Criminal Law and Business Organization

Criminal Law and Business

• White-collar crimes are illegal offense that occurs in a business or professional setting (non-violent)

  • Generally committed for personal financial gain, such as to obtain money, property or services, to avoid services or payment 

  • Fraud makes up 63% of white collar crimes, other main ones include embezzlement and money laundering

• Classifications of criminal conduct: federal crimes, state crimes, violent crimes(arson robbery rape), non violent crimes, felonies (more than one year in jail and/or fine), misdemeanors (punishment is jail less than one year and/or fine)

• Role of intent in criminal law: many laws use either willfully or knowingly to define criminal intent 

  • Willfully: one acts willingly if it is committed voluntarily and purposefully with the specific intent to do something

  • Knowingly: done voluntarily and intentionally, not because of a mistake or accident (not negligence)

  • Reckless: crime even though one doing it does not intend the specific harm (ex: reckless driving)

• Types of pleas for a defendant: 

  • Guily plea:

    • Acceptance of responsibility

  • Not guilty plea

    • Triggers moving forward with prosecution of case and trial

  • Nolo contendere

    • No contest plea: accepts responsibility and punishment for the crime but does not admit guilt

  • Not guilty by reason of insanity

  • Alford Plea 

    • In Kentucky no such thing as no contest plea. North Carolina v Alford - not admitting guilt but maintaining innocence, but stating there is enough evidence to convict you at trial

• How a felony case is started in federal court

  • Starts with grand jury returning an indictment

    • Grand jury (5th amendment to Constitution) = “no person shall be held to answer for a capital or otherwise infamous crime, unless on a presentment or indictment of a grand jury”. Meets in secrecy, no judge, no defendant. Proceedings led by prosecutor and usually a law enforcement officer presents a summary of the facts. Grand jurors can ask questions. No attorney other than prosecutor allowed. Need a majority to find probable cause (51%) that a crime has been committed. Very low burden of proof

    • Not a determination of whether accused is guilty or innocent. In 2020 grand jury returned no charges for the death of Breona Taylor. Criticism of grand jury is that they are a rubber stamp for the prosecutor. Grand juries can be used as an investigative body. Can compel witnesses to testify - focus of a grand jury investigation. Can sobpeopna business records. 

• Criminal protections under the bill of rights

  • 4th amendment - search and seizure “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but ipon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized. Search is usually instigated by a search warrant, which is obtained from judge by prosecutor . Police presents evidence. 

    • Exceptions to the requirement for a search warrant:. Police officers making arrest do not need a search warrant to search the person or the immediate area around that person for weapons

    • Exigent circumstances: (bona fide emergency) hear screaming or threatening etc, see evidence (plain view doctrine), worried about destruction of evidence, hot pursuit rule - fleeing criminal may enter a home, police can chase and any contraband out in house is subject to plain view doctrine

      • Kentucky v King, 563 US 452 (2011)

      • Riley v California, 573 US 373 (2014): searching cell-phone without warrant is not okay

        • Issue is search of cell phone. officers must generally secure a warrant before conducting a search even when cell phone is seized incident to arrest. Unanimous decision “privacy comes at a cost”

  • 5th amendment: “no person shall be compelled in any criminal case to be a witness against himself”. Pleading the 5h - protection against self-incrimination

    • Not a protection against produced physical evidence such as fingerprints or DNA. Miranda rights: good because 

  • 6th amendment: multiple protections in criminal cases: speedy and public trial, trial by jury, to be informed of charges against you, right to confront your accuser, right to subpoena witnesses in your favor, right to have assistance of an attorney (where incarceration is a possible punishment)

  • 8th amendment: “excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishment inflicted”. 

    • Bail/bond: purpose is to provide a way for an accused to be released from custody pending trial. Look at nature of crime, prior criminal history, ties to the community, employment, flight risk, etc. 

    • Excessive fines: can’t be arbitrary

    • Cruel and unusual punishment: hot topic is death penalty. U.S. Supreme Court has 4 basic principles to decide: punishment is so severe as to degrade human dignity, inflicted in completely arbitrary manner, largely rejected by society, or that is patently unnecessary. Court held death penalty should not be applied to anyone under age 18 or handicapped

• Specific crimes:

  • Fraud: one who knowingly and willfully:

    • Falsifies conceals or covers up any trick scheme or device a material fact

    • Makes and false fictitious or fraudulent statement or representation

    • Makes or uses any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement. 

    • Ex: submitting false claims to government

    • Bernie Madoff Ponzi scheme: take client funds that he was supposed to manage and put them in one single bank account that he used to pay existing clients who wanted to cash out, market crash in 2008 exposed him. $65 billion, biggest Ponzi scheme ever

    • Mail and wire fraud: illegal to use US mail or electronic means of interstate communication to carry out a scheme to defraud, wire transmission means radio, tv, telephone, and internet

    • Skilling v United States, 130 S.Ct. 2896 (2010): 1: did pre-trial publicity and community prejudice prevent Skilling from obtaining a fair trial and 2: did jury improperly convict Skilling conspiracy to commit honest services fraud? Jury said no and yes.

