BLAW CHAPTER 1
Statements:
In the legal environment of business, law refers to the rules, standards and principles that define
behavioral boundaries for business activities.
Law is a statement of the circumstance, in which the public force is brought to bear… through the courts.
A principle or rule of conduct so established as to justify a prediction with reasonable certainty that it will
be enforced by the courts if its authority is challenged.
Law and the key Functions of the legal systems
1. Law, in its generic sense, is a body of rules of action or conduct prescribe by the controlling
authority and having binding legal force.
2. That which must be obeyed and followed by members of a society subject to sanctions or legal
consequences is a law.
Law and the legal system serve several key roles in society
1.
2.
3.
4.
Influencing the behavior of the members of society
Resolving disputes within society
Maintaining important social values
Providing a method for assisting social change
Improving Social Stability by Influencing Behavior
The legal system helps to define acceptable social behavior. The law limits activities that hurt the public
interest. Restrict business practices that are thought to be outside the ethical and social norms or political
goals. The law can also require or encourage business practices that further social or political goals.
Conflict Resolution
While most disputes are settled informally, a formal mechanism for the resolution of disputes is the court
system. Mediation
Social Stability and Change
Sources of law in the United States
1. A Constitution is the fundamental law of the nation.
2. The U.S Constitution is the oldest written Constitution in force in the world.
3. The States Constitution their powers and structures of all state governments are based on written
constitutions.
Legislatures and Statutes
Congress and state legislature are the source law. Statutes that are created by legislation make up much of
the law that significantly affects business behavior.
Administrative Agencies and regulations
An administrative agency is created by a delegation of legislative power to the executive branch. For
example, after President Nixon created the Environmental Protection Agency, Congress gave the EPA
authority to enact regulations to implement the goal of environmental statutes and to be the primary
enforcer of those laws.
The Judiciary and Common Law
The common law- law made and applied by judges as they resolve disputes among private parties – is a
major part of the legal environment of business as it is the foundation of agency (employment), contract,
property, and tort law.
Doctrine of Stare Decisis
The use of precedent in deciding current cases is a doctrine called stare decisis, meaning “to stand on
decided cases.” Under this doctrine, judges are expected to stand by established rules of law.
Value of Precedent
1. Consistency in the legal system improve the ability to plan business decisions.
2. A rule is applied in many disputes involving similar facts, people become increasingly confident
that the rule will be followed in the resolution of future disputes and order business and personal
affairs given rules of law.
3. The doctrine creates a legal system that is more just by neutralizing the prejudices of individual
judges.
DAVIS V. BAUGH INDUSTRIAL CONTRACTORS, INC. (Page 10-11)
CIVIL LAW SYSTEMS (Page 12)
The Executive
In addition to being the one who signs (or vetoes) bills passed by the legislature, the president or governor
is another source of law. He or She creates law by issuing executive orders, requiring agencies to do
certain things within the executive’s scope of authority.
The chief executive can also influence the duties and responsibilities of administrative agencies. One
administrative, for example, may not purse environmental, antitrust, or international trade regulation as
strongly as another administration.
International Sources of Law
International law affecting business also including treaties, which are international agreements, including
trade agreement among countries.
Public and Private Law
Public law concerns the legal relationship between members of society-businesses and individuals- and
the government.
Private law sets forth rules governing the legal relationships among members of society.
Civil and Criminal Law
Criminal law concerns legal wrongs or crimes committed against the states. As determined by federal or
state statue, a crime is classified as a felony or a misdemeanor. A person found guilty of a criminal
offense may be fined, imprisoned or both. To find a person guilty of a crime, the trial court must find that
the evidence presented showed beyond a reasonable doubt that the person committed the crime.
Civil law is concerned with the rights and responsibilities that exist among members of society or
between individuals and the government in noncriminal matters. In finding the wrongdoer liable, the jury
(or the judge in a nonjury trial) must find that the preponderance of the evidence favors the injured
party, which is lower standard of proof that is required in criminal cases.
Substantive and Procedural Law
Substantive law includes common law and statutory law that define and established legal rights and
regulate behavior.
Procedural law determines how substantive law is enforced through the courts by determining how a
lawsuit begins, what document need to be filed, which court can hear the case, how the trial proceeds, and
so on.
Business Ethics and Social Responsibility
Public confidence in many major institutions is low. Surveys indicate that the least trusted institutions are
law firms, Wall Street, congress, big companies, labor unions, and the media. Most trusted are often the
military, medical personnel, and small businesses.
Ethics, Integrity, Morality and the Law
Ethics, in the context of business practitioners, has do with rules or standards governing the conduct of
members of a profession and how standards are put into action within an organization.
Integrity means living by a moral code and standards of ethics.
Morality concerns conformity to rules of correct conduct within the context of a society, religion, or other
institution.
Business Ethics (Lockheed Martin) paying the bribes and getting the order for new aircraft did not put
money in the pockets of the Lockheed executives, but it did save thousands of jobs at Lockheed.
Political Reality in the United States, for example, many “pay to play” case have come to light. That is,
some cases firms have had to pay bribes, directly or indirectly, to city, state, or federal government
officials to have a chance to receive lucrative contracts.
