to conduct physical searches and electronic surveillance of Americans or foreignersin 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 casesU.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 todetermine if there has been any error that would warrant reversal or modification of thelower court decisionNo new evidence or testimony is heardSupreme Court of the United StatesThe United States Supreme Court is composed of nine justices who are nominated by the presidentand confirmed by the U.S. Senate. The president appoints one as the chief justice who is responsiblefor the administration of the Court, while the other eight are considered associate justices.Contemporary Environment:Process of Choosing a U.S. Supreme Court JusticeThe president appoints Supreme Court justices, with the advice and consent of the Senate (majorityvote). This allows a form of balance of power between the executive and legislative branches of thegovernment.Jurisdiction of the U.S. Supreme Court–The Supreme Court hears appeals from the federaldistrict 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 SupremeCourt’sdecision is final.Decisions of the U.S. Supreme Court–The U.S. Constitution gives Congress the authority toestablish rules for the appellate review of cases by the Supreme Court, except in the rare case inwhich mandatory review is required. Congress has given the Supreme Court discretion to decidewhat cases it will hear. Petitioners file a petition for certiorari asking for the Supreme Court toreview their case. If the court decides to consider the matter, it issues a writ ofcertiorari. The courthears 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 outcomeand the reasoning. Such a decision becomes precedent.Majority decision–A decision by the Supreme Court is considered a majority decision if amajority of the justices agree on the outcome and reasoning. This decision becomesprecedent.Plurality decision–A plurality decision is when the majority of the justices agree on theoutcome, 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 asprecedent.

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Chapter 318Concurring 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 caseheard by the nation’s highest court is rare. Each year, approximately 10,000 petitioners ask theSupreme Court to hear their cases, while fewer than 100 of these cases are accepted for full reviewin a particular term.Jurisdiction of Federal and State CourtsArticle 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 ofcitizenship.Federal Question–Federal courts have limited jurisdiction to hear cases involving federalquestions with no dollar amount limit.Diversity of Citizenship–The federal courts have jurisdiction to hear cases involving diversity ofcitizenship. 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 beover $75,000.Jurisdiction of State Courts–State courts hear cases that the federal courts do not have thejurisdiction to hear. Federal courts may have concurrent jurisdiction with state courts to hear casesinvolving diversity of citizenship.Full Faith and Credit ClauseUnder the Full Faith and Credit Clause of the United States Constitution (Article IV, Section 1), ajudgment of a court of one state must be given “full faith and credit” by the courts of another state.Standing to Sue, Jurisdiction, and VenueTo bring a lawsuit in a court, the plaintiff must have standing to sue, the court must have personaljurisdiction 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 PersonamJurisdiction–In personamjurisdiction over the person is achieved by the plaintifffiling a lawsuit with a court and by serving a summons on the defendant. If personal service isunavailable, notice of the case by mail or publication in newspapers is allowed. Defendantsdisputing the jurisdiction of a court may make a special appearance to argue their case, and cannotbe served while making this appearance.Long-Arm StatuteIn most states, a state court can obtain jurisdiction in a civil lawsuit over persons and businesseslocated in another state or country through thestate’s long-are statute. These statutes extend astate’s jurisdiction to nonresidents who are not served a summons within the state. The nonresidentdefendant in the civil lawsuit must have had some minimum contact with the state such that themaintenance of that lawsuit in that state does not offend traditional notions of fair play andsubstantial justice.

