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Exam 1 Study Guide

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Ch. 1 - Nature and Sources of Law
Soldano v. ODaniels California Court of Appeals 1977 Two guys about to fight at Happy
Jacks. Patron of Happy Jacks sought help across the street. Asked bartender to let him call police.
Bartender refused. Saldano was shot by other man. Child sues bartender and employer; trial
judge dismissed the claim (summary judgement) Issue: Should a business be liable for wrongful
death when an employee reduses phone service to a patron? Ruling: There is a duty to allow use
of phone. Reversed and remanded. 1. Harm was foreseeable and thus preventable 2. Phone was

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in public area

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Ch. 2 Court Systems, Jurisdictions, and
State Systems
Courts of Limited Jurisdiction
General Trial Courts
Appellate Courts rule on questions of law only. Questions of fact are what happened,
questions of law are what is the rule applicable to the facts?
Federal Court System 96 district courts, 13 appellate courts, Supreme Court needs a writ of
District Courts
Specialized Courts
Appellate Courts (Supreme)

Subject Matter Jurisdiction

Personal Jurisdiction
Fraserside v. Youngtek

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Ch. 4 Common and Statutory Law; read
Citizens United v. FEC
Judges Burden twin burden of attempting to provide justice for the case while also setting a
precedent that will serve the greater interests of society
Stare Decisis to stand by decisions the legal principle of following precedent. Attorneys
research earlier cases for precedent
Binding Authority
Persuasive Authority
Flagiello v. Penn. Hospital ex. of changing precedent.

Citizens United v. FEC
King v. Burwell ex. of the plain meaning rule Yes. Chief Justice John G. Roberts, Jr. delivered
the opinion for the 6-3 majority. The Court held that Congress did not delegate the authority to
determine whether the tax credits are available through both state-created and federally created
exchanges to the Internal Revenue Service, but the language of the statute clearly indicates that
Congress intended the tax credits to be available through both types of exchanges. When the
plain language of the section in question is considered in the context of the statute as a whole, it
is evident that the federally-created exchanges are not meaningfully different from those the
states created, and therefore federally-created exchanges are not excluded from the language
referring to exchanges created by the states. This reading is also in line with the Congressional
intent of covering as many qualified individuals as possible, as the alternative would mean that
federally-created exchanges do not contain qualified individuals and operate entirely differently
from the state-created ones.

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Loving v. Virginia (1967) overturned Racial Integrity Act of 1926 (miscegenation) Did
Virginia's antimiscegenation law violate the Equal Protection Clause of the Fourteenth
Amendment? Yes. In a unanimous decision, the Court held that distinctions drawn according to
race were generally "odious to a free people" and were subject to "the most rigid scrutiny" under
the Equal Protection Clause. The Virginia law, the Court found, had no legitimate purpose
"independent of invidious racial discrimination." The Court rejected the state's argument that the
statute was legitimate because it applied equally to both blacks and whites and found that racial
classifications were not subject to a "rational purpose" test under the Fourteenth Amendment.
The Court also held that the Virginia law violated the Due Process Clause of the Fourteenth
Amendment. "Under our Constitution," wrote Chief Justice Earl Warren, "the freedom to marry, or
not marry, a person of another race resides with the individual, and cannot be infringed by the

Obergefell v. Hodges (1) Does the Fourteenth Amendment require a state to license a
marriage between two people of the same sex?

(2) Does the Fourteenth Amendment require a state to recognize a marriage between
two people of the same sex that was legally licensed and performed in another state?

Yes, yes. Justice Anthony M. Kennedy delivered the opinion for the 5-4 majority. The Court held
that the Due Process Clause of the Fourteenth Amendment guarantees the right to marry as one
of the fundamental liberties it protects, and that analysis applies to same-sex couples in the
same manner as it does to opposite-sex couples. Judicial precedent has held that the right to
marry is a fundamental liberty because it is inherent to the concept of individual autonomy, it
protects the most intimate association between two people, it safeguards children and families
by according legal recognition to building a home and raising children, and it has historically
been recognized as the keystone of social order. Because there are no differences between a
same-sex union and an opposite-sex union with respect to these principles, the exclusion of
same-sex couples from the right to marry violates the Due Process Clause of the Fourteenth
Amendment. The Equal Protection Clause of the Fourteenth Amendment also guarantees the
right of same-sex couples to marry as the denial of that right would deny same-sex couples equal
protection under the law.