CYBER LAW (PG 18)
INTERNATIONAL PERSPECTIVE (PG 19)
ISSUE SPOTTER (PG 19)
Ethics Codes and Compliance Programs
Compliance Programs is a key factor in the agency’s decision whether to prosecute an organization or to
recommend leniency to a court when a legal problem arises.
Ethics and Corporate Social Responsibility
That is closely related to Google’s “Don’t Be Evil” rule. The Google code of code spells this out in detail
as it applies to many areas to many areas of operation, including serving customers, personnel policy, and
privacy issues. Google struggle with the government of china over censorship of political material. The
government stated that Google was breaking Chinese law by refusing to follow censorship rules.
LAMSON V. CRATER LAKE MOTORS (PG20-21)
CHAPTER 2
THE COURT SYSTEMS
Federal judges are nominated by the president and confirmed by a majority vote in the U.S. Senate.
Because the Constitution guarantees federal judges the right to serve “during good behavior,” they enjoy a
lifetime appointment.
The impeachment process includes the actual impeachment (indictment) by the House of Representative,
followed by a trial before the Senate. If at least two thirds of the senate vote removal, the judge is
removed from office.
State judges in contrast to the position enjoyed by federal judges, most state judges serve for a fixed term,
whether they are appointed or elected.
Judicial Immunity under the doctrine of judicial immunity, a judge is absolutely immune from suit for
damages for judicial acts.
DAVIS V. WEST (PG28)
The Federal Courts as the trial court of the federal system, U.S. district courts are the courts of original
jurisdiction in the federal system. Most cases involving questions of federal law originate in these courts.
There are a total of 94 federal districts in the court system.
In addition to district judges, federal trial courts also use judicial officers called magistrates.
The judges can then send particular matters to the magistrates to be heard, such as discovery disputes,
habeas corpus petitions, or civil rights claims filed by prisoners, with the magistrate making a
recommendation to the district judge.
Federal Appellate Courts are U.S. courts of appeals may review federal district court decision. There are
12 geographically based courts of appeals, one for each of the 11 circuits into which the United States is
divided, and one for the District of Columbia that hears many cases involving federal regulations.
The U.S. courts of appeals assign three-judge panels to review most district courts decisions appealed
within their circuits. All the active judge in a circuit hear a case in what is known as an en banc
proceeding.
Specialized Federal Courts there are 4: U.S. bankruptcy courts, U.S. courts of Federal Claims, U.S.court
of International Trade and U.S. Tax court.
The Court of appeals for the Federal Circuit has 12 judges who sit in Washington, D.C. Its subject-matter
jurisdiction is limited to appeals from the district courts in patent, trademarks, and copyright cases; in case
where the United States is a defendant; appeals from the Court of Federal Claims and from the Court of
International Trade; and the review of administrative rulings of the U.S. Patent and trademark office.
U.S. Supreme Court
The U.S. Supreme Court is the highest in the country. Cases reaching the Court are usually heard by nine
justices, one of whom is the Chief Justice. Appellate reviews is normally obtained by petitioning the court
for a writ of certiorari. Most petitions granted by the U.S. Supreme Court involve an issue of
constitutional importance or a conflict between the decisions of two or more U.S. courts of appeals.
THE FRENCH COURT SYSTEM (PG32)
The State Courts
State Courts of Original Jurisdiction each state court system has court of original jurisdiction, or trial
courts, where disputes are initially brought and tried.
Trial courts are organized into districts, often on the county level.
Superior court in some states are courts of general jurisdictional.
Municipal courts are courts of limited or special jurisdiction.
State Courts of Appellate Jurisdiction
Every judicial system allow the review of trial court decisions by a court with appellate jurisdiction.
Rules of Civil Procedure
Although the states are free to develop their own procedural rules, most have adopted the Federal Rules of
Civil Procedure or rule similar to them. The Federal Rules govern the procedure of the litigation process,
including the pleading, discovery, trial procedures, and relevant motions.
Jurisdiction
The literal meaning of the term jurisdiction is “the power to speak of the law”.
The plaintiff must select a court that has both: 1. Subject-matter jurisdiction 2. Personal jurisdiction over a
person of the defendant or the property of the defendant.
Subject-Matters Jurisdiction
Subject-Matter jurisdiction is created by a constitution or a statue regarding the types of disputes a court
can accept to resolve.
Subject-Matter Jurisdiction in Federal Courts under the U.S. Constitution, the federal courts may hear
only those cases within the judicial power off the United States. (PG35)
When federal jurisdiction is based on the parties involved, most litigation is generated by cases 1. In
which the United States is a party to the suit or 2. Involving citizens of different states.
Diversity-of-Citizenship or Diversity Jurisdiction is provide a neutral forum for handling such disputes.
The writer of the Constitution worried that states courts might be biased in favor of their own citizens and
against “strangers” from other states or countries. To establish federal jurisdiction in a diversity case, the
parties must also show two things: 1. that they are from different states and 2. That the amount in
controversy (the sum the plaintiff is suing the defendant for) is more than $75,000.
Personal Jurisdiction
Once it is established that the court has subject-matter jurisdiction, the plaintiff must meet the personal
jurisdiction requirements. A court’s power over the person (“person” may be a business) of the defendant
is referred to as in Personam Jurisdiction. The defendant is severed with a summons, a notice of the
lawsuit.
