How the Internet Is Expanding Precedent 12 Laptop Searches at the U.S. Border—A New Way to Find Evidence 48 Electronic Discovery and Cost Shifting 84 Search Engines versus Copyright Owners 156 When Spamming Is a Crime 195 Are Online Fantasy Sports Just Another Form of Real-Life Gambling? 296 Online Personals—Fraud and Misrepresentation Issues 317 Applying the Statute of Frauds to E-Mail Confirmations 443 Satisfying the FTC’s Franchise Rule in the Internet Age 717 Moving Company Information to the Internet 802 Can Realtor Associations Limit Listings on Their Web Sites? 892 Overtime and Safety Issues in the Virtual Workplace 957 Potential Problems When Real Estate Is Advertised Online 1066
Equitable Principles and Maxims 15
The Uniform Commercial Code 428
Gibbons v. Ogden (1824) 40
FTC Rule 433 574
Marbury v. Madison (1803) 67
Check Clearing in the 21st Century Act (Check 21) 594
Palsgraf v. Long Island Railroad Co. (1928) 124
Article 9 Security Interest 614
Hamer v. Sidway (1891) 275
The Bankruptcy Reform Act of 2005 654
The Statute of Frauds 329
The Securities and Exchange Commission 834
Hadley v. Baxendale (1854) 368
The Sherman Antitrust Act of 1890 888
Lawrence v. Fox (1859) 393
Superfund 945
How Can You Choose and Use a Lawyer? 18
How Do Sellers Create Warranties? 519
Is “Pretexting” Illegal? 59
How to Use Stop-Payment Orders 603
How Important Is Tort Liability to Business? 132
How Do You Perfect a Security Interest? 633
How Can You Protect against Identity Theft? 197
What Problems Can a Franchisee Anticipate? 722
How Can You Avoid Unintended Employment Contracts? 246
How Can Online Services Facilitate the Incorporation Process? 786
Should Retailers Enter into Contracts with Minors and Intoxicated Persons? 305
Creating an E-Document-Retention Policy 809
How Can You Prevent Problems with Oral Contracts? 341
How Can You Avoid Antitrust Problems? 908
Dealing with Third Party Rights 399
What Should You Do with Lost Property? 1052
Establishing an Electronic Communications Policy 418
How to Negotiate a Favorable Business Lease 1074
Who Bears the Risk of Loss— the Seller or the Buyer? 469
Issues and Risks in International Transactions 1126
Factors to Consider When Hiring a Professional 1027
A SAMPLE FROM CHAPTER 26:
Should the federal government be rescuing debtors who took out disadvantageous mortgages from foreclosure? Mortgage lenders extend credit to high-risk borrowers at higherthan-normal interest rates (called subprime mortgages) or through adjustable-rate mortgages (ARMs). The recent widespread use of subprime mortgages and ARMs resulted in many borrowers who were unable to pay their loan payments on time. In addition, housing prices dropped and some borrowers could not sell their homes for the amount they owed on their mortgages. Consequently, the number of home foreclosures increased dramatically in 2008. Some claimed that the mortgage lenders were responsible for the problem because they sometimes encouraged people to borrow more than they could afford. Others argued that it is ultimately the borrowers’ responsibility to understand the terms and decide if they are able to repay the mortgage loan. After all, freedom of contract means that people are free to enter into bad bargains. In 2008, Congress enacted legislation designed to help some troubled borrowers refinance their mortgage loans. The law raised the national debt ceiling to $10.6 trillion (an increase of $800 billion) to fund the bailout of two government-sponsored mortgage industry giants (Fannie Mae and Freddie Mac—taken over in September 2008 and expanded the Federal Housing Administration’s loan guarantee program. If existing mortgage lenders agree to write down loan balances to 90 percent of the homes’ current appraised value, the government will guarantee a new fixed-rate loan. This legislation helped only about 400,000 of the estimated 3 million homeowners who likely lost their homes by the end of 2009, however. 1.1 Do administrative agencies exercise too much authority? 9 2.1 Does the free exercise clause protect illegal drug use? 49 2.2 Does the threat of terrorism justify the U.S. government’s invasion of its citizens’ privacy? 55 3.1 Does the use of private judges threaten our system of justice? 75 3.2 How will online access to courts affect privacy? 90 4.1 Can a person whose marriage breaks up file a tort action against the person who “stole” his or her spouse? 115 4.2 Does a person’s duty of care include a duty to come to the aid of a stranger in peril? 121 5.1 Is it an abuse of patent law for a company to sue farmers whose crops were accidentally contaminated by genetically modified seed? 147 5.2 Should the federal Copyright Act preempt plaintiffs from bringing “ideasubmission” claims under state law? 151 6.1 Should courts allow private parties to file RICO actions against their employers based on a pattern of hiring illegal immigrants? 181 7.1 Should global companies engage in censorship? 218 8.1 When does enrichment qualify as “unjust enrichment”? 241 9.1 Should promises of prizes made in ads and circulars always be enforced? 256 10.1 Should the doctrine of promissory estoppel be applied to promises of employment? 282 11.1 Should exculpatory clauses allow the signer an opportunity to bargain? 302 11.2 How do courts decide when a contract is severable? 304
12.1 How much information must employers disclose to prospective employees? 319 13.1 What happens to the prenuptial agreement when an engagement is broken? 332 14.1 Should the courts allow the defense of impossibility of performance to be used more often 357 15.1 Should a court enforce a liquidated damages clause when the amount due under that clause exceeds the actual value of the contracted goods so significantly that it seems unfair? 371 17.1 Is it fair to hold online purchasers to terms and conditions that they do not read? 406 18.1 Are open price terms fair if the seller always seems to get the better deal? 434 19.1 Why should a buyer in the ordinary course of business prevail over an original owner of goods? 461 20.1 Should juries decide complicated issues of performance and breach under the UCC? 480 21.1 What is the ordinary purpose of a casket? 503 21.2 Should companies be able to escape liability for defective products that were the subject of government regulation? 517 22.1 Why should fiduciary restrictions on an instrument apply only to the original indorsee? 544 23.1 How should the courts determine what is commercially reasonable when applying the fictitious payee rule? 567 25.1 How long should a secured party have to seek a deficiency judgment? 632 27.1 Is it fair to increase the costs for debtors seeking bankruptcy relief? 659 28.1 Does an agent’s breach of loyalty terminate the agent’s authority? 693
29.1 Should online sole proprietors be treated the same as corporations for the purpose of determining venue? 714 30.1 Do former partners remain jointly and severally liable for a partnership’s obligations even after the partnership has been dissolved? 738 31.1 Should members who own a majority of the interests in a member-managed LLC owe a fiduciary duty to the minority members? 756 32.1 Is it ethical for a corporation to establish an offshore holding company to reduce U.S. taxes? 766 37.1 Are we destined for more monopolies in the future? 900 38.1 How does the CPSC determine what constitutes unreasonable levels of lead in lunch boxes? 922 39.1 Should the Supreme Court force the EPA to take the threat of global warming into account when drafting regulations? 936 40.1 Is the FMLA fair to unmarried or childless employees? 964 41.1 Can an employer justify a policy that requires only female bartenders to wear makeup? 1002 42.1 Are the high costs of complying with the Sarbanes-Oxley Act justified by more ethical conduct? 1020 43.1 Who owns the engagement ring? 1039 44.1 Should eminent domain be used to promote private developments? 1070 45.1 Does an insurance agent have a duty to advise insurance applicants about coverage? 1081
Business Law Today COM P R E H E N S IVE E DITION
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UNIT ONE
THE LEGAL ENVIRONMENT OF BUSINESS 1
C H A P T E R 1 9 Title and Risk of Loss 454 C H A P T E R 2 0 Performance and Breach of
Sales and Lease Contracts 473
C H A P T E R 1 The Legal Environment 2 C H A P T E R 2 Constitutional Law 35 C H A P T E R 3 Courts and Alternative
C H A P T E R 21 Warranties and Product Liability 498
C H A P T E R 4 Torts and Cyber Torts 104
NEGOTIABLE INSTRUMENTS 527
C H A P T E R 5 Intellectual Property and Internet Law 138
C H A P T E R 2 2 Negotiability and
Dispute Resolution 64
C H A P T E R 6 Criminal Law and Cyber Crime 168 C H A P T E R 7 Ethics and Business Decision Making 203
UNIT FOUR
Transferability 528
C H A P T E R 2 3 Rights and Liabilities of Parties 552 C H A P T E R 2 4 Checks and Banking in the Digital
Age 581
UNIT TWO
CONTRACTS 229 C H A P T E R 8 Nature and
UNIT FIVE
Classification 230
C H A P T E R 9 Agreement 251
DEBTOR-CREDITOR RELATIONSHIPS 611 Security Interests in Personal Property 612
CHAPTER 25
C H A P T E R 1 0 Consideration 271 C H A P T E R 1 1 Capacity and Legality 287 C H A P T E R 1 2 Genuineness of Assent 311 C H A P T E R 1 3 The Statute of Frauds 327 C H A P T E R 1 4 Performance and Discharge 346
C H A P T E R 2 6 Other Creditors’ Remedies and
Suretyship 638
C H A P T E R 2 7 Bankruptcy 653
C H A P T E R 1 5 Breach and Remedies 364
BUSINESS ORGANIZATIONS 681
C H A P T E R 1 6 Third Party Rights 384
CHAPTER 28
UNIT SIX
C H A P T E R 17 E-Contracts and E-Signatures 403
Agency Relationships in Business 682
C H A P T E R 2 9 Sole Proprietorships and Franchises 711 UNIT THREE
SALES AND LEASE CONTRACTS 425 C H A P T E R 18
The Formation of Sales and Lease Contracts 426
C H A P T E R 3 0 Partnerships
727
C H A P T E R 31 Limited Liability Companies
and Special Businesss Forms 750 C H A P T E R 3 2 Corporate Formation and Financing 764
iii
iv
CONTENTS IN BRIEF
C H A P T E R 3 3 Corporate Directors, Officers, and
Shareholders 791
UNIT NINE
C H A P T E R 3 4 Corporate Acquisitions, Takeovers,
THE INTERNATIONAL LEGAL ENVIRONMENT 1107 CHAPTER 46
and Termination 814
C H A P T E R 3 5 Investor Protection, Insider Trading, and
International Law in a Global Economy 1108
Corporate Governance 833
UNIT SEVEN
GOVERNMENT REGULATION 865 C H A P T E R 3 6 Administrative Law 866 CHAPTER 37
Antitrust Law 886
C H A P T E R 3 8 Consumer Law 913 C H A P T E R 3 9 Environmental Law 933
APPENDICES
APPENDIX A How to Brief Cases
and Analyze Case Problems A–1 APPENDIX B The Constitution of the United States A–5 APPENDIX C The Uniform Commercial Code
(Excerpts) A–12 APPENDIX D The Sarbanes-Oxley Act of 2002
(Excerpts and Explanatory Comments) A–125
C H A P T E R 4 0 Employment, Immigration,
and Labor Law 951 C H A P T E R 4 1 Employment Discrimination 983
APPENDIX E Sample Answers for End-of-Chapter
Hypothetical Questions with Sample Answers A–132
C H A P T E R 4 2 Liability of Accountants
and Other Professionals 1011 UNIT EIGHT
PROPERTY AND ITS PROTECTION 1035 CHAPTER 43
Personal Property and Bailments 1036
C H A P T E R 4 4 Real Property and Landlord-Tenant
Law 1058
C H A P T E R 4 5 Insurance, Wills, and Trusts 1080
GLOSSARY G–1 TABLE OF CASES TC–1 INDEX I-1
CHAPTE R 3
Courts and Alternative Dispute Resolution 64
The Judiciary’s Role in American Government 65 Basic Judicial Requirements 65 Mastondrea v. Occidental Hotels Management S.A. (2007) 68
CHAPTE R 1
The Legal Environment
2
The Nature of Law 2 Business Activities and the Legal Environment 4
•
PREVENTING LEGAL DISPUTES 5
ETHICAL ISSUE 1.1
PREVENTING LEGAL DISPUTES 72
The State and Federal Court Systems 74
•
ETHICAL ISSUE 3.1
75
Following a State Court Case 78 Evans v. Eaton Corp. Long Term Disability Plan (2008) 86
Sources of American Law 6
•
•
9
The Courts Adapt to the Online World 88
The Common Law Tradition 10 Classifications of Law 14
•
REVIEWING: The Legal Environment
ETHICAL ISSUE 3.2
90
Alternative Dispute Resolution 90
18
NCR Corp. v. Korala Associates, Ltd. (2008) 93
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Online Dispute Resolution 96
AP P E N DIX TO CHAPTE R ON E 23
REVIEWING: Courts and Alternative D i s p u t e R e s o l u t i o n 97
Finding Statutory and Administrative Law 23 Finding Case Law 24 Reading and Understanding Case Law 26 CHAPTE R 2
Constitutional Law
35
The Constitutional Powers of Government 35 Heart of Atlanta Motel v. United States (1964) 37
Business and the Bill of Rights 42 ETHICAL ISSUE 2.1
PREVENTING LEGAL DISPUTES 53
Privacy Rights 55
•
Buell-Wilson v. Ford Motor Co. (2008) 106
Intentional Torts against Persons 107 ETHICAL ISSUE 4.1
115
• •
ETHICAL ISSUE 4.2
121
PREVENTING LEGAL DISPUTES 122
Strict Liability 127 Cyber Torts 127
55
REVIEWING: Constitutional Law
104
Intentional Torts against Property 116 Unintentional Torts (Negligence) 119
49
United States v. Moon (2008) 51
ETHICAL ISSUE 2.2
Torts and Cyber Torts
The Basis of Tort Law 104
•
Due Process and Equal Protection 52
•
CHAPTE R 4
McClain v. Octagon Plaza, LLC (2008) 114
Lott v. Levitt (2007) 45
•
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
58
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Fair Housing Council of San Fernando Valley v. Roommates.com, LLC (2008) 128 R E V I E W I N G : To r t s a n d C y b e r To r t s
131
v
vi
CONTENTS
Baum v. Blue Moon Ventures, LLC (2008) 206
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 5
Approaches to Ethical Reasoning 207 Fog Cutter Capital Group, Inc. v. Securities and Exchange Commission (2007) 210
Intellectual Property and Internet Law 138
•
Trademarks and Related Property 139
How the Law Influences Busines Ethics 212
The Coca-Cola Co. v. Koke Co. of America (1920) 139
Cyber Marks 144 Patents 146
•
ETHICAL ISSUE 5.1
147
•
PREVENTING LEGAL DISPUTES 150
ETHICAL ISSUE 5.2
ETHICAL ISSUE 7.1
218
REVIEWING: Ethics and Business Decision Making 220
Copyrights 150
•
Guin v. Brazos Higher Education Service Corp. (2006) 216
Making Ethical Business Decisions 217 Business Ethics on a Global Level 218
KSR International Co. v. Teleflex, Inc. (2007) 148
•
PREVENTING LEGAL DISPUTES 212
151
Leadsinger, Inc. v. BMG Music Publishing (2008) 153
Trade Secrets 159 International Protection for Intellectual Property 161
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
UNIT ONE: Extended Case Study: MedImmune, Inc. v. Genentech, Inc.
REVIEWING: Intellectual Property a n d I n t e r n e t L a w 16 3 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 6
Criminal Law and Cyber Crime
168
CHAPTE R 8
Civil Law and Criminal Law 169 Criminal Liability 170 Corporate Criminal Liability 171
•
PREVENTING LEGAL DISPUTES 172
Ardito v. City of Providence (2003) 234 Uhrhahn Construction & Design, Inc. v. Hopkins (2008) 237
George v. Commonwealth of Virginia (2008) 176 United States v. Lyons (2007) 177 ETHICAL ISSUE 6.1
181
Defenses to Criminal Liability 182 Constitutional Safeguards and Criminal Procedures 187 Miranda v. Arizona (1966) 190
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 7
Ethics and Business Decision Making 203
Business Ethics 204
Quasi Contracts 240
•
ETHICAL ISSUE 8.1
241
Interpretation of Contracts 242
•
Criminal Process 191 Cyber Crime 194 REVIEWING: Criminal Law and Cyber Crime
230
An Overview of Contract Law 230 Elements of a Contract 232 Types of Contracts 233
Types of Crimes 172
•
Nature and Classification
PREVENTING LEGAL DISPUTES 242
Citizens Communications Co. v. Trustmark Insurance (2004) 244 197
REVIEWING: Nature and Classification
245
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 9
Agreement
Requirements of the Offer 252 Lucy v. Zehmer (1954) 252
251
226
vii Trell v. American Association for the Advancement of Science (2007) 254
• •
ETHICAL ISSUE 9.1
256
PREVENTING LEGAL DISPUTES 258
Basis Technology Corp. v. Amazon.com, Inc. (2008) 258
Termination of the Offer 260 Acceptance 263 REVIEWING: Agreement
Consideration
•
ETHICAL ISSUE 13.1 332
•
PREVENTING LEGAL DISPUTES 340
R EVI EWI NG: The Statute of Frauds
CHAPTE R 14
ETHICAL ISSUE 10.1 282
283
287
Contractual Capacity 287
Jacob & Youngs, Inc. v. Kent (1921) 349 Shah v. Cover-It, Inc. (2004) 352
Discharge by Agreement 354 Discharge by Operation of Law 355
Yale Diagnostic Radiology v. Estate of Harun Fountain (2004) 290
•
Legality 293 Speedway SuperAmerica, LLC v. Erwin (2008) 301
ETHICAL ISSUE 14.1 357
Facto v. Pantagis (2007) 358 R EVI EWI NG: Performance and Discharge
ETHICAL ISSUE 11.1 302
360
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
The Effect of Illegality 303 ETHICAL ISSUE 11.2 304
CHAPTE R 15
305
Genuineness of Assent
Mistakes 311 Inkel v. Pride Chevrolet-Pontiac, Inc. (2008) 313
Breach and Remedies
Damages 365
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Fraudulent Misrepresentation 314
Performance and Discharge 346
Conditions of Performance 346 Discharge by Performance 348
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Capacity and Legality
3 41
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Promissory Estoppel 282
REVIEWING: Capacity and Legality
327
Yocca v. Pittsburgh Steelers Sports, Inc. (2004) 337
BP Products North America, Inc. v. Oakridge at Winegard, Inc. (2007) 280
CHAPTE R 12
The Statute of Frauds
The Sufficiency of the Writing 335 The Parol Evidence Rule 337
Settlement of Claims 279
•
323
School-Link Technologies, Inc, v. Applied Resources, Inc. (2007) 334
Access Organics, Inc. v. Hernandez (2008) 277
•
Undue Influence and Duress 320 Adhesion Contracts and Unconscionability 321
The Requirement of a Writing 327
PREVENTING LEGAL DISPUTES 276
CHAPTE R 11
PREVENTING LEGAL DISPUTES 320
CHAPTE R 13
271
Legal Sufficiency and Adequacy of Consideration 274 Contracts that Lack Consideration 276
REVIEWING: Consideration
ETHICAL ISSUE 12.1 319
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Barfield v. Commerce Bank, N.A. (2007) 272
•
• •
REVIEWING: Genuineness of Assent
267
Elements of Consideration 271
•
Vokes v. Arthur Murray, Inc. (1968) 315
Simpson v. MSA of Myrtle Beach, Inc. (2007) 322
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 10
CONTENTS
•
311
PREVENTING LEGAL DISPUTES 367
Hanson v. Boeder (2007) 369
•
ETHICAL ISSUE 15.1 371
Equitable Remedies 372 Stainbrook v. Low (2006) 373
Recovery Based on Quasi Contract 375
364
viii
CONTENTS
Contract Provisions Limiting Remedies 377 Lucier v. Williams (2004) 377
Election of Remedies 379 REVIEWING: Breach and Remedies
379
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 16
Third Party Rights
CHAPTE R 18
384
Assignments 384 Martha Graham School and Dance Foundation, Inc. v. Martha Graham Center of Contemporary Dance, Inc. (2004) 386
•
PREVENTING LEGAL DISPUTES 389
398
R EVI EWI NG: The Formation of Sales and Lease Contracts 448
E- Contracts and E-Signatures 403
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 19
Feldman v. Google, Inc. (2007) 404 ETHICAL ISSUE 17.1 406
Mortgage Plus, Inc. v. DocMagic, Inc. (2004) 407 Specht v. Netscape Communications Corp. (2002) 410
E-Signatures 412 Partnering Agreements 413
UNIT TWO: Extended Case Study: Friezo v. Friezo 4 2 2
454
Empire Fire and Marine Insurance Co. v. Banc Auto, Inc. (2006) 458 Lindholm v. Brant (2007) 460 ETHICAL ISSUE 19.1 461
Risk of Loss 462
The Uniform Electronic Transactions Act 414 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Title and Risk of Loss
Identification 455 Passage of Title 456
•
PREVENTING LEGAL DISPUTES 413
REVIEWING: E- Contracts and E-Signatures
PREVENTING LEGAL DISPUTES 435
Contracts for the International Sale of Goods 447
Forming Contracts Online 403
•
ETHICAL ISSUE 18.1 434
Sun Coast Merchandise Corp. v. Myron Corp. (2007) 438 Jones v. Star Credit Corp. (1969) 446
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
•
Jannusch v. Naffziger (2008) 430
• •
Midwestern Indemnity Co. v. Systems Builders, Inc. (2004) 395 Revels v. Miss America Organization (2007) 397
CHAPTE R 17
The Scope of the UCC 426 The Scope of Article 2—Sales 427 The Scope of Article 2A—Leases 432 The Formation of Sales and Lease Contracts 433
Delegations 389 Third Party Beneficiaries 392
R EVI EWI NG: Third Party Rights
The Formation of Sales and Lease Contracts 426
417
Spray-Tek, Inc. v. Robbins Motor Transportation, Inc. (2006) 463
Insurable Interest 467
•
PREVENTING LEGAL DISPUTES 468
REVIEWING: Title and Risk of Loss
468
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 20
Performance and Breach of Sales and Lease Contracts 473
Performance Obligations 473 Obligations of the Seller or Lessor 474
ix
Articles 3 and 4 of the UCC 529 Types of Instruments 529 Requirements for Negotiability 532
Maple Farms, Inc. v. City School District of Elmira (1974) 479
• •
ETHICAL ISSUE 20.1 480 PREVENTING LEGAL DISPUTES 481
•
Obligations of the Buyer or Lessee 482 Anticipatory Repudiation 483 Remedies of the Seller or Lessor 483 Remedies of the Buyer or Lessee 486
Indorsements 541
•
Limitation of Remedies 492
498
Rights and Liabilities of Parties 552
Holder Through an HDC 559 Signature Liability 560
PREVENTING LEGAL DISPUTES 500
• •
ETHICAL ISSUE 21.1 503
Webster v. Blue Ship Tea Room, Inc. (1964) 504
PREVENTING LEGAL DISPUTES 565 ETHICAL ISSUE 23.1
567
Warranty Liability 567 Defenses, Limitations, and Discharge 569
Lemon Laws 509 Product Liability 510 Strict Product Liability 511
Keesling v. T.E.K. Partners, LLC (2007) 570 R E V I E W I N G : R i g h t s a n d L i a b i l i t i e s o f Pa r t i e s
Bullock v. Philip Morris USA, Inc. (2008) 514
575
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Defenses to Product Liability 516 ETHICAL ISSUE 21.2 517
R E V I E W I N G : Wa r r a n t i e s a n d P r o d u c t L i a b i l i t y KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
UNIT THREE: Extended Case Study: G r e e n v. A . P. P r o d u c t s , L t d .