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Ch. 37 - Business Ethics and Individual
Decision Making
Psychologist Stanley Milgram undertook his famous experiments on obedience to
authority. Although people to whom his experiment was described predicted that less
than 1% of participants would obey the experimenters instructions to administer
apparently injurious shocks to an innocent, protesting victim, fully 65% did so. As the
inaccurate prediction illustrates, most people simply do not understand the great extent
to which others, and especially they themselves, are susceptible to blindly following the
instructions of people in apparent positions of authority. A much more recent study found
quite similar results.71 The mistreatment of prisoners at the Abu Ghraib prison in Iraq
may well have resulted from the same obedience to authority
Pursuant to this acceptability heuristic, people often judge whether their decision is
right not in terms of content or philosophical ethicality, but whether it will be acceptable
to their superiors. Because of this inclination, people are much more likely to undertake
an unethical action in the workplace when urged to do so by a superior than to choose
that unethical course of their own volition.
Conformity Bias In our decision making, we have a bias toward conforming to the
actions and standards that we perceive to be accepted by our peers. In his famous
experiments, psychologist Solomon Asch found that when asked to tell which of three
lines was the same length as a fourth line, subjects had no difficulty whatsoever unless
they were placed in an experimental condition in the presence of six of the
experimenters confederates who gave obviously wrong answers. Almost all subjects
then found it very painful to give the obviously correct answer in contradiction of these
strangers erroneous answers. Most participants gave an obviously incorrect answer at
least once. Thus, people are more likely to undertake unethical actions in the workplace
and elsewhere if peers are engaging in similar behavior.78 And they certainly are less
likely to blow the whistle on unethical activity when peers seem to accept it, just as a
bystander to a crime is less likely to help the victim when others nearby are not helping
Groupthink - Groupthink causes collections of people to make much different
decisions than the same people would make individually. Group decisions are often much
more extreme than the median decision that members of the group would make
False Consensus Effect - Inclinations to follow authority and submit to peer pressure
are reinforced by the false consensus effect, the tendency to believe that other people
think the same way that we do. Thus, honest people will tend to believe that those they
interact with are honest as well. If employees believe that they are honest and their
supervisors are honest, then it will be particularly difficult for them to believe that their
actions in assisting those supervisors are unethical
Overoptimism newlyweds tend to rate their own chance of ever divorcing at 0%. In
general, people tend to think that good things are more likely to happen to them than to
others and that bad things are less likely to be inflicted upon them than upon others.82