    • Theranos

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Chapter 14 Business Organizations

3-18-25

• 3 basic forms of business: corporation, sole proprietorship, partnership, and hybrid forms of these business types like limited partnerships, limited liability companies, etc

• Why does it matter what form a business takes? Reduces exposure to liability, for example, if something goes wrong there is less liability for a corporation compared to a sole proprietorship or partnership 

• 5 factors to consider 

  • Cost of creating the organization: legal steps necessary  to create business, filing fees, cost of document preparation (i.e. partnership agreement), length of time to create it

  • Continuity/stability of the organization: what happens when there is death, disability, or withdrawal of an owner?

  • Control of decisions: who makes what decisions? Different levels of authority, how to deal with conflicts/disputes

  • Liability: to what degree is the owner personally liable for the debts of the business

  • Taxation: how is business income taxed? How is money distributed to the business owners taxed? Single vs double taxation?

• Sole proprietorship:

  • Only owner, havent formed a business entity. No legal distinction between you and your business. No fee or process to form. Need DBA (doing business as) ranges from 10-100. No maintenance or responsibilities, but no protection, held personally liable for business debts. House and other property can be used to pay debt. 

  • Very common form of business

  • Used for smaller businesses/one person businesses

  • Easiest and least expensive, need business license, no formal documentation.

  • Does this last forever? No , owner can end business at any time or owner can die

  • Ownership of sole proprietorship cannot be transferred

  • Managerial control - divided or absolute? Total control by owner

  • Liability - personally liable for debt of business

  • Taxation: not taxed as organization, taxable income is attributed to owner (only taxed once)

• Partnerships: 

  • 2 or more people form business together, common interest

  • Agreement to share profits and losses

  • Indiivudual and a corporation can enter into a partnership

  • Creation - fairly easily formed, good practice to have partnership agreement, 

  • Continuity - dissolved any time there uis a change in partners via death, retirement, otherwise withdrawal, dissolution does not mean termination

  • Managerial control - each partner has equal voice unless agreement states otherwise: controlling vs minority partners. How to deal with deadlock, who has managerial control

  • Liability - joint and several liability for partnership’s obligations

  • Taxation - partnerships are not a taxable entity

• Corporations 

  • An artificial intangible entity created under the authority of a state’s law

  • Domestic corporation - state in which corporation is incorporated

  • Continuity- usually formed to have perpetual existence, law treats a corporations existence

  • Managerial control - 3 groups: shareholders, board of directors (elected by shareholders, set objectives and goals, appoint officers (executives)), officers. 

  • Double taxed when profit is made and distribution is given to shareholders

• (type of corporation) Closely held corporation: small group of shareholders or even one shareholder may be able to control a closely held corporation (Chickfila)

  • How is minority interest in closely held corporation protected? Right to bring a derivative suit

  • Liability limited - owners liable for debts of corporation to extent of their investment in corporation

  • Piercing the corporate veil: when status is being abused, corporate entity can be disregarded to go after the individual. If this happens shareholders treated like partners who have unlimited liability

  • Alter ego theory - can be invoked to impose personal liability upon officers directors and shareholders if entity is disregarded and no separation of business from individual

  • Alli v United States, 83 Fed. Cl. 250 (2008)

    • Dr Alli and wife sued US Dept of Housing and Urban development for failure to pay housing assistance for residents of 3 apartment complexes

• Limited partnerships

  • Same as a partnership except that one or more of the partners are designated as limited partners

• Limited liability companies

  • Combo of attributes from partnership and corporation, also there are limited liability partnerships (often doctors and lawyers)

  • Control vested in members unless delegated to manager

  • Members not personally liable to third parties for debts of the company

• Agents of the organization

  • Business acts through its agents

  • Important to know so you know how liable you are for your employees and course and scope of employment

• 3 parties to an agency relationship: 

  • Principal (individual or business interacts with a second party to obtain that second party’s assistance)

  • Agent: all employees are agents of the employer/principal, but not all agents are employees

    • Independent contractor (employer does not control the day to day actions of an independent contractor)

  • Third party: agent on behalf of the principal interacts with the third party. 

• Contractually bind principal with agent?

  • Contractual authority can be Actual implied or apparent authority 

  • Employer must have authorized employee actions

  • Actual authority : express permission, specific instructions

  • Implied authority: inferred from acts of agent who holds posititon of authority or had actual authority in previous situations. Implied authority to do what was necessary for business benefit. 

  • Apparent authority - due to history of an employee representing your business interest, it could be reasonable for third party to assume they are dealing with valid agent. 

• Tort liability from agent’s acts: liable if done during course and scope of employment (on the job).

  • vicarious liability: can sue dominos instead of delivery driver. Usually tort or negligence. If they are acting to further interests of business.