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Business Law
The Ethical, Global, and Digital Environment
18e
E I G H TE E N TH E D I TI O N
Jamie Darin Prenkert
A. James Barnes
Joshua E. Perry
Todd Haugh
Abbey R. Stemler
all of Indiana University
Pixtal/AGE Fotostock
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Brief Contents
Brief Contents
Preface v
Part 1
1
2
3
4
The Nature of Law 1-3
The Resolution of Private Disputes 2-1
Business and the Constitution 3-1
Business Ethics, Corporate Social Responsibility,
Corporate Governance, and Critical Thinking 4-1
Part 2
5
6
7
8
Sales
Formation and Terms of Sales Contracts 19-3
Product Liability 20-1
Performance of Sales Contracts 21-1
Remedies for Breach of Sales Contracts 22-1
Part 5
23
24
25
26
27
Contracts
Introduction to Contracts 9-3
The Agreement: Offer 10-1
The Agreement: Acceptance 11-1
Consideration 12-1
Reality of Consent 13-1
Capacity to Contract 14-1
Illegality 15-1
Writing 16-1
Rights of Third Parties 17-1
Performance and Remedies 18-1
Part 4
19
20
21
22
Crimes and Torts
Criminal Law and Procedure 5-3
Intentional Torts 6-1
Negligence and Strict Liability 7-1
Intellectual Property and Unfair Competition 8-1
Part 3
9
10
11
12
13
14
15
16
17
18
Foundations of American Law
Property
Personal Property and Bailments 23-3
Real Property 24-1
Landlord and Tenant 25-1
Estates and Trusts 26-1
Insurance Law 27-1
Part 6
Credit
28 Introduction to Credit and Secured Transactions 28-3
29 Security Interests in Personal Property 29-1
30 Bankruptcy 30-1
Part 7
Commercial Paper
31 Negotiable Instruments 31-3
xx
32 Negotiation and Holder in Due Course 32-1
33 Liability of Parties 33-1
34 Checks and Electronic Transfers 34-1
Part 8
Agency Law
35 The Agency Relationship 35-3
36 Third-Party Relations of the Principal and the
Agent 36-1
Part 9
Partnerships
37 Introduction to Forms of Business and Formation of
Partnerships 37-3
38 Operation of Partnerships and Related Forms 38-1
39 Partners’ Dissociation and Partnerships’ Dissolution
and Winding Up 39-1
40 Limited Liability Companies and Limited
Partnerships 40-1
Part 10
Corporations
41 History and Nature of Corporations 41-3
42 Organization and Financial Structure of
Corporations 42-1
43 Management of Corporations 43-1
44 Shareholders’ Rights and Liabilities 44-1
45 Securities Regulation 45-1
46 Legal and Professional Responsibilities of Auditors, Consultants, and Securities
Professionals 46-1
Part 11
Regulation of Business
47 Administrative Law 47-3
48 The Federal Trade Commission Act and Consumer
Protection Laws 48-1
49 Antitrust: The Sherman Act 49-1
50 The Clayton Act, the Robinson–Patman Act, and
Antitrust Exemptions and Immunities 50-1
51 Employment Law 51-1
52 Environmental Regulation 52-1
Glossary G-1
Appendix A T
he Constitution of the United States of
America A-1
Appendix B
Index I-1
Uniform Commercial Code B-1
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Contents
Contents
1
Alternative Dispute Resolution 2-24
Common Forms of ADR 2-24
Other ADR Devices 2-28
Preface v
Part 1 Foundations of American Law
1
The Nature of Law 1-3
3
An Overview of the U.S. Constitution 3-2
The Evolution of the Constitution and the Role
of the Supreme Court 3-3
The Coverage and Structure of
This Chapter 3-3
State and Federal Power to Regulate 3-4
State Regulatory Power 3-4
Federal Regulatory Power 3-4
Burden on, or Discrimination against, Interstate
Commerce 3-13
Independent Checks on the Federal Government
and the States 3-13
Incorporation 3-13
Government Action 3-14
Means-Ends Tests 3-14
Business and the First Amendment 3-15
Due Process 3-27
Equal Protection 3-28
Independent Checks Applying Only to the
States 3-37
The Contract Clause 3-37
Federal Preemption 3-38
The Takings Clause 3-39
Types and Classifications of Law 1-4
The Types of Law 1-4
Priority Rules 1-8
Classifications of Law 1-10
Jurisprudence 1-10
Legal Positivism 1-11
Natural Law 1-11
American Legal Realism 1-11
Sociological Jurisprudence 1-12
Other Schools of Jurisprudence 1-12
The Functions of Law 1-13
Legal Reasoning 1-13
Case Law Reasoning 1-14
Statutory Interpretation 1-18
Limits on the Power of Courts 1-27
APPENDIX Reading and Briefing Cases 1-29
2
The Resolution of Private Disputes 2-1
State Courts and Their Jurisdiction 2-2
Courts of Limited Jurisdiction 2-2
Trial Courts 2-2
Appellate Courts 2-3
Jurisdiction and Venue 2-3
Federal Courts and Their Jurisdiction 2-9
Federal District Courts 2-9
Specialized Federal Courts 2-12
Federal Courts of Appeals 2-12
The U.S. Supreme Court 2-12
Civil Procedure 2-13
Service of the Summons 2-13
The Pleadings 2-14
Motion to Dismiss 2-14
Discovery 2-15
Summary Judgment 2-17
The Pretrial Conference 2-17
The Trial 2-17
Appeal 2-20
Enforcing a Judgment 2-20
Class Actions 2-20
Business and the Constitution 3-1
4
Business Ethics, Corporate Social
Responsibility, Corporate Governance,
and Critical Thinking 4-1
Why Study Business Ethics? 4-2
The Corporate Social Responsibility Debate 4-3
Ethical Theories 4-3
Rights Theory 4-5
Justice Theory 4-7
Utilitarianism 4-7
Shareholder Theory 4-8
Virtue Theory 4-11
Improving Corporate Governance and Corporate Social
Responsibility 4-12
Independent Boards of Directors 4-13
The Law 4-15
Guidelines for Ethical Decision Making 4-16
xxi
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xxii
Contents
What Facts Impact My Decision? 4-16
What Are the Alternatives? 4-17
Who Are the Stakeholders? 4-17
How Do the Alternatives Impact Society as a Whole? 4-17
How Do the Alternatives Impact My Business
Firm? 4-18
How Do the Alternatives Impact Me, the Decision
Maker? 4-18
What Are the Ethics of Each Alternative? 4-19
What Are the Practical Constraints of Each
Alternative? 4-20
What Course of Action Should Be Taken and How Do We
Implement It? 4-20
Knowing When to Use the Guidelines 4-21
Thinking Critically 4-21
Non Sequiturs 4-22
Appeals to Pity 4-22
False Analogies 4-22
Begging the Question 4-22
Argumentum ad Populum 4-23
Bandwagon Fallacy 4-23
Argumentum ad Baculum 4-23
Argumentum ad Hominem 4-23
Argument from Authority 4-24
False Cause 4-24
The Gambler’s Fallacy 4-24
Reductio ad Absurdum 4-25
Appeals to Tradition 4-25
The Lure of the New 4-25
Sunk Cost Fallacy 4-25
Common Characteristics of Poor Decision
Making 4-26
Failing to Remember Goals 4-26
Overconfidence 4-26
Complexity of the Issues 4-27
Resisting Requests to Act Unethically 4-27
Recognizing Unethical Requests and Bosses 4-27
Buying Time 4-28
Find a Mentor and a Peer Support Group 4-28
Find Win–Win Solutions 4-28
Work within the Firm to Stop the
Unethical Act 4-29
Prepare to Lose Your Job 4-30
Leading Ethically 4-30
Be Ethical 4-30
Communicate the Firm’s Core Ethical
Values 4-30
Connect Ethical Behavior with the Firm’s and Workers’ Best
Interests 4-31
Reinforce Ethical Behavior 4-31
2
Part 2 Crimes and Torts
5
Criminal Law and Procedure 5-3
Role of the Criminal Law 5-5
Nature of Crimes 5-5
Purpose of the Criminal Sanction 5-6
Essentials of Crime 5-8
Constitutional Limitations on Power to Criminalize
Behavior 5-10
Criminal Procedure 5-15
Criminal Prosecutions: An Overview 5-15
Role of Constitutional Safeguards 5-15
The Fourth Amendment 5-16
Key Fourth Amendment Questions 5-16
Warrantless Searches and the Fourth Amendment 5-19
The Fifth Amendment 5-24
The Sixth Amendment 5-29
White-Collar Crimes and the Dilemmas of
Corporate Control 5-29
Introduction 5-29
Evolution of Corporate Criminal Liability 5-30
Corporate Criminal Liability Today 5-31
Individual Liability for Corporate Crime 5-32
New Directions 5-33
Important White-Collar Crimes 5-34
Regulatory Offenses 5-34
Fraudulent Acts 5-34
The Sarbanes–Oxley Act 5-37
Bribery and Giving of Illegal Gratuities 5-37
Computer Crime 5-38
6
Intentional Torts 6-1
Interference with Personal Rights 6-5
Battery 6-5
Assault 6-8
Intentional Infliction of Emotional
Distress 6-8
False Imprisonment 6-11
Defamation 6-13
Invasion of Privacy 6-27
Misuse of Legal Proceedings 6-33
Deceit (Fraud) 6-34
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Contents
Interference with Property Rights 6-34
Trespass to Land 6-34
Private Nuisance 6-35
Conversion 6-37
Other Examples of Intentional Tort Liability 6-38
7
Negligence and Strict Liability 7-1
Negligence 7-2
Duty and Breach of Duty 7-3
Causation of Injury 7-16
Res Ipsa Loquitur 7-27
Negligence Defenses 7-28
Strict Liability 7-29
Abnormally Dangerous Activities 7-29
Statutory Strict Liability 7-33
Tort Reform 7-33
8
Intellectual Property and Unfair Competition 8-1
Protection of Intellectual Property 8-2
Patents 8-2
Copyrights 8-11
Trademarks 8-25
Trade Secrets 8-35
Definition of a Trade Secret 8-37
Ownership and Transfer of Trade Secrets 8-38
Misappropriation of Trade Secrets 8-38
Commercial Torts 8-40
Injurious Falsehood 8-40
Interference with Contractual Relations 8-41
Interference with Prospective Advantage 8-42
Lanham Act § 43(a) 8-45
3
Part 3 Contracts
9
Introduction to Contracts 9-3
The Nature of Contracts 9-3
The Functions of Contracts 9-4
The Evolution of Contract Law 9-4
The Methods of Contracting 9-4
Basic Elements of a Contract 9-5
Basic Contract Concepts and Types 9-7
Bilateral and Unilateral Contracts 9-7
Valid, Unenforceable, Voidable, and Void
Contracts 9-8
Express and Implied Contracts 9-8
Executed and Executory Contracts 9-8
xxiii
Sources of Law Governing Contracts 9-9
The Uniform Commercial Code: Origin and Purposes 9-9
Application of Article 2 9-9
Application of the Common Law of Contracts 9-9
Law Governing “Hybrid” Contracts 9-9
Relationship of the UCC and the Common Law of
Contracts 9-9
Basic Differences in the Nature of Article 2 and the Common
Law of Contracts 9-11
Influence of Restatement (Second) of Contracts 9-12
“Noncontract” Obligations 9-12
Quasi-Contract 9-13
Promissory Estoppel 9-13
10 The Agreement: Offer 10-1
Requirements for an Offer 10-2
Intent to Contract 10-2
Definiteness of Terms 10-2
Communication to Offeree 10-7
Special Offer Problem Areas 10-7
Advertisements 10-7
Rewards 10-8
Auctions 10-10
Bids 10-11
Which Terms Are Included in the Offer? 10-11
Termination of Offers 10-13
Terms of the Offer 10-13
Lapse of Time 10-13
Revocation 10-13
Rejection 10-15
Death or Mental Incapacity of Either Party 10-18
Destruction of Subject Matter 10-18
Intervening Illegality 10-18
11 The Agreement: Acceptance 11-1
What Is an Acceptance? 11-1
Intention to Accept 11-2
Intent and Acceptance on the Offeror’s Terms 11-5
Communication of Acceptance 11-9
When Is Acceptance Communicated? 11-9
Acceptances by Instantaneous Forms of
Communication 11-9
Acceptances by Noninstantaneous Forms of
Communication 11-9
Stipulated Means of Communication 11-13
Special Acceptance Problem Areas 11-13
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xxiv
Contents
Acceptance in Unilateral Contracts 11-13
Acceptance in Bilateral Contracts 11-13
Silence as Acceptance 11-14
Acceptance When a Writing
Is Anticipated 11-16
Acceptance of Ambiguous Offers 11-18
Who Can Accept an Offer? 11-19
12 Consideration 12-1
Elements of Consideration 12-2
Legal Value 12-2
Bargained-For Exchange 12-3
Exchanges That Fail to Meet Consideration
Requirements 12-5
Illusory Promises 12-5
Preexisting Duties 12-8
Past Consideration 12-12
Exceptions to the Consideration
Requirement 12-13
Promissory Estoppel 12-14
Promises to Pay Debts Barred by Statutes of
Limitations 12-17
Promises to Pay Debts Barred by Bankruptcy
Discharge 12-17
Charitable Subscriptions 12-18
13 Reality of Consent 13-1
Effect of Doctrines Discussed in This
Chapter 13-1
Necessity for Prompt and
Unequivocal Rescission 13-2
Misrepresentation and Fraud 13-2
Relationship between Misrepresentation and
Fraud 13-2
Requirements for Rescission on the
Ground of Misrepresentation 13-2
Mistake 13-8
Nature of Mistake 13-8
Requirements for Mutual Mistake 13-9
Requirements for Unilateral Mistake 13-11
Duress 13-13
Nature of Duress 13-13
Requirements for Duress 13-14
Economic Duress 13-17
Undue Influence 13-17
Nature of Undue Influence 13-17
Determining Undue Influence 13-17
14 Capacity to Contract 14-1
What Is Capacity? 14-1
Effect of Lack of Capacity 14-2
Capacity of Minors 14-2
Minors’ Right to Disaffirm 14-2
Period of Minority 14-5
Emancipation 14-5
Time of Disaffirmance 14-5
Ratification 14-5
Duties upon Disaffirmance 14-6
Effect of Misrepresentation of Age 14-8
Capacity of Mentally Impaired Persons 14-8
Theory of Incapacity 14-8
Test for Mental Incapacity 14-9
The Effect of Incapacity Caused by Mental Impairment 14-9
Contracts of Intoxicated Persons 14-11
Intoxication and Capacity 14-11
15 Illegality 15-1
Meaning of Illegality 15-1
Determining Whether an Agreement
Is Illegal 15-2
Agreements in Violation of Statute 15-4
Agreements Declared Illegal by Statute 15-4
Agreements That Violate the Public Policy of a
Statute 15-4
Agreements That May Be in Violation of Public
Policy Articulated by Courts 15-5
Agreements in Restraint of Competition 15-5
Exculpatory Clauses 15-9
Family Relationships and Public Policy 15-12
Unfairness in Agreements: Contracts of
Adhesion and Unconscionable
Contracts 15-13
Unconscionability 15-13
Contracts of Adhesion 15-16
Effect of Illegality 15-17
General Rule: No Remedy for Breach of
Illegal Agreements 15-17
Exceptions 15-17
16 Writing 16-1
The Significance of Writing in
Contract Law 16-1
Purposes of Writing 16-1
Writing and Contract Enforcement 16-2
Overview of the Statute of Frauds 16-2
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Contents
History and Purposes 16-2
Effect of Violating the Statute of Frauds 16-2
Contracts Covered by the Statute of
Frauds 16-2
Collateral Contracts 16-3
Interest in Land 16-3
Contracts That Cannot Be Performed within
One Year 16-6
Promise of Executor or Administrator to Pay a Decedent’s
Debt Personally 16-9
Contract in Which Marriage Is the Consideration 16-10
Meeting the Requirements of the Statute of
Frauds 16-11
Nature of the Writing Required 16-11
UCC: Alternative Means of Satisfying the Statute of
Frauds in Sale of Goods Contracts 16-12
Promissory Estoppel and the Statute of Frauds 16-15
The Parol Evidence Rule 16-16
Explanation of the Rule 16-16
Scope of the Parol Evidence Rule 16-16
Admissible Parol Evidence 16-17
Interpretation of Contracts 16-19
17 Rights of Third Parties 17-1
Assignment of Contracts 17-1
Nature of Assignment of Rights 17-2
Creating an Assignment 17-3
Assignability of Rights 17-3
Nature of Assignee’s Rights 17-6
Subsequent Assignments 17-7
Successive Assignments 17-7
Assignor’s Warranty Liability to Assignee 17-7
Delegation of Duties 17-8
Nature of Delegation 17-8
Delegable Duties 17-8
Language Creating a Delegation 17-10
Assumption of Duties by Delegatee 17-11
Discharge of Delegator by Novation 17-11
Third-Party Beneficiaries 17-13
Intended Beneficiaries versus Incidental
Beneficiaries 17-13
Vesting of Beneficiary’s Rights 17-17
18 Performance and Remedies 18-1
Conditions 18-2
Nature of Conditions 18-2
Types of Conditions 18-2
xxv
Creation of Express Conditions 18-7
Excuse of Conditions 18-7
Performance of Contracts 18-8
Level of Performance Expected of
the Promisor 18-8
Good-Faith Performance 18-8
Breach of Contract 18-9
Effect of Material Breach 18-9
Determining the Materiality of the Breach 18-10
Anticipatory Repudiation 18-12
Recovery by a Party Who Has Committed
Material Breach 18-13
Excuses for Nonperformance 18-14
Impossibility 18-14
Commercial Impracticability 18-17
Other Grounds for Discharge 18-17
Discharge by Mutual Agreement 18-17
Discharge by Accord and Satisfaction 18-17
Discharge by Waiver 18-17
Discharge by Alteration 18-17
Discharge by Statute of Limitations 18-18
Discharge by Decree of Bankruptcy 18-18
Remedies for Breach of Contract 18-18
Types of Contract Remedies 18-18
Interests Protected by Contract
Remedies 18-18
Legal Remedies (Damages) 18-19
Equitable Remedies 18-24
Restitution 18-26
4
Part 4 Sales
19 Formation and Terms of Sales Contracts 19-3
Sale of Goods 19-4
Leases 19-6
Higher Standards for Merchants 19-6
UCC Requirements 19-6
Terms of Sales Contracts 19-6
Gap Fillers 19-6
Price Terms 19-7
Quantity Terms 19-8
Output and Needs Contracts 19-8
Exclusive Dealing Contracts 19-8
Time for Performance 19-10
Delivery Terms 19-11
Title 19-11
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xxvi
Contents
UCC Changes 19-11
General Title Rule 19-11
Title and Third Parties 19-13
Obtaining Good Title 19-13
Transfers of Voidable Title 19-13
Buyers in the Ordinary Course of Business 19-14
Entrusting of Goods 19-14
Risk of Loss 19-16
Terms of the Agreement 19-16
Shipment Contracts 19-17
Destination Contracts 19-17
Goods in the Possession of Third Parties 19-17
Risk Generally 19-17
Effect of Breach on Risk of Loss 19-19
Insurable Interest 19-19
Sales on Trial 19-19
Sale or Return 19-19
Sale on Approval 19-19
20 Product Liability 20-1
The Evolution of Product Liability Law 20-3
The 19th Century 20-3
The 20th and 21st Centuries 20-3
The Current Debate over Product
Liability Law 20-3
Theories of Product Liability Recovery 20-3
Express Warranty 20-4
Implied Warranty of Merchantability 20-5
Implied Warranty of Fitness 20-5
Negligence 20-10
Strict Liability 20-14
The Restatement (Third) 20-16
Other Theories of Recovery 20-20
Time Limitations 20-20
Damages in Product Liability Cases 20-22
The No-Privity Defense 20-23
Tort Cases 20-23
Warranty Cases 20-23
Disclaimers and Remedy Limitations 20-24
Implied Warranty Disclaimers 20-24
Express Warranty Disclaimers 20-29
Disclaimers of Tort Liability 20-29
Limitation of Remedies 20-29
Defenses 20-29
The Traditional Defenses 20-29
Comparative Principles 20-33
Preemption and Regulatory Compliance 20-35
21 Performance of Sales Contracts 21-1
General Rules 21-2
Good Faith 21-2
Course of Dealing 21-2
Usage of Trade 21-2
Modification 21-4
Waiver 21-4
Assignment 21-5
Delivery 21-5
Basic Obligation 21-5
Place of Delivery 21-5
Seller’s Duty of Delivery 21-5
Inspection and Payment 21-6
Buyer’s Right of Inspection 21-6
Payment 21-6
Acceptance, Revocation, and Rejection 21-6
Acceptance 21-6
Effect of Acceptance 21-9
Revocation of Acceptance 21-9
Buyer’s Rights on Improper Delivery 21-12
Rejection 21-12
Right to Cure 21-15
Buyer’s Duties after Rejection 21-15
Assurance, Repudiation, and Excuse 21-16
Assurance 21-16
Anticipatory Repudiation 21-16
Excuse 21-16
22 Remedies for Breach of Sales Contracts 22-1
Agreements as to Remedies 22-2
Statute of Limitations 22-4
Seller’s Remedies 22-5
Remedies Available to an Injured Seller 22-5
Cancellation and Withholding of Delivery 22-5
Resale of Goods 22-5
Recovery of the Purchase Price 22-6
Damages for Rejection or Repudiation 22-8
Seller’s Remedies Where Buyer
Is Insolvent 22-9
Seller’s Right to Stop Delivery 22-10
Liquidated Damages 22-10
Buyer’s Remedies 22-10
Buyer’s Remedies in General 22-10
Buyer’s Right to Damages 22-11
Buyer’s Right to Cover 22-12
Incidental Damages 22-12
Consequential Damages 22-13
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Contents
Damages for Nondelivery 22-13
Damages for Defective Goods 22-15
Buyer’s Right to Specific Performance 22-18
Buyer and Seller Agreements as to Remedies 22-18
5
Part 5 Property
23 Personal Property and Bailments 23-3
Nature of Property 23-4
Classifications of Property 23-4
Personal Property versus Real Property 23-4
Tangible versus Intangible Personal Property 23-4
Public and Private Property 23-4
Acquiring Ownership of Personal Property 23-5
Production or Purchase 23-5
Possession of Unowned Property 23-5
Rights of Finders of Lost, Mislaid, and Abandoned
Property 23-5
Legal Responsibilities of Finders 23-6
Leasing 23-8
Gifts 23-9
Conditional Gifts 23-9
Uniform Transfers to Minors Act 23-9
Will or Inheritance 23-11
Confusion 23-11
Accession 23-11
Bailments 23-12
Nature of Bailments 23-12
Elements of a Bailment 23-12
Creation of a Bailment 23-12
Types of Bailments 23-12
Special Bailments 23-13
Duties of the Bailee 23-13
Duty of Bailee to Take Care of Property 23-13
Bailee’s Duty to Return the Property 23-14
Bailee’s Liability for Misdelivery 23-14
Limits on Liability 23-14
Right to Compensation 23-16
Bailor’s Liability for Defects in the Bailed
Property 23-16
Special Bailments 23-17
Common Carriers 23-17
Hotelkeepers 23-17
Safe-Deposit Boxes 23-17
Involuntary Bailments 23-18
Documents of Title 23-18
xxvii
Warehouse Receipts 23-18
Bills of Lading 23-19
Duty of Care 23-20
Negotiation of Document of Title 23-21
Rights Acquired by Negotiation 23-21
Warranties of Transferor of Document of Title 23-21
24 Real Property 24-1
Scope of Real Property 24-2
Fixtures 24-2
Rights and Interests in Real
Property 24-5
Estates in Land 24-5
Co-ownership of Real Property 24-6
Interests in Real Property Owned by Others 24-9
Easements 24-9
Creation of Easements 24-10
Profits 24-12
Licenses 24-12
Restrictive Covenants 24-12
Acquisition of Real Property 24-18
Acquisition by Purchase 24-18
Acquisition by Gift 24-18
Acquisition by Will or Inheritance 24-18
Acquisition by Tax Sale 24-18
Acquisition by Adverse Possession 24-18
Transfer by Sale 24-20
Steps in a Sale 24-20
Contracting with a Real Estate Broker 24-21
Contract of Sale 24-21
Fair Housing Act 24-21
Deeds 24-22
Form and Execution of Deed 24-23
Recording Deeds 24-23
Methods of Assuring Title 24-24
Seller’s Responsibilities Regarding the Quality of
Residential Property 24-24
Implied Warranty of Habitability 24-25
Duty to Disclose Hidden Defects 24-25
Other Property Condition–Related
Obligations of Real Property Owners
and Possessors 24-25
Expansion of Premises Liability 24-26
Americans with Disabilities Act 24-26
Land Use Control 24-27
Nuisance Law 24-27
Eminent Domain 24-28
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xxviii
Contents
Zoning and Subdivision Laws 24-31
Land Use Regulation and Taking 24-32
25 Landlord and Tenant 25-1
Leases and Tenancies 25-2
Nature of Leases 25-2
Types of Tenancies 25-2
Execution of a Lease 25-3
Rights, Duties, and Liabilities of the
Landlord 25-4
Landlord’s Rights 25-4
Landlord’s Duties 25-4
Landlord’s Responsibility for Condition of
Leased Property 25-5
Landlord’s Tort Liability 25-9
Rights, Duties, and Liabilities of
the Tenant 25-15
Rights of the Tenant 25-15
Duty to Pay Rent 25-15
Duty Not to Commit Waste 25-15
Assignment and Subleasing 25-15
Tenant’s Liability for Injuries to Third Persons 25-16
Termination of the
Leasehold 25-16
Eviction 25-16
Agreement to Surrender 25-16
Abandonment 25-16
26 Estates and Trusts 26-1
The Law of Estates and Trusts 26-2
Estate Planning 26-2
Wills 26-2
Right of Disposition by Will 26-2
Nature of a Will 26-2
Common Will Terminology 26-2
Testamentary Capacity 26-3
Execution of a Will 26-6
Incorporation by Reference 26-8
Informal Wills 26-8
Joint and Mutual Wills 26-8
Construction of Wills 26-8
Limitations on Disposition by Will 26-8
Revocation of Wills 26-9
Codicils 26-10
Advance Directives: Planning for Incapacity 26-10
Durable Power of Attorney 26-10
Living Wills 26-10
Durable Power of Attorney for
Health Care 26-10
Federal Law and Advance Directives 26-11
Intestacy 26-12
Characteristics of Intestacy Statutes 26-12
Special Rules 26-12
Simultaneous Death 26-15
Administration of Estates 26-16
The Probate Estate 26-16
Determining the Existence of a Will 26-16
Selecting a Personal Representative 26-16
Responsibilities of the Personal
Representative 26-16
Trusts 26-17
Nature of a Trust 26-17
Trust Terminology 26-17
Why People Create Trusts 26-18
Creation of Express Trusts 26-18
Charitable Trusts 26-18
Totten Trusts 26-20
Powers and Duties of the Trustee 26-20
Liability of Trustee 26-21
Spendthrift Trusts 26-21
Termination and Modification of a Trust 26-21
Implied and Constructive Trusts 26-21
27 Insurance Law 27-1
Nature and Benefits of Insurance
Relationships 27-2
Insurance Policies as Contracts 27-3
Interested Parties 27-3
Offer, Acceptance, and Consideration 27-3
Effect of Insured’s Misrepresentation 27-6
Legality 27-6
Form and Content of Insurance
Contracts 27-6
Performance and Breach by Insurer 27-8
Property Insurance 27-8
The Insurable Interest Requirement 27-9
Covered and Excluded Perils 27-9
Nature and Extent of Insurer’s Payment
Obligation 27-13
Right of Subrogation 27-15
Duration and Cancellation of Policy 27-15
Liability Insurance 27-17
Types of Liability Insurance Policies 27-17
Liabilities Insured Against 27-17
