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Frank B. Cross Herbert D. Kelleher

Centennial Professor in Business Law University of Texas at Austin

Roger LeRoy Miller Institute for University Studies

Arlington, Texas

T h e l e g a l

e n v i ro n m e n T o f b u s i n e s s

T e x T a n d C a s e s

Eleventh Edition

Australia • Brazil • Mexico • Singapore • United Kingdom • United States

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The Legal Environment of Business Text and Cases, Eleventh Edition Frank B. Cross Roger LeRoy Miller

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iii

Unit One The Foundations 1 Chapter 1 law and legal reasoning 2 Chapter 2 business and the Constitution 26 Chapter 3 ethics in business 44 Chapter 4 Courts and alternative Dispute resolution 65 Chapter 5 Court Procedures 86

Unit Two The Public and International Environment 111 Chapter 6 Tort law 112 Chapter 7 strict liability and Product liability 134 Chapter 8 intellectual Property rights 150 Chapter 9 internet law, social media, and Privacy 170 Chapter 10 Criminal law and Cyber Crime 187 Chapter 11 international and space law 211

Unit Three The Commercial Environment 235 Chapter 12 Formation of Traditional and e-Contracts 236 Chapter 13 Contract Performance, breach, and remedies 265 Chapter 14 sales and lease Contracts 287 Chapter 15 Creditor-Debtor relations and bankruptcy 322

Unit Four The Business and Employment Environment 353 Chapter 16 small businesses and Franchises 354 Chapter 17 limited liability business Forms 375 Chapter 18 Corporations 392 Chapter 19 agency relationships 420 Chapter 20 employment law 442 Chapter 21 employment Discrimination 457 Chapter 22 immigration and labor law 478

Unit Five The Regulatory Environment 499 Chapter 23 administrative agencies 500 Chapter 24 Consumer Protection 517 Chapter 25 environmental law 534 Chapter 26 real Property and land-use Control 550 Chapter 27 antitrust law 571 Chapter 28 investor Protection and Corporate governance 590

Brief Contents

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iv B R I E F C O n T E n T s

Appendices A How to brief Cases and analyze Case Problems a–1 B answers to the Issue Spotters a–4 C sample answers for Business Case Problems with Sample Answer a–10

Glossary G–1 Table of Cases TC–1 Index I–1

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v

Contents

Unit One The Foundations 1

Chapter 1 Law and Legal Reasoning 2 business activities and the legal environment 2 sources of american law 3 The Common law Tradition 6 ■ Ethics Today: Stare Decisis versus Spider-Man 9 schools of legal Thought 11 Classifications of law 12 How to Find Primary sources of law 13 How to read and understand Case law 16

Chapter 2 Business and the Constitution 26 The Constitutional Powers of government 26 Classic Case 2.1 Heart of Atlanta Motel v. United States 28 business and the bill of rights 30 ■ Digital Update: Does Everyone Have a Constitutional Right

to Use Social Media? 32 Case 2.2 Animal Legal Defense Fund v. Wasden 33 spotlight on Beer Labels

Case 2.3 Bad Frog Brewery, Inc. v. New York State Liquor Authority 35

Due Process and equal Protection 39 Privacy rights 40

Chapter 3 Ethics in Business 44 ethics and the role of business 44 ■ Digital Update: Should Employees Have a “Right of

Disconnecting”? 47 Case 3.1 Al-Dabagh v. Case Western Reserve University 48 ethical Principles and Philosophies 49 sources of ethical issues in business Decisions 52 Case 3.2 Watson Laboratories, Inc. v. State of Mississippi 53 making ethical business Decisions 55 business ethics on a global level 58 ■ Ethics Today: Applying the IDDR Framework 59 Appendix to Chapter 3: Costco Code of Ethics 64

Chapter 4 Courts and Alternative Dispute Resolution 65 The Judiciary’s role in american government 65 basic Judicial requirements 66 Case Analysis 4.1 Mala v. Crown Bay Marina, Inc. 68 spotlight on Gucci

Case 4.2 Gucci America, Inc. v. Wang Huoqing 70 The state and Federal Court systems 73 Case 4.3 Johnson v. Oxy USA, Inc. 74 ■ Managerial Strategy: Should You Consent to Have Your

Business Case Decided by a U.S. Magistrate Judge? 76 alternative Dispute resolution 79 international Dispute resolution 82

Chapter 5 Court Procedures 86 Procedural rules 86 Pretrial Procedures 88 ■ Digital Update: Using Social Media for Service of

Process 90 Case Analysis 5.1 Espresso Disposition Corp. 1 v. Santana

Sales & Marketing Group, Inc. 91 Case 5.2 Lewis v. Twenty-First Century Bean Processing 93 Case 5.3 Klipsch Group, Inc. v. ePRO E-Commerce Limited 96 The Trial 99 Posttrial motions 101 The appeal 102 enforcing the Judgment 103 Unit One Task-Based simulation 107 Unit One Application and Ethics:

“Arbitration, No Class Actions” 108

Unit Two The Public and International environment 111

Chapter 6 Tort Law 112 The basis of Tort law 112 intentional Torts against Persons 113

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vi C O n T E n T s

Chapter 10 Criminal Law and Cyber Crime 187 Civil law and Criminal law 187 Criminal liability 189 ■ Digital Update: Using Twitter to Cause Seizures—

A Crime? 189 Case 10.1 United States v. Crabtree 190 ■ Managerial Strategy: The Criminalization of American

Business 192 Types of Crimes 193 spotlight on White-Collar Crime

Case 10.2 People v. Sisuphan 195 Defenses to Criminal liability 199 Criminal Procedures 201 Cyber Crime 204 Case Analysis 10.3 United States v. Warner 205

Chapter 11 International and Space Law 211 international law 211 Case 11.1 Rubin v. Islamic Republic of Iran 215 Doing business internationally 217 ■ Ethics Today: Is It Ethical (and Legal) to Brew

“Imported” Beer Brands Domestically? 217 regulation of specific business activities 219 Case 11.2 Changzhou Trina Solar Energy Co., Ltd. v.

United States International Trade Commission 220 international Dispute resolution 222 u.s. laws in a global Context 223 spotlight on International Torts

Case 11.3 Daimler AG v. Bauman 223 space law 225 Unit Two Task-Based simulation 230 Unit Two Application and Ethics:

One of the Biggest Data Breaches Ever 231

Unit Three The Commercial environment 235

Chapter 12 Formation of Traditional and E-Contracts 236 an overview of Contract law 236 agreement 240 Classic Case 12.1 Lucy v. Zehmer 240 Case Analysis 12.2 Hinkal v. Pardoe 245 e-Contracts 247 Consideration 250 spotlight on nike

Case 12.3 Already, LLC v. Nike, Inc. 253

Case Analysis 6.1 Blake v. Giustibelli 115 ■ Digital Update: Revenge Porn and Invasion of Privacy 119 intentional Torts against Property 122 unintentional Torts—negligence 124 Case 6.2 Bogenberger v. Pi Kappa Alpha Corporation, Inc. 125 Defenses to negligence 128 spotlight on the seattle Mariners

Case 6.3 Taylor v. Baseball Club of Seattle, LP 129

Chapter 7 Strict Liability and Product Liability 134 strict liability 134 Product liability 135 Case Analysis 7.1 Schwarck v. Arctic Cat, Inc. 136 strict Product liability 137 Case 7.2 Stange v. Janssen Pharmaceuticals, Inc. 140 ■ Managerial Strategy: When Is a Warning Legally

Bulletproof? 142 Defenses to Product liability 143 Case 7.3 VeRost v. Mitsubishi Caterpillar Forklift America, Inc. 144

Chapter 8 Intellectual Property Rights 150 Trademarks and related Property 150 Classic Case 8.1 The Coca-Cola Co. v. The Koke

Co. of America 150 Case 8.2 Headspace International, LLC v. Podworks Corp. 152 ■ Global Insight: ALEVE versus FLANAX—Same Pain Killer,

But in Different Countries 154 Patents 157 Copyrights 159 Case Analysis 8.3 Winstead v. Jackson 161 Trade secrets 164 international Protection for intellectual Property 164

Chapter 9 Internet Law, Social Media, and Privacy 170 internet law 170 spotlight on Internet Porn

Case 9.1 Hasbro, Inc. v. Internet Entertainment Group, Ltd. 173

Copyrights in Digital information 174 ■ Digital Update: Riot Games, Inc., Protects Its Online Video

Game Copyrights 175 Case 9.2 BMG Rights Management (US), LLC v. Cox

Communications, Inc. 176 social media 178 online Defamation 180 other actions involving online Posts 181 Case Analysis 9.3 David v. Textor 182 Privacy 183

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C O n T E n T s vii

liquidation Proceedings 330 Case 15.2 In re Anderson 336 ■ Ethics Today: Should There Be More Relief for Student

Loan Defaults? 339 reorganizations 340 bankruptcy relief under Chapter 12 and Chapter 13 341 Case 15.3 In re Chamberlain 343 Unit Three Task-Based simulation 349 Unit Three Application and Ethics:

Nondisclosure Agreements 350

Unit Four The Business and employment environment 353

Chapter 16 Small Businesses and Franchises 354 general Considerations for small businesses 354 sole Proprietorships 355 Case Analysis 16.1 A. Gadley Enterprises, Inc. v. Department of

Labor and Industry, Office of Unemployment Compensation Tax Services 356

■ Digital Update: A Sole Proprietorship, Facebook Poker, and Bankruptcy 358

Partnerships 359 Case 16.2 Harun v. Rashid 359 Franchises 367 Case 16.3 S&P Brake Supply, Inc. v. Daimler Trucks North

America, LLC 370

Chapter 17 Limited Liability Business Forms 375 The limited liability Company 375 Case 17.1 Hodge v. Strong Built International, LLC 377 llC management and operation 379 ■ Managerial Strategy: Can a Person Who Is Not a Member

of a Protected Class Sue for Discrimination? 380 Case 17.2 Schaefer v. Orth 381 Dissociation and Dissolution of an llC 382 Case Analysis 17.3 Reese v. Newman 383 limited liability Partnerships 385 limited Partnerships 386

Chapter 18 Corporations 392 nature and Classification 392 ■ Digital Update: Programs That Predict Employee

Misconduct 394 Case 18.1 Drake Manufacturing Co. v. Polyflow, Inc. 394

Contractual Capacity 254 legality 256 Case 12.4 Kennedy v. Shave Barber Co. 257 Form—The Writing requirement 259 ■ Managerial Strategy: Creating Liability Waivers That Are

Not Unconscionable 260 Third Party rights 261

Chapter 13 Contract Performance, Breach, and Remedies 265 voluntary Consent 265 Case 13.1 McCullough v. Allstate Property and Casualty

Insurance Co. 267 Performance and Discharge 270 Classic Case 13.2 Jacob & Youngs v. Kent 271 ■ Ethics Today: When Is Impossibility of Performance

a Valid Defense? 276 Damages 278 spotlight on Liquidated Damages

Case 13.3 Kent State University v. Ford 280 equitable remedies for Contract breach 281 Contract Provisions limiting remedies 283

Chapter 14 Sales and Lease Contracts 287 The scope of articles 2 (sales) and 2a (leases) 287 ■ Digital Update: Taxing Web Purchases 289 The Formation of sales and lease Contracts 290 Case 14.1 Toll Processing Services, LLC v. Kastalon, Inc. 291 Classic Case 14.2 Jones v. Star Credit Corp. 296 Title, risk, and insurable interest 297 ■ Managerial Strategy: Commercial Use of Drones 299 Performance obligations in sales and lease Contracts 302 remedies for breach of sales and lease Contracts 306 spotlight on Baseball Cards

Case 14.3 Fitl v. Strek 309 Warranties 311 Contracts for the international sale of goods 313 Appendix to Chapter 14: An Example of a Contract for the

International Sale of Coffee 318

Chapter 15 Creditor-Debtor Relations and Bankruptcy 322 laws assisting Creditors 322 mortgages 326 Case 15.1 Banc of California, N.A. v. Madhok 328 Protection for Debtors 329 The bankruptcy Code 329

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viii C O n T E n T s

Case 18.2 Greenfield v. Mandalay Shores Community Association 398

Corporate Formation and Powers 399 ■ Global Insight: Does Cloud Computing Have a

Nationality? 403 Piercing the Corporate veil 403 Corporate Directors and officers 405 Classic Case 18.3 Guth v. Loft, Inc. 408 shareholders 410 major business Forms Compared 415

Chapter 19 Agency Relationships 420 agency law 420 ■ Ethics Today: Is It Fair to Classify Uber and Lyft Drivers

as Independent Contractors? 422 Formation of the agency relationship 423 Case 19.1 Riedel v. Akron General Health System 424 Duties, rights, and remedies of agents and Principals 425 agent’s authority 429 Case 19.2 Dearborn West Village Condominium Association v.