That is, after selecting the appropriate court, the plaintiff must properly notify the defendant of the action
filed by service of process. The court will issue a default judgment against a defendant who fails to
appear.
LONDON’S COMMERICAL COURTS (PG 37)
Jurisdiction over Out-of-State Defendants the long-arm statutes are aimed primarily at nonresidents
businesses. Courts primarily have jurisdiction over a corporation in the following three situations:
1. The court is in the state in which the corporation was incorporated.
2. The court is in the state where the corporation has its headquarters or its main plant.
3. The court is in a state in which the corporation is doing business.
THE LONG- ARN OF THE INTERNET (PG 39)
BLIMKA V. MY WEB WHOLESALERS,LLC (PG 39)
CAN YOUR FIRM BE REACHED? (PG 40)
Jurisdiction over Property
The court is said to have in rem jurisdiction (rem means “the things”). Property in an in rem proceeding
can include tangible property, such as real estate and personal property, and intangible property, including
bank accounts and stocks.
Exclusive Jurisdiction
Courts in the federal system have exclusive jurisdiction over certain disputes. For example, federal courts
have exclusive jurisdiction in cases involving federal crimes, bankruptcy, patents, and copyrights.
State courts have exclusive jurisdiction over disputes such as divorce, adoption, and other matters
controlled by state governments.
Concurrent Jurisdiction
When both systems have the power to hear a case, concurrent jurisdiction exists. Both systems may have
jurisdiction when either of the following is the case:
1. There is diversity of citizenship and the amount of in controversy exceeds $75,000.
2. The dispute involves a federal question and congress has not conferred exclusive jurisdiction on
the federal court.
APPLYNG THE APPROPRIATE LAW IN FEDERAL COURT (PG 43) Diversity of citizenship
Venue the proper place where a lawsuit is heard, on the basis of fairness, states statute generally
provide that a lawsuit be brought in court located in the county in which either the plaintiff or the
defendant lives.
Change of Venue some defendants request a change of venue from the court where the plaintiff filed
the case. In such cases, defendants worry that because of the publicity surrounding their case, they
will be unable to get a fair trial.
Forum of Conveniens is related to venue is the doctrine forum non conveniens (the forum is not
suitable). When considering the motions, a court considers where the actions related to the case took
place, where the witnesses and evidence are located, whether the parties will be unfairly burdened by
using a particular court, and whether problems of conflict of law might be avoided by transferring the
case.
BANCORPSOUTH BANK V. HAZELWOOD LOGISTICS CENTER, LLC (PG 46-47)
CHAPTER 3
Basic Trial Procedures
Pleading stage to begin a lawsuit, the plaintiff files the first pleading, known as the complaint. The
complaint statements:
1. Alleging the essential facts necessary for the court to take jurisdiction.
2. Of the facts necessary to claim that the plaintiff is entitled to a remedy.
3. Of the remedy the plaintiff is seeking.
Responses to the Compliant the defendant must file an answer. Depending on the circumstances, the
defendant may file 1. A motion to dismiss, 2. An answer with or without an affirmative defense and/ or 3.
A counterclaim.
Motion to dismiss
The defendant may also file a motion to dismiss for failure to state a claim or a demurrer (some states do
not use the term “demurrer”, they use only the term “motion to dismiss”).
Answer
The defendant must file an answer with the court. Called an affirmative defense, the defendant admits to
the facts claimed by the plaintiff but offers additional facts he asserts constitute a defense-legal excuse- to
the plaintiff’s complaint. Other examples of affirmative defense include self-defense, assumption of risk,
contributory negligence, and other defenses we will study later.
Counterclaim
The defendant’s claim is a counter-claim and may be based on the same events that the plaintiff bases the
complaint on.
Reply
When the defendant files counter claim, the plaintiff answers with a reply, which is an answer to the
counterclaim.
Discovery Stage: Obtaining Information before Trial
Purpose of Discovery
The evidence presented could catch the opposing party by surprise-a “trial by ambush.” The discovery
process now prevents surprises by giving the parties access to each other’s’ information. Parties can
assess the strengths of both sides’ cases and estimate what a reasonable settlement would be.
Tools of the Discovery Process
Depositions and Interrogatories
The deposition-the sworn, in-person testimony of a witness recorded by a court reporter. The deposition is
a useful way to find information relevant to the dispute, including leads to other witnesses or documents.
It may be used at trial to impeach, or challenge, a witness who attempts to change his story at the trial.
Written interrogatories are questions submitted by a party to a case to the other party, or a witness, or
another person with relevant information. The party receiving the interrogatories prepares written
answers, usually with the aid of an attorney, and signs them under oath.
Expert Witnesses
Many trials involving businesses use expert witnesses to help establish facts critical to a case, such as the
value of lost profits, the costs to a victim of an accident, or the scientific evidence of harm from a product.
We see am example of faulty expert testimony in the Barabin v. AstenJohnson Inc. case. Faulty testimony
can mean the plaintiff loses the case because it relied on the claims made by an unqualified expert.