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Courts, Jurisdiction, and Administrative Law19Critical Legal Thinking:International Shoe Company v. State of WashingtonIn this case, the United States Supreme Court addressed the question of how far a state can go torequire a person or business to defend him-, her-, or itself in a court of law in that state. TheInternational Shoe Company was a Delaware corporation that had its principal place of business inSt. Louis, Missouri. In the state ofWashington, the company’s sales representative did not have aspecific 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 Shoemade a special appearance in the Washington court to argue that it did not do sufficient business inWashington to warrant having to pay unemployment taxes in that state.In its decision, the Supreme Courtstated that in order to comply with “traditional notions of fairplay 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 toin personamjurisdiction. The “minimum contacts” standard is not a“bright-line” test, so ifin personamjurisdiction is challenged in a particular case, the facts of that case will determine whether suchjurisdiction exists.In RemJurisdiction–Courts may have jurisdiction over property found within the state, based onin remjurisdiction(“jurisdiction over the thing”).Quasi in RemJurisdiction–Attachment jurisdiction occurs when a plaintiff who has obtained ajudgment 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 orwhere the parties live should hear the lawsuit. Pretrial publicity may prejudice jurors and may leadto a request for a change of venue in order to get a more impartial jury. Forum shopping is theprocess of looking for a more favorable court without a valid reason, and is frowned upon by mostcourts.Forum-Selection and Choice-of-Law Clauses–Because many business agreements are formedbetween people from different states and different countries, many contracts have clauses thatspecifically address the state’s or country’s laws that will be applied in case of a dispute, in what areknown as choice-of-law clauses. Additionally, through a forum-selection clause, the parties agreewhich court will have jurisdiction over a dispute if one should arise in their course of dealings.Federal Court CaseCase 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 retailclothing and footware business that operates two stores in Massachusetts. Carter’s has sold Nikeproducts for 28 years. The agreement between Nike and Carter’s is contained in the invoices thatNike provides to Carter’s, which are agreed to by both parties. The invoice agreements include aforum-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 itwas terminating the parties’ businessrelationship, Carter’s sued Nike in Massachusetts court alleging that Nike breached its agreementwith Carter’s. Nike argued that any claim Carter’s has against Nike must be brought in Oregonpursuant 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 320Reason:The court concluded thatCarter’s did not meet its burden to show that the forum-selectionclause would deprive Carter’s of its day in court. Carter’s failed to persuade the court thatenforcement of the forum-selection clause would make it practically impossible for it to litigate inOregon.Ethics Questions:While it is legal for Nike to contractually require its business affiliates to litigateagainst the company only in Oregon, some may question the ethics of such a requirement.Nevertheless,Nike’s business affiliatesare charged with the responsibility of reading the terms ofany proposed contract with Nike, and understanding that a forum-selectin clause is generallybinding as a matter of contract law.Jurisdiction in Digital CommerceToday, with the advent of the internet and the ability of persons and businesses to reach millions ofpeople in other states electronically, particularly through websites, modern issues arise as to whethercourts have jurisdiction in cyberspace.Zippo Manufacturing Company v. Zippo Dot Com, Inc.is animportant case that established a test for determining when a court has jurisdiction over the owneror operator of an interactive, semi-interactive, or passive website.Information Technology:Jurisdiction Over an Internet eBay SellerOdil Ostonakulov, a resident of Tennessee, operates Motorcars of Nashville, Inc. (MNI), aTennessee 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 thewinning bidder on a used Volvo automobile listed by MNI on eBay. In addition to Guffey, MNImade sales of vehicles to other residents of Oklahoma. After receiving the automobile, Guffeydetermined that the automobile was not in the condition advertised and sued Ostonakulov and MNIin Oklahoma court alleging that the defendants had committed fraud. The defendants filed a motionwith the Oklahoma court to have the case dismissed, alleging that Oklahoma lacked personaljurisdiction over the defendants because they did not possess minimum contacts with Oklahoma tobe subject to Oklahoma’s long-arm statute. The trial court dismissed the lawsuit, finding thatOklahoma lacked personal jurisdiction over the defendants. Guffey appealed.The Supreme Court of Oklahoma held that Oklahoma possessed personal jurisdiction over theTennessee defendants. Thecourt stated, “Internet forums such as eBay expand the seller’s marketliterally to the world and sellers know that, and avail themselves of the benefits of this greatlyexpanded 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 concomitantlegal responsibilities that such an expanded market may bring with it.”Guffey v. Ostonakulov, 321P.3d 971 (Supreme Court of Oklahoma, 2014)Administrative LawAdministrative law is a combination of substantive law and procedural law.Administrative Agencies–Federal administrative agencies are created by either Congress or theexecutive branch, and have broad regulatory powers. State administrative agencies have a profoundeffect on business. State administrative agencies are empowered to enforce state statutes. They havethe 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 agenciesto administer local regulatory law.Cabinet-Level Departments–These are federal departments that advise the president and areresponsible for enforcing specific administrative statutes enacted by the U.S. Congress.