5 47
Georg v. Metro Fixtures Contractors, Inc. (2008) 555
Shoop v. DaimlerChrysler Corp. (2007) 501
•
R E V I E W I N G : N e g o t i a b i l i t y a n d Tr a n s f e r a b i l i t y
Holder versus Holder in Due Course (HDC) 553 Requirements for HDC Status 553
Warranties 498
•
Graves v. Johnson (2007) 546
CHAPTE R 23
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
•
ETHICAL ISSUE 22.1 544
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
R EVI EWI NG: Performance and Breach of Sales and Lease Contracts 493
Warranties and Product Liability
PREVENTING LEGAL DISPUTES 534
Foundation Property Investments, LLC v. CTP, LLC (2007) 537
Jauregui v. Bobb’s Piano Sales & Service, Inc. (2006) 488 Fitl v. Strek (2005) 490
CHAPTE R 21
CONTENTS
525
519
CHAPTE R 24
Checks and Banking in the Digital Age 581
Checks 582 The Bank-Customer Relationship 584 Bank’s Duty to Honor Checks 584 Auto-Owners Insurance Co. v. Bank One (2008) 587
•
PREVENTING LEGAL DISPUTES 589
Bank’s Duty to Accept Deposits 591 Bank One, N.A. v. Dunn (2006) 596
Electronic Fund Transfers 598 E-Money and Online Banking 600 CHAPTE R 22
Negotiability and Transferability 528
REVIEWING: Checks and Banking in the Digital Age 602
x
CONTENTS
Chapter 7—Liquidation 655
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
UNIT FOUR: Extended Case Study: P r e s t r i d g e v. B a n k o f J e n a
Hebbring v. U.S. Trustee (2006) 658
608
•
ETHICAL ISSUE 27.1
659
In re Mosley (2007) 667
Chapter 11—Reorganization 669
•
PREVENTING LEGAL DISPUTES 670
Bankruptcy Relief under Chapter 13 and Chapter 12 672 REVIEWING: Bankruptcy
6 74
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 25
Security Interests in Personal Property
612
UNIT FIVE: Extended Case Study: Central Virginia C o m m u n i t y C o l l e g e v. Ka t z 679
The Terminology of Secured Transactions 613 Creating a Security Interest 613 Perfecting a Security Interest 615
•
PREVENTING LEGAL DISPUTES 618
Corona Fruits & Veggies, Inc. v. Frozsun Foods, Inc. (2006) 619
The Scope of a Security Interest 622 Priorities 624 Rights and Duties of Debtors and Creditors 626 Default 628 First National Bank of Litchfield v. Miller (2008) 629
•
ETHICAL ISSUE 25.1 632
REVIEWING: Security Interests in Personal Property
Other Creditors’ Remedies and Suretyship 638
Laws Assisting Creditors 638 ETHICAL ISSUE 26.1 643
PREVENTING LEGAL DISPUTES 647
Laws Assisting Debtors 648 REVIEWING: Other Creditors’ Remedies and Suretyship 648 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 27
Bankruptcy
Bankruptcy Proceedings 655
Duties of Agents and Principals 689
•
PREVENTING LEGAL DISPUTES 691
Agent’s Authority 692
•
ETHICAL ISSUE 28.1 693
Ermoian v. Desert Hospital (2007) 694 Warner v. Southwest Desert Images, LLC (2008) 700
How Agency Relationships Are Terminated 702
Capital Color Printing, Inc. v. Ahern (2008) 645
•
Agency Relationships 682 How Agency Relationships Are Formed 686
Liability in Agency Relationships 696
Indiana Surgical Specialists v. Griffin (2007) 641
•
Agency Relationships in Business 682
Motorsport Marketing, Inc. v. Wiedmaier, Inc. (2006) 688 632
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 26
CHAPTE R 28
653
REVIEWING: Agency Relationships i n B u s i n e s s 70 5 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 29
Sole Proprietorships and Franchises 711
Sole Proprietorships 712 Garden City Boxing Club, Inc. v. Dominguez (2006) 713
xi
•
ETHICAL ISSUE 29.1 714
CHAPTE R 32
Franchises 714
•
PREVENTING LEGAL DISPUTES 715
Termination of the Franchise 719 Chic Miller’s Chevrolet, Inc. v. General Motors Corp. (2005) 720 REVIEWING: Sole Proprietorships a n d F r a n c h i s e s 7 21 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 30
Partnerships
727
Basic Partnership Concepts 727 Partnership Formation 729 Partnership Operation, Dissociation, and Termination 731 Warnick v. Warnick (2006) 737
• •
ETHICAL ISSUE 30.1 738
In re Dissolution of Midnight Star Enterprises, L.P. (2006) 743 R EVI EWI NG: Partnerships
74 5
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 31
Limited Liability Companies and Special Business Forms 750
Limited Liability Companies 750 McFarland v. Virginia Retirement Services of Chesterfield, LLC (2007) 752 02 Development, LLC v. 607 South Park, LLC (2008) 753
Management of an LLC 756
•
ETHICAL ISSUE 31.1 756
Dissociation and Dissolution of an LLC 757
•
PREVENTING LEGAL DISPUTES 758
Special Business Forms 758 REVIEWING: Limited Liability Companies and S p e c i a l B u s i n e s s F o r m s 76 0 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Corporate Formation and Financing 764
Corporate Nature, Classification, and Powers 765
•
ETHICAL ISSUE 32.1
766
Commonwealth v. Angelo Todesca Corp. (2006) 768 Williams v. Stanford (2008) 772
Corporate Formation 775
•
PREVENTING LEGAL DISPUTES 777
Corporate Status 779 In re Aqua Clear Technologies, Inc. (2007) 781
Corporate Financing 782 R EVI EWI NG: Corporate Formation and Financing 785 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 33
PREVENTING LEGAL DISPUTES 739
Limited Liability Partnerships 740 Limited Partnerships 741
CONTENTS
Corporate Directors, Officers, and Shareholders 791
Roles of Directors and Officers 791
•
PREVENTING LEGAL DISPUTES 793
Duties and Liabilities of Directors and Officers 795 Guth v. Loft, Inc. (1939) 796
Role of Shareholders 799 Portnoy v. Cryo-Cell International, Inc. (2008) 803
Rights and Liabilities of Shareholders 804 REVIEWING: Corporate Directors, Officers, and Shareholders
808
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 34
Corporate Acquisitions, Takeovers, and Termination 814
Merger and Consolidation 814 Rodriguez v. Tech Credit Union Corp. (2005) 815
•
PREVENTING LEGAL DISPUTES 818
Purchase of Assets 819 Purchase of Stock 820 Termination 822 Parent v. Amity Autoworld, Ltd. (2007) 822 Sartori v. S&S Trucking, Inc. (2006) 824
Major Business Forms Compared 826
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CONTENTS
REVIEWING: Corporate Acquisitions, Ta k e o v e r s , a n d Te r m i n a t i o n
REVIEWING: Administrative Law 828
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 35
Investor Protection, Insider Trading, and Corporate Governance
Securities Act of 1933 833
•
Antitrust Law
886
The Sherman Antitrust Act 887 Section 1 of the Sherman Act 889 Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007) 894
Section 2 of the Sherman Act 895
PREVENTING LEGAL DISPUTES 836
Newcal Industries, Inc. v. Ikon Office Solution (2008) 896
Securities Exchange Act of 1934 842
• •
SEC v. Texas Gulf Sulphur Co. (1968) 844 Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. (2008) 846 United States v. Berger (2007) 849
PREVENTING LEGAL DISPUTES 899 ETHICAL ISSUE 37.1
900
The Clayton Act 900 Chicago Bridge & Iron Co. v. Federal Trade Commission (2008) 903
State Securities Laws 851 Corporate Governance 852 Online Securities Fraud 856
Enforcement and Exemptions 905 U.S. Antitrust Laws in the Global Context 906
R E V I E W I N G : I n v e s t o r P r o t e c t i o n , I n s i d e r Tr a d i n g , and Corporate Governance 858 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
U N IT SIX: Extended Case Study: United States v. Bhagat
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 37
833
8 81
REVIEWING: Antitrust Law
9 07
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 38
Consumer Law
913
Advertising 914
862
Federal Trade Commission v. QT, Inc. (2008) 915
•
PREVENTING LEGAL DISPUTES 918
•
ETHICAL ISSUE 38.1 922
Labeling and Packaging 919 Sales 920 Health and Safety Protection 921 CHAPTE R 36
Administrative Law
866
The Practical Significance of Administrative Law 866 Agency Creation and Powers 867 The Administrative Procedure Act 871 Fox Television Stations, Inc. v. Federal Communications Commission (2007) 872
Judicial Deference to Agency Decisions 874 Citizens’ Committee to Save Our Canyons v. Krueger (2008) 875
Enforcement and Adjudication 876 Public Accountability 879 State Administrative Agencies 881
Credit Protection 923 Flood v. Mercantile Adjustment Bureau, LLC (2008) 926 REVIEWING: Consumer Law
928
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 39
Environmental Law
933
Common Law Actions 933 Federal, State, and Local Regulation 934 Air Pollution 936
•
ETHICAL ISSUE 39.1 936
New Jersey v. Environmental Protection Agency (2008) 938
Water Pollution 939
xiii United States v. Lucas (2008) 940
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Toxic Chemicals 942 Hazardous Waste Disposal 943
•
CHAPTE R 42
PREVENTING LEGAL DISPUTES 944
REVIEWING: Environmental Law
946
In re Disciplinary Proceedings Against Inglimo (2007) 1014
Employment, Immigration, and Labor Law 951
ETHICAL ISSUE 42.1
1020
Potential Statutory Liability of Accountants 1020
•
Mims v. Starbucks Corp. (2007) 955
PREVENTING LEGAL DISPUTES 1021
Overton v. Todman & Co., CPAs (2007) 1023
Worker Health and Safety 958 Income Security 959 Family and Medical Leave 962
Potential Criminal Liability 1025 Confidentiality and Privilege 1026 REVIEWING: Liability of Accountants and Other Professionals
Darst v. Interstate Brands Corp. (2008) 963 ETHICAL ISSUE 40.1 964
10 2 6
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Employee Privacy Rights 965
•
Potential Liability to Third Parties 1016 The Sarbanes-Oxley Act of 2002 1018
•
Employment at Will 952 Wage and Hour Laws 954
•
Liability of Accountants and Other Professionals 1011
Potential Common Law Liability to Clients 1012
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 40
CONTENTS
PREVENTING LEGAL DISPUTES 966
U N IT S EVE N: Extended Case Study: Batte-Holmgren v. Commissioner of Pubic Health 1032
Immigration Law 968 Labor Unions 972 Local Joint Executive Board of Las Vegas v. National Labor Relations Board (2008) 974 REVIEWING: Employment, Immigration, a n d L a b o r L a w 977 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 41
Employment Discrimination
CHAPTE R 43
983
Title VII of the Civil Rights Act of 1964 984
•
PREVENTING LEGAL DISPUTES 988
Burlington Northern and Santa Fe Railway Co. v. White (2006) 990
ETHICAL ISSUE 43.1 1039
In re Estate of Piper (1984) 1040
Mislaid, Lost, and Abandoned Property 1043 Bailments 1044
Sprint/United Management Co. v. Mendelsohn (2008) 994
•
Discrimination Based on Disability 995 Francin v. Mosby, Inc. (2008) 1000
Defenses to Employment Discrimination 1001 ETHICAL ISSUE 41.1 1002
Affirmative Action 1003 State Statutes 1005 REVIEWING: Employment Discrimination
Property Ownership 1037 Acquiring Ownership of Personal Property 1038
•
Discrimination Based on Age 992
•
Personal Property and Bailments 1036
PREVENTING LEGAL DISPUTES 1044
Treiber & Straub, Inc. v. United Parcel Service, Inc. (2007) 1050 R EVI EWI NG: Personal Property a n d B a i l m e n t s 10 5 2 KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
10 0 6
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CONTENTS
CHAPTE R 44
Real Property and Landlord-Tenant Law
1058
The Nature of Real Property 1058
•
PREVENTING LEGAL DISPUTES 1060
Biglane v. Under the Hill Corp. (2007) 1061 Roman Catholic Church of Our Lady of Sorrows v. Prince Realty Management, LLC (2008) 1064
Transfer of Ownership 1065 Kelo v. City of New London, Connecticut (2005) 1069 ETHICAL ISSUE 44.1
1070
Payment Methods for International Transactions 1119 U.S. Laws in a Global Context 1122 Khulumani v. Barclay National Bank, Ltd. (2007) 1124 REVIEWING: International Law in a G l o b a l E c o n o m y 112 5
APPENDICES
APPENDIX A How to Brief Cases
Insurance, Wills, and Trusts 1080
APPENDIX B APPENDIX C
ETHICAL ISSUE 45.1 1081
Woo v. Fireman’s Fund Insurance Co. (2007) 1086
APPENDIX D
Wills 1088 Shaw Family Archives, Ltd. v. CMG Worldwide, Inc. (2007) 1089
•
APPENDIX E
PREVENTING LEGAL DISPUTES 1093
Trusts 1095 R E V I E W I N G : I n s u r a n c e , W i l l s , a n d Tr u s t s
CHAPTE R 46
and Analyze Case Problems A–1 The Constitution of the United States A–5 The Uniform Commercial Code (Excerpts) A–12 The Sarbanes-Oxley Act of 2002 (Excerpts and Explanatory Comments) A–125 Sample Answers for End-of-Chapter Hypothetical Questions with Sample Answers A–132
10 9 9
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
U N IT E IG HT: Extended Case Study: In re Estate of Rober tson
1131
1074
Insurance 1080
•
PREVENTING LEGAL DISPUTES 1118
U N IT N I N E: Extended Case Study: Dole Food Co. v. Patrickson
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
CHAPTE R 45
•
KEY TERMS • CHAPTER SUMMARY • FOR REVIEW • QUESTIONS AND CASE PROBLEMS • ONLINE ACTIVITIES
Leasehold Estates 1070 Landlord-Tenant Relationships 1072 REVIEWING: Real Property and L a n d l o r d -Te n a n t L a w
Fuji Photo Film Co. v. International Trade Commission (2007) 1115
Commercial Contracts in an International Setting 1117
Ownership Interests in Real Property 1060
•
Doing Business Internationally 1112 Regulation of Specific Business Activities 1114
1104
International Law in a Global Economy 1108
International Law—Sources and Principles 1109
GLOSSARY G–1 TABLE OF CASES TC–1 INDEX I-1
e have always felt that business law and the legal environment should be an exciting, contemporary, and interesting course. We believe that the Eighth Edition of Business Law Today: Comprehensive Edition imparts this excitement to your students. We have spent a great deal of effort in giving this book a visual appeal that will encourage students to learn the law. We have also worked hard to make sure that Business Law Today: Comprehensive Edition continues its established tradition of being the most up-to-date text on the market. The law presented in this edition includes new statutes, regulations, and cases, as well as the most recent developments in cyberlaw. You will find that coverage of traditional business law has not been sacrificed in the process of creating this text. Additionally, Business Law Today: Comprehensive Edition explicitly addresses the American Assembly of Collegiate Schools of Business’s (AACSB’s) broad array of curriculum requirements. For example, many of the features and special pedagogical devices in this text focus on the global, political, ethical, social, environmental, technological, and cultural contexts of business law. In addition, critical-thinking skills are reinforced throughout.
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WHAT’S NEW TO THE EIGHTH EDITION Instructors have come to rely on the coverage, accuracy, and applicability of Business Law Today: Comprehensive Edition. For this edition, we have added a number of features to make the text more practical for today’s business environment and to promote criticalthinking skills.
Practical Elements in Every Chapter For the Eighth Edition of Business Law Today: Comprehensive Edition, we have added a special new feature entitled Preventing Legal Disputes. These brief features offer practical guidance on steps that businesspersons can take in their daily transactions to avoid legal disputes and litigation. These features are integrated throughout the text in selected chapters as appropriate to the topics being discussed. In addition, for the Eighth Edition, we have included many new Application features that focus on practical considerations related to the chapter’s contents and conclude with a checklist of tips for the businessperson. For example, some of the new Application features include: Is “Pretexting” Legal? (Chapter 2) How Can You Protect against Identity Theft? (Chapter 6) Establishing an Electronic Communications Policy (Chapter 17) We have also revised the Internet exercises that conclude each chapter to focus on the practical aspects of doing business in today’s global legal environment.
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Critical Thinking and Legal Reasoning Today’s business leaders are often required to think “outside the box” when making business decisions. For this reason, we have added a number of critical-thinking elements for the Eighth Edition that are designed to challenge students’ understanding of the materials beyond simple retention. Your students’ critical-thinking and legal-reasoning skills will be increased as they work through the numerous pedagogical devices within the book. Nearly every feature and every case presented in the text concludes with some type of critical-thinking question. These questions include For Critical Analysis, What If the Facts Were Different? and Why Is This Case Important? In addition, we have added an entirely new section to the chapter-ending Questions and Case Problems that focuses on critical thinking and writing. Questions in that section include Critical Legal Thinking and Critical Thinking and Writing Assignment for Business, each of which will be described shortly.
New Hypothetical Questions with Sample Answers in Appendix E In response to instructors who would like students to have sample answers available for some of the Questions and Case Problems, for this edition we have added a special question in each chapter entitled Hypothetical Question with Sample Answer. Not only does each chapter also provide one Case Problem with Sample Answer that is based on an actual case and answered on the text’s Web site, but students can now also access a sample answer to one hypothetical question per chapter by going to Appendix E at the end of the text. The answers to these questions are also posted on the text’s Web site (located at www.cengage.com/blaw/blt). Students can compare their own answers with the answers provided to determine whether they have applied the law correctly and to learn what needs to be included when answering the end-of-chapter Questions and Case Problems.
New Streamlined Organization for the Chapter-Ending Questions and Case Problems For the Eighth Edition of Business Law Today: Comprehensive Edition, we have completely reorganized and streamlined the Questions and Case Problems that conclude each chapter. To facilitate assessment, the problems are now divided by subheadings into the following two categories:
1 Hypothetical Scenarios and Case Problems—We begin with a few hypothetical scenarios, which present simple situations and ask students to apply the legal concepts from the chapter. Included in this group of questions is the new Hypothetical Question with Sample Answer, discussed previously (for which a sample answer is available in Appendix E of the text and on the Web site). Next are the case problems, which present the facts of recent cases and ask students to analyze how the law applies. These problems include a Case Problem with Sample Answer (which is provided on the text’s Web site) and A Question of Ethics, most of which are new to this edition. 2 Critical Thinking and Writing Assignments—The second subsection consists of the critical thinking and writing assignments, which are designed to enhance criticalthinking skills and include several types of questions that are new to this edition. • Selected chapters include a Critical Legal Thinking question that requires students to think critically about some aspect of the law discussed in the chapter. • A number of chapters include a Critical Thinking and Writing Assignment for Business question that focuses on critical thinking in a business-oriented context.
xvii • Many chapters also include a special Video Question that directs students to the text’s Web site (at www.cengage.com/blaw/blt) to access a video relevant to a topic covered in the chapter (a passcode is required—see the discussion of the Business Law Digital Video Library later in this preface). The students view the video clip and then answer a series of questions on how the law applies to the situation depicted in the video.
More on the Sarbanes- Oxley Act of 2002 In a number of places in this text, we refer to the Sarbanes-Oxley Act of 2002 and the corporate scandals that led to the passage of that legislation. For example, Chapter 7 mentions how the requirements of the Sarbanes-Oxley Act were intended to deter unethical corporate conduct and make certain corporate acts illegal. In Chapter 35, we discuss this act in the context of securities law and corporate governance and present an exhibit containing some of the key provisions of the act relating to corporate accountability in securities transactions. In Chapter 42, we look at provisions of the Sarbanes-Oxley Act as they relate to public accounting firms and accounting practices, and then in Chapter 46, we discuss whether this act can be applied extraterritorially. Because the Sarbanes-Oxley Act is a topic of significant concern in today’s business climate, for the Eighth Edition, we have added excerpts and explanatory comments on the Sarbanes-Oxley Act of 2002 as Appendix D. Students and instructors alike will find it useful to have the provisions of the act immediately available for reference and explained in plain language.
BUSINESS LAW TODAY: COMPREHENSIVE EDITION’S WEB SITE For this edition of Business Law Today: Comprehensive Edition, we have redesigned and streamlined the text’s Web site so that users can easily locate the resources they seek. When you visit our Web site at www.cengage.com/blaw/blt, you will find a broad array of teaching/learning resources, including the following: Relevant Web sites for all of the Landmark in the Law features and Landmark and Classic Cases that are presented in this text. Sample Answers to the Case Problems with Sample Answers, which appear at the end of all the chapters, are posted on the student companion Web site. This problemanswer set is designed to help your students learn how to answer case problems by giving them model answers to selected problems. In addition, we post the answers to the Hypothetical Questions with Sample Answers on the Web site as well as in the text (Appendix E). Videos referenced in the Video Questions that appear at the ends of selected chapters of this edition of Business Law Today: Comprehensive Edition (available only with a passcode). Practical Internet Exercises for every chapter in the text (at least two per chapter). The Internet exercises have been refocused to provide more practical information to business law students on topics covered in the chapters and to acquaint students with the legal resources that are available online. Interactive quizzes for every chapter in this text that include a number of questions related to each chapter’s contents. Key terms for every chapter in the text. Flashcards that provide students with an optional study tool to review the key terms in every chapter.
PREFACE
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PREFACE
Appendix A: How to Brief Cases and Analyze Case Problems This useful appendix for the book is also posted on the Web site. PowerPoint slides for this edition. Legal reference materials including a “Statutes” page that offers links to the full text of selected statutes referenced in the text, a Spanish glossary, the text of the appendices that were removed for the Eighth Edition, and links to other important legal resources available for free on the Web. Online Legal Research Guide that offers complete yet brief guidance to using the Internet and evaluating information obtained from the Internet. As an online resource, it now includes hyperlinks to the Web sites discussed for click-through convenience. Court case updates that present summaries of new cases from around the country that specifically relate to the topics covered in the chapters of this text.
Business Law Digital Video Library For this edition of Business Law Today: Comprehensive Edition, we have included special Video Questions at the ends of selected chapters. Each of these questions directs students to the text’s Web site at www.cengage.com/blaw/blt. Once there, to view the specific video referenced in the Video Question, students click on the “Digital Video Library” link and type in their access code. After viewing the video online, students can return to the text’s Web site and click on the relevant chapter’s “Video Questions” link to view the series of questions based on the video they have just viewed. (An access code for the videos can be packaged with each new copy of this textbook for no additional charge. If Business Law Digital Video Library access did not come packaged with the textbook, it can be purchased online at www.cengage.com/blaw/dvl.) These videos can be used as homework assignments, discussion starters, or classroom demonstrations. By watching a video and answering the questions, students will gain an understanding of how the legal concepts they have studied in the chapter apply to the real-life situation portrayed in the video. Suggested answers for all of the Video Questions are given in both the Instructor’s Manual and the Answers Manual that accompany this text. The videos are part of our Business Law Digital Video Library, a compendium of more than sixty video scenarios and explanations.
SPECIAL FEATURES AND PEDAGOGY In addition to the components of the Business Law Today: Comprehensive Edition teaching/learning package described above, the Eighth Edition offers a number of special features and pedagogical devices, including those described here.
Adapting the Law to the Online Environment Several chapters in the Eighth Edition contain one of these special features, which examine cutting-edge cyberlaw issues coming before today’s courts. Here are some examples of these features: Search Engines versus Copyright Owners (Chapter 5) When Spamming Is a Crime (Chapter 6) Are Online Fantasy Sports Just Another Form of Real-Life Gambling? (Chapter 11) Online Personals—Fraud and Misrepresentation Issues (Chapter 12) Each feature concludes with a For Critical Analysis section that asks the student to think critically about some facet of the issues discussed in the feature. Suggested answers
xix to these questions are included in both the Instructor’s Manual and the Answers Manual that accompany this text.
Management Perspective Each of these features begins with a section titled Management Faces a Legal Issue that describes a practical issue facing management (such as whether to include arbitration clauses in employment contracts). Next comes a section titled What the Courts Say that discusses what the courts have concluded with respect to this issue. The feature concludes with Implications for Managers, a section indicating the importance of the courts’ decisions for business management and offering some practical guidance. Some examples of these features in the Eighth Edition include: Protecting Trade Secrets (Chapter 5) Covenants Not to Compete in the Internet Context (Chapter 11) Independent-Contractor Negligence (Chapter 28) Interviewing Job Applicants with Disabilities (Chapter 41)
Landmark in the Law This feature, which appears in many chapters of this edition, discusses a landmark case, statute, or other legal development that has had a significant effect on business law. Each of these features has a section titled Application to Today’s World, which indicates how the law discussed in the feature affects the legal landscape of today’s world. In addition, a Relevant Web Sites section is included that directs students to the book’s companion Web site for links to additional information available online.
Application In the Eighth Edition, the Application features have been refocused to present the student with more practical advice on how to apply the law discussed in the chapter to real-world business problems. Each Application ends with a Checklist for the future businessperson on how to avoid legal problems.
Preventing Legal Disputes As already discussed, these new features provide practical information to future businesspersons on how to avoid legal problems. Most chapters include at least one Preventing Legal Disputes feature, integrated as appropriate with the topics being discussed.
Beyond Our Borders These features give students an awareness of the global legal environment by indicating how international laws or the laws of other nations deal with specific legal concepts or topics being discussed in the chapter. Each of these features concludes with a For Critical Analysis question. Suggested answers to these questions are included in both the Instructor’s Manual and the Answers Manual that accompany this text. The following are some examples of Beyond Our Borders features: Judicial Review in Other Nations (Chapter 3) The Role of the United States in Combating Corruption Globally (Chapter 7) International Use and Regulation of the Internet (Chapter 17)
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The Question of Jurisdiction over Alien Corporations (Chapter 32) Protecting U.S. Consumers from Cross-Border Telemarketers (Chapter 38)
Ethical Issues These features, which are closely integrated with the text, open with a question addressing an ethical dimension of the topic being discussed. Each Ethical Issue has been given a number so that it can be easily located for review or discussion.
Reviewing Features in Every Chapter For the Eighth Edition of Business Law Today: Comprehensive Edition, we have included a special feature at the end of every chapter that helps solidify students’ understanding of the chapter materials. Each of these Reviewing [chapter topic] features presents a hypothetical scenario and then asks a series of questions that require students to identify the issues and apply the legal concepts discussed in the chapter. These features are designed to help students review the chapter topics in a simple and interesting way and see how the legal principles discussed in the chapter affect the world in which they live. An instructor can use these features as the basis for in-class discussion or encourage students to use them for self-study before completing homework assignments. Suggested answers to the questions posed in the Reviewing features can be found in both the Instructor’s Manual and the Answers Manual that accompany this text.
Featured Cases Each of the Featured Cases in the Eighth Edition is presented entirely in the words of the court so that students can learn how judges reason through legal questions. Each case features a majority and a dissenting opinion, and it concludes with a series of questions designed to help students test their understanding of the case. Suggested answers to these questions are included in both the Instructor’s Manual and the Answers Manual.
Case Presentation and Format For this edition, we have carefully selected recent cases for each chapter that not only provide on-point illustrations of the legal principles discussed in the chapter but also are of high interest to students. The cases are numbered sequentially for easy referencing in class discussions, homework assignments, and examinations. The vast majority of cases in this text are new to the Eighth Edition. Each case is presented in a special format, which begins with the case title and citation (including parallel citations). Whenever possible, we also include a URL, just below the case citation, that can be used to access the case online (a footnote to the URL explains how to find the specific case at that Web site). After briefly outlining the background and facts of the dispute, we present the court’s reasoning in the words of the court. To enhance student understanding, we paraphrase the court’s decision and remedy. Each case concludes with one of the following: For Critical Analysis These questions require students to think about the court’s holding from a variety of different perspectives. For instance, a student might be asked to consider the ethical or global ramifications of a particular ruling. Suggested answers to these questions are included in both the Instructor’s Manual and the Answers Manual that accompany this text. What If the Facts Were Different? These questions ask the student to decide whether and how a specified change in the facts of the case would alter the outcome of the
xxi case. Suggested answers to these questions are included in both the Instructor’s Manual and the Answers Manual that accompany this text. Why Is This Case Important? These discussions, which follow selected cases and are answered in the text, clearly set forth the importance of the court’s decision in the specific case in today’s legal environment. Impact of This Case on Today’s Law As mentioned earlier, for Landmark and Classic Cases, we include these sections to clarify the relevance of the case to modern law. We also have a section titled Relevant Web Sites at the conclusion of each Landmark and Classic Case that directs students to the Web site for additional online resources.
Other Pedagogical Devices within Each Chapter Learning Objectives (a series of brief questions at the beginning of each chapter designed to provide a framework for the student as he or she reads through the chapter). Chapter Outline (an outline of the chapter’s first-level headings). Margin definitions. Margin On the Web features directing students to relevant Web sites where they will find online articles, statutes, or other legal or information sources concerning a topic being discussed in the text. Highlighted and numbered examples illustrating legal principles (we have added more for this edition to better clarify legal concepts). URLs for cases—Whenever possible, we have included URLs that can be used to access the cases presented in the text of Business Law Today: Comprehensive Edition. When a URL is available, it appears just below the case citation. Quotations. Margin Notes (such as Recall, Be Aware, and Remember!). Exhibits. Concept Summaries—Whenever key areas of law need additional emphasis, we provide a concept summary to add clarity. Photographs (with critical-thinking questions).
Chapter-Ending Pedagogy Reviewing feature (presents a hypothetical scenario and then asks students a series of questions). Key Terms (with appropriate page references). Chapter Summary (in graphic format with page references). For Review (the questions set forth in the chapter-opening Learning Objectives section are presented again to aid the student in reviewing the chapter. Answers to the evennumbered questions for each chapter are provided on the text’s Web site). Questions and Case Problems (including two new subsections—Hypothetical Scenarios and Case Problems and Critical Thinking and Writing Assignments). Hypothetical Question with Sample Answer (as discussed earlier, each chapter contains one hypothetical factual situation, and we provide a sample answer for students in Appendix E of the text and on the Web site). Case Problem with Sample Answer (as discussed earlier, each chapter contains one of these case problems, for which the answer has been provided on the text’s Web site at www.cengage.com/blaw/blt).
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A Question of Ethics. Critical Legal Thinking (in selected chapters). Critical Thinking and Writing Assignment for Business (in selected chapters). Video Question (in selected chapters). Online Activities (including Practical Internet Exercises and Interactive Quizzes for each chapter).
Unit-Ending Pedagogy—Extended Case Studies At the end of each unit is a two-page feature entitled Extended Case Study. This feature focuses on a recent court case relating to a topic covered in the unit. Each feature opens with an introductory section, which discusses the background and significance of the case being presented. Then we present excerpts from the court’s majority opinion and from a dissenting opinion in the case as well. The feature concludes with Questions for Analysis—a series of questions that prompt the student to think critically about the legal, ethical, economic, international, or general business implications of the case. Suggested answers to these questions are included in both the Instructor’s Manual and the Answers Manual.
