Business Law

What is the law?

• Regulate the conduct of individuals, businesses, & organizations

• Protect personas and property

• Forbids from engaging in certain undesirable acts

• Failure to follow the law can lead to legal consequences

• Laws set out rules of enforceable conduct

Functions of the law

• keeping the peace

• facilitating orderly change

• facilitate planning for business

• providing a basis for compromise

• maximizing freedoms

Various legal philosophies

• Natural Law: Law based on what is “correct” (morality, ethics)

• Historical: Law is an aggregate of social traditions and customs

• Analytical: Law shaped by logic

• Law and Economics: Market efficiency should be the central concern of legal decision-making

History of U.S Law

• The colonies adopted the English system of law as the foundation for building the new nation’s legal system

• English Common Law: Developed by judges who issue written opinions when deciding cases

• The principles in the cases become precedent for future judges in deciding similar cases

• Federalism: A system of government where power is divided between a national government (federal) and individual regional governments (states)

Constitutions

• The U.S Constitution is the supreme law of the land

  • Any law that conflicts with it is unenforceable

• States have their own constitutions

Treaties

The president, with the consent of the Senate, can enter into agreements with foreign nations. Treaties are an important source of law for businesses

Statutes

Codified laws passed by the legislature (Congress, at the federal level, and state legislatures at the state level) and signed by the executive (President, at the federal level, and Governor at the state level)

Executive orders

Issued by the president and state governors. The power is derived from existing constitutional and statutory authority.

Regulations and orders issued by administrative agencies

Established by the legislative and executive branches of the federal and state governments

• adopt regulations to interpret statutes

• hear and decide disputes

Judicial (court) decisions

Federal and state courts issue decisions

• Those decisions state the rationale used by the court to reach its conclusion

• Stare Decisis: Past court decisions become precedent for deciding future cases (following English common law)

• Lower courts must follow precedent established by higher courts

• Sometimes they can be overturned (ex. Brown v Board of Ed overturned Plessy v Ferguson)

Flexibility of the law

Law needs to evolve with changing technology and norms of society

• To keep pace with innovation, new federal and state laws are enacted but there is often a lag between the advent of new technology and laws enacted to govern its use

• We can rely on certain existing laws to regulate the use of AI but additional laws are needed to govern AI

Law and ethics

• Legal = following the letter of the law

• Ethical = following moral principles of right and fair action

• Law and ethics may reach the same decision but they do not always align

Business ethics

Individual decision-makers act on behalf of business entities (partnerships, corporations)

• Shareholders often want long-term value, whereas business executives may prioritize short-term gain or personal prestige

Critical legal thinking

• Investigating, analyzing, evaluating, and interpreting information to solve legal issues or cases

• Socratic method: Series of questions and answers. Give-and-take inquiry and debate

• IRAC Method: Used to examine a legal case

• I (issue) R (rule) A (application) C (conclusion)

Two major court systems in the U.S

• State Courts: in all 50 states (and U.S. territories). They resolve more than 95 percent of the lawsuits brought in this country

• Federal courts: a national court system

Both systems have jurisdiction to hear and decide different types of cases

Trial courts of limited-jurisdiction

• Have authority over matters of a specialized nature

• Ex. small claims court, traffic court, probate court

Decisions of trial courts can be appealed to the next-level appellate court

Trial courts of general-jurisdiction

• have authority over matters not of a specialized nature

• usually a separate division of criminal and civil cases

• keep a record, and store testimony and evidence in trials

Decisions of trial courts can be appealed to the next-level appellate court

Intermediate Appellate Courts

• accept appeals from trial courts

• they review the trial court record to determine if

  • an error of law occurred during trial that requires a reversal or modification of the decision (or sometimes a new trial)

• these courts do not accept any new testimony or evidence

• decisions are appealable to the state’s highest court (matter of discretion)

Highest state court

• most states refer to it as the state supreme court

• accept appeals from intermediate appellate courts to determine if an error of law occurred but these courts do not accept any new testimony or evidence

• decisions are usually final unless a question of law can be appealed to the U.S Supreme Court

Federal court system: 3 tiers

U.S court of appeals (for 11 territorial circuits and the DC circuit), U.S court of appeals for the armed forces, U.S court of appeals for the federal circuit

Federal court system: trial courts

Special Federal Courts

• Have authority over matters of a specialized nature

• Ex: Tax Court, Bankruptcy Court

U.S. District Courts

• Trial courts of general jurisdiction with authority over matters not of a specialized nature

• Receive evidence, hear testimony, decide cases

• At least one district court in each state

• Larger states (NY, CA, TX have four district courts, each)

• 94 district courts in the U.S. (including territories)