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Courts, Jurisdiction, and Administrative Law21Powers of Administrative Agencies–The delegation doctrine states that an administrative agencycan be delegated powers to act in the stead of the legislative, executive, or judicial branches. Actsoutside their assigned scope have been declared unconstitutional.Rule-making–Statutes have given administrative agencies the power to issue substantiverules, provided that they follow the procedures established by the APA. They can also issuerules that interpret existing statutes, as well as statements of policy explaining theirproposed courses of action.Judicial authority–Administrative agencies often have the power to adjudicate issuesthrough administrative procedures, provided the proceduralDue Process Clauseof thefederal and state governments is followed.Executive power–Administrative agencies are usually granted powers of investigation andprosecution of violations of statutes and administrative rules and orders. They are alsogranted subpoena power in order to acquire the necessary information.Licensing–In order to enter into certain types of industries, statutes often require licensesbe acquired from administrative agencies.Landmark Law:Administrative Procedure ActThe Administrative Procedure Act (APA) enacted by the U.S. Congress in 1946, establishesprocedures federal administrative agencies must follow in conducting their affairs. The APAestablishes notice requirements of actions a federal agency plans on taking. It requires hearings tobe held in most cases, and requires certain procedural safeguards and protocols to be followed atthese proceedings.Administrative Law Judge–Administrative proceedings employ an employee of the agency, anALJ, 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 JapanComparatively speaking, there are much fewer lawyers and lawsuits in Japan than in the UnitedStates. Culturally, Japan believes that confrontation should be avoided. In Japan, clients mustusually pay a large, up-front fee (rather than a contingency fee) for lawyers to represent them, andplaintiffs 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 federaland state governments establish.Administrative law—Law that governments enact to regulate industries, businesses, andprofessionals.Administrative law judge (ALJ)—A judge, presiding over administrative proceedings, whodecides 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 notappealed.Administrative Procedure Act (APA)—An act that establishes certain administrativeprocedures that federal administrative agencies must follow in conducting their affairs.Administrative subpoena—An order that directs the subject of the subpoena to disclose therequested information.Article III of the U.S. Constitution—Provides that the federal government’s judicial poweris vested in one “Supreme Court.” This court is the U.S. Supreme Court.

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Chapter 322Associate Justices of the U.S. Supreme Court—The eight other justices apart from the ChiefJustice of the U.S. Supreme Court.Cabinet-level federal departments—Federal departments that advise the president and areresponsible for enforcing specific administrative statutes enacted by Congress.Change of venue—In certain circumstances, when pretrial publicity may prejudice jurors, achange 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 foradministration of the U.S. Supreme Court.Choice-of-law clause—A contract provision that designates a certain state’s law orcountry’s law that will be applied in any dispute concerning nonperformance of thecontract.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 whoagrees 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 corporategovernance, 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 SupremeCourt 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 ofa state and a citizen or subject of a foreign country.En bancreview—A review that can be requested by a petitioner in the U.S. court of appealsafter 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 asthe power to investigate and prosecute possible violations of statutes and rules. This oftenincludes the power to issue an administrative subpoena to a business or person to obtaininformation.Federal administrative agencies—Agencies created by the federal government to enforcefederal regulatory statutes. Examples include the Food and Drug Administration (FDA), theNational Labor Relations Board (NLRB), and the Equal Employment OpportunityCommission (EEOC).Federal question case—A case arising under the U.S. Constitution, treaties, and federalstatutes and regulations.FISA warrant—Empowers a federal administrative agency, such as the Federal Bureau ofInvestigation (FBI) or the National Security Agency (NSA), to conduct physical searchesand electronic surveillance of Americans or foreigners in the United States who are deemeda threat to national security.Forum-selection clause (choice-of-forum clause)—Contract provision that designates acertain 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 whicha judgment ofa 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 generalnature that are not within the jurisdiction of limited-jurisdiction trial courts. Testimony andevidence at trial are recorded and stored for future reference.

