LEGL 2700 - Exam 1

Why is it important to learn about laws in a business school curriculum? 

• Keep us out of trouble! 

• Certainty and predictability 

The law is more than just avoiding sanctions. What else can you use it for?

Sometimes law is specifically designed in a way that we can use to our advantage (e.g., intellectual property, tax incentives, start businesses, can get law changed in your favor, professional career, etc.)

What is the Rule of Law?

• Laws are generally and equally applied – and requires solid, stable institutions

  • "No one is above the law" 

How important is Rule of Law to business?

Essential! We need to know the how to play the game...again, certainty and predictability...

What can Rule of Law do?

Helps reduce at least one form of "transaction costs" (money spent to enter into and enforce contracts) 

Define Property

• Property is the term for the right to possess resources and shield from others. 

• Resources are things. 

• Right to property is the basis for a private market and basis for modern business. 

Do you have the same “Property” as Elon Musk?

Yes. Property is not the same as Resources. 

Classifications of Law

• Common Law

• Civil Law

• Criminal Law and Civil Law (different meanings)

Common Law (system level)

• Judge-made

• Precedent (stare decisis) - let the prior decision stand (courts generally follow the previous court case and apply to these facts to come up with a decision; utilize the same rationale)

• Established by the court’s judicial decisions

• The role of judges determining the meaning of laws and how they apply

Civil Law (system level)

• Relies heavier on legislation

• Stricter

• Judges don’t do a lot of interpretation of the law

• Determine what the law is but doesn’t make law nor are judges obliged to follow prior judicial decisions

• Based on legal codes

What “sanctions” apply in Criminal Law?

• Death 

• Imprisonment 

• Fines 

• Removal from office 

• Disqualification from holding office and from voting 

What “sanctions” apply in Civil Law?

• Compensatory damages 

• Consequential damages  

• Punitive damages 

• Equitable remedies (not actually asking for money; making the court force the other party to do something)

Hierarchy of Laws (congress makes the statutes; agencies make the regulations)

Each higher source of law voids or prevails over every lower source of law in the hierarchy, except that in many instances there will be no conflict between higher and lower sources of law and in other instances, it may not be clear whether or not a higher source of law (such as constitutional right of speech) conflicts with a lower source of law (such as a law regulating advertising expression)

• United States Constitution 

• Federal Statutes 

• Federal Regulations  

• State Constitutions 

• State Statutes 

• State Regulations 

• Local Ordinances 

• Case Law  

Specificity

Fill in where the legislative branch can’t provide enough detail

Expertise 

Subject matter experts on specific issues 

Protection

Assist public when business practices are causing injury 

Regulation

Replace competition with regulation in certain areas 

Services

Administration of government programs and services 

Criticisms of Administrative Process

• Hard to hire the best, hard to fire the worst, and political ties 

• A lot of red tape, favors industry with policies 

• Adds to cost – directly through funding of agencies

Administrative Agencies 

Boards, bureaus, commissions, and organizations that make up the governmental bureaucracy. 

Corporations (and to some extent other business entities too) 

• Owned by shareholders which can mean a lot of different things by depending on type of organization

• Corporations organized in a certain way; Board of Directors oversee the business, they hire officers who then hire rest of employees 

• Officers and Managers are in charge of day-to-day business operations 

• Corporate Governance (legal rules that structure, power, and regulate the agents of corporations and define their relationship to the owners; relationship with each other, with their customer; and with society)

What issues could the set-up of corporations create?

Principal – Agent Problem (we do not know what they are doing with our money; we are hoping they are making more with it)

Specific Sense of Corporate Governance (Narrow)

• Laws, policies, and procedures that protect the property interest that owners have in the business. 

• Try to prevent people inside the company from abusing their positions for their own advantage to the detriment (hurt) of the owners of the company 

• Shareholder primacy (increasing shareholder value to increase their power)

Broad Sense of Corporate Governance (General)

• Expand corporate governance to include responsibility of company to customers, vendors, society, etc. 