Makki 430 liability in agency relationships 432 ■ Global Insight: Islamic Law and Respondeat Superior 434 Case Analysis 19.3 M.J. v. Wisan 435 Termination of an agency 437

Chapter 20 Employment Law 442 employment at Will 442 Case 20.1 Caterpillar, Inc. v. Sudlow 443 Wages, Hours, and layoffs 445 ■ Ethics Today: Is It Fair to Dock Employees’ Pay

for Bathroom Breaks? 446 Case 20.2 Encino Motorcars, LLC v. Navarro 446 Family and medical leave 448 Case 20.3 Ballard v. Chicago Park District 449 Health, safety, and income security 450 employee Privacy rights 453

Chapter 21 Employment Discrimination 457 Title vii of the Civil rights act 457 ■ Digital Update: Hiring Discrimination Based on Social

Media Posts 461 Case Analysis 21.1 Bauer v. Lynch 462 Case 21.2 Young v. United Parcel Service, Inc. 463 Case 21.3 Franchina v. City of Providence 467 Discrimination based on age 468 Discrimination based on Disability 470 Discrimination based on military status 472

Defenses to employment Discrimination 473 affirmative action 474

Chapter 22 Immigration and Labor Law 478 immigration law 478 Federal labor laws 480 union organization 482 ■ Managerial Strategy: Union Organizing Using a Company’s

E-Mail System 483 Case Analysis 22.1 Contemporary Cars, Inc. v. National Labor

Relations Board 483 strikes and lockouts 486 unfair labor Practices 487 Case 22.2 Staffing Network Holdings, LLC v. National Labor

Relations Board 488 Case 22.3 Unite Here! Local 5 v. National Labor Relations

Board 490 Unit Four Task-Based simulation 494 Unit Four Application and Ethics:

Health Insurance and Small Business 495

Unit Five The Regulatory environment 499

Chapter 23 Administrative Agencies 500 The Practical significance of administrative law 500 agency Creation and Powers 501 Case 23.1 Simmons v. Smith 504 The administrative Process 506 Case 23.2 Craker v. Drug Enforcement Administration 509 Judicial Deference to agency Decisions 510 Case Analysis 23.3 Olivares v. Transportation Security

Administration 511 Public accountability 513

Chapter 24 Consumer Protection 517 advertising, marketing, and sales 517 Case 24.1 POM Wonderful, LLC v. Federal Trade

Commission 518 ■ Digital Update: Regulating “Native” Ads on the

Internet 521 Case 24.2 Haywood v. Massage Envy Franchising, LLC 522 labeling and Packaging laws 524 Protection of Health and safety 525 Credit Protection 526 Case Analysis 24.3 Santangelo v. Comcast Corp. 528

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C O n T E n T s ix

Chapter 25 Environmental Law 534 Common law actions 534 Federal, state, and local regulations 535 Case Analysis 25.1 Friends of Animals v. Clay 535 ■ Global Insight: Can a River Be a Legal Person? 538 air Pollution 538 Case 25.2 United States v. O’Malley 540 Water Pollution 542 Case 25.3 United States v. Fox 543 Toxic Chemicals and Hazardous Waste 545

Chapter 26 Real Property and Land-Use Control 550 The nature of real Property 550 ownership and other interests in real Property 552 Case 26.1 In the Matter of the Estate of Nelson 553 Transfer of ownership 557 spotlight on sales of Haunted Houses

Case 26.2 Stambovsky v. Ackley 558 Case Analysis 26.3 Montgomery County v. Bhatt 561 limitations on the rights of Property owners 563 ■ Ethics Today: Should Eminent Domain Be Used to Promote

Private Development? 564 land-use Control and Zoning 565

Chapter 27 Antitrust Law 571 The sherman antitrust act 571 section 1 of the sherman act 572 section 2 of the sherman act 575 Case Analysis 27.1 McWane, Inc. v. Federal Trade

Commission 576 The Clayton act 578

Case 27.2 Candelore v. Tinder, Inc. 579 enforcement and exemptions 582 Case 27.3 TransWeb, LLC v. 3M Innovative Properties Co. 583 u.s. antitrust laws in the global Context 584 ■ Digital Update: The European Union Issues Record Fines

against Google in Antitrust Case 586

Chapter 28 Investor Protection and Corporate Governance 590 The securities act of 1933 590 ■ Managerial Strategy: The SEC’s Pay-Ratio Disclosure

Rule 592 ■ Digital Update: Investment Crowdfunding—Regulations

and Restrictions 594 Case 28.1 Omnicare, Inc. v. Laborers District Council

Construction Industry Pension Fund 596 The securities exchange act of 1934 598 Classic Case 28.2 SEC v. Texas Gulf Sulphur Co. 599 Case 28.3 Singer v. Reali 603 state securities laws 605 Corporate governance 606 Unit Five Task-Based simulation 612 Unit Five Application and Ethics:

Climate Change 613

Appendices A How to brief Cases and analyze Case Problems a–1 B answers to the Issue Spotters a–4 C sample answers for Business Case Problems with

Sample Answer a–10

Glossary G–1 Table of Cases TC–1 Index I–1

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x

Concept Summaries

1.1 sources of american law 5 1.2 The Common law Tradition 11 1.3 schools of Jurisprudential Thought 13 4.1 Jurisdiction 72 4.2 Types of Courts 78 5.1 Pretrial Procedures 98 5.2 Trial Procedures 101 5.3 Posttrial options 103 6.1 intentional Torts against Persons 121

6.2 intentional Torts against Property 124 7.1 Defenses to Product liability 147 10.1 Types of Crimes 199 12.1 Types of Contracts 239 12.2 methods by Which an offer Can be Terminated 244 14.1 offer, acceptance, and Consideration

under the uCC 295 15.1 Forms of bankruptcy relief Compared 345 21.1 Coverage of employment Discrimination laws 473

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xi

Exhibits

1–1 areas of the law That Can affect business Decision making 3

1–2 equitable maxims 7 1–3 Procedural Differences between

an action at law and an action in equity 7 1–4 national reporter system—regional/Federal 15 1–5 How to read Citations 17 1–6 a sample Court Case 20 2–1 Protections guaranteed by the bill of rights 31 2–2 Federal legislation relating to Privacy 41 3–1 an analysis of ethical approaches

to the sample Dilemma 57 4–1 exclusive and Concurrent Jurisdiction 70 4–2 The state and Federal Court systems 73 4–3 geographic boundaries of the u.s. Courts

of appeals and u.s. District Courts 77 4–4 basic Differences in the Traditional Forms of aDr 80 5–1 stages in a Typical lawsuit 87 5–2 a Typical Complaint 89 5–3 Pretrial motions 91 8–1 Forms of intellectual Property 165 10–1 Key Differences between Civil law

and Criminal law 187 10–2 Civil (Tort) lawsuit and Criminal

Prosecution for the same act 188 10–3 major Procedural steps in a Criminal Case 203 11–1 The legal systems of selected nations 213 11–2 examples of international Principles and Doctrines 216 12–1 examples of agreements That lack Consideration 252 13–1 mistakes of Fact 266 13–2 Discharge by Performance 273 13–3 Contract Discharge 277 13–4 remedies for breach of Contract 283 14–1 The law governing Contracts 288 14–2 major Differences between Contract law

and sales law 296

15–1 suretyship and guaranty Parties 325 15–2 Collection and Distribution of Property

in most voluntary bankruptcies 337 16–1 The FTC’s Franchise rule requirements 368 17–1 management of an llC 379 17–2 Provisions Commonly included in an llC operating

agreement 381 17–3 a Comparison of general Partnerships and limited

Partnerships 387 18–1 results of Cumulative voting 412 18–2 major Forms of business Compared 415 19–1 Duties of the agent 426 19–2 Duties of the Principal 427 22–1 good Faith versus bad Faith in Collective

bargaining 485 22–2 basic unfair labor Practices 487 23–1 executive Departments and important

subagencies 502 23–2 selected independent regulatory agencies 503 23–3 The Formal administrative agency adjudication

Process 508 24–1 selected areas of Consumer law regulated by

statutes 518 25–1 major Federal environmental statutes 537 25–2 environmental impact statements 539 25–3 Pollution-Control equipment standards under

the Clean air act and the Clean Water act 543 26–1 interests in real Property 557 27–1 required elements of a sherman act violation 572 27–2 exemptions to antitrust enforcement 585 28–1 exempt Transactions under the 1933 securities

act 593 28–2 Comparison of Coverage, application, and liability

under seC rule 10b-5 and section 16(b) 601 28–3 some Key Provisions of the sarbanes-oxley

act relating to Corporate accountability 608

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xiii

The study of the legal environment of business has universal applicability. a student entering any field of business must have at least a passing understanding of the legal environment in order to function in the real world. The Legal Environment of Business, eleventh edi- tion, provides the information that students need in an interesting and contemporary way.

additionally, students preparing for a career in accounting, government and political science, econom- ics, and even medicine can use much of the information they learn in a legal environment course. in fact, every individual throughout his or her lifetime can benefit from knowledge of contracts, employment law, intellec- tual property rights, real property, and other legal envi- ronment topics. Consequently, we have fashioned this text as a useful “tool for living” for all of your students (including those taking the CPa exam).

The eleventh edition of this text is more modern, exciting, and visually appealing than ever before. We have added new features, cases, concept summaries, and exhibits. The text also contains hundreds of highlighted and numbered Cases in Point and Examples, as well as new case problems and unit-ending Task-Based Simu- lations. special pedagogical elements within the text focus on legal, ethical, global, and corporate issues while addressing core curriculum requirements.

Highlights of the eleventh edition instructors have come to rely on the coverage, accuracy, and applicability of The Legal Environment of Business. To make sure that our text engages your students, solidifies their understanding of legal concepts, and provides the best teaching tools available, we offer the following.

The IddR approach: a new emphasis on ethics The ability of businesspersons to reason through ethical issues is now more important than ever. For the eleventh edition of The Legal Environment of Business, we have created a completely new framework for helping students

(and businesspersons) make ethical decisions. We present The IddR approach in Chapter 3 (ethics in business). This systematic approach provides students with a clear step-by-step process to analyze the legal and ethical implications of decisions that arise in everyday business operations.

The new iDDr approach uses four logical steps: • sTeP 1: Inquiry • sTeP 2: discussion • sTeP 3: decision • sTeP 4: Review

students can remember the first letter of each step easily by using the phrase: “i Desire to Do right.”

Completely Revised Chapter 3 on Ethics in Business a newly revised Chapter 3 details each iDDr step’s goals and then provides a sample scenario to help students apply this new approach to ethical decision mak- ing. in addition to introducing the iDDr approach, we have made Chapter 3 more current and more practical, and reduced the amount of theoretical ethical principles it presents. The chapter now focuses on real-life application of ethical principles.

New A Question of Ethics Case Problems throughout Text after Chapter 3, to reinforce the application of the iDDr approach, students are asked to use its various steps when answering each chapter’s A Question of Ethics. To challenge students in analyzing the ethical angles in today’s business legal environment, we have replaced every A Question of Ethics problem throughout the text to be based on a 2017, 2018, or 2019 case.

a Variety of exciting Features The eleventh edition of The Legal Environment of Busi- ness is filled with numerous features specifically designed to cover current legal topics of high interest.

each feature is related to a topic discussed in the text and ends with Critical Thinking or Business Questions. suggested answers to all of the Critical Thinking and Business Questions are included in the Answers Manual for this text.

Preface

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xiv P R E FA C E

social media have entered the mainstream and become a part of everyday life for many businesspersons. in this special chapter, we give particular emphasis to the legal issues surrounding the internet, social media, and privacy. We also recognize this trend throughout the text by incorporating the internet and social media as they relate to the topics under discussion.

Coverage of Topics on the Revised CPa exam in 2016, the american institute of CPas (aiCPa) issued its final report on “maintaining the relevance of the uni- form CPa exam.” in addition to more focus on critical thinking, authentic applications, and problem solving, the content of the exam has changed to some extent.

The eleventh edition of The Legal Environment of Business incorporates information on the new topics on the CPa exam, specifically addressing the following:

• agency law (worker classification and duties of principals and agents)

• employment law (affordable Care act) • business organizations (corporate governance issues,

including sarbanes-oxley compliance and criminal liability for organizations and management)

in addition, the eleventh edition continues to cover topics that are essential to new CPas who are working with sophisticated business clients, regardless of whether the CPa exam covers these topics.