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Courts, Jurisdiction, and Administrative Law23Highest state court—The highest court in a state court system; it hears appeals fromintermediate appellate state courts and certain trial courts.In personamjurisdiction (personal jurisdiction)—Jurisdiction over the parties to a lawsuit.In remjurisdiction—Jurisdiction to hear a case because of jurisdiction over the property ofthe lawsuit.Intermediate appellate court (appellate court or court of appeals)—An intermediate courtthat hears appeals from trial courts.International Shoe Company v. State of Washington—A landmark U.S. Supreme Court casethat established the minimum contacts standard.Judicial authority—Authority of an administrative agency to adjudicate cases in anadministrative proceeding.Judicial review of administrative agency actions—Where an enabling statute does notprovide for review, the APA authorizes judicial review of federal administrative agencyactions.License—Many administrative agencies are empowered to issue a license before a personcan engage in certain professions or businesses. For example, the Office of the Comptrollerof 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 aspecialized or limited nature.Local administrative agencies—Agencies created by cities, municipalities, and counties toadminister local regulatory law.Long-arm statute—A statute that extends a state’s jurisdiction to nonresidents who were notserved a summons within the state.Majority decision—A decision of the U.S. Supreme Court where a majority of the justicesagree as to the outcome and reasoning used to decide a case.Minimum contact—A nonresident defendant in a civil lawsuit must have had someminimum contactwith the state such that the maintenance of that lawsuit in that state doesnot 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 wherea majority of the justicesagree 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 anadministrative agency while enforcing substantive laws.Quasi in remjurisdiction (attachment jurisdiction)—Jurisdiction allowed a plaintiff whoobtains a judgment in one state to try to collect the judgment by attaching property of thedefendant located in another state.Rule of four—The votes of four justices are necessary to grant an appeal and scheduleanoral argument before the Supreme Court.Rules and regulations—Adopted by administrative agencies to interpret the statutes thatthey are authorized to enforce.Service of process—A summons is served on the defendant to obtain personal jurisdictionover 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 limitedjurisdiction.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 andinterpret state law.

Lecture Notes for Legal Environment of Business, 9th Edition - Page 26 preview image

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Chapter 324State courts—A separate court system that is present in each state, Washington, DC andeach territory of the United States.It includes limited-jurisdiction trial courts, general-jurisdictiontrial courts, intermediate appellate courts, and a supreme court.State supreme court—The highest court in a state court system; it hears appeals fromintermediate state courts and certain trail courts.Substantive administrative law—Law that an administrative agency enforces—federalstatutes enacted by Congress or state statutes enacted by state legislatures.Substantive rules—Rules issued by an administrative agency that have the force of law andto 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 justicesleads to a tie and the decision of the lower court is affirmed. It occurs when all nine judgesare not present.Unanimous decision—A Supreme Court decision where all of the justices voting agree as tothe outcome and reasoning used to decide a case.U.S. Bankruptcy Court—A special federal court thathears cases involving federalbankruptcy 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 thatexercisesappellate jurisdiction over members of the armed services.U.S. Court of Appeals for the Federal Circuit—A U.S. Court of Appeals in Washington, DCthat 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 thatexercisesjurisdiction over decisions of the Department of Veterans Affairs.U.S. Court of Federal Claims—A special federal court thathears cases brought against theUnited States.U.S. Court of International Trade—A special federal court thathandles cases involvingtariffs and international trade disputes.U.S. district courts—The federal court system’s trial courts of general jurisdiction.U.S. District of Columbia Circuit—The 12thcircuit court, located in Washington, DC.U.S. Foreign Intelligence Surveillance Court (FISA Court)—A court located inWashington, DC that hears requests by federal law enforcement agencies, such as theFederal Bureau of Investigation (FBI) and the National Security Agency (NSA), for FISAwarrants.U.S. Foreign Intelligence Court of Review (FISCR)—If the U.S. Foreign IntelligenceSurveillance Court (FISA Court) denies a government application for a FISA warrant, thegovernment may appeal the decision to this entity.U.S. Tax Court—A special federal court thathears cases involving federal tax laws.Venue—A concept that requires lawsuits to be heard by the court with jurisdiction that isnearest 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 establisheda test for determining when a court has jurisdiction over the owner or operator of aninteractive, semi-interactive, or passive website.

Lecture Notes for Legal Environment of Business, 9th Edition - Page 27 preview image

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25Chapter 4Judicial, Alternative, and E-Dispute ResolutionWhy don’t I want to see you in court?I. Teacher to Teacher DialogueOnly a small percentage of cases make it to trial. The reality is that most cases settle at somepoint in the process. Settling is safer, quicker, and usually less costly. In my practice, I canremember 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 bypresenting statistics on how few controversies actually get to the trial stage and how even fewerof those are actually reported in the National Reporter System. In addition, I spend a fair amountof time reviewing the growing trend toward alternative dispute resolution (ADR). I illustrate thekey identifying features of each method of ADR, and I use both experiential examples, as well aslocal statutory enactments, to help illustrate the increasing use of ADR.Given the reality that litigants may not resolve their dispute through ADR, and that civillitigation may be inevitable in a particular case, it is important to itemize the key steps used in acourt trial. For those of you who are practicing trial attorneys or who have worked in that arenabefore coming to academia, this material gives you an obvious area of focus and furtherelaboration. In any event, I always try to use this opportunity to ask students about their ownpersonal contact with our court system. I do, however, preface these conversations with thecaveat that they need not volunteer information that might be embarrassing, confidential, orinappropriate.II. Chapter Objectives1.Describe how attorneys are compensated.2.Describe the pretrial litigation process.3.Definecomplaint,summons, andanswer, and describe the pleading process.4.Defineclass actionand 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 hasjurisdiction?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 OutlineIntroduction to Judicial, Alternative, and E-Dispute ResolutionOne objective of this chapter is to familiarize students with the court trial sequence. Litigation isthe process of bringing, maintaining, and defending lawsuits. Because it is often difficult and