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Contents
Insurer’s Obligations 27-21
Is There a Liability Insurance Crisis? 27-25
Bad-Faith Breach of Insurance Contract 27-25
6
Part 6 Credit
28 Introduction to Credit and Secured
Transactions 28-3
Credit 28-4
Unsecured Credit 28-4
Secured Credit 28-4
Development of Security 28-5
Security Interests in Personal Property 28-5
Security Interests in Real Property 28-5
Suretyship and Guaranty 28-6
Sureties and Guarantors 28-6
Creation of Principal and Surety Relation 28-8
Defenses of a Surety 28-8
Creditor’s Duties to Surety 28-9
Subrogation, Reimbursement, and Contribution 28-9
Liens on Personal Property 28-10
Security Interests in Personal Property and Fixtures under
the Uniform Commercial Code 28-10
Common Law Liens 28-10
Statutory Liens 28-10
Characteristics of Liens 28-10
Foreclosure of Lien 28-13
Security Interests in Real Property 28-13
Historical Developments of Mortgages 28-13
Form, Execution, and Recording 28-13
Rights and Liabilities 28-13
Foreclosure 28-14
Right of Redemption 28-14
Recent Development Concerning Foreclosures 28-15
Deed of Trust 28-16
Land Contracts 28-17
Mechanic’s and Materialman’s Liens 28-18
Rights of Subcontractors and Materialmen 28-18
Basis for Mechanic’s or Materialman’s Lien 28-18
Requirements for Obtaining a Lien 28-19
Priorities and Foreclosure 28-19
Waiver of Lien 28-19
29 Security Interests in Personal Property 29-1
Article 9 29-2
Security Interests under the Code 29-2
xxix
Security Interests 29-2
Types of Collateral 29-2
Obtaining a Security Interest 29-3
Attachment of the Security Interest 29-3
Attachment 29-3
The Security Agreement 29-3
Purchase Money Security Interests 29-3
Future Advances 29-5
After-Acquired Property 29-5
Proceeds 29-5
Perfecting the Security Interest 29-6
Perfection 29-6
Perfection by Public Filing 29-6
Possession by Secured Party as Public Notice 29-9
Control 29-9
Perfection by Attachment/Automatic Perfection 29-9
Exceptions to Perfection by Attachment: Consumer
Goods 29-10
Motor Vehicles 29-11
Fixtures 29-12
Priority Rules 29-12
Importance of Determining Priority 29-12
General Priority Rules 29-12
Purchase Money Security Interest in Inventory 29-12
Purchase Money Security Interest in Noninventory
Collateral 29-14
Rationale for Protecting Purchase Money Security
Interests 29-15
Buyers in the Ordinary Course of Business 29-15
Artisan’s and Mechanic’s Liens 29-15
Liens on Consumer Goods Perfected Only by Attachment/
Automatic Perfection 29-18
Fixtures 29-18
Default and Foreclosure 29-20
Default 29-20
Right to Possession 29-20
Sale of the Collateral 29-20
Consumer Goods 29-20
Distribution of Proceeds 29-20
Liability of Creditor 29-21
30 Bankruptcy 30-1
The Bankruptcy Code 30-2
Bankruptcy Proceedings 30-2
Liquidations 30-2
Reorganizations 30-3
Family Farms 30-3
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Contents
Consumer Debt Adjustments 30-3
The Bankruptcy Courts 30-3
Chapter 7: Liquidation Proceedings 30-3
Petitions 30-3
Involuntary Petitions 30-3
Automatic Stay Provisions 30-4
Order of Relief 30-5
Meeting of Creditors and Election of Trustee 30-5
Duties of the Trustee 30-5
The Bankruptcy Estate 30-6
Exemptions 30-6
Avoidance of Liens 30-9
Redemptions 30-9
Preferences (Preferential Payments or Liens) 30-9
Preferential Liens 30-10
Transactions in the Ordinary Course of Business 30-10
Fraudulent Transfers 30-10
Claims 30-13
Allowable Claims 30-13
Secured Claims 30-13
Priority Claims 30-13
Distribution of the Debtor’s Estate 30-14
Discharge in Bankruptcy 30-14
Discharge 30-14
Objections to Discharge 30-14
Acts That Bar Discharge 30-16
Nondischargeable Debts 30-16
Reaffirmation Agreements 30-18
Dismissal for Substantial Abuse 30-18
Chapter 11: Reorganizations 30-22
Reorganization Proceeding 30-22
Use of Chapter 11 30-25
Chapter 12: Family Farmers and
Fishermen 30-28
Relief for Family Farmers and Fishermen 30-28
Chapter 13: Consumer Debt Adjustments 30-29
Relief for Individuals 30-29
Procedure 30-29
Discharge 30-33
Advantages of Chapter 13 30-33
7
Part 7 Commercial Paper
31 Negotiable Instruments 31-3
Nature of Negotiable Instruments 31-4
Uniform Commercial Code 31-4
Negotiable Instruments 31-4
Negotiability 31-4
Kinds of Negotiable Instruments 31-5
Promissory Notes 31-5
Certificates of Deposit 31-5
Drafts 31-6
Checks 31-7
Benefits of Negotiable Instruments 31-8
Rights of an Assignee of a Contract 31-8
Rights of a Holder of a Negotiable Instrument 31-9
Formal Requirements for Negotiability 31-9
Basic Requirements 31-9
Importance of Form 31-10
In Writing 31-10
Signed 31-10
Unconditional Promise or Order 31-10
Requirement of a Promise or Order 31-10
Promise or Order Must Be Unconditional 31-10
Fixed Amount of Money 31-12
Fixed Amount 31-12
Payable in Money 31-13
Payable on Demand or at a Definite Time 31-13
Payable on Demand 31-13
Payable at a Definite Time 31-13
Payable to Order or Bearer 31-14
Special Terms 31-16
Additional Terms 31-16
Ambiguous Terms 31-17
32 Negotiation and Holder in Due Course 32-1
Negotiation 32-2
Nature of Negotiation 32-2
Formal Requirements for Negotiation 32-2
Nature of Indorsement 32-2
Wrong or Misspelled Name 32-3
Checks Deposited without Indorsement 32-3
Transfer of Order Instrument 32-3
Indorsements 32-5
Effects of an Indorsement 32-5
Kinds of Indorsements 32-5
Rescission of Indorsement 32-7
Holder in Due Course 32-8
General Requirements 32-9
Holder 32-9
Value 32-11
Good Faith 32-11
Overdue or Dishonored 32-12
Notice of Unauthorized Signature or Alteration 32-13
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Notice of Claims 32-13
Irregular and Incomplete Instruments 32-15
Shelter Rule 32-15
Rights of a Holder in Due Course 32-16
Claims and Defenses Generally 32-16
Importance of Being a Holder in Due Course 32-16
Real Defenses 32-17
Personal Defenses 32-18
Claims to the Instrument 32-20
Claims in Recoupment 32-20
Changes in the Holder in Due Course Rule for
Consumer Credit Transactions 32-21
Consumer Disadvantages 32-21
State Consumer Protection Legislation 32-22
Federal Trade Commission Regulation 32-22
33 Liability of Parties 33-1
Liability in General 33-2
Contractual Liability 33-2
Primary and Secondary Liability 33-2
Obligation of a Maker 33-2
Obligation of a Drawee or an Acceptor 33-3
Obligation of a Drawer 33-3
Obligation of an Indorser 33-3
Obligation of an Accommodation Party 33-4
Signing an Instrument 33-6
Signature by an Authorized Agent 33-6
Unauthorized Signature 33-7
Contractual Liability in Operation 33-8
Presentment of a Note 33-8
Presentment of a Check or a Draft 33-8
Time of Presentment 33-10
Warranty Liability 33-10
Transfer Warranties 33-10
Presentment Warranties 33-12
Payment or Acceptance by Mistake 33-13
Operation of Warranties 33-13
Other Liability Rules 33-15
Negligence 33-15
Impostor Rule 33-15
Fictitious Payee Rule 33-15
Comparative Negligence Rule Concerning Impostors and
Fictitious Payees 33-16
Fraudulent Indorsements by Employees 33-16
Conversion 33-19
Discharge of Contractual Liability on Negotiable
Instruments 33-20
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Discharge of Contractual Liability 33-20
Discharge by Payment 33-21
Discharge by Cancellation 33-21
Altered Instruments: Discharge by
Alteration 33-21
Discharge of Indorsers and Accommodation Parties 33-22
34 Checks and Electronic Transfers 34-1
The Drawer–Drawee Relationship 34-2
Bank’s Duty to Pay 34-2
Bank’s Right to Charge to Customer’s Account 34-2
Stop-Payment Order 34-5
Bank’s Liability for Payment after Stop-Payment
Order 34-8
Certified Check 34-9
Cashier’s Check 34-9
Death or Incompetence of Customer 34-10
Forged and Altered Checks 34-10
Bank’s Right to Charge Account 34-10
Customer’s Duty to Report Forgeries and
Alterations 34-12
Check Collection and Funds Availability 34-14
Check Collection 34-14
Funds Availability 34-18
Check 21 34-19
Electronic Transfers 34-20
Electronic Fund Transfer Act 34-20
Wire Transfers 34-22
8
Part 8 Agency Law
35 The Agency Relationship 35-3
Creation of an Agency 35-4
Formation 35-4
Capacity 35-5
Nondelegable Obligations 35-5
Agency Concepts, Definitions, and Types 35-5
Authority 35-6
General and Special Agents 35-6
Gratuitous Agents 35-6
Subagents 35-6
Employees and Nonemployee Agents 35-7
Duties of Agent to Principal 35-9
Agent’s Duty of Loyalty 35-10
Agent’s Duty to Obey Instructions 35-12
Agent’s Duty to Act with Care and Skill 35-12
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Contents
Agent’s Duty to Provide Information 35-12
Agent’s Duties of Segregation, Record-Keeping, and
Accounting 35-12
Duty Not to Receive a Material Benefit 35-12
Duty of Good Conduct 35-12
Duties of Principal to Agent 35-12
Duty to Compensate Agent 35-13
Duties of Reimbursement and Indemnity 35-13
Termination of an Agency 35-14
Termination by Act of the Parties 35-14
Termination by Operation of Law 35-14
Termination of Agency Powers Given as Security 35-15
Effect of Termination on Agent’s Authority 35-16
36 Third-Party Relations of the Principal and the
Agent 36-1
Contract Liability of the Principal 36-2
Actual Authority 36-2
Apparent Authority 36-3
Agent’s Notification and Knowledge 36-3
Ratification 36-3
Estoppel 36-4
Contracts Made by Subagents 36-6
Contract Liability of the Agent 36-6
The Nature of the Principal 36-6
Liability of Agent by Agreement 36-8
Implied Warranty of Authority 36-8
Tort Liability of the Principal 36-10
Respondeat Superior Liability 36-10
Direct Liability 36-13
Liability for Torts of Nonemployee Agents 36-13
Liability for Agent’s Misrepresentations 36-13
Tort Liability of the Agent 36-14
Tort Suits against Principal and Agent 36-15
9
Part 9 Partnerships
37 Introduction to Forms of Business and Formation
of Partnerships 37-3
Types of Business Entities 37-4
Sole Proprietorship 37-4
Partnership 37-4
Limited Liability Partnership 37-5
Limited Partnership 37-5
Corporation 37-6
Professional Corporation 37-6
Limited Liability Company 37-6
Benefit Corporations 37-7
Partnerships 37-9
Creation of Partnership 37-9
RUPA Definition of Partnership 37-10
Creation of Joint Ventures 37-12
Creation of Mining Partnerships 37-13
Creation of Limited Liability Partnerships 37-13
Purported Partners 37-14
Purporting to Be a Partner 37-14
Reliance Resulting in a Transaction with the
Partnership 37-14
Effect of Purported Partnership 37-14
Partnership Capital 37-16
Partnership Property 37-17
Examples 37-17
Need for Partnership Agreement 37-17
Partner’s Partnership Interest 37-19
Partner’s Transferable Interest 37-19
Effect of Partnership Agreement 37-20
38 Operation of Partnerships and Related
Forms 38-1
Duties of Partners to the Partnership and Each
Other 38-2
Having Interest Adverse to Partnership 38-2
Competing against the Partnership 38-2
Duty to Serve 38-4
Duty of Care 38-4
Duty to Act within Actual Authority 38-4
Duty to Account 38-4
Other Duties 38-4
Joint Ventures and Mining Partnerships 38-5
Compensation of Partners 38-5
Profits and Losses 38-5
Management Powers of Partners 38-8
Individual Authority of Partners 38-8
Special Transactions 38-9
Disagreement among Partners: Ordinary Course of
Business 38-10
When Unanimous Partners’ Agreement Is Required 38-11
Joint Ventures and Mining Partnerships 38-11
Effect of Partnership Agreement 38-11
Liability for Torts and Crimes 38-13
Torts 38-13
Tort Liability and Limited Liability Partnerships 38-14
Crimes 38-14
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Lawsuits by and against Partnerships and
Partners 38-14
Limited Liability Partnerships 38-14
39 Partners’ Dissociation and Partnerships’
Dissolution and Winding Up 39-1
Dissociation 39-2
Nonwrongful Dissociation 39-2
Wrongful Dissociation 39-3
Acts Not Causing Dissociation 39-3
Effect of Partnership Agreement 39-3
Dissolution and Winding Up the Partnership
Business 39-3
Events Causing Dissolution and
Winding Up 39-5
Joint Ventures and Mining Partnerships 39-7
Performing Winding Up 39-7
Partner’s Authority during Winding Up 39-9
Distribution of Dissolved Partnership’s
Assets 39-11
Asset Distributions in a Limited Liability
Partnership 39-12
Termination 39-12
When the Business Is Continued 39-12
Successor’s Liability for Predecessor’s Obligations 39-12
Dissociated Partner’s Liability for Obligations Incurred
while a Partner 39-12
Dissociated Partner’s Liability for Obligations Incurred
after Leaving the Partnership 39-13
Effect of LLP Status 39-14
Buyout of Dissociated Partners 39-14
Partners Joining an Existing
Partnership 39-16
Liability of New Partners 39-16
40 Limited Liability Companies and Limited
Partnerships 40-1
Limited Liability Companies 40-1
Tax Treatment of LLCs 40-2
Formation of LLCs 40-2
Members’ Rights and Responsibilities 40-2
Members’ Dissociations and
LLC Dissolution 40-5
Limited Partnerships 40-9
The Uniform Limited Partnership Acts 40-9
Use of Limited Partnerships 40-9
Creation of Limited Partnerships 40-10
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Defective Compliance with Limited
Partnership Statute 40-11
Rights and Liabilities of Partners in Limited
Partnerships 40-12
Rights and Liabilities Shared by General
and Limited Partners 40-12
Other Rights of General Partners 40-13
Other Liabilities of General Partners 40-13
Other Rights of Limited Partners 40-14
Other Liabilities of Limited Partners 40-14
Partners’ Dissociations and Limited Partnership
Dissolution 40-14
Partners’ Dissociations 40-14
Limited Partnership Dissolutions 40-16
Mergers and Conversions 40-17
10
Part 10 Corporations
41 History and Nature of Corporations 41-3
History of Corporations 41-4
American Corporation Law 41-4
Classifications of Corporations 41-4
Regulation of For-Profit Corporations 41-6
State Incorporation Statutes 41-6
State Common Law of Corporations 41-7
Regulation of Nonprofit Corporations 41-7
Regulation of Foreign and Alien
Corporations 41-7
Due Process Clause 41-8
Commerce Clause 41-8
Subjecting Foreign Corporations to Suit 41-8
Taxation 41-9
Qualifying to Do Business 41-9
Regulation of a Corporation’s Internal Affairs 41-12
Regulation of Foreign Nonprofit
Corporations 41-12
Piercing the Corporate Veil 41-12
Nonprofit Corporations 41-14
42 Organization and Financial Structure of
Corporations 42-1
Promoters and Preincorporation
Transactions 42-1
Corporation’s Liability on Preincorporation Contracts 42-2
Promoter’s Liability on Preincorporation Contracts 42-2
Obtaining a Binding Preincorporation Contract 42-2
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Contents
Preincorporation Share Subscriptions 42-3
Relation of Promoter and Prospective Corporation 42-4
Liability of Corporation to Promoter 42-4
Incorporation 42-4
Steps in Incorporation 42-4
Close Corporation Elections 42-7
Defective Attempts to Incorporate 42-7
De Jure Corporation 42-7
De Facto Corporation 42-8
Corporation by Estoppel 42-8
Defective Incorporation 42-8
Modern Approaches to the Defective
Incorporation Problem 42-8
Incorporation of Nonprofit
Corporations 42-10
Liability for Preincorporation
Transactions 42-11
Financing For-Profit Corporations 42-11
Equity Securities 42-11
Authorized, Issued, and Outstanding Shares 42-12
Options, Warrants, and Rights 42-12
Debt Securities 42-13
Consideration for Shares 42-13
Quality of Consideration for Shares 42-13
Quantity of Consideration for Shares 42-13
Share Subscriptions 42-16
Issuance of Shares 42-16
Transfer of Shares 42-17
Restrictions on Transferability of Shares 42-17
Financing Nonprofit Corporations 42-20
43 Management of Corporations 43-1
Corporate Objectives 43-2
Corporate Powers 43-3
Purpose Clauses in Articles of Incorporation 43-3
Powers of Nonprofit Corporations 43-3
The Board of Directors 43-3
Board Authority under Corporation Statutes 43-4
Committees of the Board 43-4
Who Is an Independent Director? 43-5
Powers, Rights, and Liabilities of Directors as
Individuals 43-5
Election of Directors 43-5
Directors’ Meetings 43-8
Officers of the Corporation 43-9
Managing Close Corporations 43-9
Managing Nonprofit Corporations 43-10
Directors’ and Officers’ Duties to the
Corporation 43-11
Acting within Authority 43-11
Duty of Care 43-11
Board Opposition to Acquisition of Control of a
Corporation 43-16
Oversight of Legal Compliance 43-20
Duties of Loyalty 43-22
Conflicting Interest Transactions 43-22
Usurpation of a Corporate Opportunity 43-23
Oppression of Minority Shareholders 43-25
Trading on Inside Information 43-27
Duties of Directors and Officers of Nonprofit
Corporations 43-27
Corporate and Management Liability for Torts
and Crimes 43-28
Liability of the Corporation 43-28
Directors’ and Officers’ Liability for Torts and
Crimes 43-29
Insurance and Indemnification 43-32
Mandatory Indemnification of Directors 43-32
Permissible Indemnification of Directors 43-32
Insurance 43-32
Nonprofit Corporations 43-32
44 Shareholders’ Rights and Liabilities 44-1
Shareholders’ Meetings 44-2
Notice of Meetings 44-2
Conduct of Meetings 44-2
Shareholder Action without a Meeting 44-2
Shareholders’ Election of Directors 44-2
Straight Voting 44-2
Cumulative Voting 44-3
Classes of Shares 44-3
Shareholder Control Devices 44-3
Fundamental Corporate Changes 44-6
Procedures Required 44-7
Dissenters’ Rights 44-7
Shareholders’ Inspection and Information
Rights 44-13
Preemptive Right 44-15
Distributions to Shareholders 44-16
Dividends 44-16
Share Repurchases 44-18
Ensuring a Shareholder’s Return on
Investment 44-19
Shareholders’ Lawsuits 44-19
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Shareholders’ Individual Lawsuits 44-19
Shareholder Class Action Suits 44-19
Shareholders’ Derivative Actions 44-19
Defense of Corporation by Shareholder 44-22
Shareholder Liability 44-22
Shareholder Liability for Illegal Distributions 44-22
Shareholder Liability for Corporate Debts 44-22
Sale of a Control Block of Shares 44-22
Shareholders as Fiduciaries 44-23
Members’ Rights and Duties in Nonprofit
Corporations 44-25
Members’ Meeting and Voting Rights 44-26
Member Inspection and Information Rights 44-26
Distributions of Assets 44-27
Resignation and Expulsion of Members 44-27
Derivative Suits 44-27
Dissolution and Termination of
Corporations 44-27
Winding Up and Termination 44-29
Dissolution of Nonprofit Corporations 44-29
45 Securities Regulation 45-1
Purposes of Securities Regulation 45-2
Securities and Exchange Commission 45-3
SEC Actions 45-3
What Is a Security? 45-4
Securities Act of 1933 45-7
Registration of Securities under the 1933 Act 45-7
Mechanics of a Registered Offering 45-7
Registration Statement and Prospectus 45-7
Section 5: Timing, Manner, and Content of
Offers and Sales 45-8
Exemptions from the Registration Requirements
of the 1933 Act 45-12
Securities Exemptions 45-12
Transaction Exemptions 45-13
Intrastate Offering Exemption 45-13
Private Offering Exemption 45-13
Small Offering Exemptions 45-15
The JOBS Act and Regulation Crowdfunding 45-16
Transaction Exemptions for Nonissuers 45-16
Sale of Restricted Securities 45-17
Consequence of Obtaining a Securities or Transaction
Exemption 45-20
Liability Provisions of the 1933 Act 45-20
Liability for Defective Registration Statements 45-21
Other Liability Provisions 45-26
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Criminal Liability 45-26
Securities Exchange Act of 1934 45-26
Registration of Securities under the 1934 Act 45-27
Holdings and Trading by Insiders 45-28
Proxy Solicitation Regulation 45-28
Liability Provisions of the 1934 Act 45-30
Liability for False Statements in Filed Documents 45-30
Section 10(b) and Rule 10b–5 45-31
Elements of a Rule 10b–5 Violation 45-31
Regulation FD 45-43
Criminal Liability 45-44
Tender Offer Regulation 45-44
Private Acquisitions of Shares 45-46
State Regulation of Tender Offers 45-46
State Securities Law 45-46
Registration of Securities 45-46
46 Legal and Professional Responsibilities
of Auditors, Consultants, and Securities
Professionals 46-1
General Standard of Performance 46-3
Professionals’ Liability to Clients 46-3
Contractual Liability 46-3
Tort Liability 46-4
In Pari Delicto 46-7
Breach of Trust 46-7
Securities Law 46-8
Professionals’ Liability to Third Persons:
Common Law 46-8
Negligence and Negligent Misrepresentation 46-8
Fraud 46-13
Professional’s Liability to Third Parties:
Securities Law 46-13
Securities Act of 1933 46-14
Securities Exchange Act of 1934 46-15
State Securities Law 46-18
Securities Analysts’ Conflicts of Interest 46-18
Dodd–Frank Act and Broker-Dealers 46-20
Regulation Best Interest and
Broker-Dealers 46-20
Qualified Opinions, Disclaimers of
Opinion, Adverse Opinions, and Unaudited
Statements 46-22
Criminal, Injunctive, and Administrative
Proceedings 46-23
Criminal Liability under the
Securities Laws 46-24
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Contents
Other Criminal Law Violations 46-25
Injunctions 46-26
Administrative Proceedings 46-26
Securities Exchange Act Audit
Requirements 46-27
SOX Section 404 46-27
Cooperation with PCAOB Investigations 46-27
Ownership of Working Papers 46-28
Professional–Client Privilege 46-28
11
Part 11 Regulation of Business
47 Administrative Law 47-3
Origins of Administrative Agencies 47-5
Agency Creation 47-6
Enabling Legislation 47-6
Administrative Agencies and the
Constitution 47-7
Agency Types and Organization 47-11
Agency Types 47-11
Agency Organization 47-12
Agency Powers and Procedures 47-12
Nature, Types, and Source of Powers 47-12
Investigative Power 47-12
Rulemaking Power 47-14
Adjudicatory Power 47-16
Controlling Administrative Agencies 47-17
Presidential Controls 47-17
Congressional Controls 47-17
Judicial Review 47-18
Information Controls 47-27
Freedom of Information Act 47-27
Privacy Act of 1974 47-31
Government in the Sunshine Act 47-31
Issues in Regulation 47-31
“Old” Regulation versus “New”
Regulation 47-31
“Captive” Agencies and Agencies’
“Shadows” 47-31
Is the Agency Doing Its Job? 47-31
Deregulation versus Reregulation 47-32
48 The Federal Trade Commission Act
and Consumer Protection Laws 48-1
The Federal Trade Commission 48-2
The FTC’s Powers 48-2
FTC Enforcement Procedures 48-2
Actions in Court 48-3
Anticompetitive Behavior 48-6
Deception and Unfairness 48-6
Deception 48-6
Unfairness 48-15
Remedies 48-15
Consumer Protection Laws 48-15
Telemarketing and Consumer Fraud and
Abuse Prevention Act 48-15
Do-Not-Call Registry 48-16
Do Not Track 48-17
Magnuson–Moss Warranty Act 48-17
Truth in Lending Act 48-18
Fair Credit Reporting Act 48-19
FACT Act and the Identity
Theft Problem 48-23
Equal Credit Opportunity Act 48-24
Fair Credit Billing Act 48-24
The Dodd–Frank Act 48-24
Fair Debt Collection
Practices Act 48-25
Product Safety Regulation 48-30
49 Antitrust: The Sherman Act 49-1
The Antitrust Policy Debate 49-2
Chicago School Theories 49-3
Traditional Antitrust Theories 49-3
Impact of Chicago School 49-3
Jurisdiction, Types of Cases,
and Standing 49-3
Jurisdiction 49-3
Types of Cases and the Role of Pretrial Settlements 49-4
Criminal Prosecutions 49-4
Civil Litigation 49-4
Standing 49-5
Section 1—Restraints of Trade 49-5
Concerted Action 49-5
Per Se versus Rule of Reason Analysis 49-9
Horizontal Price-Fixing 49-9
Vertical Price-Fixing 49-13
Horizontal Divisions of Markets 49-17
Vertical Restraints on
Distribution 49-18
Group Boycotts and Concerted
Refusals to Deal 49-18
Tying Agreements 49-19
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Contents
Reciprocal Dealing Agreements 49-25
Exclusive Dealing Agreements 49-25
Joint Ventures by Competitors 49-25
Section 2—Monopolization 49-26
Monopolization 49-27
Attempted Monopolization 49-34
Conspiracy to Monopolize 49-35
50 The Clayton Act, the Robinson–Patman Act,
and Antitrust Exemptions and
Immunities 50-1
Clayton Act Section 3 50-2
Tying Agreements 50-3
Exclusive Dealing Agreements 50-3
Clayton Act Section 7 50-3
Introduction 50-3
Federal Filing Requirements for Mergers 50-4
Relevant Market Determination 50-4
Horizontal Mergers 50-5
Vertical Mergers 50-13
Conglomerate Mergers 50-14
Clayton Act Section 8 50-15
The Robinson–Patman Act 50-16
Jurisdiction 50-16
Section 2(a) 50-17
Defenses to Section 2(a) Liability 50-22
Indirect Price Discrimination 50-23
Buyer Inducement of Discrimination 50-24
Antitrust Exceptions and Exemptions 50-24
Statutory Exemptions 50-24
State Action Exemption 50-25
The Noerr–Pennington Doctrine 50-25
Patent Licensing 50-29