Appendices To help students learn how to find and analyze case law, we have included a special appendix at the end of Chapter 1. There your students will find information, including an exhibit, on how to read case citations, how to locate cases in case reporters, and what the different components of URLs (Internet addresses) mean. The appendix to Chapter 1 also presents an annotated sample court case to help your students understand how to read and understand the cases presented within this text. We have included at the end of the book the following set of appendices:
A B C D E
How to Brief Cases and Analyze Case Problems (also now available on the Web site) The Constitution of the United States The Uniform Commercial Code (Excerpts) The Sarbanes-Oxley Act of 2002 (Excerpts and Explanatory Comments) Sample Answers for End-of-Chapter Hypothetical Questions with Sample Answers
Those appendices from the Seventh Edition that we did not include in this edition are now posted on the text’s Web site (located at www.cengage.com/blaw/blt).
SUPPLEMENTAL TEACHING MATERIALS This edition of Business Law Today: Comprehensive Edition is accompanied by an expansive number of teaching and learning supplements. Individually and in conjunction with a number of our colleagues, we have developed supplementary teaching materials that we believe are the best available today. Each component of the supplements package is listed below.
Printed Supplements Instructor’s Manual (Includes additional cases on point with at least one such case summary per chapter, answers to all For Critical Analysis questions in the features, answers for the Video Questions at the ends of selected chapters, and answers to the Extended Case Study that concludes each unit. Also available on the Instructor’s Resource CD-ROM, or IRCD, described below.)
xxiii Study Guide. A comprehensive Test Bank (also available on the IRCD). Answers Manual (Includes answers to the Questions and Case Problems, answers to the For Critical Analysis questions in the features and all case-ending questions, answers for the Video Questions that conclude selected chapters, and alternate problem sets with answers. Also available on the IRCD.)
Software, Video, and Multimedia Supplements Instructor’s Resource CD-ROM (IRCD)—The IRCD includes the following supplements: Instructor’s Manual, Answers Manual, Test Bank, Case-Problem Cases, Case Printouts, ExamView, PowerPoint Slides, Online Legal Research Guide, Transparencies, Instructor’s Manual for the Drama of the Law video series, Handbook of Landmark Cases and Statutes in Business Law and the Legal Environment, Handbook on Critical Thinking and Writing in Business Law and the Legal Environment, and A Guide to Personal Law. ExamView Testing Software (available only on the IRCD). WebTutor—Features chat, discussion groups, testing, student progress tracking, and business law course materials (available for WebCT and Blackboard). PowerPoint Slides—Many of which have been revised for the Eighth Edition. Case-Problem Cases (available only on the IRCD). Transparencies (available only on the IRCD). Business Law Digital Video Library—This dynamic video library features more than sixty video clips that spark class discussion and clarify core legal principles. Access is available for free as an optional package item with each new text. If Business Law Digital Video Library access did not come packaged with the textbook, your students can purchase it online at www.cengage.com/blaw/dvl.
FOR USERS OF THE SEVENTH EDITION We thought that those of you who have been using Business Law Today: Comprehensive Edition would like to know some of the major changes that have been made for the Eighth Edition.
New Features and Special Pedagogy We have added the following entirely new elements for the Eighth Edition: Preventing Legal Disputes Beyond Our Borders Reorganized and streamlined chapter-ending Questions and Case Problems with labels for different categories and more focus on critical thinking and legal reasoning Hypothetical Question with Sample Answer (in the Questions and Case Problems section) Critical Thinking and Writing Assignments for Business in selected chapters
Significantly Revised Chapters Every chapter of the Eighth Edition has been revised as necessary to incorporate new developments in the law or to streamline the presentations. A number of new trends in
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business law are also addressed in the cases and special features of the Eighth Edition. Other major changes and additions made for this edition include the following: Chapter 2 (Constitutional Law)—The chapter has been thoroughly revised and updated to incorporate recent Supreme Court decisions. The chapter includes discussions of the USA Patriot Act’s effect on constitutional rights and recent decisions on unprotected speech, freedom of religion, and privacy rights. A feature addresses the constitutionality of warrantless border searches. Chapter 3 (Courts and Alternative Dispute Resolution)—The section on electronic evidence and discovery issues has been updated to include federal rules that became effective in 2006. To provide greater clarity on important foundational issues, many parts of this chapter were reworked, including the discussions of personal jurisdiction, Internet jurisdiction, standing to sue, and appellate review. A chart was added to illustrate the differences among various methods of alternative dispute resolution, and the discussion of electronic filing systems and online dispute resolution was updated. Features were added to discuss the use of private judges and judicial review in other nations. Chapter 4 (Torts and Cyber Torts)—The discussion of damages was expanded and enhanced, and the subsections on defamation and privacy were thoroughly updated. The negligence coverage has been simplified for clarity. For this edition, we added a high-interest case involving an online roommate-matching service’s immunity under the Communications Decency Act. The section on cyber torts in this chapter now includes a feature discussing cross-border spam and the U.S. Safe Web Act, which was enacted in 2006 to address the problem. Chapter 5 (Intellectual Property and Internet Law)—The materials on intellectual property rights in the online environment have been thoroughly revised and updated with a feature included on search engines and copyright owners. Several recent Supreme Court cases are discussed. The section on patents was expanded, and new examples were added. The discussion of file-sharing was updated. A 2008 United States Supreme Court case is presented on the obviousness requirement and patents. In addition, an entirely new subsection on counterfeit goods was added. Chapter 7 (Ethics and Business Decision Making)—At the request of reviewers, we have supplemented our ethics coverage with even more practical elements throughout and have included a section that deals with corporate social responsibility and profit maximization. Recent case examples are provided, and new features address the problems faced by Google China and the role of the United States in combating corruption globally. Chapters 8 through 17 (the Contracts unit)—Throughout this unit, we have added more examples to clarify and enhance our already superb contract law coverage. We have also included more up-to-date information and new features on topics likely to gain student interest, such as on online gambling (see Chapter 11) and online personals (see Chapter 12). Chapters 18 through 20 (the unit on Sales and Lease Contracts)—We have streamlined and simplified our coverage of the Uniform Commercial Code. We have added numerous new numbered examples throughout the unit to increase student comprehension. Because no state has adopted the 2003 amendments to Articles 2 and 2A, we eliminated the references to these amendments throughout the chapters. We have included a new concept summary to clarify delivery without movement of the goods and have added several new features, such as the one discussing the Statute of Frauds and e-mail confirmations in Chapter 18. Chapters 22 (Negotiability and Transferability) through Chapter 24 (Checks and Banking in the Digital Age)—We have updated this unit throughout to accommodate the reality
xxv of digital banking and funds transfers. We have added features exploring the negotiability of checks in other nations and a new Landmark in the Law feature on check clearing in the twenty-first century. Additional numbered examples, exhibits, and a concept summary help to improve the comprehensibility of the materials. Chapter 27 (Bankruptcy)—This chapter has been completely revamped in light of the passage of bankruptcy reform legislation. It now includes a Landmark in the Law feature on the Bankruptcy Reform Act of 2005 and a feature exploring the ethical implications of that act. We have updated the dollar amounts stated in various provisions of the Bankruptcy Code. Chapter 30 (Partnerships)—We have revised and updated this chapter in light of the fact that a majority of states have adopted the revised Uniform Partnership Act. The concept of dissociation is covered, and we clarify how it has replaced dissolution when a partner dies or withdraws from a partnership. All forms of partnerships are now treated in the same chapter. Chapter 32 (Corporate Formation and Financing)—This chapter now provides an updated and streamlined presentation of issues surrounding corporation formation and termination. We have included several new and updated examples, additional key terms, and a new exhibit. Corporate financing is still included, but the preincorporation materials have been significantly revised to reflect modern practices. Chapter 35 (Investor Protection, Insider Trading, and Corporate Governance)—This chapter now includes more discussion of insider trading, a revised section on registration statements, and new numbered examples. The requirement of an intent to deceive (scienter) is explored in the text. We also provide a feature on corporate governance in other nations. We have updated the material on online securities offerings and fraud as well. Chapter 37 (Antitrust Law)—The chapter now focuses on antitrust law in the global market and includes new examples and updated materials. A feature outlines the problems Realtor® associations face with online advertisements, and another feature discusses how antitrust lawsuits are becoming popular in the United Kingdom. Chapter 39 (Environmental Law)—The chapter has been thoroughly updated to incorporate new mobile and stationary air-pollution standards and coverage of recent United States Supreme Court cases. An Ethical Issue feature discusses the Supreme Court’s 2007 decision that forces the Environmental Protection Agency to take global warming into account. Chapter 40 (Employment, Immigration, and Labor Law) and Chapter 41 (Employment Discrimination)—These two chapters covering employment law have been thoroughly updated to include discussions of legal issues facing employers today. Chapter 40 includes an entirely new section on immigration law, a topic of increasing importance to employers. It also discusses the proposed Card Check Bill, which would require employers to recognize a union when the majority of workers at a plant have signed authorization cards. If enacted, this would be one of the most important labor law reforms in the last twenty years. Features in that chapter discuss how overtime regulations apply to telecommuters and how companies can restrict union communications via corporate e-mail systems. Chapter 41 now includes the latest developments and United States Supreme Court decisions on constructive discharge and affirmative action. The text discussion of burden of proof in unintentional discrimination cases has been revised and clarified. A new subsection and case cover association discrimination, and a feature examines how to interview job applicants with disabilities.
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New Cases and Case Problems In addition to the changes noted above, you will find that most of the cases in this edition are new. Nearly every chapter has two new cases, and some chapters have three new cases. We have selected these cases with care, choosing topics that are engaging for today’s students. We have also added numerous new Case Problems and Questions of Ethics based on recent cases. We were also able to add many new 2008 case problems.
ACKNOWLEDGMENTS Numerous careful and conscientious users of Business Law Today: Comprehensive Edition were kind enough to help us revise the book. In addition, the staff at Cengage/ South-Western went out of its way to make sure that this edition came out early and in accurate form. In particular, we wish to thank Rob Dewey and Vicky True for their countless new ideas, many of which have been incorporated into the Eighth Edition. We also extend special thanks to Jan Lamar, our longtime developmental editor, for her many useful suggestions and for her efforts in coordinating reviews and ensuring the timely and accurate publication of all supplemental materials. We are particularly indebted to Jennifer Garamy for her support and excellent marketing advice. Our production manager and designer, Bill Stryker, made sure that we came out with an error-free, visually attractive edition. We will always be in his debt. We are also indebted to the staff at Parkwood Composition, our compositor. Their ability to generate the pages for this text quickly and accurately made it possible for us to meet our ambitious printing schedule. We must especially thank Vickie Reierson and Katherine Marie Silsbee for their management of the project, as well as for the application of their superb research and editorial skills. We also wish to thank William Eric Hollowell, coauthor of the Instructor’s Manual, Study Guide, Test Bank, and Online Legal Research Guide, for his excellent research efforts. The copyediting services of Pat Lewis were invaluable, and the proofreading by Beverly Peavler and Kristi Wiswell will not go unnoticed. We also thank Lavina Leed Miller and Roxanna Lee for their proofreading and other assistance, which helped to ensure an error-free text. Finally, our appreciation goes to Suzanne Jasin for her many special efforts on the projects.
ACKNOWLE DG M E NTS FOR P R EVIOU S E DITION S John J. Balek Morton College, Illinois
Teresa Brady Holy Family College, Philadelphia
Lorraine K. Bannai Western Washington University
Lee B. Burgunder California Polytechnic University— San Luis Obispo
Marlene E. Barken Ithaca College, New York Daryl Barton Eastern Michigan University
Bradley D. Childs Belmont University, Tennessee
Merlin Bauer Mid State Technical College, Wisconsin
Dale Clark Corning Community College, New York
Donna E. Becker Frederick Community College, Maryland
Sandra J. Defebaugh Eastern Michigan University
Brad Botz Garden City Community College, Kansas
Patricia L. DeFrain Glendale College, California
xxvii Julia G. Derrick Brevard Community College, Florida Joe D. Dillsaver Northeastern State University, Oklahoma Claude W. Dotson Northwest College, Wyoming Larry R. Edwards Tarrant County Junior College, South Campus, Texas Jacolin Eichelberger Hillsborough Community College, Florida George E. Eigsti Kansas City, Kansas, Community College Florence E. Elliott-Howard Stephen F. Austin State University, Texas Tony Enerva Lakeland Community College, Ohio Benjamin C. Fassberg Prince George’s Community College, Maryland Jerry Furniss University of Montana Elizabeth J. Guerriero Northeast Louisiana University Phil Harmeson University of South Dakota Nancy L. Hart Midland College, Texas Janine S. Hiller Virginia Polytechnic Institute & State University Karen A. Holmes Hudson Valley Community College, New York Fred Ittner College of Alameda, California Susan S. Jarvis University of Texas, Pan American
Bradley T. Lutz Hillsborough Community College, Florida Darlene Mallick Anne Arundel Community College, Maryland John D. Mallonee Manatee Community College, Florida Joseph D. Marcus Prince George’s Community College, Maryland Woodrow J. Maxwell Hudson Valley Community College, New York Beverly McCormick Morehead State University, Kentucky William J. McDevitt Saint Joseph’s University, Pennsylvania John W. McGee Aims Community College, Colorado James K. Miersma Milwaukee Area Technical Institute, Wisconsin Susan J. Mitchell Des Moines Area Community College, Iowa Jim Lee Morgan West Los Angeles College, California Jack K. Morton University of Montana Solange North Fox Valley Technical Institute, Wisconsin Jamie L. O’Brien South Dakota State University Robert H. Orr Florida Community College at Jacksonville George Otto Truman College, Illinois Thomas L. Palmer Northern Arizona University David W. Pan University of Tulsa, Oklahoma
Jack E. Karns East Carolina University, North Carolina
Donald L. Petote Genessee Community College, New York
Sarah Weiner Keidan Oakland Community College, Michigan
Francis D. Polk Ocean County College, New Jersey
Richard N. Kleeberg Solano Community College, California
Gregory Rabb Jamestown Community College, New York
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Hugh Rode Utah Valley State College William M. Rutledge Macomb Community College, Michigan Martha Wright Sartoris North Hennepin Community College, Minnesota Anne W. Schacherl Madison Area Technical College, Wisconsin Edward F. Shafer Rochester Community College, Minnesota Lou Ann Simpson Drake University, Iowa Denise Smith Missouri Western State College Hugh M. Spall Central Washington University Maurice Tonissi Quinsigamond Community College, Massachusetts James D. Van Tassel Mission College, California
Frederick J. Walsh Franklin Pierce College, New Hampshire James E. Walsh, Jr. Tidewater Community College, Virginia Randy Waterman Richland College, Texas Jerry Wegman University of Idaho Edward L. Welsh, Jr. Phoenix College, Arizona Clark W. Wheeler Santa Fe Community College, Florida Lori Whisenant University of Houston, Texas Kay O. Wilburn The University of Alabama at Birmingham James L. Wittenbach University of Notre Dame, Indiana Joseph Zavaglia, Jr. Brookdale Community College, New Jersey
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Acknowledgments for the Eighth Edition Joan Alexander Nassau Community College Jay Ballantine University of Colorado, Boulder Richard J. Bennett Three Rivers Community College, Connecticut Harriet Caplan Fort Hays State University, Kansas Tammy Cowart University of Texas at Tyler Stanley J. Dabrowski Hudson County Community College, New Jersey Bruce R. Elder University of Nebraska at Kearny Steve Hamilton California Polytechnic State University, San Luis Obispo Bayard Harris Roanoke College
Karen A. Holmes Hudson Valley Community College, New York Dennis L. Kovach Community College of Allegheny County— North Campus Susan Mitchell Des Moines Area Community College, Iowa Susan Morley University of Colorado, Boulder Brad Reid Abilene Christian University, Texas Donald A. Roark University of West Florida Jesse C. Roberson Ohio University Darian Wagner Saint Leo University, Distance Learning Program
We know that we are not perfect. If you or your students find something you don’t like or want us to change, write to us or let us know via e-mail, using the “Talk to Us” feature on this text’s Web site. That is how we can make Business Law Today: Comprehensive Edition an even better book in the future. Roger LeRoy Miller Gaylord A. Jentz
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Dedication To Tullio, Thanks for pushing me to my limits—and beyond! Some day, I’ll be as good as you are. R.L.M.
To my wife, JoAnn; my children, Kathy, Gary, Lori, and Rory; and my grandchildren, Erin, Megan, Eric, Emily, Michelle, Javier, Carmen, and Steve. G.A.J.
law is of “The as much interest to the layman as it is to the lawyer.
”
CHAPTER OUTLINE —THE NATURE OF LAW —BUSINESS ACTIVITIES AND THE LEGAL ENVIRONMENT —SOURCES OF AMERICAN LAW —THE COMMON LAW TRADITION —CLASSIFICATIONS OF LAW
LEARNING OBJECTIVES AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO ANSWER THE FOLLOWING QUESTIONS: 1 What is the Uniform Commercial Code? 2 What is the common law tradition? 3 What is a precedent? When might a court depart from precedent? 4 What is the difference between remedies at law and remedies in equity?
Lord Balfour, 1848–1930 (British prime minister, 1902–1905)
5 What are some important differences between civil law and criminal law?
L
ord Balfour’s assertion in the chapter-opening quotation emphasizes the underlying theme of every page in this book—that law is of interest to all persons, not just to lawyers. Those entering the world of business will find themselves subject to numerous laws and government regulations. A basic knowledge of these laws and regulations is beneficial— if not essential—to anyone contemplating a successful career in today’s business world. In this introductory chapter, we first look at the nature of law and at some concepts that have significantly influenced how jurists (those skilled in the law, including judges, lawyers, and legal scholars) view the nature and function of law. We then look at an important question for any student reading this text: How does the legal environment affect business decision making? We next describe the basic sources of American law, the common law tradition, and the importance of the common law today. We conclude the chapter with a discussion of some general classifications of law.
THE NATURE OF LAW LAW
A body of enforceable rules governing relationships among individuals and between individuals and their society.
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Law has had and will continue to have different definitions. Although the definitions vary in their particulars, they all are based on the general observation that, at a minimum, law consists of enforceable rules governing relationships among individuals and between individuals and their society. These “enforceable rules” may consist of unwritten principles of behavior established by a nomadic tribe. They may be set forth in an ancient or a contemporary law code. They may consist of written laws and court decisions created by modern legislative
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and judicial bodies, as in the United States. Regardless of how such rules are created, they all have one thing in common: they establish rights, duties, and privileges that are consistent with the values and beliefs of their society or its ruling group. Those who embark on a study of law will find that these broad statements leave unanswered some important questions concerning the nature of law. Part of the study of law, often referred to as jurisprudence, involves learning about different schools of legal thought and discovering how each school’s approach to law can affect judicial decision making. You may think that legal philosophy is far removed from the practical study of business law and the legal environment. In fact, it is not. As you will learn in the chapters of this text, how judges apply the law to specific disputes, including disputes relating to the business world, depends in part on their philosophical approaches to law. We look now at some of the significant schools of legal, or jurisprudential, thought that have evolved over time.
The Natural Law Tradition An age-old question about the nature of law has to do with the finality of a nation’s laws, such as the laws of the United States at the present time. For example, what if a substantial number of that nation’s citizens consider a particular law to be a “bad” law? Must a citizen obey the law if doing so goes against his or her conscience? Is there a higher or universal law to which individuals can appeal? One who adheres to the natural law tradition would answer this question in the affirmative. Natural law denotes a system of moral and ethical principles that are inherent in human nature and thus can be discovered through the use of people’s own native intelligence. The natural law tradition is one of the oldest and most significant schools of jurisprudence. It dates back to the days of the Greek philosopher Aristotle (384–322 B.C.E.), who distinguished between natural law and the laws governing a particular nation. According to Aristotle, natural law applies universally to all humankind. The notion that people have “natural rights” stems from the natural law tradition. Those who claim that a specific foreign government is depriving certain citizens of their human rights are implicitly appealing to a higher law that has universal applicability. The question of the universality of basic human rights also comes into play in the context of international business operations. For example, U.S. companies that have operations abroad often hire foreign workers as employees. Should the same laws that protect U.S. employees apply to these foreign employees? This question is rooted implicitly in a concept of universal rights that has its origins in the natural law tradition.
Was Aristotle a proponent of the natural or positive law tradition? (Collection of The Louvre/Photo by Eric Gaba/Wikimedia Commons) JURISPRUDENCE
The science or philosophy of law. NATURAL LAW
The belief that government and the legal system should reflect universal moral and ethical principles that are inherent in human nature. The natural law school is the oldest and one of the most significant schools of legal thought.
Legal Positivism In contrast, positive law, or national law (the written law of a given society at a particular point in time), applies only to the citizens of that nation or society. Those who adhere to legal positivism believe that there can be no higher law than a nation’s positive law. According to the positivist school, there is no such thing as “natural rights.” Rather, human rights exist solely because of laws. If the laws are not enforced, anarchy will result. Thus, whether a law is “bad” or “good” is irrelevant. The law is the law and must be obeyed until it is changed—in an orderly manner through a legitimate lawmaking process. A judge with positivist leanings probably would be more inclined to defer to an existing law than would a judge who adheres to the natural law tradition.
POSITIVE LAW
The body of conventional, or written, law of a particular society at a particular point in time. LEGAL POSITIVISM
A school of legal thought centered on the assumption that there is no law higher than the laws created by a national government. Laws must be obeyed, even if they are unjust, to prevent anarchy. HISTORICAL SCHOOL
The Historical School The historical school of legal thought emphasizes the evolutionary process of law by concentrating on the origin and history of the legal system. Thus, this school looks to the past
A school of legal thought that emphasizes the evolutionary process of law and looks to the past to discover what the principles of contemporary law should be.
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to discover what the principles of contemporary law should be. The legal doctrines that have withstood the passage of time—those that have worked in the past—are deemed best suited for shaping present laws. Hence, law derives its legitimacy and authority from adhering to the standards that historical development has shown to be workable. Followers of the historical school are more likely than those of other schools to adhere strictly to decisions made in past cases.
Legal Realism LEGAL REALISM
A school of legal thought of the 1920s and 1930s that generally advocated a less abstract and more realistic approach to the law, an approach that takes into account customary practices and the circumstances in which transactions take place. This school left a lasting imprint on American jurisprudence. SOCIOLOGICAL SCHOOL
A school of legal thought that views the law as a tool for promoting justice in society.
In the 1920s and 1930s, a number of jurists and scholars, known as legal realists, rebelled against the historical approach to law. Legal realism is based on the idea that law is just one of many institutions in society and that it is shaped by social forces and needs. The law is a human enterprise, and judges should take social and economic realities into account when deciding cases. Legal realists also believe that the law can never be applied with total uniformity. Given that judges are human beings with unique personalities, value systems, and intellects, obviously different judges will bring different reasoning processes to the same case. Legal realism strongly influenced the growth of what is sometimes called the sociological school of jurisprudence. This school views law as a tool for promoting justice in society. In the 1960s, for example, the justices of the United States Supreme Court played a leading role in the civil rights movement by upholding long-neglected laws calling for equal treatment for all Americans, including African Americans and other minorities. Generally, jurists who adhere to the sociological school are more likely to depart from past decisions than are those jurists who adhere to the other schools of legal thought.
BUSINESS ACTIVITIES AND THE LEGAL ENVIRONMENT As those entering the world of business will learn, laws and government regulations affect virtually all business activities—hiring and firing decisions, workplace safety, the manufacturing and marketing of products, and business financing, to name just a few. To make good business decisions, a basic knowledge of the laws and regulations governing these activities is beneficial, if not essential. In today’s world, though, a knowledge of “blackletter” law is not enough. Businesspersons are also pressured to make ethical decisions. Thus, the study of business law necessarily involves an ethical dimension.
Many Different Laws May Affect a Single Business Transaction
BREACH
The failure to perform a legal obligation.
As you will note, each chapter in this text covers a specific area of the law and shows how the legal rules in that area affect business activities. Although compartmentalizing the law in this fashion facilitates learning, it does not indicate the extent to which many different laws may apply to just one transaction. ■ EXAMPLE 1.1 Suppose that you are the president of NetSys, Inc., a company that creates and maintains computer network systems for its clients, including business firms. NetSys also markets software for customers who require an internal computer network. One day, Janet Hernandez, an operations officer for Southwest Distribution Corporation (SDC), contacts you by e-mail about a possible contract involving SDC’s computer network. In deciding whether to enter into a contract with SDC, you need to consider, among other things, the legal requirements for an enforceable contract. Are the requirements different for a contract for services and a contract for products? What are your options if SDC breaches (breaks, or fails to perform) the contract? The answers to these questions are part of contract law and sales law. Other questions might concern payment under the contract. How can you guarantee that NetSys will be paid? For example, if SDC pays with a check that is returned for insuf-
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ficient funds, what are your options? Answers to these questions can be found in the laws that relate to negotiable instruments (such as checks) and creditors’ rights. Also, a dispute may arise over the rights to NetSys’s software, or there may be a question of liability if the software is defective. There may be an issue as to whether you and Hernandez had the authority to make the deal in the first place, or an accountant’s evaluation of the contract may lead to a dispute. Resolutions of these questions may be found in the laws that relate to intellectual property, e-commerce, torts, product liability, agency, business organizations, or professional liability. ■ Finally, if any dispute cannot be resolved amicably, then the laws and the rules concerning courts and court procedures spell out the steps of a lawsuit. Exhibit 1–1 illustrates the various areas of the law that may influence business decision making. To prevent potential legal disputes, businesspersons need to be aware of the many different laws that may apply to a single business transaction. It is equally important for businesspersons to understand enough about the law to know when to turn to an expert for advice. For information on how to choose an attorney, see the Application feature at the end of this chapter.
PREVENTING LEGAL DISPUTES
■
Ethics and Business Decision Making Merely knowing the areas of law that may affect a business decision is not sufficient in today’s business world. Businesspersons must also take ethics into account. As you will learn in Chapter 7, ethics is generally defined as the study of what constitutes right or wrong behavior. Today, business decision makers need to consider not just whether a decision is legal, but also whether it is ethical. EXHIBIT 1–1 Areas of the Law That May Affect Business Decision Making
Contracts Courts and Court Procedures
Sales
Negotiable Instruments
Professional Liability Business Decision Making
Business Organizations
Creditors’ Rights Intellectual Property
Agency
E-Commerce
Torts Product Liability
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PRIMARY SOURCE OF LAW
A document that establishes the law on a particular issue, such as a constitution, a statute, an administrative rule, or a court decision. SECONDARY SOURCE OF LAW
A publication that summarizes or interprets the law, such as a legal encyclopedia, a legal treatise, or an article in a law review.
Throughout this text, you will learn about the relationship between the law and ethics, as well as about some of the types of ethical questions that often arise in the business context. Not only is Chapter 7 devoted solely to an examination of the importance of ethical considerations in business decision making, but various other elements in every chapter of this text are designed to help you become aware of the ethical aspects of questions that businesspersons may face. For example, the Ethical Issue features in each chapter of the text explore the ethical dimensions of topics treated within that chapter. In addition, the case problems at the end of each chapter include A Question of Ethics designed to introduce you to the ethical aspects of a specific case involving a real-life situation.
CONSTITUTIONAL LAW
The body of law derived from the U.S. Constitution and the constitutions of the various states. STATUTORY LAW
The body of law enacted by legislative bodies (as opposed to constitutional law, administrative law, or case law).