• Gained a lot of traction

What is controversial with the general sense of corporate governance?

• Diversity 

• Environmental Sustainability 

• Community involvement 

Origins of the Constitution

• Articles of Confederation

• Series of Compromises

Series of compromises that created the Constitution

• Between branches of government 

• Between state/federal authorities 

• State versus State 

• Between the people and government 

Separation of Powers

• Horizontal: Branches of Government

• Vertical: Federal - State/Local

Horizontal: Branches of Government

• Legislative – Make 

• Executive – Enforce 

• Judiciary – Fair Process, Interpret, and Even Invalidate Laws 

Vertical: Federal – State/Local 

• Federalism 

• 10th Amendment 

  • "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."  

Supremacy Clause, Article VI (highest power)

• Constitution is supreme over all laws

• Federal law is supreme over state law 

• Preemption  

Preemption

• Express: states not allowed to make rules in certain areas (state and local may not establish their own rules since there are federal rules)

  • Ex: medical devices

• Imply: so pervasive and comprehensive that…

  • Field: little room exists for states to maneuver (regulation)

  • Conflict: impossible to comply with both federal and state

Contract Clause, Article I, Section 10 

• "No State shall...pass any...Law impairing the Obligation of contracts." 

  • States cannot enact laws that impact rights and duties under existing contracts (can’t interfere with existing contracts)

    • E.g. private (e.g., discharging debt or changing other obligations) and public contracts (e.g., bonds, pension plans, etc.) 

  • Does not apply to federal government! 

  • State laws passed during emergency situations can be approved 

    • Minnesota – mortgages in Great Depression (Home Building & Loan Association v. Blaisdell (1934) 

 

What does the Commerce Clause do?

Federal government has power to regulate business activity:

• Foreign Commerce: treaties, embargoes, tariffs

• Interstate Commerce: states cannot interfere with interstate commerce

What case applied the Commerce Clause?

• West Lynn Creamery, Inc. V. Healy, (1994) 

  • Massachusetts passes a tax on imported milk 

  • With the proceeds, they will pay the Massachusetts' dairy farmers who are hurt by the cheaper out-of-state milk prices 

Bill of Rights 

• First ten amendments to the Constitution are the Bill of Rights (protect individual freedoms from government interference)

  • 12 voted on and 10 passed 

  • Total amendments now 27 

• Prohibitions on government power – defining citizens' personal rights ("freedoms") 

  • Not absolute 

  • Limitations based on competing public policy 

  • Exist to remove certain issues from political process and ballot box 

  • Vary from time to time (especially during emergencies) 

Part of the 5th Amendment

Protects from government abuse of power

• Grand Jury 

• Double Jeopardy 

• Right Against Self-Incrimination 

• Due Process 

• Eminent Domain 

Eminent Domain Test

1. A Taking 

2. Public Use 

3. Just Compensation 

First part of the Eminent Domain Test

"A Taking" is usually clear but not always  

Second part of the Eminent Domain Test

"Public Use" doesn't mean the public will use! Public purpose (Berman v. Parker, 1954) - beautification and Kelo v. New London (2005)) - economic redevelopment with private companies (see it as public purpose for economic redevelopment; similar to the expansion of the commerce clause)

Third part of the Eminent Domain Test

"Just Compensation" is generally market price (negotiated price or let a court help settle the issue)

Parts of the 1st Amendment

• Freedom of Religion 

  • Establishment of Religion 

  • Free Exercise of Religion 

• Freedom of Speech 

• Freedom of Press 

• Peaceful Assembly 

• Petition Government 

Why do we generally have free speech?

Protects the voice of the minority 

What is not considered absolute free speech?