Foreign Commerce 50-29
51 Employment Law 51-1
Legislation Protecting Employee Health,
Safety, and Well-Being 51-2
Workers’ Compensation 51-2
The Occupational Safety and Health Act 51-6
The Family and Medical Leave Act 51-6
Legislation Protecting Wages, Pensions,
and Benefits 51-7
Social Security 51-7
Unemployment Compensation 51-7
ERISA 51-8
The Fair Labor Standards Act 51-8
xxxvii
Collective Bargaining and
Union Activity 51-8
Equal Opportunity Legislation 51-10
The Equal Pay Act 51-10
Title VII 51-11
Section 1981 51-27
The Age Discrimination in Employment Act 51-27
The Americans with Disabilities Act 51-28
Genetic Information Nondiscrimination Act 51-32
Immigration Reform and Control Act 51-32
Uniformed Services Employment and Reemployment
Rights Act 51-32
Executive Order 11246 51-33
State Antidiscrimination Laws 51-33
Retaliation 51-33
Employee Privacy 51-34
Polygraph Testing 51-34
Drug and Alcohol Testing 51-35
Employer Searches 51-36
Records and References 51-36
Employer Monitoring 51-36
Job Security 51-36
The Doctrine of Employment at Will 51-36
The Common Law Exceptions 51-37
52 Environmental Regulation 52-1
Historical Perspective 52-2
The Environmental Protection Agency 52-2
The National Environmental Policy Act 52-3
Air Pollution 52-3
Background 52-3
Clean Air Act 52-3
Ambient Air Control Standards 52-3
Acid Rain Controls 52-4
Control of Hazardous Air Pollutants 52-4
New Source Controls 52-4
Permits 52-7
Enforcement 52-7
Automobile Pollution 52-8
International Air Problems 52-9
Water Pollution 52-12
Background 52-12
Early Federal Legislation 52-12
Clean Water Act 52-12
Discharge Permits 52-12
Water Quality Standards 52-13
Enforcement 52-13
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xxxviii
Contents
Wetlands 52-16
Waters of the United States 52-16
Ocean Dumping 52-16
Liability for Oil Spills 52-17
Drinking Water 52-19
Waste Disposal 52-19
Background 52-19
The Resource Conservation and Recovery Act 52-20
Underground Storage Tanks 52-20
State Responsibilities 52-20
Enforcement 52-20
Solid Waste 52-23
Superfund 52-23
Community Right to Know and Emergency Cleanup 52-26
Regulation of Chemicals 52-26
Background 52-26
Regulation of Agricultural Chemicals 52-26
Toxic Substances Control Act 52-27
International Developments Concerning
Regulation of Toxic Substances 52-27
Biotechnology 52-29
Glossary G-1
Appendix A The Constitution of the
United States of America A-1
Appendix B
Code B-1
Index I-1
Uniform Commercial
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List of Cases
Abdouch v. Lopez . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-4
Cordas v. Uber Technologies, Inc.. . . . . . . . . . . . . . . . . . . . 10-12
Advance Dental Care, Inc. v. SunTrust Bank. . . . . . . . . . . . . . 1-9
Coyle v. Schwartz. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42-19
Aliaga Medical Center v. Harris Bank. . . . . . . . . . . . . . . . . . . 34-6
Currie v. Chevron U.S.A., Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . 7-7
Alice Corporation Ltd. v. CLS Bank International . . . . . . . . . 8-4
D’Agostino v. Federal Insurance Company . . . . . . . . . . . . . 10-16
Allstate Lien & Recovery Corporation v. Stansbury . . . . . . 28-11
Day v. Fortune Hi-Tech Marketing, Inc.. . . . . . . . . . . . . . . . . 12-5
American Greetings Corp. v. Bunch. . . . . . . . . . . . . . . . . . . . 51-4
DePetris & Bachrach, LLP v. Srour . . . . . . . . . . . . . . . . . . . . 36-9
American Needle, Inc. v. National Football League . . . . . . . 49-6
Dixon v. Crawford, McGilliard, Peterson & Yelish. . . . . . . 39-14
A Note on United States v. Apple. . . . . . . . . . . . . . . . . . . . . . 49-13
Dodge v. Ford Motor Co.. . . . . . . . . . . . . . . . . . . . . . . . . . . 44-16
Arthur Andersen LLP v. United States. . . . . . . . . . . . . . . . . 46-29
Doe v. Roman Catholic Archdiocese of Indianapolis . . . . . 12-13
AT&T Mobility LLC v. Concepcion. . . . . . . . . . . . . . . . . . . . 2-25
Domingo v. Mitchell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-3
Ballard v. Dornic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-7
Drake Manufacturing Company, Inc. v. Polyflow, Inc.. . . . 41-10
Bank of America, N.A. v. Inda . . . . . . . . . . . . . . . . . . . . . . . 32-10
Durham v. McDonald’s Restaurants of Oklahoma, Inc.. . . . . 6-9
Banks v. Lockhart. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-6
Duro Textiles, LLC v. Sunbelt Corporation. . . . . . . . . . . . . . 11-8
Bauer v. Qwest Communications Company, LLC. . . . . . . . 11-14
Dynegy, Inc. v. Yates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-4
Beau Townsend Ford Lincoln v. Don Hinds Ford. . . . . . . . . 22-6
EEOC v. Kohl’s Dep’t Stores, Inc. . . . . . . . . . . . . . . . . . . . . 51-30
Beer v. Bennett. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22-11
E & G Food Corp. v. Cumberland Farms. . . . . . . . . . . . . . . 32-18
Berghuis v. Thompkins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-25
Escott v. BarChris Construction Corp.. . . . . . . . . . . . . . . . . 45-22
Bertrand v. Mullin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-20
Evory v. RJM Acquisitions Funding, L.L.C.. . . . . . . . . . . . . 48-26
Bissinger v. New Country Buffet. . . . . . . . . . . . . . . . . . . . . . . 20-6
Exxon Shipping Co. v. Baker. . . . . . . . . . . . . . . . . . . . . . . . . 52-17
Black v. William Insulation Co.. . . . . . . . . . . . . . . . . . . . . . . . 7-22
Farrell v. Macy’s Retail Holdings, Inc.. . . . . . . . . . . . . . . . . . 6-11
Bostock v. Clayton County, Georgia. . . . . . . . . . . . . . . . . . . 51-18
Federal Trade Commission v. Ross. . . . . . . . . . . . . . . . . . . . . 48-4
Bouchat v. Baltimore Ravens Limited Partnership. . . . . . . . . 8-21
Federal Trade Commission v. Staples, Inc.. . . . . . . . . . . . . . 50-10
Branham v. Ford Motor Co. . . . . . . . . . . . . . . . . . . . . . . . . . 20-17
Ferris, Baker Watts, Inc. v. Ernst & Young, LLP . . . . . . . . 46-16
Brehm v. Eisner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43-13
Filer, Inc. v. Staples, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-5
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. .50-18
Finch v. Raymer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-18
Brooks v. Lewin Realty III, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 25-6
Fish v. Tex. Legislative Serv., P’ship. . . . . . . . . . . . . . . . . . . . 38-6
Browning v. Poirier. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16-7
Fitzgerald v. Racing Association of Central Iowa . . . . . . . . . 3-28
Cabot Oil & Gas Corporation v. Daugherty Petroleum, Inc. .11-16
Forcht Bank v. Gribbins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34-4
Cahaba Disaster Recovery v. Rogers. . . . . . . . . . . . . . . . . . . 22-15
Francini v. Goodspeed Airport, LLC. . . . . . . . . . . . . . . . . . 24-11
Capshaw v. Hickman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-18
Frontier Leasing Corp. v. Links Engineering, LLC. . . . . . . . 36-5
CBS Corp. v. FCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35-7
Gamboa v. Alvarado. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15-18
Cincinnati Insurance Company v. Wachovia Bank National Association . . . . . . . . . . . . . . . . . . . . . . . . . . 34-10
Garden Ridge, L.P. v. Advance International, Inc.. . . . . . . . 18-22
Citizens National Bank of Paris v. Kids Hope United, Inc.. 26-19
Gelman v. Buehler. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39-6
Citizens United v. Federal Election Commission . . . . . . . . . 3-17
General Credit Corp. v. New York Linen Co.. . . . . . . . . . . 32-19
Clark’s Sales and Service, Inc. v. Smith . . . . . . . . . . . . . . . . . 15-7
George v. Al Hoyt & Sons, Inc.. . . . . . . . . . . . . . . . . . . . . . . 18-20
Coggins v. New England Patriots Football Club, Inc.. . . . . 43-26
Gniadek v. Camp Sunshine at Sebago Lake, Inc.. . . . . . . . . 35-16
Coleman v. Retina Consultants, P.C. . . . . . . . . . . . . . . . . . . . 8-39
Columbia Realty Ventures v. Dang. . . . . . . . . . . . . . . . . . . . . 28-6
Gold v. Deloitte & Touche, LLP (In re NM Holdings Co., LLC). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46-5
Coma Corporation v. Kansas Department of Labor . . . . . . . 15-2
Grace Label, Inc. v. Kliff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-3
Coomer v. Kansas City Royals Baseball Corp.. . . . . . . . . . . . 1-15
Grande v. Jennings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-7
Gaskell v. University of Kentucky. . . . . . . . . . . . . . . . . . . . . 51-13
xxxix
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xl
List of Cases
Green v. Ford Motor Co.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-33
Kirtsaeng v. John Wiley & Sons, Inc.. . . . . . . . . . . . . . . . . . . 8-16
Green Garden Packaging Co. v. Schoenmann Produce Co..16-14
Kolodziej v. Mason . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-8
Green Wood Industrial Company v. Forceman International Development Group . . . . . . . . . . . 22-13
Kraft, Inc. v. Federal Trade Commission. . . . . . . . . . . . . . . . 48-7
Grimes v. Young Life, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
Krupinski v. Deyesso. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42-9
Grodner & Associates v. Regions Bank . . . . . . . . . . . . . . . . 34-13
Kruser v. Bank of America NT & SA. . . . . . . . . . . . . . . . . . 34-21
Guth v. Loft, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43-24
Lach v. Man O’War, LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . 40-17
Gyamfoah v. EG&G Dynatrend (now EG&G Technical Services) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-20
Leegin Creative Leather Products v. PSKS, Inc. . . . . . . . . . 49-14
Harrison v. Family Home Builders, LLC . . . . . . . . . . . . . . . 18-10
Lewis-Gale Medical Center, LLC v. Alldredge. . . . . . . . . . . . 8-42
Hecht v. Andover Assoc. Mgmt. Co.. . . . . . . . . . . . . . . . . . . . 40-4
Lincoln Composites, Inc. v. Firetrace USA, LLC . . . . . . . . 20-30
Helena Chemical Co. v. Williamson. . . . . . . . . . . . . . . . . . . . 22-2
Lindh v. Surman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23-10
Heritage Bank v. Bruha . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31-12
Long v. Provide Commerce, Inc.. . . . . . . . . . . . . . . . . . . . . . . 11-2
Hertz Corp. v. Friend. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-10
Lord v. D & J Enterprises, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 7-11
Hicks v. Sparks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-10
Macomb Mechanical, Inc. v. LaSalle Group, Inc. . . . . . . . . . 18-5
Hill v. Nakai (In re Estate of Hannifin) . . . . . . . . . . . . . . . . 26-13
Magri v. Jazz Casino Co., LLC. . . . . . . . . . . . . . . . . . . . . . . . . 7-3
Hillerich & Bradsby Co. v. Charles Products. . . . . . . . . . . . 21-13
Marion T v. Northwest Metals Processors. . . . . . . . . . . . . . . 33-6
Holiday Motor Corp. v. Walters . . . . . . . . . . . . . . . . . . . . . . 20-12
Mark v. FSC Securities Corp.. . . . . . . . . . . . . . . . . . . . . . . . 45-14
Houseman v. Dare. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-25
Massachusetts v. Environmental Protection Agency. . . . . . 52-10
Huntington National Bank v. Guishard, Wilburn & Shorts. 33-11
Matal v. Tam. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-23
Hutchison v. Kaforey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-3
Mathias v. Accor Economy Lodging, Inc.. . . . . . . . . . . . . . . . . 6-3
Hyman v. Capital One Auto Finance . . . . . . . . . . . . . . . . . . 29-21
Mayo Foundation for Medical Education v. United States. . . .47-23
In re Bernard L. Madoff Investment Securities . . . . . . . . . . 30-11
McDonough v. McDonough. . . . . . . . . . . . . . . . . . . . . . . . . . 40-7
In re Borden. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-15
McLellan v. Charly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-15
In re Burt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-30
McMillian v. McMillian. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38-2
In re Caremark Int’l Inc. Derivative Litig. . . . . . . . . . . . . . . 43-20
Medmarc Casualty Insurance Co. v. Avent America, Inc.. . 27-21
In re Foreclosure Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-15
Meyer v. Christie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39-4
In re Lance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-10
Michigan Battery Equipment, Inc. v. Emcasco Insurance Co.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-11
In re Made In Detroit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-24
In re Rogers (Wallace v. Rogers). . . . . . . . . . . . . . . . . . . . . . .30-7
Krakauer v. Dish Network, L.L.C. . . . . . . . . . . . . . . . . . . . . . 35-4
Lehigh Presbytery v. Merchants Bancorp. . . . . . . . . . . . . . . . 32-6
In re Siegenberg. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-19
Mid-American Salt, LLC v. Morris County Cooperative Pricing Council. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-7
James v. City of Costa Mesa. . . . . . . . . . . . . . . . . . . . . . . . . . 1-24
Miller v. Burnett. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-17
Janke v. Brooks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-5
Milner v. Department of the Navy . . . . . . . . . . . . . . . . . . . . 47-28
J.D. Fields & Company, Inc. v. United States Steel International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-5
Mitchell Partners, L.P. v. Irex Corp.. . . . . . . . . . . . . . . . . . . 44-24
Johnson v. Bank of America, N.A. . . . . . . . . . . . . . . . . . . . . . 17-9
Montgomery Cellular Holding Co., Inc. v. Dobler. . . . . . . . . 44-8
Johnson v. Fluor Corporation. . . . . . . . . . . . . . . . . . . . . . . . 51-25
Mortgage Grader, Inc. v. Ward & Olivo, L.L.P . . . . . . . . . . 38-15
Johnson v. J. Walter Thompson U.S.A., LLC . . . . . . . . . . . 51-23
Moser v. Moser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40-11
Jones v. Wells Fargo Bank, N.A.. . . . . . . . . . . . . . . . . . . . . . 33-19
Moss v. Batesville Casket Co.. . . . . . . . . . . . . . . . . . . . . . . . . 20-9
Jordan v. Jewel Food Stores, Inc. . . . . . . . . . . . . . . . . . . . . . . 6-29
MP Nexlevel of Cal., Inc. v. CVIN. . . . . . . . . . . . . . . . . . . . 37-15
J.T. ex rel. Thode v. Monster Mountain, LLC . . . . . . . . . . . . 14-2
Music Acceptance Corp. v. Lofing. . . . . . . . . . . . . . . . . . . . 32-22
Kelo v. City of New London. . . . . . . . . . . . . . . . . . . . . . . . . 24-29
National College Loan Trust 2004-1 v. Irizarry . . . . . . . . . . . 33-4
Kibler v. Hall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-31
National Federation of Independent Business v. Sebelius . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-9
*
Killian v. Ricchetti. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-3
Mogilevsky v. Rubicon Technology, Inc.. . . . . . . . . . . . . . . . 24-4
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List of Cases
xli
National Music Museum: America’s Shrine to Music v. Johnson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-12
SmithStearn Yachts, Inc. v. Gyrographic Communications, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42-3
NBN Broadcasting, Inc. v. Sheridan Broadcasting Networks, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38-12
Sogeti USA LLC v. Scariano. . . . . . . . . . . . . . . . . . . . . . . . . . 17-3
Neumann v. Liles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-14
SRM Global Fund L.P. v. Countrywide Financial Corp.. . . 45-32
Noble Roman’s v. Pizza Boxes . . . . . . . . . . . . . . . . . . . . . . . . 19-9
Stahlecker v. Ford Motor Co.. . . . . . . . . . . . . . . . . . . . . . . . . 7-24
North Atlantic Instruments, Inc. v. Haber . . . . . . . . . . . . . . 35-10
Star Athletica, LLC v. Varsity Brands, Inc.. . . . . . . . . . . . . . . 8-12
North Carolina State Board of Dental Examiners v. Federal Trade Commission . . . . . . . . . . . . . . 50-26
Steinberg v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-3
Nye Capital Appreciation Partners, L.L.C. v. Nemchik. . . . . 45-5
Stratford v. Long . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-19
Obergefell v. Hodges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-30
Stuart v. Pittman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27-3
Obsidian Finance Group, LLC v. Cox . . . . . . . . . . . . . . . . . . 6-24
Supply Chain Assocs., LLC v. ACT Electronics, Inc.. . . . . 41-14
O’Connor v. Oakhurst Dairy. . . . . . . . . . . . . . . . . . . . . . . . . . 1-19
Suture Express, Inc. v. Owens & Minor Distribution, Inc.. . 49-20
Olmsted v. Saint Paul Public Schools. . . . . . . . . . . . . . . . . . 13-15
Synergies3 Tec Services, LLC v. Corvo . . . . . . . . . . . . . . . . 36-11
Omnicare, Inc. v. NCS Healthcare, Inc.. . . . . . . . . . . . . . . . . 43-7
Tan v. Arnel Management Company . . . . . . . . . . . . . . . . . . 25-13
Paciaroni v. Crane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39-10
Tedeton v. Tedeton. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42-14
Palmatier v. Wells Fargo Financial National Bank. . . . . . . . . 29-4
Paramount Communications, Inc. v. Time, Inc.. . . . . . . . . . 43-18
The Industrial Development Board of the City of Montgomery v. Russell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-11
Patterson v. CitiMortgage, Inc.. . . . . . . . . . . . . . . . . . . . . . . 13-12
Thomas v. Archer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-15
Pearson v. Shalala. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47-7
Timothy v. Keetch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-7
Pelican National Bank v. Provident Bank of Maryland . . . . 31-14
Toms v. Calvary Assembly of God, Inc.. . . . . . . . . . . . . . . . . 7-30
Pena v. Fox. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-5
Town of Freeport v. Ring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-3
Peterson v. AT&T Mobility Services, LLC. . . . . . . . . . . . . . 51-38
Philibert v. Kluser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-17
Toyo Tire North America Manufacturing, Inc. v. Davis. . . . . . . . . . . . . . . . . . . . . . . . . . 6-35
Pittman v. Henry Moncure Motors. . . . . . . . . . . . . . . . . . . . 21-10
Trapani Construction Co. v. Elliot Group, Inc.. . . . . . . . . . . . 9-6
POM Wonderful LLC v. Coca-Cola Co.. . . . . . . . . . . . . . . . . 8-45
Treadwell v. J.D. Construction Co.. . . . . . . . . . . . . . . . . . . . . 36-7
POM Wonderful, LLC v. Federal Trade Commission . . . . . 48-9
Tricontinental Industries, Ltd. v. PricewaterhouseCoopers, LLP . . . . . . . . . . . . . . . . . . . . . . . 46-10
Price v. High Pointe Oil Company, Inc.. . . . . . . . . . . . . . . . . . 1-5
ProMedica Health System, Inc. v. Federal Trade Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50-6
PWS Environmental, Inc. v. All Clear Restoration and Remediation, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-14
South Dakota v. Wayfair, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . 3-5
Stephen A. Wheat Trust v. Sparks. . . . . . . . . . . . . . . . . . . . . . 13-4
Triffin v. Sinha. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32-15
Trump Endeavor 12 LLC v. Fernich, Inc. d/b/a The Paint Spot. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-19
Tyson Foods, Inc. v. Bouaphakeo. . . . . . . . . . . . . . . . . . . . . . 2-21
Rasmussen v. Jackson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37-12
United States v. Anderson. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-35
Reynolds Health Care Services, Inc. v. HMNH, Inc.. . . . . . . 44-4
United States v. Domenic Lombardi Realty. . . . . . . . . . . . . 52-24
Riegel v. Medtronic, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-37
United States v. Goyal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46-24
Rochester Gas and Electric Corporation. v. Delta Star. . . . 21-17
United States v. Hopkins. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52-13
Rogers v. Household Life Insurance Co.. . . . . . . . . . . . . . . . .14-9
United States v. Hsiung. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49-10
Rosenberg v. N.Y. State Higher Education Services Corp.. 30-16
United States v. Jensen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43-29
RR Maloan Investment v. New HGE. . . . . . . . . . . . . . . . . . 32-11
United States v. Jones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-17
Safeco Insurance Co. of America v. Burr. . . . . . . . . . . . . . . 48-20
United States v. Microsoft Corp.. . . . . . . . . . . . . . . . . . . . . . 49-28
SEC v. Dorozhko. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45-37
United States v. Newman. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45-40
Sekhar v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-8
United States v. Ohio Edison Company. . . . . . . . . . . . . . . . . 52-5
Shaw v. United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-13
United States v. Salman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45-41
Singh v. Uber Technologies Inc.. . . . . . . . . . . . . . . . . . . . . . 15-14
United States v. Southern Union Co. . . . . . . . . . . . . . . . . . . 52-20
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xlii
List of Cases
United States Life Insurance Company in the City of New York v. Wilson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-10
Wendzel v. Feldstein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25-10
United Techs. Corp. v. Treppel. . . . . . . . . . . . . . . . . . . . . . . 44-14
Wilke v. Woodhouse Ford, Inc.. . . . . . . . . . . . . . . . . . . . . . . 20-25
Urbain v. Beierling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39-8
Winger v. CM Holdings, L.L.C.. . . . . . . . . . . . . . . . . . . . . . . 7-14
Utility Air Regulatory Group v. Environmental Protection Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47-19
World Harvest Church v. Grange Mutual Casualty Co.. . . . 27-18
Valley Bank of Ronan v. Hughes. . . . . . . . . . . . . . . . . . . . . . 34-16
Woven Treasures v. Hudson Capital . . . . . . . . . . . . . . . . . . 29-13
Victory Clothing Co. v. Wachovia Bank, N.A.. . . . . . . . . . . 33-16
Wykeham Rise, LLC v. Federer . . . . . . . . . . . . . . . . . . . . . . 24-13
Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50-20
Yung-Kai Lu v. University of Utah . . . . . . . . . . . . . . . . . . . . 16-18
Wallis v. Brainerd Baptist Church. . . . . . . . . . . . . . . . . . . . . 17-14
Zaretsky v. William Goldberg Diamond Corp.. . . . . . . . . . . 19-14
Walters v. YMCA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-10
Zelnick v. Adams. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-7
Weil v. Murray. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-8
Zimmerman v. Allen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-6
Weissman v. City of New York. . . . . . . . . . . . . . . . . . . . . . . 23-15
ZUP, LLC v. Nash Manufacturing, Inc.. . . . . . . . . . . . . . . . . . 8-7
Welsh v. Lithia Vaudm, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 12-9
Whitman v. American Trucking Associations . . . . . . . . . . . 47-10
World of Boxing LLC v. King. . . . . . . . . . . . . . . . . . . . . . . . 18-15
Zapata Corp. v. Maldonado. . . . . . . . . . . . . . . . . . . . . . . . . . 44-21
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Part One
Chapter 1
The Nature of Law
Chapter 2
Foundations of
American Law
The Resolution of Private Disputes
Chapter 3
Business and the Constitution
Chapter 4
Business Ethics, Corporate Social
Responsibility, Corporate Governance,
and Critical Thinking
Pixtal/AGE Fotostock
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CHAPTER 1
The Nature of Law
A
ssume that you have taken on a management position at MKT Corp. If MKT is to make sound business
decisions, you and your management colleagues must be aware of a broad array of legal considerations.