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Some scientists have suggested that overoptimism is evolutionarily beneficial, but it can
lead to systematic errors in decision making and, in some circumstances it can induce
conduct that appears unethical
Overconfidence - Overoptimism is often exacerbated by overconfidence. Studies
indicate that businesspeople tend to believe that they are more ethical than their
competitors,89 and that most auditors believe that they will act more ethically than their
peers.90 A recent survey indicated that 61% of physicians believed that the freebies
they receive from drug companies do not affect their judgments, but only 16% believed
the freebies do not affect the judgments of other physicians. Overconfidence in ones
own ethical compass can lead people to accept their own decisions without any serious
moral reflection.
Self-Serving Bias - Perhaps the most influential of the heuristics and biases discussed
in this chapter is the self-serving bias, the tendency we have to gather information,
process information, and even remember information in such a manner as to advance
our self-interest and support our pre-existing views. It is imperative that students be
educated about the self-serving bias because even when people try their hardest to be
fair and impartial, their judgments are inevitably shaded by it. For example, when A, B,
and C are each asked how much credit they each deserve for a joint project that they
successfully completed at work, their allocations will typically add up to around 140%
rather than just 100% because in each of their minds they were more responsible for the
success than an objective observer would likely have concluded.
In valuing their deals, Enron employees would be prone, the psychological studies show,
to seek out information that would support the higher valuations that were consistent
with their self-interest. Similarly, in auditing Enrons books, the auditors would be prone
to search for information that supported the conclusion that the financial statements
accurately represented Enrons financial condition and to ignoring evidence that
contradicted that conclusion. This is called the confirmation bias. Psychologists are
well aware of this tendency, and studies show that even auditors and research scientists
who are supposedly trained to be skeptical are as prone to it as anyone else.96 Related
is the notion of belief persistence--the fact that people tend to persist in beliefs they
hold long after the basis for those beliefs is substantially discredited. The self-serving
bias and its closely related phenomena of confirmation bias and belief persistence
unconsciously affect the information that people seek out. They also cause them not only
to search for confirming rather than disconfirming evidence and to hold on to beliefs
even if the face of conflicting evidence, they also affect how people process the
information that they do access. Inevitably, subjective judgments of fairness are also
affected by the self-serving bias. In part, this means, according to one aspect of causal
attribution theory, that people have a tendency to attribute to themselves more than
average credit for their companys or teams successes and less than average
responsibility for its failures
Framing - A simple reframing of a question can produce a totally different answer from
the same respondent. When the safety of a cold weather launch was discussed the
evening before the launch, engineers who raised safety concerns were asked to put on
their management hats. In other words, they were asked to minimize safety
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considerations and emphasize monetary and other practical considerations. When asked
to reframe the decision as one of timing and expense, the engineers assented to a
launch they had objected to when focusing on safety factors.105 Unfortunately, even
when we keep the law in our frame of reference, as we always should when making
decisions, we tend to miss the big picture of industry practices that clearly cross ethical
lines but continue because current regulations have not yet found them to be legally
Role Morality morality changes based on what role you think youre playing.
Manager vs. engineer vs. Dad
Cognitive Dissonance - Related to the confirmation bias, the notion here is that to
avoid uncomfortable psychological inconsistency, once people have made decisions or
taken positions, they will cognitively screen information and tend to reject that which
undermines their decisions or contradicts their positions
Sunk Costs Another factor that may keep an actor on a self-destructive course that in
retrospect will appear unethical is the notion of sunk costs and the related phenomenon,
escalation of commitment. Studies show, comparably, that managers of companies that
have poured huge amounts of resources into development of a new product will have
great difficulty scrapping that product when evidence of safety problems surface.
Investment banks that have invested substantial resources in developing a relationship
with an Enron or a WorldCom or a promising new start-up will have difficulty cutting the
cord even when they learn that their client is a fraudster.
The Tangible and the Abstract - Decision making is naturally impacted more by vivid,
tangible, contemporaneous factors than by factors that are removed in time and space.
People are more moved by relatively minor injuries to their family, friends, neighbors and
even pets than to the starvation of millions abroad. This perspective on decision making
can cause problems that have ethical dimensions. moral distance. It is often pointed out
that it weighs less on ones conscience to kill by pressing a button in an airplane 30,000
feet in the sky and dropping bombs, than to pull a trigger on a rifle and kill a clearly
visible human being not far away. The farther a person is located from the impact of the
consequences of his or her actions, the easier it is to act immorally. Because capital
markets supposedly are so efficient that individual players can have little direct impact,
they often feel very distant from the potential victims of their misdeeds
Time-Delay Traps - [People] want to be relatively patient in future periods, but they
become increasingly impatient the closer that they get to incurring an immediate cost or
receiving an immediate reward. From a longterm point of view, people tend to have the
best intentions for their long-run selves: they make plans to start diets, stop smoking,
finish writing papers, and so on. However, when the time to act arrives, the chocolate
cake trumps the diet, the Camel prevails, and finishing the paper gives way to going to
the movies. In the end, our best intentions are always up for reconsideration, particularly
when they stand in the way of immediate gratification
Loss Aversion - People detest losses more than they enjoy gains, about twice as much
(several studies show). This loss aversion is probably related to the endowment effect,
the notion that we easily attach ourselves to things and then value them much more
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than we valued them before we identified with them. A simple coffee mug becomes
much more valuable to us once we view it as part of our endowment. Consider a famous
accounting case, U.S. v. Simon, 425 F.2d 796 (2d Cir. 1969). Auditors discovered that
they had not detected a fraud that their client had been committing. It is unlikely that
these auditors would have consciously cast their lot with a fraudster in the first place.
But once they learned of the fraud, of their own negligence, and of their potential
liability, they did knowingly decide to help cover up the fraud so as to avoid loss of their
jobs and professional reputations. This is consistent with studies that have found that the
worst lies people tell tend to be to cover up other misbehavior that was often not
intentional. Managers are thus less likely to commit fraud in order to raise their firms
stock price from $50 to $70 than they are to keep it from slipping from $70 to $50.
Time Pressure In a famous study,127 seminary students were asked to walk across
campus and give a talk on the Good Samaritan to some waiting visitors. As each student
walked across campus to give the talk, the experimenters arranged for them to come
upon a person lying by the sidewalk in obvious distressin need of a Good Samaritan. If
the students were not in a hurry, almost all stopped to help the person. But students who
had been placed in a moderate hurry up frame of mind by the experimenters stopped
to help only 63% of the
time, and other students who had been strongly urged to hurry stopped only 10% of the

Money -
fundamental attribution error, which is peoples tendency to underestimate how
situational factors affect othersdecisions and to overestimate how much they affect their
own. In other words, we tend to assume that other people do bad things because they
are bad people, but believe that we do bad things because we had to. The other guy
fudged the numbers because hes a crook, but I fudged the numbers because my boss
made me.

