Alternative Dispute Resolution The Search for Alternatives to Litigation Legislatures have tried to find alternatives to costly litigation. These alternatives are called \"alternative dispute resolution,\" or ADR for short. For a long time, arbitration and mediation have been popular alternatives for parties to settle grievances. ADRs are cheaper, less time consuming, and can be resolved quickly. The Search for Alternatives to Litigation More than 90% of civil lawsuits are settled before trial using ADR. Settled Trial Negotiation Negotiation is the simplest form of ADR. It is informal and does not require attorneys to be present. Parties present their evidence to each other and try and settle their differences. In certain cases, assisted negotiation is necessary where a third party steps in to help. Mediation Mediation involves a third person who \"gets between\" the parties and works toward a resolution. Mediators will propose a solution, but they do not make a decision in the matter. Mediators do not have to be lawyers, but they will charge a fee for services. Mediation Advantages to mediation: Brings the parties together Parties choose the mediator Fewer rules Disadvantages to mediation: There are no deadlines or threats of sanctions, but there are fees involved. Arbitration Arbitration is an ADR method where a third-party neutral, called an arbitrator, hears a dispute and imposes a resolution on the parties. Decision legally binding on the parties. Governments favor arbitration over litigation. The federal policy favoring arbitration is embodied in the Federal Arbitration Act of 1925. Courts give deference to all arbitration agreements governed by law. Arbitration State arbitration statutes Nearly all states follow the federal approach to voluntary arbitration. Most states adopted the Uniform Arbitration Act, which requires courts to give full effect to voluntary agreements to arbitrate disputes between private parties. The arbitration process Submission of the parties to the arbitrator. Hearing where the parties present their case. Award. Limited right to appeal. Enforcement of Agreements to Submit to Arbitration A case requiring arbitration may still involve a lawsuit. In contracts that contain an arbitration clause, a party may have to sue to compel arbitration. The contract has to mention \"arbitration,\" because the courts will never infer that the parties intended to arbitrate if there is dispute. If there is nothing in the contract compelling arbitration, then the courts will handle the matter. Contracts will also limit the times or circumstances parties may arbitrate. Cleveland Construction, Inc., v. Levco Cleveland Construction, Inc., v. Levco Facts: Cleveland Construction entered into a contract with Levco to build a grocery store in Houston. The contract contained an arbitration clause stating that any dispute would be subject to arbitration in Ohio. When a problem arose, Levco sued in Texas state court. Cleveland moved to compel arbitration in Ohio under the Federal Arbitration Act. The Texas state court permitted Levco to ignore the arbitration clause because Texas had a law which allows parties to ignore provisions in contracts where arbitration takes place outside of Texas. Issue: Whether arbitration in Ohio is the proper forum because the FAA trumps state law. Holding: Because the FAA trumps the Texas law under the Supremacy Clause of the Constitution, the appellate court held the arbitration clause valid and ordered the arbitration to take place in Ohio. NCR Corp v. Korala Associates NCR Corp v. Korala Associates Facts: NCR, a maker of ATMs, entered into an agreement with Korala to develop security software for its machines. It loaned an ATM to Korala to develop the software, but the machine contained some copyrighted software that NCR claims Korala illegally used to develop the security software. When NCR brought suit in court for copyright infringement, Korala made a motion to compel arbitration, because it claimed that the contract between NCR and Korala stated that arbitration was required if any dispute arose under the contract. The trial court agreed and NCR appealed. Issue: Whether arbitration is the proper forum to decide NCRs claims. Holding: NCR did not dispute that there was a valid arbitration clause in the contract, only whether its claims for copyright infringement fell within it. But the court found that the clause covered \"any dispute\" between the parties, thus affirmed the district court's order to compel arbitration. Compulsory Arbitration Agreements Many employees, for example, complain that they are forced to sign agreements containing arbitration clauses. These are contracts of adhesion, or signed on a take-it-or-leave it basis. Courts will not enforce contracts that are unconscionable or contain clauses that are made as a result of unequal bargaining power. Lhotka v. Geographic Expeditions Lhotka v. Geographic Expeditions Facts: Jason Lhotka died of altitude-related illness when he and his mother were on a GeoEx expedition up Mt. Kilimanjaro. Jason and his mother sued GeoEx for damages, but GeoEx made a motion with the trial court to arbitrate, based on a contract signed by Jason and his mother. The trial court denied the motion, finding that the arbitration agreement was both \"procedurally and substantively unconscionable.\" GeoEx appealed. Issue: whether the arbitration agreement is enforceable. Lhotka v. Geographic Expeditions Holding: The appeals court affirmed the trial court's ruling that the arbitration clause in the agreement was \"unconscionable.\" It defined unconscionability as \"an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.\" A contract is unconscionable if it causes surprise or is oppressive. GeoEx argued that the contract was not oppressive, that plaintiffs failed to negotiate, and that they could have just went somewhere else. Lhotka v. Geographic Expeditions Holding (continued): The courts rejected those arguments. It held, \"GeoEx led the plaintiffs to understand not only that its terms and conditions were nonnegotiable, but that plaintiffs would encounter the same requirements with other travel company. This is a sufficient basis for us to conclude the plaintiffs lacked bargaining power.\" The court also rejected GeoEx's contention that Jason and his mother could have gone somewhere else. The court reasoned that GeoEx presented its \"limitation of liability and release form as mandatory and unmodifiable, and essentially told plaintiffs that any other travel provider would impose the same terms. . . . Under these circumstances, plaintiffs made a sufficient showing to establish at least a minimal level of oppression to justify a finding of procedural unconscionability.\" Lhotka v. Geographic Expeditions Substantively, the clause was unconscionable because all that Jason would get back was the cost of the trip, and they would have to arbitrate in San Francisco. This pretty much guaranteed that GeoEx would never be out more than the cost of the trip. The court said, \"we agree with the trial court that the arbitration clause is so one-sided as to be substantively unconscionable.