We recognize that today’s business leaders must often think “outside the box” when making business decisions. For this reason, we strongly emphasize business and critical thinking elements throughout the text. We have carefully chosen cases, features, and problems that are rel- evant to business operations. almost all of the features and cases conclude with some type of critical thinking question. For those teaching future CPas, this is con- sistent with the new CPa exam’s focus on higher-order skills, such as critical thinking and problem solving.

Highlighted and numbered Examples and Case in Point Illustrations many instructors use cases and examples to illustrate how the law applies to business. students understand legal concepts better in the context of their real-world application. Therefore, for this edition of The Legal Environment of Business, we have expanded the number of highlighted numbered Examples and Cases in Point in every chapter.

1. Ethics Today. These features focus on the ethical aspects of a topic discussed in the text to emphasize that ethics is an integral part of a legal environment of business course. examples include the following:

• applying the iDDr Framework (Chapter 3) • is it ethical (and legal) to brew “imported” beer

brands Domestically? (Chapter 11) • should There be more relief for student loan

Defaults? (Chapter 15) • is it Fair to Classify uber and lyft Drivers as

independent Contractors? (Chapter 19)

2. Global Insight. These features illustrate how other nations deal with specific legal concepts to give students a sense of the global legal environment. subjects include the following:

• aleve versus Flanax—same Pain Killer, but in Different Countries (Chapter 8)

• Does Cloud Computing Have a nationality? (Chapter 18)

• islamic law and Respondeat Superior (Chapter 19) • Can a river be a legal Person? (Chapter 25)

3. Digital Update. These features are designed to examine cutting-edge cyberlaw topics, such as the following:

• Does everyone Have a Constitutional right to use social media? (Chapter 2)

• should employees Have a “right of Disconnecting”? (Chapter 3)

• revenge Porn and invasion of Privacy (Chapter 6) • riot games, inc., Protects its online video

game Copyrights (Chapter 9) • Hiring Discrimination based on social media

Posts (Chapter 21)

4. Managerial Strategy. These features emphasize the management aspects of business law and the legal environment. Topics include the following:

• should You Consent to Have Your business Case Decided by a u.s. magistrate Judge? (Chapter 4)

• When is a Warning legally bulletproof? (Chapter 7) • The Criminalization of american business

(Chapter 10) • Commercial use of Drones (Chapter 14) • The seC’s Pay-ratio Disclosure rule (Chapter 28)

entire Chapter on Internet Law, social Media, and Privacy The eleventh edition again includes a whole chapter (Chapter 9) on Internet Law, Social Media, and Privacy.

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P R E FA C E xv

Cases and Spotlight Case Problems useful to illustrate the legal concepts under discussion, and students will enjoy studying the cases because they involve interesting and memorable facts. other cases have been chosen as Classic Cases because they establish a legal precedent in a particular area of law.

2. Critical Thinking section. each case concludes with a Critical Thinking section, which normally includes two questions. The questions may address Legal Environment, E-Commerce, Economic, Environmental, Ethical, Global, Political, or Technological issues, or they may ask What If the Facts Were Different? each Classic Case ends with an Impact of This Case on Today’s Law discussion and a Critical Thinking question.

3. Longer excerpts for Case Analysis. We have also included one longer case excerpt in many chapters— labeled Case Analysis—followed by three Legal Reasoning Questions. The questions are designed to guide students’ analysis of the case and build their legal reasoning skills. These Case Analysis features may be used for case-briefing assignments.

suggested answers to all case-ending questions and case problems are included in the Answers Manual for this text.

Business Case Problem with Sample Answer in response to those instructors who would like students to have sample answers available for some of the questions and case problems, we include a Business Case Problem with Sample Answer in each chapter. The Business Case Problem with Sample Answer is based on an actual case, and students can find a sample answer in appendix C at the end of this text.

exhibits and Concept summaries We have spent considerable effort developing and design- ing all of the exhibits and concept summaries in this text to achieve better clarity and more visual appeal.

Practice and Review in the eleventh edition of The Legal Environment of Business, we offer a Practice and Review feature at the end of every chapter to help solidify students’ understanding of the chapter materials. each Practice and Review feature 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.

Examples illustrate how the law applies in a specific situation. Cases in Point present the facts and issues of an actual case and then describe the court’s decision and rationale. These two features are uniquely designed and consecutively numbered throughout each chapter for easy reference. The Examples and Cases in Point are inte- grated throughout the text to help students better under- stand how courts apply legal principles in the real world.

Task-Based Simulations: a new Unit-ending Feature a new Task-Based Simulation feature concludes each of the five units in the eleventh edition. This feature presents a hypothetical business situation and then asks a series of questions about how the law applies to various actions taken by the firm. To answer the questions, the students must apply the laws discussed throughout the unit.

in addition, each unit ends with an Application and Ethics feature that provides additional analysis on a topic related to that unit and explores its ethics ramifications. each of the features ends with two questions—a Critical Thinking question and an Ethics Question. some topics covered include the following:

• one of the biggest Data breaches ever (unit 2) • nondisclosure agreements (unit 3) • Health insurance and small business (unit 4) • Climate Change (unit 5)

suggested answers to the questions in the new Task-Based Simulation features (and the Application and Ethics fea- tures) are included in the Answers Manual for this text.

new Cases and Case Problems For the eleventh edition of The Legal Environment of Business, we have added thirty-one new cases, thirty- five new regular case problems, and twenty-eight new A Question of Ethics case problems from 2017, 2018, and 2019. The new cases and problems have been carefully selected to illustrate important points of law and to be of high interest to students and instructors. We have made it a point to find recent cases that enhance learning and are relatively easy to understand.

1. Spotlight Cases and Classic Cases. Certain cases and case problems that are exceptionally good teaching cases are labeled as Spotlight Cases and Spotlight Case Problems. examples include Spotlight on Beer Labels, Spotlight on Gucci, Spotlight on Nike, Spotlight on the Seattle Mariners and Spotlight on Verizon. instructors will find these Spotlight

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xvi P R E FA C E

and assessments into a singular learning Path, Mind- Tap guides students through their course with ease and engagement.

instructors can personalize the experience by cus- tomizing Cengage learning resources and adding their own content via apps that integrate into the MindTap framework seamlessly with learning management sys- tems (lms).

The MindTap product provides a four-step learn- ing Path, Case repository, adaptive Test Prep, and an interactive ebook designed to meet instructors’ needs while also allowing instructors to measure skills and outcomes with ease. each item is assignable and grad- able. This gives instructors knowledge of class standings and students’ mastery of concepts that may be difficult. additionally, students gain knowledge about where they stand—both individually and compared to the highest performers in class.

Cengage Testing Powered by Cognero Cengage Testing Powered by Cognero is a flexible, online system that allows you to do the following:

• author, edit, and manage Test Bank content from multiple Cengage learning solutions.

• Create multiple test versions in an instant. • Deliver tests from your lms, your classroom,

or wherever you want.

Start Right Away! Cengage Testing Powered by Cog- nero works on any operating system or browser.

• use your standard browser; no special installs or downloads are needed.

• Create tests from school, home, the coffee shop— anywhere with internet access.

What Will You Find? • Simplicity at every step. a desktop-inspired

interface features drop-down menus and familiar intuitive tools that take you through content creation and management with ease.

• Full-featured test generator. Create ideal assessments with your choice of fifteen question types—including true/false, multiple choice, opinion scale/likert, and essay. multi-language support, an equation editor, and unlimited metadata help ensure your tests are complete and compliant.

• Cross-compatible capability. import and export content to and from other systems.

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 prior to completing homework assignments. suggested answers to the questions posed in the Practice and Review fea- tures can be found in the Answers Manual for this text.

Issue Spotters at the conclusion of each chapter, we have included a special section with two Issue Spotters related to the chap- ter’s topics. These questions facilitate student learning and review of the chapter materials. sample answers to the Issue Spotters in every chapter are provided in appen- dix b and in the Answers Manual for this text.

Time-Limited Group Assignment For instructors who want their students to engage in group projects, each chapter of the eleventh edition includes a special Time-Limited Group Assignment. each activity begins by describing a business scenario and then poses several questions pertaining to the scenario. each question is to be answered by a different group of stu- dents based on the information in the chapter. These projects may be used in class to spur discussion or as homework assignments. suggested answers to the Time- Limited Group Assignments are included in the Answers Manual for this text.

supplements/digital Learning systems The Legal Environment of Business, eleventh edition, provides a comprehensive supplements package designed to make the tasks of teaching and learning more enjoy- able and efficient. The following supplements and digital products are offered in conjunction with the text.

MindTap for The Legal Environment of Business MindTap™ for The Legal Environment of Business, eleventh edition, is a fully online, highly personal- ized learning experience built upon Cengage learning content. by combining readings, multimedia, activities,

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P R E FA C E xvii

inquiry, Discussion, Decision, and review.) There is a new exhibit and a new Ethics Today feature that illustrates how to apply the iDDr framework. The step-by-step iDDr approach is then reiterated in the problems labeled A Question of Ethics that appear in every subsequent chapter. There are five new Cases in Point, seven new Examples, a new case, and four new case problems in the chapter. a Digital Update feature explores whether employees have a right to disconnect from their electronic devices after work hours. The chapter concludes with a new Time- Limited Group Assignment on corporate social responsibility.

• Chapter 8 (intellectual Property rights)—The materials on intellectual property rights have been thoroughly revised and updated to reflect the most current laws and trends. a new Global Insight feature discusses confusion in the context of trademark infringement. There is a new case, a new Example, and two new case problems.

• Chapter 9 (internet law, social media, and Privacy)— This chapter, which covers legal issues that are unique to the internet, has been thoroughly revised and updated for the eleventh edition. it includes a new case, four new Cases in Point, and a new Digital Update feature on how copyright law applies to video games.

• Chapter 11 (international and space law)—The chapter now includes a section on space law— international and domestic. There are two new cases presented, as well as an updated discussion of naFTa (now called usmCa) and of a united states supreme Court decision concerning the alien Tort statute. The chapter also includes an updated Ethics Today feature on the domestic brewing of imported beer brands.

• Chapter 14 (sales and lease Contracts)—We have streamlined and simplified our coverage of the uniform Commercial Code and added a new case, a new Example, six new Cases in Point, and one new case problem.

• Chapter 20 (employment law), Chapter 21 (employment Discrimination), and Chapter 22 (immigration and labor law)—These three chapters covering employment law have been thoroughly updated to include discussions of legal issues facing employers today. Chapter 20 a new case, three new Cases in Point, one new Example, and two new case problems. it also includes an Ethics Today feature on whether employees should receive paid bathroom breaks.

Instructor’s Companion Website The instructor’s Companion Website for the eleventh edition of The Legal Environment of Business contains the following supplements:

• Instructor’s Manual. includes sections entitled “additional Cases addressing This issue” at the end of selected case synopses.

• Answers Manual. Provides answers to all questions presented in the text, including the questions in each case and feature, the Practice and Review, the Issue Spotters, the Business Scenarios and Case Problems, and the unit-ending Task-Based Simulation and Application and Ethics features.

• Test Bank. a comprehensive test bank that contains multiple-choice, true/false, and short essay questions.

• Case-Problem Cases. • Case Printouts. • PowerPoint Slides. • Lecture Outlines. • MindTap Integrated Syllabus.

For Users of the Previous edition First of all, we want to thank you for helping make The Legal Environment of Business one of the best-selling legal environment texts in america today. second, we want to make you aware of the numerous additions and changes that we have made in this edition—many in response to comments from reviewers.

every chapter of the eleventh edition has been revised as necessary to incorporate new developments in the law or to streamline the presentations. other major changes and additions for this edition include the following:

• Chapter 2 (business and the Constitution)—The chapter has been revised and updated to be more business oriented. it has a new case, two new case problems, and a new Digital Update feature on a united states supreme Court decision concerning whether everyone has a constitutional right to use social media.

• Chapter 3 (ethics in business)—The chapter contents have been revised and updated to be more practical for businesspersons. a new section introduces a systematic approach to resolving ethical issues called the iDDr approach. (“i Desire to Do right” is a useful mnemonic device for remembering the individual steps:

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xviii P R E FA C E

advertising. it has a new case, three new Cases in Point, and three new case problems.

• Chapter 28 (investor Protection and Corporate governance)—The contents of this chapter have been thoroughly revised and updated in light of the amendments to regulation a (regulation a1). There is a new Digital Update feature titled investment Crowdfunding— regulations and restrictions, as well as a new example and a new exhibit on this topic. in addition, there is a new subsection, a new case, three new Cases in Point, and two new case problems.