These may range, to use a nonexhaustive list, from issues in contract, agency, and employment law to considerations suggested by tort, intellectual property, securities, and constitutional law. Sometimes, legal principles
may constrain MKT’s business decisions; at other times, the law may prove a valuable ally of MKT in the successful
operation of the firm’s business.
Of course, you and other members of the MKT management group will rely on the advice of in-house counsel
(an attorney who is an MKT employee) or of outside attorneys who are in private practice. The approach of simply
“leaving the law to the lawyers,” however, is likely to be counterproductive. It will often be up to nonlawyers such
as you to identify a potential legal issue or pitfall about which MKT needs professional guidance. If you fail to spot
the issue in a timely manner and legal problems are allowed to develop and fester, even the most skilled attorneys
may have difficulty rescuing you and the firm from the resulting predicament. If, on the other hand, your failure to
identify a legal consideration means that you do not seek advice in time to obtain an advantage that applicable law
would have provided MKT, the corporation may lose out on a beneficial opportunity. Either way—that is, whether
the relevant legal issue operates as a constraint or offers a potential advantage—you and the firm cannot afford to be
unfamiliar with the legal environment in which MKT operates.
This may sound intimidating, but it need not be. The process of acquiring a working understanding of the legal
environment of business begins simply enough with these basic questions:
• What major types of law apply to the business activities and help shape the business decisions of firms such as
MKT?
• What ways of examining and evaluating law may serve as useful perspectives from which to view the legal
environment in which MKT and other businesses operate?
• What role do courts play in making or interpreting law that applies to businesses such as MKT and to employees
of those firms, and what methods of legal reasoning do courts utilize?
• What is the relationship between legal standards of behavior and notions of ethical conduct?
LEARNING OBJECTIVES
LO
After studying this chapter, you should be able to:
1-1
1-2
Identify the respective makers of the different types
of law (constitutions, statutes, common law, and
administrative regulations and decisions).
Identify the type of law that takes precedence
when two types of law conflict.
1-3
1-4
Explain the basic differences between the
criminal law and civil law classifications.
Describe key ways in which the major schools of
jurisprudence differ from each other.
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1-4
Part One Foundations of American Law
1-5
Describe the respective roles of adhering to
precedent (stare decisis) and distinguishing
precedent in case law reasoning.
Types and Classifications of Law
The Types of Law
Identify the respective makers of the different types of law
LO1-1 (constitutions, statutes, common law, and administrative
regulations and decisions).
Constitutions Constitutions, which exist at the state and
federal levels, have two general functions.1 First, they set up
the structure of government for the political unit they control
(a state or the federal government). This involves creating
the branches and subdivisions of the government and stating
the powers given and denied to each. Through its separation
of powers, the U.S. Constitution establishes the Congress
and gives it power to make law in certain areas, provides for
a chief executive (the president) whose function is to execute
or enforce the laws, and helps create a federal judiciary to
interpret the laws. The U.S. Constitution also structures the
relationship between the federal government and the states.
In the process, it respects the principle of federalism by recognizing the states’ power to make law in certain areas.
The second function of constitutions is to prevent the
government from taking certain actions or passing certain
laws, sometimes even if those actions or laws would otherwise appear to fall within the authority granted to the government under the first function. Constitutions do so mainly
by prohibiting government action that restricts certain individual rights. The Bill of Rights to the U.S. Constitution is
an example. You could see the interaction of those two functions, for instance, where Congress is empowered to regulate
interstate commerce but cannot do so in a way that would
abridge the First Amendment’s free speech guarantee.
Statutes Statutes are laws created by elected representatives in Congress or a state legislature. They are stated in
an authoritative form in statute books or codes. As you will
see, however, their interpretation and application are often
difficult.
Chapter 3 discusses constitutional law as it applies to government
regulation of business.
1
1-6
Identify what courts focus on when applying the
major statutory interpretation techniques (plain
meaning, legislative purpose, legislative history,
and general public purpose).
Throughout this text, you will encounter state statutes
that were originally drafted as uniform acts. Uniform acts
are model statutes drafted by private bodies of lawyers
and scholars. They do not become law until a legislature
enacts them. Their aim is to produce state-by-state uniformity on the subjects they address. Examples include
the Uniform Commercial Code (which deals with a wide
range of commercial law subjects), the Revised Uniform
Partnership Act, and the Revised Model Business Corporation Act.
Common Law The common law (also called judge-made
law or case law) is law made and applied by judges as they
decide cases not governed by statutes or other types of law.
Although, as a general matter, common law exists only at
the state level, both state courts and federal courts become
involved in applying it. The common law originated in
medieval England and developed from the decisions of
judges in settling disputes. Over time, judges began to follow the decisions of other judges in similar cases, called
precedents. This practice became formalized in the doctrine of stare decisis (let the decision stand). As you will
see later in the chapter, stare decisis is not completely rigid
in its requirement of adherence to precedent. It is flexible
enough to allow the common law to evolve to meet changing social conditions. The common law rules in force today,
therefore, often differ considerably from the common law
rules of earlier times.
The common law came to America with the first English settlers, was applied by courts during the colonial
period, and continued to be applied after the Revolution
and the adoption of the Constitution. It still governs
many cases today. For example, the rules of tort, contract, and agency discussed in this text are mainly common law rules. In some instances, states have codified
(enacted into statute) some parts of the common law.
States and the federal government have also passed statutes superseding the common law in certain situations.
As discussed in Chapter 9, for example, the states have
established special rules for contract cases involving
the sale of goods by enacting Article 2 of the Uniform
Commercial Code.
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Chapter One
This text’s torts, contracts, and agency chapters often
refer to the Restatement—or Restatement (Second) or
(Third)—rule on a particular subject. The Restatements
are collections of common law (and occasionally statutory) rules covering various areas of the law. Because they
are written by the American Law Institute rather than
by courts, the Restatements are not law and do not bind
courts. However, state courts often find Restatement rules
persuasive and adopt them as common law rules within
their states. The Restatement rules usually are the rules
followed by a majority of the states. Occasionally, however, the Restatements stimulate changes in the common
law by suggesting new rules that the courts later decide
to follow.
The Nature of Law
1-5
Because the judge-made rules of common law apply
only when there is no applicable statute or other type of
law, common law fills in gaps left by other legal rules if
sound social and public policy reasons call for those gaps
to be filled. As a result, with regard to the common law,
judges sometimes serve in the unexpected role of crafting
legal rules in addition to interpreting the law.
In Price v. High Pointe Oil Company, Inc., which follows
shortly, the court surveys the relevant legal landscape and
concludes that a longstanding common law rule should
remain in effect. A later section in the chapter will focus on
the process of case law reasoning, in which courts engage
when they make and apply common law rules. That process is exemplified by the first half of the Price opinion.
Price v. High Pointe Oil Company, Inc.
828 N.W.2d 660 (Mich. 2013)
In 2006, Beckie Price replaced the oil furnace in her house with a propane furnace. The oil furnace was removed, but the pipe that had
been used to fill the furnace with oil remained in place.
At the time the furnace was replaced, Price canceled her contract for oil refills with the predecessor of High Pointe Oil Company, the
defendant. Somehow, though, in November 2007, High Pointe mistakenly placed Price’s address back on its “keep full list.” Subsequently, a
High Pointe truck driver pumped around 400 gallons of fuel oil into Price’s basement through the oil-fill pipe before realizing the mistake.
Price’s house and her belongings were destroyed. The house was eventually torn down, the site was remediated, and a new house was built
on a different part of Price’s property. Price’s personal property was all cleaned or replaced. All of her costs related to her temporary homelessness were reimbursed to her, as well. Thus, she was fully compensated for all of her economic losses resulting from High Pointe’s error.
Nevertheless, Price sued High Pointe alleging a number of claims. The only of her claims to survive to trial was one focused on her
noneconomic losses—for example, pain and suffering, humiliation, embarrassment, and emotional distress. A jury found in Price’s favor
and awarded her $100,000 in damages.
High Pointe filed an appeal to the intermediate appellate court but lost. High Pointe then appealed to the Michigan Supreme Court,
excerpts of whose opinion is below.
Markman, J.
III. Analysis
The question in this case is whether noneconomic damages are
recoverable for the negligent destruction of real property. Absent
any relevant statute, the answer to that question is a matter of
common law.
A. Common Law
As this Court explained in [a prior case], the common law “is
but the accumulated expressions of the various judicial tribunals in their efforts to ascertain what is right and just between
individuals in respect to private disputes[.]” The common
law, however, is not static. By its nature, it adapts to changing
circumstances. . . . The common law is always a work in progress
and typically develops incrementally, i.e., gradually evolving as
individual disputes are decided and existing common-law rules
are considered and sometimes adapted to current needs in light
of changing times and circumstances.
The common-law rule with respect to the damages recoverable
in an action alleging the negligent destruction of property was set
forth in [a 1933 case]:
If injury to property caused by negligence is permanent or irreparable, the measure of damages is the difference in its market value
before and after said injury, but if the injury is reparable, and the
expense of making repairs is less than the value of the property,
the measure of damages is the cost of making repairs.
Michigan common law has continually followed [that] rule. . . .
Accordingly, the long-held common-law rule in Michigan is that the
measure of damages for the negligent destruction of property is the
cost of replacement or repair. Because replacement and repair costs
reflect economic damages, the logical implication of this rule is that
the measure of damages excludes noneconomic damages.
Lending additional support to this conclusion is the simple
fact that, before the Court of Appeals’ opinion below, no case
ever in the history of the Michigan common law has approvingly
discussed the recovery of noneconomic damages for the negligent
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1-6
Part One Foundations of American Law
destruction of property. Indeed, no case has even broached this
issue except through the negative implication arising from limiting damages for the negligent destruction or damage of property
to replacement and repair costs. . . .
Moreover, the Court of Appeals has decided two relatively recent
cases concerning injury to personal property in which noneconomic
damages were disallowed. In Koester v. VCA Animal Hospital, the
plaintiff dog owner sought noneconomic damages . . . against his
veterinarian following the death of his dog . . . . The trial court [ruled
in favor of the veterinarian], holding that “emotional damages for
the loss of a dog do not exist.” On appeal, the Court of Appeals
affirmed, noting that pets are personal property under Michigan law
and explaining that there “is no Michigan precedent that permits
the recovery of damages for emotional injuries allegedly suffered as
a consequence of property damage.”
Later, in Bernhardt v. Ingham Regional Medical Center, the
plaintiff [accidentally left] her grandmother’s 1897 wedding
ring (which was also her wedding ring) and a watch purchased
in 1980 around the time of her brother’s murder . . . in the
[hospital’s] washbasin and left the hospital. Upon realizing her
mistake, the plaintiff contacted the defendant and was advised
that she could retrieve the jewelry from hospital security. However, when she tried to retrieve the jewelry, it could not be located.
The plaintiff sued, and the defendant . . . argu[ed] that the plaintiff’s damages did not exceed the $25,000 [minimum amount for
a valid case in the] trial court. The plaintiff countered that her
damages exceeded that limit because the jewelry possessed great
sentimental value. The trial court granted the defendant’s motion.
On appeal, the Court of Appeals affirmed, citing Koester for the
proposition that there “is no Michigan precedent that permits the
recovery of damages for emotional injuries allegedly suffered as a
consequence of property damage”. . . . In support of its conclusion, Bernhardt quoted the following language from the Restatement Second of Torts:
If the subject matter cannot be replaced, however, as in the
case of a destroyed or lost family portrait, the owner will be
compensated for its special value to him, as evidenced by
the original cost, and the quality and condition at the time
of the loss. . . . In these cases, however, damages cannot be
based on sentimental value. Compensatory damages are not
given for emotional distress caused merely by the loss of the
things, except that in unusual circumstances damages may be
awarded for humiliation caused by deprivation, as when one is
deprived of essential elements of clothing.
While Koester and Bernhardt both involved negligent injury to personal property, they speak of property generally. Although the
Court of Appeals in the instant case seeks to draw distinctions
between personal and real property, neither that Court nor plaintiff has explained how any of those distinctions, even if they had
some pertinent foundation in the law, are relevant with regard to
the propriety of awarding noneconomic damages. In short, while
it is doubtlessly true that many people are highly emotionally
attached to their houses, many people are also highly emotionally
attached to their pets, their heirlooms, their collections, and any
number of other things. But there is no legally relevant basis that
would logically justify prohibiting the recovery of noneconomic
damages for the negligent killing of a pet or the negligent loss
of a family heirloom but allow such a recovery for the negligent
destruction of a house. Accordingly, Koester and Bernhardt underscore [the long-standing] exclusion of noneconomic damages for
negligent injury to real and personal property.
Finally, we would be remiss if we did not address Sutter v. Biggs,
which the Court of Appeals cited as providing the “general rule” for
the recovery of damages in tort actions. Sutter stated:
The general rule, expressed in terms of damages, and long followed in this State, is that in a tort action, the [party that
committed the tort] is liable for all injuries resulting directly
from his wrongful act, whether foreseeable or not, provided
the damages are the legal and natural consequences of the
wrongful act, and are such as, according to common experience and the usual course of events, might reasonably have
been anticipated. Remote contingent, or speculative damages
are not considered in conformity to the general rule.
Although Sutter articulates a “general rule,” it is a “general rule”
that has never been applied to allow the recovery of noneconomic
damages in a case involving only property damage, and it is a
“general rule” that must be read in light of the more narrow and
specific “general rule” [that Michigan has always followed with
regard to the noneconomic damages exclusion in cases involving
property damage].
The development of the common law frequently yields “general rules” from which branch more specific “general rules” that
apply in limited circumstances. Where tension exists between
those rules, the more specific rule controls. . . . With respect to
this case, although Sutter articulated a general rule, [the rule
excluding noneconomic damages for property damages is] a more
specific “general rule”. . . . Accordingly, because this case involves
only property damage, the [latter] rule . . . controls.
B. Altering the Common Law
Because the Court of Appeals determined that the “general rule”
is that “in a tort action, the [party who committed the tort] is
liable for all injuries,” the Court of Appeals contended that it was
not altering the common law but, rather, “declin[ing] to extend”
to real property the personal property “exception” set forth in
Koester and Bernhardt. However, as previously mentioned, the
Court of Appeals’ opinion constitutes the first and only Michigan case to support the recovery of noneconomic damages for
the negligent destruction of property. Accordingly, contrary to
the Court of Appeals’ own characterization and for the reasons
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Chapter One
The Nature of Law
1-7
discussed [above], the Court of Appeals’ holding represents
an alteration of the common law. With that understanding, we
address whether the common law should be altered.
“This Court is the principal steward of Michigan’s common
law,” . . . and it is “axiomatic that our courts have the constitutional authority to change the common law in the proper case. . . .”
However, this Court has also explained that alteration of the common law should be approached cautiously with the fullest consideration of public policy and should not occur through sudden
departure from longstanding legal rules. . . . Among them has
been our attempt to “avoid capricious departures from bedrock
legal rules as such tectonic shifts might produce unforeseen and
undesirable consequences.” . . . As this emphasis on incrementalism suggests, when it comes to alteration of the common law,
the traditional rule must prevail absent compelling reasons for
change. This approach ensures continuity and stability in the law.
With the foregoing principles in mind, we respectfully decline
to alter the common-law rule that the appropriate measure of damages for negligently damaged property is the cost of replacement or
repair. We are not oblivious to the reality that destruction of property or property damage will often engender considerable mental
distress, and we are quite prepared to believe that the particular circumstances of the instant case were sufficient to have caused exactly
such distress. However, we are persuaded that the present rule is a
rational one and justifiable as a matter of reasonable public policy.
We recognize that might also be true of alternative rules that could
be constructed by this Court. In the final analysis, however, the venerability of the present rule and the lack of any compelling argument
that would suggest its objectionableness in light of changing social
and economic circumstances weigh, in our judgment, in favor of its
retention. Because we believe the rule to be sound, if change is going
to come, it must come by legislative alteration. A number of factors
persuade us that the longstanding character of the present rule is not
simply a function of serendipity or of judicial inertia, but is reflective
of the fact that the rule serves legitimate purposes and values within
our legal system.
First, one of the most fundamental principles of our economic system is that the market sets the price of property. This
is so even though every individual values property differently as
a function of his or her own particular preferences. . . . Second,
economic damages, unlike noneconomic damages, are easily
verifiable, quantifiable, and measurable. Thus, when measured
only in terms of economic damages, the value of property is easily ascertainable. . . . Third, limiting damages to the economic
value of the damaged or destroyed property limits disparities in
damage awards from case to case. Disparities in recovery are
inherent in legal matters in which the value of what is in dispute
is neither tangible nor objectively determined, but rather intangible and subjectively determined. . . . Fourth, the present rule
affords some reasonable level of certainty to businesses regarding
the potential scope of their liability for accidents caused to property resulting from their negligent conduct. [U]nder the Court
of Appeals’ rule, those businesses that come into regular contact
with real ­property—contractors, repairmen, and fuel suppliers, for
example—would be exposed to the uncertainty of not knowing
whether their exposure to tort liability will be defined by a plaintiff who has an unusual emotional attachment to the property or
by a jury that has an unusually sympathetic opinion toward those
emotional attachments.
Once again, it is not our view that the common-law rule in
Michigan cannot be improved, or that it represents the best of
all possible rules, only that the rule is a reasonable one and has
survived for as long as it has because there is some reasonable
basis for the rule and that no compelling reasons for replacing it
have been set forth by either the Court of Appeals or plaintiff. We
therefore leave it to the Legislature, if it chooses to do so at some
future time, to more carefully balance the benefits of the current
rule with what that body might come to view as its shortcomings.
Equity The body of law called equity historically concerned
itself with accomplishing “rough justice” when common law
rules would produce unfair results. In medieval England,
common law rules were technical and rigid and the remedies
available in common law courts were too few. This meant that
some deserving parties could not obtain adequate relief. As
a result, separate equity courts began hearing cases that the
common law courts could not resolve fairly. In these equity
courts, procedures were flexible, and rigid rules of law were
deemphasized in favor of general moral maxims.
Equity courts also provided several remedies not available in the common law courts (which generally awarded
IV. Conclusion
The issue in this case is whether noneconomic damages are recoverable for the negligent destruction of real property. No Michigan
case has ever allowed a plaintiff to recover noneconomic damages resulting solely from the negligent destruction of property,
either real or personal. Rather, the common law of this state has
long provided that the appropriate measure of damages in cases
involving the negligent destruction of property is simply the cost
of replacement or repair of the negligently destroyed property.
We continue today to adhere to this rule and decline to alter it.
Accordingly, we reverse the judgment of the Court of Appeals
and remand this case to the trial court for entry of summary disposition in defendant’s favor.
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1-8
Part One Foundations of American Law
only money damages or the recovery of property). The
most important of these equitable remedies was—and continues to be—the injunction, a court order forbidding a party
to do some act or commanding him to perform some act.
Others include the contract remedies of specific performance (whereby a party is ordered to perform according
to the terms of her contract), reformation (in which the
court rewrites the contract’s terms to reflect the parties’
real intentions), and rescission (a cancellation of a contract and a return of the parties to their precontractual
position).
As was the common law, equity principles were brought
to the American colonies and continued to be used after
the Revolution and the adoption of the Constitution. Over
time, however, the once-sharp line between law and equity
has become blurred. Nearly all states have abolished separate equity courts and have enabled courts to grant whatever relief is appropriate, whether it be the legal remedy of
money damages or one of the equitable remedies discussed
earlier. Equitable principles have been blended together
with common law rules, and some traditional equity doctrines have been restated as common law or statutory rules.
An example is the doctrine of unconscionability discussed
in Chapter 15.
Administrative Regulations and Decisions As Chapter
47 reveals, the administrative agencies established by Congress and the state legislatures have acquired considerable
power, importance, and influence over business. A major
reason for the rise of administrative agencies was the collection of social and economic problems created by the
industrialization of the United States that began late in the
19th century. Because legislatures generally lacked the time
and expertise to deal with these problems on a continuing basis, the creation of specialized, expert agencies was
almost inevitable.
Administrative agencies obtain the ability to make law
through a delegation (or grant) of power from the legislature. Agencies normally are created by a statute that specifies the areas in which the agency can make law and the
scope of its power in each area. Often, these statutory delegations are worded so broadly that the legislature has, in
effect, merely pointed to a problem and given the agency
wide-ranging powers to deal with it.
The two types of law made by administrative agencies are administrative regulations and agency decisions.
As do statutes, administrative regulations appear in a
precise form in one authoritative source. They differ
from statutes, however, because the body enacting regulations is not an elected body. Many agencies have an
internal courtlike structure that enables them to hear
cases arising under the statutes and regulations they
enforce. The resulting agency decisions are legally binding, though appeals to the judicial system are sometimes
allowed.
Treaties According to the U.S. Constitution, ­treaties
made by the president with foreign governments and
approved by two-thirds of the U.S. Senate become “the
supreme Law of the Land.” As will be seen, treaties invalidate inconsistent state (and sometimes federal) laws.
Ordinances State governments have subordinate units
that exercise certain functions. Some of these units, such
as school districts, have limited powers. Others, such as
counties, municipalities, and townships, exercise various
governmental functions. The enactments of counties and
municipalities are called ordinances; zoning ordinances are
an example. Ordinances resemble statutes, and the techniques of statutory interpretation described later in this
chapter typically are used to interpret ambiguous language
in ordinances.
Executive Orders In theory, the president or a state’s
governor is a chief executive who enforces the laws but has
no law-making powers. However, these officials sometimes
have limited power to issue laws called executive orders.
This power normally results from a legislative delegation.
Priority Rules
LO1-2
Identify the type of law that takes precedence when two
types of law conflict.
Because the different types of law may, from time to time,
conflict, rules for determining which type takes priority are
necessary. Here, we briefly describe the most important
such rules.
1. According to the principle of federal supremacy, the
U.S. Constitution, federal laws enacted pursuant to it,
and treaties are the supreme law of the land. This means
that federal law defeats conflicting state law.
2. Constitutions defeat other types of law within their
domain. Thus, a state constitution defeats all other state
laws inconsistent with it. The U.S. Constitution, however, defeats inconsistent laws of whatever type.
3. When a treaty conflicts with a federal statute over a
purely domestic matter, the measure that is later in time
usually prevails.
4. Within either the state or the federal domain, statutes
defeat conflicting laws that depend on a legislative
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Chapter One
delegation for their validity. For example, a state statute
defeats an inconsistent state administrative regulation.
5. Statutes and any laws derived from them by delegation
defeat inconsistent common law rules. Accordingly,
either a statute or an administrative regulation defeats
a conflicting common law rule.
Courts are careful to avoid finding a conflict between
the different types of law unless the conflict is clear. In
fact, one maxim of statutory interpretation (described
later in this chapter) instructs courts to choose an interpretation that avoids unnecessary conflicts with other
types of law, particularly constitutions that would preempt the statute. Statutes will sometimes explicitly state
The Nature of Law
1-9
the enacting legislature’s intent to displace a common
law rule. In the absence of that, though, courts will look
for significant overlap and inconsistency between a statute and a common law rule to determine that there is
a conflict for which the statute must take priority. The
following Advance Dental Care, Inc. v. SunTrust Bank
case illustrates this. Notice how the court first looks to
the statutory language for explicit instruction regarding
displacement of the common law rule. Then it considers
whether the statute and common law rule overlap, particularly whether the statute offers a sufficient remedy to
replace the common law rule. Finally, the court notes an
important inconsistency between the statute and the common law rule.