\" Setting Aside an Arbitration Award An appellate court's review over an arbitration award is limited to whether there was a valid award. However, the court will set aside an award if compliance would result in the committing of a crime or the award violated some public policy mandated by a statute. Defects in the arbitration process: a court will also set aside an award if there was bad faith on the part of the arbitrator. Setting Aside an Arbitration Award Under the Federal Arbitration Act, an award can be set aside for: Corruption, fraud or undue means Arbitrator exhibited bias Arbitrator refused to postpone a hearing for good cause refused to hear pertinent evidence, or acted to substantially prejudice the rights of one of the parties Arbitrator exceeded his authority or failed to use it to make a mutual, final and definite award Disadvantages of Arbitration Disadvantages of arbitration: It's unpredictable Arbitrators don't need to follow any previous case law Don't have to issue written opinions Rules are not uniform across arbitrations, because the parties establish the rules Discovery is not available The Brady Decision Judge ruled that the NFL had failed to provide "notice" to Brady that being "generally aware" of deflated footballs was a form of misconduct and that obstructing an investigation was a second form of misconduct. Law professors and other legal analysts were not impressed with the ruling. \"Conduct detrimental\" With this broad authority, it seemed that the league had no responsibility to specify forms of misconduct for its players, and instead, could levy any punishment it wished. Constitutional Law Chapter 3 Articles of Confederation States, through the Articles of Confederation, crafted a confederal form of government where they would retain autonomy to govern themselves along with a national government that would have limited authority over them. U.S. Constitution Economy was in crisis at the time, particularly because individual state laws interfered with the freeflow of commerce. National convention called where delegates from the states drafted the U.S. Constitution, forming the basis of a new government. Federal Government Constitution: result of compromises made by the state delegates. Final compromise was a federal form of government where both the national government and state governments shared sovereign power. Sets forth specific, limited powers that can be exercised by the national government, including implied powers to undertake its expressly designated \"enumerated powers.\" All \"other powers\" that are not listed are \"reserved\" for the states under the 10th Amendment. Inherent Sovereignty States are \"sovereign.\" Regulate their affairs within their borders without interference from the other states. Authority comes from the 10th Amendment. States have inherent \"police powers,\" which means they have the broad right to regulate private activities to protect or promote the public order, health, safety, morals, and general welfare of their citizens. Relations Among States Constitution provides the way states should relate to each other. Privileges and Immunities Clause and the Full Faith and Credit Clause. Privileges and Immunities Clause, Article IV, Section 2, states that the \"Citizens of each State shall be entitled to all Privileges and Immunities of the Citizens in the several States.\" There are certain rights, benefits and privileges enjoyed by all individuals. A state is prohibited from imposing unreasonable burdens on citizens from other states, just because they do not live there. Usually, this regards to means of livelihood or doing business. Privileges and Immunities States cannot discriminate against citizens from other states. States cannot limit the right to buy and possess all kinds of property within the state, or limit the right to travel through or reside in any state for purposes of trade, agriculture, or professional endeavors. Citizens of other states have the right to sue and defend actions in court and the right to receive the same tax treatment as that of the citizens of the taxing state. (Not absolute, however). States can still regulate activity by citizens from another state who visit or do business there, provided they have a substantial reason for treating the nonresident differently from its own residents. State must have a reason that is substantially related to its ultimate purpose in adopting the legislation or activity. Full Faith and Credit Under Article IV, Section 1, \"Full Faith and Credit shall be given in each State to the public Acts, Records, and Judicial Proceedings of every other State.\" This is known as the \"full faith and credit clause\" and applies only to civil matters. Contracts, wills, deeds to property, and other similar things, made in another state must be honored in all states. Judicial decisions involving these matters will be recognized everywhere. Checks and Balances In case there is a possibility that the national government could get too powerful, the Constitution provides for three co-equal branches of government. Legislative branch makes the law. Executive branch enforces the law. Judicial branch interprets the law. Each performs a unique function, and no one may do the job of the other. System of checks and balances in place, so that each branch can limit the actions of the other. No one branch can usurp total power. Checks and Balances Examples of checks and balances: Congress can enact a law, and the President can veto it. Executive branch responsible for foreign affairs, but any treaties the President makes with foreign governments needs the advice and consent of the Senate. Congress determines the jurisdiction of the federal courts and the President appoints federal judges with the advice and consent of the Senate, Judicial branch can hold the actions of the other two branches unconstitutional. The Commerce Clause Constitution provides only the federal government can regulate interstate commerce. Prevent states from making laws that could interfere with trade and commerce among the states, The power comes from Article I, Section 8. Congress has the power to, \"regulate Commerce with foreign nations, and among the several States . . .\" Greatest impact on business in this country. The Commerce Clause Debate in the courts as to whether the phrase \"among the several States\" meant that Congress could only control commerce between the states or that they could control, not only, between but also \"within\" the states. Courts ruled that Congress could only regulate commerce between states. The Commerce Clause The economic interdependence of the States was foreseen and desired by the Framers. In the Commerce Clause, they provided that the Nation was to be a common market, a \"free trade unit\" in which the States are debarred from acting as separable economic entities. The Commerce Clause But the Framers also intended that the States retain many essential attributes of sovereignty, including, in particular, the sovereign power to try causes in their courts. The sovereignty of each State, in turn, implied a limitation on the sovereignty of all of its sister Statesa limitation express or implicit in both the original scheme of the Constitution and the Fourteenth Amendment. The Commerce Clause But in 1824 things changed. The Court held, in Gibbons v. Ogden, that commerce within the states could also be regulated by Congress, provided that the state regulation substantially affected the commerce among other states. Thus, the first major expansion (theory) of the Commerce Clause power is termed the \"substantial economic effect\" theory that provides that Congress may regulate all activities that have a \"substantial economic effect\" upon interstate commerce. Commerce is more than \"mere traffic.\" The Commerce Clause Commerce Clause became a way for the federal government to expand. Even things that seemed to be local in nature and should have been under state control, the federal government thought affected interstate commerce. The Commerce Clause The second theory upon which the Court has expanded the Commerce Clause is the \"cumulative effect\" theory. This principle provides that Congress may regulate not only acts which taken alone would have a substantial economic effect on interstate commerce, but also an entire class of acts, if the class has a substantial economic effect. In the case of Wickard v. Filburn we will see where the Court upheld federal legislation regulating the most local of all activitiesproduction of wheat for personal use on a family farm. 17 Wickard v. Filburn Facts: In 1938, Congress enacted the Agricultural Adjustment Act to stabilize agricultural production and so, give farmers reasonable minimum prices. The Act gave Claude Wickard, the Secretary of Agriculture, the power to pronounce a yearly national average allotment for the coming wheat crop. The allotment was apportioned among the states and their counties, and then among the farms within each county. Filburn was an Ohio farmer who raised a small portion of winter wheat. Some of it was sold but most of it was grown for personal use. Filburn's permitted allocation for 1941 was 11.1 acres. However, he planted and harvested 23 acres. He was assessed a penalty of $117.11 for violating the regulation. Issue: Does the federal government have power under the Commerce Clause to regulate growing food for personal use? Wickard v. Filburn Holding: Yes. Filburn argued that Congress does not have power under the Commerce Clause in this instance. \"The question would merit little consideration . . . except for the fact that this Act extends federal regulation to production not intended in any part for commerce but wholly for consumption on the farm . . . Such activities are, [Filburn] urges, beyond the reach of congressional power under the Commerce Clause, since they are local in character, and their effects upon interstate commerce are at most \"indirect.