Federal court system: U.S Court of Appeals

U.S. Courts of Appeals are the federal intermediate appellate courts

• 13 circuits (geographical areas) in the federal system

• Numbered 1-11 serve designated areas of the country

• Two others: U.S. District of Columbia (D.C.) Circuit and U.S. Court of Appeals for the Federal Circuit (specialized for Patent and Trade Office and International Trade Appeals)

• Like state courts, they review the trial court record to determine if an error of law occurred during trial

• Do not accept any new testimony or evidence

• Decisions are appealable to the U.S. Supreme Court

Supreme Court

U.S. Supreme Court is composed of nine justices that are nominated by the President and confirmed by the Senate

• As with other appeal courts, it reviews the record of the lower court to determine whether errors have been made and whether the decision requires a change (reversal, modification, new trial)

• Supreme court’s decision is final

• Over 7000 cases/year are appealed to the court but only about 75-100 cases are accepted for full review

  • Parties submit legal briefs and make oral arguments before the court

  • The justices issue written decisions months later

Types of decisions of the Supreme Court

Types of decisions of the Supreme Court

• Unanimous: all justices agree as to outcome and reasoning

• Majority: majority agrees as to outcome and reasoning

• Plurality: majority agrees as to the outcome, but not reasoning. Not precedent for future cases

• Tie: not all justices present, and there is a tie with those voting. Not precedent for future cases

• Majority opinion: reasoning of a majority of the justices

• Concurring opinion: individual reasons issued by a justice who agrees with outcome, but not reasoning of other justice

• Dissenting opinion: reasons issued by a justice who does not agree with a decision of the majority of justices

Jurisdiction of federal courts

Federal courts have limited jurisdiction: Cases involving

• federal question - arising under the U.S constitution, treaties or federal statutes or regulations

• diversity of citizenship - lawsuit involving BOTH

  • citizens of two different states or a citizen of a state and a citizen of a foreign nation AND dollar amount in dispute must exceed at least $75,000

• exclusive jurisdiction over cases involving

  • bankruptcy

  • patent and copyright cases

  • federal crimes

Jurisdiction of state courts

• state courts have the authority to hear cases where federal courts do not have jurisdiction

• have concurrent (share) jurisdiction with federal courts involving

  • diversity of citizenship

  • federal questions over which federal courts do not have exclusive jurisdiction

  • defendant decides which court hears a concurrent jurisdiction case

    • provided the case was not filed in federal court

    • qualifies for federal jurisdiction (i.e., in the case of diversity of citizenship, meets the dollar amount requirement)

Standing, jurisdiction, venue

In addition to making sure a case is brought in the proper federal or state court, the following are also important:

• Plaintiff must have standing to sue

• The court must have personal jurisdiction over the defendant or other jurisdiction (in rem, quasi in rem) over the case

• The case must be brought in the proper venue

Standing

Standing to sue means:

• plaintiff must have some stake in the outcome of the case

• there must be an actual dispute, not hypothetical

Personal jurisdiction

Court has to have authority over the parties before it in a case:

• Plaintiffs, by filing the lawsuit with a court, give that court personal jurisdiction over themselves

• Jurisdiction over the defendant can be obtained in the following ways

• General Jurisdiction: Defendant lives there, or a corporation is incorporated or headquartered there

• Specific Jurisdiction: Defendant’s contacts, such as a tort committed in that state, entered into a contract/transacted business in that state

  • Sometimes referred to as a “long-arm statute”, given the defendant had some “minimum contact” with that state

In rem jurisdiction

• Referred to as jurisdiction over the thing

• Court has jurisdiction over a case if the property of the lawsuit is located in that state

• Ex: disputes over ownership of real estate located within a state (even if parties live in other states)

Quasi in rem jurisdiction

• Allows a plaintiff who obtains a judgment in one state to try to collect the judgment by going after the defendant’s property located in another state

Venue

• Venue relates to the geographical location of the lawsuit

• Each state has several trial courts located in different counties

• Some states have more than one U.S. District Court

• Venue dictates that the appropriate court is the trial court located closest to where a substantial amount of the events that gave rise to the lawsuit occurred

• A change of venue may be requested if an impartial jury can be better found (ex: in a high-profile case)

Forum selection and choice of law

• When parties from different states or countries have a legal dispute

• It can be costly and time-consuming to determine which court has jurisdiction and which jurisdiction’s laws should apply

• Advisable for parties to agree in advance what state, federal, or country’s court shall have jurisdiction and which law shall apply

• Choice of forum: Contract provision that sets forth a certain court to hear any dispute that may arise

• Choice of law: Contract provision that designates what state or country’s law shall apply

Instagram/meta

• A big risk that any business faces is the threat of litigation, especially a lawsuit brought by an out-of-state or foreign plaintiff

• Consider Instagram (owned by Meta), which has over 3 billion active users. To open an account, users must agree to the company’s terms of use, which require arbitration or the use of a small claims court

• For claims not arbitrated or resolved in small claims court, the following forum selection and choice of law clauses apply

Litigation

Process of bringing, maintaining and defending a lawsuit. It is a difficult, time-consuming and costly process.