BARABN V. ASTENJOHNSON, INC (PG 57)
Sanctions for Failing to Respond to a Discovery Request
Judges have broad powers to impose sanctions against a party who fail to comply with discovery
requirements. If a party fails to comply with the requirement of, say, a deposition, the requesting party
can make a motion to the judge to require compliance. If the party does not comply with a court order, the
court may order a default judgment granting victory to the other party or find the noncomplying party in
contempt of court and order the party to jail or impose a fine.
Orders for the Production of documents
A party may access information in the possession of the other party by an order for the production of
documents. The kinds of information that are often sought are e-mail, medical bills, business records, and
letters and repair bills.
Request for admissions
Either party can serve the other with written request for an admission of the truth in matters relating to the
dispute. Request are used to settle facts about which there are no real disputes.
Mental and Physical Examination
When the physical or mental condition of a party is an issue, the court may be asked to order that party to
submit to an examination.
Summary Judgment
At the close of discovery, either party may move for a summary judgment. That summary judgment “shall
be render…if the pleadings, depositions, answers to interrogatories, and admissions on file, together with
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law”.
Pretrial Conference
These commonly held conferences normally involve only the attorneys and the judge. The conferences
often simplify the issues and plan the course of the trial, agreeing on witness lists, exhibits, and the
schedule. Also at pretrial conferences, judges usually encourage the parties to attempt to reach an out-ofcourt settlement.
Trial Stage
After discovery is complete, if there has been no dismissal, summary judgment, or settlement, the dispute
is set for trial.
The Jury
The sixth and Seventh Amendment to the U.S. Constitution, as well as state constitutions, provide for the
right to a jury in certain cases. In federal court system, this right is guaranteed if the amount in
controversy exceeds $ 20 and is a common-law claim.
Decision to use a jury the right to a jury trial does not have to be exercised. If a jury is not requested, the
judge hears and determines the facts in the dispute and applies the law to resolve the matter.
Selection of the jury-jury selection begins when the clerk of the court sends a notice instructing citizens to
appear on a particular day for jury duty. The people called are in a jury pool. The process used to select
jury members is called voir dire. The attorneys are also allowed a limited number of challenges that
permit them to reject prospective jurors without stating a reason. Juries traditionally involve a panel of 12
persons, but in many state, panels of fewer than 12-frequently 6 – are used.
The Trial
In nonjury trials, the judge may put more limits on the attorneys’ opening statements and closing
arguments, but is likely to put fewer restrictions on witnesses’ testimony.
Start of the trial after the jurors have been sworn in, both attorneys make opening statements. The
attorneys tell the jury what the crucial facts are and how they will prove that those facts supports their
position.
Presentation of Direct Testimony each witness is first questioned by the plaintiffs’ attorney a direct
examination. The defendants’ attorney then examines that witness on cross- examination.
Closing Arguments before the case goes to the jury, the attorneys each present a closing argument. They
summarize the evidence for the jury in a manner most favorable to their case.
Instructions to the Jury before the jury retires to deliberate and reach a verdict, the judge gives the jury
instructions, or charges. In the instructions, the judge tells the jury the applicable law, summarizes the
issue of the dispute, and state which of the parties has then burden of persuasion.
Reaching a Verdict the jury deliberates to reach an agreement and find for the plaintiff or the defendant.
In a civil trial, the parties must prove their contentions to the jury by a preponderance of the evidence. If
jurors are unable to reach a unanimous decision, the jury is said to be hung, and a new trial before a
different jury may be necessary. The jury is discharged and a mistrial declared.
Motions for a Verdict the parties may ask the judge to issue a favorable verdict that makes jury
deliberation unnecessary. Most common is a motion for a direct verdict or a motion for judgment as a
matter of law (also called judgment on the pleadings).
Remedies in Civil Litigation
A remedy is the way a right is enforced or how a violation of a right is compensated or prevented.
Compensatory Damages to award injured parties enough money to restore them to the economic position
they were in before the injury, or to cover the losses caused by the injury, compensatory damages are
granted. These may be awarded for loss of time and money, pain and suffering injury to reputation, and
mental anguish, depending on the circumstances.
NAPLES V. KEYSTONE BUILDING AND DEVELOMENT CORP. (PG 65)
Punitive Damages when the wrongdoer’s action are particular reprehensible, or when the defendant’s
conduct is willful or malicious, the court may award the injured party punitive (or exemplary) damages in
addition to compensatory damages.
Nominal Damages if a plaintiff suffers a legal wrong but has not suffered actual damages to person or
property, or if the damages are considered trivial by the court, the court may award nominal damages. The
plaintiff may recover as little as one dollar.
Equitable Remedies
Specific Performance in equity, courts can order specific performance as a remedy and require the
offending party to do what it had promised.
Injunction is a court order directing a person to do or not do something.
Temporary restraining order is a short-term court order, generally lasting just a few days, and which is
primarily used by a court to preserve the status quo until a more formal hearing can be held.
Preliminary injunction (or interlocutory injunction) is a longer-term court order, usually in force until the
dispute is resolved. Before issuing a preliminary injunction, a court generally weighs four factors: 1. the
parties’ relative likelihood of success on the merits 2. The likelihood that the plaintiff will suffer an
irreparable injury if the injunction is not granted 3. The balance of the equities 4. The public interest.
PRE-PAID LEGAL SERVICES, INC V. CAHILL (PG 67)
Permanent Injunction is a final court order, issued after the conclusion of the trial or as part of a
settlement agreement.
