BUsiness law today 9th standard edition MIller and jentz

C O N T E N T S I N B R I E F The Legal Environment of Business 1 Alternative Dispute Resolution 57 Chapter 4 Torts and Cyber Torts 90 Chapter 5 Intellectual Property and Internet Law

How the Internet Is Expanding Precedent 12 The Supreme Court Upholds a Law

that Prohibits Pandering Virtual Child Pornography 43

The Duty to Preserve Electronic Evidence for Discovery 74

Should CDA Immunity Extend to Negligence Claims against MySpace? 113

Should the Law Continue to Allow Business Process Patents? 131

Can Students Who Gain Unauthorized Access to an Online Antiplagiarism Service Be Subject to the Computer Fraud and Abuse Act? 187

Corporate Reputations under Attack 206 Online Personals—Fraud and

Can Parties Create and Modify Employment Contracts via E-Mail? 609

Satisfying the FTC’s Franchise Rule in the Internet Age 673

Economic Recession Fuels the Internet Taxation Debate 725

Moving Company Information to the Internet 763

Corporate Blogs and Tweets Must Comply with the Securities Exchange Act 787

This special feature

examines cutting-edge

cyberlaw issues coming

before today’s courts.

Linking the Law

Linking the Law to Management:

Dealing with Administrative Law 17 Linking the Law to Marketing:

Trademarks and Service Marks 140 Linking the Law to Managerial Accounting:

Managing a Company’s Reputation 208 Linking the Law to Marketing:

Customer Relationship Management 256 Linking the Law to Economics:

Usury Laws Become Federal 281 Linking the Law to Business Communication:

When E-Mails Become Enforceable Contracts 306

Linking the Law to Management:

Quality Control 432 Linking the Law to Economics:

Banking in the Period of Crisis 491

Linking the Law to Economics:

The Effects of Bankruptcy Law

on Consumers and Businesses 549 Linking the Law to Marketing:

Going Global 570 Linking the Law to Management:

Human Resource Management Comes to the Fore 658 Linking the Law to Finance:

Sources of Funds 746 Linking the Law to Taxation:

The Tax Consequences of Deleveraging During an Economic Crisis 802 Linking the Law to Business Statistics: Statistical Sampling when Conducting Audits 875

Linking the Law to Economics:

Eminent Domain 919

This special feature,

which is new to this

edition, relates chapter

content to specifi c

business areas with an

emphasis on careers.

National Law Systems 16 Islamic Law Courts Abroad and at Home 67 The Impact of Foreign Law on the United States Supreme Court 39

“Libel Tourism” 95 The Anti-Counterfeiting Trade Agreement 137

An Absence of Codifi ed Criminal Law:

The Pushtun Way 147 Russian Hackers to the Fore 176 The United States Looks into International Bribery 207

International Use and Regulation of the Internet 253

Statute of Frauds and International Sales Contracts 302

Impossibility or Impracticability

of Performance in Germany 331

The CISG’s Approach to Revocation

of Acceptance 407 Arbitration versus Litigation 565

Islamic Law and Respondeat Superior 599

Sexual Harassment in Other Nations 648 Franchising in Foreign Nations 675 Doing Business with Foreign Partners 687 Limited Liability Companies in Other Nations 712

Derivative Actions in Other Nations 769 Corporate Governance in Other Nations 797 The European Union’s Expanding Role in Antitrust Litigation 829

Protecting U.S Consumers from Border Telemarketers 840

Cross-This feature provides

a perspective on

the global legal

environment,

international laws, and

laws of other nations

that relate to specifi c

legal concepts or topics

discussed in a chapter.

Landmark in the Law

Equitable Principles and Maxims 13

Gibbons v Ogden (1824) 34

Marbury v Madison (1803) 59

Palsgraf v Long Island Railroad Co. (1928) 109 The Digital Millennium Copyright Act of 1998 135

Miranda v Arizona (1966) 163

Hamer v Sidway (1891) 264 The Statute of Frauds 297

Lawrence v Fox (1859) 319

Hadley v Baxendale (1854) 341 The Uniform Commercial Code 361

MacPherson v Buick Motor Co. (1916) 424 Federal Trade Commission Rule 433 463 Check Clearing in the 21st Century Act (Check 21) 484

The Bankruptcy Reform Act of 2005 530

The Doctrine of Respondeat Superior 597

Limited Liability Company (LLC) Statutes 707 The Securities and Exchange

Commission 780 The Sherman Antitrust Act of 1890 814 The SEC Adopts Global Accounting Rules 863

statutes, or other legal

developments that have

had signifi cant effects

on business law.

(John Elk III/Lonely Planet Images/Getty Images)

Roger LeRoy Miller Institute for University Studies Arlington, Texas

Gaylord A JentzHerbert D Kelleher Emeritus Professor in Business Law MSIS Department

University of Texas at Austin

Business Law Today

TEXT & SUMMARIZED CASES

E-Commerce, Legal, Ethical,

and Global Environment

N I N T H E D I T I O N

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Student Edition ISBN-13: 978-0-324-78652-1 Student Edition ISBN-10: 0-324-78652-2 Instructor’s Edition ISBN-13: 978-0-324-78682-8 Instructor’s Edition ISBN-10: 0-324-78682-4

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Printed in the United States

1 2 3 4 5 6 7 13 12 11 10 09

TEXT & SUMMARIZED CASES

E-Commerce, Legal, Ethical,

and Global Environment

Parkwood Composition Service

Senior Art Director:

C O N T E N T S I N B R I E F

The Legal Environment of Business 1

Alternative Dispute Resolution 57

Chapter 4 Torts and Cyber Torts 90

Chapter 5 Intellectual Property and Internet Law 119

Chapter 8 Ethics and Business Decision Making 193

Unit Two

Contracts 217

Chapter 9 Nature and Classifi cation 218

Traditional and E-Contracts 236

Chapter 11 Consideration, Capacity, and Legality 262

Chapter 12 Defenses to Contract Enforceability 287

Chapter 13 Third Party Rights and Discharge 311

Unit Three

Commercial Transactions 359

Sales and Lease Contracts 360

of Sales and Lease Contracts 390

Chapter 17 Warranties and Product Liability 414

Chapter 18 Negotiable Instruments:

Transferability and Liability 438

in the Digital Age 471

Chapter 20 Security Interests

in Personal Property 496

Chapter 21 Creditors’ Rights and Bankruptcy 520

Chapter 22 International Law

in a Global Economy 554

Unit Four

Agency and Employment Law 579

Chapter 23 Agency Relationships in Business 580

T E

Chapter 24 Employment,

Immigration, and Labor Law 606

Unit Five

Business Organizations 667

Chapter 26 Sole Proprietorships

and Private Franchises 668

Chapter 27 All Forms of Partnership 683

Chapter 28 Limited Liability Companies

and Special Business Forms 706

Merger, and Termination 722

Chapter 30 Corporate Directors,

Offi cers, and Shareholders 753

Chapter 31 Investor Protection, Insider Trading,

and Corporate Governance 778

Unit Six

Government Regulation 811

Chapter 34 Liability of Accountants

and Other Professionals 860

Unit Seven

Property and Its Protection 883

Chapter 35 Personal Property and Bailments 884

Chapter 36 Real Property and

Landlord-Tenant Law 905

Chapter 37 Insurance, Wills, and Trusts 924

Appendices

Appendix A How to Brief Cases

and Analyze Case Problems A–1

Appendix B The Constitution of the United States A–3

(Excerpts) A–10

Appendix D The Sarbanes-Oxley Act of 2002

(Excerpts and Explanatory Comments) A–120

Hypothetical Questions with Sample Answer A–126

Appendix F Case Excerpts for

Case Analysis Questions A–132

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

A p peeen di c ce s

The Legal Environment of Business 1

Chapter 1 The Legal Environment 2

Business Activities and the Legal Environment 3

Sources of American Law 4

The Common Law Tradition 9

Adapting the Law to the Online Environment How the Internet Is

Expanding Precedent 12

Landmark in the Law Equitable Principles and Maxims 13

Classifi cations of Law 14

Beyond Our Borders National Law Systems 16

Linking the Law to Management: Dealing with Administrative Law 17

Reviewing The Legal Environment 17

Appendix to Chapter 1: Finding and Analyzing the Law 22

Finding Statutory and Administrative Law 22

Finding Case Law 23

Reading and Understanding Case Law 25

Chapter 2

Constitutional Law 32

The Constitutional Powers of Government 32

Landmark in the Law Gibbons v Ogden (1824) 34

Heart of Atlanta Motel v United States (1964) 35

Business and the Bill of Rights 37

Beyond Our Borders The Impact of Foreign Law on the United States

Supreme Court 39

Bad Frog Brewery, Inc v New York State Liquor Authority (1998) 41

Adapting the Law to the Online Environment The Supreme Court

Upholds a Law That Prohibits Pandering Virtual Child Pornography 43

In re Episcopal Church Cases (2009) 44

Preventing Legal Disputes 46

Due Process and Equal Protection 46 Privacy Rights 48

Reviewing Constitutional Law 51

Business Application Is “Pretexting” Illegal? 52

Chapter 3 Courts and

Alternative Dispute Resolution 57

The Judiciary’s Role in American Government 57 Basic Judicial Requirements 58

Landmark in the Law Marbury v Madison (1803) 59

Preventing Legal Disputes 63

Oregon v Legal Services Corp (2009) 64

The State and Federal Court Systems 65

Beyond Our Borders Islamic Law Courts Abroad and at Home 67

Following a State Court Case 70

Adapting the Law to the Online Environment The Duty to Preserve Electronic Evidence for Discovery 74

Evans v Eaton Corp. (2008) 76The Courts Adapt to the Online World 77 Alternative Dispute Resolution 78

NICR Corp v Korala Associates, Ltd. (2008) 81

Reviewing Courts and Alternative Dispute Resolution 84

Business Application To Sue or Not to Sue? 84

Chapter 4 Torts and Cyber Torts 90

The Basis of Tort Law 91 Intentional Torts against Persons 92

* Consult the inside front and back covers of this book for

easy reference to the many special features in this textbook.