Chapter 21 has a new case, five new Cases in Point, a new concept summary, and two new case problems. a revised Digital Update feature discusses hiring discrimination based on social media posts. Chapter 22 includes a new case and a Managerial Strategy feature on union organizing using company e-mail systems. We discuss relevant united states supreme Court decisions affecting employment issues throughout these chapters.

• Chapter 24 (Consumer Protection)—The chapter has been revised and updated and includes a new subsection on state laws concerning false

acknowledgments for Previous editions since we began this project many years ago, a sizable number of legal environment of business professors and others have helped us in revising the book, including the following:

Peter W. Allan Victor Valley College, California

William Dennis Ames Indiana University of Pennsylvania

Thomas M. Apke California State University, Fullerton

Linda Axelrod Metropolitan State University, Minnesota

Jane Bennett Orange Coast College, California

Robert C. Bird University of Connecticut

Dean Bredeson University of Texas at Austin

Sam Cassidy University of Denver, Colorado

Thomas D. Cavenagh North Central College, Illinois

Angela Cerino Villanova University, Pennsylvania

Corey Ciocchetti University of Denver, Colorado

David Cooper Fullerton College, California

Steven R. Donley Cypress College, California

Paul F. Dwyer Siena College, New York

Nena Ellison Florida Atlantic University

Joan Gabel Florida State University

Gamewell Gant Idaho State University

Jacqueline Hagerott Franklin University, Ohio

Arlene M. Hibschweiler State University of New York at Fredonia

Barbara W. Kincaid Southern Methodist University, Texas

Marty P. Ludlum Oklahoma City Community College

Diane May Winona State University, Minnesota

Marty Salley McGee South Carolina State University

Robert Mitchum Arkansas State University Beebe

Melanie Morris Raritan Valley Community College, New Jersey

Kathleen A. Phillips University of Houston, Texas

David Redle University of Akron, Ohio

Larry A. Strate University of Nevada, Las Vegas

Dawn Swink Minnesota State University

Brian Terry Johnson and Wales University, Rhode Island

John Theis Colorado Mesa University

William H. Volz Wayne State University, Michigan

Michael G. Walsh Villanova University, Pennsylvania

Glynda White College of Southern Nevada

LeVon E. Wilson Western Carolina University, North Carolina

John A. Wrieden Florida International University

Eric D. Yordy Northern Arizona University

Mary-Kathryn Zachary State University of West Georgia

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P R E FA C E xix

as in all past editions, we owe a debt of extreme grat- itude to the numerous individuals who worked directly with us or at Cengage. in particular, we wish to thank vicky True-baker and michael giffen, senior product managers; Joe sabatino, product director; martha Con- way and Julia Chase, senior content managers; and lisa elliot, Cengage subject matter expert. We also thank sarah Huber and Courtney Wolstoncroft, learning designers; Jennifer Chinn and stephen mcmillian, digital delivery leads; Christian Wood and nick Perez, product assistants; Chris Doughman, designer; Carly belcher, intellectual property project manager; and ashley maynard, intellec- tual property analyst. We are indebted as well to the staff at sPi global, our compositor, as well as ann borman, project manager, for accurately generating pages for this text and making it possible for us to meet our ambitious schedule for print and digital products.

We especially wish to thank Katherine marie silsbee for her management of the entire project, as well as for the

application of her superb research and editorial skills. We also wish to thank William eric Hollowell, who coau- thored the Instructor’s Manual and the Test Bank, for his excellent research efforts. We were fortunate enough to have the copyediting of Jeanne Yost and the proofreading of Kristi Wiswell. We are grateful for the many efforts of vickie reierson, roxanna lee, and suzanne Jasin, which helped to ensure an error-free text.

Through the years, we have enjoyed an ongoing cor- respondence with many of you who have found points on which you wish to comment. We continue to wel- come all comments and promise to respond promptly. by incorporating your ideas, we can continue to write a legal environment text that is best for you and best for your students.

F.b.C. r.l.m.

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To my parents and sisters. F.B.C.

For Vicky, We’ve had so many years

working together, and they have been wonderful,

productive, and exciting. I have always valued your professionalism.

R.L.M.

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The Foundations

Unit One

1. Law and Legal Reasoning

2. Business and the Constitution

3. Ethics in Business

4. Courts and Alternative Dispute Resolution

5. Court Procedures

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2

your critical-thinking and legal-reasoning skills. The laws may change, but the ability to analyze and evaluate the legal (and ethical) ramifications of situations as they arise is an invaluable and lasting skill.

1–1a Many Different Laws May Affect a Single Business Decision

As you will note, each chapter in this text covers specific areas of the law and shows how the legal rules in each area affect business activities. Although compartmental- izing the law in this fashion promotes conceptual clarity, it does not indicate the extent to which a number of dif- ferent laws may apply to just one decision. Exhibit 1–1 illustrates the various areas of the law that may influence business decision making.

■ Example 1.1 When Mark Zuckerberg, as a Harvard student, first launched Facebook, others claimed that Zuckerberg had stolen their ideas for a social networking

1–1 Business Activities and the Legal Environment

Laws and government regulations affect almost all business activities—from hiring and firing decisions to workplace safety, the manufacturing and marketing of products, business financing, and more. To make good business decisions, a basic knowledge of the laws and regulations governing these activities is beneficial—if not essential.

Realize also that, in today’s business world, knowing what conduct can lead to legal liability is not enough. Businesspersons must develop critical thinking and legal reasoning skills so that they can evaluate how various laws might apply to a given situation and determine the best course of action.

Our goal in this text is not only to teach you about specific laws, but also to teach you how to think about the law and the legal environment and to develop

C h a p t e r 1

O ne of the most important func- tions of law in any society is to provide stability, predictability,

and continuity so that people can know how to order their affairs. If any society is to survive, its citizens must be able to determine what is legally right and legally wrong. They must know what sanctions will be imposed on them if they commit wrongful acts. If they suf- fer harm as a result of others’ wrong- ful acts, they must know how they can seek compensation. By setting forth the rights, obligations, and privileges of citi- zens, the law enables individuals to go about their business with confidence and a certain degree of predictability.

Although law has various defini- tions, they all are based on the gen- eral observation that law consists of

enforceable rules governing relation- ships among individuals and between individuals and their society. In some societies, these enforceable rules may consist of unwritten principles of behavior. In other societies, they are set forth in ancient or contemporary law codes. In the United States, our rules consist of written laws and cour decisions created by modern legislative and judicial bodies. Regardless of how such rules are created, they all have one feature in common: they establish rights, duties, and privileges that are consistent with the values and beliefs of their society or its ruling group.

In this introductory chapter, we look at how business law and the legal environment affect business decisions. For instance, suppose that

Hellix Communications, Inc., wants to buy a competing cellular company. It also wants to offer unlimited data plans once it has acquired this com- petitor. Management fears that if the company does not expand, one of its bigger rivals will put it out of business. But Hellix Communications cannot simply buy its rivals. Nor can it just offer a low-cost cell-phone plan to its customers. It has to follow the laws pertaining to its proposed actions. Some of these laws (or regu- lations) depend on interpretations by those running various regulatory agencies. The rules that control Hellix Communications’ actions reflect past and current thinking about how large telecommunications companies should and should not act.

Law and Legal Reasoning

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C h a p t e r 1 Law and Legal Reasoning 3

site. They filed a lawsuit against him alleging theft of intellectual property, fraudulent misrepresentation, and violations of partnership law and securities law. Facebook ultimately paid $65 million to settle those claims out of court. Since then, Facebook has been sued repeatedly for violating users’ privacy (and federal laws) by tracking their website usage and by scanning private messages for pur- poses of data mining and user profiling. Facebook’s busi- ness decisions have also come under scrutiny by federal regulators, such as the Federal Trade Commission (FTC), and by international authorities, such as the European Union. The company settled a complaint filed by the FTC alleging that Facebook had failed to keep “friends” lists and other user information private. ■

1–1b Ethics and Business Decision Making Merely knowing the areas of law that may affect a busi- ness decision is not sufficient in today’s business world. Today, business decision makers need to consider not just whether a decision is legal, but also whether it is ethical.

Ethics generally is defined as the principles govern- ing what constitutes right or wrong behavior. Often, as in several of the claims against Facebook just discussed, disputes arise in business because one party feels that he or she has been treated unfairly. Thus, the underlying reason for bringing some lawsuits is a breach of ethical duties (such as when a partner or employee attempts to secretly take advantage of a business opportunity).

Throughout this text, you will learn about the relation- ship between the law and ethics, as well as about some of

the types of ethical questions that arise in business. For instance, all of the unit-ending Application and Ethics fea- tures include an Ethical Connection section that explores the ethical dimensions of a topic treated within the unit. We have also included Ethical Questions for each unit, as well as within many of the cases presented in this text. Ethics Today features, which focus on ethical considerations in today’s business climate, appear in selected chapters, including this chapter. A Question of Ethics case problem is included at the end of every chapter to introduce you to the ethical aspects of specific cases involving real-life situations.

1–2 Sources of American Law American law has numerous sources. Often, these sources of law are classified as either primary or secondary.

Primary sources of law, or sources that establish the law, include the following: 1. The U.S. Constitution and the constitutions of the

various states. 2. Statutory law—including laws passed by Congress,

state legislatures, or local governing bodies. 3. Regulations created by administrative agencies, such

as the Federal Trade Commission. 4. Case law and common law doctrines. Next, we will describe each of these important sources of law.

Secondary sources of law are books and articles that summarize and clarify the primary sources of law.

E x h i b i t 1 – 1 Areas of the Law That Can Affect Business Decision Making

Business Decision Making

Intellectual Property

Contracts

Environmental Law and Sustainability

Internet Law, Social Media, and Privacy

Product Liability

Torts

Sales

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4 U n i t O n e The Foundations

enforcement officials are supposed to alert federal immi- gration authorities when they come into contact with undocumented immigrants, so that the immigrants can be detained for possible deportation. But a number of cities across the United States have adopted either local ordinances or explicit policies that do not follow this pro- cedure. Police in these cities often do not ask or report the immigration status of individuals with whom they come into contact. Other places refuse to detain undocumented immigrants who are accused of low-level offenses. ■

Uniform Laws During the 1800s, the differences among state laws frequently created difficulties for busi- nesspersons conducting trade and commerce among the states. To counter these problems, a group of legal scholars and lawyers formed the National Conference of Commissioners on Uniform State Laws, or NCCUSL (www.uniformlaws.org), in 1892. The NCCUSL still exists today. Its object is to draft uniform laws (model statutes) for the states to consider adopting.

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 adopted in every state by the 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, more than two hundred uniform acts have been issued by the NCCUSL since its inception. The most ambitious uniform act of all, however, was the Uniform Commercial Code.

The Uniform Commercial Code One of the most important uniform acts is the Uniform Commercial Code (UCC), which was created through the joint efforts of the NCCUSL and the American Law Institute.1 The UCC was first issued in 1952 and 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. Because of its importance in the area of commercial law, we cite the UCC frequently in this text.

1. This institute was formed in the 1920s and consists of practicing attorneys, legal scholars, and judges.

2. Louisiana has not adopted Articles 2 and 2A (covering contracts for the sale and lease of goods), however.

Examples include legal encyclopedias, treatises, articles in law reviews, and compilations of law, such as the Restatements of the Law (which will be discussed later). Courts often refer to secondary sources of law for guid- ance in interpreting and applying the primary sources of law discussed here.

1–2a Constitutional Law The federal government and the states have separate written constitutions that set forth the general organiza- tion, powers, and limits of their respective governments. Constitutional law is the law as expressed in these constitutions.

According to Article VI of the U.S. Constitution, the Constitution is the supreme law of the land. As such, it is the basis of all law in the United States. A law in viola- tion of the Constitution, if challenged, will be declared unconstitutional and will not be enforced, no matter what its source.

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 consti- tution. Unless it conflicts with the U.S. Constitution or a federal law, a state constitution is supreme within the state’s borders.

1–2b Statutory Law Laws enacted by legislative bodies at any level of gov- ernment, such as statutes passed by Congress or by state legislatures, make up the body of law known as statutory law. When a legislature passes a statute, that statute ultimately is included in the federal code of laws or the relevant state code of laws.

Statutory law also includes local ordinances—regu- lations passed by municipal or county governing units to deal with 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 community.

A federal statute, of course, applies to all states. A state statute, in contrast, applies only within the state’s bor- ders. 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. Con- stitution or the relevant state constitution.

Statutory Conflicts Tension may sometimes arise between federal, state, and local laws. ■ Example 1.2 This tension is evident in the national debate over so-called sanctuary cities—cities that limit their cooperation with federal immigration authorities. Normally, local law

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C h a p t e r 1 Law and Legal Reasoning 5

power is less pronounced in regard to independent agen- cies, 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 Envi- ronmental Protection Agency). Just as federal statutes take precedence over conflicting state statutes, federal agency reg- ulations take precedence over conflicting state regulations.