SOURCES OF AMERICAN LAW There are numerous sources of American law. Primary sources of law, or sources that establish the law, include the following: The U.S. Constitution and the constitutions of the various states. Statutes, or laws, passed by Congress and by state legislatures. Regulations created by administrative agencies, such as the federal Food and Drug Administration. Case law (court decisions). We describe each of these important primary sources of law in the following pages. (See the appendix at the end of this chapter for a discussion of how to find statutes, regulations, and case law.) Secondary sources of law are books and articles that summarize and clarify the primary sources of law. Legal encyclopedias, compilations (such as Restatements of the Law, which summarize court decisions on a particular topic), official comments to statutes, treatises, articles in law reviews published by law schools, and articles in other legal journals are examples of secondary sources of law. Courts often refer to secondary sources of law for guidance in interpreting and applying the primary sources of law discussed here.
Constitutional Law Image not available due to copyright restrictions
The federal government and the states have separate written constitutions that set forth the general organization, powers, and limits of their respective governments. Constitutional law is the law as expressed in these constitutions. The U.S. Constitution is the supreme law of the land. As such, it is the basis of all law in the United States. A law in violation of the Constitution, if challenged, will be declared unconstitutional and will not be enforced no matter what its source. Because of its paramount importance in the American legal system, we discuss the U.S. Constitution at length in Chapter 2 and present the complete text of the Constitution in Appendix B. The Tenth Amendment to the U.S. Constitution reserves to the states all powers not granted to the federal government. Each state in the union has its own constitution. Unless it conflicts with the U.S. Constitution or a federal law, a state constitution is supreme within the state’s borders.
Statutory Law Laws enacted by legislative bodies at any level of government, such as the statutes passed by Congress or by state legislatures, make up the body of law generally referred to as statutory law. When a legislature passes a statute, that statute ultimately is included in the federal
7 code of laws or the relevant state code of laws. Whenever a particular statute is mentioned in this text, we usually provide a footnote showing its citation (a reference to a publication in which a legal authority—such as a statute or a court decision—or other source can be found). In the appendix following this chapter, we explain how you can use these citations to find statutory law. Statutory law also includes local ordinances—statutes (laws, rules, or orders) passed by municipal or county governing units to govern matters not covered by federal or state law. Ordinances commonly have to do with city or county land use (zoning ordinances), building and safety codes, and other matters affecting the local governing unit. A federal statute, of course, applies to all states. A state statute, in contrast, applies only within the state’s borders. State laws thus may vary from state to state. No federal statute may violate the U.S. Constitution, and no state statute or local ordinance may violate the U.S. Constitution or the relevant state constitution. Uniform Laws During the 1800s, the differences among state laws frequently created difficulties for businesspersons conducting trade and commerce among the states. To counter these problems, a group of legal scholars, judges, and lawyers formed the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 1892 to draft uniform laws (“model statutes”) for the states to consider adopting. The NCCUSL still exists today and continues to issue new uniform laws and periodic revisions of earlier laws. Each state has the option of adopting or rejecting a uniform law. Only if a state legislature adopts a uniform law does that law become part of the statutory law of that state. Note that a state legislature may adopt all or part of a uniform law as it is written, or the legislature may rewrite the law however the legislature wishes. Hence, even though many states may have adopted a uniform law, those states’ laws may not be entirely “uniform.” The earliest uniform law, the Uniform Negotiable Instruments Law, was completed by 1896 and was adopted in every state by the early 1920s (although not all states used exactly the same wording). Over the following decades, other acts were drawn up in a similar manner. In all, the NCCUSL has issued more than two hundred uniform acts since its inception. The most ambitious uniform act of all, however, was the Uniform Commercial Code. The Uniform Commercial Code (UCC) The Uniform Commercial Code (UCC), which was created through the joint efforts of the NCCUSL and the American Law Institute,1 was first issued in 1952. The UCC has been adopted in all fifty states,2 the District of Columbia, and the Virgin Islands. The UCC facilitates commerce among the states by providing a uniform, yet flexible, set of rules governing commercial transactions. The UCC assures businesspersons that their contracts, if validly entered into, normally will be enforced. Because of its importance in the area of commercial law, we cite the UCC frequently in this text. We also present excerpts of the UCC in Appendix C. (For a discussion of the creation of the UCC, see the Landmark in the Law feature in Chapter 18.)
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CITATION
A reference to a publication in which a legal authority—such as a statute or a court decision—or other source can be found. ORDINANCE
A regulation enacted by a city or county legislative body that becomes part of that state’s statutory law.
UNIFORM LAW
A model law created by the National Conference of Commissioners on Uniform State Laws and/or the American Law Institute for the states to consider adopting. If the state adopts the law, it becomes statutory law in that state. Each state has the option of adopting or rejecting all or part of a uniform law.
ADMINISTRATIVE LAW
The body of law created by administrative agencies (in the form of rules, regulations, orders, and decisions) in order to carry out their duties and responsibilities. ADMINISTRATIVE AGENCY
Administrative Law An increasingly important source of American law is administrative law, which consists of the rules, orders, and decisions of administrative agencies. An administrative agency is a federal, state, or local government agency established to perform a specific function. Rules 1. This institute was formed in the 1920s and consists of practicing attorneys, legal scholars, and judges. 2. Louisiana has adopted only Articles 1, 3, 4, 5, 7, 8, and 9.
A federal or state government agency established to perform a specific function. Administrative agencies are authorized by legislative acts to make and enforce rules in order to administer and enforce the acts.
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issued by various administrative agencies now affect virtually every aspect of a business’s operations, including the firm’s capital structure and financing, its hiring and firing procedures, its relations with employees and unions, and the way it manufactures and markets its products. EXECUTIVE AGENCY
An administrative agency within the executive branch of government. At the federal level, executive agencies are those within the cabinet departments. INDEPENDENT REGULATORY AGENCY
An administrative agency that is not considered part of the government’s executive branch and is not subject to the authority of the president. Independent agency officials cannot be removed without cause.
Federal Agencies At the national level, numerous executive agencies exist within the cabinet departments of the executive branch. For example, the Food and Drug Administration is within the U.S. Department of Health and Human Services. Executive agencies are subject to the authority of the president, who has the power to appoint and remove officers of federal agencies. There are also many independent regulatory agencies at the federal level, including the Federal Trade Commission, the Securities and Exchange Commission, and the Federal Communications Commission. The president’s power is less pronounced in regard to independent agencies, whose officers serve for fixed terms and cannot be removed without just cause. State and Local Agencies There are administrative agencies at the state and local levels as well. Commonly, a state agency (such as a state pollution-control agency) is created as a parallel to a federal agency (such as the Environmental Protection Agency). Just as federal statutes take precedence over conflicting state statutes, so do federal agency regulations take precedence over conflicting state regulations. Because the rules of state and local agencies vary widely, we focus here exclusively on federal administrative law.
ENABLING LEGISLATION
A statute enacted by Congress that authorizes the creation of an administrative agency and specifies the name, composition, purpose, and powers of the agency being created. ADJUDICATE
To render a judicial decision. In the administrative process, adjudication is the trial-like proceeding in which an administrative law judge hears and decides issues that arise when an administrative agency charges a person or a firm with violating a law or regulation enforced by the agency. ADMINISTRATIVE PROCESS
The procedure used by administrative agencies in the administration of law. RULEMAKING
The process undertaken by an administrative agency when formally adopting a new regulation or amending an old one. Rulemaking involves notifying the public of a proposed rule or change and receiving and considering the public’s comments.
Agency Creation Because Congress cannot possibly oversee the actual implementation of all the laws it enacts, it must delegate such tasks to agencies, especially when the legislation involves highly technical matters, such as air and water pollution. Congress creates an administrative agency by enacting enabling legislation, which specifies the name, composition, purpose, and powers of the agency being created. ■ EXAMPLE 1.2 The Federal Trade Commission (FTC) was created in 1914 by the Federal Trade Commission Act.3 This act prohibits unfair and deceptive trade practices. It also describes the procedures the agency must follow to charge persons or organizations with violations of the act, and it provides for judicial review (review by the courts) of agency orders. Other portions of the act grant the agency powers to “make rules and regulations for the purpose of carrying out the Act,” to conduct investigations of business practices, to obtain reports from interstate corporations concerning their business practices, to investigate possible violations of the act, to publish findings of its investigations, and to recommend new legislation. The act also empowers the FTC to hold trial-like hearings and to adjudicate (resolve judicially) certain kinds of disputes that involve FTC regulations. ■ Note that the powers granted to the FTC incorporate functions associated with the legislative branch of government (rulemaking), the executive branch (investigation and enforcement), and the judicial branch (adjudication). Taken together, these functions constitute administrative process, which is the administration of law by administrative agencies. Rulemaking One of the major functions of an administrative agency is rulemaking— creating or modifying rules, or regulations, pursuant to its enabling legislation. The Administrative Procedure Act of 1946 4 imposes strict procedural requirements that agencies must follow in their rulemaking and other functions. 3. 15 U.S.C. Sections 45–58. 4. 5 U.S.C. Sections 551–706.
9 The most common rulemaking procedure involves three steps. First, the agency must give public notice of the proposed rulemaking proceedings, where and when the proceedings will be held, the agency’s legal authority for the proceedings, and the terms or subject matter of the proposed rule. The notice must be published in the Federal Register, a daily publication of the U.S. government. Second, following this notice, the agency must allow ample time for interested parties to comment in writing on the proposed rule. After the comments have been received and reviewed, the agency takes them into consideration when drafting the final version of the regulation. The third and last step is the drafting of the final rule and its publication in the Federal Register. (See the appendix at the end of this chapter for an explanation of how to find agency regulations.)
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You can find proposed and final rules issued by administrative agencies by accessing the Federal Register online at www.gpoaccess.gov/fr/index.html.
Investigation and Enforcement Agencies have both investigatory and prosecutorial powers. An agency can request that individuals or organizations hand over specified books, papers, electronic records, or other documents. In addition, agencies may conduct on-site inspections, although a search warrant is normally required for such inspections. Sometimes, a search of a home, an office, or a factory is the only means of obtaining evidence needed to prove a regulatory violation. Agencies investigate a wide range of activities, including coal mining, automobile manufacturing, and the industrial discharge of pollutants into the environment. After conducting its own investigation of a suspected rule violation, an agency may decide to take action against an individual or a business. Most administrative actions are resolved through negotiated settlement at their initial stages without the need for formal adjudication. If a settlement cannot be reached, though, the agency may issue a formal complaint and proceed to adjudication. Adjudication Agency adjudication involves a trial-like hearing before an administrative law judge (ALJ). Hearing procedures vary widely from agency to agency. After the hearing, the ALJ renders a decision in the case. The ALJ can compel the charged party to pay a fine or can prohibit the party from carrying on some specified activity. Either side may appeal the ALJ’s decision to the commission or board that governs the agency. If the party fails to get relief there, appeal can be made to a federal court. If no party appeals the case, the ALJ’s decision becomes final. Do administrative agencies exercise too much authority? Administrative agencies, such as the FTC, combine functions normally divided among the three branches of government in a single governmental entity. The broad range of authority that agencies exercise sometimes poses questions of fairness. After all, agencies create rules that are as legally binding as the laws passed by Congress—the only federal government institution authorized by the Constitution to make laws. To be sure, arbitrary rulemaking by agencies is checked by the procedural requirements set forth in the Administrative Procedure Act (APA), as well as by the courts, to which agency decisions may be appealed. Yet some people claim that these checks are not enough. Consider that in addition to legislative rules, which are subject to the procedural requirements of the APA, agencies also create interpretive rules—rules that specify how the agency will interpret and apply its regulations. The APA does not apply to interpretive rulemaking. Moreover, although a firm that challenges an agency’s rule may appeal the agency’s decision in the matter to a court, the courts generally defer to agency rules, including interpretive rules, and to agency decisions. ■
ADMINISTRATIVE LAW JUDGE (ALJ)
One who presides over an administrative agency hearing and has the power to administer oaths, take testimony, rule on questions of evidence, and make determinations of fact.
ETHICAL ISSUE 1.1
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Case Law and Common Law Doctrines The rules of law announced in court decisions constitute another basic source of American law. These rules of law include interpretations of constitutional provisions, of statutes enacted by legislatures, and of regulations created by administrative agencies. Today, this body of judge-made law is referred to as case law. Case law—the doctrines and principles announced in cases—governs all areas not covered by statutory law or administrative law and is part of our common law tradition. We look at the origins and characteristics of the common law tradition in some detail in the pages that follow.
THE COMMON LAW TRADITION Because of our colonial heritage, much of American law is based on the English legal system. A knowledge of this tradition is crucial to understanding our legal system today because judges in the United States still apply common law principles when deciding cases.
Early English Courts The court of chancery in the reign of King George I. Early English court decisions formed the basis of what type of law? (From a painting by Benjamin Ferrers in the National Portrait Gallery/Photo by Corbis Bettmann)
CASE LAW
The rules of law announced in court decisions. Case law includes the aggregate of reported cases that interpret judicial precedents, statutes, regulations, and constitutional provisions. COMMON LAW
The body of law developed from custom or judicial decisions in English and U.S. courts, not attributable to a legislature. PRECEDENT
A court decision that furnishes an example or authority for deciding subsequent cases involving identical or similar facts.
STARE DECISIS
A common law doctrine under which judges are obligated to follow the precedents established in prior decisions.
After the Normans conquered England in 1066, William the Conqueror and his successors began the process of unifying the country under their rule. One of the means they used to do this was the establishment of the king’s courts, or curiae regis. Before the Norman Conquest, disputes had been settled according to the local legal customs and traditions in various regions of the country. The king’s courts sought to establish a uniform set of rules for the country as a whole. What evolved in these courts was the beginning of the common law—a body of general rules that applied throughout the entire English realm. Eventually, the common law tradition became part of the heritage of all nations that were once British colonies, including the United States. Courts developed the common law rules from the principles underlying judges’ decisions in actual legal controversies. Judges attempted to be consistent, and whenever possible, they based their decisions on the principles suggested by earlier cases. They sought to decide similar cases in a similar way and considered new cases with care, because they knew that their decisions would make new law. Each interpretation became part of the law on the subject and served as a legal precedent—that is, a decision that furnished an example or authority for deciding subsequent cases involving similar legal principles or facts. In the early years of the common law, there was no single place or publication where court opinions, or written decisions, could be found. Beginning in the late thirteenth and early fourteenth centuries, however, each year portions of significant decisions of that year were gathered together and recorded in Year Books. The Year Books were useful references for lawyers and judges. In the sixteenth century, the Year Books were discontinued, and other reports of cases became available. (See the appendix to this chapter for a discussion of how cases are reported, or published, in the United States today.)
Stare Decisis The practice of deciding new cases with reference to former decisions, or precedents, eventually became a cornerstone of the English and U.S. judicial systems. The practice forms a doctrine called stare decisis5 (“to stand on decided cases”).
5. Pronounced stahr-ee dih-si-sis.
11 The Importance of Precedents in Judicial Decision Making Under the doctrine of stare decisis, once a court has set forth a principle of law as being applicable to a certain set of facts, that court and courts of lower rank must adhere to that principle and apply it in future cases involving similar fact patterns. Stare decisis has two aspects: first, that decisions made by a higher court are binding on lower courts; and second, that a court should not overturn its own precedents unless there is a strong reason to do so. Controlling precedents in a jurisdiction (an area in which a court or courts have the power to apply the law—see Chapter 3) are referred to as binding authorities. A binding authority is any source of law that a court must follow when deciding a case. Binding authorities include constitutions, statutes, and regulations that govern the issue being decided, as well as court decisions that are controlling precedents within the jurisdiction. United States Supreme Court case decisions, no matter how old, remain controlling until they are overruled by a subsequent decision of the Supreme Court, by a constitutional amendment, or by congressional legislation. Stare Decisis and Legal Stability The doctrine of stare decisis helps the courts to be more efficient because if other courts have carefully reasoned through a similar case, their legal reasoning and opinions can serve as guides. Stare decisis also makes the law more stable and predictable. If the law on a given subject is well settled, someone bringing a case to court can usually rely on the court to make a decision based on what the law has been. Departures from Precedent Although courts are obligated to follow precedents, sometimes a court will depart from the rule of precedent if it decides that a given precedent should no longer be followed. If a court decides that a precedent is simply incorrect or that technological or social changes have rendered the precedent inapplicable, the court might rule contrary to the precedent. Cases that overturn precedent often receive a great deal of publicity. 6 ■ EXAMPLE 1.3 In Brown v. Board of Education of Topeka, the United States Supreme Court expressly overturned precedent when it concluded that separate educational facilities for whites and blacks, which had been upheld as constitutional in numerous previous cases,7 were inherently unequal. The Supreme Court’s departure from precedent in Brown received a tremendous amount of publicity as people began to realize the ramifications of this change in the law. ■ When There Is No Precedent At times, a court hears a case for which there are no precedents within its jurisdiction on which to base its decision. When hearing such cases, called “cases of first impression,” courts often look at precedents established in other jurisdictions for guidance. Precedents from other jurisdictions, because they are not binding on the court, are referred to as persuasive authorities. A court may also consider various other factors, including legal principles and policies underlying previous court decisions or existing statutes, fairness, social values and customs, public policy, and data and concepts drawn from the social sciences. Can a court consider unpublished decisions as persuasive precedent? See this chapter’s Adapting the Law to the Online Environment feature on the following two pages for a discussion of this issue. 6. 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954). See the appendix at the end of this chapter for an explanation of how to read legal citations. 7. See Plessy v. Ferguson, 163 U.S. 537, 16 S.Ct. 1138, 41 L.Ed. 256 (1896).
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In a 1954 photo, Nettie Hunt sits on the steps of the United States Supreme Court building with her daughter after the Court’s landmark ruling in Brown v. Board of Education of Topeka. (Library of Congress, Prints & Photographs Division/U.S. News & World Report Magazine Collection) BINDING AUTHORITY
Any source of law that a court must follow when deciding a case. Binding authorities include constitutions, statutes, and regulations that govern the issue being decided, as well as court decisions that are controlling precedents within the jurisdiction.
To learn how the Supreme Court justified its departure from precedent in the 1954 Brown decision, you can access the Court’s opinion online by going to www.findlaw.com/casecode/supreme.html, entering “347” and “483” in the boxes below the “Citation Search” heading, and clicking on “get it.”
PERSUASIVE AUTHORITY
Any legal authority or source of law that a court may look to for guidance but on which it need not rely in making its decision. Persuasive authorities include cases from other jurisdictions and secondary sources of law.
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How the Internet Is Expanding Precedent he notion that courts should rely on precedents to decide the outcome of similar cases has long been a cornerstone of U.S. law. Nevertheless, the availability of “unpublished opinions” over the Internet is changing what the law considers to be precedent. An unpublished opinion is a decision made by an appellate court that is not intended for publication in a reporter (the bound books that contain court opinions).a Courts traditionally have not considered unpublished opinions to be “precedent,” binding or persuasive, and attorneys were often not allowed to refer to these decisions in their arguments.
T
An Increasing Number of Decisions Are Not Published in Case Reporters but Are Available Online The number of court decisions not published in printed books has risen dramatically in recent years. By some estimates, nearly 80 percent of the decisions of the federal appellate a. Recently decided cases that are not yet published are also sometimes called unpublished opinions, but because these decisions will eventually be printed in reporters, we do not include them here.
courts are unpublished. The number is equally high in some state court systems. California’s intermediate appellate courts, for example, publish only about 7 percent of their decisions. Even though certain decisions are not intended for publication, they are posted (“published”) almost immediately on online legal databases, such as Westlaw and Lexis. With the proliferation of free legal databases and court Web sites, the general public also has almost instant access to the unpublished decisions of most courts. This situation has caused a substantial amount of debate over whether unpublished opinions should be given the same precedential effect as published opinions.
Should Unpublished Decisions Establish Precedent? Prior to the Internet, one might have been able to justify not considering unpublished decisions to be precedent on the grounds of fairness. How could courts and lawyers be expected to consider the reasoning in unpublished decisions if they were not printed in the case reporters? Now that opinions are so readily available on the Web, however, this justification is no longer valid. Moreover, it now seems unfair not to consider these decisions as precedent to some extent because they are so publicly accessible. Another argument against allowing unpublished decisions to be precedent concerns the quality of the legal reasoning
Equitable Remedies and Courts of Equity REMEDY
The relief given to an innocent party to enforce a right or compensate for the violation of a right.
A remedy is the means given to a party to enforce a right or to compensate for the violation of a right. ■ EXAMPLE 1.4 If Shem is injured because of Rowan’s wrongdoing, a court may order Rowan to compensate Shem for the harm by paying him a certain amount. ■ In the early king’s courts of England, the kinds of remedies that could be granted were severely restricted. If one person wronged another, the king’s courts could award as compensation either money or property, including land. These courts became known as courts of law, and the remedies were called remedies at law. Even though this system introduced uniformity in the settling of disputes, when plaintiffs wanted a remedy other than economic compensation, the courts of law could do nothing, so “no remedy, no right.” Remedies in Equity Equity refers to a branch of the law, founded in justice and fair dealing, that seeks to supply a fair and adequate remedy when no remedy is available at law. In medieval England, when individuals could not obtain an adequate remedy in a court of law, they petitioned the king for relief. Most of these petitions were decided by an adviser to the king called the chancellor. The chancellor was said to be the “keeper of the king’s conscience.” When the chancellor thought that the claim was a fair one, new
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set forth in these decisions. Staff attorneys and law clerks frequently write unpublished opinions so that judges can spend more time on the opinions intended for publication. Consequently, some claim that allowing unpublished decisions to establish precedent could result in bad precedents because the reasoning may not be up to par. If the decision is regarded merely as persuasive precedent, however, then judges who disagree with the reasoning are free to reject the conclusion.
The United States Supreme Court Changes Federal Rules on Unpublished Opinions as of 2007
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The impact of this new rule remains to be seen. At present, the majority of states do not allow their state courts to consider the rulings in unpublished cases as persuasive precedent, and this rule does not affect the states. The Supreme Court’s decision, however, provides an example of how technology—the availability of unpublished opinions over the Internet—has affected the law.
F O R C R I T I C A L A N A LY S I S Now that the Supreme Court is allowing unpublished decisions to be used as persuasive precedent in federal courts, should state courts follow? Why or why not?
In spite of objections from several hundred judges and lawyers, the United States Supreme Court made history in 2006 when it announced that it would allow lawyers to refer to (cite) unpublished decisions in all federal courts. The new rule, Rule 32.1 of the Federal Rules of Appellate Procedure, states that federal courts may not prohibit or restrict the citation of federal judicial opinions that have been designated as “not for publication,” “non-precedential,” or “not precedent.” The rule applies only to federal courts and only to unpublished opinions issued after January 1, 2007. It does not specify the effect that a court must give to one of its unpublished opinions or to an unpublished opinion from another court. Basically, the rule simply makes all the federal courts follow a uniform rule that allows attorneys to cite—and judges to consider as persuasive precedent—unpublished decisions beginning in 2007.
and unique remedies were granted. In this way, a new body of rules and remedies came into being, and eventually formal chancery courts, or courts of equity, were established. The remedies granted by these courts were called remedies in equity. Thus, two distinct court systems were created, each having its own set of judges and its own set of remedies. Plaintiffs (those bringing lawsuits) had to specify whether they were bringing an “action at law” or an “action in equity,” and they chose their courts accordingly. ■ EXAMPLE 1.5 A plaintiff might ask a court of equity to order a defendant (a person against whom a lawsuit is brought) to perform within the terms of a contract. A court of law could not issue such an order because its remedies were limited to payment of money or property as compensation for damages. A court of equity, however, could issue a decree for specific performance—an order to perform what was promised. A court of equity could also issue an injunction, directing a party to do or refrain from doing a particular act. In certain cases, a court of equity could allow for the rescission (cancellation) of the contract, thereby returning the parties to the positions that they held prior to the contract’s formation. ■ Equitable remedies will be discussed in greater detail in Chapter 15. The Merging of Law and Equity Today, in most states, the courts of law and equity have merged, and thus the distinction between the two courts has largely disappeared. A plaintiff may now request both legal and equitable remedies in the same action, and the
PLAINTIFF
One who initiates a lawsuit. DEFENDANT
One against whom a lawsuit is brought; the accused person in a criminal proceeding.
Even though, in most states, courts of law and equity have merged, the principles of equity still apply.
REMEMBER
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EXHIBIT 1–2 Procedural Differences between an Action at Law and an Action in Equity
PROCEDURE
ACTION AT LAW
ACTION IN EQUITY
Initiation of lawsuit
By filing a complaint.
By filing a petition.
Decision
By jury or judge.
By judge (no jury).
Result
Judgment.
Decree.
Remedy
Monetary damages.
Injunction, specific performance, or rescission.
trial court judge may grant either form—or both forms—of relief. The merging of law and equity, however, does not diminish the importance of distinguishing legal remedies from equitable remedies. To request the proper remedy, a businessperson (or her or his attorney) must know what remedies are available for the specific kinds of harms suffered. Today, as a rule, courts will grant an equitable remedy only when the remedy at law (money damages) is inadequate. Exhibit 1–2 summarizes the procedural differences (applicable in most states) between an action at law and an action in equity.
EQUITABLE PRINCIPLES AND MAXIMS
General propositions or principles of law that have to do with fairness (equity).
Equitable Principles and Maxims Over time, the courts have developed a number of equitable principles and maxims that provide guidance in deciding whether plaintiffs should be granted equitable relief. Because of their importance, both historically and in our judicial system today, these principles and maxims are set forth in this chapter’s Landmark in the Law feature.
CLASSIFICATIONS OF LAW SUBSTANTIVE LAW
Law that defines, describes, regulates, and creates legal rights and obligations. PROCEDURAL LAW
Law that establishes the methods of enforcing the rights established by substantive law. CYBERLAW
An informal term used to refer to all laws governing electronic communications and transactions, particularly those conducted via the Internet.
The huge body of the law may be broken down according to several classification systems. For example, one classification system divides law into substantive law (all laws that define, describe, regulate, and create legal rights and obligations) and procedural law (all laws that establish the methods of enforcing the rights established by substantive law). Other classification systems divide law into federal law and state law or private law (dealing with relationships between persons) and public law (addressing the relationship between persons and their governments). Frequently, people use the term cyberlaw to refer to the emerging body of law that governs transactions conducted via the Internet. Cyberlaw is not really a classification of law, nor is it a new type of law. Rather, it is an informal term used to describe traditional legal principles that have been modified and adapted to fit situations that are unique to the online world. Of course, in some areas new statutes have been enacted, at both the federal and the state levels, to cover specific types of problems stemming from online communications. Throughout this book, you will read how the law in a given area is evolving to govern specific legal issues that arise in the online context.
Civil Law and Criminal Law CIVIL LAW
The branch of law dealing with the definition and enforcement of all private or public rights, as opposed to criminal matters.
Civil law spells out the rights and duties that exist between persons and between persons and their governments, and the relief available when a person’s rights are violated. Typically, in a civil case, a private party sues another private party (although the government can also sue a party for a civil law violation) to make that other party comply with a duty or pay for the damage caused by the failure to comply with a duty. ■ EXAMPLE 1.6 If a seller fails to perform a contract with a buyer, the buyer may bring a lawsuit against the seller. The purpose of the lawsuit will be either to compel the seller to perform as
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Equitable Principles and Maxims In medieval England, courts of equity had the responsibility of using discretion in supplementing the common law. Even today, when the same court can award both legal and equitable remedies, it must exercise discretion. Courts often invoke equitable principles and maxims when making their decisions. Here are some of the most significant equitable principles and maxims: 1 Whoever seeks equity must do equity. (Anyone who wishes to be treated fairly must treat others fairly.) 2 Where there is equal equity, the law must prevail. (The law will determine the outcome of a controversy in which the merits of both sides are equal.) 3 One seeking the aid of an equity court must come to the court with clean hands. (Plaintiffs must have acted fairly and honestly.) 4 Equity will not suffer a wrong to be without a remedy. (Equitable relief will be awarded when there is a right to relief and there is no adequate remedy at law.) 5 Equity regards substance rather than form. (Equity is more concerned with fairness and justice than with legal technicalities.) 6 Equity aids the vigilant, not those who rest on their rights. (Equity will not help those who neglect their rights for an unreasonable period of time.) The last maxim has become known as the equitable doctrine of laches. The doctrine arose to encourage people to bring lawsuits while the evidence was fresh; if they failed to do so, they would not be allowed to bring a lawsuit. What constitutes a reasonable time, of course, varies according to the circumstances of the case. Time periods for different types of cases are now usually fixed by statutes of limitations. After the time allowed under a statute of limitations has expired, no action can be brought, no matter how strong the case was originally.