\" In answer, the Government argues that the statute regulates neither production nor consumption, but only marketing; and, in the alternative, that if the Act does go beyond the regulation of marketing it is sustainable as \"necessary and proper\" implementation of the power of Congress over interstate commerce. Wickard v. Filburn Holding: The Court, however, held \"[E]ven if [Filburn's] activity be local and though it may not be regarded as commerce, it may still whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce, and this irrespective of whether such effect is what might at some darker time have been defined as \"direct\" or \"indirect.\" The effect of consumption of homegrown wheat on interstate commerce is due to the fact that it constitutes the most variable factor in the disappearance of the wheat crop. Consumption on the farm where grown appears to vary in an amount greater that 20 percent of average production. . . . [Filburn's] own contribution to the demand for wheat may be trivial by itself is not enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated, is far from trivial. . . . Wickard v. Filburn Holding: It is well established by decisions of this Court that the power to regulate commerce includes the power to regulate the prices at which commodities in that commerce are dealt in and practices affecting such prices. One of the primary purposes of the Act in question was to increase the market price of wheat, and, to that end, to limit the volume thereof that could affect the market. It can hardly be denied that a factor of such volume and variability as home-consumed wheat would have a substantial influence on price and market conditions. This may arise because being in marketable condition such wheat overhangs the market, and, if induced by rising prices, tends to flow into the market and wheat price increases. Wickard v. Filburn Holding: But if we assume that it is never marketed, it supplies a need of the man who grew it which would otherwise be reflected by purchases in the open market. Home-grown wheat in this sense competes with wheat in commerce. The stimulation of commerce is a use of the regulatory function quite as definitely as prohibitions or restrictions thereon. This record leaves us in no doubt that Congress may properly have considered that wheat consumed on the farm where grown, if wholly outside the scheme of regulation, would have a substantial effect in defeating and obstructing its purpose to stimulate trade therein at increased prices. The Commerce Clause The third theory by which the Court expanded the Commerce Clause power is the \"commerce-prohibiting\" technique (police power regulations), which allows Congress to regulate intrastate matters that have some effect on interstate commerce. Thus, the Tenth Amendment would no longer act as an independent limitation on congressional authority over interstate commerce. As a result, Congress was completely free to impose whatever conditions it wishes upon the privilege in engaging in an activity that affects interstate commerce, so long as the conditions themselves violate no independent prohibition. 23 Heart of Atlanta Motel v. U.S. Facts: The owner of a motel, who refused to rent rooms to African Americans, despite the Civil Rights Act of 1964, brought an action to have the Civil Rights Act of 1964 declared unconstitutional. The motel owner alleged that Congress, in passing the Act, exceeded its power in regulating interstate commerce. Appellant owns and operates the Heart of Atlanta Motel, which has 216 rooms available to transient guests. The motel is located on Courtland Street, two blocks from downtown Peachtree Street. It is readily accessible to interstate highways 75 and 85 and state 24 highways 23 and 41. Heart of Atlanta Motel v. U.S. Facts: Appellant solicits patronage from outside the State of Georgia through various national advertising media, including magazines of national circulation; it maintains over 50 billboards and highway signs within the State, soliciting patronage for the motel; it accepts convention trade from outside Georgia and approximately 75% of its registered guests are from out of State. Prior to passage of the Act, the motel had followed a practice of refusing to rent rooms to [African Americans], and it alleged that it intended to continue to do so. In an effort to perpetuate that policy, this suit was filed. 25 Heart of Atlanta Motel v. U.S. Issue: The sole question posed is, therefore, the constitutionality of the Civil Rights Act of 1964 as applied to these facts. The legislative history of the Act indicates that Congress based the Act on 5 and the Equal Protection Clause of the Fourteenth Amendment, as well as its power to regulate interstate commerce under Art. I, 8, cl. 3, of the Constitution. 26 Heart of Atlanta Motel v. U.S. Holding: Yes. While the Act, as adopted, carried no congressional findings, the record of its passage through each house is replete with evidence of the burdens that discrimination by race or color places upon interstate commerce. This testimony included the fact that our people have become increasingly mobile, with millions of people of all races traveling from State to State; that [African Americans] in particular have been the subject of discrimination in transient accommodations, having to travel great distances to secure the same; that often they have been unable to obtain accommodations, and have had to call upon friends to put them up overnight . . . . 27 Heart of Atlanta Motel v. U.S. Holding (con't): The determinative test of the exercise of power by the Congress under the Commerce Clause is simply whether the activity sought to be regulated is "commerce which concerns more States than one" and has a real and substantial relation to the national interest. That Congress was legislating against moral wrongs in many of these areas rendered its enactments no less valid. In framing Title II of this Act, Congress was also dealing with what it considered a moral problem. But that fact does not detract from the overwhelming evidence of the disruptive effect that racial discrimination has had on commercial intercourse. 28 Heart of Atlanta Motel v. U.S. Holding (con't): It is said that the operation of the motel here is of a purely local character. But, assuming this to be true, "[i]f it is interstate commerce that feels the pinch, it does not matter how local the operation which applies the squeeze.\" Thus, the power of Congress to promote interstate commerce also includes the power to regulate the local incidents thereof, including local activities in both the States of origin and destination, which might have a substantial and harmful effect upon that commerce. We therefore conclude that the action of the Congress in the adoption of the Act as applied here to a motel which concededly serves interstate travelers is within the power granted it by the Commerce Clause of the Constitution, as interpreted by this Court for 140 years. 