Appellate Stage is the decision in a case may be appealed if one of the parties believes an error of law
was made during the trial. These errors include mistakes about the substantive law or procedural and
evidentiary matters.
Argument before Appeals Court
The parties present their arguments to the appellate court through written briefs and oral arguments,
which focus on the law, not the fact in the case. It has the power to affirm, reverse, or modify the
judgment of the trial court.
Decisions by Appeals Courts
An appellate court’s majority decision is referred to as the court’s majority opinion. The opinion gives
legal rationale for the court’s decision. A judge may also write a concurring opinion, if he agrees with
the outcome but has different reasons or wishes to make additional argument, or a dissenting opinion, if
she disagrees with the decision of the majority.
Enforcement Stage
After a trial, if no appeal is taken or if no further appeal is available, the judgment, or decision, of the
court becomes final. It is res judicata- a thing decided by judgment.
Enforcing Judgments
When the plaintiff recovers a damage award and the defendant does not pay, the plaintiff can seek a writ
of execution. The writ is a court order to an official, such as the sheriff, to seize the property of the
defendant to satisfy the judgment. Courts may order garnishment of a debtor’s property, such as a
checking account, which usually involves an order to a third party who owes the debtor money to pay the
money to the plaintiff instead.
Alternate Disputes Resolution
Arbitration is the most widely recognized form of alternate dispute resolution (ADR). The advantages of
using a neutral party, called an arbitrator or arbiter are threefold:
1. The arbitrator is mutually agreed upon by the parties and has the trust of both parties.
2. The arbitrator is usually an expert in the subject matter, less time is needed to educate her about
the dispute, which usually results in a faster resolution of the matter.
3. Arbitrator do not usually issue public decisions or hold public hearings, the parties can keep the
evidence and decision private.
Selection of Arbitrators
Arbitrators are often attorneys, but that is not required. Arbitrators are required to be impartial, which
mean that they must avoid conflicts of interest and should uphold the integrity of the arbitration process
as spelled out in the code of ethics.
Hearing Procedure
The hearing is normally a closed-door proceeding conducted like trial but without a restrictive procedural
rules. Hearing procedures may take a variety of forms, including online arbitration.
The Award
After the hearing, the arbitrator reaches a decision, called an award, which is usually given within 30
days.
Appealing the Award
There are only four grounds for overturning an award:
1. The award was obtained by corruption or fraud.
2. There was evidence of partiality or corruption by an arbitrator.
3. An arbitrator was guilty of serious procedural misconduct, such as refusing to hear relevant
evidence that prejudiced the right of a party.
4. An arbitrator exceeded his power, and an award was made on subject not relevant to the
proceeding.
Mediation
Where the parties to a dispute or their representatives meet to try to settle a matter, in mediation a third
party- the mediator- is always used to help the parties try to reach a solution by coming to an acceptable
agreement. Unlike arbitration, where the arbitrator imposes an award on the parties, the mediator cannot
impose a decision, but can only help resolve a conflict.
The Commerce Clause
“The congress shall have power…To regulate commerce with foreign nations, and among the
several States…” Known as the commerce clause, these words have been interpreted to give congress the
power to enact most of the federal regulation of business. When combined with the necessary and proper
clause, this gives Congress tremendous regulatory power.
The Necessary and Proper Clause
Congress power “to make all laws which shall be necessary and proper for carrying into execution the
foregoing power and all other powers vested by this constitution in the government of the United States,
or in any department or officer thereof. This is called the necessary and proper clause.
MCCULLOCH V. MARYLAND
The court held that the clause expands the power of Congress:
1. THE CLAUSE IS PLACED AMONG THE POWERS OF CONGRESS, NOT AMONG THE LIMITATIONS ON
THOSE POWERS.
2. ITS TERMS PURPORT TO ENLARGE, NOT TO DIMINISH THE POWERS VESTED IN THE GOVERNMENT.
IT PURPORTS TO BE AN ADDITIONAL POWER, NOT A RESTRICTION ON THOSE ALREADY GRANTED.
Federal Supremacy
Supremacy Clause: “The Constitution, and the laws of the United States…shall be the supreme law
of the land; and the judges in every State shall be bound thereby….” If Congress did not want
Maryland to tax a bank created by Congress Maryland could not do so because, so long as they are
constitutional, federal laws are supreme over state laws.
Defining “Commerce among the Several States
Power over interstate commerce is extensive, (Wickard v. Filburn) the Supreme Court upheld federal
regulations of what farmers could grow. Filburn had a 90 acre family farm in Ohio. According to the U.S.
department of agriculture, which was authorized by Congress to set the price of wheat and tell every
farmer how much wheat they could grow, Filburn produced 239 bushels of wheat more than he was
allowed. He was fined $117 and ordered not to plant more than he was told. The court held that although
Filburn’s effect on the market for wheat was “trivial” it was still subject to federal control. Since “homeconsumed” wheat would have substantial influence on price and market conditions.
Federal and State Regulatory Relations
Federal environmental regulation, for example, requires the Environmental Protection Agency to set
national pollution control standards. Once those are set, state environmental regulators must then create
specific requirements to be met within a state and issue permits for dischargers to the air and water,
inspect landfills, and many other tasks.