• Fighting words 

• Incitement to riot 

• Time, place, manner restrictions 

• Words that violate intellectual property law 

• Defamation 

• Obscenity

Commerce Free Speech (the right to advertise or discuss commercial products and services)

• Not originally thought to be included in 1st Amendment 

• Came light in the 1970s  

  • Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council (1976) - drug prices (advertising drug prices are allowed)

  • Bigelow v. Virginia (1975) - abortion advertising (in other states is allowed)

  • Central Hudson (1980)  

    • Lawful Activity 

    • Governmental Interest Substantial 

    • Directly Advance Governmental Interest 

    • Not more Extensive than Necessary 

    • Key takeaway – easier to restrict commercial speech than individual speech 

Compelled Commercial Speech

• Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio (1985) 

  • Disclose certain information "as long as disclosure requirements are reasonably related to the State's interest in preventing deception of consumers."  (nutritional value, warnings for cigarettes)

Freedom of Press

• Press is only organized private business given explicit constitutional protection 

• Prior Restraint 

• Defamation

Two forms of Defamation

• Libel - printed defamation

• Slander - spoken defamation

Freedom of Religion

"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof..." 

What are two “clauses” of Freedom of Religion?

• Establishment

• Free Exercise

Prior Restraint

Generally must publish work before censorship permitted (may change your mind or content) 

Defamation

Falsehood that is injurious to the good name or reputation of another 

14th Amendment (it is about the states)

• No State shall make or enforce any law which shall:  

  • Abridge the privileges or immunities of citizens of the United States

  • Deprive any person of life, liberty or property, without due process of law 

  • Deny to any person within its jurisdiction the equal protection of the laws 

Two parts of the 14th Amendment

• Due Process

• Equal Protection

Due Process

Prevent governmental bodies from acting in a manner that is arbitrary, capricious, or unreasonable - "state action" 

Procedural Due Process

Involve cases (for example) regarding whether: 

• Proper notice was given 

• Proper hearing was conducted 

Substantive Due Process (implied fundamental rights)

involve cases (for example) regarding: 

• Right to work 

• Right to marry 

What does the 14th Amendment’s Due Process Clause mean for the Dobbs case?

• The ruling overturned Roe v. Wade.

• Doesn't protect abortion as a fundamental right. 

• Returned the power to regulate abortion to the states. 

Incorporation Doctrine

Due Process clause has been used to incorporate most of the Bill of Rights and make provisions applicable to states 

What case utilized the incorporation doctrine of the 14th Amendment Due Process Clause?

Gideon v. Wainwright (1963) - appointment of counsel applied to Florida 

• Break-in at a pool all 

• Gideon arrested for petty larceny 

• Can't afford and attorney and get convicted 

• Supreme Court says 6th Amendment Applies to the States 

Equal Protection

• The equal protection clause guarantees that people will not be treated differently under law without adequate justification 

• Any law creating different classifications is subject to one of three tests. 

Who are the players of the court system and litigation

• Lawyers

• Magistrates/Judges/Justices

• Juries

What are the roles of lawyers?

• Public Servant

• Advocate

• Counselor

How are lawyers public servants?

• Ensure the fair administration of justice 

• Proceedings are conducted in a dignified and orderly manner 

How do lawyers advocate?

• Engage in adversarial process with other lawyers 

• Present evidence, points of law, arguments, etc. 

• Help to inform and persuade both the judge and jury in making decisions 

How are lawyers counselors?

Attorney-Client Privilege 

What is the Attorney-Client Privilege?

Lawyer cannot reveal confidential information and cannot be compelled to testify against client 

What do Magistrates, Judges, and Justices do?

• Essentially operate and control the courtroom and really entire litigation process 

• Generally consider them "triers of law" (what is the exception? = when there are no juries (bench trials))  

• Trial Level - "Judges" (some are called "Magistrates" depending on level of court usually) 

• Appellate Level – often called "Justices" but can also be called "Judges" (they decide these issues of law)

  • Hear appeals from lower courts alleging problems with the application of the law 

  • Generally provide reasons for their decision in writing ("opinions") (written opinions at the appellate level)

Dual Court System

Federal and State

Why is there a federal and state level?

Federalism

What is Jurisdiction?

A Court's power to enter a judgment against property or person

What types of jurisdictions are both needed?

• Subject Matter Jurisdiction

• Personal Jurisdiction

Subject Matter Jurisdiction

• Can the court settle disputes of this type?