29 Commerce Clause Today Government uses the Commerce Clause to regulate business activity. Clause has allowed Congress to legislate in areas that are not specifically provided for in the Constitution. Last twenty years, the Court has curbed Congress's authority under the Commerce Clause. Court ruled that Congress exceeded its authority under the Commerce Clause when it banned the possession of guns within 1,000 feet of any school, because the law attempted to regulate an area that had nothing to do with interstate commerce. Commerce Clause Today But in one case involving medical marijuana, the Court held that the government could regulate noncommercial activity within a state's borders. Many states have adopted medical marijuana laws that legalize possession and use of marijuana for medical reasons. However, it is still illegal under the federal Controlled Substances Act. After the federal officers seized the marijuana that two seriously ill California women were using on the advice of their doctors, they sued claiming that it was unconstitutional for the federal statute to prohibit them from using something for medical purposes that was clearly legal in their state. Medical Marijuana The Court held that Congress had the authority to regulate \"intra\" state possession and noncommercial farming of marijuana as part of the larger regulatory scheme under the Controlled Substances Act. In other words, state laws that allow the use of medical marijuana do not prevent federal prosecution under federal law. It is still illegal under federal law to possess and use medical marijuana, even though states continue to pass these laws. The federal government chooses not to prosecute anyone who is complying with state law, provided that states take care to ensure that there is \"strong-state enforcement efforts\" in place. The federal government stated that it reserves the right to challenge the state laws at any time they feel it is necessary. The \"Dormant\" Commerce Clause While the Constitution states that the federal government can regulate interstate commerce in a proactive way, states can also affect interstate commerce in a negative way. This is called the \"dormant\" commerce clause, or \"negative\" commerce clause. All this means is that states are prohibited from passing legislation that improperly burdens or discriminates against interstate commerce. Family Winemakers of California v. Jenkins Facts Massachusetts had a three-tier system for selling alcoholic beverages: producers can only sell to Massachusetts' wholesalers, wholesalers have to get licenses to sell to retailers, and retailers have to be licensed to sell to consumers. It passed a law providing that only small wineries those producing less than 30,000 gallonscan sell outside the state directly to customers. Large wineries make up 98% of the wine in the U.S.all located outside Massachusetts. The Family Winemakers of California sued in federal court against Jenkins (Chair of the Mass. Alcoholic Beverage Control Commission). The court held the Massachusetts' system violated the dormant commerce clause. The state appealed. Issue and Holding Does Massachusetts state law favor in-state small wineries over out-of-state larger ones? The First Circuit said \"yes.\" Massachusetts' licensing and distribution system \"altered the competitive balance\" by disfavoring out-of-state large wineries by design. Small wineries were given preferential treatment and placed large wineries located out of sate at a \"competitive disadvantage.\" In addition, the system was found to ensure that Massachusetts wineries had an exclusive advantage over their competitors. The Supremacy Clause Article VI of the U.S. Constitution, also known as the \"Supremacy Clause,\" provides that the Constitution, laws and treaties of the U.S. are the \"supreme law of the land.\" When there is a direct conflict between a federal law and a state law, the state law is rendered invalid. Where a state law and a federal law concern the same general subject, preemption occurs. Preemption For example, the Voting Rights Act is an act of Congress and preempts state constitutions. FDA regulations may preempt state court judgments in cases involving prescription drugs. Congress has preempted state regulation in many areas. For example, Congress preempted all state regulation over medical devices. In others, such as labels on prescription drugs, Congress allowed federal regulatory agencies to set national minimum standards, but allowed the states to apply more stringent standards than those imposed by federal regulators. Where rules or regulations do not clearly state whether or not preemption should apply, the Supreme Court tries to follow lawmakers' intent, and prefers interpretations that avoid preempting state laws. The Tax and Spending Powers Article I, Section 8, of the U.S. Constitution provides that Congress has the \"Power to lay and collect Taxes...\" The Constitution requires that states are taxed equally, thus Congress cannot tax some and exempt others. As long as a tax is reasonable, the courts will uphold it. The Tax and Spending Powers Article 1, Section 8, also gives Congress the spending power\"the power to pay the Debts and provide for the common Defence and general Welfare of the United States.\" Congress can spend revenues not only to carry out its expressed powers but also to promote any objective it deems worthwhile, so long as it does not violate the Bill of Rights. The spending power involves policy choices, with which taxpayers may disagree. Business and the Bill of Rights Because we needed a written declaration of rights, the first Congress of the U.S. submitted the first twelve amendments to the Constitution to the states for approval. Ten of these are known as the Bill of Rights. They were adopted in 1791 and embody protections for the individual against various types of interference by the federal government. Since corporations exist as separate legal entities, or legal persons, and enjoy many of the same rights as individuals, certain constitutional rights are afforded to them as well. Limits on Federal and State Government Actions Original intent of the Bill of Rights: limit the powers of the federal government. 14th Amendment: that no \"State shall . . . deprive any person of life, liberty or property, without due process of law.\" Most of the rights and liberties listed in the Bill of Rights apply to state governments as well as the federal government. This means neither the federal government nor the state governments deprive anyone of these rights or liberties without due process. Bill of Rights I: Freedom of speech, religion, assemble, press II: Keep and bear arms III: No quartering of troops IV: No unreasonable searches and seizures V: Indictment by grand jury for capital crimes; no double jeopardy; no self-incrimination; no deprivation of life, liberty, or property without due process; no property taken for public use without just compensation 43 Bill of Rights VI: Right to speedy public trial by impartial jury and be informed of the accusation; witness confrontation; counsel VII: Right to civil jury trial VIII: No excessive bail, fines; no cruel and unusual punishment IX: Rights retained by the people X: Rights retained by state 44 Bill of Rights The rights secured in the Bill of Rights are not absolute. Freedom of Speech In a democratic country, people must be able to speak their mind. For the government to work, people must be able to freely voice their political opinions and criticize government actions or policies. Freedom of speech is a \"prized\" right, and courts have protected this right to the fullest extent possible. Symbolic speechgestures, movements, articles of clothing, and other forms of expressive conductare also given special protection by the courts. For example, wearing a T-shirt with a photo of a presidential candidate is a constitutionally protected form of expression. Restrictions Not absolute. Subject to reasonable restrictions. Balance between the government's obligation to protect citizens and