Beyond Our Borders “Libel Tourism” 95

McClain v Octagon Plaza, LLC (2008) 100

Intentional Torts against Property 102

Trustees of University of District of Columbia v Vossoughi (2009) 104

Unintentional Torts (Negligence) 105

Preventing Legal Disputes 107

Landmark in the Law Palsgraf v Long Island Railroad Co (1928) 109

Strict Liability 111

Cyber Torts—Online Defamation 112

Fair Housing Council of San Francisco Valley v Roommate.com,

LLC (2008) 113

Adapting the Law to the Online Environment Should CDA Immunity

Extend to Negligence Claims against MySpace? 113

Reviewing Torts and Cyber Torts 114

Business Application How Important Is Tort Liability to Business? 114

Chapter 5

Intellectual Property

and Internet Law 119

Trademarks and Related Property 120

The Coca-Cola Co v Koke Co of America (1920) 120

Cyber Marks 125

George V Restauration S.A v Little Rest Twelve, Inc. (2009) 127

Preventing Legal Disputes 128

Patents 128

KSR International Co v Telefl ex, Inc. (2007) 129

Copyrights 130

Adapting the Law to the Online Environment Should the Law

Continue to Allow Business Process Patents? 131

Landmark in the Law The Digital Millennium Copyright Act of 1998 135

Trade Secrets 136

International Protection for Intellectual Property 137

Beyond Our Borders The Anti-Counterfeiting Trade Agreement 139

Reviewing Intellectual Property and Internet Law 139

Linking the Law to Marketing Trademarks and Service Marks 140

Chapter 6 Criminal Law 145

Civil Law and Criminal Law 145

Beyond Our Borders An Absence of Codifi ed Criminal Law: The

Pushtun Way 147

Criminal Liability 147

Preventing Legal Disputes 150

Types of Crimes 150 Defenses to Criminal Liability 156 Constitutional Safeguards and Criminal Procedures 158

United States v Moon (2008) 160

Herring v United States (2009) 162

Landmark in the Law Miranda v Arizona (1966) 163

Criminal Process 164

Reviewing Criminal Law 166

Business Application Determining How Much Force You Can Use to Prevent Crimes on Business Premises 167

Computer Crime and the Internet 172 Cyber Crimes against Persons and Property 173

Beyond Our Borders Russian Hackers to the Fore 176

State v Cline (2008) 178Cyber Crimes in the Business World 179 The Spread of Spam 182

Cyber Crimes against the Community—Gambling in Cyberspace 183

United States v $6,976,934.65, Plus Interest Deposited into Royal Bank of Scotland International (2009) 184

Fighting Cyber Crime 185

Adapting the Law to the Online Environment Can Students Who Gain Unauthorized Access to an Online Antiplagiarism Service Be Subject to the Computer Fraud and Abuse Act? 187

Reviewing Cyber Crime 187

Business Application How Can You Protect against Identity Theft? 188

Chapter 8 Ethics and Business Decision Making 193

Business Ethics 194

United States v Skilling (2009) 195

Preventing Legal Disputes 197

Ethical Transgressions by Financial Institutions 198 Approaches to Ethical Reasoning 200

Fog Cutter Capital Group, Inc v Securities and Exchange Commission (2007) 202

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Making Ethical Business Decisions 204

Practical Solutions to Corporate Ethics Questions 204

Business Ethics on a Global Level 205

Adapting the Law to the Online Environment Corporate Reputations

under Attack 206

Beyond Our Borders The United States Looks into International

Bribery 207

Reviewing Ethics and Business Decision Making 208

Linking the Law to Managerial Accounting Managing a Company’s

Reputation 208

Unit One Cumulative Business Hypothetical 213

Unit One Extended Case Study: Paduano v American Honda

Motor Co. 213

Unit Two

Contracts 217

Chapter 9 Nature and Classifi cation 218

An Overview of Contract Law 219

Preventing Legal Disputes 227

Wagner v Columbia Pictures Industries, Inc. (2007) 228

U.S Bank, N.A v Tennessee Farmers Mutual Insurance Co. (2009) 229

Reviewing Nature and Classifi cation 230

Business Application How Can You Avoid Unintended Employment

Contracts? 231

Chapter 10 Agreement in

Traditional and E-Contracts 236

Agreement 236

Lucy v Zehmer (1954) 237

Basis Technology Corp v Amazon.com, Inc. (2008) 240

Preventing Legal Disputes 241

T W Nickerson, Inc v Fleet National Bank (2009) 243Agreement in E-Contracts 248

The Uniform Electronic Transactions Act 252

Beyond Our Borders International Use and Regulation of the Internet 253

Reviewing Agreement in Traditional and E-Contracts 256

Linking the Law to Marketing Customer Relationship Management 256

Contractual Capacity 269 Legality 272

Comedy Club, Inc v Improv West Associates (2009) 275

Preventing Legal Disputes 276

Speedway SuperAmerica, LLC v Erwin (2008) 278The Effect of Illegality 279

Reviewing Consideration, Capacity, and Legality 280

Linking the Law to Economics Usury Laws Become Federal 281

Chapter 12 Defenses to Contract Enforceability 287

Voluntary Consent 287

Inkel v Pride Chevrolet-Pontiac, Inc. (2008) 289

Adapting the Law to the Online Environment Online Personals—Fraud and Misrepresentation Issues 291

Rosenzweig v Givens (2009) 293

Preventing Legal Disputes 295

The Statute of Frauds—Writing Requirement 296

Landmark in the Law The Statute of Frauds 297

School-Link Technologies, Inc v Applied Resources, Inc. (2007) 300

Beyond Our Borders The Statute of Frauds and International Sales Contracts 302

The Statute of Frauds—Suffi ciency of the Writing 302

Chapter 9

Chapter 10

Chapter 11

Chapter 12

The Parol Evidence Rule 303

Reviewing Defenses to Contract Enforceability 306

Linking the Law to Business Communication When E-Mails Become

Enforceable Contracts 306

Chapter 13 Third Party Rights and Discharge 311

Assignments 311

Preventing Legal Disputes 315

Delegations 315

Third Party Benefi ciaries 317

Landmark in the Law Lawrence v Fox (1859) 319

Revels v Miss America Organization (2007) 320

Reviewing Third Party Rights and Discharge 331

Business Application Dealing with Third Party Rights 332

Chapter 14 Breach and Remedies 337

Damages 338

Preventing Legal Disputes 340

Landmark in the Law Hadley v Baxendale (1854) 341

Hanson v Boeder (2007) 342

Equitable Remedies 344

Stainbrook v Low (2006) 346

Drake v Hance (2009) 347

Recovery Based on Quasi Contract 348

Contract Provisions Limiting Remedies 349

Reviewing Breach and Remedies 350

Business Application What Do You Do When You Cannot Perform? 350

Unit Two Cumulative Business Hypothetical 356

Unit Two Extended Case Study: Braddock v Braddock 356

Unit Three

Commercial Transactions 359

Chapter 15 The Formation of

Sales and Lease Contracts 360

The Scope of the UCC and Articles 2 (Sales) and 2A (Leases) 361

Landmark in the Law The Uniform Commercial Code 361

Adapting the Law to the Online Environment The Thorny Issue of Taxing Internet Sales 363

Jannusch v Naffziger (2008) 364The Formation of Sales and Lease Contracts 366

Preventing Legal Disputes 369

Glacial Plains Cooperative v Lindgren (2009) 374

Jones v Star Credit Corp. (1969) 376Title and Risk of Loss 377 Contracts for the International Sale of Goods 382

Reviewing The Formation of Sales and Lease Contracts 384

Business Application Who Bears the Risk of Loss—the Seller or the Buyer? 384

of Sales and Lease Contracts 390

Performance Obligations 390 Obligations of the Seller or Lessor 391

Maple Farms, Inc v City School District of Elmira (1974) 394

Preventing Legal Disputes 397

Obligations of the Buyer or Lessee 397 Anticipatory Repudiation 398

Remedies of the Seller or Lessor 399 Remedies of the Buyer or Lessee 402

Chapter 16

Business Application What Can You Do When a Contract Is

Breached? 408

Chapter 17 Warranties and Product Liability 414

Warranties 414

Preventing Legal Disputes 416

Shoop v DaimlerChrysler Corp. (2007) 417

Webster v Blue Ship Tea Room, Inc. (1964) 418

Lemon Laws 422

Product Liability 423

Strict Product Liability 423

Landmark in the Law MacPherson v Buick Motor Co (1916) 424

Wyeth v Levine (2009) 427

Adapting the Law to the Online Environment Should Video Games Be

Required to Have Warning Labels? 429

Defenses to Product Liability 430

Reviewing Warranties and Product Liability 432

Linking the Law to Management Quality Control 432

Chapter 18 Negotiable Instruments:

Transferability and Liability 438

Types of Instruments 439

Requirements for Negotiability 442

Preventing Legal Disputes 443

Foundation Property Investments, LLC v CTP, LLC (2007) 446

Transfer of Instruments 448

Holder in Due Course (HDC) 452

Georg v Metro Fixtures Contractors, Inc. (2008) 453

South Central Bank of Daviess County v Lynnville National

Bank (2009) 454

Signature and Warranty Liability 456

Defenses, Limitations, and Discharge 461

Landmark in the Law Federal Trade Commission Rule 433 463

Reviewing Negotiable Instruments: Transferability and Liability 464

Business Application Pitfalls When Writing and Indorsing Checks 464

Chapter 19 Checks and Banking

in the Digital Age 471

Checks 471

MidAmerica Bank, FSB v Charter One Bank (2009) 473The Bank-Customer Relationship 474 Bank’s Duty to Honor Checks 475