Advance Dental Care, Inc. v. SunTrust Bank
816 F. Supp. 2d 268 (D. Md. 2011)
Michelle Rampersad was an employee of Advance Dental at its dental office in Prince George’s County, Maryland. During a period
of more than three years ending in fall 2007, Rampersad took approximately 185 insurance reimbursement checks that were written
to Advance Dental and endorsed them to herself. She then took the checks to SunTrust Bank and deposited them into her personal
accounts. The checks totaled $400,954.04.
Advance Dental filed a lawsuit against SunTrust after it discovered Rampersad’s unauthorized endorsement and deposit of the checks.
The lawsuit claimed SunTrust violated two provisions of the Maryland version of the Uniform Commercial Code (UCC) dealing with
negligence and conversion. It also stated a claim of negligence pursuant to the common law of Maryland. The court had previously dismissed the UCC negligence claim for reasons not relevant here. In the opinion that follows, the court considers whether Advance Dental’s
common-law negligence claim has been displaced by the statutory UCC conversion claim.
Alexander Williams, Jr., U.S. District Court Judge
III. Legal Analysis
In this case of first impression, the Court must determine whether
section 3-420 of the Maryland U.C.C. [(the U.C.C. conversion
provision)] displaces common-law negligence when a payee seeks
to recover from a depositary bank that accepted unauthorized
and fraudulently endorsed checks.
A. Availability of an Adequate U.C.C. Remedy
[C]ourts have held that common-law negligence claims can proceed only in the absence of an adequate U.C.C. remedy.
In the present case, it is indisputable that Advance Dental
has an adequate U.C.C. remedy—conversion—for which Advance
Dental has already filed a claim. Therefore, in light of the overwhelming case law, . . . [the U.C.C. conversion provision] displaces common-law negligence because Advance Dental has an
adequate U.C.C. remedy.
B. Indistinct Causes of Action with Conflicting Defenses
Statutory authority also emphasizes the necessity of displacing common-law negligence in this case. Section 1-103(b) of
the Maryland U.C.C. establishes the U.C.C.’s position regarding the survival of common-law actions alongside the U.C.C.:
“[u]nless displaced by the particular provisions of Titles 1-10
of this article, the principles of law and equity . . . shall supplement its provisions. . . .” Since the U.C.C. has no express “displacement” provision, the Court must determine whether [the
U.C.C. conversion provision] is a “particular provision” that
displaces the common law.
The Court finds significant overlap between [the U.C.C.
conversion provision] and common-law negligence. [The
U.C.C. conversion provision] defines conversion as “payment
with respect to [an] instrument for a person not entitled to
enforce the instrument or receive payment.” Here, Advance
Dental alleges that SunTrust is liable in negligence for allowing Rampersad to fraudulently endorse and deposit checks
made payable to Advance Dental into her personal account.
Therefore, . . . both negligence and conversion require a consideration of whether there was payment over a wrongful
endorsement.
The duplicative nature of these two theories suggests the
U.C.C.’s intention to create a comprehensive regulation of payment
over unauthorized or fraudulent endorsements. . . . In the presence
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1-10
Part One Foundations of American Law
of such intent, courts have preempted common-law claims. To do
otherwise would destroy the U.C.C.’s attempt to establish reliability,
uniformity, and certainty in commercial transactions.
Here, Advance Dental’s common-law negligence action has no
independent significance apart from [the U.C.C. conversion provision]. In fact, when discussing common-law negligence, Advance
Dental simply refers to the same conduct alleged in Count I (conversion) to argue that SunTrust has breached its duty of reasonable
and ordinary care. . . . In other words, [the U.C.C. conversion provision] has effectively subsumed common-law negligence claims.
Not only is common-law negligence insufficiently distinct
from [the U.C.C. conversion provision], but the conflicting
defenses available for each cause of action are also problematic.
The U.C.C. is based on the principle of comparative negligence.
In contrast, contributory negligence remains a defense for
common-law negligence.[2] Displacement is thus required since
Maryland courts “hesitate to adopt or perpetuate a common
law rule that would be plainly inconsistent with the legislature’s
intent. . . .”
Classifications of Law
of substantive law. A statute making murder a crime, for
example, is a rule of substantive law. The rules describing
the proper conduct of a trial, however, are procedural. This
text focuses on substantive law, although Chapters 2 and 5
examine some of the procedural rules governing civil and
criminal cases.
Three common classifications of law cut across the different types of law. These
classifications involve distinctions between (1) criminal
law and civil law; (2) substantive law and procedural law;
and (3) public law and private law. One type of law might
be classified in each of these ways. For example, a burglary statute would be criminal, substantive, and public;
a rule of contract law would be civil, substantive, and
private.
LO1-3
Explain the basic differences between the criminal law
and civil law classifications.
Criminal and Civil Law Criminal law is the law under
which the government prosecutes someone for committing
a crime. It creates duties that are owed to the public as a
whole. Civil law mainly concerns obligations that private
parties owe to each other. It is the law applied when one
private party sues another. The government, however, may
also be a party to a civil case. For example, a city may sue,
or be sued by, a construction contractor. Criminal penalties (e.g., imprisonment or fines) differ from civil remedies
(e.g., money damages or equitable relief). Although most
of the legal rules in this text are civil law rules, Chapter 5
deals specifically with the criminal law.
Even though the civil law and the criminal law are distinct bodies of law, the same behavior will sometimes violate both. For instance, if A commits an intentional act of
physical violence on B, A may face both a criminal prosecution by the state and B’s civil suit for damages.
Substantive Law and Procedural Law Substantive law
sets the rights and duties of people as they act in society.
Procedural law controls the behavior of government bodies (mainly courts) as they establish and enforce rules
IV. Conclusion
For the foregoing reasons [and reasons not included in this
edited version of the opinion], the Court GRANTS Defendant’s
Renewed Motion to Dismiss Count III of Plaintiff’s Complaint.
Public and Private Law Public law concerns the powers of government and the relations between government
and private parties. Examples include constitutional law,
administrative law, and criminal law. Private law establishes
a framework of legal rules that enables parties to set the
rights and duties they owe each other. Examples include
the rules of contract, property, and agency.
Jurisprudence
LO1-4
Describe key ways in which the major schools
of jurisprudence differ from each other.
The various types of law sometimes are called positive
law. Positive law comprises the rules that have been laid
down by a recognized political authority. Knowing the
types of positive law is essential to an understanding of the
American legal system and the topics discussed in this text.
The comparative and contributory negligence defenses are discussed
in detail in Chapter 7. They address in different manners whether and
to what extent a plaintiff’s own negligence in the actions upon which
a claim is based ought to excuse the defendant from liability. Here the
defenses would be relevant in that SunTrust might argue that Advance
Dental was at fault for failing to discover and to prevent Rampersad’s
fraudulent activities on its own.
2
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Chapter One
Yet defining law by listing these different kinds of positive law is no more complete or accurate than defining
“automobile” by describing all the vehicles going by that
name. To define law properly, some say, we need a general
description that captures its essence.
The field known as jurisprudence seeks to provide such
a description. Over time, different schools of jurisprudence
have emerged, each with its own distinctive view of the
essence of the law.
Legal Positivism
One feature common to all types
of law is their enactment by a governmental authority such
as a legislature or an administrative agency. This feature
underlies the definition of law that characterizes the school
of jurisprudence known as legal positivism. Legal positivists
define law as the command of a recognized political authority. As the British political philosopher Thomas Hobbes
observed, “Law properly, is the word of him, that by right
hath command over others.”
The commands of recognized political authorities
may be good, bad, or indifferent in moral terms. To legal
positivists, such commands are valid law regardless of
their “good” or “bad” content. In other words, positivists
see legal validity and moral validity as entirely separate
questions. Some (but not all) positivists say that every
properly enacted positive law should be enforced and
obeyed, whether just or unjust. Similarly, a judge who
views the law through a positivist lens would typically try
to enforce the law as written, excluding her own moral
views from the process. Note, however, that this does not
mean that a positivist is bound to accept the law as static
or unchangeable. Rather, a positivist who was unhappy
with the law as written would point to established political processes as the appropriate mechanism for the law
to evolve (e.g., by lobbying a legislature to amend or
repeal a statute).
Natural Law
At first glance, legal positivism’s “law is
law, just or not” approach may seem to be perfect common
sense. It presents a problem, however, for it could mean
that any positive law—no matter how unjust—is valid law
and should be enforced and obeyed so long as some recognized political authority enacted it. The school of jurisprudence known as natural law rejects the positivist separation
of law and morality.
Natural law adherents usually contend that some
higher law or set of universal moral rules binds all human
beings in all times and places. The Roman statesman Marcus Cicero described natural law as “the highest reason,
implanted in nature, which commands what ought to be
done and forbids the opposite.” Because this higher law
The Nature of Law
1-11
determines what is ultimately good and ultimately bad, it
serves as a criterion for evaluating positive law. To Saint
Thomas Aquinas, for example, “every human law has just
so much of the nature of law, as it is derived from the law
of nature.” To be genuine law, in other words, positive law
must resemble the law of nature by being “good”—or at
least by not being “bad.”
Unjust positive laws, then, are not valid law under the
natural law view. As Cicero put it: “What of the many
deadly, the many pestilential statutes which are imposed
on peoples? These no more deserve to be called laws
than the rules a band of robbers might pass in their
assembly.”
An “unjust” law’s supposed invalidity does not translate into a natural law defense that is recognized in court,
however. Nonetheless, judges may sometimes take natural
law-oriented views into account when interpreting the
law. As compared with positivist judges, judges influenced
by natural law ideas may be more likely to read constitutional provisions broadly in order to strike down positive
laws they regard as unjust. They also may be more likely
to let morality influence their interpretation of the law.
Of course, neither judges nor natural law thinkers always
agree about what is moral and immoral—a major difficulty
for the natural law position. This difficulty allows legal
positivists to claim that only by keeping legal and moral
questions separate can we obtain stability and predictability in the law.
American Legal Realism
To some, the debate
between natural law and legal positivism may seem disconnected from reality. Not only is natural law unworkable,
such people might say, but sometimes positive law does
not mean much either. For example, juries sometimes pay
little attention to the legal rules that are supposed to guide
their decisions, and prosecutors have discretion concerning whether to enforce criminal statutes. In some legal proceedings, moreover, the background, biases, and values of
the judge—and not the positive law—drive the result. An old
joke reminds us that justice sometimes is what the judge
ate for breakfast.
Remarks such as these typify the school of jurisprudence known as American legal realism. Legal realists
regard the law in the books as less important than the law
in action—the conduct of those who enforce and interpret
the positive law. American legal realism defines law as the
behavior of public officials (mainly judges) as they deal with
matters before the legal system. Because the actions of such
decision makers—and not the rules in the books—really
affect people’s lives, the realists say, this behavior is what
deserves to be called law.
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1-12
Part One Foundations of American Law
It is doubtful whether the legal realists have ever developed a common position on the relation between law and
morality or on the duty to obey positive law. They have been
quick, however, to tell judges how to behave. Many realists
feel that the modern judge should be a social engineer who
weighs all relevant values and considers social science findings when deciding a case. Such a judge would make the
positive law only one factor in her decision. Because judges
inevitably base their decisions on personal considerations,
the realists assert, they should at least do this honestly and
intelligently. To promote this kind of decision making, the
realists have sometimes favored fuzzy, discretionary standards that allow judges to decide each case according to
its unique facts.
Sociological
Jurisprudence Sociological
jurisprudence is a general label uniting several different
approaches that examine law within its social context. The
following quotation from Justice Oliver Wendell Holmes is
consistent with such approaches:
The life of the law has not been logic: it has been experience.
The felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious,
even the prejudices which judges share with their fellow-men,
have had a good deal more to do than the syllogism in determining the rules by which men should be governed. The law embodies the story of a nation’s development through many centuries,
and it cannot be dealt with as if it contained only the axioms
and corollaries of a book of mathematics.3
Despite these approaches’ common outlook, there is
no distinctive sociological definition of law. If one were
attempted, it might go as follows: Law is a process of social
ordering reflecting society’s dominant interests and values.
Different Sociological Approaches By examining examples of sociological legal thinking, we can add substance to
the definition just offered. The “dominant interests” portion
of the definition is exemplified by the writings of Roscoe
Pound, an influential 20th-century American legal philosopher. Pound developed a detailed and changing catalog of
the social interests that press on government and the legal
system and thus shape positive law. An example of the
definition’s “dominant values” component is the historical
school of jurisprudence identified with the 19th-century German legal philosopher Friedrich Karl von Savigny. Savigny
saw law as an unplanned, almost unconscious, reflection
of the collective spirit of a particular society. In his view,
Oliver Wendell Holmes, The Common Law (1881).
3
legal change could only be explained historically, as a slow
response to social change.
By emphasizing the influence of dominant social interests and values, Pound and Savigny undermine the legal
positivist view that law is nothing more than the command
of some political authority. The early 20th-century Austrian legal philosopher Eugen Ehrlich went even further
in rejecting positivism. He did so by identifying two different “processes of social ordering” contained within our
definition of sociological jurisprudence. The first of these
is positive law. The second is the “living law,” informal
social controls such as customs, family ties, and business
practices. By regarding both as law, Ehrlich sought to demonstrate that positive law is only one element within a spectrum of social controls.
The Implications of Sociological Jurisprudence
Because its definition of law includes social values, sociological jurisprudence seems to resemble natural law. Most
sociological thinkers, however, are concerned only with the
fact that moral values influence the law, and not with the
goodness or badness of those values. Thus, it might seem
that sociological jurisprudence gives no practical advice to
those who must enforce and obey positive law.
Sociological jurisprudence has at least one practical
implication, however: a tendency to urge that the law must
change to meet changing social conditions and values. In
other words, the law should keep up with the times. Some
might stick to this view even when society’s values are
changing for the worse. To Holmes, for example, “[t]he
first requirement of a sound body of law is, that it should
correspond with the actual feelings and demands of the
community, whether right or wrong.”
Other Schools of Jurisprudence
During the
past half century, legal scholars have fashioned additional ways of viewing law, explaining why legal rules are
as they are and exploring supposed needs for changes in
legal doctrines. For example, the law and economics movement examines legal rules through the lens provided by
economic theory and analysis. This movement’s influence has extended beyond academic literature, with law
and economics-oriented considerations, factors, and tests
sometimes appearing in judicial opinions dealing with such
matters as contract, tort, or antitrust law.
The critical legal studies (CLS) movement regards law as
inevitably the product of political calculation (mostly of the
right-wing variety) and longstanding class biases on the part
of lawmakers, including judges. Articles published by CLS
adherents provide controversial assessments and critiques of
legal rules. Given the thrust of CLS and the view it takes of
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Chapter One
lawmakers, however, one would be hard-pressed to find CLS
adherents in the legislature or the judiciary.
Other schools of jurisprudence that have acquired notoriety in recent years examine law and the legal system from
the vantage points of particular groups of persons or sets
of ideas. Examples include feminist and queer legal theory
and critical disability theory.
As you read the excerpts of judicial opinions throughout
this text, consider whether one or more of these jurisprudential approaches appear to have influenced the judges’
thinking when interpreting or applying the law. Certainly
judges seldom, if ever, explicitly reference those influences,
but you may find them lurking significantly between the
lines of some of the opinions.
The Functions of Law
In societies of the past, people often viewed law as
unchanging rules that deserved obedience because they
were part of the natural order of things. Most lawmakers
today, however, treat law as a flexible tool or instrument
for the accomplishment of chosen purposes. For example, the law of negotiable instruments discussed later in
this text is designed to stimulate commercial activity by
promoting the free movement of money substitutes such
as promissory notes, checks, and drafts. Throughout
the text, moreover, you see courts manipulating existing
legal rules to achieve desired results. One strength of this
instrumentalist attitude is its willingness to adapt the law
to further the social good. A weakness, however, is the
legal instability and uncertainty those adaptations often
produce.
Just as individual legal rules advance specific purposes,
law as a whole serves many general social functions.
Among the most important of those functions are:
1. Peacekeeping. The criminal law rules discussed in Chapter 5 further this basic function of any legal system.
Also, as Chapter 2 suggests, the resolution of private
disputes serves as a major function of the civil law.
2. Checking government power and promoting personal freedom. Obvious examples are the constitutional restrictions examined in Chapter 3.
3. Facilitating planning and the realization of reasonable
expectations. The rules of contract law discussed in
Chapters 9, 10, 11, 12, 13, 14, 15, 16, 17, and 18 help
fulfill this function of law.
4. Promoting economic growth through free competition.
The antitrust laws discussed in Chapters 48, 49, and 50
are among the many legal rules that help perform this
function.
The Nature of Law
1-13
5. Promoting social justice. Throughout this century,
government has intervened in private social and economic affairs to correct perceived injustices and give
all citizens equal access to life’s basic goods. Examples
include some of the employment laws addressed in
Chapter 51.
6. Protecting the environment. The most important federal
environmental statutes are discussed in Chapter 52.
Obviously, the law’s various functions can conflict. The familiar clash between economic growth and
environmental protection is an example. Chapter 5’s
cases dealing with the constitutional aspects of criminal cases illustrate the equally familiar conflict between
effective law enforcement and the preservation of personal rights. Only rarely does the law achieve one end
without sacrificing others. In law, as in life, there generally is no such thing as a free lunch. Where the law’s
objectives conflict, lawmakers may try to strike the best
possible balance among those goals. This suggests limits
on the law’s usefulness as a device for promoting particular social goals.
Legal Reasoning
This text seeks to describe important legal rules affecting business. As texts generally do, it states those rules
in what lawyers call “black letter” form, using sentences
saying that certain legal consequences will occur if certain events happen. Although it provides a clear statement
of the law’s commands, this black letter approach can
be misleading. It suggests definiteness, certainty, permanence, and ­predictability—attributes the law frequently
lacks. To illustrate, and to give you some idea how lawyers
and judges think, we now discuss the two most important
kinds of legal reasoning: case law reasoning and statutory
interpretation.4 However, we first must examine legal reasoning in general.
Legal reasoning is basically deductive, or syllogistic.
The legal rule is the major premise, the facts are the minor
premise, and the result is the product of combining the
two. Suppose a state statute says that a driver operating an
automobile between 55 and 70 miles per hour must pay a
$50 fine (the rule or major premise) and that Jim Smith
drives his car at 65 miles per hour (the facts or minor premise). If Jim is arrested, and if the necessary facts can be
proved, he will be required to pay the $50 fine. As you will
The reasoning courts employ in constitutional cases resembles that used
in common law cases, but often is somewhat looser. See Chapter 3.
4
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1-14
Part One Foundations of American Law
Ethics and Compliance in Action
Some schools of jurisprudence discussed in this
chapter concern themselves with the relationship
between law and notions of morality. These schools
of jurisprudence involve considerations related to key aspects of
ethical theories, which address ethical issues arising in business
contexts, corporate governance, and compliance. Chapter 4
defines major ethical theories. Chapter 44 discusses corporate
governance issues in more detail. And compliance, which refers
to the processes by which an organization polices its own behavior to ensure that it conforms to applicable laws, is addressed
throughout this text. In this Ethics and Compliance in Action
feature, we will focus on those parallel considerations between
two schools of jurisprudence and several ethical theories.
now see, however, legal reasoning often is more difficult
than this example would suggest.
Case Law Reasoning
Describe the respective roles of adhering to precedent
LO1-5 (stare decisis) and distinguishing precedent in case law
reasoning.
In cases governed by the common law, courts find the
appropriate legal rules in prior cases called precedents. The
standard for choosing and applying prior cases to decide
present cases is the doctrine of stare decisis, which states
that like cases should be decided alike. That is, the present case should be decided in the same way as past cases
presenting the same facts and the same legal issues. If no
applicable precedent exists, the court is free to develop a
new common law rule to govern the case, assuming the
court believes that sound public policy reasons call for the
development of a new rule. When an earlier case may seem
similar enough to the present case to constitute a precedent, but the court deciding the present case nevertheless
identifies a meaningful difference between the cases, the
court distinguishes the earlier decision.
Because every present case differs from the precedents in
some respect, it is always possible to spot a factual distinction. For example, one could attempt to distinguish a prior
case dealing with a defense to a claim of breach of contract
because both parties in that case had black hair, whereas one
party in the present case dealing with that same defense has
brown hair. Of course, such a distinction would be ridiculous
because the difference it identifies is insignificant in moral,
social policy, or legal terms. A valid distinction involves a
Natural law’s focus on rights thought to be independent of positive law has parallels in ethical theories that are classified under
the rights theory heading. In its concern over unjust laws, natural
law finds common ground with the ethical theory known as justice
theory. When subscribers to sociological jurisprudence focus on
the many influences that shape law and the trade-offs involved in a
dynamic legal system, they may explore considerations that relate
not only to rights theory or justice theory but also to the theory
of utilitarianism and considerations central to shareholder theory.
As you study Chapter 4 and later chapters, keep the schools of
jurisprudence in mind. Think of them as you consider the extent
to which a behavior’s probable legal treatment and the possible
ethical assessments of it may correspond or, instead, diverge.
widely accepted ethical or policy reason for treating the present case differently from its predecessor. Because people disagree about moral ideas, public policies, and the degree to
which they are accepted, and because all these factors change
over time, judges may differ on the wisdom of distinguishing
a prior case. This is a source of uncertainty in the common
law, but it gives the common law the flexibility to adapt to
changing social conditions.5
When a precedent has been properly distinguished, the
common law rule it stated does not control the present
case. The court deciding the present case may then fashion
a new common law rule to govern the case. Consider, for
instance, an example involving the employment-at-will rule,
the prevailing common law rule regarding employees in the
United States. Under this rule, an employee may be fired at
any time—and without any reason, let alone a good one—
unless a contract between the employer and the employee
guaranteed a certain duration of employment or established
that the employee could be fired only for certain recognized
legal causes. Most employees are not parties to a contract
containing such provisions. Therefore, they are employees-at-will. Assume that in a precedent case, an employee
who had been doing good work challenged his firing and
that the court hearing the case ruled against him on the
basis of the employment-at-will rule. Also assume that in
a later case, a fired employee has challenged her dismissal.
Although the fired employee would appear to be subject to
the ­employment-at-will rule applied in the seemingly similar
precedent case, the court deciding the later case nevertheless identifies an important difference: that in the later case,
Also, though they exercise the power infrequently, courts sometimes
completely overrule their own prior decisions.
5
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Chapter One
the employee was fired in retaliation for having reported to
law enforcement authorities that her employer was engaging in seriously unlawful business-related conduct. A firing
under such ­circumstances appears to offend public policy
notwithstanding the general acceptance of the employmentat-will rule. Having properly distinguished the precedent,
the court deciding the later case would not be bound by the
employment-at-will rule set forth in the precedent and would
be free to develop a public policy–based exception under
which the retaliatory firing would be deemed wrongful. (Chapter 51 will reveal that courts in a number of states have adopted
such an exception to the employment-at-will rule.)
The Coomer case, which follows, provides a further illustration of the process of case law reasoning. In Coomer, the
Missouri Supreme Court scrutinizes various precedents as
it attempts to determine whether Missouri’s courts should
extend the so-called baseball rule, under which injuries
The Nature of Law
1-15
suffered as a result of certain risks that are inherent to an
activity—like being struck by a foul ball at a baseball game —
are not legally considered to be the fault of the baseball team
or stadium, even though it was theoretically possible for the
team or stadium to have done more to protect the injured
person from the risk. (Negligence law, upon which Coomer’s claim is based, is discussed in depth in Chapter 7.)
Ultimately, the court decides not to expand the baseball
rule to the facts of Coomer’s case, finding his injury did not
result from a risk inherent to attending the baseball game.6
Though mastery of the nuances of the rules of baseball is not necessary
to understand the court’s reasoning in the Coomer case, readers who are
unfamiliar with baseball may find an explanation of the basics of the game helpful. One such explanation can be found at www
.howbaseballworks.com/FieldofPlay.htm.
6
Coomer v. Kansas City Royals Baseball Corp.
437 S.W.3d 184 (Mo. 2014)
On September 8, 2009, John Coomer and his father attended a Major League Baseball game between the Kansas City Royals and the
Detroit Tigers. The game, which took place in Kansas City at Kauffman Stadium, was less well attended than normal because it rained
most of the day leading up to the first pitch. Early in the game, Coomer and his father moved from their assigned seats to better, empty
seats six rows behind the visitor’s dugout.
Shortly after Coomer moved to the better seats, Sluggerrr, the mascot for the Royals, mounted the dugout to begin the “Hotdog
Launch,” which had been a feature of every Royals home game since 2000. The Launch happened between innings, when Sluggerrr
used an air gun to shoot hotdogs from the roof of the visitor’s dugout to fans seated beyond hand-tossing range. When his assistants were
reloading the air gun, Sluggerrr tossed hotdogs by hand to the fans seated nearby. Sluggerrr usually tossed the hotdogs underhand while
facing the fans, but sometimes he threw them overhand, behind his back, or side-armed.
At the game in question, Sluggerrr began to toss hotdogs by hand to fans seated near Coomer, while Sluggerrr’s assistants were reloading
the hotdog-shaped air gun. Coomer testified that he saw Sluggerrr turn away from the crowd as if to prepare for a behind-the-back throw, but
because Coomer chose that moment to turn and look at the scoreboard, he admits he never saw Sluggerrr throw the hotdog that he claims
injured him. Coomer testified only that a “split second later . . . something hit me in the face,” and he described the blow as “pretty forceful.”
A couple of days later, Coomer reported that he was “seeing differently” and something “wasn’t right” with his left eye. The problem
progressed until, approximately eight days after the incident. Coomer saw a doctor and was diagnosed with a detached retina. Coomer
underwent surgeries to repair the retina and to remove a “traumatic cataract” in the same eye.