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Chapter 426expensive, people turn to various forms of non-judicial dispute resolution, or alternative disputeresolution.Attorney RepresentationLawyers most often charge an hourly rate for their services. The fees charged reflect theattorney’s experience, cost of operations, andthe location of his or her practice. Attorneys oftenrequire a client to pay a retainer, a specified dollar amount deposited by the client before thelawyer proceeds, which is placed in a trust account. The lawyer’s fees are taken from the trustaccount as he or she provides hourly services. Fees are also charged for paralegals who work onthe case, for expenses such as copying documents, filing fees with the court, fees for expertwitnesses, 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. Thisfee arrangement is often used to draft wills and trusts, form small corporations and limitedliability 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, thelawyer 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 casecan hire his or her own attorney. If the defendant cannot afford an attorney, the government willprovide an attorney to represent the defendant free of charge.Pretrial Litigation ProcessThe 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 Resolution27PleadingsThe paperwork filed to initiate and respond to a lawsuit is known as the pleadings. These includethe complaint and summons, the answer, and any cross-complaints and replies, as well asinterventions and consolidation requests.Complaint and Summons–To initiate a lawsuit, the party who is suing (the plaintiff) must filea complaint in the proper court. A summonsis a court order directing the defendant to appear incourt and answer the complaint. The complaint and summons are served on the defendant. This iscalled service of process.Answer–The defendant, the party who is being sued, must file an answerto the plaintiff’scomplaint.Cross-Complaint and Reply–A defendant who believes he or she has been injured by theplaintiff can file a cross-complaint against the plaintiff in addition to an answer.The originalplaintiff must file a reply (answer) to the cross-complaint.Intervention and Consolidation–If other persons have an interest in a lawsuit, they mayinterveneand become parties to the lawsuit. This is called intervention.If several plaintiffs havefiled separate lawsuits stemming from the same fact situation against the same defendant, thecourt can consolidatethe cases into one case if doing so would not cause undue prejudice to theparties.Critical Legal Thinking:Statute of LimitationsA statute of limitations establishes the period during which a plaintiff must bring a lawsuit againsta defendant. If a lawsuit is not filed within this time, the plaintiff loses the right to sue. A statuteof 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 lawsuitagainst a defendant.Class Action Fairness Act (CAFA)–In 2005, the U.S. Congress enacted the Class ActionFairness Act that gives federal courts jurisdiction to hear class action lawsuits that wouldotherwise be heard by state courts. The act is designed to reduce many abuses in class actionlawsuits previously brought in state courts, particularly plaintiffs forum shopping for sympatheticstate courts.U.S. Supreme Court CaseCase 4.1 Class Action:Tyson Foods, Inc. v. BouaphakeoFacts:Tyson Foods, Inc. is a major food processor that operates a pork processing plant in StormLake, 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 fortime spent donning and doffing their protective gear. The affected employees filed a class actionlawsuit in U.S. district court alleging that Tyson violated the overtime pay requirements of theFair Labor Standards Act (FLSA) by not paying them overtime pay for the time spent putting onand taking off their protective equipment.Tyson argued that the class should not be certified and that the plaintiffs’ only recourse is to bringindividual 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. courtof appeals upheld the U.S. district court’s decision, and Tyson appealed to the U.S. SupremeCourt.