Auto-Owners Insurance Co v Bank One (2008) 478

Preventing Legal Disputes 480

Bank’s Duty to Accept Deposits 481

Landmark in the Law Check Clearing in the 21st Century Act (Check 21) 484

Bank One, N.A v Dunn (2006) 486Electronic Fund Transfers 487 E-Money and Online Banking 489

Reviewing Checks and Banking in the Digital Age 490

Linking the Law to Economics Banking in a Period of Crisis 491

Chapter 20 Security Interests

in Personal Property 496

The Terminology of Secured Transactions 497 Creating a Security Interest 497

Perfecting a Security Interest 498

Preventing Legal Disputes 501

Corona Fruits & Veggies, Inc v Frozsun Foods, Inc. (2006) 502The Scope of a Security Interest 504

Priorities 506 Rights and Duties of Debtors and Creditors 508 Default 510

First National Bank of Litchfi eld v Miller (2008) 511

Hicklin v Onyx Acceptance Corp. (2009) 513

Reviewing Security Interests in Personal Property 515

Business Application How Do You Perfect a Security Interest? 515

Chapter 21 Creditors’ Rights and Bankruptcy 520

Laws Assisting Creditors 521

Capital Color Printing, Inc v Ahern (2008) 526

Preventing Legal Disputes 528

Laws Assisting Debtors 528

Adapting the Law to the Online Environment The Debt That Never

Goes Away—It’s Discharged in Bankruptcy but Still on the Debtor’s

Credit Report 543

Bankruptcy Relief under Chapter 13 and Chapter 12 545

Reviewing Creditors’ Rights and Bankruptcy 548

Linking the Law to Economics The Effects of Bankruptcy Law on

Consumers and Businesses 549

Chapter 22 International Law

in a Global Economy 554

International Law—Sources and Principles 555

Doing Business Internationally 557

Regulation of Specifi c Business Activities 559

Fuji Photo Film Co v International Trade Commission (2007) 560

United States v Inn Foods, Inc. (2009) 561

Commercial Contracts in an International Setting 563

Preventing Legal Disputes 563

Beyond Our Borders Arbitration versus Litigation 565

Payment Methods for International Transactions 565

U.S Laws in a Global Context 566

Khulumani v Barclay National Bank, Ltd. (2007) 568

Reviewing International Law in a Global Economy 569

Linking the Law to Marketing Going Global 570

Unit Three Cumulative Business Hypothetical 575

Unit Three Extended Case Study: Casserlie v Shell Oil Co 575

Unit Four

Agency and Employment Law 579

Chapter 23 Agency Relationships in Business 580

Agency Relationships 581

Lopez v El Palmar Taxi, Inc. (2009) 583How Agency Relationships Are Formed 584 Duties of Agents and Principals 586

Preventing Legal Disputes 588

Agent’s Authority 589

Ermoian v Desert Hospital (2007) 591Liability in Agency Relationships 592

Warner v Southwest Desert Images, LLC (2008) 595

Landmark in the Law The Doctrine of Respondeat Superior 597

How Agency Relationships Are Terminated 598

Beyond Our Borders Islamic Law and Respondeat Superior 599

Reviewing Agency Relationships in Business 600

Business Application How Can an Employer Use Independent Contractors? 601

Chapter 24 Employment,

Immigration, and Labor Law 606

Employment at Will 606 Wage and Hour Laws 608

Adapting the Law to the Online Environment Can Parties Create and Modify Employment Contracts via E-Mail? 609

Layoffs 611 Family and Medical Leave 612

Darst v Interstate Brands Corp. (2008) 613Worker Health and Safety 614 Income Security 616

Employee Privacy Rights 619

Preventing Legal Disputes 621

Local Joint Executive Board of Las Vegas v National Labor Relations

Board (2008) 630

Reviewing Employment, Immigration, and Labor Law 631

Business Application How to Develop an Employee Internet Policy 632

Chapter 25 Employment Discrimination 638

Title VII of the Civil Rights Act of 1964 639

Preventing Legal Disputes 645

Beyond Our Borders Sexual Harassment in Other Nations 648

Discrimination Based on Age 648

Sprint/United Management Co v Mendelsohn (2008) 649

Discrimination Based on Disability 650

Rohr v Salt River Project Agricultural Improvement and Power

District (2009) 652

Francin v Mosby, Inc. (2008) 654

Defenses to Employment Discrimination 655

Affi rmative Action 656

State Statutes 657

Reviewing Employment Discrimination 658

Linking the Law to Management Human Resource Management

Comes to the Fore 658

Unit Four Cumulative Business Hypothetical 664

Unit Four Extended Case Study: Media General Operations, Inc v

National Labor Relations Board 664

Unit Five

Business Organizations 667

Chapter 26 Sole Proprietorships

and Private Franchises 668

Sole Proprietorships 669

Garden City Boxing Club, Inc v Dominguez (2006) 670

Franchises 670

Adapting the Law to the Online Environment Satisfying the FTC’s

Franchise Rule in the Internet Age 673

The Franchise Contract 674

Beyond Our Borders Franchising in Foreign Nations 675

Termination of the Franchise 676

LJL Transportation, Inc v Pilot Air Freight Corp. (2009) 676

Preventing Legal Disputes 677

Chic Miller’s Chevrolet, Inc v General Motors Corp. (2005) 678

Reviewing Sole Proprietorships and Private Franchises 678

Business Application What Problems Can a Franchisee Anticipate? 679

Chapter 27 All Forms of Partnership 683

Basic Partnership Concepts 683 Partnership Formation 685

Beyond Our Borders Doing Business with Foreign Partners 687

Partnership Operation, Dissociation, and Termination 687

Warnick v Warnick (2006) 693

Preventing Legal Disputes 695

Limited Liability Partnerships 695 Limited Partnerships 697

1515 North Wells, LP v 1513 North Wells, LLC (2009) 699

In re Dissolution of Midnight Star Enterprises, LP (2006) 700

Reviewing All Forms of Partnership 701

Business Application Why Are General Partnerships Declining in Popularity? 701

Chapter 28 Limited Liability Companies

and Special Business Forms 706

Landmark in the Law Limited Liability Company (LLC) Statutes 707

Limited Liability Companies 707

McFarland v Virginia Retirement Services of Chesterfi eld, LLC (2007) 708

02 Development, LLC v 607 South Park, LLC (2008) 709

Allen v Dackman (2009) 710LLC Operation and Management 711

Beyond Our Borders Limited Liability Companies in Other Nations 712

Dissociation and Dissolution of an LLC 713

Preventing Legal Disputes 714

Special Business Forms 715

Reviewing Limited Liability Companies and Special Business

Forms 717

Business Application How Do You Choose between LLCs and LLPs? 717

Chapter 29 Corporate Formation,

Merger, and Termination 722

Corporate Nature and Classifi cation 723

Adapting the Law to the Online Environment Economic Recession

Fuels the Internet Taxation Debate 725

Willams v Stanford (2008) 729

Corporate Formation and Powers 730

Preventing Legal Disputes 732

Defects in Formation and Corporate Status 735

Brown v W.P Media, Inc. (2009) 736

In re Aqua Clear Technologies, Inc. (2007) 737

Corporate Financing 738

Mergers and Acquisitions 740

Termination 744

Reviewing Corporate Formation, Merger, and Termination 746

Linking the Law to Finance Sources of Funds 746

Chapter 30 Corporate Directors,

Offi cers, and Shareholders 753

Roles of Directors and Offi cers 753

Preventing Legal Disputes 756

Duties and Liabilities of Directors and Offi cers 757

Guth v Loft, Inc. (1939) 760

Role of Shareholders 761

Adapting the Law to the Online Environment Moving Company

Information to the Internet 763

Portnoy v Cryo-Cell International, Inc. (2008) 765

Rights of Shareholders 766

Beyond Our Borders Derivative Actions in Other Nations 769

Duties and Liabilities of Shareholders 769

Mazloom v Mazloom (2009) 770

Major Business Forms Compared 771

Reviewing Corporate Directors, Offi cers, and Shareholders 773

Business Application Creating an E-Document-Retention Policy 773

Chapter 31 Investor Protection, Insider

Trading, and Corporate Governance 778

Securities Act of 1933 779

Landmark in the Law The Securities and Exchange Commission 780

Preventing Legal Disputes 781

Securities Exchange Act of 1934 786

Adapting the Law to the Online Environment Corporate Blogs and Tweets Must Comply with the Securities Exchange Act 787

SEC v Texas Gulf Sulphur Co. (1968) 788

Stoneridge Investment Partners, LLC v Scientifi c-Atlanta, Inc. (2008) 790

Stark Trading v Falconbridge, Ltd. (2009) 794State Securities Laws 795

Corporate Governance 796

Beyond Our Borders Corporate Governance in Other Nations 797

Online Securities Fraud 800

Reviewing Investor Protection, Insider Trading, and Corporate Governance 802

Linking the Law to Taxation The Tax Consequences of Deleveraging during an Economic Crisis 802

Unit Five Cumulative Business Hypothetical 808

Unit Five Extended Case Study: Notz v Everett Smith Group, Ltd 808

Unit Six

Government Regulation 811

Chapter 32 Promoting Competition 812

The Sherman Antitrust Act 813

Landmark in the Law The Sherman Antitrust Act of 1890 814

Section 1 of the Sherman Act 815

Leegin Creative Leather Products, Inc v PSKS, Inc. (2007) 818Section 2 of the Sherman Act 818