a citizen's exercise of his or her rights. Reasonableness is decided on a case-by-case basis. If a state restricts speech that is content-neutral (like prohibiting public nudity), the court's will uphold it. Restrictions Will this act of speech create a dangerous situation? FA does not protect statements that are uttered to provoke violence or incite illegal action. Was something said face-to-face that would incite immediate violence? Was the statement false, or put in a context that makes true statements misleading? No constitutional right to lie. Corporate Political Speech Political corporate speech is also protected. USSC struck down a Massachusetts law that prohibited corporations from making political contributions or expenditures that individuals were permitted to make. The Court also held that corporations could include inserts with bills that express views on a controversial issue. Corporations can spend freely to support or oppose candidates running for political office. Commercial Speech Commercial speech consists of communications primarily advertising and marketingmade by business firms that involve only their commercial interests. States can restrict certain kinds of advertising to prevent consumers from being misled by companies. They can also restrict billboard advertising for roadside beautification. Commercial Speech Restrictions on commercial speech will be valid as long as three criteria are met: 1. Implement a substantial government interest. 2. Directly advance that interest; and 3. Goes no further than necessary to accomplish its objective. Bad Frog Brewery, Inc. v. New York State Liquor Authority Facts Bad Frog Brewery makes and sells alcoholic beverages. Some of them feature a frog making the gesture generally known as \"giving the finger.\" Bad Frog's authorized distributor, Renaissance Beer Company, applied to the New York State Liquor Authority to approve it's label, as required by state law before it could be sold. The Authority denied the application, because the label could appear in local grocery stores, and therefore, children could see it. Bad Frog sued in federal district court, seeking an injunction against denying the application. Facts and Issue The court granted summary judgment in favor of the state, and Bad Frog appealed to the Second Circuit. Issue: Did the State of New York have a such compelling interest to protect its children by restricting Bad Frog's right to exercise its commercial speech? Holding The Second Circuit reversed. The ban lacked a \"reasonable fit\" with the state's interest in shielding minors from vulgarity and the state did not consider alternatives to the ban. The court stated, \"In view of the wide currency of vulgar displays throughout contemporary society, including comic books targeted directly at children, barring such displays from labels for alcoholic beverages cannot realistically be expected to reduce children's exposure to such displays to any significant degree.\" Unprotected Speech Certain kinds of speech not protected under the First Amendment. Speech that violates: Criminal laws (threatening speech and pornography) Fighting words (words that incite violence) Defaming speech (speech that harms the good reputation of others). For public figures, the plaintiff has to show malice. Obscene Speech FA does not protect against obscene speech. Requirements must be met in order for material to be considered \"obscene:\" 1. Average person finds that it violates contemporary community standards 2. Work taken as a whole appeals to a prurient (arousing or obsessive) interest in sex 3. Patently offensive sexual conduct 4. Lacks serious redeeming literary, artistic, political, scientific merit. Freedom of Religion The First Amendment states that the government \"shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.\" The first part is known as the Establishment Clause. The latter is the Free Exercise Clause. Under the Establishment Clause, government cannot sponsor a state religion, cannot interfere with a religion, and cannot show a preference for one over the other. Although the clause involves separation of church and state, it does not mean complete separation. The Establishment Clause Since we have a \"free market\" of religion, government must accommodate the free exercise of religions. For a government law or policy to be constitutional, it must not promote or inhibit religion. For example, a crche placed in a city's shopping district has a \"remote\" impact on advancing religion, but a crche placed on the grand staircase of a courthouse is in a prominent place, and therefore, does advance religion, The Lemon Test (Lemon v. Kurtzman): Must have a secular legislative purpose; The government's action must not have the primary effect of either advancing or inhibiting religion; The government's action must not result in an "excessive government entanglement" with religion. The Free Exercise Clause The free exercise clause guarantees that a person can hold any belief he or she wants. This clause applies only to the government. When religious practices work against public policy, the government can act. When public safety is an issue, an individual's religious beliefs many times have to give way to the government's interest in protecting the public. Burwell v. Hobby Lobby 61 Burwell v. Hobby Lobby Facts: The owners of Hobby Lobby offered insurance that covers most forms of birth control, but they were not willing to cover emergency contraceptives like Plan B or ella -- or IUDs, because of the abortifacient properties.. Hobby Lobby contended its "religious beliefs prohibit them from providing health coverage for contraceptive drugs and devices that end human life after conception." Issue: Whether for-profit companies have a right to exercise religious freedom under the Religious Freedom Restoration Act, a federal law passed in 1993 that states the \"Government shall not substantially burden a person's exercise of religion even if the burden results from a rule of general applicability." If they do, does the government have a compelling interest to override it in this 62 instance? Burwell v. Hobby Lobby Holding: The Court held that Congress intended the RFRA law to apply to corporations since they are composed of individuals. Because the contraception requirement forces religious corporations to fund what they consider to be abortion, which goes against their stated religious principles, or face significant fines, it creates a substantial burden that is not the least restrictive method of satisfying the government's interests. In fact, a less restrictive method exists in the form of the Department of Health and Human Services' exemption for nonprofit religious organizations, which the Court held can and should be applied to for-profit corporations such as Hobby Lobby. 63 Searches and Seizures The Fourth Amendment of the Constitution protects the \"right of the people to be secure in their persons, houses, papers and effects.\" Before conducting a search or seizing private property, police officers must obtain a search warrant an order from a judge authorizing the search or seizureunless some exception applies. To obtain a search warrant, police must convince the judge that they have reasonable grounds or \"probable cause\" to believe that the search will lead to evidence of a crime. Searches and Seizures To establish probable cause, the officers must have trustworthy evidence that would convince a reasonable person that the proposed search or seizure is more likely justified than not. The Fourth Amendment prohibits general warrants. The warrant must contain with particularity the persons or places to be searched or the things to be seized. The search cannot extend beyond the warrant. Self-incrimination The Fifth Amendment guarantees that no person \"shall be compelled in any criminal case to be a witness against himself.