Coomer sued the Kansas City Royals Corp. for, among other things, negligence (i.e., that Sluggerrr’s careless acts, which were the responsibility of the Royals to oversee and control, caused his injury). The Royals did not deny responsibility for Sluggerrr’s acts but instead argued that
Sluggerrr did not act negligently and, in any event, that Coomer had accepted the risk posed by Sluggerrr’s hotdog toss by buying a ticket and
attending the game. The latter is a theory known as implied primary assumption of risk.7
Among the instructions the trial judge gave to the jury was one asking the jury to decide whether the risk of being injured by Sluggerrr’s hotdog toss is one of the inherent risks of watching a Royals home game, which Coomer assumed merely by attending the game.
The jury found in favor of the Royals, and Coomer appealed.
Paul C. Wilson, Judge
In the past, this Court has held that spectators cannot sue a
baseball team for injuries caused when a ball or bat enters the
Chapter 7 includes a detailed discussion of the negligence defense of
assumption of risk.
7
stands. Such risks are an unavoidable—even desirable—part of
the joy that comes with being close enough to the Great American Pastime to smell the new-mown grass, to hear the crack of
42 inches of solid ash meeting a 95-mph fastball, or to watch a diving third baseman turn a heart-rending triple into a soul-soaring
double-play. The risk of being injured by Sluggerrr’s hotdog toss,
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Part One Foundations of American Law
on the other hand, is not an unavoidable part of watching the
Royals play baseball. That risk is no more inherent in watching a
game of baseball than it is inherent in watching a rock concert,
a monster truck rally, or any other assemblage where free food
or T-shirts are tossed into the crowd to increase excitement and
boost attendance.
***
II. Implied Primary Assumption of the Risk and the
“Baseball Rule”
Long before the Kansas City Athletics moved to Oakland and the
fledging [sic] Royals joined the Junior Circuit, an overwhelming
majority of courts recognized that spectators at sporting events
are exposed to certain risks that are inherent merely in watching
the contest. Accordingly, under [the] implied primary assumption of the risk, these courts held that the home team was not
liable to a spectator injured as a result of such risks.
The archetypal example of this application of implied primary
assumption of the risk is when a baseball park owner fails to protect each and every spectator from the risk of being injured by a
ball or bat flying into the stands. Just as Missouri teams have led
(and continue to lead) professional baseball on the field, Missouri
courts helped lead the nation in defining this area of the law off
the field. More than 50 years ago, this Court was one of the first
to articulate the so-called “Baseball Rule”:
[W]here a baseball game is being conducted under the customary and usual conditions prevailing in baseball parks, it
is not negligence to fail to protect all seats in the park by wire
netting, and that the special circumstances and specific negligence pleaded did not aid plaintiff or impose upon the defendant a duty to warn him against hazards which are necessarily
incident to baseball and are perfectly obvious to a person in
possession of his faculties.
Anderson v. Kansas City Baseball Club, 231 S.W.2d 170, 172 (Mo.
1950) (emphasis added).
Anderson was based on this Court’s earlier decision in
Hudson v. Kansas City Baseball Club, 164 S.W.2d 318, 320
(Mo. 1942), which used the “no duty” language of implied primary assumption of the risk to explain its holding:
The basis of the proprietor’s liability is his superior knowledge
and if his invitee knows of the condition or hazard there is no
duty on the part of the proprietor to warn him and there is no
liability for resulting injury because the invitee has as much
knowledge as the proprietor does and then by voluntarily acting, in view of his knowledge, assumes the risks and dangers
incident to the known condition.
Hudson, 164 S.W.2d at 323 (emphasis added) (applying Restatement (Second) of Torts, § 343). Hudson involved a spectator
with personal knowledge of the inherent risk of being injured
by a foul ball while watching a baseball game. But, when the
Court returned to this same issue eight years later in Anderson,
it continued to rely on section 343 of the Restatement (Second) of Torts (i.e., the “open and obvious dangers” doctrine
under the rules of premises liability) to extend Missouri’s noduty rule to cases involving baseball spectators with no prior
knowledge of baseball or the risks inherent in watching it.
All of the cases cited here and many others which are cited in
Hudson v. Kansas City Baseball Club . . . emphasize that when
due care has been exercised to provide a reasonable number
of screened seats, there remains a hazard that spectators in
unscreened seats may be struck and injured by balls which
are fouled or otherwise driven into the stands. This risk is a
necessary and inherent part of the game and remains after ordinary care has been exercised to provide the spectators with
seats which are reasonably safe. It is a risk which is assumed
by the spectators because it remains after due care has been
exercised and is not the result of negligence on the part of the
baseball club. It is clearly not an unreasonable risk to spectators which imposes a duty to warn [or protect].
Anderson, 231 S.W.2d at 173 (emphasis added).
Anderson and Hudson are just two of the many dozens of
cases around the country holding that, as long as some seats
directly behind home plate are protected, the team owes “no
duty” to spectators outside that area who are injured by a ball
or bat while watching a baseball game. Despite being decided by
such different courts across so many decades, all of these cases
reflect certain shared principles. First, it is not possible for baseball players to play the game without occasionally sending balls
or bats (or parts of bats) into the stands, sometimes at unsafe
speeds. Second, it is not possible for the home team to protect
each and every spectator from such risks without fundamentally altering the game or the spectators’ experience of watching it through such means as: (a) substituting foam rubber balls
and bats that will not injure anyone (or be very fun to watch);
(b) erecting a screen or other barrier around the entire field protecting all spectators while obstructing their view and making
them feel more removed from the action; or (c) moving all spectators at least 600 feet away from home plate in all directions.
Third, ordinary negligence principles do not produce reliably
acceptable results in these circumstances because the risk of
injury (and the extent of the harm) to spectators is substantial,
yet the justification for not protecting spectators from that risk
can be expressed only in terms of the amusement or entertainment value of watching the sport that brought the spectators to
the stadium in the first place.
Against this background, Anderson and Hudson (and dozens of Baseball Rule cases around the country) represent a
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Chapter One
conscious decision to favor the collective interests of all spectators by rejecting as a matter of law the individual claims of
injured spectators. [T]he rationale [is] now identified as implied
primary assumption of the risk, [and] these decisions protect
the home team from liability for risks that are inherent in watching a baseball game based on the team’s failure to take steps that
could defeat the reason spectators are there at all, i.e., to get as
close as they can to the action without interfering with the game
they came to watch.
But the rationale for this rule—and, therefore, the rule itself—
extends only to those risks that the home team is powerless to
alleviate without fundamentally altering the game or spectator’s
enjoyment of it. As a result, the solid wall of authority in support
of the Baseball Rule is badly cracked in cases where a spectator
is injured by a ball when the game is not underway or where fans
ordinarily do expect to have to keep a careful lookout for balls or
bats leaving the field. This Court has not had to address such a
question and does not do so now.
Moreover, even though the “no duty” rationale of the Baseball
Rule applies to risks inherent in watching a baseball game, the
home team still owes a duty of reasonable care not to alter or
increase such inherent risks. One example, useful both for its facts
and its analysis, is Lowe v. California League of Prof. Baseball, 56
Cal. App. 4th 112 (1997).
In Lowe, even though the plaintiff was struck by a foul ball, he
claimed that his injuries were not caused by that inherent risk.
Instead, the plaintiff claimed he was prevented from watching for
foul balls because he was repeatedly jostled and distracted by the
team’s dinosaur mascot. The court agreed that the Baseball Rule
did not bar such a claim:
[T]he key inquiry here is whether the risk which led to plaintiff’s injury involved some feature or aspect of the game which is
inevitable or unavoidable in the actual playing of the game. . . .
Can [this] be said about the antics of the mascot? We think
not. Actually, the . . . person who dressed up as Tremor,
recounted that there were occasional games played when he
was not there. In view of this testimony, as a matter of law,
we hold that the antics of the mascot are not an essential or
integral part of the playing of a baseball game. In short, the
game can be played in the absence of such antics.
Id. (emphasis added).
Accordingly, even though implied primary assumption of the
risk precludes recovery for injuries caused by the inherent risk
of being hit by a foul ball while watching a baseball game, Lowe
holds that the jury can hold the team liable for such injuries if the
negligence of its mascot altered or increased that otherwise inherent risk and this negligence causes the plaintiff’s injuries.
Accordingly, the proper application of implied primary
assumption of the risk in this case . . . is this: if Coomer was
The Nature of Law
1-17
injured by a risk that is an inherent part of watching the Royals
play baseball, the team had no duty to protect him and cannot be
liable for his injuries. But, if Coomer’s injury resulted from a risk
that is not an inherent part of watching baseball in person—or
if the negligence of the Royals altered or increased one of these
inherent risks and caused Coomer’s injury—the jury is entitled to
hold the Royals liable for such negligence. . . .
***
IV. Being Injured by Sluggerrr’s Hotdog Toss Is Not a Risk
Inherent in Watching Royals Baseball
According to the Royals, the risk to a spectator of being injured
by Sluggerrr’s hotdog toss shares the same essential characteristics as the other risks that this Court (and many others) determined long ago were inherent in watching a baseball game in
person, i.e., risks that a spectator will be injured by a flying ball
or bat. The Court disagrees.
The rationale for barring recovery for injuries from risks that
are inherent in watching a particular sport under implied primary
assumption of the risk is that the defendant team owner cannot
remove such risks without materially altering either the sport that
the spectators come to see or the spectator’s enjoyment of it. No
such argument applies to Sluggerrr’s hotdog toss. Millions of fans
have watched the Royals (and its forebears in professional baseball) play the National Pastime for the better part of a century
before Sluggerrr began tossing hotdogs, and millions more people
watch professional baseball every year in stadiums all across this
country without the benefit of such antics.
Some fans may find Sluggerrr’s hotdog toss fun to watch
between innings, and some fans may even have come to expect it,
but this does not make the risk of injury from Sluggerrr’s hotdog
toss an “inherent risk” of watching a Royals game. “[I]nherent”
means “structural or involved in the constitution or essential character of something: belonging by nature or settled habit,” Webster’s
Third New International Dictionary (1966), at 1163 (emphasis
added). There is nothing about the risk of injury from Sluggerrr’s
hotdog toss that is “structural” or involves the “constitution or
essential character” of watching a Royals game at Kauffman
Stadium.
The Royals concede that Sluggerrr’s hotdog toss has nothing
to do with watching the game of baseball but contend that the
Hotdog Launch is a well-established (even customary) part of the
overall stadium “experience.” In support, the Royals cite cases
that have applied the Baseball Rule to risks that were not created
directly from the game. These cases do not support the Royals’
argument.
In Loughran v. The Phillies, 888 A.2d 872, 876–77 (Pa.
Super. 2005), because a plaintiff was injured when a fielder
tossed the ball into the stands after catching the last out of
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1-18
Part One Foundations of American Law
the inning, the court held that implied primary assumption
of the risk barred the plaintiff’s claims. In rejecting the plaintiff’s claim that the Baseball Rule should not apply because
the throw was not part of the game itself, Loughran holds
that—even though the “‘no duty’ rule applies only to ‘common,
expected, and frequent’ risks of the game”—the link between
the game and the risk of being hit with a ball tossed into the
stands by a player is undeniable. Id. at 876. Baseball is the
reason centerfielder Marlon Byrd was there, just as it was the
reason the fans were in the stands (including the many who
were yelling for Byrd to toss the ball to them). Here, on the
other hand, there is no link between the game and the risk
of being hit by Sluggerrr’s hotdog toss. The Hotdog Launch
is not an inherent part of the game; it is what the Royals do
to entertain baseball fans when there is no game for them to
watch. Sluggerrr may make breaks in the game more fun, but
Coomer and his 12,000 rain-soaked fellow spectators were not
there to watch Sluggerrr toss hotdogs; they were there to watch
the Royals play baseball.
Somewhat closer to the mark—but still inapposite—is the
Royals’ reliance on Cohen v. Sterling Mets, L.P., 840 N.Y.S.2d
527 (N.Y. Sup. Ct. 2007), aff’d 58 A.D.3d (N.Y. App. Div.
2009). A vendor sued the team for injuries caused by a fan
who hit the vendor while diving for a souvenir T-shirt that
had been tossed into the crowd. The court dismissed these
claims, stating: “When a ball is tossed into the stands by a
player many spectators rush toward the ball in hopes of getting a souvenir, just as what allegedly occurred here during the
t-shirt launch.” Id.
The Royals’ reliance on Cohen highlights one of the basic flaws
in its effort to use implied primary assumption to bar Coomer’s
claims, and it shows the importance of correctly identifying the
risks and activity in each case. [W]hat makes a risk “inherent”
for purposes of this doctrine . . . is that the risks are so intertwined (i.e., so “structural” or involved in the “constitution or
essential character”) with the underlying activity that the team
cannot control or limit the risk without abandoning the activity.
In Cohen, because the Mets could not control how fans reacted
to the T-shirt launch, that reaction was an inherent risk—not of
watching a baseball game but—of taking part in the T-shirt launch
(which the plaintiff’s work required him to do). Here, on the other
hand, not only is being injured by Sluggerrr’s hotdog toss not an
inherent risk of watching a Royals game, it is not an inherent risk
of the Hotdog Launch. . . .
Accordingly, the Court holds as a matter of law that the risk
of injury from Sluggerrr’s hotdog toss is not one of the risks
inherent in watching the Royals play baseball that Coomer
assumed merely by attending a game at Kauffman Stadium.
This risk can be increased, decreased or eliminated altogether
with no impact on the game or the spectators’ enjoyment of
it. As a result, Sluggerrr (and, therefore, the Royals) owe the
fans a duty to use reasonable care in conducting the Hotdog
Launch and can be held liable for damages caused by a breach
of that duty.
Statutory Interpretation
deliberate ambiguity include the need for legislative compromise and legislators’ desire to avoid taking controversial positions.
Ambiguity in statutory language can also arise from
the vagaries of grammar, either as a result of sloppiness
or because rules of grammar are contested. The following O’Connor case, for instance, illustrates just how much
can ride on a “missing” comma, namely millions of dollars in unpaid overtime wages. As you read the case,
consider what strategies the judges use to resolve the
ambiguity. Those strategies correspond to the techniques
of statutory interpretation that are described in the text
following the case.
Because statutes are
written in one authoritative form, their interpretation
might seem easier than case law reasoning. However,
this is not so. The natural ambiguity of language serves
as one reason courts face difficulties when interpreting
statutes. The problems become especially difficult when
statutory words are applied to situations the legislature
did not foresee. In some instances, legislators may deliberately use ambiguous language when they are unwilling or
unable to deal specifically with each situation the statute
was enacted to regulate. When this happens, the legislature expects courts and/or administrative agencies to fill
in the details on a case-by-case basis. Other reasons for
Conclusion
For the reasons set forth above, this Court vacates the judgment
and remands the case.
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Chapter One
The Nature of Law
O’Connor v. Oakhurst Dairy
1-19
851 F.3d 69 (1st Cir. 2017)
A group of delivery drivers for Oakhurst Dairy sued the dairy and its parent company for unpaid overtime wages. Oakhurst Dairy processes, bottles, stores, markets, and distributes milk and other dairy products from facilities in Portland, Waterville, Bangor, and Presque
Isle, Maine.
Oakhurst designated the plaintiff drivers as “route salesmen” on their official job descriptions. The drivers, however, claimed they
solely engaged in deliveries of Oakhurst’s products.
State and federal wage and hour laws generally require employers to pay their employees a premium wage for any hours the
employees work in excess of 40 hours in a given week, unless the employees are exempted from overtime rules by the relevant statutory
language.
The drivers argued that they were not exempted from the overtime wage requirement in the Maine wage and hour statute, while
Oakhurst argued that they were exempt under a provision focused on workers who deal with perishable food products.
The district court considered the question and agreed with Oakhurst.
The drivers appealed.
BARRON, Circuit Judge
For want of a comma, we have this case. It arises from a dispute
between a Maine dairy company and its delivery drivers, and it
concerns the scope of an exemption from Maine’s overtime law.
Specifically, if that exemption used a serial comma to mark off
the last of the activities that it lists, then the exemption would
clearly encompass an activity that the drivers perform. And, in
that event, the drivers would plainly fall within the exemption and
thus outside the overtime law’s protection. But, as it happens,
there is no serial comma to be found in the exemption’s list of
activities, thus leading to this dispute over whether the drivers fall
within the exemption from the overtime law or not.
The District Court concluded that, despite the absent comma,
the Maine legislature unambiguously intended for the last term in the
exemption’s list of activities to identify an exempt activity in its own
right. But, we conclude that the exemption’s scope is actually not so
clear in this regard. And because, under Maine law, ambiguities in
the state’s wage and hour laws must be construed liberally in order to
accomplish their remedial purpose, we adopt the drivers’ narrower
reading of the exemption.
I.
The Maine overtime law is part of the state’s wage and hour law.
The overtime law provides that “[a]n employer may not
require an employee to work more than 40 hours in any one week
unless 1 1/2 times the regular hourly rate is paid for all hours
actually worked in excess of 40 hours in that week.”
[S]ome workers who fall within the statutory definition of
“employee” nonetheless fall outside the protection of the overtime law due to a series of express exemptions from that law.
The exemption to the overtime law that is in dispute here is
­Exemption F.
Exemption F covers employees whose work involves the
­ andling—in one way or another—of certain, expressly enumerh
ated food products. Specifically, Exemption F states that the
protection of the overtime law does not apply to: “The canning,
processing, preserving, freezing, drying, marketing, storing, packing for shipment or distribution of: (1) Agricultural produce;
(2) Meat and fish products; and (3) Perishable foods.” The parties’ dispute concerns the meaning of the words “packing for shipment or distribution.”
The delivery drivers contend that, in combination, these
words refer to the single activity of “packing,” whether the “packing” is for “shipment” or for “distribution.” The drivers further
contend that, although they do handle perishable foods, they do
not engage in “packing” them. As a result, the drivers argue that,
as employees who fall outside Exemption F, the Maine overtime
law protects them.
Oakhurst responds that the disputed words actually refer to
two distinct exempt activities, with the first being “packing for
shipment” and the second being “distribution.” And because the
delivery drivers do—quite obviously—engage in the “distribution”
of dairy products, which are “perishable foods,” Oakhurst contends that the drivers fall within Exemption F and thus outside
the overtime law’s protection.
* * * III.
Each party recognizes that, by its bare terms, Exemption F raises
questions as to its scope, largely due to the fact that no comma
precedes the words “or distribution.” But each side also contends
that the exemption’s text has a latent clarity, at least after one
applies various interpretive aids. Each side then goes on to argue
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1-20
Part One Foundations of American Law
that the overtime law’s evident purpose and legislative history
confirms its preferred reading.
We conclude, however, that Exemption F is ambiguous,
even after we take account of the relevant interpretive aids and
the law’s purpose and legislative history. For that reason, we
conclude that, under Maine law, we must construe the exemption in the narrow manner that the drivers favor, as doing so
furthers the overtime law’s remedial purposes. Before explaining our reasons for reaching this conclusion, though, we first
need to work our way through the parties’ arguments as to
why, despite the absent comma, Exemption F is clearer than
it looks.
A.
First, the text. In considering it, we do not simply look at the
particular word “distribution” in isolation from the exemption
as a whole. We instead must take account of certain linguistic
conventions—canons, as they are often called—that can help us
make sense of a word in the context in which it appears. Oakhurst
argues that, when we account for these canons here, it is clear that
the exemption identifies “distribution” as a stand-alone, exempt
activity rather than as an activity that merely modifies the standalone, exempt activity of “packing.”
Oakhurst relies for its reading in significant part on the rule
against surplusage, which instructs that we must give independent meaning to each word in a statute and treat none as unnecessary. To make this case, Oakhurst explains that “shipment”
and “distribution” are synonyms. For that reason, Oakhurst
contends, “distribution” cannot describe a type of “packing,”
as the word “distribution” would then redundantly perform the
role that “­shipment”—as its synonym—already performs, which
is to describe the type of “packing” that is exempt. By contrast,
Oakhurst explains, under its reading, the words “shipment” and
“distribution” are not redundant. The first word, “shipment,”
describes the exempt activity of “packing,” while the second, “distribution,” describes an exempt activity in its own right.
Oakhurst also relies on another established linguistic convention in pressing its case—the convention of using a conjunction
to mark off the last item on a list. Oakhurst notes, rightly, that
there is no conjunction before “packing,” but that there is one
after “shipment” and thus before “distribution.” Oakhurst also
observes that Maine overtime law contains two other lists in addition to the one at issue here and that each places a conjunction
before the last item.
Oakhurst acknowledges that its reading would be beyond dispute
if a comma preceded the word “distribution” and that no comma
is there. But, Oakhurst contends, that comma is missing for good
reason. Oakhurst points out that the Maine Legislative Drafting
Manual expressly instructs that: “when drafting Maine law or rules,
don’t use a comma between the penultimate and the last item of a
series.” In fact, Oakhurst notes, Maine statutes invariably omit the
serial comma from lists. B.
If no more could be gleaned from the text, we might be inclined
to read Exemption F as Oakhurst does. But, the delivery drivers point out, there is more to consider. And while these other
features of the text do not compel the drivers’ reading, they
do make the exemption’s scope unclear, at least as a matter of
text alone.
The drivers contend, first, that the inclusion of both “shipment” and “distribution” to describe “packing” results in no
redundancy. Those activities, the drivers argue, are each distinct.
They contend that “shipment” refers to the outsourcing of the
delivery of goods to a third-party carrier for transportation, while
“distribution” refers to a seller’s in-house transportation of products directly to recipients. And the drivers note that this distinction is, in one form or another, adhered to in [the New Oxford
English American Dictionary and Webster’s Third New International
Dictionary] definitions.
Consistent with the drivers’ contention, Exemption F does use
two different words (“shipment” and “distribution”) when it is hard
to see why, on Oakhurst’s reading, the legislature did not simply use
just one of them twice. After all, if “distribution” and “shipment”
really do mean the same thing, as Oakhurst contends, then it is odd
that the legislature chose to use one of them (“shipment”) to describe
the activity for which “packing” is done but the other (“distribution”)
to describe the activity itself.
The drivers’ argument that the legislature did not view the
words to be interchangeable draws additional support from
another Maine statute. That statute clearly lists both “distribution” and “shipment” as if each represents a separate activity
in its own right. And because Maine law elsewhere treats “shipment” and “distribution” as if they are separate activities in a list,
we do not see why we must assume that the Maine legislature did
not treat them that way here as well. After all, the use of these two
words to describe “packing” need not be understood to be wasteful. Such usage could simply reflect the legislature’s intention to
make clear that “packing” is exempt whether done for “shipment”
or for “distribution” and not simply when done for just one of
those activities.[a]
Next, the drivers point to the exemption’s grammar. The
­drivers note that each of the terms in Exemption F that indisputably names an exempt activity—“canning, processing, preserving,” and so forth on through “packing”—is a gerund. By, contrast,
We also note that there is some reason to think that the distinction
between “shipment” and “distribution” is not merely one that only a lawyer could love. Oakhurst’s own internal organization chart seems to treat
the two as if they are separate activities.
[a]
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Chapter One
“distribution” is not. And neither is “shipment.” In fact, those are
the only non-gerund nouns in the exemption, other than the ones
that name various foods.
Thus, the drivers argue, in accord with what is known as the
parallel usage convention, that “distribution” and “shipment”
must be playing the same grammatical role—and one distinct
from the role that the gerunds play. In accord with that convention, the drivers read “shipment” and “distribution” each to
be objects of the preposition “for” that describes the exempt
activity of “packing.” And the drivers read the gerunds each
to be referring to stand-alone, exempt activities—“canning,
preserving. . . .”
By contrast, in violation of the convention, Oakhurst’s reading treats one of the two non-gerunds (“distribution”) as if it is
performing a distinct grammatical function from the other (“shipment”), as the latter functions as an object of a preposition while
the former does not. And Oakhurst’s reading also contravenes the
parallel usage convention in another way: it treats a non-gerund
(again, “distribution”) as if it is performing a role in the list—­
naming an exempt activity in its own right—that gerunds otherwise exclusively perform.
Finally, the delivery drivers circle back to that missing comma.
They acknowledge that the drafting manual advises drafters not to
use serial commas to set off the final item in a list—despite the clarity that the inclusion of serial commas would often seem to bring.
But the drivers point out that the drafting manual is not dogmatic
on that point. The manual also contains a proviso—“Be careful if an
item in the series is modified”—and then sets out several examples
of how lists with modified or otherwise complex terms should be
written to avoid the ambiguity that a missing serial comma would
otherwise create.
Thus, the drafting manual’s seeming—and, from a judge’s
point of view, entirely welcome—distaste for ambiguous lists
does suggest a reason to doubt Oakhurst’s insistence that the
missing comma casts no doubt on its preferred reading. For,
as the drivers explain, the drafting manual cannot be read
to instruct that the comma should have been omitted here
if “distribution” was intended to be the last item in the list.
In that event, the serial comma’s omission would give rise to
just the sort of ambiguity that the manual warns drafters not
to create.
Still, the drivers’ textual points do not account for what
seems to us to be Oakhurst’s strongest textual rejoinder: no
conjunction precedes “packing.” Rather, the only conjunction
in the exemption—“or”—appears before “distribution.” And so,
on the drivers’ reading, the list is strangely stingy when it comes
to conjunctions, as it fails to use one to mark off the last listed
activity.
To address this anomaly, the drivers cite to Antonin Scalia &
Bryan Garner, Reading Law: The Interpretation of Legal Texts
The Nature of Law
1-21
(2012), in which the authors observe that “[s]ometimes drafters will omit conjunctions altogether between the enumerated
items [in a list],” in a technique called “asyndeton,” id. at 119.