Preventing Legal Disputes 820

Weyerhaeuser Co v Ross-Simmons Hardwood Lumber Co. (2007) 821The Clayton Act 822

Chapter 29

Chapter 30

Chapter 31

Chapter 32

Chicago Bridge & Iron Co v Federal Trade Commission (2008) 825

Enforcement and Exemptions 826

U.S Antitrust Laws in the Global Context 827

Beyond Our Borders The European Union’s Expanding Role in Antitrust

Litigation 829

Reviewing Promoting Competition 829

Business Application How Can You Avoid Antitrust Problems? 830

Consumer Law 835

Federal Trade Commission v QT, Inc. (2008) 837

Preventing Legal Disputes 839

Beyond Our Borders Protecting U.S Consumers from Cross-Border

Telemarketers 840

Environmental Law 846

Entergy Corp v Riverkeeper, Inc. (2009) 850

Reviewing Consumer Law 854

Business Application How Can You Keep Abreast of

Environmental Laws? 855

Chapter 34 Liability of Accountants

and Other Professionals 860

Potential Common Law Liability to Clients 861

Landmark in the Law The SEC Adopts Global Accounting Rules 863

Walsh v State (2009) 864

Potential Liability to Third Parties 865

The Sarbanes-Oxley Act of 2002 867

Potential Statutory Liability of Accountants under

Securities Laws 869

Preventing Legal Disputes 870

Overton v Todman & Co., CPAs, P.C. (2007) 872

Potential Criminal Liability 873

Confi dentiality and Privilege 874

Reviewing Liability of Accountants and Other Professionals 874

Linking the Law to Business Statistics Statistical Sampling When

Conducting Audits 875

Unit Six Cumulative Business Hypothetical 880

Unit Six Extended Case Study: McCoy v Chase Manhattan Bank, USA 880

Unit Seven

Property and Its Protection 883

Chapter 35 Personal Property and Bailments 884

Property Ownership 885 Acquiring Ownership of Personal Property 886

In re Estate of Piper (1984) 888Mislaid, Lost, and Abandoned Property 890 Bailments 892

LaPlace v Briere (2009) 896

Treiber & Straub, Inc v United Parcel Service, Inc. (2007) 898

Reviewing Personal Property and Bailments 899

Business Application What Should You Do with Lost Property? 900

Chapter 36 Real Property and

Landlord-Tenant Law 905

The Nature of Real Property 905 Ownership Interests in Real Property 907

Biglane v Under The Hill Corp. (2007) 908

Roman Catholic Church of Our Lady of Sorrows v Prince Realty Management, LLC (2008) 910

Transfer of Ownership 911

Drake v Walton County (2009) 914Leasehold Estates 915 Landlord-Tenant Relationships 916

Reviewing Real Property and Landlord-Tenant Law 918

Linking the Law to Economics Eminent Domain 919

Chapter 33

Chapter 34

Chapter 35

Chapter 36

Chapter 37 Insurance, Wills, and Trusts 924

Reviewing Insurance, Wills, and Trusts 944

Business Application How Can You Manage Risk in Cyberspace? 944

Unit Seven Cumulative Business Hypothetical 950

Unit Seven Extended Case Study: Kovarik v Kovarik 950

Appendices

Appendix A How to Brief Cases

and Analyze Case Problems A–1 Appendix B The Constitution of the United States A–3 Appendix C The Uniform Commercial Code

(Excerpts) A–10 Appendix D The Sarbanes-Oxley Act of 2002 (Excerpts

and Explanatory Comments) A–120 Appendix E Sample Answers for End-of-Chapter

Hypothetical Questions with Sample Answer A–126

Appendix F Case Excerpts for

Case Analysis Questions A–132

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

Chapter 37

Business law and the legal environment should be an exciting, contemporary, and

interest-ing course Business Law Today, Ninth Edition, imparts this excitement to your students

We have spent a great deal of effort in giving this book a visual appeal that will encourage

students to learn the law By incorporating the latest research results, Business Law Today

continues its established tradition of being the most up-to-date text on the market The law

presented in the Ninth Edition of Business Law Today includes new statutes, regulations,

and cases, as well as the most recent developments in cyberlaw

You will fi nd that coverage of traditional business law has not been sacrifi ced in the

pro-cess of creating this text Additionally, Business Law Today explicitly addresses the American

Assembly of Collegiate Schools of Business’s (AACSB’s) broad array of curriculum ments For example, many of the features and special pedagogical devices in this text focus

require-on the global, political, ethical, social, envirrequire-onmental, technological, and cultural crequire-ontexts

of business law In addition, critical-thinking skills are reinforced throughout

A New Chapter on Cyber Crime

Cyber crime has become an increasingly critical problem for businesses today We believe that this problem has become important enough to warrant a separate chapter, which is new to this edition In it, we examine such cyber crimes as hacking, identity theft, phish-ing, spamming, and online credit-card fraud We also discuss the diffi culties in prosecuting cyber criminals, many of whom reside in other countries

Practical and Effective Learning Tools

Instructors have come to rely on the coverage, accuracy, and applicability of Business Law

Today For this edition, we have included a number of features to make the text more

appli-cable to today’s business environment and to promote critical-thinking skills We have also signifi cantly streamlined and reorganized the materials, and have focused on making the text more cohesive and understandable

We have added a new Linking the Law feature (discussed next) to encourage plinary learning and have added many new highlighted and numbered Case Examples to

interdisci-help students understand how courts decide real-world disputes As in the last edition, we

continue to provide a variety of assessment tools, including the new ExamPrep section, plus sample questions and Reviewing features The subsections that follow outline the new and

retained special features of this text

New Feature Links the Law to Other Business School Disciplines

For the Ninth Edition of Business Law Today, we have added a special new feature entitled

Linking the Law to [Accounting, Economics, Finance, Management, Marketing,

Taxa-tion] These special features appear in selected chapters to underscore how the law relates

to various other disciplines in the typical business school curriculum They not only enable instructors to meet AACSB teaching requirements but also provide vital and practical infor-mation to students on how the subjects they study are interconnected In addition, each

of these features concludes with a For Critical Analysis question designed to encourage

students to engage in critical thinking and to consider the implications of the topic under

discussion Some of the new Linking the Law features include:

P R E FAC E TO T H E I N ST R U C TO R

• Linking the Law to Managerial Accounting: Managing a Company’s Reputation

(Chapter 8)

• Linking the Law to Economics: Banking in the Period of Crisis (Chapter 19).

• Linking the Law to Marketing: Going Global (Chapter 22).

• Linking the Law to Taxation: The Consequences of Your Business Organization Choice (Chapter 26).

New Highlighted and Numbered Case Examples

One of the most appreciated features of Business Law Today has always been the highlighted

numbered examples that appear throughout the book to illustrate the legal principles under discussion For this edition, rather than presenting more summarized cases in each

chapter, we have expanded the in-text numbered examples to include Case Examples

These Case Examples are integrated appropriately throughout the text and present the facts,

issues, and rulings from actual court cases Students can quickly read through the example

to see how courts apply the legal principles under discussion

Business Applications

Every chapter in the Ninth Edition concludes with either a Linking the Law feature

(previ-ously discussed) or a Business Application feature The Business Applications focus on

prac-tical considerations related to the chapter’s contents and conclude with a checklist of tips

for the businessperson For example, some of the topics include:

• Determining How Much Force You Can Use to Prevent Crimes on Business Premises (Chapter 6)

• How to Develop an Employee Internet Policy (Chapter 24)

• How Do You Choose between LLCs and LLPs? (Chapter 28)

Preventing Legal Disputes

For the Ninth Edition of Business Law Today, we continue our emphasis on providing practical

information in every chapter through a special feature entitled Preventing Legal Disputes

These brief, integrated sections offer sensible guidance on steps that businesspersons can take

in their daily transactions to avoid legal disputes and litigation in a particular area

Adapting the Law to the Online Environment

The Ninth Edition contains many new Adapting the Law to the Online Environment

fea-tures, which examine cutting-edge cyberlaw issues coming before today’s courts Here are some examples of these features:

• The Supreme Court Upholds a Law That Prohibits Pandering Virtual Child phy (Chapter 2)

Pornogra-• Should CDA Immunity Extend to Negligence Claims against MySpace? (Chapter 4)

• Should the Law Continue to Allow Business Process Patents? (Chapter 7)

• The Debt That Never Goes Away—It’s Discharged in Bankruptcy but Still on the Debtor’s Credit Report (Chapter 21)

• Corporate Blogs and Tweets Must Comply with the Securities and Exchange Act (Chapter 31)

Each feature concludes with a For Critical Analysis section that asks the student to think

critically about some facet of the issues discussed in the feature Suggested answers to

these questions are included in both the Instructor’s Manual and the Answers Manual

that accompany this text.

Critical-Thinking and Legal Reasoning Elements

Because today’s business leaders are often required to think “outside the box” when

mak-ing business decisions, we offer many critical-thinkmak-ing elements that challenge students’

understanding of the materials beyond simple retention Your students’ critical-thinking and legal reasoning skills will be increased as they work through the numerous pedagogical devices throughout the text Nearly every feature and every case presented in the text con-

clude with some type of critical-thinking question These questions include For Critical

Analysis, What If the Facts Were Different? and Why Is This Case Important?

In addition, in the chapter-ending materials, we include a separate section of questions that focus on critical thinking and writing

• Nearly every chapter includes a Critical Legal Thinking question that requires students

to think critically about some aspect of the law discussed in the chapter

• Selected chapters include a Critical Thinking and Writing Assignment for Business

question that focuses on critical thinking and writing in a business-oriented context

• For selected chapters, Case Analysis Questions are included to improve the students’

ability to analyze cases and perform legal reasoning Students are asked to read through

a case excerpt that is provided in Appendix F, brief the case, and then answer a series of questions relating to the case

Additionally, for the Ninth Edition, we have completely revised and updated the Handbook

on Critical Thinking in Business Law and the Legal Environment This important revised

resource will enhance your students’ ability to think critically about issues in business law and the legal environment It is available on request as a bundle with the main text Ask your South-Western/Cengage Learning sales representative about this impressive package

Reviewing Features and ExamPrep Sections

At the end of each chapter in this text, we include a Reviewing feature that helps solidify

students’ understanding of the chapter materials Each of these features presents a thetical scenario and then asks a series of questions that require students to identify the issues and apply the legal concepts discussed in the chapter They are intended to help students review the chapter materials in a simple and interesting way An instructor can use these features as the basis for a lively in-class discussion or encourage students to use them for self-study and assessment before completing homework assignments

hypo-Also in every chapter, following the Chapter Summary, appears a new ExamPrep

sec-tion that includes two Issue Spotters related to the chapter’s topics These Issue Spotters

facilitate student learning and review of the chapter materials In addition, the section

refers students to the text’s Web site for the answers to the Issue Spotters and for additional study tools, such as Flashcards and Interactive Quizzes correlated to the chapter

Beyond Our Borders

These features give students an awareness of the global legal environment by indicating how international laws or the laws of other nations deal with specifi c legal concepts or topics

being discussed in the chapter Each of these features concludes with a For Critical Analysis

question Suggested answers to these questions are included in both the Instructor’s

Manual and the Answers Manual that accompany this text.