The Supreme Court struck down Washington state regulations regarding oil tanker design and operation.
State rules are preempted by the comprehensive federal regulatory scheme governing tankers. Congress
clearly wished to have uniform rules governing tanker operations in all waters, so the states may not
intervene.
For example, states may pass air pollution regulations to apply to their industries that are stricter, but not
less strict, than federal air pollution rules.
When State Law Impedes Interstate Commerce
The Supreme Court in Southern Railway Co. v. Arizona, had to consider Arizona regulations that
required trains to be shorter in Arizona than in other states for “safety consideration.” The effect of the
Arizona requirement was to impede interstate commerce. The Supreme Court struck down the Arizona
law. Chief Justice Stone said, “The decisive question is whether in the circumstance the total effect of the
law as a outweigh the national interest in keeping interstate commerce free from interference which
seriously impede it.”
The states have a legitimate interest in protecting public health, safety, and other public policies. When
such goals are the reason for a state law, the regulation chosen must be designed to achieve its legitimate
interest with minimal impact on interstate business.
Imitation Not Allowed
The Supreme Court struck down the state law in South-Central Timber Development v. Wunnicke.
“Although the Commerce Clause is by its text an affirmative grant of power to Congress to regulate
interstate and foreign commerce, the Clause has long been recognized as a self-executing limitation on the
power of the states to enact laws imposing substantial burdens on such commerce.”
The Taxing Power
Congress is given the power to “lay and collect Taxes, Duties, Imposts, and Excises” by the Constitution.
For example, a tax may be tied to a requirement to keep details records about goods subject to the tax.
This way, goods such as explosives, firearms, drugs, and liquors can be kept under close federal
supervision.
Federal Taxation
Since the 16th amendment gave the federal government the power to impose income taxes, the Supreme
Court has rarely questioned the constitutionality of federal taxing schemes. The court has upheld taxes on
illegal gambling and illegal drugs. This makes it easier for the government to prosecute people involved
in illegal activities.
State Taxation
The Constitution protects interstate commerce from discriminatory state taxes. (PG87)
A four-part test of the constitutionality of state tax scheme. The tax:
1. Applies to an activity having a substantial nexus (connection) with the states.
2. Is fairly apportioned to those inside and outside the states.
3. Does not discriminate against interstate commerce.
4. Is fairly related to service provided by the state.
State Taxes May Not Impede Foreign Trade
The Supreme Court emphasized that point in Japan Line v. County of Los Angeles. Several California
cities and counties imposed a property tax on cargo-shipping containers owned by Japanese companies.
The containers were used only in international commerce on Japanese ships. The California taxes were
imposed on the containers in the state during loading and unloading. The Supreme Court held the tax to
be unconstitutional because the commerce clause reserves to congress the power over foreign commerce.
Business and Free Speech
The first amendment restrict control of freedom of speech: “congress shall make no law… abridging the
freedom of speech…” The most stringent protection of free speech would not protect a man falsely
shouting fire in a theatre and causing panic. The Constitution prohibits laws “abridging the freedom of
speech, but does not prohibit all laws regulating communication.
Business and Political Speech
The court soon followed this decision with the Consolidated Edison decision. In the case, the court
explained the three-part test that restrictions must pass to be allowed to regulate political speech made by
businesses.
Business and Commercial Speech – the modern commercial speech doctrine first came about as
restrictions on advertising were attacked as anticompetitive. (PG 93)
The Supreme Court has ruled the first amendment rights are violated by restrictions on advertising for
professional services, such as by lawyers or doctors. The court held that the state bar association violated
the first amendment by prohibiting lawyers from soliciting business by sending truthful letters to
prospective clients known to face possible legal action. (PG95-96)
Freedom to Criticize – freedom of speech can mean that a business is criticized. A report in consumer
reports was critical of the quality of a stereo speaker made by Bose. Bose Sued. The Supreme Court
upheld the right to be critical of a product in a review o the product in Bose v. Consumer Union.
Right to Bear Arms
The second Amendment is brief: “a well-regulated Militia being necessary to the security of a free state,
the right of the people to keep and bear arms, shall not be infringed.”
Unreasonable Search and Seizure
The fourth amendment reads: “the right of the people to be secure in their persons, houses, papers, and
effects against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but
upon probable cause….”
Self-Incrimination
The Fifth Amendment protects individuals against self-incrimination: “No person shall be… compelled in
any criminal case to be a witness against himself.”
Regulatory Takings
Beyond eminent domain, which requires governments to pay fair market value for property taken,
government have regulatory powers that can change property values. A change in zoning rules can greatly
decrease the value of property.
Right to Trial
The sixth amendment addresses the right of persons to trial by jury in criminal cases.
The seventh amendment provides for the rights to jury trial in common-law cases.
Excessive Fines
The eighth amendment is best known for its restriction on “cruel and unusual punishment,” but also holds
that no excessive fines may be imposed.
Fourteenth Amendment
The fourteenth amendment holds, in part, “No State shall…deprive any person of life, liberty, or property,
without due process of law; nor deny to any person within its jurisdiction the equal protection of the law.”
The Due Process Clause and equal protection clause. Substantive due process comes into play whenever
the courts review the ability of the government to restrict the freedom of life, liberty, or property.