\" Thus, in any federal or state court (because the right extends to the states), an accused person cannot be forced to give testimony that might subject him or her to criminal prosecution. This right only extends to natural personsnot corporations or partnerships. If a corporation is required to produce business records, they must do so even if the information in there is incriminating. Sole proprietorships do not, because they function in one capacity. There is no separate business entity. Justice Scalia - Corporate Free Speech S S E IN S BU ING D AK N A M S C ION I H IS 5 T E EC T E R D HAP C I. Business ethics Business ethics is a derivative of Ethics. Ethics is the study of what constitutes right and wrong behavior. Branch of philosophy focuses on morality. Deals with fairness, justness, rightness, or wrongness of an action. Business ethics, in turn, focuses on what is right and wrong in the business world. II. Why is business ethics important? The laws of the U.S. apply to all businesses organized within its borders. Businesses organized in the U.S. are also subject to the laws of the countries in which they do business. Businesspersons owe a duty to act ethically when conducting business affairs, not only to their business and investors, but obligated to act in a socially responsible way (not do harm to society). 3 III. The moral minimum The minimum acceptable behavior is called the \"moral minimum.\" When one complies with the law, he or she is considered to have complied with the moral minimum. But, just because something is legal does not mean its moral or ethical. Example: marketing tactics can take advantage of uneducated segments of the population, which can be perfectly legal while being scorned throughout the marketplace. Johnson Construction Co. v. Shaffer Facts: The owner of Johnson Construction Company took a company truck to Bubba Shaffer for a repair. Bubba supposedly fixed the truck, but it continued to leak water and oil. Johnson took the truck back to Bubba and paid him for a second repair. There were still problems with the truck. Johnson took the truck back a third time, and Bubba gave Johnson a verbal estimate of $1000 for the repairs, but afterward sent a bill for $5863.49. Johnson offered to settle the matter for $2480, the original $1000 plus cost of parts for shipping. Bubba refused. Bubba would not return the truck until the full bill was paid. Then he charged Johnson $50 a day and 18% interest on the $5863.49. Johnson sued for unfair trade practices. The jury awarded Johnson $3500 in general damages, plus $750 in attorney's fees. Shaffer was awarded the initial $1000 and appealed. 5 Johnson Construction Co. v. Shaffer Issue: Whether keeping the trailer was deceptive conversion. Holding: The appellate court affirmed the trial court, ruling that Bubba engaged in deceptive conversion. The facts show Bubba was \"disingenuous\" and the jury did not believe Johnson was informed of the cost of repairs in the amount of$5863.49 prior to the work. \"The existence or nonexistence of a contract is a question of fact, and the finder of fact's determination may not be set aside unless it is clearly wrong\" The jury heard testimony from Johnson, Bubba and his worker and concluded Bubba held the truck \"'hostage in an effort to force payment for unauthorized repairs.\" Bubba had no legal right to keep the trailer. Therefore, he is liable for deceptive conversion. 6 IV. \"Gray areas\" in the law If laws are clear (such as civil rights laws), then managers can proceed in making decisions with a fair amount of certainty. If the law is unclear, or contains many \"gray areas,\" then it is difficult to know where the boundaries are and how a court will judge a company's actions. Where the law is unclear, however, a manager or employee should proceed in good faith and follow the morally safer course. V. Short-run profit maximization v. Long-run profit maximization There is a theory that all businesses should only be concerned with maximizing profit. When a firm focuses solely on this, resources will flow where they should, in the most efficient way and in a manner most valued by society. However, managers and employees should distinguish between shortrun and long-run profits. While profits may increase in the short-run, because companies know they had defective products and sell them anyway, companies will suffer in the long-run, because of lawsuits, large settlements, and bad publicity. Example: The drug OxyCotinstrong narcotic pain-killer. When it first came out, it was marketed by Purdue Pharma as safe and did not lead to drug addiction. But internal company documents later showed that it in fact did lead to addiction, yet was kept secret to reign in profits in the short term. Executives went to jail for misleading regulators, patients and doctors about the effects of the drug, and the company had to pay more than $600 million in fines. Three former executives had to pay $34.5 million in fines and were barred from federal health programs for 15 years. VI. The Internet In the past, negative information about a company could remain hidden. But with the Internet, information about a company's bad behavior can be quickly disseminated to the general public. Thus, the potential for tarnishing a company's business is increased, and word of unethical decision making can negatively affect customers, suppliers, the community and society as a whole. Most courts regard online attacks against companies as an exercise of the First Amendment (Freedom of Speech) because people are expressing their opinion. 10 Skilling v. U.S. The history of Enron: In the 90s, Enron was a international, multibilliondollar enterprise consisting of four businesses that bought and sold energy, owned energy networks and bought and sold bandwidth capability. The \"wholesale\" division became the most profitable, accounting for 90% of the revenue. Facts: Jeff Skilling, Enron's CEO, resigned in August 2001. Four months later, Enron was bankrupt. An investigation uncovered a conspiracy to deceive investors about Enron's profitability in an attempt to keep its stock price high. Skilling shifted about 2 billion in losses from Enron's struggling divisions to the Wholesale division, overstated profits to investors in phone interviews and press releases, and lied to Enron accountants and the SEC about deals which never produced any profits. Skilling was convicted of various crimes in federal district court, including the crime of conspiring to commit fraud by depriving Enron and shareholders of the \"honest services\" of its employees. He was sentenced to about 25 years in prison and $45 million in restitution. The US Court of Appeals for the 5th circuit affirmed the conviction, and Skilling appealed to the US Supreme Court. Issue: Whether the \"honest-services\" fraud statute applies only in bribery and kickback cases. Holding: The Court found that the \"honest services\" statute did not apply to Skilling because that statute only applied to people who take bribes and kickbacks. Here, Skilling was never accused of either. As a result, Skilling was re-sentenced to 14 years in prison and $42 million in restitution. VI. The importance of ethical leadership What employees see management do, they will most likely do. Management's behavior sets the tone of the company. Managers who set unrealistic production or sales goals increase the probability that employees will act unethically. Kranser v. HSH Nordbank AG Facts: Kranser sued HSH Nordbank, a German bank with branches in NY, in federal district court alleging sexual discrimination in violation of Title VII of the Civil Rights Act of 1964. He alleged that the bank permitted an atmosphere of sexism, where one could only advance by sexual favoritism, and an environment that was demeaning to women. In particular, Kranser alleged that his supervisor, Kiser, pressured other male subordinates to go to strip clubs and had a relationship with a woman named Melissa Campfield. Kiser was accused of promoting her over more senior and more experienced people. Kranser complained to bank officials that Kiser was violating the company ethics policy. The bank said Kiser \"didn't\" and later fired him. Kranser sued under Title VII claiming that the bank's lack of cracking down on gender discrimination created a hostile work environment. Under this doctrine, even if an employee does not experience \"a specific negative action,\" he may still have a claim for sexual discrimination where the \"harassment is so pervasive that it changes the conditions of employment.