Alternative dispute resolution

An alternative to litigation and the court system

• less expensive and time-consuming

• used to resolve contracts and commercial/business disputes

Jury trial (sixth and seventh amendments)

Sixth amendment-guarantees in all criminal prosecution the accused has a right to a trial by an impartial jury

• Federal and state courts

• Right to a speedy and public trial

• Right to confront witnesses

• Right to counsel

Seventh amendment-guarantees the right to a jury trial in civil cases in federal court

• Most state constitutions have a similar guarantee

Bench trials

• a judge will hear and decide the case

• both criminal and civil cases can waive a jury trial if certain requirements are met

• 2/3 of business-related trials and ¾ of cases involving real property are by bench trials

Attorney representation

• Pro se litigant: A person who represents themselves in a criminal or civil court

Criminal cases:

• Prosecutor represents the government

• Defendant, if they cannot afford an attorney, they will be provided an attorney free of charge

Civil cases:

• Attorneys can charge an hourly rate that may require a retainer or a flat fee for simple legal services

• Contingency-fee: An agreement with a client whereby a lawyer receives a percentage of the amount recovered by winning or settling a civil lawsuit

• If the client loses, the lawyer receives nothing

Cost-benefit analysis of a lawsuit

Consider the following factors:

• Probability of winning or losing

• Attorneys’ fees and other costs of litigation

• In the U.S., you cannot automatically recover legal fees from the other side

• Loss of time by managers and others

• Long-term effect on relationship and reputation

• Prejudgment interest, aggravation and psychological costs

• Unpredictability of the legal system and possibility of error

Litigation: Pre-Trial Phase (Pleadings and Complaint)

Pleadings

• Paperwork filed with the court to initiate and respond to a lawsuit

• Plaintiff is the party who files a complaint

Complaint: a document a plaintiff files with the court and serves on the defendant to initiate a lawsuit

• Names parties to the lawsuit

• Alleges facts and laws violated

• Asks for a remedy to be awarded by the court

• Court issues summons

• A court order that directs the defendant to answer the complaint

Litigation: Pre-Trial Phase (Answer, Cross-complaint, Reply)

Answer

• Must be filed by the defendant

• Admits or denies allegations

• Can include affirmative defenses

• Ex: lawsuit is barred by the statute of limitations

• If all allegations are admitted, a judgment is entered against the defendant

• If the defendant fails to file an answer a default judgment is entered against the defendant

Cross-complaint:

• Document filed by the defendant against the plaintiff to seek damages or some other remedy

• Defendant (now the cross-complaint)

• Plaintiff (now the cross-defendant)

Reply:

• Filed by the plaintiff

• Serves as an answer to the cross-complaint

• Can also include affirmative defenses

Litigation: Pre-Trial Phase (Intervention, Consolidation, Class Action)

Intervention

• Allows individuals or entities with a vested interest in the lawsuit to intervene

Consolidation

• Act of a court to combine two or more separate lawsuits into one lawsuit

• In situations when several lawsuits stemming from the same fact situation are filed against a common defendant

Class action

• A group of plaintiffs with common claims collectively brings a lawsuit against a common defendant

• Must be certified by the federal or state court that has jurisdiction over the case

Litigation: Pre-Trial Phase (Statute of Limitations)

• Establishes the period during which the plaintiff must bring a lawsuit against a defendant

• Period begins to run at the time plaintiff first has the right to sue the defendant

• Different statute of limitations for each type of lawsuit

• Varies depending on jurisdiction and type of case

Litigation: Pre-Trial Phase - Types of Discovery

Deposition-oral testimony given by a party/witness prior to trial (under oath)

• a witness can be subpoenaed for a deposition

• preservation of evidence (e.g., deponent dies, ill or unavailable at trial

• to impeach the testimony of a party/witness

Interrogatories-written questions submitted by one party to the other in a lawsuit

• parties are required to answer within a specified time

• answers are signed under oath

Types of discovery

Types of discovery

• Copies of all relevant physical and mental examination

• Court-ordered examination of a party where the case concerns the physical or mental condition of a party to determine the extent of the alleged injuries

Production of documents

• Documents obtained by a party to a lawsuit from another party on order of the court

• Memorandums, correspondence, and records

• Physical and electronic documents relevant to the case

• The examination of the documents may have to take place onsite

• Expert computer forensics can be used to recover misplaced, altered or hidden electronic documents

Pre-trial motions to the court

• Motion for judgement on the pleadings-a party alleges that if all the facts presented in the pleadings are taken as true, the party making the motion would win the lawsuit