Landmark in the Law

This feature discusses a landmark case, statute, or other legal development that has had

a signifi cant effect on business law Each of these features has a section titled Application

to Today’s World, which indicates how the law discussed in the feature affects the legal

landscape of today’s world In addition, a Relevant Web Sites section directs students to

the book’s Companion Web site for links to additional information available online

Two Questions with Sample Answers in Each Chapter

For those instructors who would like students to have sample answers available for some

of the chapter-ending questions, we have included two such questions in every chapter

Each chapter includes a Hypothetical Question with Sample Answer that is answered in Appendix E of the text and a Case Problem with Sample Answer that is based on an

actual case and answered on the text’s Web site Students can compare their own answers

to the answers provided to determine whether they have applied the law correctly and to learn what needs to be included when answering the end-of-chapter questions and case problems The sample answers to both types of questions are posted on the text’s Web site (located at www.cengage.com/blaw/blt) for your convenience

Ethical Issues

In addition to a chapter on ethics, chapter-ending ethical questions, and the Ethical

Considerations in many of the For Critical Analysis questions in cases presented in this

text, we have included special features called Ethical Issues These features, which are

closely integrated with the text, open with a question addressing an ethical dimension of the topic being discussed They are intended to make sure students understand that ethics

is an integral part of a business law course

Business Law Today on the Web

For this edition of Business Law Today, we have redesigned and streamlined the text’s Web

site so that users can easily locate the resources they seek When you visit our Web site

at www.cengage.com/blaw/blt, you will fi nd a broad array of teaching/learning resources, including the following:

• Relevant Web sites for all of the Landmark in the Law features and the Classic Cases that

are presented in this text

• Sample Answers to the Case Problems with Sample Answers and the Hypothetical Questions

with Sample Answers that appear at the end of every chapter

• Answers to the Issue Spotters referenced in the ExamPrep section of every chapter.

• Answers to the even-numbered For Review questions that appear at the end of every

chapter

• Videos referenced in the Video Questions that appear at the ends of selected chapters of

Business Law Today, Ninth Edition (available only with a passcode)

• Practical Internet Exercises for every chapter in the text (at least two per chapter) that

provide students with practical information on topics covered in the text and acquaint students with the legal resources that are available online

• Interactive quizzes for every chapter in this text that include a number of questions

related to each chapter’s contents

• Key terms for every chapter in the text.

• Flashcards that provide students with an optional study tool to review the key terms in

every chapter

• Appendix A: How to Brief Cases and Analyze Case Problems This useful appendix for

the book is also posted on the Web site

• PowerPoint slides revised for this edition.

• Legal reference materials that offer links to selected statutes referenced in the text, a

Spanish glossary, and other important legal resources

• Online Legal Research Guide: 2010–2011 Edition that includes hyperlinks to various

Web sites and tips for evaluating the information provided

• Court case updates that present summaries of new cases from around the country that

specifi cally relate to the topics covered in the chapters of this text

Business Law Digital Video Library

Business Law Today includes Video Questions at the end of selected chapters that can be used

as homework assignments, discussion starters, or classroom demonstrations Each of these questions directs students to the text’s Web site (at www.cengage.com/blaw/blt) to view a video relevant to a topic covered in the chapter This instruction is followed by a series of questions based on the video The questions are repeated on the Web site, when the stu-

dent accesses the video Suggested answers for all of the Video Questions are given in

both the Instructor’s Manual and the Answers Manual that accompany this text

The videos are part of Business Law Digital Video Library, a compendium of more than

sixty-fi ve video scenarios and explanations An access code for the videos can be packaged

with each new copy of this textbook for no additional charge If Business Law Digital Video

Library access did not come packaged with the textbook, it can be purchased online at

www.cengage.com/blaw/dvl

Case Presentation and Special Pedagogy

In addition to the components of the Business Law Today teaching/learning package

described above, the Ninth Edition offers an effective case presentation and a number of special pedagogical devices, including those described here

Case Presentation and Format

For this edition, we have carefully selected recent cases for each chapter that not only vide on-point illustrations of the legal principles discussed in the chapter but also are of high interest to students The cases are numbered sequentially for easy referencing in class discussions, homework assignments, and examinations The vast majority of cases in this text are new to the Ninth Edition

pro-Each case is presented in a special format, which begins with the case title and citation (including parallel citations) Whenever possible, we also include a URL, just below the case citation, that can be used to access the case online (a footnote to the URL explains how

to fi nd the specifi c case at that Web site) We then briefl y outline the facts of the dispute, the legal issue presented, and the court’s decision To enhance student understanding, we paraphrase the reason for the court’s decision

Each case concludes with one of the following:

• For Critical Analysis These questions require students to think about the court’s

hold-ing from a variety of different perspectives For instance, a student might be asked to

consider the economic or social ramifi cations of a particular ruling Suggested answers

to these questions are included in both the Instructor’s Manual and the Answers

Manual that accompany this text.

• What If the Facts Were Different? These questions ask the student to decide whether

a specifi ed change in the facts of the case would alter the outcome of the case and how

Suggested answers to these questions are included in both the Instructor’s Manual and the Answers Manual that accompany this text.

• Why Is This Case Important? These questions, which are answered in the text, clearly set

forth the importance of the court’s decision in the specifi c case in the legal environment

Some of these questions focus specifi cally on why businesspersons today should heed the court’s ruling in a particular case.

• Impact of This Case on Today’s Law For Classic Cases, we include these sections to

clarify the relevance of the case to modern law We also have a section titled Relevant

Web Sites at the conclusion of each Classic Case that directs students to the Web site for

additional online resources

Other Pedagogical Devices within Each Chapter

• Learning Objectives (a series of brief questions at the beginning of each chapter provide

a framework for the student as he or she reads through the chapter)

• Chapter Outline (an outline of the chapter’s fi rst-level headings).

• Margin defi nitions.

• Margin On the Web features directing students to relevant Web sites where they will

fi nd online articles, statutes, or other legal or information sources concerning a topic being discussed in the text

• Highlighted and numbered examples illustrating legal principles

• Highlighted and numbered Case Examples that are new to this edition and provide

illustrations of legal principles in actual court cases

• URLs for cases—Whenever possible, we have included URLs, just below the case

cita-tion, that can be used to access the cases presented in the text

• Quotations—Many of the quotations are new to this edition.

• Exhibits and forms

• Concept Summaries—Whenever key areas of law need additional emphasis, we provide

a concept summary to add clarity

• Photographs (with critical-thinking questions) and cartoons.

Chapter-Ending Pedagogy

• Key Terms (with appropriate page references).

• Chapter Summary (in graphic format with page references).

• ExamPrep (including two new Issue Spotters for each chapter).

• For Review (the questions set forth in the chapter-opening Learning Objectives section

are presented again to aid the student in reviewing the chapter Answers to the numbered questions for each chapter are provided on the text’s Web site)

even-• Hypothetical Questions and Case Problems (which include a Hypothetical Question with

Sam-ple Answer, a Case Problem with SamSam-ple Answer, and A Question of Ethics in every chapter).

• Critical Thinking and Writing Assignments for Business (including Critical Legal

Thinking and Video Questions in selected chapters)

• Case Problem with Sample Answer (as discussed earlier, each chapter contains one of

these case problems, for which the answer has been provided on the text’s Web site at

www.cengage.com/blaw/blt)

• Practical Internet Exercises for each chapter.

Unit-Ending Pedagogy—Cumulative Business Hypotheticals

Each unit in Business Law Today, Ninth Edition, concludes with a section titled Cumulative

Business Hypothetical The section introduces a hypothetical business fi rm and then

asks a series of questions about how the law applies to various actions taken by the fi rm

To answer the questions, the student must apply the laws discussed throughout the unit

Suggested answers to the unit-ending cumulative questions are included in both

the Instructor’s Manual and the Answers Manual that accompany this text

Unit-Ending Pedagogy—Extended Case Studies

At the end of each unit is a two-page feature entitled Extended Case Study This feature

focuses on a recent court case relating to a topic covered in the unit Each feature opens with an introductory section, which discusses the background and signifi cance of the case

being presented Then we present excerpts from the court’s majority opinion and from

a dissenting opinion in the case The feature concludes with Questions for Analysis—a

series of questions that prompt the student to think critically about the legal, ethical,

eco-nomic, global, or general business implications of the case Suggested answers to these

questions are included in both the Instructor’s Manual and the Answers Manual that

accompany this text

Supplemental Teaching Materials

This edition of Business Law Today is accompanied by an expansive number of teaching and

learning supplements Individually and in conjunction with a number of our colleagues,

we have developed supplementary teaching materials that we believe are the best available today Each component of the supplements package is listed below

Printed Supplements

• Instructor’s Manual (includes at least one additional case on point per chapter, answers

to all For Critical Analysis questions, Reviewing features, Video Questions, Cumulative

Business Hypotheticals, and Extended Case Studies The Instructor’s Manual is also available

on the Instructor’s Resource CD-ROM, or IRCD, described below).

• Study Guide

• A comprehensive Test Bank (also available on the IRCD).

• Answers Manual (includes answers to the Hypothetical Questions and Case Problems,

For Critical Analysis questions, and Video Questions in the text Also available on

the IRCD.)