1–2d Case Law and Common Law Doctrines The rules of law announced in court decisions consti- tute another basic source of American law. These rules include interpretations of constitutional provisions, of statutes enacted by legislatures, and of regulations cre- ated 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 char- acteristics of the common law tradition in some detail in the pages that follow.

See Concept Summary 1.1 for a review of the sources of American law.

1–2c Administrative Law Another important source of American law is admin- istrative 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. Administra- tive law and procedures constitute a dominant element in the regulatory environment of business.

Rules issued by various administrative agencies now affect almost every aspect of a business’s operations. Reg- ulations govern a business’s capital structure and financ- ing, its hiring and firing procedures, its relations with employees and unions, and the way it manufactures and markets its products. Regulations enacted to protect the environment also often play a significant role in business operations.

Federal Agencies At the national level, the cabinet departments of the executive branch include numerous executive agencies. The U.S. Food and Drug Adminis- tration, for instance, is an agency within the U.S. Depart- ment of Health and Human Services. Executive agencies are subject to the authority of the president, who has the power to appoint and remove their officers.

There are also major independent regulatory agencies at the federal level, such as the Federal Trade Commis- sion, the Securities and Exchange Commission, and the Federal Communications Commission. The president’s

ETHICS TODAY

Law as expressed in the U.S. Constitution or 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 conflict with the U.S. Constitution.

Sources of American Law

The rules, orders, and decisions of federal, state, and local administrative agencies.

Administrative Law

Judge-made law, including interpretations of constitutional provisions, of statutes enacted by legislatures, and of regulations created by administrative agencies.

Case Law and Common Law Doctrines

Constitutional Law

Statutory Law Statutes (including uniform laws) and ordinances enacted by federal, state, and local legislatures. Federal statutes may not violate the U.S. Constitution. State statutes and local ordinances may not violate the U.S. Constitution or the relevant state constitution.

Concept Summary 1.1

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6 U n i t O n e The Foundations

and fair dealing—that seeks to supply a remedy when no adequate remedy at law is available.

Remedies in Equity The remedies granted by the equity courts became known as remedies in equity, or equitable remedies. These remedies include specific per- formance, injunction, and rescission. Specific performance involves ordering a party to perform an agreement as promised. An injunction is an order to a party to cease engaging in a specific activity or to undo some wrong or injury. Rescission is the cancellation of a contractual obli- gation. We will discuss these and other equitable remedies in more detail in later chapters.

As a general rule, today’s courts, like the early English courts, will not grant equitable remedies unless the remedy at law—monetary damages—is inade- quate. ■ Example 1.3 Ted forms a contract (a legally binding agreement) to purchase a parcel of land that he thinks will be perfect for his future home. The seller breaches (fails to fulfill) this agreement. Ted could sue the seller for the return of any deposits or down pay- ment he might have made on the land, but this is not the remedy he really wants. What Ted wants is to have a court order the seller to perform the contract. In other words, Ted will seek the equitable remedy of specific per- formance because monetary damages are inadequate in this situation. ■

Equitable Maxims In fashioning appropriate rem- edies, judges often were (and continue to be) guided by so-called equitable maxims—propositions or general statements of equitable rules. Exhibit 1–2 lists some important equitable maxims.

The last maxim listed in the exhibit—“Equity aids the vigilant, not those who rest on their rights”— merits special attention. It has become known as the equitable doctrine of laches (a term derived from the Latin laxus, meaning “lax” or “negligent”), and it can be used as a defense. A defense is an argument raised by the defendant (the party being sued) indicating why the plaintiff (the suing party) should not obtain the remedy sought. (Note that in equity proceedings, the party bringing a lawsuit is called the petitioner, and the party being sued is referred to as the respondent.)

The doctrine of laches arose to encourage people to bring lawsuits while the evidence was fresh. What consti- tutes 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

1–3 The Common Law Tradition Because of our colonial heritage, much of American law is based on the English legal system. Knowledge of this tradition is crucial to understanding our legal system today because judges in the United States still apply com- mon law principles when deciding cases.

1–3a Early English Courts 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 set- tled 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 customs for the country as a whole. What evolved in these courts was the begin- ning 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 of Law and Remedies at Law The early English king’s courts could grant only very limited kinds of remedies (the legal means to enforce a right or redress a wrong). If one person wronged another in some way, the king’s courts could award as compensation one or more of the following: (1) land, (2) items of value, or (3) money.

The courts that awarded this compensation became known as courts of law, and the three remedies were called remedies at law. (Today, the remedy at law nor- mally takes the form of monetary damages—an amount given to a party whose legal interests have been injured.) This system made the procedure for settling disputes more uniform. When a complaining party wanted a rem- edy other than economic compensation, however, the courts of law could do nothing, so “no remedy, no right.”

Courts of Equity 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 a chancellor, who had the power to grant new and unique remedies. Eventually, formal chancery courts, or courts of equity, were established. Equity is a branch of law—founded on notions of justice

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C h a p t e r 1 Law and Legal Reasoning 7

1–3c The Doctrine of Stare Decisis One of the unique features of the common law is that it is judge-made law. The body of principles and doctrines that form the common law emerged over time as judges decided legal controversies.

Case Precedents and Case Reporters When possible, judges attempted to be consistent and to base their decisions on the principles suggested by earlier cases. They sought to decide similar cases in a similar way, and they considered new cases with care because they knew that their decisions would make new law. Each interpretation became part of the law on the sub- ject and thus served as a legal precedent. A precedent is a decision that furnishes an example or authority for deciding subsequent cases involving identical or similar legal principles or facts.

In the early years of the common law, there was no single place or publication where court opinions, or writ- ten decisions, could be found. By the fourteenth century, portions of the most important decisions from each year were being gathered together and recorded in Year Books, which became useful references for lawyers and judges. In the sixteenth century, the Year Books were discontinued,

expired, no action (lawsuit) can be brought, no matter how strong the case was originally.

1–3b Legal and Equitable Remedies Today The establishment of courts of equity in medieval England resulted in two distinct court systems: courts of law and courts of equity. The courts had different sets of judges and granted different types of remedies. During the nine- teenth century, however, most states in the United States adopted rules of procedure that resulted in the combin- ing of courts of law and equity. A party now may request both legal and equitable remedies in the same action, and the trial court judge may grant either or both forms of relief.

The distinction between legal and equitable remedies remains relevant to students of business law, however, because these remedies differ. To seek the proper remedy for a wrong, you must know what remedies are available. Additionally, certain vestiges of the procedures used when there were separate courts of law and equity still exist. For instance, a party has the right to demand a jury trial in an action at law, but not in an action in equity. Exhibit 1–3 summarizes the procedural differences (applicable in most states) between an action at law and an action in equity.

E x h i b i t 1 – 2 Equitable 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. (The plaintiff 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.)

E x h i b i t 1 – 3 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 or property Injunction, specific performance, or rescission

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8 U n i t O n e The Foundations

feature for a discussion of how courts often defer to case precedent even when they disagree with the reasoning in the case.

Although courts are obligated to follow precedents, sometimes a court will depart from the rule of precedent if it decides that the precedent should no longer be fol- lowed. If a court decides that a ruling precedent is sim- ply 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.

■ Case in Point 1.4 The United States Supreme Court expressly overturned precedent in the case of Brown v. Board of Education of Topeka.4 The Court con- cluded that separate educational facilities for whites and blacks, which it had previously upheld as constitutional,5 were inherently unequal. The Supreme Court’s departure from precedent in this case received a tremendous amount of publicity as people began to realize the rami- fications of this change in the law. ■

Note that a lower court will sometimes avoid apply- ing a precedent set by a higher court in its jurisdiction by distinguishing the two cases based on their facts. When this happens, the lower court’s ruling stands unless it is appealed to a higher court and that court overturns the decision.

When There Is No Precedent Occasionally, courts must decide cases for which no precedents exist, called cases of first impression. For instance, as you will read throughout this text, the Internet and certain other tech- nologies have presented many new and challenging issues for the courts to decide.

In deciding cases of first impression, courts often look at persuasive authorities—legal authorities that a court may consult for guidance but that are not binding on the court. A court may consider precedents from other jurisdictions, for instance, although those prece- dents are not binding. A court may also consider legal principles and policies underlying previous court deci- sions or existing statutes. Additionally, a court might look at issues of fairness, social values and customs, and public policy (governmental policy based on widely held societal values). Today, federal courts can also look at unpublished opinions (those not intended for publica- tion in a printed legal reporter) as sources of persuasive authority.6

4. 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954). 5. See Plessy v. Ferguson, 163 U.S. 537, 16 S.Ct. 1138, 41 L.Ed. 256 (1896). 6. See Rule 32.1 of the Federal Rules of Appellate Procedure.

and other forms of case publication became available. Today, cases are published, or “reported,” in volumes called reporters, or reports—and are also posted online. We describe today’s case reporting system in detail later in this chapter.

Stare Decisis and the Common Law Tradition The practice of deciding new cases with reference to for- mer decisions, or precedents, became a cornerstone of the English and American judicial systems. The practice formed a doctrine known as stare decisis,3 a Latin phrase meaning “to stand on decided cases.”

Under the doctrine of stare decisis, judges are obli- gated to follow the precedents established within their jurisdictions. The term jurisdiction refers to a geographic area in which a court or courts have the power to apply the law. Once a court has set forth a principle of law as being applicable to a certain set of facts, that court must apply the principle in future cases involving similar facts. Courts of lower rank (within the same jurisdiction) must do likewise. Thus, stare decisis has two aspects: 1. A court should not overturn its own precedents

unless there is a compelling reason to do so. 2. Decisions made by a higher court are binding on

lower courts.

Controlling Precedents Precedents that must be followed within a jurisdiction are called controlling precedents. Controlling precedents are a type of bind- ing authority. A binding authority is any source of law that a court must follow when deciding a case. Bind- ing authorities include constitutions, statutes, and regu- lations that govern the issue being decided, as well as court decisions that are controlling precedents within the jurisdiction. United States Supreme Court case deci- sions, no matter how old, remain controlling until they are overruled by a subsequent decision of the Supreme Court or changed by further legislation or a constitu- tional amendment.

Stare Decisis and Legal Stability The doctrine of stare decisis helps the courts to be more efficient because, if other courts have analyzed 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 subject is well settled, someone bringing a case can usually rely on the court to rule based on what the law has been in the past. See this chapter’s Ethics Today

3. Pronounced stahr-ee dih-si-sis.

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C h a p t e r 1 Law and Legal Reasoning 9

Ethics Today Stare Decisis versus Spider-Man

Supreme Court Justice Elena Kagan, in a recent decision involving Marvel Comics’ Spider-Man, ruled that, “What we can decide, we can undecide. But stare decisis teaches that we should exercise that authority sparingly.” Citing a Spider-Man comic book, she went on to say that “in this world, with great power there must also come—great responsibility.”a In its decision in the case—Kimble v. Marvel Entertainment, LLC— the Supreme Court applied stare decisis and ruled against Stephen Kimble, the creator of a toy related to the Spider-Man figure.b

Can a Patent Involving Spider-Man Last Super Long? A patent is an exclusive right granted to the creator of an invention. Under U.S. law, patent owners gener- ally possess that right for twenty years. Patent holders can license the use of their patents as they see fit dur- ing that period. In other words, they can allow others (called licensees) to use their invention in return for a fee (called royalties).

More than fifty years ago, the Supreme Court ruled in its Brulotte decision that a licensee cannot be forced to pay royalties to a patent holder after the patent has expired.c So if a licensee signs a contract to continue to pay royalties after the patent has expired, the contract is invalid and thus unenforceable.

At issue in the Kimble case was a contract signed between Marvel Entertainment and Kimble, who had invented a toy made up of a glove equipped with a valve and a canister of pressurized foam. The patented toy allowed people to shoot fake webs intended to look like Spider-Man’s. In 1990, Kimble tried to cut a deal with Marvel Entertainment concerning his toy, but he was unsuccessful. Then Marvel started selling its own version of the toy.

a. Lee, S., Spider-Man: Amazing Fantasy, No. 15 (New York: Marvel Comics, 1962).

b. 576 U.S. __,135 S.Ct. 2401, 192 L.Ed.2d 463 (2015). Also see Nautilus, Inc. v. ICON Health & Fitness, Inc., 304 F.Supp.3d 552 (W.D.Texas—San Antonio 2018).

c. Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176 (1964).