But those same authors point out that most legislative drafters
avoid asyndeton. And, the delivery drivers do not provide any
examples of Maine statutes that use this unusual grammatical
device. Thus, the drivers’ reading of the text is hardly fully satisfying.[b]
IV.
The text has, to be candid, not gotten us very far. We are reluctant
to conclude from the text alone that the legislature clearly chose to
deploy the nonstandard grammatical device of asyndeton. But we are
also reluctant to overlook the seemingly anomalous violation of the
parallel usage canon that Oakhurst’s reading of the text produces.
And so—there being no comma in place to break the tie—the text
turns out to be no clearer on close inspection than it first appeared.
As a result, we turn to the parties’ arguments about the exemption’s
purpose and the legislative history.
A.
Oakhurst contends that the evident purpose of the exemption
strongly favors its reading. The whole point of the exemption,
Oakhurst asserts (albeit without reference to any directly supportive text or legislative history), is to protect against the distorting
effects that the overtime law otherwise might have on employer
decisions about how best to ensure perishable foods will not spoil.
And, Oakhurst argues, the risk of spoilage posed by the distribution of perishable food is no less serious than is the risk of spoilage
posed by the other activities regarding the handling of such foods
to which the exemption clearly does apply.
B.
We are not so sure. Any analysis of Exemption F that depends
upon an assertion about its clear purpose is necessarily somewhat
The drivers do also contend that their reading draws support from
the noscitur a sociis canon, which “dictates that words grouped in a list
should be given related meaning.” In particular, the drivers contend
that distribution is a different sort of activity than the others, nearly
all of which entail transforming perishable products to less perishable
forms—“canning,” “processing,” “preserving,” “freezing,” “drying,”
and “storing.” However, the list of activities also includes “marketing,” which Oakhurst argues undercuts the drivers’ noscitur a sociis
argument. And even if “marketing” does not mean promoting goods
or services, as in the case of advertising, and means only “to deal in a
market,” . . . it is a word that would have at least some potential commonalities with the disputed word, “distribution.” For that reason,
this canon adds little insight beyond that offered by the parallel usage
convention.
[b]
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1-22
Part One Foundations of American Law
speculative. Nothing in the overtime law’s text or legislative history purports to define a clear purpose for the exemption.
Moreover, even if we were to share in Oakhurst’s speculation
that the legislature included the exemption solely to protect against
the possible spoilage of perishable foods rather than for some distinct reason related, perhaps, to the particular dynamics of certain
labor markets, we still could not say that it would be arbitrary for
the legislature to exempt “packing” but not “distributing” perishable goods. The reason to include “packing” in the exemption is
easy enough to conjure. If perishable goods are not packed in a
timely fashion, it stands to reason that they may well spoil. Thus,
one can imagine the reason to ensure that the overtime law creates
no incentives for employers to delay the packing of such goods. The
same logic, however, does not so easily apply to explain the need to
exempt the activity of distributing those same goods. Drivers delivering perishable food must often inevitably spend long periods of
time on the road to get the goods to their destination. It is thus not
at all clear that a legal requirement for employers to pay overtime
would affect whether drivers would get the goods to their destination before they spoiled. No matter what delivery drivers are paid
for the journey, the trip cannot be made to be shorter than it is.
Of course, this speculation about the effect that a legal requirement to pay overtime may or may not have on increasing the risk
of food spoilage is just that. But such speculation does make us
cautious about relying on what is only a presumed legislative
purpose to generate a firm conclusion about what the legislature
must have intended in drafting the exemption.
***
Identify what courts focus on when applying the major
LO1-6 statutory interpretation techniques (plain meaning, legislative
purpose, legislative history, and general public purpose).
To deal with the problems of ambiguity that arise from
drafting errors, unclear language, or the application of clear
language to unanticipated circumstances, courts use various techniques of statutory interpretation. As you saw in
the O’Connor case, different techniques may dictate different results in a particular case. Sometimes judges employ
the techniques in an instrumentalist or result-oriented fashion, emphasizing the technique that will produce the result
they want and downplaying the others. It is, therefore,
unclear which technique should control when different
techniques yield different results. Judges have considerable
latitude in this regard.
C.
To be clear, none of this evidence is decisive either way. It does
highlight, however, the hazards of simply assuming—on the basis
of no more than supposition about what would make sense—that
the legislature could not have intended to craft Exemption F as
the drivers contend that the legislature crafted it. Thus, we do not
find either the purpose or the legislative history fully clarifying.
And so we are back to where we began.
V.
We are not, however, without a means of moving forward. The
default rule of construction under Maine law for ambiguous provisions in the state’s wage and hour laws is that they “should be liberally construed to further the beneficent purposes for which they
are enacted.” Dir. of Bureau of Labor Standards v. Cormier, 527 A.2d
1297, 1300 (Me. 1987). The opening of the subchapter of Maine law
containing the overtime statute and exemption at issue here declares
a clear legislative purpose: “It is the declared public policy of the
State of Maine that workers employed in any occupation should
receive wages sufficient to provide adequate maintenance and to protect their health, and to be fairly commensurate with the value of the
services rendered.” Thus, in accord with Cormier, we must interpret
the ambiguity in Exemption F in light of the remedial purpose of
Maine’s overtime statute. And, when we do, the ambiguity clearly
favors the drivers’ narrower reading of the exemption.
***
VI.
Accordingly, the District Court’s grant of partial summary judgment to Oakhurst is reversed.
A conceptually helpful metaphor here might be to think
of a judge approaching a question of statutory interpretation
as a repairperson. The various techniques of statutory interpretation described here are the tools he or she might use for
a repair job. Sometimes a particular tool is more suited to a
particular job, but a repairperson uses his or her judgment in
determining which tools to use to accomplish the goal of making the repair. Likewise, a judge retains the freedom to reach
in the “statutory interpretation toolbox” for any of the tools
described here, but professional norms and experience often
guide a judge’s choice, just as it would a repairperson’s.
Plain Meaning Courts routinely begin their interpretation
of a statute with its actual language. If the statute’s words
have a clear, common, accepted meaning, courts often
employ the plain meaning rule. This approach calls for the
court to apply the statute according to the usual meaning
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Chapter One
of its words, without concerning itself with anything else.
At times, this approach is clear and settles the matter. Often,
though, judges find the application of plain meaning unhelpful. It may lead to absurd or patently unjust results, or it
might simply fail to resolve the ambiguity at issue. In James
v. City of Costa Mesa, which follows the description of these
statutory interpretation techniques, both the majority and
the dissenting judges agree that the plain meaning of the
statutory text at issue is ambiguous, even as they disagree as
to what that meaning is.
Legislative History and Legislative Purpose Courts
sometimes refuse to follow a statute’s plain meaning when
its legislative history suggests a different result. Almost all
courts resort to legislative history when the statute’s language is ambiguous. A statute’s legislative history includes
the following sources: reports of investigative committees
or law revision commissions that led to the legislation, transcripts or summaries of hearings of legislative committees
that originally considered the legislation, reports issued by
such committees, records of legislative debates, reports of
conference committees reconciling the chambers’ conflicting versions of the law in a bicameral legislature, amendments or defeated amendments to the legislation, other
bills not passed by the legislature but proposing similar
legislation, and discrepancies between a bill passed by one
chamber of a bicameral legislature and the final version of
the statute.
Sometimes a statute’s legislative history provides no information or conflicting information about its meaning, scope, or
purposes. Some sources prove to be more authoritative than
others. The worth of debates, for instance, may depend on
which legislator (e.g., the sponsor of the bill or an uninformed
blowhard) is quoted. Some sources are useful only in particular
situations; prior unpassed bills and amendments or defeated
amendments are examples. Consider, for instance, whether
mopeds are covered by an air pollution statute applying to
“automobiles, trucks, buses, and other motorized passenger
or cargo vehicles.” If the statute’s original version included
mopeds, but this reference was removed by amendment, it is
unlikely that the legislature wanted mopeds to be covered. The
same might be true if six similar unpassed bills had included
mopeds, but the bill that was eventually passed did not, or if
one house had passed a bill including mopeds, but mopeds
did not appear in the final version of the legislation.
Courts use legislative history in two overlapping but distinguishable ways. They may use it to determine what the legislature thought about the specific meaning of statutory language.
They may also use it to determine the overall aim, end, or goal
of the legislation. In this second case, they then ask whether a
particular interpretation of the statute is consistent with this
The Nature of Law
1-23
legislative purpose. To illustrate the difference between these
two uses of legislative history, suppose that a court is considering whether our pollution statute’s “other motorized passenger
or cargo vehicles” language includes battery-powered vehicles.
The court might scan the legislative history for specific references to battery-powered vehicles or other indications of what
the legislature thought about their inclusion. The court might
also use the same history to determine the overall aims of the
statute and then ask whether including battery-powered vehicles is consistent with those aims. Because the history probably would reveal that the statute’s purpose was to reduce air
pollution from internal combustion engines, the court might
well conclude that covering battery-powered vehicles would be
inconsistent with the legislative purpose and, therefore, decline
to include them within the coverage of the statute.
General Public Purpose Occasionally, courts construe
statutory language in the light of various general public purposes. These purposes are not the purposes underlying the
statute in question; rather, they are widely accepted general notions of public policy. For example, the Supreme
Court once used the general public policy against racial
discrimination in education as an argument for denying
tax-exempt status to a private university that discriminated
on the basis of race.
Prior Interpretations Courts sometimes follow prior
cases and administrative decisions interpreting a statute,
regardless of the statute’s plain meaning or legislative history. The main argument for following these prior interpretations is to promote stability and certainty by preventing
each successive court that considers a statute from adopting its own interpretation. The courts’ willingness to follow
a prior interpretation depends on such factors as the number of past courts adopting the interpretation, the authoritativeness of those courts, and the number of years that the
interpretation has been followed.8
Maxims Maxims are general rules of thumb employed in
statutory interpretation. There are many maxims, which
courts tend to use or ignore at their discretion. The O’Connor
court used several maxims to interpret the Maine overtime
law exemption in the case at the beginning of this section.
Note here that this technique is related to, but distinct from, a court’s
obligation to follow binding precedent. If a prior interpretation of a
statute was handed down by a higher court whose rulings are binding
on a lower court, then the lower court must follow that interpretation.
As such, the application of binding precedent is not truly considered
statutory interpretation. The technique of statutory interpretation that
follows prior interpretations of a statute arises when courts look to nonprecedential decisions of other courts for guidance.
8
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1-24
Part One Foundations of American Law
The court there referred to the maxims as “canons” of statutory interpretation. For our purposes, maxim and canon
are synonyms. The judge in O’Connor explained the maxim
of noscitur a sociis in the second footnote of the opinion.
Another example of a maxim is the ejusdem generis rule,
which says that when general words follow words of a specific, limited meaning, the general language should be limited to things of the same class as those specifically stated.
Suppose that the pollution statute quoted earlier listed
12 types of gas-powered vehicles and ended with the words
“and other motorized passenger or cargo vehicles.” In
that instance, ejusdem generis probably would dictate that
­battery-powered vehicles not be included.
The following James v. City of Costa Mesa case reports
the decision of a three-judge panel of the U.S. Court of
James v. City of Costa Mesa
Appeals for the Ninth Circuit. Two of the three judges
agreed with one interpretation of the statutory language
at issue; the third disagreed with that interpretation. The
decision of the two judges who agreed is presented as
the majority opinion of the court, while the disagreeing
judge’s argument is in the dissenting opinion. Notice how
each opinion uses plain meaning and legislative history
and purpose (with a maxim or two peppered in for good
measure) to interpret the language to different conclusions. This illustrates how, regardless of these consistent
techniques described here, there is still substantial room
for contested judgment in statutory interpretation. Likewise, you should compare and contrast the James court’s
application of those techniques with the earlier O’Connor
opinion.
700 F.3d 394 (9th Cir. 2012)
Marla James, Wayne Washington, James Armantrout, and Charles Daniel Dejong (collectively referred to here either as “the plaintiffs”
or “James,” the name of the lead plaintiff) suffer from serious medical conditions. To alleviate pain associated with their impairments,
they each use marijuana, as recommended and monitored by their doctors. In California, where the plaintiffs live, the medical use of
marijuana is permissible according to state law. Marijuana, however, remains a controlled substance under the federal Controlled Substances Act (CSA). As a result, it is generally a federal crime to possess and distribute marijuana, even for medical purposes.
The plaintiffs filed a lawsuit against the cities of Costa Mesa and Lake Forest, California, for taking steps to close down or otherwise
prohibit the operation of marijuana-dispensing facilities within their boundaries. The plaintiffs claimed that the cities’ actions violated
Title II of the Americans with Disabilities Act (ADA), which prohibits discrimination on the basis of disability in the provision of public
services. The lawsuit asked the court to enjoin the cities’ actions (i.e., issue a decision ordering the cities to stop their efforts to close the
marijuana-dispensing facilities).
A judge in the U.S. District Court for the Central District of California declined to issue an injunction on the ground that the ADA
does not protect against discrimination on the basis of plaintiffs’ marijuana use, even medical marijuana use supervised by a doctor in
accordance with state law. The judge based his decision on a determination that the plaintiffs are not entitled to the protection of the
ADA in this instance because only a “qualified individual with a disability” is protected from being denied the benefit of public services.
The ADA states that “the term ‘individual with a disability’ does not include an individual who is currently engaging in the illegal use of
drugs, when the covered entity acts on the basis of such use.”
The plaintiffs appealed the District Court’s ruling to the U.S. Court of Appeals for the Ninth Circuit.
Raymond C. Fisher, Circuit Judge
This case turns on whether the plaintiffs’ medical marijuana use
constitutes “illegal use of drugs[.]”
[The ADA] defines “illegal use of drugs” as
the use of drugs, the possession or distribution of which is unlawful under the Controlled Substances Act. Such term does not
include the use of a drug taken under supervision by a licensed
health care professional, or other uses authorized by the Controlled Substances Act or other provisions of Federal law.
The parties agree that the possession and distribution of marijuana, even for medical purposes, is generally unlawful under the
CSA, and thus that medical marijuana use falls within the exclusion set forth in [the above definition’s] first sentence. They dispute, however, whether medical marijuana use is covered by one
of the exceptions in the second sentence. The plaintiffs contend
their medical marijuana use falls within the exception for drug use
supervised by a licensed health care professional.
There are two reasonable interpretations of the [ADA]’s language excepting from the illegal drug exclusion “use of a drug
taken under supervision by a licensed health care professional,
or other uses authorized by the Controlled Substances Act or
other provisions of Federal law.” The first interpretation—urged
by the plaintiffs—is that this language creates two exceptions to
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Chapter One
the illegal drug exclusion: (1) an exception for professionally
supervised drug use carried out under any legal authority, and
(2) an independent exception for drug use authorized by the CSA
or other provisions of federal law. The second interpretation—
offered by the cities and adopted by the district court—is that the
provision contains a single exception covering all uses authorized
by the CSA or other provisions of federal law, including both CSAauthorized uses that involve professional supervision (such as use
of controlled substances by prescription . . . and uses of controlled
substances in connection with research and experimentation),
and other CSA-authorized uses. Under the plaintiffs’ interpretation, their state-sanctioned, doctor-recommended marijuana use
is covered under the supervised use exception. Under the cities’
interpretation, the plaintiffs’ state-authorized medical marijuana
use is not covered by any exception because it is not authorized by
the CSA or another provision of federal law. Although [the definition of “illegal use of drugs”] lacks a plain meaning and its legislative history is not conclusive, we hold, in light of the text and
legislative history of the ADA, as well as the relationship between
the ADA and the CSA, that the cities’ interpretation is correct.
The meaning of [“illegal use of drugs”] cannot be discerned
from the text alone. Both interpretations of the provision are
somewhat problematic. The cities’ reading of the statute renders
the first clause in [the definition]’s second sentence superfluous; if Congress had intended that the exception cover only uses
authorized by the CSA and other provisions of federal law, it
could have omitted the “taken under supervision” language altogether. But the plaintiffs’ interpretation also fails to give effect
to each word of [the statute], for if Congress had really intended
that the language excepting “other uses authorized by the Controlled Substances Act or other provisions of Federal law” be
entirely independent of the preceding supervised use language,
it could have omitted the word “other,” thus excepting “use of a
drug taken under supervision by a licensed health care professional, or uses authorized by the Controlled Substances Act.”
Moreover, unless the word “other” is omitted, the plaintiffs’
interpretation renders the statutory language outright awkward.
One would not naturally describe “the use of a drug taken under
supervision by a licensed health care professional, or other uses
authorized by the Controlled Substances Act or other provisions of Federal law” unless the supervised uses were a subset of
the uses authorized by the CSA and other provisions of federal
law. The plaintiffs’ reading thus results not only in surplusage,
but also in semantic dissonance.
The cities’ interpretation also makes the most sense of the
contested language when it is viewed in context. . . . Here, the
context reveals Congress’ intent to define “illegal use of drugs”
by reference to federal, rather than state, law. [The definition]
mentions the CSA by name twice, and [a subsequent provision of the ADA] provides that “[t]he term ‘drug’ means a
The Nature of Law
1-25
controlled substance, as defined in . . . the Controlled Substances Act.”
We therefore conclude that the cities’ interpretation of the
statutory text is the more persuasive, though we agree with the
dissent that the text is ultimately inconclusive. We therefore look
to legislative history, including related congressional activity.
The legislative history of this provision, like its text, is indeterminate. It is true, as the plaintiffs point out, that Congress
rejected an early draft of the “taken under supervision” exception
in favor of a broader version. [The early version excepted drugs
taken pursuant to a valid prescription, rather than the use of a drug
taken under supervision by a licensed health care professional.] We
are not persuaded, however, that this history compels the plaintiffs’ interpretation. Although the expansion of the supervised use
exception suggests Congress wanted to cover more than just CSAauthorized prescription-based use, it does not demonstrate that the
exception was meant to extend beyond the set of uses authorized
by the CSA and other provisions of federal law. The CSA does
authorize some professionally supervised drug use that is not
prescription-based, and Congress could have intended simply to
expand the supervised use exception to encompass all such uses.
One House Committee Report does include a brief passage
that arguably supports the notion that [the] supervised use language and [the] authorized use language are independent, stating “The term ‘illegal use of drugs’ does not include the use of
controlled substances, including experimental drugs, taken under
the supervision of a licensed health care professional. It also does
not include uses authorized by the Controlled Substances Act
or other provisions of federal law.” This discussion is of limited
persuasive value, however, because it may rest on the unstated
assumption—quite plausible at the time—that professionally
supervised use of illegal drugs would always be consistent with
the CSA. There is no reason to think that the 1990 Congress that
passed the ADA would have anticipated later changes in state
law facilitating professional supervision of drug use that federal
law does not permit. The first such change came six years later,
when California voters passed Proposition 215, now codified as
the Compassionate Use Act of 1996.
[D]uring and after adoption of the ADA there has been
a strong and longstanding federal policy against medical marijuana use outside the limits established by federal law itself. . . .
Under the plaintiffs’ view, the ADA worked a substantial departure from this accepted federal policy by extending federal protections to federally prohibited, but state-authorized, medical use of
marijuana. That would have been an extraordinary departure from
policy, and one that we would have expected Congress to take
explicitly. It is unlikely that Congress would have wished to legitimize state-authorized, federally proscribed medical marijuana use
without debate, in an ambiguously worded ADA provision.
***
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1-26
Part One Foundations of American Law
Affirmed.
2. Legislative History
DISSENT BY: Marsha S. Berzon, Circuit Judge
James’ reading of the statute also accords much better with the overall thrust of the legislative history. That history, while not entirely
without ambiguity, strongly supports James’s interpretation.
The statutory interpretation issue at the core of this case is an
unusually tough one, as the majority opinion recognizes. Looking at the language of [the definition of “illegal use of drugs”]
alone, I would come out where the majority does—concluding
that the statute is ambiguous. But unlike the majority, I would
not declare a near-draw. Instead, looking at the words alone, I
would conclude that the plaintiffs have much the better reading,
but not by enough to be comfortable that their interpretation is
surely correct. Turning then to the legislative history, I would
again declare the plaintiffs the winner, this time sufficiently,
when combined with the language considerations, to adopt
their interpretation, absent some very good reason otherwise.
1. Statutory Text
Although [the definition] is not entirely clear, James has very
much the better reading of the statutory language. In James’s
view, the phrases “use of a drug taken under supervision by a
licensed health care professional” and “other uses authorized by
the [CSA]” create two different exceptions, so that the ADA protects use of drugs under supervision of a doctor even when that
use is not authorized by the CSA. If Congress intended to carve
out only drug use authorized by the CSA, after all, the entire first
clause—“the use of a drug under supervision by a licensed health
care professional”—would have been unnecessary.
a. The use of “other”
[T]he word “other” is not necessarily redundant at all. It could be
read to indicate that use under supervision of a doctor is meant to
be a category of uses entirely subsumed by the larger category of
uses authorized by the CSA, but this is not the only possible interpretation. Put another way, omitting the word “other” entirely
would certainly have compelled the reading James advances, but
its presence does not invalidate her interpretation. There is, after
all, a middle ground between these two readings. . . . [T]he two
clauses could . . . be seen as partially overlapping, with the group
of uses supervised by a doctor partially included within the set
of uses authorized by the CSA but also partially independent,
encompassing in addition a set of uses not authorized by the
CSA. This reading strikes me as the most sensible.
Under this interpretation, “other” is not redundant. Instead,
it accurately reflects the overlap. Were the “other” not there, the
exception would have divided the relevant universe into two nonoverlapping sets. Yet, in fact the CSA authorizes some (but not all)
uses of “drugs taken under supervision of a licensed health care professional.” The “other” serves to signal that there is no strict dichotomy between the two phrases, as the bulk of the CSA-­authorized
uses are within the broader set covered by the first phrase.
***
a. Evolution of the exception
As the majority observes, Congress replaced a draft of the
exception that required that use of drugs be “pursuant to a valid
­prescription,” . . . with the broader language eventually enacted.
Critically, the House Committee Report restates the exception,
once amended, in precisely the cumulative manner I have suggested most accords with the statutory language: “The term ‘illegal use of drugs’ does not include the use of controlled substances,
including experimental drugs, taken under the supervision of a
licensed health care professional. It also does not include uses
authorized by the [CSA] or other provisions of Federal law.” This
summary is in no way ambiguous, and indicates at least that members of the House familiar with the statutory language understood
it in the manner that, for reasons I have explained, most accords
with ordinary principles of grammar and syntax.
b. Congressional awareness of medical marijuana
The majority discounts any significance in the way the current
language is described in the relevant Committee report, observing
that California voters did not pass Prop. 215 until 1996 and that
there were no state laws in 1990 allowing for professionally supervised use of drugs in a manner inconsistent with the CSA. Congress would not have carefully drafted the exception to include
non-CSA authorized medically supervised uses, the majority posits, as no such uses were legal under state law at the time.
That explanation for dismissing the best reading of the statute
and the only coherent reading of the Committee’s explanation of
the statute won’t wash, for several reasons. First, while California
in 1996 became the first of the sixteen states that currently legalize medical marijuana, the history of medical marijuana goes back
much further, so that use for medical purposes was not unthinkable
in 1990. At one time, “almost all States . . . had exceptions making lawful, under specified conditions, possession of marihuana by
. . . persons for whom the drug had been prescribed or to whom it
had been given by an authorized medical person.” What’s more, the
Federal government itself conducted an experimental medical marijuana program from 1978 to 1992, and it continues to provide marijuana to the surviving participants. The existence of these programs
indicates that medical marijuana was not a concept utterly foreign to
Congress before 1996.
***
The upshot is that the statutory language and history, taken
together, fit much better with James’s version of what Congress
meant than the Cities’.
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Chapter One
The Nature of Law
1-27
CYBERLAW IN ACTION
Section 230 of the Communications Decency Act (CDA),
a federal statute, provides that “[n]o provider or user of
an interactive computer service shall be treated as the
publisher or speaker of any information provided by
another information content provider.” Although § 230
appears in a statute otherwise designed to protect
minors against online exposure to indecent material, the broad
language of § 230 has caused courts to apply it in contexts having
nothing to do with indecent expression.
For instance, various courts have held that § 230 protects
providers of an interactive computer service (ICS) against liability
for defamation when a user of the service creates and posts false,
reputation-harming statements about someone else. (ICS is defined
in the statute as “any information service, system, or access software
provider that provides or enables computer access by multiple users
to a computer server.”) With courts so holding, § 230 has the effect of
superseding a common law rule of defamation that anyone treated
as a publisher or speaker of defamatory material is liable to the
same extent as the original speaker or writer of that material. Absent
§ 230, ICS providers could sometimes face defamation liability
under the theory that they are publishers of statements made by
someone else. (You will learn more about defamation in Chapter
6.) This application of § 230 illustrates two concepts noted earlier
in the chapter: first, that federal law overrides state law when the
two conflict, and second, that an applicable statute supersedes a
common law rule.
Cases in other contexts have required courts to utilize statutory
interpretation techniques discussed in this chapter as they determine
whether § 230’s shield against liability applies. For example, two
cases presented the question whether § 230 protects website
operators against liability for alleged Fair Housing Act (FHA) violations
based on material that appears on their sites. The FHA states that
it is unlawful to “make, print or publish” or to “cause” the making,
printing, or publishing of, notices, statements, or advertisements
that “with respect to the sale or rental of a dwelling[,] . . . indicate[s]
any preference, limitation, or discrimination based on race, color,
Limits on the Power of Courts
By now, you
may think that anything goes when courts decide common
law cases or interpret statutes. Many factors, however, discourage courts from adopting a freewheeling approach.