\" Issue: Whether Kranser had a claim under Title VII for sexual discrimination even though he was not the target of the discrimination. Holding: The district court dismissed the complaint because none of the alleged harassing acts were committed directly against Krasner. Even though there may have been an environment that discriminated against women, there is nothing to support a claim that he was being harassed as a male employee. Title VII does not stop employers from creating nasty work environments, or even ones \"that are unpleasant for reasons that are sexual in nature.\" Instead, it stops employers from discriminating against an employee (including subjecting him or her to hostile work conditions) because of an individual's gender. VII.Creating ethical codes of conduct Having a clear, well-written ethical code of conduct, demonstrates a company's commitment to ethical behavior. In order to be effective, the code must be communicated to the employees. Sarbanes-Oxley Act: requiring companies to set up confidential systems where employees can report illegal and unethical conduct. X. Approaches to ethical reasoning Ethical reasoning: It's a reasoning process where the individual examines the situation at hand guided by his or her conscience. Duty-based ethics Religious ethical standards: In the Judeo-Christian tradition, which predominates in the United States, the Ten Commandments establish the fundamental rules for moral action. Religious rules generally are absolute with respect to the behavior of their adherents. X. Approaches to ethical reasoning Kantian ethics: Individuals should evaluate their actions in light of the consequences that would follow if everyone in society acted the same way. This is called a \"categorical imperative.\" Act according to the maxim that you would wish all other rational people to follow, as if it were a universal law. The categorical imperative, then, denotes an absolute, unconditional requirement upon human beings. It allows no exceptions, and is both required and justified as an end in itself. The categorical imperative cannot be a means to some other end. X. Approaches to ethical reasoning Kantian ethics: Thus an act is not good because of the end to which it leads, but solely from the motive of duty from which it is performed. When is an act morally wrong? When a person carves out an exemption from himself. Criticism: leads to a subjective form of morality. Evil ways can never become universal laws. The principle of rights: The notion that all human beings have certain fundamental rights (to life, freedom, and the pursuit of happiness) is deeply rooted in Western culture. These rights come from the natural law. Utilitarianism: \"The greatest good for the greatest number.\" Developed by Jeremy Bentham, and modified by John Stuart Mill, utilitarianism is concerned with outcomes. It focuses on the consequences of the action, not the nature of it. Something is right when it produces the greatest amount of good for the greatest number of people. Utilitarianism requires: 1. Who will be affected by the action in question 2. Cost-benefit analysis 3. Alternative actions could produce the maximum social utilitythe greatest positive net benefits for the greatest number of individuals. Corporate social responsibility: the idea that those who run corporations should and can act ethically and be accountable to society for their actions. There is a view that corporations should not only be liable to stockholders but to stakeholdersemployees, customers, creditors, suppliers and the community in which the corporation services. Corporate citizenship: There is a view that corporations should behave as \"good citizens\" by promoting goals that society deems worthwhile and taking positive steps to solve social problems. A way of doing business: poll taken by Boston College's Center for Corporate Citizenship found that more than 70% of US executives want their corporations to be good citizens; more than 60% stated that good citizenship added to their profits. Corporate responsibility is most successful when companies undertake activities that are relevant and significant to its stakeholders. Employee recruiting and retention: a key stakeholder to companies is their employees, both existing and those applying for work. XI. Making ethical business decisions Being ethicaldoing the right thingpays. It is not an easy task, getting everyone to behave in an ethical manner. The idea is to get workers to think in terms of how their decisions will affect the community at large. Companies like Enron, Arthur Anderson, and the like, were brought down because of the unethical behavior of a few. 6 basic guidelines to help corporate employees judge their actions: 1. The law: Is what you are about to do legal? If you don't know, then find out. Ignorance of the law is no excuse. 2. Rules and procedures: Are you following the company's internal rules and procedures? They are designed to avoid problems. If what you are about to do is inconsistent with the rules, then stop. 3. Values: Laws and internal company policies reinforce society's values. Are you looking for a loophole in the law? Are you following the spirit of the law as well as the letter? 4. Conscience: If you feel any guilt, let your conscience be your guide. Would you like to be interviewed by a national news program about the action you are about to take? 5. Promises: Every business is based on trust. Your customers believe that your company will do what it is supposed to do. Will you live up to your commitments you have made to others? 6. Heroes: We all have heroes who are role models for us. Would your hero do what you are about to do? *The George S. May International Company XII.Practical solutions to corporate ethics questions The Five Steps of Business Process Pragmatism (Bucklin): 1. Inquiry: The process begins with understanding the facts. Target the ethical problems and create a list. 2. Discussion: List action options, which principles will be followed, and what are the goals. 3. Decision: Those participating in the process craft a decision, or a consensus plan of action 4. Justification: Will the consensus of the group withstand moral scrutiny? Reasons should be attached to each proposed action. Will the stakeholders be satisfied with the decision? 5. Evaluation: Do the solutions satisfy corporate, community and individual values? Will the decision withstand moral scrutiny? XIII. Business ethics on a global level Differing cultural and religious practices throughout the world can present conflicts between US businesses and foreign countries. With the advent of the Internet, it has not been good for companies that are willing to exploit people, because the public backlash has been damaging. The Foreign Corrupt Practices Act: (of the 1970's) reigns in this type of behavior. The first part applies to all US companies, their D&O, shareholders, employees and agents. It prohibits the bribery of most officials of foreign governments if the purpose of the payment is to get the official to act in his or her official capacity to provide business opportunities. It does not prohibit payment of substantial sums to minor officials whose duties are ministerial. These \"grease\" payments are meant to speed up the process. Bribery by foreign companies: The Act has also been used against foreign companies who try to bribe officials outside the US. The FBI has a five-member team that specializes in this area. The Act prohibits any person from making false statements to accountants or false entries into any record or account. Penalties: 2 million fine for the company, $100,000 fine for the director