• Handbook on Critical Thinking in Business Law and the Legal Environment (an

impor-tant resource that has been completely revised and updated for this edition)

Software, Video, and Multimedia Supplements

• Instructor’s Resource CD-ROM (IRCD)—The IRCD includes the following

supple-ments: Instructor’s Manual, Answers Manual, Test Bank, Case-Problem Cases, Case

Printouts, ExamView, PowerPoint slides, Lecture Outline System, transparency masters,

Instructor’s Manual for the Drama of the Law video series, Handbook of Landmark Cases and Statutes in Business Law and the Legal Environment, Handbook on Critical Thinking in Business Law and the Legal Environment, and A Guide to Personal Law

• Business Law Digital Video Library—Provides access to more than sixty-fi ve videos

that spark class discussion and clarify core legal concepts Access is available as an

optional package with each new text at no additional cost If Business Law Digital Video

Library access did not come packaged with the textbook, it can be purchased online at

www.cengage.com/blaw/dvl

• CengageNOW for Business Law Today (at an additional cost)—Arguably the most

com-prehensive online learning and assessment tool for business law and the legal ment on the market today For more information, contact your South-Western/Cengage Learning Sales Representative For a demo of this complete online learning system, go

environ-to www.cengage.com/tlc

• Global Economic Watch—An online portal that addresses issues raised by the most

recent global economic crisis and includes a global issues database, an overview and timeline of events, and links to the latest news For more information on how you can access this new resource, please visit www.cengage.com/thewatch

For Users of the Eighth Edition

We thought that those of you who have been using Business Law Today would like to know

some of the major changes that have been made for the Ninth Edition In addition to the changes noted below, you will fi nd that most of the cases in this text are new to this edition Nearly every chapter has two new cases, and some chapters have three new cases Each chapter also has one, two, or even three new case problems

New Features and Special Pedagogy

We have added the following entirely new elements for the Ninth Edition:

• Linking the Law features that relate legal principles to other business disciplines.

• Case Examples that are highlighted and numbered consecutively with the other in-text

examples to illustrate legal principles, but are based on the facts and decisions of actual courts

• ExamPrep sections in every chapter that include two Issue Spotters as well as references

to the Interactive Quizzes and Flashcards available on the text’s Web site

Significantly Revised Chapters

Every chapter of the Ninth Edition has been revised as necessary to incorporate new opments in the law or to streamline the presentations We have reorganized the chapters for the Ninth Edition to facilitate testing Other major changes and additions made for this edition include the following:

devel-• Chapter 5 (Intellectual Property and Internet Law)—The materials on intellectual erty rights in the online environment have been thoroughly revised and updated A new subsection addresses the problem of counterfeit goods, and the discussion of domain names and cybersquatting has been updated Several recent Supreme Court cases are discussed in the text and in the feature dealing with business process patents

prop-• Chapter 7 (Cyber Crime)—This chapter is entirely new to this edition and deals with the growing problem of cyber crime, including many types of Internet fraud, identity theft, phishing, cyberstalking, credit-card crime, hackers, piracy, spam, and online gam-bling The chapter also covers some of the diffi culties involved in prosecuting cyber crime

• Chapter 8 (Ethics and Business Decision Making)—This chapter has been substantially revised and refocused to be more pragmatic The chapter now includes a step-by-step approach to making ethical business decisions, as well as several new features discuss-ing how companies and management can deal with attacks on a company’s reputation

• Chapters 9 through 14 (the Contracts unit)—We have merged our discussion of online contracting and electronic signatures with our coverage of traditional contracts We have added more examples, case examples, updates throughout, and streamlined coverage

• Chapters 15 through 22 (Commercial Transactions)—We have streamlined and ganized our materials so that we have an entire unit that deals with commercial trans-actions and aspects of the Uniform Commercial Code This new unit includes several chapters on sales and lease law, as well as chapters on negotiable instruments, banking and security interests, creditors’ rights and bankruptcy, and international law in the

reor-global economy We have focused on making these materials more comprehensible and readable, particularly in the areas of negotiable instruments and secured transactions

• Chapter 24 (Employment, Immigration, and Labor Law) and Chapter 25 (Employment Discrimination)—These two chapters covering employment law have been thoroughly revised and updated to include discussions of legal issues facing employers today Chapter 24 includes an entirely new section on immigration law, a topic of increasing importance to employers It also includes the 2009 changes to the Family and Medical Leave Act and an updated discussion of electronic monitoring of employees Chapter 25 includes the latest developments and United States Supreme Court decisions on con-structive discharge, retaliation, religious discrimination, and age discrimination It also includes the 2009 equal pay legislation, the 2008 amendments to the Americans with Disabilities Act, and a new subsection covering association discrimination

• Chapter 29 (Corporate Formation, Merger, and Termination)—This chapter provides an updated and streamlined presentation of issues surrounding corporation formation and termination The chapter was revamped to include more on taxation, holding compa-nies, venture capital, and private equity capital We have updated the materials on merg-ers, consolidations, and share exchanges, and include recent examples throughout

• Chapter 30 (Corporate Directors, Offi cers, and Shareholders)—This chapter now includes a new exhibit on directors’ duties, a new classic case on the duty of loyalty, a discussion of directors’ committees, and up-to-date information on e-proxy rules

• Chapter 31 (Investor Protection, Insider Trading, and Corporate Governance)—We have revamped this chapter to discuss the simplifi ed registration process for “well-known seasoned issuers” and provide recent examples of insider trading and online securities fraud Several new features discuss the disclosure of fi nancial information on corporate blogs and tweets, and the tax consequences of deleveraging during an economic crisis

• Chapter 32 (Promoting Competition)—We have reworked the materials on relevant market somewhat and added more discussion of the Robinson-Patman Act and the Herfi ndahl-Hirschman Index (HHI) The chapter includes updated interlocking direc-torate fi gures and an updated discussion of global antitrust law

• Chapter 33 (Consumer and Environmental Law)—The chapter has been thoroughly updated to include more detail on the national permit system under the Clean Water Act and an updated discussion of credit protection that includes the 2009 changes to federal credit-card rules

• Chapter 34 (Liability of Accountants and Other Professionals)—This chapter, which was added in the Eighth Edition, has been updated to discuss how the Securities and Exchange Commission has recently adopted global accounting rules It also includes a new feature on statistical sampling when conducting audits

Acknowledgments

Numerous careful and conscientious users of Business Law Today were kind enough to help

us revise this book In addition, the staff at South-Western/Cengage Learning went out of their way to make sure that this edition came out early and in accurate form In particular,

we wish to thank Rob Dewey and Vicky True for their countless new ideas, many of which have been incorporated into the Ninth Edition We also extend special thanks to Jan Lamar, our longtime developmental editor, for her many useful suggestions and for her efforts in coordinating reviews and ensuring the timely and accurate publication of all supplemental materials We are particularly indebted to Jennifer Garamy for her support and excellent marketing advice

Our production manager and designer, Bill Stryker, made sure that we came out with

an error-free, visually attractive edition We will always be in his debt We thank our photo

researcher, Anne Sheroff, for providing us with an amazingly varied number of choices of photographs for this edition We are also indebted to the staff at Parkwood Composition, our compositor Their ability to generate the pages for this text quickly and accurately made it possible for us to meet our ambitious printing schedule.

We must especially thank Katherine Marie Silsbee for her management of the project,

as well as for the application of her superb research and editorial skills We also wish to

thank William Eric Hollowell, coauthor of the Instructor’s Manual, Study Guide, Test Bank, and Online Legal Research Guide, for his excellent research efforts The copyediting services

of Pat Lewis were invaluable, and the proofreading by Kristi Wiswell and Jeni Henrickson will not go unnoticed We also thank Vickie Reierson and Roxanna Lee for their proof-reading, project management, and other assistance, which helped to ensure an error-free text Finally, our appreciation goes to Suzanne Jasin for her many special efforts on the projects

Acknowledgments for Previous Editions

California Polytechnic University—

San Luis Obispo

East Carolina University, North Carolina

Sarah Weiner Keidan

Oakland Community College, Michigan

Des Moines Area Community College, Iowa

Jim Lee Morgan

West Los Angeles College, California

Macomb Community College, Michigan

Martha Wright Sartoris

North Hennepin Community College, Minnesota

Anne W Schacherl

Madison Area Technical College, Wisconsin

Edward F Shafer

Rochester Community College, Minnesota

Lou Ann Simpson

Drake University, Iowa

James D Van Tassel

Mission College, California

James L Wittenbach

University of Notre Dame, Indiana

Joseph Zavaglia, Jr.

Brookdale Community College, New Jersey

Acknowledgments for the Ninth Edition

North Georgia College and State University

Anne Montgomery Ricketts

University of Findlay, Ohio

Dr William J Russell

Northwest Nazarene University, Idaho

Lance Shoemaker, J.D., M.C.P., M.A.

West Valley College, California

Northwestern State University, Louisiana

We know that we are not perfect If you or your students fi nd something you don’t like

or want us to change, let us know Use the “Contact Us” button in the blue bar that runs across the Web site for this text In the alternative, pass along your thoughts to your South-

Western/Cengage Learning sales representative Your comments will help us make Business

Law Today an even better book in the future.

Roger LeRoy MillerGaylord A Jentz

To Kim, Jay, Sidney, and Johnny,

who are the world’s best house guests You are always welcome

R.L.M

To my wife, JoAnn; my children, Kathy,Gary, Lori, and Rory; and my grandchildren,Erin, Megan, Eric, Emily, Michelle, Javier,Carmen, and Steve

G.A.J

U n i t C o n t e n t s

1 The Legal Environment

2 Constitutional Law

3 Courts and Alternative Dispute Resolution

4 Torts and Cyber Torts

5 Intellectual Property and Internet Law

Clarence Darrow’s assertion in the chapter-opening quotation is that laws should be created

to serve the public As part of the public, the law is of interest to you Those entering the world of business will fi nd themselves subject to numerous laws and government regula-tions A basic knowledge of these laws and regulations is benefi cial—if not essential—to anyone contemplating a successful career in today’s business environment

Although the law has various defi nitions, they all are based on the general observation

that law consists of enforceable rules governing relationships among individuals and between

individuals and their society In some societies, these enforceable rules consist of unwritten

principles of behavior, while in other societies they are set forth in ancient or contemporary law codes In the United States, our rules consist of written laws and court decisions cre-ated 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

con-sistent with the values and beliefs of a society or its ruling group.