• Authority of a court to hear cases involving specific issues of law

Personal Jurisdiction

• Does the court have the right to force a person to attend a trial and have power over them to render a decision?

• Power of a court over the parties involved in the litigation process

Articles of Confederation

• Strong sovereignty of the States 

• Weak federal government 

What was one of the main concerns regarding economic issues in the Articles of Confederation?

States could impose protectionist measures hurting other states 

Where is "judicial review" in the Constitution?

It isn't but Supreme Court gave it to themselves: Marbury v. Madison

What is the Dormant Commerce Clause?

RESTRICTS the States from passing certain laws even though there is no contradictory federal law – stop discriminating against other states!

What are the three tests of the equal protection clause?

• Miniumum Rationality

• Quasi-Strict Scrutiny

• Strict Scrutiny

What is the Minimum Rationality test?

Law must have a rational connection to a permissible state end.

What are the Minimum Rationality classifications?

• Age

• Disability

• Wealth

• Everything not listed in this table….

What is the Quasi-Strict Scrutiny test?

Law must be substantially related to an important state interest.

What are the Quasi-Strict Scrutiny classifications?

• Gender

• Illegitmacy

• Children

What is the Strict Scrutiny test?

Law must be necessary to achieve a compelling state purpose.

What are the Strict Scrutiny classifications?

• Race

• Alienage

• National Origin

• Religion

• Domestic Travel

• Voting

Juries

• “Triers of Fact" 

• Traditionally has been 12 jurors but sometimes less 

• Book says: most states require unanimous decisions (trend moving away from requirement) 

  • Note, fairly recent case where Supreme Court said must have unanimous verdicts in criminal cases (Ramos v. Louisiana (2020)

What is the Civil Case Pre-Trial Procedure?

1. Plaintiff files compliant

2. Complaints and summons served on defendant

3. Defendant files motion or answer with possible counterclaims and defenses (don’t be late or default judgment)

4. Court rules on motions (e.g., dismissal due to statute of limitations)

5. Attorneys conduct discovery procedures.

Why is the Discovery Procedure needed?

• So cases based on merit and surprises

• Narrows the issues disputed by the parties

• Encourages the settlement of the lawsuit and possibly avoiding actual trial

Discovery Methods

• Interrogatories: Series of written questions presented to the opposing parties 

• Requires for production of documents: Either party asking the other to produce specific documents. 

• Depositions: Lawyer orally asks questions of the possible witness 

• Request for an admission 

What is the Trial Procedure?

1. Voir dire—Parties and their attorneys select jury

2. Court instructs jury on the law

3. Jury deliberates and makes decisions (verdict)

4. Judge enters judgment on verdict

5. Party receiving adverse judgment files notice of appeal

6. Parties file briefs in reviewing court

7. Oral argument made in reviewing court

8. Final decision (successful party may require judicial assistance in enforcing the final decision)

How does the court select the jury?

Priorr to calling of the case, court clerk will have summoned prospective jurors

Voir dire

Speaking the truth

For Cause Challenge

Cause or reason needs to be given to excuse a prospective juror (e.g., related to a party (including attorneys) in the case, bias, etc.) 

Peremptory challenge (freebies)

No cause or reason needs to be given to excuse a prospective juror – receive a limited number of these 

What is banned in peremptory challenges?

• Racial Discrimination (Banson v. Kentucky)

• Gender Discrimination (J.E.B v. Alabama Ex Rel. T.B.)

• Religion Discrimination

What happens during Voir dire? (= speaking the truth)

Selected jurors are called into jury box to conduct the examination 

Criminal Law

Offenses against proper order of the state by a representative of community.

Civil Law

Suing other parties for damages or relief

Shareholder Primacy

• Increase its profits to increase power

• Prioritizes the interests of shareholders

Stakeholder Theory

• Maintaining ethical corporate behavior depends on managers who recognize and take into account the various stakeholders whose interest are the corporation impacts.

• Focuses on the legal responsibilities of managers to society and to the investor-owners of the corporation