Due Process
First, due process is violated when the state infringes on fundamental liberty interests without narrowly
tailoring that infringement to serve a compelling state interest. Second, due process is infringed when
state action either shocks the conscience or offends judicial notions of fairness and human dignity.
Equal Protection
The equal protection clause has come to mean that government must treat people equally.
CHAPTER 5
Crime may be a positive or negative act that violates a penal law; that is, it is an offense against a state or
the federal government.
Felony is a serious crime. A crime declared to a be a felony may be punished by more than a year in
prison.
Misdemeanors are less serious crimes, usually punish by a fine or a year or less in prison.
White-collar crimes include nonviolent crimes committed by corporations or individuals. Embezzlement,
bribery, fraud and violations of federal and state laws regulating business, such as securities laws,
generally fall into this category.
Actus Reus is when one commits a criminal act, they perform a wrongful deed.
Mens Rea this is the criminal intent that must be established, the “guilty mind.”
Miranda Rights under the constitution, person accused of a crime, or held in suspicion of a crime, must be
informed of their right to remain silent, as provide by the Fifth Amendment, of their right to be
represented by counsel, and that statements they make can be used as evidence against them.
An alibi raise doubt in the jurors’ minds by offering other evidence that he did not commit the crime.
Affirmative Defense that is, the defendant may attempt to show that even if the prosecution’s claims are
true, there are other facts that prevent the claims from constituting the crime charged.
Discovery is a civil procedure that focus on reducing surprises.
Double Jeopardy prevents a defendant from being tried a second time for the same charge.
Embezzlement is when someone is in a position of trust with money or other valued property, and take it
for their use.
Environmental Law Violation most federal and state environmental statutes provide for the possibility of
criminal conviction for environmental harm.
Financial Fraud – financial firms and their employees are subject to potential criminal liability for fraud in
loans, financial documents, mortgages, and other abuses.
Government Fraud – billing for good not delivered and double billing, agencies must watch to be sure
they are not delivered inferior goods. Fraud laws also apply to federal payment programs, including farm
subsidies, public housing, an educational programs.
Healthcare Fraud – most of that is through government agencies or insurance companies, various laws
deal with over-billing and other scams by hospitals, doctors, ambulance services, laboratories,
pharmacies, and extended-care facilities.
Insider Trading – the securities laws broadly prohibit fraudulent activities of any kind in connection with
offer, purchase, or sale of securities.
Insurance Fraud – insurance companies can engage in fraud by charging higher rates than allowed by
state regulators, but most fraud is by policy holders who lie about the condition of their property to get
lower rates or who pad their claims.
Mail Fraud – is common basis for government to prosecute those involved in some find of trickery.
Money Laundering – is hiding the truth about the origin of money to avoid charges of income tax evasion.
Racketeer Influenced and Corrupt Organization (RICO) act – racketeering traditionally meant a pattern of
illegal activity such as bribery or extortion, which was part of an enterprise controlled by those in the
illegal activity.
Securities Fraud – while insider trading gets a lot of press, securities fraud in the form of market rigging,
theft from accounts of clients of securities firms, and other violations of securities laws are in fact much
more common.
Tax Evasion- the IRS devotes significant resources to tracking down persons and businesses that fail to
file tax returns, fail to report all of their income or overstate their expenses.
Telephone and Telemarking Fraud – is a term that refers generally to any scheme to defraud in which the
persons carrying out the scheme use the telephone as their primary means of communicating with
prospective victims and trying to persuade them to send money to the scheme.
Wire Fraud – this is much like mail fraud and telephone or internet fraud.
Anti- Money laundering (AML) measures are regulations aimed at making it difficult for Tony to
accomplish this. Soprano’s bank and other financial institutions must comply with federal regulations.
Elements of Control within Business Operations – at the heart of all AML are three key goals:
1. Identify the beneficial owner of assets
2. Trace the transmission of assets
3. Report suspicious transactions. (all three impacts on legitimate businesses)
Consequences of Non-Compliance – failing to file a suspicious activity report may lead to civil and
criminal penalties or both. Civil penalties can apply for each willful violation of the reporting
requirements, meaning that failing to report a series of 10 transaction could lead to 10 penalties. Fine of
up to $250,000or five years imprisonment.
Sentencing Guidelines and Compliance
Justice Department guidelines for effective compliance programs require:
1. Compliance standards and procedures that are reasonably capable of reducing the prospect of
criminal conduct.
2. High- level persons within the organization to have overall responsibility to oversee compliance
with standards and procedures.
3. Effective communication of standards and procedures to all employees and agents, such as by
training.
4. Reasonable steps to achieve compliance with standards by monitoring and auditing the program.
5. Consistent enforcement of standards.
6. When offenses do occur, reasonable steps to respond to the problem and to prevent further such
offenses.
CHAPTER 6
Elements of Torts – the biggest jury verdict in history was a tort case. In 1984, Pennzoil agreed to
buy a large share of Getty Oil. Texaco, knowing of the agreement, offered more money for Getty and
got Getty’s owners to refuse Pennzoil’s offer in favor of Texaco’s. Pennzoil the sued Texaco for the
common-law tort of inducement of breach of contract. A Houston jury awarded Pennzoil $10.5
billion in damages.