A P P L I C A T I O N T O T O D A Y ’ S W O R L D The equitable maxims listed above underlie many of the legal rules and principles that are commonly applied by the courts today— and that you will read about in this book. For example, in Chapter 10 you will read about the doctrine of promissory estoppel. Under this doctrine, a person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery, even though no enforceable contract, or agreement, exists. The court will estop (bar, or impede) the one making the promise from asserting the lack of a valid contract as a defense. The rationale underlying the doctrine of promissory estoppel is similar to that expressed in the fourth and fifth maxims above. R E L E V A N T W E B S I T E S To locate information on the Web concerning equitable principles and maxims, go to this text’s Web site at www.cengage.com/blaw/blt, select “Chapter 1,” and click on “URLs for Landmarks.”
■
STATUTE OF LIMITATIONS
A federal or state statute setting the maximum time period during which a certain action can be brought or certain rights enforced.
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National Law Systems Despite their varying cultures and customs, virtually all countries have laws governing torts, contracts, employment, and other areas, just as the United States does. In part, this is because two types of legal systems predominate around the globe today. One is the common law system of England and the United States, which we have discussed elsewhere. The other system is based on Roman civil law, or “code law.” The term civil law, as used here, refers not to civil as opposed to criminal law but to codified law—an ordered grouping of legal principles enacted into law by a legislature or governing body. In a civil law system, the primary source of law is a statutory code, and case precedents are not judicially binding, as they normally are in a common law system. Although judges in a civil law system commonly refer to previous decisions as sources of legal guidance, they are not bound by precedent; in other words, the doctrine of stare decisis does not apply. A third, less prevalent, legal system is common in Islamic countries, where the law is often influenced by sharia, the religious law of Islam. Sharia is a comprehensive code of principles that governs both the public and private lives of Islamic persons, directing many aspects of day-to-day life, including politics, economics, banking, business law, contract law, and social issues. Although sharia affects the legal codes of many Muslim countries, the extent of its impact and its interpretation vary widely. In some Middle Eastern nations, aspects of sharia have been codified in modern legal codes and are enforced by national judicial systems. The accompanying exhibit lists some countries that today follow either the common law system or the civil law system. Generally, those countries that were once colonies of Great Britain retained their English common law heritage after they achieved independence. Similarly, the civil law system, which is followed in most continental European nations, was retained in the Latin American, African, and Asian countries that were once colonies of those nations. Japan and South Africa also have civil law systems.
CIVIL LAW SYSTEM
A system of law derived from that of the Roman Empire and based on a code rather than case law; the predominant system of law in the nations of continental Europe and the nations that were once their colonies. In the United States, Louisiana, because of its historical ties to France, has in part a civil law system. CRIMINAL LAW
Law that defines and governs actions that constitute crimes. Generally, criminal law has to do with wrongful actions committed against society for which society demands redress.
promised or, more commonly, to obtain money damages for the seller’s failure to perform. ■ Much of the law that we discuss in this text is civil law. Contract law, for example, which we discuss in Chapters 8 through 17, is civil law. The whole body of tort law (see Chapter 4) is civil law. Note that civil law is not the same as a civil law system. As you will read shortly, a civil law system is a legal system based on a written code of laws. Criminal law has to do with wrongs committed against society for which society demands redress. Criminal acts are proscribed by local, state, or federal government statutes. Thus, criminal defendants are prosecuted by public officials, such as a district attorney (D.A.), on behalf of the state, not by their victims or other private parties. Whereas in a civil case the object is to obtain remedies (such as money damages) to compensate the injured party, in a criminal case the object is to punish the wrongdoer in an attempt to deter others from similar actions. Penalties for violations of criminal statutes consist of fines and/or imprisonment—and, in some cases, death. We will discuss the differences between civil and criminal law in greater detail in Chapter 6.
National and International Law Although the focus of this book is U.S. business law, increasingly businesspersons in this country engage in transactions that extend beyond our national borders. In these situa-
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In the United States, the state of Louisiana, because of its historical ties to France, has in part a civil law system. The legal systems of Puerto Rico, Québec, and Scotland are similarly characterized as having elements of the civil law system. Realize that although national law systems share many commonalities, they also have distinct differences. Even when the basic principles are fundamentally similar (as they are in contract law, for example), significant variations exist in the practical application and effect of these laws across countries. Therefore, those persons who plan to do business in another nation would be wise to become familiar with the laws of that nation.
F O R C R I T I C A L A N A LY S I S Does the civil law system offer any advantages over the common law system, or vice versa? Explain.
THE LEGAL SYSTEMS OF SELECTED NATIONS
CIVIL LAW Argentina Austria Brazil Chile China Egypt Finland France Germany Greece
Indonesia Iran Italy Japan Mexico Poland South Korea Sweden Tunisia Venezuela
COMMON LAW Australia Bangladesh Canada Ghana India Israel Jamaica Kenya Malaysia New Zealand
The Library of Congress offers extensive information on national and international law at
Nigeria Singapore United Kingdom United States Zambia
www.loc.gov.
■
tions, the laws of other nations or the laws governing relationships among nations may come into play. For this reason, those who pursue a career in business today should have an understanding of the global legal environment. National Law The law of a particular nation, such as the United States or Sweden, is national law. National law, of course, varies from country to country because each country’s law reflects the interests, customs, activities, and values that are unique to that nation’s culture. Even though the laws and legal systems of various countries differ substantially, broad similarities do exist, as discussed in this chapter’s Beyond Our Borders feature. International Law In contrast to national law, international law applies to more than one nation. International law can be defined as a body of written and unwritten laws observed by independent nations and governing the acts of individuals as well as governments. International law is an intermingling of rules and constraints derived from a variety of sources, including the laws of individual nations, the customs that have evolved among nations in their relations with one another, and treaties and international organizations. In essence, international law is the result of centuries-old attempts to reconcile the traditional need of each nation to be the final authority over its own affairs with the desire of nations to benefit economically from trade and harmonious relations with one another.
NATIONAL LAW
Law that pertains to a particular nation (as opposed to international law).
INTERNATIONAL LAW
The law that governs relations among nations. National laws, customs, treaties, and international conferences and organizations are generally considered to be the most important sources of international law.
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The key difference between national law and international law is that government authorities can enforce national law. If a nation violates an international law, however, the most that other countries or international organizations can do (if persuasive tactics fail) is to resort to coercive actions against the violating nation. Coercive actions range from the severance of diplomatic relations and boycotts to, as a last resort, war. We examine the laws governing international business transactions in later chapters (including parts of Chapters 18 through 21, which cover contracts for the sale of goods, and all of Chapter 46).
The Legal Environment Suppose that the California legislature passes a law that severely restricts carbon dioxide emissions from automobiles in that state. A group of automobile manufacturers file suit against the state of California to prevent the enforcement of the law. The automakers claim that a federal law already sets fuel economy standards nationwide and that these standards are essentially the same as carbon dioxide emission standards. According to the automobile manufacturers, it is unfair to allow California to impose more stringent regulations than those set by the
federal law. Using the information presented in the chapter, answer the following questions. 1 Who are the parties (the plaintiffs and the defendant) in this lawsuit?
2 Are the plaintiffs seeking a legal remedy or an equitable remedy? Why?
3 What is the primary source of the law that is at issue here? 4 Read through the appendix that follows this chapter, and then answer the following question: Where would you look to find the relevant California and federal laws?
How Can You Choose and Use a Lawyer? f you are contemplating a career in the business world, sooner or later you will probably face the question, “Do I need a lawyer?” The answer will likely be “Yes,” at least at some time during your career. Today, it is virtually impossible for nonexperts to keep up with the myriad rules and regulations that govern the conduct of business in the United States. It is also increasingly possible for businesspersons to incur penalties for violating laws or regulations of which they are totally unaware. Although lawyers may seem expensive—anywhere from $100 to $500 or more per hour—cautious businesspersons will make sure that they are not “penny wise and pound foolish.” The consultation fee paid to an attorney can be insignificant compared with the potential liability facing a businessperson. Obtaining competent legal advice before a dispute arises may enable a busi-
I
nessperson to avoid potentially costly mistakes. Also, keep in mind that sometimes higher-priced attorneys from larger firms may be worth the extra expense because they may have more clout in the local legal community to wield on your behalf.
Selecting an Attorney In selecting an attorney, you can ask friends, relatives, or business associates to recommend someone. Alternatively, you can call the local or state bar association to obtain the names of several lawyers or check the Yellow Pages in your local telephone directory for listings. West Group has an online database containing biographies of attorneys throughout the country, listed by area of specialty and by state. You can find attorneys in your area by accessing West’s Legal Directory online at directory.findlaw.com. You might also investigate legal clinics and prepaid legal service plans. For your initial meeting with an attorney you are considering hiring, prepare a written list of your questions and a brief
19
summary of the problem for which you need legal advice. Also, bring copies of any relevant documents that the lawyer might need to see. While at the meeting, ask about legal fees, discuss the legal problem you are facing (or anticipate facing), and clarify the scope of what you want the lawyer to do for you. Remember that virtually everything you say at this meeting is protected by the attorney-client privilege of confidentiality.
Evaluating Your Attorney Before hiring the attorney, ask yourself the following questions after your first meeting: Did the attorney seem knowledgeable about what is needed to address your concerns? Did he or she seem willing to investigate the law and the facts further to ensure an accurate understanding of your legal situation? Did you communicate well with each other? Did the attorney perceive what issues were of foremost concern to you and address those issues to your satisfaction? Did the attorney “speak your language” when explaining the legal implications of those issues? Even after you hire the attorney, continue to evaluate the relationship over time. For many businesspersons, relation-
adjudicate 8 administrative agency 7 administrative law 7 administrative law judge (ALJ) 9 administrative process 8 binding authority 11 breach 4 case law 10 citation 7 civil law 14 civil law system 16 common law 10 constitutional law 6 criminal law 16 cyberlaw 14
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ships with attorneys last for decades. Make sure that your relationship with your attorney will be a fruitful one.
CHECKLIST FOR CHOOSING AND USING A LAW YER 1 If you ever think that you need legal advice, you probably do. 2 When choosing an attorney, try to get recommendations from friends, relatives, or business associates who have had long-standing relationships with their attorneys. If that fails, check with your local or state bar association, West Group’s online directory, or the Yellow Pages. 3 When you initially consult with an attorney, bring a written list of questions to which you want answers, perhaps a summary of your problem, and copies of relevant documents. 4 Do not hesitate to ask about the legal fees that your attorney will charge, and be sure to clarify the scope of the work to be undertaken by the attorney. Ask any and all questions that you feel are necessary to ensure that you understand your legal options.
defendant 13 enabling legislation 8 equitable principles and maxims 14 executive agency 8 historical school 3 independent regulatory agency 8 international law 17 jurisprudence 3 law 2 legal positivism 3 legal realism 4 national law 17 natural law 3 ordinance 7
persuasive authority 11 plaintiff 13 positive law 3 precedent 10 primary source of law 6 procedural law 14 remedy 12 rulemaking 8 secondary source of law 6 sociological school 4 stare decisis 10 statute of limitations 15 statutory law 6 substantive law 14 uniform law 7
The Legal Environment The Nature of Law (See pages 2–4.)
Law can be defined as a body of enforceable rules governing relationships among individuals and between individuals and their society. Four important schools of legal thought, or legal philosophies, are the following: 1. Natural law tradition—One of the oldest and most significant schools of legal thought. Those who believe in natural law hold that there is a universal law applicable to all human beings and that this law is of a higher order than positive, or conventional, law. (Continued)
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The Legal Environment — Continued The Nature of Law— Continued
2. Legal positivism—A school of legal thought centered on the assumption that there is no law higher than the laws created by the government. Laws must be obeyed, even if they are unjust, to prevent anarchy. 3. Historical school—A school of legal thought that stresses the evolutionary nature of law and looks to doctrines that have withstood the passage of time for guidance in shaping present laws. 4. Legal realism—A school of legal thought, popular during the 1920s and 1930s, that left a lasting imprint on American jurisprudence. Legal realists generally advocated a less abstract and more realistic approach to the law, an approach that would take into account customary practices and the circumstances in which transactions take place.
Sources of American Law (See pages 6–10.)
1. Constitutional law—The law as expressed in the U.S. Constitution and the various state constitutions. The U.S. Constitution is the supreme law of the land. State constitutions are supreme within state borders to the extent that they do not violate the U.S. Constitution or a federal law. 2. Statutory law—Laws or ordinances created by federal, state, and local legislatures and governing bodies. None of these laws can violate the U.S. Constitution or the relevant state constitutions. Uniform laws, when adopted by a state legislature, become statutory law in that state. 3. Administrative law—The rules, orders, and decisions of federal or state government administrative agencies. Federal administrative agencies are created by enabling legislation enacted by the U.S. Congress. Agency functions include rulemaking, investigation and enforcement, and adjudication. 4. Case law and common law doctrines—Judge-made law, including interpretations of constitutional provisions, of statutes enacted by legislatures, and of regulations created by administrative agencies. The common law—the doctrines and principles embodied in case law—governs all areas not covered by statutory law (or agency regulations issued to implement various statutes).
The Common Law Tradition (See pages 10–14.)
1. Common law—Law that originated in medieval England with the creation of the king’s courts, or curiae regis, and the development of a body of rules that were common to (or applied throughout) the land. 2. Stare decisis—A doctrine under which judges “stand on decided cases”—or follow the rule of precedent—in deciding cases. Stare decisis is the cornerstone of the common law tradition. 3. Remedies— a. Remedies at law—Money or something else of value. b. Remedies in equity—Remedies that are granted when the remedies at law are unavailable or inadequate. Equitable remedies include specific performance, an injunction, and contract rescission (cancellation).
Classifications of Law (See pages 14–18.)
The law may be broken down according to several classification systems, such as substantive or procedural law, federal or state law, and private or public law. Two broad classifications are civil and criminal law, and national and international law. Cyberlaw is not really a classification of law but a term that is used for the growing body of case law and statutory law that applies to Internet transactions.
Answers for the even-numbered questions in this For Review section can be found on this text’s accompanying Web site at academic.cengage.com/blaw/blt. Select “Chapter 1” and click on “For Review.”
1 What is the Uniform Commercial Code? 2 What is the common law tradition?
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3 What is a precedent? When might a court depart from precedent? 4 What is the difference between remedies at law and remedies in equity? 5 What are some important differences between civil law and criminal law? ■
HYPOTH ETIC AL SCE NAR IOS AN D C AS E P ROB LE M S 1.1 Binding versus Persuasive Authority. A county court in Illinois is deciding a case involving an issue that has never been addressed before in that state’s courts. The Iowa Supreme Court, however, recently decided a case involving a very similar fact pattern. Is the Illinois court obligated to follow the Iowa Supreme Court’s decision on the issue? If the United States Supreme Court had decided a similar case, would that decision be binding on the Illinois court? Explain. 1.2 Remedies. Arthur Rabe is suing Xavier Sanchez for breaching a contract in which Sanchez promised to sell Rabe a Van Gogh painting for $150,000. 1 In this lawsuit, who is the plaintiff, and who is the defendant? 2 If Rabe wants Sanchez to perform the contract as promised, what remedy should Rabe seek? 3 Suppose that Rabe wants to cancel the contract because Sanchez fraudulently misrepresented the painting as an original Van Gogh when in fact it is a copy. In this situation, what remedy should Rabe seek? 4 Will the remedy Rabe seeks in either situation be a remedy at law or a remedy in equity? 5 Suppose that the court finds in Rabe’s favor and grants one of these remedies. Sanchez then appeals the decision to a higher court. Read through the subsection entitled “Appellants and Appellees” in the appendix following this chapter. On appeal, which party in the Rabe-Sanchez case will be the appellant (or petitioner), and which party will be the appellee (or respondent)? 1.3 Legal Systems. What are the key differences between a common law system and a civil law system? Why do some countries have common law systems and others have civil law systems? 1.4 Hypothetical Question with Sample Answer. This chapter discussed a number of sources of American law. Which source of law takes priority in each of the following situations, and why? 1 A federal statute conflicts with the U.S. Constitution. 2 A federal statute conflicts with a state constitution. 3 A state statute conflicts with the common law of that state. 4 A state constitutional amendment conflicts with the U.S. Constitution. 5 A federal administrative regulation conflicts with a state constitution.
For a sample answer to Question 1.4, go to Appendix E at the end of this text.
1.5 Philosophy of Law. After World War II ended in 1945, an international tribunal of judges convened at Nuremberg, Germany. The judges convicted several Nazi war criminals of “crimes against humanity.” Assuming that the Nazis who were convicted had not disobeyed any law of their country and had merely been following their government’s (Hitler’s) orders, what law had they violated? Explain. 1.6 Reading Citations. Assume that you want to read the court’s entire opinion in the case of Buell-Wilson v. Ford Motor Co., 160 Cal.App.4th 1107, 73 Cal.Rptr.3d 277 (2008). The case focuses on whether a punitive damages award was excessive. (Note that this case will be presented in Chapter 4 of this text as Case 4.1.) Read the section entitled “Finding Case Law” in the appendix that follows this chapter, and then explain specifically where you would find the court’s opinion. 1.7 Stare Decisis. In the text of this chapter, we stated that the doctrine of stare decisis “became a cornerstone of the English and U.S. judicial systems.” What does stare decisis mean, and why has this doctrine been so fundamental to the development of our legal tradition? 1.8 Court Opinions. Read through the subsection entitled “Case Titles and Terminology” in the appendix following this chapter. What is the difference between a concurring opinion and a majority opinion? Between a concurring opinion and a dissenting opinion? Why do judges and justices write concurring and dissenting opinions, given that these opinions will not affect the outcome of the case at hand, which has already been decided by majority vote? 1.9
A Question of Ethics. On July 5, 1884, Dudley, Stephens, and Brooks—“all able-bodied English seamen”—and a teenage English boy were cast adrift in a lifeboat following a storm at sea. They had no water with them in the boat, and all they had for sustenance were two one-pound tins of turnips. On July 24, Dudley proposed that one of the four in the lifeboat be sacrificed to save the others. Stephens agreed with Dudley, but Brooks refused to consent—and the boy was never asked for his opinion. On July 25, Dudley killed the boy, and the three men then fed on the boy’s body and blood. Four days later, the men were rescued by a passing vessel. They were taken to England and tried for the murder of the boy. If the men had not fed on the boy’s body, they would probably have died of starvation within the four-
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day period. The boy, who was in a much weaker condition, would likely have died before the rest. [Regina v. Dudley and Stephens, 14 Q.B.D. (Queen’s Bench Division, England) 273 (1884)]
1 The basic question in this case is whether the survivors should be subject to penalties under English criminal law,
given the men’s unusual circumstances. You be the judge, and decide the issue. Give the reasons for your decision.
2 Should judges ever have the power to look beyond the written “letter of the law” in making their decisions? Why or why not?
CRITICAL THINKING AND WRITING ASSIGNMENTS 1.10 Critical Legal Thinking. Courts of equity tend to follow general rules or maxims rather than following common law precedents, as courts of law do. Some of these maxims were listed in this chapter’s Landmark in the Law feature on page 15. Why do equity courts give credence to such general maxims rather than to a hard-and-fast body of law?
argues that for fifty years, in cases involving circumstances similar to this case, judges have ruled in a way that indicates that the judge in this case should rule in favor of John’s company. Is this a valid argument? If so, must the judge in this case rule as those other judges have? What argument could Beth use to counter John’s reasoning?
1.11 Critical Thinking and Writing Assignment for Business. John’s company is involved in a lawsuit with a customer, Beth. John ■
PRACTICAL INTERNET EXERCISES Go to this text’s Web site at www.cengage.com/blaw/blt , select “Chapter 1,” and click on “Practical Internet Exercises.” There you will find the following Internet research exercises that you can perform to learn more about the topics covered in this chapter. P R AC TIC AL I NTE R N ET EXE RCI S E 1–1 LEGAL PERSPECTIVE—Internet Sources of Law P R AC TIC AL I NTE R N ET EXE RCI S E 1–2 MANAGEMENT PERSPECTIVE—Online Assistance from Government Agencies
BEFORE THE TEST Go to this text’s Web site at www.cengage.com/blaw/blt , select “Chapter 1,” and click on “Interactive Quizzes.” You will find a number of interactive questions relating to this chapter. ■
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APPENDIX TO CHAPTER 1
he statutes, agency regulations, and case law referred to in this text establish the rights and duties of businesspersons engaged in various types of activities. The cases presented in the following chapters provide you with concise, real-life illustrations of how the courts interpret and apply these laws. Because of the importance of knowing how to find statutory, administrative, and case law, this appendix offers a brief introduction to how these laws are published and to the legal “shorthand” employed in referencing these legal sources.
T
FINDING STATUTORY AND ADMINISTRATIVE LAW When Congress passes laws, they are collected in a publication titled United States Statutes at Large. When state legislatures pass laws, they are collected in similar state publications. Most frequently, however, laws are referred to in their codified form—that is, the form in which they appear in the federal and state codes. In these codes, laws are compiled by subject.
United States Code The United States Code (U.S.C.) arranges all existing federal laws of a public and permanent nature by subject. Each of the fifty subjects into which the U.S.C. arranges the laws is given a title and a title number. For example, laws relating to commerce and trade are collected in “Title 15, Commerce and Trade.” Titles are subdivided by sections. A citation to the U.S.C. includes title and section numbers. Thus, a reference to “15 U.S.C. Section 1” means that the statute can be found in Section 1 of Title 15. (“Section” may also be designated by the symbol §, and “Sections” by §§.) Sometimes, a citation includes the abbreviation et seq.—as in “15 U.S.C. Sections 1 et seq.” The term is an abbreviated form of et sequitur, which is Latin for “and the following”; when used in a citation, it refers to sections that concern the same subject as the numbered section and follow it in sequence. Commercial publications of these laws and regulations are available and are widely used. For example, West Group publishes the United States Code Annotated (U.S.C.A.). The U.S.C.A. contains the complete text of laws included in the U.S.C., notes of court decisions that interpret and apply specific sections of the statutes, and the text of presidential proclamations and executive orders. The U.S.C.A. also includes research aids, such as cross-references to related statutes, historical notes, and library references. A citation to the U.S.C.A. is similar to a citation to the U.S.C.: “15 U.S.C.A. Section 1.”
State Codes State codes follow the U.S.C. pattern of arranging law by subject. The state codes may be called codes, revisions, compilations, consolidations, general statutes, or statutes, depending on the preferences of the states. In some codes, subjects are designated by number. In others, they are designated by name. For example, “13 Pennsylvania Consolidated Statutes Section 1101” means that the statute can be found in Title 13, Section 1101, of the Pennsylvania code. “California Commercial Code Section 1101” means the statute
You can search the United States Code online at www.law.cornell.edu/uscode.
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can be found in Section 1101 under the subject heading “Commercial Code” of the California code. Abbreviations may be used. For example, “13 Pennsylvania Consolidated Statutes Section 1101” may be abbreviated “13 Pa. C.S. § 1101,” and “California Commercial Code Section 1101” may be abbreviated “Cal. Com. Code § 1101.”
Administrative Rules Rules and regulations adopted by federal administrative agencies are compiled in the Code of Federal Regulations (C.F.R.). Like the U.S.C., the C.F.R. is divided into fifty titles. Rules within each title are assigned section numbers. A full citation to the C.F.R. includes title and section numbers. For example, a reference to “17 C.F.R. Section 230.504” means that the rule can be found in Section 230.504 of Title 17.
FINDING CASE LAW Before discussing the case reporting system, we need to look briefly at the court system (which will be discussed in detail in Chapter 3). There are two types of courts in the United States, federal courts and state courts. Both the federal and the state court systems consist of several levels, or tiers, of courts. Trial courts, in which evidence is presented and testimony given, are on the bottom tier (which also includes lower courts handling specialized issues). Decisions from a trial court can be appealed to a higher court, which commonly would be an intermediate court of appeals, or an appellate court. Decisions from these intermediate courts of appeals may be appealed to an even higher court, such as a state supreme court or the United States Supreme Court.
State Court Decisions Most state trial court decisions are not published. Except in New York and a few other states that publish selected opinions of their trial courts, decisions from state trial courts are merely filed in the office of the clerk of the court, where the decisions are available for public inspection. (Sometimes, they can be found online as well.) Written decisions of the appellate, or reviewing, courts, however, are published and distributed. As you will note, most of the state court cases presented in this book are from state appellate courts. The reported appellate decisions are published in volumes called reports or reporters, which are numbered consecutively. State appellate court decisions are found in the state reporters of that particular state. Additionally, state court opinions appear in regional units of the National Reporter System, published by West Group. Most lawyers and libraries have the West reporters because they report cases more quickly and are distributed more widely than the statepublished reports. In fact, many states have eliminated their own reporters in favor of West’s National Reporter System. The National Reporter System divides the states into the following geographic areas: Atlantic (A. or A.2d), North Eastern (N.E. or N.E.2d), North Western (N.W. or N.W.2d), Pacific (P., P.2d, or P.3d), South Eastern (S.E. or S.E.2d), South Western (S.W., S.W.2d, or S.W.3d), and Southern (So. or So.2d). (The 2d and 3d in the abbreviations refer to Second Series and Third Series, respectively.) The states included in each of these regional divisions are indicated in Exhibit 1A–1, which illustrates West’s National Reporter System. After appellate decisions have been published, they are normally referred to (cited) by the name of the case; the volume, name, and page number of the state’s official reporter (if different from West’s National Reporter System); the volume, name, and page number of the National Reporter; and the volume, name, and page number of any other selected reporter. This information is included in the citation. (Citing a reporter by volume number,
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EXHIBIT 1A–1 West’s National Reporter System—Regional/Federal Coverage Beginning 1885
Regional Reporters Atlantic Reporter (A. or A.2d) North Eastern Reporter (N.E. or N.E.2d) North Western Reporter (N.W. or N.W.2d)
1885 1879
Pacific Reporter (P., P.2d, or P.3d)
1883
South Eastern Reporter (S.E. or S.E.2d) South Western Reporter (S.W., S.W.2d, or S.W.3d) Southern Reporter (So. or So.2d)
1887 1886
Coverage Connecticut, Delaware, District of Columbia, Maine, Maryland, New Hampshire, New Jersey, Pennsylvania, Rhode Island, and Vermont. Illinois, Indiana, Massachusetts, New York, and Ohio. Iowa, Michigan, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin. Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Montana, Nevada, New Mexico, Oklahoma, Oregon, Utah, Washington, and Wyoming. Georgia, North Carolina, South Carolina, Virginia, and West Virginia. Arkansas, Kentucky, Missouri, Tennessee, and Texas.
1887
Alabama, Florida, Louisiana, and Mississippi.