In this introductory chapter, we fi rst look at an important question for any student ing this text: How does the legal environment affect business decision making? We next describe the basic sources of American law, the common law tradition, and some basic schools of legal thought We conclude the chapter with a discussion of some general clas-sifi cations of law

read-Law A body of enforceable rules

govern-ing relationships among individuals and

between individuals and their society.

2 U N I T O N E The Legal Environment of Business

2. What is the common law tradition?

3. What is a precedent? When might a court depart from precedent?

4. What is the difference between remedies

at law and remedies in equity?

5. What are some important differences between civil law and criminal law?

clothes They should

be made to fi t the people they are

Preventing Legal Disputes

Business Activities and the Legal Environment

As those entering the business world will learn, laws and government regulations affect all business activities—hiring and fi ring decisions, workplace safety, the manufacturing and marketing of products, and business fi nancing, to name just a few To make good busi-ness decisions, a basic knowledge of the laws and regulations governing these activities

is essential Moreover, in today’s setting, simply being aware of what conduct can lead to legal liability is not enough Businesspersons are also under increasing pressure to make ethical decisions and to consider the consequences of their decisions for stockholders and employees (as will be discussed in Chapter 8)

Many Different Laws May Affect a Single Business Transaction

As you will note, each chapter in this text covers a specifi c area of the law and shows how the legal rules in that area affect business activities Although compartmentalizing the law in this fashion facilitates learning, it does not indicate the extent to which many different laws may apply to just one transaction EXAMPLE 1.1 Suppose that you are the president of NetSys, Inc.,

a company that creates and maintains computer network systems for other business fi rms NetSys also markets software for internal computer networks One day, Janet Hernandez,

an operations offi cer for Southwest Distribution Corporation (SDC), contacts you by e-mail about a possible contract involving SDC’s computer network In deciding whether to enter into a contract with SDC, you need to consider, among other things, the legal requirements for an enforceable contract Are the requirements different for a contract for services and a

contract for products? What are your options if SDC breaches (breaks, or fails to perform)

the contract? The answers to these questions are part of contract law and sales law

Other questions might concern payment under the contract How can you guarantee that NetSys will be paid? For example, if SDC pays with a check that is returned for insuf-

fi cient funds, what are your options? Answers to these questions can be found in the laws that relate to negotiable instruments (such as checks) and creditors’ rights Also, a dispute may arise over the rights to NetSys’s software, or there may be a question of liability if the software is defective There may even be an issue as to whether you and Hernandez had the authority to make the deal in the fi rst place Resolutions of these questions may be found

in the laws that relate to intellectual property, e-commerce, torts, product liability, agency, business organizations, or professional liability.•

Finally, if any dispute cannot be resolved amicably, then the laws and the rules concerning courts and court procedures spell out the steps of a lawsuit Exhibit 1–1 on the following page illustrates the various areas of the law that may infl uence business decision making

To prevent potential legal disputes, be aware of the many different laws that may apply to a single ness transaction It is equally important to understand enough about the law to know when to turn to an expert for advice It is impossible for nonexperts to keep up with the myriad rules and regulations that govern the conduct of business in the United States When you need to choose an attorney, try to obtain recommendations from friends, relatives, or business associates who have had long-standing relation-ships with their attorneys If that fails, contact your local or state bar association, or check FindLaw’s online directory (at lawyers.fi ndlaw.com)

busi-Linking the Law to Other Business School Disciplines

In all likelihood, you are taking a business law or legal environment course because you intend to enter the business world, though some of you may also plan to become full-time practicing attorneys Many of you are taking other business school courses—business

Breach The failure to perform a legal

obligation.

communications, business statistics, economics, fi nance, management, marketing, and taxation, to name just a few possibilities Most of you will take a course in accounting as well One of our goals in this text is to show how legal concepts can be useful for managers and businesspersons, whether their activities focus on fi nance, marketing, or some other business discipline To that end, fi fteen chapters conclude with a special feature called

“Linking the Law to [a specifi c business course].” The link between the law and accounting

is so signifi cant that it is treated in an entire chapter (Chapter 34)

The Role of the Law in a Small Business

Some of you may end up working in a small business or even owning and running one yourselves The small-business owner/operator is the most general of managers When you seek additional fi nancing, you become a fi nance manager When you “go over the books” with your bookkeeper, you become an accountant When you decide on a new advertising campaign, you are suddenly the marketing manager When you consider the impact that

a new tax provision will have on your business, you now are a tax practitioner When you hire employees and determine their salaries and benefi ts, you become a human resources manager Finally, when you try to predict market trends, interest rates, and other macro-economic phenomena, you take on the role of a managerial economist

Just as the various business school disciplines are linked to the law, so too are all of these different managerial roles that a small-business owner/operator must perform Exhibit 1–2 shows some of the legal issues that may arise as part of the management of a small business Large businesses face many of these issues, too

Sources of American Law

There are numerous sources of American law Primary sources of law, or sources that

establish the law, include the following:

Primary Source of Law A document that

establishes the law on a particular issue,

such as a constitution, a statute, an

admin-istrative rule, or a court decision.

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

Sales

Negotiable Instruments

Creditors’

Rights

Intellectual Property

E-Commerce

Product Liability Torts

Agency

Business

Organizations

Professional Liability

Courts and Court Procedures

Contracts

Business Decision Making

• The U.S Constitution and the constitutions of the various states.

• Statutes, or laws, passed by Congress and by state legislatures

• Regulations created by administrative agencies, such as the federal Food and Drug Administration

• Case law (court decisions)

We describe each of these important primary sources of law in the following pages (See the appendix at the end of this chapter for a discussion of how to fi nd statutes, regulations, and case law.)

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

pri-mary sources of law Legal encyclopedias, compilations (such as Restatements of the Law,

which summarize court decisions on a particular topic), offi cial comments to statutes, tises, articles in law reviews published by law schools, and articles in other legal journals are examples of secondary sources of law Courts often refer to secondary sources of law for guidance in interpreting and applying the primary sources of law discussed here

trea-Constitutional Law

The federal government and the states have separate written constitutions that set forth the

general organization, powers, and limits of their respective governments Constitutional

law is the law as expressed in these constitutions.

Secondary Source of Law A

publica-tion that summarizes or interprets the

law, such as a legal encyclopedia, a legal

treatise, or an article in a law review.

Constitutional Law The body of law

derived from the U.S Constitution and

the constitutions of the various states.

• E x h i b i t 1–2 Linking the Law to the Management of a Small Business

Does the business need an employment manual, and does management have to explicitly inform employees of their rights?

Contracts, Sales, and Leases

Will the firm be regularly entering into contracts with others, and if so, should it hire an attorney to review those contracts?

The U.S Constitution is the supreme law of the land As such, it is the basis of all law

in the United States A law in violation of the Constitution, if challenged, will be declared unconstitutional and will not be enforced no matter what its source Because of its para-mount importance in the American legal system, we discuss the U.S Constitution at length

in Chapter 2 and present the complete text of the Constitution in Appendix B

The Tenth Amendment to the U.S Constitution reserves to the states all powers not granted to the federal government Each state in the union has its own constitution Unless

it confl icts with the U.S Constitution or a federal law, a state constitution is supreme within the state’s borders

Statutory Law

Laws enacted by legislative bodies at any level of government, such as the statutes passed

by Congress or by state legislatures, make up the body of law generally referred to as

statutory law When a legislature passes a statute, that statute ultimately is included in

the federal code of laws or the relevant state code of laws Whenever a particular statute is

mentioned in this text, we usually provide a footnote showing its citation (a reference to

a publication in which a legal authority—such as a statute or a court decision—or other source can be found) In the appendix following this chapter, we explain how you can use these citations to fi nd statutory law

Statutory law also includes local ordinances—statutes (laws, rules, or orders) passed by

municipal or county governing units to govern matters not covered by federal or state law Ordinances commonly have to do with city or county land use (zoning ordinances), build-ing and safety codes, and other matters affecting only the local governing unit

A federal statute, of course, applies to all states A state statute, in contrast, applies only within the state’s borders State laws thus may vary from state to state No federal statute may violate the U.S Constitution, and no state statute or local ordinance may violate the U.S Constitution or the relevant state constitution

diffi culties for businesspersons 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 (NCCUSL) in 1892 to draft uniform laws (“model

statutes”) for the states to consider adopting The NCCUSL still exists today and continues to issue uniform laws: it has issued more than two hundred uniform acts since its inception

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.”

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 fi rst issued in 1952 and has been adopted in all fi fty states,2 the District of Columbia, and the Virgin Islands The UCC facili-tates commerce among the states by providing a uniform, yet fl exible, set of rules governing commercial transactions Because of its importance in the area of commercial law, we cite the UCC frequently in this text We also present excerpts of the UCC in Appendix C (For a

discussion of the creation of the UCC, see the Landmark in the Law feature in Chapter 15.)

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

2 Louisiana has adopted only Articles 1, 3, 4, 5, 7, 8, and 9.

Statutory Law The body of law enacted

by legislative bodies (as opposed to

constitutional law, administrative law, or

case law).

Citation A reference to a publication in

which a legal authority—such as a statute

or a court decision—or other source can

be found.