  • either party can file the motion

  • the judge cannot consider any facts outside the pleadings

• Motion for summary judgement-a party alleges no factual disputes be decided by the jury, and the judge can apply the proper law to the undisputed facts and decide the case

  • either party can file the motion

  • decided prior to trial by the judge, supported by pleadings, evidence and affidavits from parties and witnesses

Settlement Conference

• Facilitates the settlement of a case without trial

• Also known as a pretrial hearing

• Informal conference held in the judge’s chamber

• Used to identify major trial issues and relevant factors when no settlement is reached

• A settlement agreement is executed if one is reached

More than 95% of all cases are settled before they go to trial

Jury selection and opening statements

• Voir Dire: “to speak the truth”

  • The process whereby the judge and attorneys ask prospective jurors questions to determine whether they would be biased in their decisions

• Peremptory challenges: permits a party to remove a potential juror without cause

• Opening statements

  • Each party’s attorney makes a statement that summarizes the main factual and legal issues

The Plaintiffs vs Defendants Case

The Plaintiff’s case

Plaintiff bears the burden of proof

• Direct examination

• Introduction of evidence and documents

• Cross-examination

• By the opposing party

• Re-direct examination

The Defendant’s case

Defendant must

• Rebut plaintiff’s evidence

• Prove any affirmative defenses

• Prove any allegations contained in the defendant’s cross-complaint

Rebuttal and rejoinder

Rebuttal and rejoinder

• Rebuttal: Made by plaintiff’s attorney to rebut defendant’s case

• Rejoinder: Defendant’s response to Plaintiff’s rebuttal

Closing argument

• Each attorney tries to summarize their arguments and point out weaknesses of the other side’s case

• Information in an attorney’s closing argument is not evidence

Instructions, deliberation and verdict

Instructions, deliberation, and verdict

• Jury instructions: Instructions the judge gives to the jury to explain how the law is to be applied in the case

• Deliberation: The jury goes into the jury room to reach a verdict

• Verdict:

• Civil case: Jury decides whether defendant is liable and assesses damages

• Criminal case: Jury determines whether defendant is guilty or innocent

• Entry of Judgment:

• The official decision of the court based on the verdict.

• Judgment notwithstanding the verdict (or j.n.o.v.)

  • Judge may overturn the jury’s verdict if she/he finds bias or jury misconduct

Litigation: appeal phase

The act of asking an appellate court to overturn a decision after the trial court’s final judgment has been entered

In a civil case

• Either party can appeal the trial court’s decision

In a criminal case

• Only the defendant can appeal

• Appellate court will

• Reverse lower court decisions for errors of law

• Reverse finding of fact made by a jury or judge only when it is unsupported by any evidence

Alternative Dispute Resolution (ADR)

Nonjudicial dispute resolution is where issues are resolved outside the court judicial system

• less costly and quicker than litigation

• allows for more private resolution of disputes

• can be conducted in person or virtually

Methods of resolving disputes other than litigation by ADR are:

• negotiation

• arbitration

• mediation

Negotiation

Parties engage in discussions to try to reach a voluntary settlement.

• may take place at any level of litigation

• parties make offers and counteroffers to one another

• many courts require parties to engage in settlement discussions

  • a settlement agreement is drafted if the parties reach an agreement that contains the terms

• submitted to the court, and if executed, the case is dismissed

ADR: Arbitration

• Arbitration: Parties choose a neutral third party to hear evidence and testimony and decide the dispute

• Common in commercial and labor disputes

• Arbitration clause: Requires disputes arising out of the contract to be submitted to arbitration

• Federal Arbitration Act (F A A): Statute that provides for the enforcement of most arbitration agreements

• Courts often enforce the legality of most arbitration clauses so long as knowingly entered into

ADR: Arbitration

• Parties can select an arbitration association or arbitrator

• Agree on the date, time, and place of the arbitration

• Parties typically agree beforehand how costs will be split

• Arbitrator must be impartial

• Parties can call witnesses and introduce evidence in support of their case

• Arbitrator makes a decision and issues an award

• Arbitration can be binding or nonbinding

• Binding arbitration decision cannot be appealed

• Nonbinding arbitration allows appeals

ADR: Mediation

Mediation: Parties choose a neutral third party to assist them

• Settlement is reached through intermediation

• Expert in the subject of the dispute, or a lawyer or retired judge

• Does not make judgment or issue an award

• After discussing facts of the case with both sides, the mediator encourages settlement of the dispute and transmits settlement offers to each party

• If a settlement is reached, the parties execute a settlement agreement

Med-Arb: Combination of mediation and arbitration

• No agreement in mediation automatically proceeds to arbitration

• Parties know that their dispute will be resolved outside litigation