Lecture Notes for Legal Environment of Business, 9th Edition - Page 30 preview image

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Chapter 428Issue: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 mustfind that questions of law or fact common to class members predominate over any questionsaffecting only individual members. In the subject case, the Court noted that each employeeworked 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 interestrequirement for certification of a class action is a legitimate question on appeal in this case, othersmay contend that the question is easily resolved by the fact that all employees were affected byTyson’s practice of not paying them for the time they spent putting on and taking off theirprotective equipment. Arguably, Tyson’s attempt to block the class actioncertification andthereby require that the plaintiffs pursue individual lawsuits was simply an attempt by thecorporation to dissuade litigation.DiscoveryA legal process during which both parties engage in various activities to discover facts of the casefrom the other party and from witnesses prior to trial. Examples include depositions andinterrogatories.Deposition–A deposition is oral testimony given by a party or witness prior to trial. The persongiving a deposition is called the deponent.Interrogatories–Interrogatories are written questions submitted by one party to a lawsuit toanother party.Production of Documents–One party to a lawsuit may request that the other party produce alldocuments that are relevant to the case prior to trial. This is called production of documents.Information Technology:E-DiscoveryElectronic discovery, or e-discovery, is the process whereby relevant electronic documents arediscovered, exchanged, collected preserved, and processed during a lawsuit. Rule 34 of theFederalRulesofCivilProcedure requiresthatelectronically stored information (ESI)beproduced by the parties in federal court proceedings. Discoverable ESI includes Microsoft Worddocuments, Excel spreadsheets, emails, instant messages, text messages, and the like.InformationTechnology:CellphoneTextsareDiscoverableEvidenceinanAutomobileAccident CaseA vehicle driven by Tabitha Antico collided with a truck owned by Sindt Trucking, Inc. Anticowas killed in the accident. The personal representative of Antico brought a civil wrongful deathaction against Sindt Trucking. The company denied liability, alleging that Antico was eithersolely or partially at fault for the accident because she was distracted by texting or otherwiseusing her cellphone while driving. Testimony from two witnesses and responding troopersindicated that Antico had been utilizing her cellphone at the time of the accident. Sindt made amotion to the trial court to permit an expert to inspect the cellphone’s data, including textmessages, internet website access history, and other use of Antico’s cellphone on the day of theaccident. The plaintiff countered that the discovery would violate Antico’s privacy rights. Thetrial court approved the discovery of the cellphone data, limiting the discovery to the 9-hourperiod preceding and including the time of the accident.The court of appeals affirmed the trial court’s ruling permitting inspection of the cellphone for a9-hour period on the day of the accident. The court stated, “Petitioner considers the inspection animproper fishing expedition in a digital ocean. Contrary to petitioner’s argument, privacy rights

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Judicial, Alternative, and E-Dispute Resolution29do 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 ofAppeal of Florida 2014)Information Technology:Social Media Postings and Photographs are Discoverable EvidenceMaria Nucci claimed that when she was in a store owned by Target Corporation, she slipped andfell on a foreign substance on the store’s floor. Nucci sued Target to recover damages for heralleged 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 theincident, Target obtained surveillance videos that showed Nucci carrying heavy items and doingother physical acts that refute her claim of serious personal injury.Target served Nucci with a Request for Production of Electronic Media to obtain photographs ofher from her social media accounts for the two years prior to the date of the incident to thepresent. The trial court issuedan order compelling discovery of the photographs from Nucci’ssocialmedia 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 isworth a thousand words, there is no better portrayal of what an individual’s life was like thanthose photographs the individual has chosen to share through social media.”Nucci v. TargetCorporation, 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 aparty, a court can order the party to submit to certain physical or mental examinations todetermine the extent of the alleged injuries.Pretrial MotionsPretrial motions like a motion for judgment on the pleadings and a motion for summary judgmentare 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 thepleadings are taken as true, the party making the motion would win the lawsuit when the properlaw is applied to these asserted facts.Motion for Summary Judgment–Motion asserting that there are no factual disputes to bedecided by the jury; if so, the judge can apply the proper law to the undisputed facts and decidethe case without a jury.State Court CaseCase 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 herchildren returned to the SUV with a cart full of groceries. It was a clear, dry night, and theparking lot was well lit. After Wade unloaded the groceries into the SUV and returned theshopping cart, her left foot fell into a pothole, causing her to fall and suffer a broken foot. Thepothole was a couple of feet long and a few inches deep. Wade sued Wal-Mart, seekingcompensation for her injuries. Wal-Mart filed a motion for summary judgment, arguing that it didnot owe Wade a duty because the pothole was an open and obvious hazard. The trial courtgranted summary judgment in Wal-Mart’s favor, and Wade appealed.Issue:Should Wal-Mart be granted summary judgment?Decision:The appellate court affirmed the trial court’s grant of summary judgment in Wal-Mart’s favor.

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