Torts and the Legal System
The word tort is derived from the Latin torius, or twisted, and it means “Wrong” in French. A tort is
generally defined as a civil wrong.
Business and Torts
Torts fall into three groups: negligence, intentional, and strict liability.
1. A person is harmed by the actions of a business or its employees.
2. A person is harmed by a product manufactured or distributed by the business.
3. A business is harmed by the wrongful actions of another business or person.
Role of Tort Law – punitive damages are intended to punish the defendant financially for malicious
behavior and to send a message that such behavior will not be tolerated by society.
Negligence-Base Torts – torts based on negligence protect people from harm from others unintentional
but legally careless conduct. Person and businesses that do not exercise due care in their conduct may be
liable for negligence in tort in a wide range of situations if the following elements can be shown by an
injured party:
1. The wrongdoer owed a duty to the injured party. The legal standard created is often called due
care or ordinary care.
2. The duty of care owed to the injured party was breached through some act or omission on the part
of the wrongdoer. This breach itself is often called “negligence.”
3. There is a causal connection between the wrongdoer’s negligence conduct and the resulting harm
to the injured party.
4. The injured party suffered actual harm or damage recognized as actionable by law as a result of
the negligent conduct.
Negligence is conduct- an act or omission (a failure to act) by a person or business that results in harm to
another to whom the person owes a duty of care.
If negligence is based on a conscious and voluntary disregard for the need to use reasonable care, then
there may be a gross negligence.
Duty of Care
In determining whether a person’s conduct is negligent, that is, whether it violates the duty of care in any
given situation, the law applies a standard of reasonableness. If the skilled professional, such as a doctor,
engineer, or financial consultant, the standard is that of a reasonably skilled, competent, and experienced
person in that profession.
Causation – a basic element of a tort based on negligence is causation between one party’s act and
another’s injury.
Proximate Cause – limits liability to consequences that bear a reasonable relationship to the negligent
conduct.
Substantial Factor- some other states in replacing the traditional proximate cause rule in negligence
actions in favor of the substantial factor test.
Danger-invites-rescue doctrine the common law holds the negligent party responsible for the losses
suffered by those who attempt to save people who are in danger as the result of the torts of others.
Defenses to a Negligence Action
Assumption of Risk – an injured party who voluntarily assumed the risk of harm arising from the
negligent or reckless conduct of another may not be allowed to recover compensation for such harm.
(Creates a defense for the negligent defendant)
It may be based on a liability waiver or an exculpatory clause in a contract by which the plaintiff
promised not to sue in case of injury. (Assumption of risk is an affirmative defense)
Comparative Negligence is ruled in most states now. If the plaintiff contribute 50 percent of the
negligence, there is no recovery for damages. In other states the plaintiff must contribute at least 51
percent of the negligence for no recovery to be allowed.
Intentional torts are classified on the basis of the interests the law seeks to protect: personal right and
property rights.
Assault is intentional conduct directed at a person that places the person in fear of immediate bodily harm
or offensive contact.
Battery is an unlawful touching, which is intentional physical contact without consent.
Assault and Battery are often the same, although they are separate offenses in some states.
Defenses- there are situations in which assault and battery are permitted.
1. Consent occurs when the injures party gave permission to the alleged wrongdoer to interfere with
a personal right.
2. Privilege can give immunity from liability.
Self-defense is a privilege based on the need to allow people who are attacked to take steps to protect
themselves.
False imprisonment or false arrest, is the intentional holding, detaining, or confining of a person that
violates the protected interest in freedom from restraint of movement.
Emotional (or mental) distress involves conduct that is so outrageous that it creates severe mental or
emotional distress in another person.
Invasion of Privacy is a person’s right to solitude and to be free from unwarranted public exposure.
1. The user of a person’s name or picture without permission (which can make advertisers and
marketing companies liable).
2. The intrusion into person’s solitude (illegal wiretapping or searches of a residence;
harassment by unwanted and continual telephoning).
3. The placing of a person in a false light (publishing of a story with serious misinformation).
4. The public exposure of facts that are private in nature (such as public disclosure of a person’s
drug use or debts).
Defenses to the right to privacy is largely waived when a person becomes a public figure, such as an
entertainer, a politician, or a sports personality.
Defamation
The tort of defamation is an intentional false communication that injures a person’s reputation or good
name. If the defamatory communication was spoken, slander is the tort. If the communication was in the
form of a printing, a writing, a printing, a picture, or a radio or television broadcast, the tort is libel.
1. Making a false or defamatory statement about another person.
2. Publishing or communicating the statement to a third person.
3. Causing harm to the person about whom the statement was made.
Defenses – truth and privilege are defenses to an action defamation. Depending on the circumstances
three privileges- absolute, conditional and constitutional- may be used as a defense to a defamation
action.
Absolute privilege is an immunity applied in those situations where public policy favors complete
freedom of speech. For example, state legislators in legislative sessions, participants in judicial
proceedings, and government executives in the discharge of their duties have absolute immunity from
liability resulting from their statements.
A conditional (or qualified) privilege eliminates liability when the false statement was published in good
faith and with proper motives, such as for a legitimate business purpose.
This constitutional privilege protects members of the press who publish “opinion” material about public
officials, public figures, or persons of legitimate public interest.