When Kimble sued Marvel for patent infringement, he won. The result was a settlement that involved a licensing agreement between Kimble and Marvel with a lump-sum payment plus a royalty to Kimble of 3 percent of all sales of the toy. The agreement did not specify an end date for royalty payments to Kimble, and Marvel later sued to have the payments stop after the patent expired, consistent with the Court’s earlier Brulotte decision.

A majority of the Supreme Court justices agreed with Marvel. As Justice Kagan said in the opinion, “Patents endow their holders with certain super powers, but only for a limited time.” The court further noted that the fifty-year-old Brulotte decision was perhaps based on what today is an outmoded understanding of economics. That decision, according to some, may even hinder competition and innovation. But “respecting stare decisis means sticking to some wrong decisions.”

The Ethical Side In a dissenting opinion, Supreme Court Justice Samuel A. Alito, Jr., said, “The decision interferes with the ability of parties to negotiate licensing agreements that reflect the true value of a patent, and it disrupts contractual expectations. Stare decisis does not require us to retain this baseless and damaging precedent. . . . Stare decisis is important to the rule of law, but so are correct judicial decisions.”

In other words, stare decisis holds that courts should adhere to precedent in order to promote predictability and consistency. But in the business world, shouldn’t parties to contracts be able to, for example, allow a patent licensee to make smaller royalty payments that exceed the life of the patent? Isn’t that a way to reduce the yearly costs to the licensee? After all, the licensee may be cash-strapped in its initial use of the patent. Shouldn’t the parties to a contract be the ones to decide how long the contract should last?

Critical Thinking When is the Supreme Court justified in not following the doctrine of stare decisis?

1–3d Stare Decisis and Legal Reasoning In deciding what law applies to a given dispute and then applying that law to the facts or circumstances of the case, judges rely on the process of legal reasoning. Through the use of legal reasoning, judges harmonize

their decisions with those that have been made before, as the doctrine of stare decisis requires.

Students of business law and the legal environment also engage in legal reasoning. You may be asked to pro- vide answers for some of the case problems that appear

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10 U n i t O n e The Foundations

are ever identical in all respects. Normally, judges (and lawyers and law students) try to find cases on point—previously decided cases that are as similar as possible to the one under consideration.

4. Conclusion—What conclusion should be drawn? This step normally presents few problems. Usually, the conclusion is evident if the previous three steps have been followed carefully.

There Is No One “Right” Answer Many people believe that there is one “right” answer to every legal ques- tion. In most legal controversies, however, there is no sin- gle correct result. Good arguments can usually be made to support either side of a legal controversy. Quite often, a case does not involve a “good” person suing a “bad” per- son. In many cases, both parties have acted in good faith in some measure or in bad faith to some degree. Addition- ally, each judge has her or his own personal beliefs and philosophy. At least to some extent, these personal factors shape the legal reasoning process. In short, the outcome of a particular lawsuit before a court cannot be predicted with certainty.

1–3e The Common Law Today Today, the common law derived from judicial decisions continues to be applied throughout the United States. Common law doctrines and principles, however, govern only areas not covered by statutory or administrative law. In a dispute concerning a particular employment practice, for instance, if a statute regulates that practice, the statute will apply rather than the common law doctrine that applied before the statute was enacted. The common law tradition and its application are reviewed in Concept Summary 1.2.

Courts Interpret Statutes Even in areas governed by statutory law, judge-made law continues to be impor- tant because there is a significant interplay between statutory law and the common law. For instance, many statutes essentially codify existing common law rules, and regulations issued by various administrative agencies usually are based, at least in part, on common law prin- ciples. Additionally, the courts, in interpreting statutory law, often rely on the common law as a guide to what the legislators intended. Frequently, the applicability of a newly enacted statute does not become clear until a body of case law develops to clarify how, when, and to whom the statute applies.

Clearly, a judge’s function is not to make the laws—that is the function of the legislative branch of government—but to interpret and apply them. From a

at the end of every chapter in this text. Each problem describes the facts of a particular dispute and the legal question at issue. If you are assigned a case problem, you will be asked to determine how a court would answer that question, and why. In other words, you will need to give legal reasons for whatever conclusion you reach. We look next at the basic steps involved in legal reasoning and then describe some forms of reasoning commonly used by the courts in making their decisions.

Basic Steps in Legal Reasoning At times, the legal arguments set forth in court opinions are rela- tively simple and brief. At other times, the arguments are complex and lengthy. Regardless of the length of a legal argument, however, the basic steps of the legal rea- soning process remain the same. These steps, which you can also follow when analyzing cases and case problems, form what is commonly referred to as the IRAC method of legal reasoning. IRAC is an acronym formed from the first letters of the words Issue, Rule, Application, and Conclusion. To apply the IRAC method, you ask the fol- lowing questions: 1. Issue—What are the key facts and issues? Sup-

pose that a plaintiff comes before the court claiming assault (words or acts that wrongfully and intention- ally make another person fearful of immediate phys- ical harm). The plaintiff claims that the defendant threatened her while she was sleeping. Although the plaintiff was unaware that she was being threatened, her roommate heard the defendant make the threat. The legal issue is whether the defendant’s action constitutes the tort of assault, given that the plaintiff was unaware of that action at the time it occurred. (A tort is a wrongful act. As you will see later, torts fall under the governance of civil law rather than criminal law.)

2. Rule—What rule of law applies to the case? A rule of law may be a rule stated by the courts in previous decisions, a state or federal statute, or a state or federal administrative agency regulation. In our hypothetical case, the plaintiff alleges (claims) that the defendant committed a tort. Therefore, the applicable law is the common law of torts—specifically, tort law govern- ing assault. Case precedents involving similar facts and issues thus would be relevant. Often, more than one rule of law will be applicable to a case.

3. Application—How does the rule of law apply to the particular facts and circumstances of this case? This step is often the most difficult because each case presents a unique set of facts, circumstances, and parties. Although cases may be similar, no two cases

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C h a p t e r 1 Law and Legal Reasoning 11

1–4 Schools of Legal Thought How judges apply the law to specific cases, including dis- putes relating to the business world, depends in part on their philosophical approaches to law. Thus, the study of law, or jurisprudence, involves learning about different schools of legal thought and how the approaches to law characteristic of each school can affect judicial decision making.

1–4a The Natural Law School An age-old question about the nature of law has to do with the finality of a nation’s laws. What if a particular law is deemed to be a “bad” law by a substantial number of the nation’s citizens? Must they obey that law? Accord- ing to the natural law theory, a higher, or universal, law exists that applies to all human beings. Each written law should reflect the principles inherent in natural law. If it does not, then it loses its legitimacy and need not be obeyed.

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.

practical point of view, however, the courts play a signif- icant role in defining the laws enacted by legislative bod- ies, which tend to be expressed in general terms. Judges thus have some flexibility in interpreting and applying the law. It is because of this flexibility that different courts can, and often do, arrive at different conclusions in cases that involve nearly identical issues, facts, and applicable laws.

Restatements of the Law Clarify and Illustrate the Common Law The American Law Institute (ALI) has published compilations of the common law called Restatements of the Law, which generally summarize the common law rules followed by most states. There are Restatements of the Law in the areas of contracts, torts, agency, trusts, property, restitution, security, judgments, and conflict of laws. The Restatements, like other second- ary sources of law, do not in themselves have the force of law, but they are an important source of legal analysis and opinion. Hence, judges often rely on them in making decisions.

Many of the Restatements are now in their second, third, or fourth editions. We refer to the Restatements frequently in subsequent chapters of this text, indicat- ing in parentheses the edition to which we are referring. For instance, we refer to the third edition of the Restate- ment of the Law of Contracts as simply the Restatement (Third) of Contracts.

ETHICS TODAY

The Common Law Tradition

The American legal system is based on the common law tradition, which originated in medieval England.

Remedies at law (land, items of value, or money) and remedies in equity (including specific performance, injunction, and rescission of a contractual obligation) originated in the early English courts of law and courts of equity, respectively.

Case Precedents and the Doctrine of Stare Decisis

In the king’s courts, judges attempted to make their decisions consistent with previous decisions, called precedents. This practice gave rise to the doctrine of stare decisis. This doctrine, which became a cornerstone of the common law tradition, obligates judges to abide by precedents established in their jurisdictions.

Concept Summary 1.2

Origins of Common Law

The common law governs all areas not covered by statutory law or administrative laws. Courts interpret statutes and regulations.

Common Law Today

Legal and Equitable Remedies

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12 U n i t O n e The Foundations

is shaped by social forces and needs. Because the law is a human enterprise, this school reasons that 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, different judges will obviously bring differ- ent reasoning processes to the same case. Female judges, for instance, might be more inclined than male judges to consider whether a decision might have a negative impact on the employment of women or minorities.

Legal realism strongly influenced the growth of what is sometimes called the sociological school, which views law as a tool for promoting justice in society. In the 1960s, for instance, the justices of the United States Supreme Court helped advance the civil rights movement by upholding long-neglected laws calling for equal treatment for all Americans, including African Americans and other minor- ities. Generally, jurists who adhere to this philosophy of law are more likely to depart from past decisions than are jurists who adhere to other schools of legal thought.

Concept Summary 1.3 reviews the schools of juris- prudential thought.

1–5 Classifications of Law The law may be broken down according to several clas- sification systems. One system, for instance, divides law into substantive law and procedural law. Substantive law consists of all laws that define, describe, regulate, and create legal rights and obligations. Procedural law consists of all laws that outline the methods of enforcing the rights established by substantive law.

Note that many statutes contain both substantive and procedural provisions. ■ Example 1.5 A state law that provides employees with the right to workers’ compensa- tion benefits for on-the-job injuries is a substantive law because it creates legal rights. Procedural laws estab- lish the method by which an employee must notify the employer about an on-the-job injury, prove the injury, and periodically submit additional proof to continue receiving workers’ compensation benefits. ■

Other classification systems divide law into federal law and state law, private law (dealing with relationships between private entities) and public law (addressing the relationship between persons and their governments), and national law and international law. Here we look at still another classification system, which divides law into civil law and criminal law. We also explain what is meant by the term cyberlaw.

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, for instance, are implicitly appeal- ing 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 busi- ness operations. 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.

1–4b The Positivist School Positive law, or national law, is the written law of a given society at a particular time. In contrast to natural law, it 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 are no “natu- ral 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 who takes this view will probably be more inclined to defer to an existing law than would a judge who adheres to the natural law tradition.

1–4c The Historical School The historical school of legal thought emphasizes the evolutionary process of law by concentrating on the ori- gin and history of the legal system. This school looks to the past 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 strictly fol- low decisions made in past cases.

1–4d Legal Realism In the 1920s and 1930s, a number of jurists and schol- ars, 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

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C h a p t e r 1 Law and Legal Reasoning 13

modifications of traditional laws that relate to the online environment. 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.

1–6 How to Find Primary Sources of Law

This text includes numerous references, or citations, to primary sources of law—federal and state statutes, the U.S. Constitution and state constitutions, regulations issued by administrative agencies, and court cases. A citation iden- tifies the publication in which a legal authority—such as a statute or a court decision or other source—can be found. In this section, we explain how you can use citations to find primary sources of law. Note that in addition to being pub- lished in sets of books, as described next, most federal and state laws and case decisions are available online.

1–6a Finding Statutory and Administrative Law

When Congress passes laws, they are collected in a pub- lication 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.

1–5a Civil Law and Criminal Law Civil law spells out the rights and duties that exist between persons and between persons and their govern- ments, as well as the relief available when a person’s rights are violated. Typically, in a civil case, a private party sues another private party who has failed to comply with a duty. (Note that the government can also sue a party for a civil law violation.) Much of the law that we discuss in this text is civil law, including contract law and tort law.

Criminal law, in contrast, is concerned with wrongs committed against the public as a whole. Criminal acts are defined and prohibited by local, state, or federal govern- ment statutes. Criminal defendants are thus prosecuted by public officials, such as a district attorney (D.A.), on behalf of the state, not by their victims or other pri- vate parties. Some statutes, such as those protecting the environment or investors, have both civil and criminal provisions.

1–5b Cyberlaw The use of the Internet to conduct business has led to new types of legal issues. In response, courts have had to adapt traditional laws to unique situations. Addition- ally, legislatures at both the federal and the state levels have created laws to deal specifically with such issues.

Frequently, people use the term cyberlaw to refer to the emerging body of law that governs transactions con- ducted via the Internet. Cyberlaw is not really a classifica- tion of law, though, nor is it a new type of law. Rather, it is an informal term used to refer to both new laws and

ETHICS TODAY

Schools of Jurisprudential Thought

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.

Concept Summary 1.3

Natural Law 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.

Historical School

A school of legal thought that advocates a less abstract and more realistic and pragmatic approach to the law, taking into account customary practices and the circumstances surrounding the particular transaction.