or officer, and imprisonment for up to 5 years. In class example: Facts: South Orange Mercedes is a car dealership located in South Orange, NJ. It sells cars and repairs them. South Orange Mercedes is required by law to change all the filters in their exhaust systems every two months. On three occasions, air samples from the installed systems tested positive for toxic chemicals, because the filters were instead changed every eight months. South Orange Mercedes was not required to report the results to the Environmental Protection Agency (EPA), and it did not do so. Meanwhile, people who ate regularly at the neighboring restaurant were exposed to the chemicals and became seriously ill. One person contracted a rare disease from breathing in the chemicals. Based on those facts, answer the following: (if the facts of the case do not indicate clearly the answer, describe what the possibilities are, what the facts seem to suggest or how you would seek clarification) Facts: South Orange Mercedes is a car dealership located in South Orange, NJ. It sells cars and repairs them. South Orange Mercedes is required by law to change all the filters in their exhaust systems every two months. On three occasions, air samples from the installed systems tested positive for toxic chemicals, because the filters were instead changed every eight months. South Orange Mercedes was not required to report the results to the Environmental Protection Agency (EPA), and it did not do so. Meanwhile, people who ate regularly at the neighboring restaurant were exposed to the chemicals and became seriously ill. One person contracted a rare disease from breathing in the chemicals. Q1: South Orange Mercedes acted legally in not disclosing the positive tests results to the EPA. (True or False) Q2: South Orange Mercedes acted ethically in not disclosing the positive test results to the EPA. (True or False) Facts: South Orange Mercedes is a car dealership located in South Orange, NJ. It sells cars and repairs them. South Orange Mercedes is required by law to change all the filters in their exhaust systems every two months. On three occasions, air samples from the installed systems tested positive for toxic chemicals, because the filters were instead changed every eight months. South Orange Mercedes was not required to report the results to the Environmental Protection Agency (EPA), and it did not do so. Meanwhile, people who ate regularly at the neighboring restaurant were exposed to the chemicals and became seriously ill. One person contracted a rare disease from breathing in the chemicals. Q3: Using the exhaust system after the positive test result was ethical. (True or False) Q4: You could, in good conscience, justify continuing to use the exhaust system after the positive test results. (True or False) Facts: South Orange Mercedes is a car dealership located in South Orange, NJ. It sells cars and repairs them. South Orange Mercedes is required by law to change all the filters in their exhaust systems every two months. On three occasions, air samples from the installed systems tested positive for toxic chemicals, because the filters were instead changed every eight months. South Orange Mercedes was not required to report the results to the Environmental Protection Agency (EPA), and it did not do so. Meanwhile, people who ate regularly at the neighboring restaurant were exposed to the chemicals and became seriously ill. One person contracted a rare disease from breathing in the chemicals. Q5: Continuing to use the exhaust system after the positive test results satisfies your commitment to customers, employees and the general public. 6. The South Orange Mercedes case described above demonstrates which of the following? A. Corporations need to make sure that they are adequately insured. B. Corporate responsibility for product safety ends after the product is sold. C. A corporation can act legally and still behave unethically. D. Corporations need to act quickly to do damage control, when products fail. 7. Moral and ethical principles ___________________ A. B. C. D. are secondary to the law when it comes to interaction with others in business. should be applied rigorously by businesses and individuals when making business decisions. are too subjective to be used as criteria for judgment regarding customer policies and practices. are the \"church\" part of separation of church and state that guides our government and legal action. Legal Foundations of Business Chapter 1 1 Law St. Thomas Aquinas, the great medieval philosopher, defines law as an ordinance of reason made for the common good and promulgated by those who are charged with the care of the community. 2 St. Pope John Paul II \"Law must therefore be considered an expression of divine wisdom: by submitting to the law, freedom submits to the truth of creation. Consequently one must acknowledge in the freedom of the human person the image and the nearness of God, who is present in all. But one must likewise acknowledge the majesty of the God of the universe and revere the holiness of the law of God, who is infinitely transcendent: Deus semper maior\" (VS 41). 3 St. Pope John Paul II Natural Law \"In the depths of his own conscience man detects a law which he does not impose on himself, but which holds him to obedience. Always summoning him to love good and avoid evil, the voice of conscience can when necessary speak to his heart more specifically: 'Do this, shun that.' For man has in his heart a law written by God. To obey it is the very dignity of man; according to it he will be judged.\" (GS 16, quoted in VS 54). 4 Ethics and business decision making Ethics generally is defined as the study of what constitutes right or wrong behavior. Business ethicswhat is right and wrong in the business world. Business leaders have to consider when they are making a decision, whether their decision is both legal and ethical. 5 Roots of American Law Primarily traced to England. Also rooted in Spanish and Dutch law. English law began with the Norman invasion of England in 1066. William the Conqueror established the king's court (Curia Regis). Bologna revitalization of the Roman Law in the 12th century. 6 Roots of American Law The more important rulings made each year were compiled into Year Books. Source of guidance in settling cases similar to those already decided. Uniquecase of first impression. Attempted to base decisions on previously established legal principles. Called the common law - judge made law. 7 The U.S. Constitution Article I - Creates in the legislature (the Congress) the authority to enact laws. Article II - The subject of this article is the executive power. The President has the duty to enforce all federal laws. Article III - Establishes the judicial branch of the government. Article IV - Concerns the relationships among the states. Article V - Lays out the means by which the U.S. Constitution may be amended. Article VI - Confers supremacy of the U.S. Constitution, federal laws, and treaties over all other laws. Article VII - Includes original acceptance of the U.S. Constitution by the states. 8 Sources of American Law Primary sources of law: US Constitution, statutory law, regulations, case law and common law doctrines. Secondary sources of law: books and articles that summarize and clarify the primary sources of law. E.g., legal encyclopedias, law reviews, and legal restatements of the law. Constitutional law Federal government and the states have separate, written constitutions and constitutional law is the law expressed in these constitutions. Constitutions are statements of general principle. Under Article VI of the US Constitution, the Constitution is the supreme civil law of the land. This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding. 9 Statutory Law Laws enacted by federal and state legislative bodies. Statutes passed by Congress or by state legislatures are statutory law. Includes local ordinances passed by municipality or county to govern matters not covered by federal or state law. Federal s