Federal Reporters Federal Reporter (F., F.2d, or F.3d)
1880
Federal Supplement (F.Supp. or F.Supp.2d)
1932
Federal Rules Decisions (F.R.D.)
1939
Supreme Court Reporter (S.Ct.) Bankruptcy Reporter (Bankr.)
1882 1980
Military Justice Reporter (M.J.)
1978
U.S. Circuit Courts from 1880 to 1912; U.S. Commerce Court from 1911 to 1913; U.S. District Courts from 1880 to 1932; U.S. Court of Claims (now called U.S. Court of Federal Claims) from 1929 to 1932 and since 1960; U.S. Courts of Appeals since 1891; U.S. Court of Customs and Patent Appeals since 1929; U.S. Emergency Court of Appeals since 1943. U.S. Court of Claims from 1932 to 1960; U.S. District Courts since 1932; U.S. Customs Court since 1956. U.S. District Courts involving the Federal Rules of Civil Procedure since 1939 and Federal Rules of Criminal Procedure since 1946. United States Supreme Court since the October term of 1882. Bankruptcy decisions of U.S. Bankruptcy Courts, U.S. District Courts, U.S. Courts of Appeals, and the United States Supreme Court. U.S. Court of Military Appeals and Courts of Military Review for the Army, Navy, Air Force, and Coast Guard.
NATIONAL REPORTER SYSTEM MAP
WASH. MONTANA
VT.
N. DAK.
ME.
MINN. OREGON IDAHO
WIS.
S. DAK. WYOMING NEBR.
NEVADA
IOWA
PA. ILL.
UTAH CALIF.
N.Y. MICH.
IND.
COLORADO
OHIO W.VA.
KANSAS
MO.
N.H. MASS. R.I. CONN. N.J. DEL. MD.
VA.
KY. N. CAR.
ARIZONA
N. MEXICO
OKLA.
TENN. ARK.
S. CAR. MISS. ALA.
GA.
TEXAS LA. FLA.
ALASKA
HAWAII
Pacific North Western South Western North Eastern Atlantic South Eastern Southern
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name, and page number, in that order, is common to all citations.) When more than one reporter is cited for the same case, each reference is called a parallel citation. Note that some states have adopted a “public domain citation system” that uses a somewhat different format for the citation. For example, in Wisconsin, a Wisconsin Supreme Court decision might be designated “2008 WI 40,” meaning that the case was decided in the year 2008 by the Wisconsin Supreme Court and was the fortieth decision issued by that court during that year. Parallel citations to the Wisconsin Reports and West’s North Western Reporter are still included after the public domain citation. Consider the following case citation: Ramirez v. Health Net of Northeast, Inc., 285 Conn. 1, 938 A.2d 576 (2008). We see that the opinion in this case can be found in Volume 285 of the official Connecticut Reports, which reports only the decisions of the Supreme Court of Connecticut, on page 1. The parallel citation is to Volume 938 of the Atlantic Reporter, Second Series, page 576. In presenting opinions in this text, in addition to the reporter, we give the name of the court hearing the case and the year of the court’s decision. Sample citations to state court decisions are explained in Exhibit 1A–2.
Federal Court Decisions To find links to Supreme Court opinions and opinions issued by the federal appellate courts, a good starting point is FindLaw’s guide at www.findlaw.com/10fedgov/judicial.
Federal district court decisions are published unofficially in West’s Federal Supplement (F. Supp. or F.Supp.2d), and opinions from the circuit courts of appeals (federal reviewing courts) are reported unofficially in West’s Federal Reporter (F., F.2d, or F.3d). Cases concerning federal bankruptcy law are published unofficially in West’s Bankruptcy Reporter (Bankr.). The official edition of United States Supreme Court decisions is the United States Reports (U.S.), which is published by the federal government. Unofficial editions of Supreme Court cases include West’s Supreme Court Reporter (S.Ct.) and the Lawyers’ Edition of the Supreme Court Reports (L.Ed. or L.Ed.2d). Sample citations for federal court decisions are also listed and explained in Exhibit 1A–2.
Unpublished Opinions and Old Cases Many court opinions that are not yet published or that are not intended for publication can be accessed through Westlaw® (abbreviated in citations as “WL”), an online legal database maintained by West Group. When no citation to a published reporter is available for cases cited in this text, we give the WL citation (see Exhibit 1A–2 for an example). On a few occasions, this text cites opinions from old, classic cases dating to the nineteenth century or earlier; some of these are from the English courts. The citations to these cases may not conform to the descriptions given above because the reporters in which they were published have since been replaced.
READING AND UNDERSTANDING CASE LAW The cases in this text have been condensed from the full text of the courts’ opinions. For those wishing to review court cases for future research projects or to gain additional legal information, the following sections will provide useful insights into how to read and understand case law.
Case Titles and Terminology The title of a case, such as Adams v. Jones, indicates the names of the parties to the lawsuit. The v. in the case title stands for versus, which means “against.” In the trial court, Adams was the plaintiff—the person who filed the suit. Jones was the defendant. If the case is appealed, however, the appellate court will sometimes place the name of the party
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EXHIBIT 1A–2 How to Read Citations
STATE COURTS 274 Neb. 796, 743 N.W.2d 632 (2008)a N.W. is the abbreviation for West’s publication of state court decisions rendered in the North Western Reporter of the National Reporter System. 2d indicates that this case was included in the Second Series of that reporter. The number 743 refers to the volume number of the reporter; the number 632 refers to the page in that volume on which this case begins. Neb. is an abbreviation for Nebraska Reports, Nebraska’s official reports of the decisions of its highest court, the Nebraska Supreme Court.
159 Cal.App.4th 1114, 72 Cal.Rptr.3d 81 (2008) Cal.Rptr. is the abbreviation for West’s unofficial reports—titled California Reporter— of the decisions of California courts.
8 N.Y.3d 422, 867 N.E.2d 381, 835 N.Y.S.2d 530 (2007) N.Y.S. is the abbreviation for West’s unofficial reports—titled New York Supplement—of the decisions of New York courts. N.Y. is the abbreviation for New York Reports, New York’s official reports of the decisions of its court of appeals. The New York Court of Appeals is the state’s highest court, analogous to other states’ supreme courts. In New York, a supreme court is a trial court.
289 Ga.App. 85, 656 S.E.2d 222 (2008) Ga.App. is the abbreviation for Georgia Appeals Reports, Georgia’s official reports of the decisions of its court of appeals.
FEDERAL COURTS ___ U.S. ___, 128 S.Ct. 1184, 170 L.Ed.2d 151 (2008) L.Ed. is an abbreviation for Lawyers’ Edition of the Supreme Court Reports, an unofficial edition of decisions of the United States Supreme Court. S.Ct. is the abbreviation for West’s unofficial reports—titled Supreme Court Reporter—of decisions of the United States Supreme Court. U.S. is the abbreviation for United States Reports, the official edition of the decisions of the United States Supreme Court. The blank lines in this citation (or any other citation) indicate that the appropriate volume of the case reporter has not yet been published and no page number is available. a. The case names have been deleted from these citations to emphasize the publications. It should be kept in mind, however, that the name of a case is as important as the specific page numbers in the volumes in which it is found. If a citation is incorrect, the correct citation may be found in a publication’s index of case names. In addition to providing a check on errors in citations, the date of a case is important because the value of a recent case as an authority is likely to be greater than that of older cases from the same court.
(Continued)
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EXHIBIT 1A–2 How to Read Citations—Continued
FEDERAL COURTS (Continued) 512 F.3d 582 (9th Cir. 2008) 9th Cir. is an abbreviation denoting that this case was decided in the U.S. Court of Appeals for the Ninth Circuit.
533 F.Supp.2d 740 (W.D.Mich. 2008) W.D.Mich. is an abbreviation indicating that the U.S. District Court for the Western District of Michigan decided this case.
ENGLISH COURTS 9 Exch. 341, 156 Eng.Rep. 145 (1854) Eng.Rep. is an abbreviation for English Reports, Full Reprint, a series of reports containing selected decisions made in English courts between 1378 and 1865. Exch. is an abbreviation for English Exchequer Reports, which includes the original reports of cases decided in England’s Court of Exchequer.
STATUTORY AND OTHER CITATIONS 18 U.S.C. Section 1961(1)(A) U.S.C. denotes United States Code, the codification of United States Statutes at Large. The number 18 refers to the statute’s U.S.C. title number and 1961 to its section number within that title. The number 1 in parentheses refers to a subsection within the section, and the letter A in parentheses to a subdivision within the subsection.
UCC 2–206(1)(b) UCC is an abbreviation for Uniform Commercial Code. The first number 2 is a reference to an article of the UCC, and 206 to a section within that article. The number 1 in parentheses refers to a subsection within the section, and the letter b in parentheses to a subdivision within the subsection.
Restatement (Second) of Torts, Section 568 Restatement (Second) of Torts refers to the second edition of the American Law Institute’s Restatement of the Law of Torts. The number 568 refers to a specific section.
17 C.F.R. Section 230.505 C.F.R. is an abbreviation for Code of Federal Regulations, a compilation of federal administrative regulations. The number 17 designates the regulation’s title number, and 230.505 designates a specific section within that title.
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EXHIBIT 1A–2 How to Read Citations—Continued
WESTLAW® CITATIONSb 2008 WL 427478 WL is an abbreviation for Westlaw. The number 2008 is the year of the document that can be found with this citation in the Westlaw database. The number 427478 is a number assigned to a specific document. A higher number indicates that a document was added to the Westlaw database later in the year.
UNIFORM RESOURCE LOCATORS (URLs) http://www.westlaw.comc The suffix com is the top level domain (TLD) for this Web site. The TLD com is an abbreviation for “commercial,” which usually means that a for-profit entity hosts (maintains or supports) this Web site. westlaw is the host name—the part of the domain name selected by the organization that registered the name. In this case, West Group registered the name. This Internet site is the Westlaw database on the Web. www is an abbreviation for “World Wide Web.” The Web is a system of Internet servers that support documents formatted in HTML (hypertext markup language). HTML supports links to text, graphics, and audio and video files.
http://www.uscourts.gov This is “The Federal Judiciary Home Page.” The host is the Administrative Office of the U.S. Courts. The TLD gov is an abbreviation for “government.” This Web site includes information and links from, and about, the federal courts.
http://www.law.cornell.edu/index.html This part of a URL points to a Web page or file at a specific location within the host’s domain. This page is a menu with links to documents within the domain and to other Internet resources. This is the host name for a Web site that contains the Internet publications of the Legal Information Institute (LII), which is a part of Cornell Law School. The LII site includes a variety of legal materials and links to other legal resources on the Internet. The TLD edu is an abbreviation for “educational institution” (a school or a university).
http://www.ipl.org/div/news This part of the Web site points to a static news page at this Web site, which provides links to online newspapers from around the world. div is an abbreviation for “division,” which is the way that the Internet Public Library tags the content on its Web site as relating to a specific topic. ipl is an abbreviation for “Internet Public Library,” which is an online service that provides reference resources and links to other information services on the Web. The IPL is supported chiefly by the School of Information at the University of Michigan. The TLD org is an abbreviation for “organization” (normally nonprofit).
b. Many court decisions that are not yet published or that are not intended for publication can be accessed through Westlaw, an online legal database. c. The basic form for a URL is “service://hostname/path.” The Internet service for all of the URLs in this text is http (hypertext transfer protocol). Because most Web browsers add this prefix automatically when a user enters a host name or a hostname/path, we have omitted the http:// from the URLs listed in this text.
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appealing the decision first, so the case may be called Jones v. Adams. Because some reviewing courts retain the trial court order of names, it is often impossible to distinguish the plaintiff from the defendant in the title of a reported appellate court decision. You must carefully read the facts of each case to identify the parties. The following terms and phrases are frequently encountered in court opinions and legal publications. Because it is important to understand what these terms and phrases mean, we define and discuss them here. Plaintiffs and Defendants As mentioned in Chapter 1, the plaintiff in a lawsuit is the party that initiates the action. The defendant is the party against which a lawsuit is brought. Lawsuits frequently involve more than one plaintiff and/or defendant. Appellants and Appellees The appellant is the party that appeals a case to another court or jurisdiction from the court or jurisdiction in which the case was originally brought. Sometimes, an appellant is referred to as the petitioner. The appellee is the party against which the appeal is taken. Sometimes, the appellee is referred to as the respondent. Judges and Justices The terms judge and justice are usually synonymous and represent two designations given to judges in various courts. All members of the United States Supreme Court, for example, are referred to as justices. And justice is the formal title usually given to judges of appellate courts, although this is not always the case. In New York, a justice is a judge of the trial court (which is called the Supreme Court), and a member of the Court of Appeals (the state’s highest court) is called a judge. The term justice is commonly abbreviated to J., and justices to JJ. A Supreme Court case might refer to Justice Ginsburg as Ginsburg, J., or to Chief Justice Roberts as Roberts, C.J. Decisions and Opinions Most decisions reached by reviewing, or appellate, courts are explained in written opinions. The opinion contains the court’s reasons for its decision, the rules of law that apply, and the judgment. When all judges or justices unanimously agree on an opinion, the opinion is written for the entire court and can be deemed a unanimous opinion. When there is not unanimous agreement, a majority opinion is written, outlining the views of the majority of the judges or justices deciding the case. Often, a judge or justice who feels strongly about making or emphasizing a point that was not made or emphasized in the unanimous or majority opinion will write a concurring opinion. That means the judge or justice agrees (concurs) with the judgment given in the unanimous or majority opinion but for different reasons. When there is not a unanimous opinion, a dissenting opinion is usually written by a judge or justice who does not agree with the majority. (See the Extended Case Study following Chapter 7 on pages 226–228 for an example of a dissenting opinion.) The dissenting opinion is important because it may form the basis of the arguments used years later in overruling the precedential majority opinion. Occasionally, a court issues a per curiam (Latin for “of the court”) opinion, which does not indicate which judge or justice authored the opinion.
A Sample Court Case Knowing how to read and analyze a court opinion is an essential step in undertaking accurate legal research. A further step involves “briefing” the case. Legal researchers routinely brief cases by summarizing and reducing the texts of the opinions to their essential elements. (For instructions on how to brief a case, go to Appendix A at the end of this text.) The cases contained within the chapters of this text have already been analyzed and partially briefed by the authors, and the essential aspects of each case are presented in a convenient format consisting of three basic sections: Background and Facts, In the Words of
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The United States Supreme Court building in Washington, D.C. In what reporters are Supreme Court opinions published? (PhotoDisc)
the Court (excerpts from the court’s opinion), and Decision and Remedy, as shown in Exhibit 1A–3 on pages 32–34, which has also been annotated to illustrate the kind of information that is contained in each section. Throughout this text, in addition to this basic format, we sometimes include a special introductory section entitled Historical and Social [Economic, Technological, Political, or other] Setting. In some instances, a Company Profile is included in place of the introductory setting. These profiles provide background on one of the parties to the lawsuit. Each case is followed by either a brief For Critical Analysis section, which presents a question regarding some issue raised by the case; a Why Is This Case Important? section, which explains the significance of the case; or a What If the Facts Were Different? question, which alters the facts slightly and asks you to consider how this would change the outcome. A section entitled Impact of This Case on Today’s Law concludes the Landmark and Classic Cases that appear throughout the text to indicate the significance of the case for today’s legal landscape. To illustrate the elements in a court opinion, we present an annotated opinion in Exhibit 1A–3. The opinion is from an actual case that the U.S. Court of Appeals for the Ninth Circuit decided in 2008. You will note that triple asterisks (* * *) and quadruple asterisks (* * * *) frequently appear in the opinion. The triple asterisks indicate that we have deleted a few words or sentences from the opinion for the sake of readability or brevity. Quadruple asterisks mean that an entire paragraph (or more) has been omitted. Additionally, when the opinion cites another case or legal source, the citation to the case or other source has been omitted to save space and to improve the flow of the text. These editorial practices are continued in the other court opinions presented in this book. In addition, whenever we present a court opinion that includes a term or phrase that may not be readily understandable, a bracketed definition or paraphrase has been added.
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EXHIBIT 1A–3
A Sample Court Case
This section contains the citation—the name of the case, the name of the court that heard the case, the year of the decision, and the reporter in which the court’s opinion can be found. This line provides the name of the justice (or judge) who authored the court’s opinion. The court divides the opinion into several parts, headed by Roman numerals. The first part of the opinion summarizes the factual background of the case.
BERGER v. CITY OF SEATTLE United States Court of Appeals, Ninth Circuit, 2008. 512 F.3d 582.
O’SCANNLAIN, Circuit Judge: We must determine the bounds of a city’s authority to restrict expression in a public forum. I The public forum is the “Seattle Center,” an entertainment zone covering roughly 80 acres of land in downtown Seattle, Washington. Each year, the Seattle Center’s theaters, arenas, museums, exhibition halls, conference rooms, outdoor stadiums, and restaurants attract nearly ten million visitors. The city wields
To formally announce or publish; to issue an order to result in a law or regulation becoming known and enforceable.
authority over this large tract of land and has delegated its power to promulgate rules to the Seattle Center Director (“Director”). * * * In 2002, after an open process of public comment, the Director issued a * * * set of provisions in response to spe-
The words of the rules in their apparent or obvious meaning, without any explanations, interpretations, modifications, or additions from outside sources.
cific complaints and safety concerns, which became known as
The U.S. Constitution is the supreme law of the land. If a federal, state, or local law violates the Constitution, the law will be struck down.
former, requires us to consider the validity of [the] Campus Rules.
the Seattle Center Campus Rules. This litigation, originally brought by Michael Berger, a street per* * * Rule F.1 requires a permit for street performances and requires badges to be worn during street performances * * * . Berger mounts a facial attack on the constitutionality of these * * * restrictions.
A document that, when filed with a court, initiates a lawsuit. A court decree ordering a person to do or refrain from doing a certain act. A federal trial court in which a lawsuit is initiated. A judgment that a court enters without beginning or continuing a trial. It can be entered only if no facts are in dispute and the only question is how the law applies.
Berger has performed in the Seattle Center since the 1980s, making balloon creations and “talk[ing] to his audience about his personal beliefs, especially the importance of reading books.” When the revised Campus Rules were enacted in 2002, Berger obtained a permit. Yet he * * * face[d] problems with the Seattle Center authorities: members of the public filed numerous complaints alleging that Berger exhibited threatening behavior and Seattle Center staff reported several rule violations. In 2003, Berger filed this complaint seeking damages and injunctive relief [alleging
The First Amendment to the Constitution guarantees, among other freedoms, the right of free speech—to express one’s views without governmental restrictions.
that the revised rules violated the Constitution]. * * * In 2005, [a federal] district court granted summary judgment to Berger, concluding that these rules facially violated the First Amendment.
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A Sample Court Case—Continued The city timely appeals the district court’s order of summary
A rejection or overruling of the district court’s judgment. The second major section of this opinion sets out the law that applies to the facts of the case.
judgment and seeks reversal with instructions to enter summary judgment in its favor. II The First Amendment states that “Congress shall make no law * * * abridging the freedom of speech, or of the press.” Expression, whether oral or written or symbolized by conduct, is subject to reasonable time, place, or manner restrictions. Such restrictions * * * must be justified without reference to the content of the regulated speech, [and] they must be narrowly
The third major section of the opinion responds to the plaintiff’s argument.
tailored to serve a significant governmental interest * * * . III *
*
*
*
We begin with Berger’s challenge to the permit requirement. Rule F.1 states that any person wishing to conduct a street performance must obtain a $5 annual permit from the Director. This rule dovetails with the badge requirement in Rule F.1, which mandates that a badge “shall be worn or displayed by the performer in plain view at all times during a performance.” *
*
*
*
* * * The principal inquiry in determining content neutrality, in speech cases generally and in time, place, or manner cases in particular, is whether the government has adopted a regulation of speech because of disagreement with the message it conveys. A licensing statute lacks content neutrality if it burdens only certain messages or if it imposes a burden on all messages, but allows officials unchecked discretion to treat messages differently. *
*
*
*
* * * Contrary to Berger’s argument, a rule does not discriminate based on content simply because it restricts a certain “medium” of communication. * * * We are satisfied that the rules meet * * * the test for a valid time, place, or manner restriction [on] speech. *
*
*
*
* * * A rule is narrowly tailored if it promotes a substantial government interest that would be achieved less effectively absent the regulation. Berger disputes the significance of the (Continued)
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EXHIBIT 1A–3
A Sample Court Case—Continued city’s interests, and also contends that the rule does not match the city’s asserted aims to reduce territorial disputes among performers, deter patron harassment, and facilitate the identification and apprehension of offending performers. As a general matter, it is clear that a State’s interest in protecting the safety and convenience of persons using a public forum is a valid governmental objective. Here, * * * the Seattle Center authorities enacted the permit requirement after encountering “chronic” territorial disputes between performers and threats to public citizens by street performers. [A city employee stated that] Before the performer rules went into effect * * * there were approximately 3 or 4 complaints by performers against other performers per week. If Magic Mike [Berger] was here, we could expect one or more from him. * * * The general complaints by performers against other performers would be ‘that is my spot and he can’t be there’ and/or ‘that performer is doing what I am doing and they won’t move.’ The general complaints by the tenants against performers usually concerned too much noise or blocking access. These complaints show that street performances posed a threat to the city’s interests in maintaining order in the Seattle Center and providing harassment-free facilities. We are satisfied that the city’s permit scheme was designed to further valid governmental objectives. *
In the final major section of this excerpt of the opinion, the court states its decision and gives its order.
* *
* V
In sum, [the] Rules * * * satisfy the requirements for valid restrictions on expression under the First Amendment. Such content neutral and narrowly tailored rules * * * must be upheld. The order granting summary judgment to Berger is
Sent back.
REVERSED. The case is REMANDED to the district court for further proceedings consistent with this opinion.
CHAPTER OUTLINE —THE CONSTITUTIONAL POWERS OF GOVERNMENT
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO ANSWER THE FOLLOWING QUESTIONS:
—BUSINESS AND THE BILL OF RIGHTS
1 What is the basic structure of the U.S. government?
—DUE PROCESS AND EQUAL PROTECTION —PRIVACY RIGHTS
United “The States
LEARNING OBJECTIVES
Constitution has proved itself the most marvelously elastic compilation of rules of government ever written.
2 What constitutional clause gives the federal government the power to regulate commercial activities among the various states? 3 What constitutional clause allows laws enacted by the federal government to take priority over conflicting state laws? 4 What is the Bill of Rights? What freedoms does the First Amendment guarantee?
”
5 Where in the Constitution can the due process clause be found?
Franklin D. Roosevelt, 1882–1945 (Thirty-second president of the United States, 1933–1945)
T
he U.S. Constitution is brief.1 It consists of only about seven thousand words, which is less than one-third of the number of words in the average state constitution. Perhaps its brevity explains why it has proved to be so “marvelously elastic,” as Franklin Roosevelt pointed out in the chapter-opening quotation, and why it has survived for more than two hundred years—longer than any other written constitution in the world. Laws that govern business have their origin in the lawmaking authority granted by this document, which is the supreme law in this country. As mentioned in Chapter 1, neither Congress nor any state can enact a law that is in conflict with the Constitution. In this chapter, we first look at some basic constitutional concepts and clauses and their significance for business. Then we examine how certain fundamental freedoms guaranteed by the Constitution affect businesspersons and the workplace.
THE CONSTITUTIONAL POWERS OF GOVERNMENT Following the Revolutionary War, the states created a confederal form of government in which the states had the authority to govern themselves and the national government could exercise only limited powers. When problems arose because the nation was facing an economic crisis and state laws interfered with the free flow of commerce, a national convention
You can find a copy of the U.S. Constitution online, as well as information about the document, including its history, at www.constitutioncenter.org.
35 1. See Appendix B for the full text of the U.S. Constitution.
CHAPTER 2
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was called, and the delegates drafted the U.S. Constitution. This document, after its ratification by the states in 1789, became the basis for an entirely new form of government.
A Federal Form of Government
FEDERAL FORM OF GOVERNMENT
A system of government in which the states form a union and the sovereign power is divided between the central government and the member states.
The Federalist Papers, which are a series of essays by the founders explaining their views on federalism, are available online at www.foundingfathers.info/ federalistpapers.
CHECKS AND BALANCES
The principle under which the powers of the national government are divided among three separate branches—the executive, legislative, and judicial branches—each of which exercises a check on the actions of the others.
The new government created by the Constitution reflected a series of compromises made by the convention delegates on various issues. Some delegates wanted sovereign power to remain with the states; others wanted the national government alone to exercise sovereign power. The end result was a compromise—a federal form of government in which the national government and the states share sovereign power. The Constitution sets forth specific powers that can be exercised by the national government and provides that the national government has the implied power to undertake actions necessary to carry out its expressly designated powers. All other powers are “reserved” to the states. The broad language of the Constitution, though, has left much room for debate over the specific nature and scope of these powers. Generally, it has been the task of the courts to determine where the boundary line between state and national powers should lie—and that line changes over time. In the past, for example, the national government met little resistance from the courts when extending its regulatory authority over broad areas of social and economic life. Today, in contrast, the courts, and particularly the United States Supreme Court, are more willing to interpret the Constitution in such a way as to curb some of the national government’s regulatory powers.
The Separation of Powers To make it difficult for the national government to use its power arbitrarily, the Constitution divided the national government’s powers among the three branches of government. The legislative branch makes the laws, the executive branch enforces the laws, and the judicial branch interprets the laws. Each branch performs a separate function, and no branch may exercise the authority of another branch. Additionally, a system of checks and balances allows each branch to limit the actions of the other two branches, thus preventing any one branch from exercising too much power. The following are examples of these checks and balances:
1 The legislative branch (Congress) can enact a law, but the executive branch (the president) has the constitutional authority to veto that law. 2 The executive branch is responsible for foreign affairs, but treaties with foreign governments require the advice and consent of the Senate. 3 Congress determines the jurisdiction of the federal courts, and the president appoints federal judges, with the advice and consent of the Senate, but the judicial branch has the power to hold actions of the other two branches unconstitutional.2
The Commerce Clause To prevent states from establishing laws and regulations that would interfere with trade and commerce among the states, the Constitution expressly delegated to the national government the power to regulate interstate commerce. Article I, Section 8, of the U.S. Constitution expressly permits Congress “[t]o regulate Commerce with foreign Nations, and among the
2. As will be discussed in the Landmark in the Law feature in Chapter 3, the power of judicial review was established by the United States Supreme Court in Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803).
37 several States, and with the Indian Tribes.” This clause, referred to as the commerce clause, has had a greater impact on business than any other provision in the Constitution. Initially, the commerce power was interpreted as being limited to interstate commerce (commerce among the states) and not applicable to intrastate commerce (commerce within a state). In 1824, however, in Gibbons v. Ogden (see this chapter’s Landmark in the Law feature on page 40), the United States Supreme Court held that commerce within a state could also be regulated by the national government as long as the commerce substantially affected commerce involving more than one state.
CHAPTER 2
CONSTITUTIONAL LAW
COMMERCE CLAUSE
The provision in Article I, Section 8, of the U.S. Constitution that gives Congress the power to regulate interstate commerce.