Legal Realism

A school of legal thought centered on the assumption that there is no law higher than the laws created by the government.

 

Positivist School

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14 U n i t O n e The Foundations

Section 230.504” means that the rule can be found in Section 230.504 of Title 17. ■

1–6b Finding Case Law Before discussing the case reporting system, we need to look briefly at the court system. There are two types of courts in the United States, federal courts and state courts. Both systems consist of several levels, or tiers, of courts. Trial courts, in which evidence is presented and testimony given, are on the bottom tier. Decisions from a trial court can be appealed to a higher court, which commonly is an intermediate court of appeals, or appellate court. Deci- sions 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 deci- sions are not published in books (except in New York and a few other states, which publish selected trial court opinions). Decisions from state trial courts are typically filed in the office of the clerk of the court, where the deci- sions are available for public inspection. (Increasingly, they can be found online as well.)

Written decisions of the appellate, or reviewing, courts, however, are published and distributed (in print and online). Many of the state court cases presented in this textbook are from state appellate courts. The reported appellate court decisions are published in vol- umes called reports or reporters, which are numbered consecutively. State appellate court decisions are found in the state reporters of that particular state. Official reports are published by the state, whereas unofficial reports are published by nongovernment entities.

Regional Reporters. State court opinions appear in regional units of the West’s National Reporter System, published by Thomson Reuters. Most lawyers and libraries have these reporters because they report cases more quickly and are distributed more widely than the state-published reporters. In fact, many states have eliminated their own reporters in favor of the National Reporter System.

The National Reporter System divides the states into the following geographic areas: Atlantic (A., A.2d, or A.3d), North Eastern (N.E., N.E.2d, or N.E.3d), 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., So.2d, or So.3d). (The 2d and 3d in the preceding abbreviations refer to Second Series and Third Series, respectively.) The states included in each of these regional divisions are indicated in Exhibit 1–4, which illustrates the National Reporter System.

United States Code The United States Code (U.S.C.) arranges all existing federal laws by broad subject. Each of the fifty-two subjects is given a title and a title number. For instance, laws relating to commerce and trade are collected in Title 15, “Commerce and Trade.” Each title is subdivided by sections. A citation to the U.S.C. includes both 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 be desig- nated by the symbol §, and “Sections,” by §§.)

In addition to the print publication, the federal government provides a searchable online database at www.gpo.gov. It includes the United States Code, the U.S. Constitution, and many other federal resources.

Commercial publications of federal laws and regula- tions are also available. For instance, Thomson Reuters publishes the United States Code Annotated (U.S.C.A.). The U.S.C.A. contains the official text of the U.S.C., plus notes (annotations) on court decisions that interpret and apply specific sections of the statutes. The U.S.C.A. also includes additional 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. They may be called codes, revi- sions, 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. ■ Example 1.6  “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 that the statute can be found under the subject heading “Commercial Code” of the Califor- nia code in Section 1101. Abbreviations are often used. For instance, “13 Pennsylvania Consolidated Statutes Section 1101” is abbreviated “13 Pa. C.S. § 1101,” and “California Commercial Code Section 1101” is abbrevi- ated “Cal. Com. Code § 1101.” ■

Administrative Rules Rules and regulations adopted by federal administrative agencies are initially published in the Federal Register, a daily publication of the U.S. gov- ernment. Later, they are incorporated into the Code of Federal Regulations (C.F.R.). The C.F.R. is available online on the government database (www.gpo.gov).

Like the U.S.C., the C.F.R. is divided into titles. Rules within each title are assigned section numbers. A full citation to the C.F.R. includes title and section numbers. ■ Example 1.7 A reference to “17 C.F.R.

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C h a p t e r 1 Law and Legal Reasoning 15

E x h i b i t 1 – 4 National Reporter System—Regional/Federal

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.

Alabama, Florida, Louisiana, and Mississippi.

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.

1885

1885 1879

1883

1887 1886

1887

1880

1932

1939

1882 1980

1978

Atlantic Reporter (A., A.2d, or A.3d)

North Eastern Reporter (N.E., N.E.2d, or N.E.3d) North Western Reporter (N.W. or N.W.2d)

Paci�c Reporter (P., P.2d, or P.3d)

South Eastern Reporter (S.E. or S.E.2d) South Western Reporter (S.W., S.W.2d, or S.W.3d) Southern Reporter (So., So.2d, or So.3d)

Federal Reporters Federal Reporter (F., F.2d, or F.3d)

Federal Supplement (F.Supp., F.Supp.2d, or F.Supp.3d)

Federal Rules Decisions (F.R.D.)

Supreme Court Reporter (S.Ct.) Bankruptcy Reporter (Bankr.)

Military Justice Reporter (M.J.)

Regional Reporters Coverage Beginning

TENN.

VT.

ALASKA

HAWAII

WASH.

OREGON

CALIF.

NEVADA

IDAHO

MONTANA

WYOMING

UTAH

ARIZONA N. MEXICO

COLORADO

NEBR.

S. DAK.

N. DAK.

KANSAS

OKLA.

TEXAS

ARK.

MO.

IOWA

MINN.

WIS.

ILL. IND.

MICH.

OHIO

KY.

MISS. ALA.

LA.

GA.

FLA.

S. CAR.

N. CAR.

VA. W.VA.

PA.

N.Y.

ME.

DEL. MD.

N.J. CONN.

R.I.

MASS. N.H.

Paci�c North Western South Western North Eastern Atlantic South Eastern Southern

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16 U n i t O n e The Foundations

Case Citations. After appellate decisions have been published, they are normally referred to (cited) by the name of the case and the volume, name, and page number of the reporter(s) in which the opinion can be found. The citation first lists the state’s official reporter (if different from the National Reporter System), then the National Reporter, and then any other selected reporter. (Citing a reporter by volume number, name, and page number, in that order, is common to all cita- tions. The year that the decision was issued is often included at the end in parentheses.) 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 instance, in Wisconsin, a Wisconsin Supreme Court decision might be designated “2019 WI 6,” meaning that the case was decided in the year 2019 by the Wisconsin Supreme Court and was the sixth decision issued by that court during that year. Parallel citations to the Wisconsin Reports and the North Western Reporter are still included after the public domain citation.

■ Example 1.8 Consider the following case citation: Simms v. Friel, 302 Neb. 1, 921 N.W.2d 369 (2019). We see that the opinion in this case can be found in Vol- ume 302 of the official Nebraska Reports, on page 1. The parallel citation is to Volume 921 of the North Western Reporter, Second Series, page 369. ■

When we present 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 1–5.

Federal Court Decisions Federal district (trial) court decisions are published unofficially in the Federal Supplement (F.Supp., F.Supp.2d, or F.Supp.3d), and opin- ions from the circuit courts of appeals (reviewing courts) are reported unofficially in the Federal Reporter (F., F.2d, or F.3d). Cases concerning federal bankruptcy law are published unofficially in the Bankruptcy Reporter (Bankr. or B.R.).

The official edition of the United States Supreme Court decisions is the United States Reports (U.S.), which is published by the federal government. Unofficial edi- tions of Supreme Court cases include the 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 1–5.

Unpublished Opinions Many court opinions that are not yet published or that are not intended for publication can be accessed through Thomson Reuters Westlaw® (abbreviated in citations as “WL”), an online legal database. When no citation to a published repor- ter is available for cases cited in this text, we give the WL citation (such as 2019 WL 325268, which means it was case number 325268 decided in the year 2019). In addition, federal appellate court decisions that are designated as unpublished may appear in the Federal Appendix (Fed.Appx.) of the National Reporter System.

Sometimes, both in this text and in other legal sources, you will see blank lines left in a citation. This occurs when the decision will be published, but the par- ticular volume number and page number are not yet available.

Old Case Law 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 just presented because the report- ers in which they were originally published were often known by the names of the persons who compiled the reporters.

1–7 How to Read and Understand Case Law

The decisions made by the courts establish the boundar- ies of the law as it applies to almost all business relation- ships. It thus is essential that businesspersons know how to read and understand case law.

The cases that we present in this text have been con- densed from the full text of the courts’ opinions and are presented in a special format. In approximately two-thirds of the cases (including the cases designated as Classic and Spotlight), we have summarized the back- ground and facts, as well as the court’s decision and rem- edy, in our own words. In those cases, we have included only selected excerpts from the court’s opinion (“In the Language of the Court”). In the remaining one-third of the cases (labeled “Case Analysis”), we have pro- vided a longer excerpt from the court’s opinion with- out summarizing the background and facts or decision and remedy.

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C h a p t e r 1 Law and Legal Reasoning 17

E x h i b i t 1 – 5 How to Read Citations

298 Neb. 630, 905 N.W.2d 523 (2018)a

31 Cal.App.5th 183, 242 Cal.Rptr.3d 336 (2019)

157 A.D.3d 486, 69 N.Y.S.3d 26 (2018)

346 Ga.App. 668, 816 S.E.2d 778 (2018)

___ U.S. ___, 138 S.Ct. 617,  199 L.Ed.2d 501 (2018)

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.

State Courts

Federal Courts

N.W. is the abbreviation for the publication of state court decisions rendered in the North Western Reporter of West’s National Reporter System. 2d indicates that this case was included in the Second Series of that reporter.

Neb. is an abbreviation for Nebraska Reports, Nebraska’s official reports of the decisions of its highest court, the Nebraska Supreme Court.

N.Y.S. is the abbreviation for the unofficial reports—titled New York Supplement—of the decisions of New York courts.

A.D. is the abbreviation for New York Appellate Division Reports, which hears appeals from the New York Supreme Court—the state’s general trial court. The New York Court of Appeals is the state’s highest court, analogous to other states’ supreme courts.

Ga.App. is the abbreviation for Georgia Appeals Reports, Georgia’s official reports of the decisions of its court of appeals.

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.

Cal.Rptr. is the abbreviation for the unofficial reports—titled California Reporter— of the decisions of California courts.

Continued

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18 U n i t O n e The Foundations

915 F.3d 617 (9th Cir. 2019)

324 F.Supp.3d 1172 (D.Nev. 2018)

18 U.S.C. Section 1961(1)(A)

UCC 2–206(1)(b)

Restatement (Third) of Torts, Section 6

17 C.F.R. Section 230.505

2019 WL 491862

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.

Federal Courts (Continued)

Westlaw® Citationsb

Statutory and Other Citations

9th Cir. is an abbreviation denoting that this case was decided in the U.S. Court of Appeals for the Ninth Circuit.

D.Nev. is an abbreviation indicating that the U.S. District Court for the District of Nevada decided this case.

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 subsection within the subsection.

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 subsection within the subsection.

Restatement (Third) of Torts refers to the third edition of the American Law Institute’s Restatement of the Law of Torts. The number 6 refers to a specific section.

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.

WL is an abbreviation for Westlaw. The number 2019 is the year of the document that can be found with this citation in the Westlaw database. The number 491862 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.

E x h i b i t 1 – 5 How to Read Citations—Continued

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C h a p t e r 1 Law and Legal Reasoning 19

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. You may encounter several types of opinions as you read appellate cases, including the following:

• When all the judges (or justices) agree, a unanimous opinion is written for the entire court.

• When there is not unanimous agreement, a majority opinion is generally written. It outlines the views of the majority of the judges deciding the case.

• A judge who agrees (concurs) with the majority opinion as to the result but not as to the legal rea- soning often writes a concurring opinion. In it, the judge sets out the reasoning that he or she considers correct.

• A dissenting opinion presents the views of one or more judges who disagree with the majority view.

• Sometimes, no single position is fully supported by a majority of the judges deciding a case. In this situ- ation, we may have a plurality opinion. This is the opinion that has the support of the largest number of judges, but the group in agreement is less than a majority.

• Finally, a court occasionally issues a per curiam opinion (per curiam is Latin for “of the court”), which does not indicate which judge wrote the opinion.

1–7b Sample Court Case To illustrate the various elements contained in a court opinion, we present an annotated court opinion in Exhibit 1–6. The opinion is from an actual case that the United States Court of Appeals for the Tenth Circuit decided in 2018.

Editorial Practice You will note that triple aster- isks (* * *) and quadruple asterisks (* * * *) frequently appear in the opinion. The triple asterisks indicate that we have deleted a few words or sentences from the opin- ion 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 source has been omitted, again for the sake of readability and brevity. These editorial practices are continued in the other court opinions presented in this book. In addition, whenever

The following sections provide useful insights into how to read and understand case law.

1–7a 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 appealing the decision first, so the case may be called Jones v. Adams if Jones appealed. Because some appellate 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, phrases, and abbreviations are frequently encountered in court opinions and legal publications.