Ordinance A regulation enacted by a city

or county legislative body that becomes

part of that state’s statutory law

O N T H E W E B To fi nd state

compila-tions (codes) of statutory laws, go to

fi ndlaw.com/casecode/state.html

Uniform Law A model law created by the

National Conference of Commissioners on

Uniform State Laws and/or the American

Law Institute for the states to consider

adopting Each state has the option of

adopting or rejecting all or part of a

uniform law If a state adopts the law,

it becomes statutory law in that state

O N T H E W E B You can fi nd links to

most uniform laws at the Web site of the

National Conference of Commissioners

on Uniform State Laws Go to

www.nccusl.org.

its products (See the Linking the Law feature on pages 17 and 18.)

cabinet departments of the executive branch For example, the Food and Drug tion is within the U.S Department of Health and Human Services Executive agencies are subject to the authority of the president, who has the power to appoint and remove offi -

Administra-cers of federal agencies There are also major independent regulatory agencies at the federal

level, including the Federal Trade Commission, the Securities and Exchange Commission, and the Federal Communications Commission The president’s power is less pronounced

in regard to independent agencies, whose offi cers serve for fi xed terms and cannot be removed without just cause

levels as well Commonly, a state agency (such as a state pollution-control agency) is ated as a parallel to a federal agency (such as the Environmental Protection Agency) Just as federal statutes take precedence over confl icting state statutes, so do federal agency regula-tions take precedence over confl icting state regulations Because the rules of state and local agencies vary widely, we focus here exclusively on federal administrative law

implemen-tation of all the laws it enacts, it must delegate such tasks to others, especially when the legislation involves highly technical matters, such as air and water pollution Congress cre-

ates an administrative agency by enacting enabling legislation, which specifi es the name,

composition, purpose, and powers of the agency being created

EXAMPLE 1.2 The Federal Trade Commission (FTC) was created in 1914 by the Federal Trade Commission Act.3 This act prohibits unfair and deceptive trade practices It also describes the procedures the agency must follow to charge persons or organizations with violations of the act, and it provides for judicial review (review by the courts) of agency orders Other portions of the act grant the agency powers to “make rules and regulations for the purpose of carrying out the Act,” conduct investigations of business practices, obtain reports from interstate corporations concerning their business practices, investigate possible violations of the act, publish fi ndings of its investigations, and recommend new

legislation The act also empowers the FTC to hold trial-like hearings and to adjudicate

(resolve judicially) certain kinds of disputes that involve FTC regulations.•Note that the powers granted to the FTC incorporate functions associated with the legis-lative branch of government (rulemaking), the executive branch (investigation and enforce-ment), and the judicial branch (adjudication) Taken together, these functions constitute

administrative process, which is the administration of law by administrative agencies.

rulemaking—formu-lating new regulations In an agency’s enabling legislation, Congress confers the agency’s

power to make legislative rules, or substantive rules, which are legally binding on all

3 15 U.S.C Sections 45–58.

Administrative Law The body of law

created by administrative agencies (in the

form of rules, regulations, orders, and

decisions) in order to carry out their duties

and responsibilities.

Administrative Agency A federal or

state government agency established to

perform a specifi c function

Administra-tive agencies are authorized by legislaAdministra-tive

acts to make and enforce rules in order to

administer and enforce the acts.

Enabling Legislation A statute enacted by

Congress that authorizes the creation of

an administrative agency and specifi es the

name, composition, purpose, and powers

of the agency being created.

Adjudicate To render a judicial decision

In the administrative process,

adjudica-tion is the trial-like proceeding in which

an administrative law judge hears and

decides issues that arise when an

admin-istrative agency charges a person or a fi rm

with violating a law or regulation enforced

by the agency.

Administrative Process The procedure

used by administrative agencies in

admin-istering the law.

Rulemaking The process undertaken by

an administrative agency when formally

adopting a new regulation or amending

an old one Rulemaking involves notifying

the public of a proposed rule or change

and receiving and considering the public’s

comments.

Legislative Rule An administrative agency

rule that carries the same weight as a

congressionally enacted statute.

businesses The Administrative Procedure Act of 1946 (APA)4 imposes strict procedural requirements that agencies must follow in legislative rulemaking and other functions

EXAMPLE 1.3 The Occupational Safety and Health Act of 1970 authorized the Occupational Safety and Health Administration (OSHA) to develop and issue rules governing safety in the workplace When OSHA wants to formulate rules regarding safety in the steel industry,

it has to follow specifi c procedures outlined by the APA.•Legislative rulemaking commonly involves three steps First, the agency must give pub-lic notice of the proposed rulemaking proceedings, where and when the proceedings will

be held, the agency’s legal authority for the proceedings, and the terms or subject matter

of the proposed rule The notice must be published in the Federal Register, a daily

publica-tion of the U.S government Second, following this notice, the agency must allow ample time for interested parties to comment in writing on the proposed rule The agency takes these comments into consideration when drafting the fi nal version of the regulation The

third and last step is the drafting of the fi nal rule and its publication in the Federal Register

(See the appendix at the end of this chapter for an explanation of how to fi nd agency regulations.)

Note that in addition to making legislative rules, which are subject to the

proce-dural requirements of the APA, agencies also issue interpretive rules—rules that specify

how the agency will interpret and apply its regulations The APA does not apply to interpretive rulemaking Interpretive rules are not legally binding on all businesses but simply indicate how an agency plans to interpret and enforce its statutory authority

EXAMPLE 1.4 The Equal Employment Opportunity Commission periodically issues pretive rules indicating how it plans to interpret the provisions of certain statutes, such

inter-as the Americans with Disabilities Act These informal rules provide enforcement lines for agency offi cials.•

prosecuto-rial powers An agency can request that individuals or organizations hand over specifi ed books, papers, electronic records, or other documents In addition, agencies may conduct on-site inspections, although a search warrant is normally required for such inspections Sometimes, a search of a home, an offi ce, or a factory is the only means of obtaining evi-dence needed to prove a regulatory violation Agencies investigate a wide range of activi-ties, including coal mining, automobile manufacturing, and the industrial discharge of pollutants into the environment

After investigating a suspected rule violation, an agency may decide to take action against an individual or a business Most administrative actions are resolved through nego-tiated settlement at their initial stages without the need for formal adjudication If a settle-ment cannot be reached, though, the agency may issue a formal complaint and proceed to adjudication

administra-tive law judge (ALJ) Hearing procedures vary widely from agency to agency After the

hearing, the ALJ renders a decision in the case The ALJ can compel the charged party to pay a fi ne or can prohibit the party from carrying on some specifi ed activity Either side may appeal the ALJ’s decision to the commission or board that governs the agency If the party fails to get relief there, appeal can be made to a federal court If no party appeals the case, the ALJ’s decision becomes fi nal

4 5 U.S.C Sections 551–706.

O N T H E W E B You can fi nd proposed

and fi nal rules issued by

administra-tive agencies by accessing the Federal

Register online at

www.gpoaccess.gov/fr/index.html.

Interpretive Rule An administrative

agency rule that is simply a statement or

opinion issued by the agency explaining

how it interprets and intends to apply

the statutes it enforces Such rules are

not binding on private individuals or

organizations

Administrative Law Judge (ALJ) One

who presides over an administrative

agency hearing and has the power to

administer oaths, take testimony, rule on

questions of evidence, and make

determi-nations of fact.

Ethical Issue Do administrative agencies exercise too much authority?Federal Trade Commission, combine in a single governmental entity functions normally divided among Administrative agencies, such as the

the three branches of government They create rules, conduct investigations, and prosecute and pass judgment on violators Yet administrative agencies’ powers often go unchecked by the other branches, causing some businesspersons to suggest that it is unethical to allow agencies—which were not even mentioned in the U.S Constitution—to wield so many powers

Although agency rulemaking must comply with the requirements of the Administrative Procedure Act (APA), the act applies only to legislative, not interpretive, rulemaking In addition, the APA is largely procedural and aimed at preventing arbitrariness: it does little to ensure that the rules passed by agencies are fair or correct Even on those rare occasions when an agency’s ruling is challenged and later reviewed by a court, the court cannot reverse the agency’s decision unless the agency exceeded its authority or acted arbitrarily Courts typically are reluctant to second-guess an agency’s rules, interpretations, and decisions.5 Moreover, once an agency has fi nal regulations in place, it is diffi cult to revoke or alter them President Barack Obama discovered this in 2009 when he tried to change some

of the rules that his predecessor, President George W Bush, had put into place in the last few months

of his administration

Case Law and Common Law Doctrines

The rules of law announced in court decisions constitute another basic source of can law These rules of law include interpretations of constitutional provisions, of statutes enacted by legislatures, and of regulations created by administrative agencies Today, this

Ameri-body of judge-made law is referred to as case law Case law—the doctrines and principles

announced in cases—governs all areas not covered by statutory law or administrative law and is part of our common law tradition We look at the origins and characteristics of the common law tradition in some detail in the pages that follow

The Common Law Tradition

Because of our colonial heritage, much of American law is based on the English legal system

A knowledge of this tradition is crucial to understanding our legal system today because judges in the United States still apply common law principles when deciding cases

Early English Courts

After the Normans conquered England in 1066, William the Conqueror and his successors began the process of unifying the country under their rule One of the means they used

to do this was the establishment of the king’s courts, or curiae regis Before the Norman

Conquest, disputes had been settled according to the local legal customs and traditions in various regions of the country The king’s courts sought to establish a uniform set of rules

for the country as a whole What evolved in these courts was the beginning of the common

law—a body of general rules that applied throughout the entire English realm Eventually,

the common law tradition became part of the heritage of all nations that were once British colonies, including the United States

Courts developed the common law rules from the principles underlying judges’ sions in actual legal controversies Judges attempted to be consistent, and whenever pos-sible, they based their decisions on the principles suggested by earlier cases They sought

deci-to decide similar cases in a similar way and considered new cases with care, because they knew that their decisions would make new law Each interpretation became part of the law

5 See, for example, Citizens’ Committee to Save Our Canyons v Krueger, 513 F.3d 1169 (10th Cir 2008).

Case Law The rules of law announced

in court decisions Case law includes the

aggregate of reported cases that interpret

judicial precedents, statutes, regulations,

and constitutional provisions.

Common Law The body of law developed

from custom or judicial decisions in

English and U.S courts, not attributable to

a legislature.