The Commerce Clause and the Expansion of National Powers In Gibbons v. Ogden, the commerce clause was expanded to regulate activities that “substantially affect interstate commerce.” As the nation grew and faced new kinds of problems, the commerce clause became a vehicle for the additional expansion of the national government’s regulatory powers. Even activities that seemed purely local came under the regulatory reach of the national government if those activities were deemed to substantially affect interstate commerce. ■ EXAMPLE 2.1 In 1942, in Wickard v. Filburn,3 the Supreme Court held that wheat production by an individual farmer intended wholly for consumption on his own farm was subject to federal regulation. The Court reasoned that the home consumption of wheat reduced the market demand for wheat and thus could have a substantial effect on interstate commerce. ■ The following landmark case involved a challenge to the scope of the national government’s constitutional authority to regulate local activities. 3. 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942).
Supreme Court of the United States, 379 U.S. 241, 85 S.Ct. 348, 13 L.Ed.2d 258 (1964). www.findlaw.com/casecode/supreme.html a
H I STOR IC AL AN D SOCIAL S ET TI NG
In the first half of the twentieth century, state governments sanctioned segregation on the basis of race. In 1954, the United States Supreme Court decided that racially segregated school systems violated the Constitution. In the following decade, the Court ordered an end to racial segregation imposed by the states in other public facilities, such as beaches, golf courses, buses, parks, auditoriums, and courtroom seating. Privately owned facilities that excluded or segregated African Americans and others on the basis of race were not subject to the same constitutional restrictions, however. Congress passed the Civil Rights Act of 1964 to prohibit racial discrimination in “establishments affecting interstate commerce.” These facilities included “places of public accommodation.”
a. Under “Citation Search,” type in “379” before “U.S.” and then “241.” Click “Search” to access the Court’s opinion in this case.
BACKG ROU N D AN D FAC TS
The owner of the Heart of Atlanta Motel, in violation of the Civil Rights Act of 1964, refused to rent rooms to African Americans. The motel owner brought an action in a federal district court to have the Civil Rights Act declared unconstitutional, alleging that Congress had exceeded its constitutional authority to regulate commerce by enacting the act. The owner argued that his motel was not engaged in interstate commerce but was “of a purely local character.” The motel, however, was accessible to state and interstate highways. The owner advertised nationally, maintained billboards throughout the state, and accepted convention trade from outside the state (75 percent of the guests were residents of other states). The court ruled that the act did not violate the Constitution and enjoined (prohibited) the owner from discriminating on the basis of race. The owner appealed. The case ultimately went to the United States Supreme Court. C A S E 2.1—Continues next page
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C A S E 2.1— Continued
I N TH E WOR DS OF TH E COU RT . . .
Mr. Justice CLARK delivered the opinion of the Court.
* * * * While the Act as adopted carried no congressional findings, the record of its passage through each house is replete with evidence of the burdens that discrimination by race or color places upon interstate commerce * * * . This testimony included the fact that our people have become increasingly mobile with millions of all races traveling from State to State; that Negroes in particular have been the subject of discrimination in transient accommodations, having to travel great distances to secure the same; that often they have been unable to obtain accommodations and have had to call upon friends to put them up overnight. * * * These exclusionary practices were found to be nationwide, the Under Secretary of Commerce testifying that there is “no question that this discrimination in the North still exists to a large degree” and in the West and Midwest as well * * * . This testimony indicated a qualitative as well as quantitative effect on interstate travel by Negroes. The former was the obvious impairment of the Negro traveler’s pleasure and convenience that resulted when he continually was uncertain of finding lodging. As for the latter, there was evidence that this uncertainty stemming from racial discrimination had the effect of discouraging travel on the part of a substantial portion of the Negro community * * * . We shall not burden this opinion with further details since the voluminous testimony presents overwhelming evidence that discrimination by hotels and motels impedes interstate travel. * * * * It is said that the operation of the motel here is of a purely local character. But, assuming this to be true, “if it is interstate commerce that feels the pinch, it does not matter how local the operation that applies the squeeze.’’ * * * Thus the power of Congress to promote interstate commerce also includes the power to regulate the local incidents thereof, including local activities in both the States of origin and destination, which might have a substantial and harmful effect upon that commerce. [Emphasis added.]
DECI S ION AN D R E M E DY
The United States Supreme Court upheld the constitutionality of the Civil Rights Act of 1964. The power of Congress to regulate interstate commerce permitted the enactment of legislation that could halt local discriminatory practices.
I M PA C T O F T H I S C A S E O N T O D AY ’ S L A W If the United States Supreme Court had invalidated the Civil Rights Act of 1964, the legal landscape of the United States would be much different today. The act prohibits discrimination based on race, color, national origin, religion, or gender in all “public accommodations,” including hotels and restaurants. The act
also prohibits discrimination in employment based on these criteria. Although state laws now prohibit many of these forms of discrimination as well, the protections available vary from state to state—and it is not certain when (and if) such laws would have been passed had the 1964 federal Civil Rights Act been deemed unconstitutional.
R E L E VA N T W E B S I T E S
To locate information on the Web concerning the Heart of Atlanta Motel decision, go to this text’s Web site at www.cengage.com/blaw/blt, select “Chapter 2,” and click on “URLs for Landmarks.”
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The Commerce Power Today Today, at least theoretically, the power over commerce authorizes the national government to regulate every commercial enterprise in the United States. Federal (national) legislation governs virtually every major activity conducted by businesses—from hiring and firing decisions to workplace safety, competitive practices, and financing. In the last fifteen years, however, the Supreme Court has begun
39 to curb somewhat the national government’s regulatory authority under the commerce clause. In 1995, the Court held—for the first time in sixty years—that Congress had exceeded its regulatory authority under the commerce clause. The Court struck down an act that banned the possession of guns within one thousand feet of any school because the act attempted to regulate an area that had “nothing to do with commerce.”4 Subsequently, the Court invalidated key portions of two other federal acts on the ground that they exceeded Congress’s commerce clause authority.5 In one notable case, however, the Supreme Court did allow the federal government to regulate noncommercial activities taking place wholly within a state’s borders. ■ EXAMPLE 2.2 Eleven states, including California, have adopted “medical marijuana” laws that legalize marijuana for medical purposes. Marijuana possession, however, is illegal under the federal Controlled Substances Act (CSA).6 After the federal government seized the marijuana that two seriously ill California women were using on the advice of their physicians, the women argued that it was unconstitutional for the federal act to prohibit them from using marijuana for medical purposes that were legal within the state. In 2003, the U.S. Court of Appeals for the Ninth Circuit agreed, deciding the case on commerce clause grounds. In 2005, however, the United States Supreme Court held that Congress has the authority to prohibit the intrastate possession and noncommercial cultivation of marijuana as part of a larger regulatory scheme (the CSA).7 In other words, state medical marijuana laws do not pose barriers to federal drug enforcement. ■ The Regulatory Powers of the States As part of their inherent sovereignty, state governments have the authority to regulate affairs within their borders. This authority stems in part from the Tenth Amendment to the Constitution, which reserves to the states all powers not delegated to the national government. State regulatory powers are often referred to as police powers. The term encompasses not only the enforcement of criminal law but also the right
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There were protests by the Klu Klux Klan after the United States Supreme Court published its decision on the Heart of Atlanta Motel case. What was the basis for the desegregation decision by the Court? (Bettmann/Corbis)
POLICE POWERS
Powers possessed by the states as part of their inherent sovereignty. These powers may be exercised to protect or promote the public order, health, safety, morals, and general welfare.
4. The United States Supreme Court held the Gun-Free School Zones Act of 1990 to be unconstitutional in United States v. Lopez, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995). 5. See, for example, Printz v. United States, 521 U.S. 898, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997), involving the Brady Handgun Violence Prevention Act of 1993; and United States v. Morrison, 529 U.S. 598, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000), concerning the federal Violence Against Women Act of 1994. 6. 21 U.S.C. Sections 801 et seq. 7. Gonzales v. Raich, 545 U.S. 1, 125 S.Ct. 2195, 162 L.Ed.2d 1 (2005).
Congress attempted to create gunfree zones around schools. But those who believe in states’ rights contended that only states and municipalities could create such zones through the exercise of their police powers. Ultimately, the United States Supreme Court ruled that creating gun-free zones within one thousand feet of schools had “nothing to do with commerce” and certainly not interstate commerce. Can state and local jurisdictions still create such zones if they wish? (AP Photo/Matt York)
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Gibbons v. Ogden (1824) The commerce clause, which is found in Article I, Section 8, of the U.S. Constitution, gives Congress the power “[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” What exactly does “to regulate commerce” mean? What does “commerce” entail? These questions came before the United States Supreme Court in 1824 in the case of Gibbons v. Ogden.a
Background
In 1803, Robert Fulton, the inventor of the steamboat, and Robert Livingston, who was the ambassador to France, secured from the New York legislature a monopoly on steam navigation on the waters in the state of New York. Fulton and Livingston licensed Aaron Ogden, a former governor of New Jersey and a U.S. senator, to operate steam-powered ferryboats between New York and New Jersey. Thomas Gibbons, who had obtained a license from the U.S. government to operate boats in interstate waters, competed with Ogden without New York’s permission. Ogden sued Gibbons. The New York state courts granted Ogden’s request for an injunction—an order prohibiting Gibbons from operating in New York waters. Gibbons appealed the decision to the United States Supreme Court.
Marshall’s Decision
Was John Marshall, the chief justice of the United States Supreme Court from 1801 to 1835, in favor of more states’ rights? If not, what did he favor? (Rosanne Haaland/ Wikimedia Commons)
Sitting as chief justice on the Supreme Court was John Marshall, an advocate of a strong national government. In his decision, Marshall defined the word commerce as used in the commerce clause to mean all commercial intercourse—that is, all business dealings that affect more than one state. The Court ruled against Ogden’s monopoly, reversing the injunction against Gibbons. Marshall used this opportunity not only to expand the definition of commerce but also to validate and increase the power of the national legislature to regulate commerce. Said Marshall, “What is this power? It is the power . . . to prescribe the rule by which commerce is to be governed.” Marshall held that the power to regulate interstate commerce is an exclusive power of the national government and that this power includes the power to regulate any intrastate commerce that substantially affects interstate commerce.
A P P L I C A T I O N T O T O D A Y ’ S W O R L D Marshall’s broad definition of the commerce power established the foundation for the expansion of national powers in the years to come. Today, the national government continues to rely on the commerce clause for its constitutional authority to regulate business activities. Marshall’s conclusion that the power to regulate interstate commerce was an exclusive power of the national government has also had significant consequences. By implication, this means that a state cannot regulate activities that extend beyond its borders, such as out-of-state online gambling operations that affect the welfare of in-state citizens. It also means that state regulations over in-state activities normally will be invalidated if the regulations substantially burden interstate commerce. R E L E V A N T W E B S I T E S To locate information on the Web concerning the Gibbons v. Ogden decision, go to this text’s Web site at www.cengage.com/blaw/blt , select “Chapter 2,” and click on “URLs for Landmarks.” a. 22 U.S. (9 Wheat.) 1, 6 L.Ed. 23 (1824).
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of state governments to regulate private activities to protect or promote the public order, health, safety, morals, and general welfare. Fire and building codes, antidiscrimination laws, parking regulations, zoning restrictions, licensing requirements, and thousands of other state statutes covering virtually every aspect of life have been enacted pursuant to a state’s police powers. Local governments, including cities, also exercise police powers.8 Generally, state laws enacted pursuant to a state’s police powers carry a strong presumption of validity. The “Dormant” Commerce Clause The United States Supreme Court has interpreted the commerce clause to mean that the national government has the exclusive authority to regulate commerce that substantially affects trade and commerce among the states. This express grant of authority to the national government, which is often referred to as the “positive” aspect of the commerce clause, implies a negative aspect—that the states do not have the authority to regulate interstate commerce. This negative aspect of the commerce clause is often referred to as the “dormant” (implied) commerce clause. The dormant commerce clause comes into play when state regulations affect interstate commerce. In this situation, the courts normally weigh the state’s interest in regulating a certain matter against the burden that the state’s regulation imposes on interstate commerce. Because courts balance the interests involved, it can be extremely difficult to predict the outcome in a particular case. ■ EXAMPLE 2.3 At one time, many states regulated the sale of alcoholic beverages, including wine, through a “three-tier” system. This system required separate licenses for producers, wholesalers, and retailers, subject to a complex set of overlapping regulations that effectively banned direct sales to consumers from out-of-state wineries. In-state wineries, in contrast, could obtain a license for direct sales to consumers. In 2005, the United States Supreme Court ruled that these laws violated the dormant commerce clause. The Court reasoned that by mandating different treatment of in-state and out-of-state economic interests, these laws deprived “citizens of their right to have access to the markets of other states on equal terms.”9 ■
The Supremac y Clause Article VI of the Constitution provides that the Constitution, laws, and treaties of the United States are “the supreme Law of the Land.” This article, commonly referred to as the supremacy clause, is important in the ordering of state and federal relationships. When there is a direct conflict between a federal law and a state law, the state law is rendered invalid. Because some powers are concurrent (shared by the federal government and the states), however, it is necessary to determine which law governs in a particular circumstance. Preemption occurs when Congress chooses to act exclusively in a concurrent area. In this circumstance, a valid federal statute or regulation will take precedence over a conflicting state or local law or regulation on the same general subject. Often, it is not clear whether Congress, in passing a law, intended to preempt an entire subject area against state regulation. In these situations, it is left to the courts to determine whether Congress intended to exercise exclusive power over a given area. No single factor is decisive as to whether a court will find preemption. Generally, congressional intent to preempt will be found if a federal law regulating an activity is so pervasive, comprehensive, or detailed that the states have little or no room to regulate in that area. Also, when a federal statute creates an agency—such as the National Labor Relations Board—to enforce the law, matters that may come within the agency’s jurisdiction will likely preempt state laws. 8. Local governments derive their authority to regulate their communities from the state because they are creatures of the state. In other words, they cannot come into existence unless authorized by the state to do so. 9. Granholm v. Heald, 544 U.S. 460, 125 S.Ct. 1885, 161 L.Ed.2d 796 (2005).
SUPREMACY CLAUSE
The clause in Article VI of the Constitution that provides that the Constitution, laws, and treaties of the United States are “the supreme Law of the Land.” Under this clause, state and local laws that directly conflict with federal law will be rendered invalid. PREEMPTION
A doctrine under which certain federal laws preempt, or take precedence over, conflicting state or local laws.
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THE LEGAL ENVIRONMENT OF BUSINESS ■ EXAMPLE 2.4 In 2008, the United States Supreme Court ruled that the federal regulation of medical devices preempted claims for negligence, strict liability, and implied warranty based on state common law (see Chapters 4 and 21). The case involved a man who alleged that he was injured by a faulty medical device—a balloon catheter that had been inserted into his artery following a heart attack. The Court reasoned that the Medical Device Amendments of 1976 had included a preemption clause and that the device had passed the U.S. Food and Drug Administration’s rigorous premarket approval process. Therefore, the man’s claims that the device was unsafe were preempted.10 ■
BUSINESS AND THE BILL OF RIGHTS
BILL OF RIGHTS
The first ten amendments to the U.S. Constitution.
BE CAREFUL
Although most of these rights apply to actions of the states, some of them apply only to actions of the federal government.
The importance of having a written declaration of the rights of individuals eventually caused the first Congress of the United States to enact twelve amendments to the Constitution and submit them to the states for approval. The first ten of these amendments, commonly known as the Bill of Rights, were adopted in 1791 and embody a series of protections for the individual against various types of interference by the federal government.11 Some constitutional protections apply to business entities as well. For example, corporations exist as separate legal entities, or legal persons, and enjoy many of the same rights and privileges as natural persons do. Summarized here are the protections guaranteed by these ten amendments (see the Constitution in Appendix B for the complete text of each amendment):
1 The First Amendment guarantees the freedoms of religion, speech, and the press and the rights to assemble peaceably and to petition the government. 2 The Second Amendment concerns a well-regulated militia and the right of the people to keep and bear arms. 3 The Third Amendment prohibits, in peacetime, the lodging of soldiers in any house without the owner’s consent. 4 The Fourth Amendment prohibits unreasonable searches and seizures of persons or property. 5 The Fifth Amendment guarantees the rights to indictment12 (formal accusation—see Chapter 6) by grand jury, to due process of law, and to fair payment when private property is taken for public use. The Fifth Amendment also prohibits compulsory selfincrimination and double jeopardy (trial for the same crime twice). 6 The Sixth Amendment guarantees the accused in a criminal case the right to a speedy and public trial by an impartial jury and with counsel. The accused has the right to cross-examine witnesses against him or her and to solicit testimony from witnesses in his or her favor. 7 The Seventh Amendment guarantees the right to a trial by jury in a civil (noncriminal) case involving at least twenty dollars.13 8 The Eighth Amendment prohibits excessive bail and fines, as well as cruel and unusual punishment. 9 The Ninth Amendment establishes that the people have rights in addition to those specified in the Constitution. 10. Riegel v. Medtronic, Inc., ___ U.S. ___, 128 S.Ct. 999, 169 L.Ed.2d 892 (2008). 11. One of these proposed amendments was ratified more than two hundred years later (in 1992) and became the Twenty-seventh Amendment to the U.S. Constitution. See Appendix B. 12. Pronounced in-dyte-ment. 13. Twenty dollars was forty days’ pay for the average person when the Bill of Rights was written.
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10 The Tenth Amendment establishes that those powers neither delegated to the federal government nor denied to the states are reserved for the states. As originally intended, the Bill of Rights limited only the powers of the national government. Over time, however, the Supreme Court “incorporated” most of these rights into the protections against state actions afforded by the Fourteenth Amendment to the Constitution. That amendment, passed in 1868 after the Civil War, provides in part that “[n]o State shall . . . deprive any person of life, liberty, or property, without due process of law.” Starting in 1925, the Supreme Court began to define various rights and liberties guaranteed in the national Constitution as constituting “due process of law,” which was required of state governments under the Fourteenth Amendment. Today, most of the rights and liberties set forth in the Bill of Rights apply to state governments as well as the national government. We will look closely at several of the amendments in the above list in Chapter 6, in the context of criminal law and procedures. Here, we examine two important guarantees of the First Amendment—freedom of speech and freedom of religion—and the Fourth Amendment’s prohibition of unreasonable searches and seizures. These protections have all been applied to the states through the due process clause of the Fourteenth Amendment. As you read through the following pages, keep in mind that none of these (or other) constitutional freedoms confers an absolute right. Ultimately, it is the United States Supreme Court, as the final interpreter of the Constitution, that gives meaning to these rights and determines their boundaries.
The First Amendment — Freedom of Speech Freedom of speech is the most prized freedom that Americans have. Indeed, it is essential to our democratic form of government, which could not exist if people were not allowed to express their political opinions freely and criticize government actions or policies. Because of its importance, the courts traditionally have protected this right to the fullest extent possible. Speech often includes not only what we say, but also what we do to express our political, social, and religious views. The courts generally protect symbolic speech—gestures, movements, articles of clothing, and other forms of nonverbal expressive conduct. ■ EXAMPLE 2.5 The burning of the American flag to protest government policies is a constitutionally protected form of expression. Similarly, participating in a hunger strike or wearing a black armband would be protected as symbolic speech. ■ Reasonable Restrictions Expression—oral, written, or symbolized by conduct—is subject to reasonable restrictions. A balance must be struck between a government’s obligation to protect its citizens and those citizens’ exercise of their rights. Reasonableness is analyzed on a case-by-case basis. If a restriction imposed by the government is content neutral, then a court may allow it. To be content neutral, the restriction must be aimed at combating some societal problem, such as crime, and not be aimed at suppressing the expressive conduct or its message. ■ EXAMPLE 2.6 Courts have often protected nude dancing as a form of symbolic expression. Nevertheless, the courts have also allowed contentneutral laws that ban all public nudity, not just erotic dancing.14 ■ The United States Supreme Court has also held that schools may restrict students’ free speech rights at school events. ■ EXAMPLE 2.7 In 2007, the Court heard a case involving a
14. See, for example, Rameses, Inc. v. County of Orange, 481 F.Supp.2d 1305 (M.D.Fla. 2007); and City of Erie v. Pap’s A.M., 529 U.S. 277, 120 S.Ct. 1382, 146 L.Ed.2d 265 (2000).
The First Amendment guarantee of freedom of speech applies only to government restrictions on speech.
REMEMBER
SYMBOLIC SPEECH
Nonverbal expressions of beliefs. Symbolic speech, which includes gestures, movements, and articles of clothing, is given substantial protection by the courts.
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high school student who had held up a banner saying “Bong Hits 4 Jesus” at an offcampus but school-sanctioned event. In a split decision, the majority of the Court ruled that school officials did not violate the student’s free speech rights when they confiscated the banner and suspended the student for ten days. Because the banner could reasonably be interpreted as promoting the use of marijuana, and because the school had a written policy against illegal drugs, the majority concluded that the school’s actions were justified. Several justices disagreed, however, noting that the majority’s holding creates a special exception that will allow schools to censor any student speech that mentions drugs.15 ■ Corporate Political Speech Political speech by corporations also falls within the protection of the First Amendment. Many years ago, the United States Supreme Court ruled that a Massachusetts statute, which prohibited corporations from making political contributions or expenditures that individuals were permitted to make, was unconstitutional.16 Similarly, the Court has held that a law forbidding a corporation from including inserts in its billing to express its views on controversial issues violates the First Amendment.17 Although the Supreme Court has reversed this trend somewhat,18 corporate political speech continues to be given significant protection under the First Amendment. ■ EXAMPLE 2.8 In 2003 and again in 2007, the Supreme Court struck down portions of bipartisan campaign-finance reform laws as unconstitutional. The Court found that these provisions constituted unlawful restraints on corporate political speech.19 ■
For a brief history of governmental regulation of commercial speech, go to www.abuse.net/commercial.html.
Commercial Speech The courts also give substantial protection to “commercial” speech, which consists of communications—primarily advertising and marketing—made by business firms that involve only their commercial interests. The protection given to commercial speech under the First Amendment is not as extensive as that afforded to noncommercial speech, however. A state may restrict certain kinds of advertising, for example, in the interest of protecting consumers from being misled by the advertising practices. States also have a legitimate interest in the beautification of roadsides, and this interest allows states to place restraints on billboard advertising. ■ EXAMPLE 2.9 Café Erotica, a nude-dancing establishment, sued the state after being denied a permit to erect a billboard along an interstate highway in Florida. The state appellate court decided that because the law directly advanced a substantial government interest in highway beautification and safety, it was not an unconstitutional restraint on commercial speech.20 ■ Generally, a restriction on commercial speech will be considered valid as long as it meets three criteria: (1) it must seek to implement a substantial government interest, (2) it must directly advance that interest, and (3) it must go no further than necessary to accomplish its objective. Unprotected Speech The United States Supreme Court has made it clear that certain types of speech will not be given any protection under the First Amendment. Speech that harms the good reputation of another, or defamatory speech (see Chapter 4), will not be 15. Morse v. Frederick, ___ U.S. ___, 127 S.Ct. 2618, 168 L.Ed.2d 290 (2007). 16. First National Bank of Boston v. Bellotti, 435 U.S. 765, 98 S.Ct. 1407, 55 L.Ed.2d 707 (1978). 17. Consolidated Edison Co. v. Public Service Commission, 447 U.S. 530, 100 S.Ct. 2326, 65 L.Ed.2d 319 (1980). 18. See Austin v. Michigan Chamber of Commerce, 494 U.S. 652, 110 S.Ct. 1391, 108 L.Ed.2d 652 (1990), in which the Supreme Court upheld a state law prohibiting corporations from using general corporate funds for independent expenditures in state political campaigns. 19. McConnell v. Federal Election Commission, 540 U.S. 93, 124 S.Ct. 619, 157 L.Ed.2d 491 (2003); and Federal Election Commission v. Wisconsin Right to Life, Inc., ___U.S. ___, 127 S.Ct. 2652, 168 L.Ed.2d 329 (2007). 20. Café Erotica v. Florida Department of Transportation, 830 So.2d 181 (Fla.App. 1 Dist. 2002); review denied, Café Erotica/We Dare to Bare v. Florida Department of Transportation, 845 So.2d 888 (Fla. 2003).
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protected. Speech that violates criminal laws (such as threatening speech) is not constitutionally protected. Other unprotected speech includes “fighting words,” or words that are likely to incite others to respond violently. The First Amendment, as interpreted by the Supreme Court, also does not protect obscene speech. Establishing an objective definition of obscene speech has proved difficult, however, and the Court has grappled from time to time with this problem. In a 1973 case, Miller v. California,21 the Supreme Court created a test for legal obscenity, which involved a set of requirements that must be met for material to be legally obscene. Under this test, material is obscene if (1) the average person finds that it violates contemporary community standards; (2) the work taken as a whole appeals to a prurient (arousing or obsessive) interest in sex; (3) the work shows patently offensive sexual conduct; and (4) the work lacks serious redeeming literary, artistic, political, or scientific merit. Because community standards vary widely, the Miller test has had inconsistent application, and obscenity remains a constitutionally unsettled issue. Numerous state and federal statutes make it a crime to disseminate obscene materials, however, and the Supreme Court has often upheld such laws, including laws prohibiting the sale and possession of child pornography. The First Amendment also does not protect statements that assert facts. Unlike an opinion, a statement of purported fact can be verified and may require proof in a suit based on a claim that the statement is defamatory. In the following case, the issue was whether a certain statement was an unprotected factual assertion. 21. 413 U.S. 15, 93 S.Ct. 2607, 37 L.Ed.2d 419 (1973).
United States District Court, Northern District of Illinois, Eastern Division, 469 F.Supp.2d 575 (2007).
BACKG ROU N D AN D FAC TS In 2005, economist Steven Levitt and journalist Stephen Dubner co-authored the best-selling book Freakonomics. In a single paragraph, Levitt and Dubner discuss a theory of fellow economist John Lott, Jr., who claims that violent crime has decreased in areas where law-abiding citizens are allowed to carry concealed weapons. The paragraph states that the idea is intriguing, but questions whether Lott’s data were faked and implies that other scholars have not been able to replicate Lott’s findings—that is, to show that right-to-carry gun laws reduce crime. Economist John
I N TH E WOR DS OF TH E COU RT . . .
McCall sent Levitt an e-mail regarding this paragraph. McCall cited an issue of The Journal of Law and Economics, in which other scholars claimed to “replicate” Lott’s research. Levitt responded in an e-mail, “It was not a peer refereed edition of the Journal. For $15,000 he was able to buy an issue and put in only work that supported him. My best friend was the editor and was outraged the press let Lott do this.” Based in part on this e-mail, Lott filed a suit in a federal district court against Levitt and others, claiming, among other things, defamation. Levitt filed a motion to dismiss, arguing that the First Amendment protects his statements.
RUBEN CASTILLO, United States District Court Judge.