Their legal training and mental makeup cause judges to
be likely to respect established precedents and the will of
the legislature. Many courts issue written opinions, which
expose judges to academic and professional criticism if the
opinions are poorly reasoned. Lower court judges may be
religion, sex, handicap, familial status, or national origin, or an
intention to make any such preference, limitation, or discrimination.”
A civil rights organization sued Craigslist Inc., which operated a wellknown electronic forum for those who sought to buy, sell, or rent
housing and miscellaneous goods and services. The plaintiff alleged
that Craigslist users posted housing-related statements such as “No
minorities” and “No children” and that those statements constituted
FHA violations on the part of Craigslist.
In Chicago Lawyers Committee for Civil Rights Under Law, Inc.
v. Craigslist, Inc., 519 F.3d 666 (7th Cir. 2008), the U.S. Court of
Appeals for the Seventh Circuit affirmed the district court’s dismissal
of the plaintiff’s complaint. The Seventh Circuit held that a “natural
reading” of § 230 of the CDA protected Craigslist against liability.
The statements that allegedly violated the FHA were those of users
of the electronic forum—meaning that Craigslist would be liable only
if it were treated as a publisher or speaker of the users’ statements.
The plain language of § 230, however, prohibited classifying
Craigslist as a publisher or speaker of the content posted by the
users. Neither did Craigslist “cause” users to make statements of
the sort prohibited by the FHA. Using a commonsense interpretation
of the word “cause,” the court concluded that merely furnishing the
electronic forum was not enough to implicate Craigslist in having
“cause[d]” the users’ statements. There were no facts indicating that
Craigslist suggested or encouraged statements potentially running
afoul of the FHA.
Very shortly after the Craigslist decision, a different federal
court of appeals decided Fair Housing Council v. Roommates.
com, LLC. That case presented the question whether § 230 of the
CDA protected Roommates.com against FHA liability for allegedly
discriminatory housing-related statements posted by users of
Roommates.com’s electronic forum. The case’s basic facts appear in
problem case 10 at the end of this chapter. Review those facts and
compare them to the facts of the Craigslist case. Then determine
whether § 230 protected Roommates.com against liability (as it
protected Craigslist) or whether the facts of the Roommates.com
case warranted a different outcome.
discouraged from innovation by the fear of being overruled
by a higher court. Finally, political factors inhibit judges.
For example, some judges are elected, and even judges with
lifetime tenure can sometimes be removed.
An even more fundamental limit on the power of courts
is that they cannot make or interpret law until parties
present them with a case to decide. In addition, any such
case must be a real dispute. That is, courts generally limit
themselves to genuine, existing “cases or controversies”
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1-28
Part One Foundations of American Law
between real parties with tangible opposing interests in
the lawsuit. Courts generally do not issue advisory opinions on abstract legal questions unrelated to a genuine
dispute, and do not decide feigned controversies that parties concoct to seek answers to such questions. Courts
may also refuse to decide cases that are insufficiently ripe
to have matured into a genuine controversy, or that are
moot because there no longer is a real dispute between
the parties. Reflecting similar policies is the doctrine of
standing to sue, which normally requires that the plaintiff
have some direct, tangible, and substantial stake in the
outcome of the litigation.
State and federal declaratory judgment statutes, however, allow parties to determine their rights and duties
even though their controversy has not advanced to the
point where harm has occurred and legal relief may be
necessary. This enables them to determine their legal
position without taking action that could expose them
to liability. For example, if Darlene believes that something she plans to do would not violate Earl’s copyright
on a work of authorship but she recognizes that he may
take a contrary view, she may seek a declaratory judgment on the question rather than risk Earl’s lawsuit
by proceeding to do what she had planned. Usually, a
declaratory judgment is awarded only when the parties’
dispute is sufficiently advanced to constitute a real case
or controversy.
The Global Business Environment
Just as statutes may require judicial interpretation when a dispute arises, so may treaties. The
techniques that courts use in interpreting treaties
correspond closely to the statutory interpretation techniques
discussed in this chapter. Olympic Airways v. Husain, 540 U.S.
644 (2004), furnishes a useful example.
In Olympic Airways, the U.S. Supreme Court was faced
with an interpretation question regarding a treaty, the Warsaw
Convention, which deals with airlines’ liability for passenger
deaths or injuries on international flights. Numerous nations
(including the United States) subscribe to the Warsaw Convention, a key provision of which provides that in regard to
international flights, the airline “shall be liable for damages
sustained in the event of the death or wounding of a passenger or any other bodily injury suffered by a passenger, if the
accident which caused the damage so sustained took place on
board the aircraft or in the course of any of the operations
of embarking or disembarking.” A separate provision imposes
limits on the amount of money damages to which a liable airline may be subjected.
The Olympic Airways case centered around the death of
Dr. Abid Hanson, a severe asthmatic, on an international
flight operated by Olympic. Smoking was permitted on the
flight. Hanson was given a seat in the nonsmoking section,
but his seat was only three rows in front of the smoking section. Because Hanson was extremely sensitive to secondhand
smoke, he and his wife, Rubina Husain, requested various
times that he be allowed, for health reasons, to move to a seat
farther away from the smoking section. Each time, the request
was denied by an Olympic flight attendant. When smoke
from the smoking section began to give Hanson difficulty,
he used a new inhaler and walked toward the front of the
plane to get some fresher air. Hanson went into respiratory
distress, whereupon his wife and a doctor who was on board
gave him shots of epinephrine from an emergency kit that
Hanson carried. Although the doctor administered CPR and
oxygen when Hanson collapsed, Hanson died. Husain, acting as personal representative of her late husband’s estate,
sued Olympic in federal court on the theory that the Warsaw
Convention made Olympic liable for Hanson’s death. The
federal district court and the court of appeals ruled in favor
of Husain.
In considering Olympic’s appeal, the U.S. Supreme Court
noted that the key issue was one of treaty interpretation:
whether the flight attendant’s refusals to reseat Hanson constituted an “accident which caused” the death of Hanson.
Noting that the Warsaw Convention itself did not define “accident” and that different dictionary definitions of “accident”
exist, the Court looked to a precedent case, Air France v. Saks,
470 U.S. 392 (1985), for guidance. In the Air France case,
the Court held that the term “accident” in the Warsaw Convention means “an unexpected or unusual event or happening
that is external to the passenger.” Applying that definition to
the facts at hand, the Court concluded in Olympic Airways
that the repeated refusals to reseat Hanson despite his health
concerns amounted to unexpected and unusual behavior for a
flight attendant. Although the refusals were not the sole reason why Hanson died (the smoke itself being a key factor),
the refusals were nonetheless a significant link in the causation chain that led to Hanson’s death. Given the definition
of “accident” in the Court’s earlier precedent, the phrasing,
the Warsaw Convention, and the underlying public policies
supporting it, the Court concluded that the refusals to reseat
Hanson constituted an “accident” covered by the Warsaw
Convention. Therefore, the Court affirmed the decision of the
lower courts.
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Chapter One
APPENDIX
Reading and Briefing Cases
Throughout
this text, you will encounter cases—the judicial opinions
accompanying court decisions. These cases are highly
edited versions of their much longer originals. What follows are explanations and pointers to assist you in studying cases.
1. Each case has a case name that includes at least some of
the parties to the case. Because the order of the parties
may change when a case is appealed, do not assume that
the first party listed is the plaintiff (the party suing) and
the second the defendant (the party being sued). Also,
because some cases have many plaintiffs and/or many
defendants, the parties discussed in the court’s opinion
sometimes differ from those found in the case name.
2. Each case also has a citation, which includes the
volume and page number of the legal reporter
in which the full case appears, plus the year the
case was decided. James v. City of Costa Mesa, for
instance, begins on page 394 of volume 700 of the
third edition of the Federal Reporter (the official
reporter that compiles the published opinions of
the U.S. Circuit Courts of Appeal) and was decided
in 2012. (Each of the many different legal reporters has its own abbreviation. The list is too long to
include here.) In parentheses accompanying the
date, we also give you some information about the
court that decided the case. For example, “1st Cir.”
is the U.S. Court of Appeals for the First Circuit,
“D. Md.” is the U.S. District Court for the District of
Maryland, “Mich.” is the Supreme Court of Michigan,
and “Minn. Ct. App.” is the Minnesota Court of
Appeals (a Minnesota intermediate appellate court).
Chapter 2 describes the various kinds of courts.
3. At the beginning of each case, there is a statement of
facts containing the most important facts that gave rise
to the case. These appear in italics and are largely written by the authors of this text, though some of the language may be that of the court.
4. As part of the statement of facts, we give you the case’s
procedural history. This history tells you what courts previously handled the case you are reading, and how they
dealt with it.
5. Next comes your major concern: the body of the court’s
opinion. Here, the court determines the applicable law
and applies it to the facts to reach a conclusion. The
court’s discussion of the relevant law may be elaborate; it may include prior cases, legislative history,
The Nature of Law
1-29
applicable public policies, and more. The court’s
application of the law to the facts usually occurs after
it has arrived at the applicable legal rule(s), but also
may be intertwined with its legal discussion.
6. At the very end of the case, we complete the procedural
history by stating the court’s decision. For example,
“Judgment reversed in favor of Smith” says that a lower
court judgment against Smith was reversed on appeal.
This means that Smith’s appeal was successful and
Smith wins.
7. The cases’ main function is to provide concrete examples of rules stated in the text. (Frequently, the text tells
you what point the case illustrates.) In studying law, it is
easy to conclude that your task is finished once you have
memorized a black letter rule. Real-life legal problems,
however, seldom present themselves as abstract questions of law; instead, they are hidden in particular situations one encounters or particular actions one takes.
Without some sense of a legal rule’s real-life application,
your knowledge of that rule is incomplete. The cases
help provide this sense.
8. You may find it helpful to brief the cases. There is no
one correct way to brief a case, but most good briefs
contain the following elements: (1) a short statement
of the relevant facts, (2) the case’s prior history,
(3) the question(s) or issue(s) the court had to decide,
(4) the answer(s) to those question(s), (5) the reasoning
the court used to justify its decision, and (6) the final
result. A brief of Price v. High Pointe Oil Company, Inc.
(a case included earlier) might look this way:
Price v. High Pointe Oil Company, Inc.
Facts Beckie Price’s house and all of her personal
belongings were destroyed when High Pointe erroneously
filled her basement with 400 gallons of oil through an oil
fill pipe that formerly led to an oil furnace in the basement.
Price had replaced the oil furnace with a propane furnace
a year earlier and canceled her fill order with High Pointe.
Somehow, though, her address was mistakenly included on
a “keep full list.” Despite the fact that Price’s house was
eventually rebuilt, her land was remediated, her personal
belongings cleaned or replaced, and her expenses while she
was displaced from her home covered, she sued High Pointe
for negligence, including claims for noneconomic damages.
History A Michigan jury found for Price on the claim
they heard and awarded her $100,000. The Michigan appellate court affirmed. High Pointe appealed to the Michigan
Supreme Court.
Issues Should the Michigan common law include the
recognition of noneconomic damages for the negligent
destruction of real property?
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1-30
Part One Foundations of American Law
Holdings Michigan common law has never allowed
the recovery of noneconomic damages for the negligent
destruction of real or personal property and the court
will not adopt a new common law rule doing so in this
case.
Reasoning The longstanding rule in Michigan is that the
remedy for the negligent destruction of property is the market value of the property if it is destroyed or the repair cost
of the property if it is only damaged. No cases have ever
held differently. Two recent cases applied the exclusion of
noneconomic damages to claims regarding personal property, and the Court found that the current case was not
distinguishable from those cases.
Consistent with the proper caution courts should exercise when considering changing the common law, the
Court further declined to modify that longstanding rule
for a number of reasons. The rule is rational and can be
Problems and Problem Cases
1. In August 2002, Dayle Trentadue, as the daughter and
representative of the estate of Margarette Eby, sued
various parties for their part in Eby’s 1986 murder at
the home she rented in Flint, Michigan. The murder
had been unsolved from 1986 until 2002, when DNA
evidence established that Jeffrey Gorton had committed the crime. Gorton worked for his parents’ corporation, which serviced the sprinkler system on the
grounds surrounding the rental home where Eby lived.
In addition to Gorton, Trentadue sued Gorton’s
parents, their corporation, the estate of the rentalhome owner, the property management company that
managed the rental home, and two employees of the
rental-home owner. The claims against the parties
other than Gorton were negligence-based wrongful
death theories. Those parties asked the court to dismiss Trentadue’s lawsuit against them, claiming the
action was barred by Michigan’s three-year statute of
limitations for wrongful death actions.
Statutes of limitations require that a plaintiff who
wishes to make a legal claim must file her lawsuit within
a designated length of time after her claim accrues. Normally a claim accrues at the time the legal wrong was
committed. If the plaintiff does not file her lawsuit within
the time specified by the applicable statute of limitations,
her claim cannot lawfully be pursued.
The defendants other than Gorton argued that
Trentadue’s case should be dismissed because her
justified by important considerations of public policy,
including:
1. A reliance on the market for valuation of property;
2. Easy verifiability, quantifiability, and measurability of
economic damages (and concomitant difficulty of those
in noneconomic damages);
3. Avoidance of disparity among the valuation of the same
property in different cases; and
4. Certainty for businesses that have frequent contact with
property and might damage it through negligence.
The Legislature is the appropriate entity to change the
rule if it sees fit.
Result The Supreme Court of Michigan reversed the
judgment of the Court of Appeals and remanded the case
to the trial court to enter judgment in favor of High Pointe.
claim accrued when Eby was killed in 1986—­meaning
that the 2002 filing of the lawsuit occurred long
after the three-year period had expired. Trentadue
responded that a common law rule known as the “discovery rule” should be applied so as to suspend the
running of the limitations period until 2002, when she
learned the identity of Eby’s killer. Under the discovery rule, the 2002 filing of the lawsuit would have been
timely because the limitations period would have been
tolled, or suspended, until the 2002 discovery that
Gorton was the murderer. The Michigan Compiled
Laws (MCL)—the statute that includes the relevant
three-year statute of limitations for wrongful death
claims—does not include a tolling provision similar
to the common law discovery rule for wrongful death
claims, even though it does in other areas. Nonetheless, the statute likewise does not explicitly reject the
discovery rule.
How should the court determine whether the common law discovery rule applies to Trentadue’s claims
or whether it has been displaced by the MCL’s statute
of limitations?
2. Which of the following types of law will have priority in the event that they present an unresolvable and
unavoidable conflict?
• A federal administrative regulation and a state statute.
• A federal statute and the U.S. Constitution.
• A federal statute and a federal administrative
regulation.
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Chapter One
• A state constitution and a treaty that has been ratified by Congress.
3. The Freedom of Access to Clinic Entrances Act (FACE),
a federal statute, provides for penalties against anyone
who “by force or threat of force or by physical obstruction . . . intentionally injures, intimidates, or interferes . . .
with any person . . . in order to intimidate such person . . .
from obtaining or providing reproductive health services.” Two persons, Lynch and Moscinski, blocked
access to a clinic that offered such services. The federal
government sought an injunction barring Lynch and
Moscinski from impeding access to, or coming within
15 feet of, the clinic. In defense, the defendants argued
that FACE protects the taking of innocent human life,
that FACE is therefore contrary to natural law, and that,
accordingly, FACE should be declared null and void.
A federal district court issued the injunction after finding that Lynch and Moscinski had violated FACE by
making entrance to the clinic unreasonably difficult.
On appeal, the defendants maintained that the district
court erred in not recognizing their natural law argument as a defense. Were the defendants correct?
4. Many states and localities used to have so-called
Sunday Closing laws—statutes or ordinances forbidding certain business from being conducted on Sunday. A few may still have such laws. Often, these
laws have not been obeyed or enforced. What would
an extreme legal positivist tend to think about the
duty to enforce and obey such laws? What would
a natural law exponent who strongly believes in
economic freedom tend to think about this question? What about a natural law adherent who is a
Christian religious traditionalist? What observation
would almost any legal realist make about Sunday
Closing laws? With these laws looked at from a sociological perspective, finally, what social factors help
explain their original passage, their relative lack of
enforcement today, and their continued presence on
the books despite their lack of enforcement?
5. Keith Rawlins and his daughter, Jenna, attended the July
20, 2012, baseball game between the Cleveland Indians
and the Baltimore Orioles. That night, following the
game, the Indians were hosting a post-game fireworks
display. As a result, the Cleveland Fire Department
ordered that certain sections of spectator seating had
to be vacated prior to the display. The Rawlinses’ seats
were in one of those sections. Rawlins and his daughter
claimed that ushers indicated that they had to vacate
their seats prior to the end of the game. Though they
The Nature of Law
1-31
did not want to leave, they complied, and as they proceeded up the steps to leave the stadium, Rawlins was
struck in the head with a foul ball. Rawlins was seriously injured as a result, and Jenna suffered emotional
trauma from seeing her father injured in this way. They
sued the Indians. Based on the discussion of the common law “baseball rule” in the Coomer case in this
chapter and the precedents that applied and declined
to apply it, if you were the judge in this case, would you
apply the baseball rule to shield the Cleveland Indians
from liability or would you distinguish this case from
those where the baseball rule applies? Why?
6. Linda Hagan and her sister Barbara Parker drank from
a bottle of Coke that they both agreed tasted flat. Hagan
then held the bottle up to a light and observed what
she and Parker thought was a used condom with “oozy
stringy stuff coming out of the top.” Both women were
distressed that they had consumed some foreign material, and Hagan immediately became nauseated. The
bottle was later delivered to Coca-Cola for testing. Concerned about what they had drunk, the women went to
a health care facility the next day and were given shots.
The medical personnel at the clinic told them that they
should be tested for HIV. Hagan and Parker were then
tested and informed that the results were negative. Six
months later, both women were again tested for HIV,
and the results were again negative.
Hagan and Parker brought a negligence action against
Coca-Cola. Coca-Cola’s beverage analyst testified at trial
that he had initially thought, as Hagan and Parker had,
that the object in the bottle was a condom; however,
upon closer examination, he concluded that the object
was a mold and that, to a “scientific certainty,” the item
floating in the Coke bottle was not a condom.
There is case law that lays out the so-called impact
rule in negligence claims. The rule requires that before
a plaintiff may recover damages for emotional distress,
she must demonstrate that the emotional stress suffered
flowed from injuries sustained in an impact. Nonetheless, there are a number of exceptions to the impact
rule, in which a lack of physical impact would not preclude an otherwise viable claim for emotional distress.
Those exceptions include bystander cases, wrongful
birth cases, negligent stillbirth cases, and bad-faith
claims against insurance carriers. Other courts had
found that ingestion of a contaminated product could
serve in the place of the traditionally required impact.
Given that Hagan and Parker’s claim is in common
law, how should the court go about determining whether
the impact rule applies to their case?
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1-32
Part One Foundations of American Law
7. The federal Age Discrimination in Employment Act
(ADEA) makes it unlawful for employers “to fail or
refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect
to his compensation, terms, conditions, or privileges
of employment, because of such individual’s age.”
The ADEA also provides that the statute’s protection
against discrimination applies only when the affected
individual is at least 40 years of age. A pre-1997 collective bargaining agreement between the United
Auto Workers (UAW) and General Dynamics Land
Systems, Inc. (GDLS) called for GDLS to furnish
health benefits to retired employees who had worked
for the company for a qualifying number of years. In
1997, however, the UAW and GDLS entered into a
new collective bargaining agreement that eliminated
the obligation of GDLS to provide health benefits to
employees who retired after the effective date of the
new agreement, except for then-current workers who
were at least 50 years old at the time of the agreement. Employees in that 50-and-over category would
still receive health benefits when they retired.
Dennis Cline and certain other GDLS employees
objected to the new collective bargaining agreement
because they were under 50 years of age when the
agreement was adopted, and thus would not receive
health benefits when they retired. Cline and the
other objecting employees were all at least 40 years
of age. In a proceeding before the Equal Employment Opportunity Commission (EEOC), Cline and
the similarly situated employees asserted that the
1997 agreement violated the ADEA because they
were within the ADEA’s protected class of persons
(those at least 40 years of age) and because the
agreement discriminated against them “with respect
to . . . compensation, terms, conditions, or privileges
of employment, because of [their] age” (quoting the
ADEA). They contended that age discrimination
occurred when their under-50 age served as the basis
for denying them the more favorable treatment to be
received by persons 50 years of age or older. After
no settlement occurred despite the EEOC’s encouragement, Cline and the similarly situated employees
sued GDLS for a supposed violation of the ADEA.
In asserting that they had been discriminated against
in favor of older workers, did Cline and the other
plaintiffs state a valid claim under the ADEA?
8. A federal statute known as the Freedom of Information Act (FOIA) establishes a general rule that federal
agencies must make records and documents publicly
available upon submission of a proper request. However, if those records or documents fall within certain
exemptions set forth in FOIA, they can be withheld
from public disclosure.
After the Federal Communications Commission
(FCC) conducted an investigation of AT&T regarding
AT&T’s possible overbilling of the government under
an FCC-administered program, the FCC and AT&T
entered into an agreement to settle any allegations of
wrongdoing. The agreement included a payment from
AT&T to the government of $500,000, though AT&T
admitted no wrongdoing.
Subsequently, a trade association and some of
AT&T’s competitors submitted a FOIA request to the
FCC for records related to the investigation. The FCC
withheld certain documents that contained AT&T
trade secrets, pursuant to a specific FOIA exemption.
But the FCC determined that other documents not
containing trade secrets had to be disclosed despite
AT&T’s contention that they should not be disclosed
under Exemption 7(C), which exempts “records or
information compiled for law enforcement purposes”
if the records “could reasonably be expected to constitute unwarranted invasion of personal privacy.” The
FCC determined that Exemption 7(C) did not apply
because corporations like AT&T, unlike humans, do
not possess “personal privacy” interests.
This dispute ultimately ended up in court, requiring
judges to determine the meaning of “personal privacy” in
Exemption 7(C). How might a judge go about determining whether Exemption 7(C) applies to AT&T’s interests?
9. Law enforcement officers arrived at a Minnesota residence in order to execute arrest warrants for Andrew
Hyatt. During the officers’ attempt to make the arrest,
Hyatt yelled something such as, “Go ahead, just shoot
me, shoot me,” and struck one of the officers. Another
officer then called for assistance from City of Anoka,
Minnesota, police officer Mark Yates, who was elsewhere in the residence with his leashed police dog,
Chips. Yates entered the room where Hyatt was, saw
the injured officer’s bloodied face, and observed Hyatt
standing behind his wife (Lena Hyatt). One of the officers acquired the impression that Lena may have been
serving as a shield for her husband. When Andrew
again yelled, “Shoot me, shoot me” and ran toward the
back of the room, Yates released Chips from the leash.
Instead of pursuing Andrew, Chips apprehended
Lena, taking her to the ground and performing a “bite
and hold” on her leg and arm. Yates then pursued
Andrew, who had fled through a window. When Yates
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Chapter One
later reentered the room, he released Chips from Lena
and instructed another officer to arrest her on suspicion of obstruction of legal process. Lena was taken by
ambulance to a hospital and treated for lacerations on
her elbow and knee. She later sued the City of Anoka,
seeking compensation for medical expenses and pain
and suffering. Her complaint alleged liability on the
basis of Minnesota’s dog bite statute, which read as
follows:
If a dog, without provocation, attacks or injures any
person who is acting peaceably in any place where
the person may lawfully be, the owner of the dog
is liable in damages to the person so attacked or
injured to the full amount of the injury sustained.
The term “owner” includes any person harboring or
keeping a dog but the owner shall be primarily liable. The term “dog” includes both male and female
of the canine species.
In defense, the city argued that the dog bite statute
does not apply to police dogs and municipalities that
own them. Was the city correct?
10. R
oommates.com, LLC (“Roommates”) operated a
widely used website designed to match people renting out spare rooms with people looking for a place
to live. Before subscribers to Roommates could
search listings or post housing opportunities on the
website, they had to create profiles by answering a
series of questions. Besides requesting basic information such as name, location, and e-mail address,
Roommates required each subscriber to disclose his
or her sex and sexual orientation and whether he
or she would bring children to a household. Each
subscriber was further required to describe his or
her roommate preferences with respect to the same
The Nature of Law
1-33
three criteria (sex, sexual orientation, and whether
children would be brought to the household). Roommates also encouraged subscribers to provide “Additional Comments” describing themselves and their
desired roommate in an open-ended essay. After a
new subscriber completed the application, Roommates would assemble his or her answers into a profile page. Subscribers to Roommates were entitled
to view their own profile pages and those of others,
send personal e-mail messages through the site, and
receive notices from Roommates regarding available
housing opportunities matching their preferences.
The Fair Housing Councils of the San Fernando
Valley and San Diego (“Councils”) sued Roommates,
alleging that its activities violated the federal Fair
Housing Act (“FHA”). The FHA prohibits discrimination in the sale or rental of housing on the basis of
“race, color, religion, sex, familial status, or national
origin.” The FHA also bars
mak[ing], print[ing], or publish[ing], or caus[ing]
to be made, printed, or published, any notice, statement, or advertisement, with respect to the sale or
rental of a dwelling that indicates any preference,
limitation, or discrimination based on race, color,
religion, sex, handicap, familial status, or national
origin, or an intention to make any such preference,
limitation, or discrimination.
Roommates argued, however, that it was immune
from liability under § 230 of the federal Communications Decency Act, which provides that
“[n]o provider . . . of an interactive computer service
shall be treated as the publisher or speaker of any information provided by another information content provider.” Did § 230 protect Roommates against liability?
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