Parties to Lawsuits The party initiating a lawsuit is referred to as the plaintiff or petitioner, depending on the nature of the action. The party against whom a lawsuit is brought is the defendant or respondent. Law- suits frequently involve more than one plaintiff and/or defendant.

When a case is appealed from the original court or jurisdiction to another court or jurisdiction, the party appealing the case is called the appellant. The appellee is the party against whom the appeal is taken. (In some appellate courts, the party appealing a case is referred to as the petitioner, and the party against whom the suit is brought or appealed is called 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 instance, are referred to as justices. Justice is the formal title often given to judges of appellate courts, although this is not always true. In New York, a justice is a judge of the trial court (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 United States Supreme Court case might refer to Justice Sotomayor as Sotomayor, J., or to Chief Justice Roberts as Roberts, C.J.

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20 U n i t O n e The Foundations

E x h i b i t 1 – 6 A Sample Court Case

YEASIN v. DURHAM

United States Court of Appeals, Tenth Circuit,

719 Fed.Appx. 844 (2018).

Gregory A. PHILLIPS, Circuit Judge.

* * * *

BACkgRoUND

* * * *

[Navid] Yeasin and A.W. [were students at the University of Kansas when they]

dated from the fall of 2012 through June 2013. On June 28, 2013, Yeasin physically

restrained A.W. in his car, took her phone from her, threatened to commit suicide if she

broke up with him, threatened to spread rumors about her, and threatened to make the

University of Kansas’s “campus environment so hostile, that she would not attend any

university in the state of Kansas.”

For this conduct, Kansas charged Yeasin with * * * battery * * * . A.W. * * *

obtained a protection order against Yeasin.

* * * A.W. filed a complaint against Yeasin with the university’s Office of

Institutional Opportunity and Access (IOA). * * * The IOA * * * issued * * * a

no-contact order * * * [that] “prohibited [Yeasin] from initiating, or contributing

through third-parties, to any physical, verbal, electronic, or written communication

with A.W., her family, her friends or her associates.”

[Despite the order,] Yeasin posted more than a dozen tweets about A.W., includ-

ing disparaging comments about her body.

[The university held a hearing to adjudicate A.W.’s complaint against Yeasin.

Both parties testified. The hearing panel submitted the record to Dr. Tammara

Durham, the university’s vice provost for student affairs, for a decision regarding

whether and how to sanction Yeasin’s conduct.]

A no-contact order prohibits a person from being in contact with another person.

A hearing is a proceeding that takes place before a decision- making body. Testimony and other evidence can be presented to help determine the issue.

To adjudicate is to hear evidence and arguments in order to deter- mine and resolve a dispute.

A protection order is an order issued by a court that protects a person by requiring another person to do, or not to do, some- thing. The order can protect someone from being physically or sexually threatened or harassed.

The court divides the opinion into sections, each headed by an explan- atory heading. The first section summarizes the facts of the case.

This line provides the name of the judge (or justice) who authored the court’s opinion.

This section contains the citation— the name of the case, the name of the court that heard the case, the reporters in which the court’s opinion can be found, and the year of the decision.

Battery is an unexcused and harmful or offensive physical con- tact intentionally performed.

A record is a written account of proceedings.

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C h a p t e r 1 Law and Legal Reasoning 21

E x h i b i t 1 – 6 A Sample Court Case—Continued

* * * Durham found that Yeasin’s June 28, 2013 conduct and his tweets were “so

severe, pervasive and objectively offensive that it interfered with A.W.’s academic per-

formance and equal opportunity to participate in or benefit from University programs

or activities.” She found that his tweets violated the [university’s] sexual-harassment

policy because they were “unwelcome comments about A.W.’s body.” And she found

that his conduct “threatened the physical health, safety and welfare of A.W., making the

conduct a violation of * * * the [university’s Student] Code.”

* * * Durham * * * expelled Yeasin from the university and banned him from

campus.

* * * *

Yeasin contested his expulsion in a Kansas state court. The court set aside Yeasin’s

expulsion, reasoning that * * * “KU and Dr. Durham erroneously interpreted the Stu-

dent Code of Conduct by applying it to off-campus conduct.”

* * * *

Yeasin then brought this suit in federal court, claiming that Dr. Durham had vio-

lated his First Amendment rights by expelling him for * * * off-campus speech. * * *

Dr. Durham moved to dismiss * * * Yeasin’s claim * * * . The * * * court granted the

motion after concluding that Dr. Durham hadn’t violated Yeasin’s clearly established

rights.

[Yeasin appealed to the U.S. Court of Appeals for the Tenth Circuit.]

DISCUSSIoN

* * * *

Yeasin’s case presents interesting questions regarding the tension between some stu-

dents’ free-speech rights and other students’ * * * rights to receive an education absent

* * * sexual harassment.

Sexual harassment can consist of language or conduct that is so offensive it creates a hostile environment.

First Amendment rights include the freedom of speech, which is the right to express oneself with- out government interference. This right is guaranteed under the First Amendment to the U.S. Constitution.

Moved to dismiss means that a party filed a motion (applied to the court to obtain an order) to dismiss a claim on the ground that it had no basis in law.

To appeal is to request an appel- late court to review the decision of a lower court.

The second major section of the opinion responds to the party’s appeal.

Continued

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22 U n i t O n e The Foundations

E x h i b i t 1 – 6 A Sample Court Case—Continued

Colleges and universities are not enclaves immune from the sweep of the First

Amendment. * * * The [courts] permit schools to circumscribe students’ free-speech

rights in certain contexts [particularly in secondary public schools].

* * * *

Yeasin argues that [three United States Supreme Court cases—Papish v. Board of

Curators of the University of Missouri, Healy v. James, and Widmar v. Vincent] clearly

establish * * * that universities may not restrict university-student speech in the same

way secondary public school officials may restrict secondary-school student speech. *

* * Yeasin argues these cases clearly establish his right to tweet about A.W. without the

university being able to place restrictions on, or discipline him for, * * * his tweets.

But none of the * * * cases present circumstances similar to his own. Papish,

Healy, and Widmar don’t concern university-student conduct that interferes with the

rights of other students or risks disrupting campus order.

* * * *

* * * In those cases no student had been charged with a crime against another stu-

dent and followed that up with sexually-harassing comments affecting her ability to feel

safe while attending classes. Dr. Durham had a reasonable belief based on the June 28,

2013 incident and on Yeasin’s tweets that his continued enrollment at the university

threatened to disrupt A.W.’s education and interfere with her rights.

At the intersection of university speech and social media, First Amendment doctrine

is unsettled. Compare Keefe v. Adams [in which a federal appellate court concluded]

that a college’s removal of a student from school based on off-campus statements on

his social media page didn’t violate his First Amendment free-speech rights, with J.S. v.

Blue Mountain School District [in which a different federal appellate court held] that a

school district violated the First Amendment rights of a plaintiff when it suspended her

for creating a private social media profile mocking the school principal.

To circumscribe is to restrict.

An enclave is a distinct group within a larger community.

A reasonable belief exists when there is a reasonable basis to believe that a crime or other violation is being or has been committed.

A doctrine is a rule, principle, or tenet of the law.

Judges are obligated to follow the precedents established in prior court decisions. A prece- dent is a decision that stands as authority for deciding a subse- quent case involving identical or similar facts. Otherwise, the deci- sion may be persuasive, but it is not controlling.

Here, establish means to settle firmly.

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C h a p t e r 1 Law and Legal Reasoning 23

Debate This . . . Under the doctrine of stare decisis, courts are obligated to follow the precedents established in their jurisdiction unless there is a compelling reason not to. Should U.S. courts continue to adhere to this common law principle, given that our government now regulates so many areas by statute?

Practice and Review: Law and Legal Reasoning

Suppose that the California legislature passes a law that severely restricts carbon dioxide emissions from automobiles in that state. A group of automobile manufacturers files 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 fuel economy 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 informa- tion 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? 3. What is the primary source of the law that is at issue here? 4. Where would you look to find the relevant California and federal laws?

we present a court opinion that includes a term or phrase that may not be readily understandable, a bracketed defi- nition or paraphrase has been added.

Briefing Cases Knowing how to read and understand court opinions and the legal reasoning used by the courts is an essential step in undertaking accurate legal research. A further step is “briefing,” or summarizing, the case.

Legal researchers routinely brief cases by reducing the texts of the opinions to their essential elements.

Generally, when you brief a case, you first summarize the background and facts of the case, as the authors have done for most of the cases presented in this text. You then indicate the issue (or issues) before the court. An impor- tant element in the case brief is, of course, the court’s decision on the issue and the legal reasoning used by the court in reaching that decision.

Detailed instructions on how to brief a case are given in Appendix A, which also includes a briefed version of the sample court case presented in Exhibit 1–6.

E x h i b i t 1 – 6 A Sample Court Case—Continued

In conclusion, Yeasin can’t establish that Dr. Durham violated clearly established law

when she expelled him, in part, for his * * * off-campus tweets.

* * * *

CoNCLUSIoN

For the reasons stated, we AFFIRM the [lower] court’s grant of Dr. Durham’s

motion to dismiss.

In the third major section of the opinion, the court states its decision.

To affirm a lower court’s ruling is to validate the decision and give it legal force.

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24 U n i t O n e The Foundations

Terms and Concepts administrative agency 5 administrative law 5 alleges 10 appellant 19 appellee 19 binding authority 8 breaches 6 case law 5 cases on point 10 citation 13 civil law 13 common law 6 concurring opinion 19 constitutional law 4 courts of equity 6 courts of law 6 criminal law 13 cyberlaw 13 damages 6

defendant 6 defense 6 dissenting opinion 19 equitable maxims 6 executive agencies 5 historical school 12 independent regulatory agencies 5 jurisprudence 11 laches 6 law 2 legal positivism 12 legal realism 12 legal reasoning 9 liability 2 majority opinion 19 natural law 11 opinions 19 ordinances 4 persuasive authorities 8

per curiam opinion 19 petitioner 6 plaintiff 6 plurality opinion 19 precedent 7 procedural law 12 remedies 6 remedies at law 6 remedies in equity 6 reporters 8 respondent 6 sociological school 12 stare decisis 8 statutes of limitations 6 statutory law 4 substantive law 12 uniform laws 4

Issue Spotters 1. Under what circumstances might a judge rely on case law

to determine the intent and purpose of a statute? (See Sources of American Law.)

2. After World War II, several Nazis were convicted of “crimes against humanity” by an international court. Assuming that these convicted war criminals had not

disobeyed any law of their country and had merely been following their government’s orders, what law had they violated? Explain. (See Schools of Legal Thought.)

• Check your answers to the Issue Spotters against the answers provided in Appendix B at the end of this text.

Business Scenarios and Case Problems 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. (See The Common Law Tradition.)

1–2. Sources of Law. This chapter discussed a number of sources of American law. Which source of law takes priority in the following situations, and why? (See Sources of American Law.) (a) A federal statute conflicts with the U.S. Constitution. (b) A federal statute conflicts with a state constitutional provision. (c) A state statute conflicts with the common law of that state. (d) A state constitutional amendment conflicts with the U.S.

Constitution.

1–3. Stare Decisis. In this chapter, we stated that the doc- trine of stare decisis “became a cornerstone of the English and American judicial systems.” What does stare decisis mean, and why has this doctrine been so fundamental to the develop- ment of our legal tradition? (See The Common Law Tradition.)

1–4. Spotlight on AOL—Common Law. AOL, LLC, mis- takenly made public the personal information of 650,000 of its members. The members filed a suit, alleging violations of Cali- fornia law. AOL asked the court to dismiss the suit on the basis of a “forum-selection clause” in its member agreement that designates Virginia courts as the place where member disputes will be tried. Under a decision of the United States Supreme Court, a forum-selection clause is unenforceable “if enforce- ment would contravene a strong public policy of the forum in which suit is brought.” California courts have declared in other cases that the AOL clause contravenes a strong public policy. If the court applies the doctrine of stare decisis, will it dismiss the suit? Explain. [Doe 1 v. AOL LLC, 552 F.3d 1077 (9th Cir. 2009)] (See The Common Law Tradition.)

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C h a p t e r 1 Law and Legal Reasoning 25

1–5. Business Case Problem with Sample Answer— Reading Citations. Assume that you want to read the entire court opinion in the case of Ryan Data Exchange, Ltd. v. Graco, Inc., 913 F.3d 726 (8th Cir. 2019). Refer to the sub- section entitled “Finding Case Law” in this chapter, and then explain specifically where you would find the court’s opinion. (See How to Find Primary Sources of Law.) • For a sample answer to Problem 1–5, go to Appendix C at

the end of this text.

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