* * * * A statement is considered defamatory if it tends to cause such harm to the reputation of another that it lowers that person in the eyes of the community or deters third persons from associating with that person. [Emphasis added.] * * * * * * * Lott contends that the statements about him in * * * the e-mail * * * imply that his results were falsified or that his theories lack merit, and thus impute a lack of ability and integrity in his profession as an economist, academic, and researcher. Indeed, a
C A S E 2.2—Continues next page
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C A S E 2.2—Continued
DECI S ION AN D R E M E DY
claim that an academic or economist falsified his results and could only publish his theories by buying an issue of a journal and avoiding peer review would surely impute a lack of ability and prejudice that person in his profession. * * * * * * * The First Amendment protects statements that cannot be reasonably interpreted as stating actual facts. [Emphasis added.] The test for whether a statement is a factual assertion is whether the statement is precise, readily understood, and susceptible of being verified as true or false. This test * * * is a reasonableness standard; whether a reasonable reader would understand the defendant to be informing him of a fact or opinion. Language that is loose, figurative, or hyperbolic negates the impression that a statement is asserting actual facts. Accordingly, vague, unprovable statements and statements of opinion do not give rise to a defamation claim. If it is plain that the speaker is expressing a subjective view, an interpretation, a theory, conjecture, or surmise, rather than claiming to be in possession of objectively verifiable facts, the statement is not actionable. [Emphasis added.] In this case, however, Levitt’s e-mail sounds as if he was in possession of objectively verifiable facts. * * * First, it would be unreasonable to interpret Levitt’s unqualified statement that the Journal edition was not “peer refereed” as Levitt merely giving his opinion on the “peers” chosen to review, or referee, the Special Issue. Indeed, the editor of the Journal might be able to verify the truth or falsity of whether the Special Issue was reviewed by peers. Furthermore, while Levitt argues that one person’s “‘peer’ in the academic realm may be another person’s ‘hack’,” this distinction is not reasonable when discussing the review process at a top university’s academic journal. Second, a reasonable reader would not interpret Levitt’s assertion that “For $15,000 [Lott] was able to buy an issue and put in only work that supported him” as simply a statement of Levitt’s opinion. Levitt’s e-mail appears to state objectively verifiable facts: that Lott paid $15,000 to control the content of the Special Issue. The editor of the Journal again might be the source to verify the truth or falsity of this statement. Third, the same editor could verify whether he was “outraged” by the acts described in the foregoing statements. Therefore, the defamatory statements in Levitt’s e-mail to McCall are objectively verifiable * * * . * * * * * * * In his e-mail to McCall, * * * Levitt made a string of defamatory assertions about Lott’s involvement in the publication of the Special Issue of the Journal that—no matter how rash or short-sighted Levitt was when he made them—cannot be reasonably interpreted as innocent or mere opinion.
The federal district court denied the motion to dismiss Lott’s complaint. Because Levitt’s statements in the e-mail implied that he was in possession of objectively verifiable facts, he could be sued for defamation. The court encouraged the parties to attempt to settle their dispute before proceeding to trial.
F O R C R I T I C A L A N A LY S I S — S o c i a l C o n s i d e r a t i o n Did the statements about Lott in Freakonomics constitute unprotected speech? Explain.
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Online Obscenity Congress first attempted to protect minors from pornographic materials on the Internet by passing the Communications Decency Act (CDA) of 1996. The CDA declared it a crime to make available to minors online any “obscene or indecent” message that “depicts or describes, in terms patently offensive as measured by contempo-
47 rary community standards, sexual or excretory activities or organs.”22 The act was challenged as an unconstitutional restraint on speech, and ultimately the United States Supreme Court ruled that portions of the act were unconstitutional. The Court held that the terms indecent and patently offensive covered large amounts of nonpornographic material with serious educational or other value.23 A second attempt to protect children from online obscenity, the Child Online Protection Act (COPA) of 1998,24 met with a similar fate. Although the COPA was more narrowly tailored than its predecessor, the CDA, it still used “contemporary community standards” to define which material was obscene and harmful to minors. Ultimately, in 2004 the United States Supreme Court concluded that it was likely that the COPA did violate the right to free speech and prevented enforcement of the act.25 In 2000, Congress enacted the Children’s Internet Protection Act (CIPA),26 which requires public schools and libraries to block adult content from access by children by installing filtering software. Such software is designed to prevent persons from viewing certain Web sites by responding to a site’s Internet address or its meta tags, or key words. The CIPA was also challenged on constitutional grounds, but in 2003 the Supreme Court held that the act did not violate the First Amendment. The Court concluded that because libraries can disable the filters for any patrons who ask, the system is reasonably flexible and does not burden free speech to an unconstitutional extent.27 Because of the difficulties of policing the Internet as well as the constitutional complexities of prohibiting online obscenity through legislation, obscenity on the Internet is a continuing problem in the United States (and worldwide). In 2005, the Federal Bureau of Investigation established an anti-porn squad to target and prosecute companies that distribute child pornography in cyberspace. The Federal Communications Commission has also passed new obscenity regulations for television networks. For a discussion of how the law is evolving, see this chapter’s Adapting the Law to the Online Environment feature on pages 48 and 49.
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To learn about issues involving free speech and cyberspace, go to the Web site of the American Civil Liberties Union at www.aclu.org. Click on one of the issues listed on the right side of the screen for links to ACLU articles on that issue.
FILTERING SOFTWARE
A computer program that is designed to block access to certain Web sites based on their content. The software blocks the retrieval of a site whose URL or key words are on a list within the program.
The First Amendment — Freedom of Religion The First Amendment states that the government may neither establish any religion nor prohibit the free exercise of religious practices. The first part of this constitutional provision is referred to as the establishment clause, and the second part is known as the free exercise clause. Government action, both federal and state, must be consistent with this constitutional mandate. The Establishment Clause The establishment clause prohibits the government from establishing a state-sponsored religion, as well as from passing laws that promote (aid or endorse) religion or that show a preference for one religion over another. The establishment clause does not require a complete separation of church and state, though. On the contrary, it requires the government to accommodate religions. The establishment clause covers all conflicts about such matters as the legality of state and local government support for a particular religion, government aid to religious organizations and schools, the government’s allowing or requiring school prayers, and the 22. 47 U.S.C. Section 223(a)(1)(B)(ii). 23. Reno v. American Civil Liberties Union, 521 U.S. 844, 117 S.Ct. 2329, 138 L.Ed.2d 874 (1997). 24. 47 U.S.C. Section 231. 25. American Civil Liberties Union v. Ashcroft, 542 U.S. 656, 124 S.Ct. 2783, 159 L.Ed.2d 690 (2004). See also Ashcroft v. American Civil Liberties Union, 535 U.S. 564, 122 S.Ct. 1700, 152 L.Ed.2d 771 (2002); and American Civil Liberties Union v. Ashcroft, 322 F.3d 240 (3d Cir. 2003). 26. 17 U.S.C. Sections 1701–1741. 27. United States v. American Library Association, 539 U.S. 194, 123 S.Ct. 2297, 156 L.Ed.2d 221 (2003).
ESTABLISHMENT CLAUSE
The provision in the First Amendment to the Constitution that prohibits the government from establishing any state-sponsored religion or enacting any law that promotes religion or favors one religion over another. FREE EXERCISE CLAUSE
The provision in the First Amendment to the Constitution that prohibits the government from interfering with people’s religious practices or forms of worship.
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Laptop Searches at the U.S. Border—A New Way to Find Evidence he Fourth Amendment to the U.S. Constitution protects citizens against “unreasonable searches and seizures.” Traditionally, this has meant that the government must obtain a court-ordered warrant to search through a person’s property unless the person consents to be searched. (The warrant requirement will be discussed in more detail later in this chapter and in Chapter 6 in the context of criminal law.) In a post–9/11 world, however, the rules on permissible searches are changing, particularly at the nation’s borders. The courts have long permitted warrantless border searches as a means of preventing drugs, contraband, and illegal aliens from entering the United States. In general, authorities at the border may search a person who is entering or leaving the country by land or by air, as well as the individual’s automobile, baggage, or goods. Only recently, however, have courts started allowing border guards to search through the temporary files stored on laptop computers and to use the history of Web pages viewed as criminal evidence of possession of child pornography.
T
held by his new employer in Las Vegas, Nevada, in 2004. After the seminar ended, he flew to Kelowna, British Columbia, on business. When Romm checked through customs at the airport, Canada’s border guards discovered that he had a criminal history—a 1997 conviction for soliciting sex over the Internet from an undercover agent posing as a fourteen-year-old. Romm admitted that he was on probation. A border agent then asked to see Romm’s laptop computer and briefly examined the Internet cache, or temporary folder showing the Web sites that Romm had visited. The agent noticed several child pornography Web sites in Romm’s Internet history and asked if viewing these sites had violated the terms of his probation, to which Romm answered “yes.” The border guards detained Romm and sent his laptop to a forensic computer specialist to analyze the hard drive. Analysis confirmed that Romm had viewed ten images of child pornography from his laptop during the prior week and then deleted (or attempted to delete) the images from his computer. Romm was rejected by Canada and sent back on the next flight to Seattle, where he was prosecuted for possession of child pornography and sentenced to serve ten to fifteen years in prison.
The Appellate Court Upholds the Search The Unsavory Traveler Stuart Romm, a suspended lawyer and former administrative law judge from Massachusetts, had attended a training seminar
Romm appealed his conviction, arguing that the forensic analysis of his laptop computer exceeded the border search exception to the warrant requirement. The U.S. Court of
teaching of evolution versus fundamentalist theories of creation. For a government law or policy to be constitutional, it must not have the primary effect of advancing or inhibiting religion. Generally, federal or state regulation that does not promote religion or place a significant burden on religion is constitutional even if it has some impact on religion. Religious displays on public property have often been challenged as violating the establishment clause, and the United States Supreme Court has ruled on a number of such cases. Generally, the Court has focused on the proximity of the religious display to nonreligious symbols, such as reindeer and candy canes, or to symbols from different religions, such as a menorah (a nine-branched candelabrum used in celebrating Hanukkah). In 2005, however, the Supreme Court took a slightly different approach. The dispute involved a six-foot-tall monument of the Ten Commandments on the Texas state capitol grounds. The Court held that the monument did not violate the establishment clause because the Ten Commandments had historical as well as religious significance.28 The Free Exercise Clause The free exercise clause guarantees that a person can hold any religious belief that she or he wants or can choose to have no religious belief. When religious practices work against public policy and the public welfare, however, the government can act. For example, regardless of a child’s or parent’s religious beliefs, the government can require certain types of vaccinations. Similarly, although children of Jehovah’s Witnesses are 28. Van Orden v. Perry, 545 U.S. 677, 125 S.Ct. 2854, 162 L.Ed.2d 607 (2005).
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Appeals for the Ninth Circuit was not persuaded, however, and ultimately upheld the verdict in 2006.a According to the Ninth Circuit court, “the border search doctrine is not limited to those cases where searching officers have reason to suspect the entrant may be carrying foreign contraband.” The court cited a 2004 decision by the United States Supreme Court that held that the search of a traveler’s property at the border will always be deemed “routine” unless the search technique risks damage to the searched property.b That case had involved a border search of the defendant’s gas tank that revealed marijuana rather than a search of electronic evidence, however.
Potential Implications The Romm case also raised another issue: When does a person have possession of electronic images? Interestingly, this is the first case in which a defendant was convicted of intentionally possessing and receiving cache images even though they were not downloaded. According to the Ninth Circuit court, “In the electronic context, a person can receive and possess child pornography without downloading it, if he or she seeks it out and exercises dominion and control over it.” Although this case involved child pornography, the holding could potentially apply to other types of offenses if a person had, for example, unauthorized images of copyrighted materials or confidential business data (see Chapter 5).
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Any type of material that is left on a laptop computer—even though the owner has attempted to delete it—can lead to liability if a border guard happens to look at the Internet history in the temporary cache of the computer. Moreover, if such searches are considered routine, as in this case, border authorities might also look at deleted e-mails and find evidence of other types of objectionable conduct. For example, consider the 2006 scandal involving former Republican Congressman Mark Foley and his inappropriate and allegedly sexually explicit e-mails and instant messages to teenage boys who worked as congressional pages. If someone had looked at his laptop for deleted e-mails, evidence of his unethical conduct might have been discovered long before it came to light in the press.
F O R C R I T I C A L A N A LY S I S The Romm decision has been criticized as being fundamentally unfair because essentially Romm was convicted of possessing images that he had done everything in his power to delete. Would a businessperson’s laptop ever contain information that could be incriminating? Should routine border searches include the temporary cache files on a computer? Why or why not?
a. United States v. Romm, 455 F.3d 990 (9th Cir. 2006). b. United States v. Flores-Montano, 541 U.S. 149, 124 S.Ct. 1582, 158 L.Ed.2d 311 (2004).
not required to say the Pledge of Allegiance at school, their parents cannot prevent them from accepting medical treatment (such as blood transfusions) if their lives are in danger. Additionally, public school students can be required to study from textbooks chosen by school authorities. For business firms, an important issue involves the accommodation that businesses must make for the religious beliefs of their employees. For example, if an employee’s religion prohibits him or her from working on a certain day of the week or at a certain type of job, the employer must make a reasonable attempt to accommodate these religious requirements. Employers must reasonably accommodate an employee’s religious beliefs even if the beliefs are not based on the tenets or dogma of a particular church, sect, or denomination. The only requirement is that the belief be religious in nature and sincerely held by the employee. (We will look further at this issue in Chapter 41, in the context of employment discrimination.) Does the free exercise clause protect illegal drug use? According to the United States Supreme Court, the First Amendment does protect the use of a controlled substance in the practice of a sincerely held religious belief. The case involved a religious sect in New Mexico that follows the practices of a Brazil-based church. Its members ingest hoasca tea as part of a ritual to connect with and better understand God. Hoasca tea, which is brewed from plants native to the Amazon rain forest, contains an illegal hallucinogenic drug, dimethyltryptamine (DMT), that is regulated by the Controlled Substances Act. Federal drug agents had confiscated the church’s shipment of hoasca tea as it entered the country. The church
ETHICAL ISSUE 2.1
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members filed a lawsuit, claiming that the confiscation violated their right to freely exercise their religion. Ultimately, the Supreme Court agreed, ruling that the government had failed to demonstrate a sufficiently compelling interest in barring the sect’s sacramental use of hoasca. Chief Justice Roberts wrote the decision, relying on the Religious Freedom Restoration Act of 199329 and on earlier decisions allowing the sacramental use of peyote (a cactus that contains mescaline, another hallucinogenic drug). In short, the Supreme Court will allow the use of illegal hallucinogenic drugs as a religious practice but will not allow the use of marijuana for medical purposes.30 Is this fair? ■
Fourth Amendment — Searches and Seizures
SEARCH WARRANT
An order granted by a public authority, such as a judge, that authorizes law enforcement personnel to search particular premises or property.
The Fourth Amendment protects the “right of the people to be secure in their persons, houses, papers, and effects.” Before searching or seizing private property, law enforcement officers must usually obtain a search warrant—an order from a judge or other public official authorizing the search or seizure. Search Warrants and Probable Cause To obtain a search warrant, law enforcement officers must convince a judge that they have reasonable grounds, or probable cause, to believe a search will reveal evidence of a specific illegality. To establish probable cause, the officers must have trustworthy evidence that would convince a reasonable person that the proposed search or seizure is more likely justified than not. Furthermore, the Fourth Amendment prohibits general warrants. It requires a particular description of whatever is to be searched or seized. General searches through a person’s belongings are impermissible. The search cannot extend beyond what is described in the warrant. 29. 42 U.S.C. Sections 2000bb et seq. 30. Gonzales v. O Centro Espirita Beneficente Uniao Do Vegetal, 546 U.S. 418, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006).
Police searching a crack house in Florida. Should the owners and occupants of such houses receive protection from unreasonable searches and seizures under the U.S. Constitution? Why or why not? (Corbis/All rights reserved.)
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The requirement for a search warrant has several exceptions. One exception applies when the items sought are likely to be removed before a warrant can be obtained. ■ EXAMPLE 2.10 If a police officer has probable cause to believe that an automobile contains evidence of a crime and that the vehicle will likely be unavailable by the time a warrant is obtained, the officer can search the vehicle without a warrant. ■ Searches and Seizures in the Business Context Constitutional protection against unreasonable searches and seizures is important to businesses and professionals. Equally important is the government’s interest in ensuring compliance with federal and state regulations, especially rules meant to protect the safety of employees and the public. Because of the strong governmental interest in protecting the public, a warrant normally is not required for the seizure of spoiled or contaminated food. In addition, warrants are not required for searches of businesses in such highly regulated industries as liquor, guns, and strip mining. General manufacturing is not considered to be one of these highly regulated industries, however. Generally, government inspectors do not have the right to search business premises without a warrant, although the standard of probable cause is not the same as that required in nonbusiness contexts. The existence of a general and neutral enforcement plan normally will justify issuance of the warrant. Lawyers and accountants frequently possess the business records of their clients, and inspecting these documents while they are out of the hands of their true owners also requires a warrant. In the following case, after receiving a report of suspected health-care fraud, state officials entered and searched the office of a licensed physician without obtaining a warrant. The physician claimed that the search was unreasonable and improper.
United States Court of Appeals, Sixth Circuit, 513 F.3d 527 (2008). www.ca6.uscourts.gov a
BACKG ROU N D AN D FAC TS Young Moon was a licensed physician, specializing in oncology and hematology. Moon operated a medical practice in Crossville, Tennessee. As part of her practice, Moon contracted with the state of Tennessee to provide medical treatment to patients pursuant to a state and federally funded health benefit program for the uninsured known as “TennCare.” Moon routinely utilized chemotherapy medications in her treatment of cancer patients insured under the program. In March 2001, the Tennessee Bureau of Investigation (TBI) received a complaint from one of Moon’s a. Click on “Opinions Search” and in the “Short Title contains” box, type
in “Moon.” Click on “Submit Query.” Under “Published Opinions,” select the link to “08a0031p.06” to access the opinion.
I N TH E WOR DS OF TH E COU RT . . .
employees alleging that she had administered partial doses of chemotherapy medication while billing the insurance program for full doses. In January 2002, investigating agents conducted an on-site review at Moon’s office. The agents identified themselves, informed Moon of a general complaint against her, and requested permission to “scan” particular patient records. Moon agreed. She also provided the agents with a location where they could scan the requested files. Later, Moon attempted to suppress the evidence, arguing that it was obtained without a search warrant. The federal district court sentenced Moon to 188 months in prison, followed by two years of supervised release. She was also ordered to pay restitution of $432,000. She appealed her conviction and sentence to the U.S. Court of Appeals for the Sixth Circuit.
CLAY, Circuit Judge.
* * * * The Fourth Amendment bars the government from conducting unreasonable searches and seizures. This prohibition extends to both private homes and commercial premises. Additionally, searches pursuant to criminal as well as administrative investigations must
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C A S E 2.3—Continued
comport to the strictures of the Fourth Amendment. Under the Fourth Amendment, searches “conducted without a warrant issued upon probable cause [are] per se unreasonable * * * subject only to a few specifically established and well-delineated exceptions.” The well-delineated exception at issue here is consent. If an officer obtains consent to search, a warrantless search does not offend the Constitution. * * * Consent is voluntary when it is “unequivocal, specific and intelligently given, uncontaminated by any duress or coercion.” [Emphasis added.] * * * * We find that the district court’s denial of the motion to suppress was not clearly erroneous inasmuch as Defendant voluntarily consented to the search of her office. The only evidence on the question of verbal consent was provided in the form of testimony by Agent Andy Corbitt of TBI at the suppression hearing. Agent Corbitt testified that three members of the TBI investigative team entered Defendant’s office dressed in “business professional” attire, with weapons concealed. Agents identified themselves to Defendant, explained that there was an ongoing investigation and requested access to particular patient files. Defendant inquired about the nature of the investigation but was not informed of the specific nature of the allegations. Following this conversation, Defendant stated it would be “fine” for agents to access requested files and that they “could scan whatever [they] needed to.” Further, Defendant provided agents with a space where they could scan the requested files. Defendant, however, claims that the verbal consent was not voluntary as she merely acquiesced to a claim of lawful authority. * * * Based on the totality of the circumstances, we find that Defendant voluntarily consented to the search of her office and therefore the motion to suppress was properly denied.
DECI S ION AN D R E M E DY
The U.S. Court of Appeals for the Sixth Circuit affirmed the district court’s decision. Because Moon voluntarily allowed the agents to examine her files and to scan them, the resulting evidence did not have to be suppressed. A search warrant was not necessary.
W H AT I F T H E FA C T S W E R E D I F F E R E N T ? Assume that Moon had proved that using partial doses of the chemotherapy drugs did not affect the “cure” rate for her cancer patients. Would the court have ruled differently? Why or why not?
DUE PROCESS AND EQUAL PROTECTION Two other constitutional guarantees of great significance to Americans are mandated by the due process clauses of the Fifth and Fourteenth Amendments and the equal protection clause of the Fourteenth Amendment.
Due Process DUE PROCESS CLAUSE
The provisions in the Fifth and Fourteenth Amendments to the Constitution that guarantee that no person shall be deprived of life, liberty, or property without due process of law. Similar clauses are found in most state constitutions.
Both the Fifth and the Fourteenth Amendments provide that no person shall be deprived “of life, liberty, or property, without due process of law.” The due process clause of each of these constitutional amendments has two aspects—procedural and substantive. Note that the due process clause applies to “legal persons,” such as corporations, as well as to individuals. Procedural Due Process Procedural due process requires that any government decision to take life, liberty, or property must be made fairly—that is, the government must give a person proper notice and an opportunity to be heard. Fair procedures must be used in
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determining whether a person will be subjected to punishment or have some burden imposed on him or her. Fair procedure has been interpreted as requiring that the person have at least an opportunity to object to a proposed action before a fair, neutral decision maker (which need not be a judge). In most states, a driver’s license is construed as a property interest. Therefore, the state must provide some sort of opportunity for the driver to object before suspending or terminating the license. Many of the constitutional protections discussed in this chapter have become part of our culture in the United States. Due process, especially procedural due process, has become synonymous with what Americans consider “fair.” For this reason, businesspersons seeking to avoid legal disputes should consider giving due process to anyone who might object to some business decision or action, whether that person is an employee, a partner, an affiliate, or a customer. For instance, giving ample notice of new policies to all affected persons is a prudent move, as is giving them at least an opportunity to express their opinions on the matter. Providing an opportunity to be heard is often the ideal way to make people feel that they are being treated fairly. If people believe that a businessperson or firm is fair and listens to both sides of an issue, they are less likely to sue that businessperson or firm. ■
Substantive Due Process Substantive due process protects an individual’s life, liberty, or property against certain government actions regardless of the fairness of the procedures used to implement them. Substantive due process limits what the government may do in its legislative and executive capacities. Legislation must be fair and reasonable in content and must further a legitimate governmental objective. Only when state conduct is arbitrary, or shocks the conscience, however, will it rise to the level of violating substantive due process.31 If a law or other governmental action limits a fundamental right, the state must have a legitimate and compelling interest to justify its action. Fundamental rights include interstate travel, privacy, voting, marriage and family, and all First Amendment rights. Thus, a state must have substantial reason for taking any action that infringes on a person’s free speech rights. In situations not involving fundamental rights, a law or action does not violate substantive due process if it rationally relates to any legitimate government purpose. Under this test, virtually any business regulation will be upheld as reasonable. The United States Supreme Court has sustained insurance regulations, price and wage controls, banking limitations, and restrictions on unfair competition and trade practices against substantive due process challenges. ■ EXAMPLE 2.11 If a state legislature enacted a law imposing a fifteen-year term of imprisonment without a trial on all businesspersons who appeared in their own television commercials, the law would be unconstitutional on both substantive and procedural grounds. Substantive review would invalidate the legislation because it infringes on freedom of speech. Procedurally, the law is unfair because it imposes the penalty without giving the accused a chance to defend her or his actions. ■
Equal Protection Under the Fourteenth Amendment, a state may not “deny to any person within its jurisdiction the equal protection of the laws.” The United States Supreme Court has used the 31. See, for example, Breen v. Texas A&M University, 485 F.3d 325 (5th Cir. 2007); and Hart v. City of Little Rock, 432 F.3d 801 (8th Cir. 2005).
PREVENTING LEGAL DISPUTES
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EQUAL PROTECTION CLAUSE
The provision in the Fourteenth Amendment to the Constitution that guarantees that no state will “deny to any person within its jurisdiction the equal protection of the laws.” This clause mandates that the state governments must treat similarly situated individuals in a similar manner.
“When one undertakes to administer justice, . . . what is done for one, must be done for everyone in equal degree.”
THOMAS JEFFERSON,
1743–1826 (Third president of the United States, 1801–1809)
due process clause of the Fifth Amendment to make the equal protection clause applicable to the federal government as well. Equal protection means that the government must treat similarly situated individuals in a similar manner. Both substantive due process and equal protection require review of the substance of the law or other governmental action rather than review of the procedures used. When a law or action limits the liberty of all persons to do something, it may violate substantive due process; when a law or action limits the liberty of some persons but not others, it may violate the equal protection clause. ■ EXAMPLE 2.12 If a law prohibits all persons from buying contraceptive devices, it raises a substantive due process question. If a law prohibits only unmarried persons from buying the same devices, it raises an equal protection issue. ■ In an equal protection inquiry, when a law or action distinguishes between or among individuals, the court will examine the basis for the distinction—that is, the classification. Depending on the classification, the courts apply different levels of scrutiny, or “tests,” to determine whether the law or action violates the equal protection clause. Minimal Scrutiny—The “Rational Basis” Test Generally, laws regulating economic and social matters are presumed to be valid and are subject to only minimal scrutiny. A classification will be considered valid if there is any conceivable rational basis on which the classification might relate to a legitimate government interest. It is almost impossible for a law or action to fail the rational basis test. ■ EXAMPLE 2.13 A city ordinance that in effect prohibits all pushcart vendors except a specific few from operating in a particular area of the city will be upheld if the city offers a rational basis—such as reducing traffic in the particular area—for the ordinance. In contrast, a law that provides unemployment benefits only to people over six feet tall would clearly fail the rational basis test because it could not further any legitimate government interest. ■ Intermediate Scrutiny A harder standard to meet, that of intermediate scrutiny, is applied in cases involving discrimination based on gender or legitimacy. Laws using these classifications must be substantially related to important government objectives. ■ EXAMPLE 2.14 An important government objective is preventing illegitimate teenage pregnancies. Because males and females are not similarly situated in this circumstance— only females can become pregnant—a law that punishes men but not women for statutory rape will be upheld. Now suppose that a state law requires an illegitimate child to file a paternity action within six years of birth in order to seek support from his or her biological father. The state asserts that the law is necessary to prevent fraudulent claims and encourage timely actions. If legitimate children can seek support from their fathers at any time, however, the law will fail because distinguishing between support claims on the basis of legitimacy has no relation to the state’s purported objective. ■ Strict Scrutiny The most difficult standard to meet is that of strict scrutiny. Under strict scrutiny, the classification must be necessary to promote a compelling state interest. Generally, few laws or actions survive strict-scrutiny analysis by the courts. Strict scrutiny is applied when a law or action prohibits some persons from exercising a fundamental right or classifies individuals based on a suspect trait—such as race, national origin, or citizenship status. ■ EXAMPLE 2.15 To prevent violence caused by racial gangs in prisons, corrections officials in California segregated prisoners by race for up to sixty days after they entered (or were transferred to) a correctional facility. A prisoner challenged that policy. Ultimately, the United States Supreme Court held that all racial classifications, because they are based on a suspect trait, must be analyzed under strict scrutiny.32 ■ 32. Johnson v. California, 543 U.S. 499, 125 S.Ct. 1141, 160 L.Ed.2d 949 (2005).
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PRIVACY RIGHTS In the past, privacy issues typically related to personal information that government agencies, including the Federal Bureau of Investigation, might obtain and keep about an individual. Later, concerns about what banks and insurance companies might know and transmit to others about individuals became an issue. Since the 1990s, one of the major concerns of individuals has been how to protect privacy rights in cyberspace and to safeguard private information that may be revealed online (including creditcard numbers and financial information). The increasing value of personal information for online marketers—who are willing to pay a high price for such information to those who collect it—has exacerbated the situation. (See the Application feature at the end of this chapter for further discussion of the collection of personal information by businesses.) Today, individuals face additional concerns about government intru