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Ch. 38 - Ethics, Organizations, Corporate
Social Responsiveness
To act ethically and responsibly can, therefore, attract capital. People identify with their
employers and want to be proud of them. Therefore, businesses that have reputations as
good citizens can attract higher quality employees as well as employees who are willing
to work for less

Employees will not only work for less at an ethical employer, they will also work harder.
As with individuals, penalties for corporations that are caught acting illegally or
unethically are also higher than ever. recent study of 132 cases of corporate fraud found
that the average firm was punished by a $60 million drop in its market capitalization.
Only a small percentage of that amount could be accounted for by potential civil and
criminal penalties; the rest was reputational damage.
There is nearly unanimous agreement that individuals are morally responsible for their
actions within business organizations. Managers and employees in corporations, like
other individuals in other settings, have moral obligations.

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The View That Corporations Do Have Moral Responsibilities
Organization theorys concept of group dynamics indicates that groups of employees
often behave very differently than any single employee would have behaved in isolation,
because the dynamics of the group transcend individual reason and autonomy. First,
because the action is motivated by corporate purposes rather than personal reasons,
participating individuals may not view their conduct as really their own. If they do not
associate the action with themselves as human beings, they are less likely to apply their
own personal moral standards to it. Second, a member of a group may feel that there is
safety in numbers. As the number of individual participants in group action increases,
each members feeling of anonymity may also increase. Even if a person does recognize
and feel somewhat responsible for the moral consequences of his groups proposed
action, he nevertheless may go along with a plan because he doubts that he personally
will ever be called upon to defend it. Third, formal lines of authority and accountability
within the organization may be fuzzy, thus increasing the chances that no single person
really feels responsible. When people do not feel responsible, they are less likely to act
responsibly. Fourth, communication among individuals within the decision-making group
may be less than perfect, and thus different individuals or subgroups may be acting on
the basis of somewhat different facts and assumptions.
The Agents of Capital View
One of the most well-known proponents of the view that corporations do not owe a moral
duty to be socially responsive is Milton Friedman, a Nobel laureate in economics and an
influential spokesman on the role of corporations in society. To begin with, Friedman does
not view corporations as moral agents; only managers and employees as individuals
have moral status. In addition, he contends that there is no obligation to spend corporate
resources correcting problems the company did not cause and, going even further, he
asserts that it is not even appropriate for the companys managers to do so. They are
agents of capital, that is, agents of the shareholders who own the corporation and
provide its capital. As such, their only duty is to earn as much money as possible for the
shareholders, within the limits of the law and customary ethical practices. Friedman finds
the social responsiveness movement to be a fundamentally subversive doctrine that
resembles theftmanagers are using someone elses money. The proper function of
government is to attend to matters of the common good and social welfare. Corporate
managers are not, by training or otherwise, equipped to do that, and even if they were, it
would be intolerable in a democracy for unelected, unaccountable civil servants to be
charged with the responsibility of improving general societal welfare. Hence, under the
Agents of Capital view, corporations do not owe a moral obligation to society. They owe a
legal obligation to follow the law, but no more.
The Agents of Society View
Henry Ford II stated: The terms of the contract between industry and society are
changing. . . . Now we are being asked to serve a wider range of human values and to
accept an obligation to members of the public with whom we have no commercial
transactions.171 His words were foreshadowed by those of his grandfather some two
generations earlier. For a long time people believed that the only purpose of industry is
to make a profit. They were wrong. Its purpose is to serve the general welfare.172 This
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notion of a social contract forms the foundation for many of the arguments that
corporate social responsiveness is morally required. Under this view, a corporation is the
result of a contract between those forming the corporation and the society that permits
its creation. Thus, the corporation has a contract-like obligation to contribute positively
to society, and the corporations managers are not just agents of the shareholders but
are also agents of society. One noted proponent of this view, philosopher Thomas
Donaldson, hypothesized the existence of a society in which individuals always work and
produce alone, and never in corporate form. A society such as this, composed of rational
persons, would permit the legal creation of corporations only if the benefits to the public
are great enough to justify the privileges granted to corporations and to outweigh the
potential. drawbacks. The privileges include limited liabilityonly the corporate entity
and its assets are liable for corporate debts, not the individual shareholders or
managers. This limited liability can come at a cost to other members of society. One
potential drawback is that permitting corporations to exist generally leads to much larger
aggregations of resources being under the effective control of a smaller number of
people. Large resource accumulations in corporations can bring both economic and
political power that few, if any, individuals could ever match.
Developing an Ethical Corporate Culture

Whistleblowers - Sarbanes-Oxley takes the point of view that the good whistleblowers
can do outweighs the bad. It requires the audit committee of public corporations to set
up a mechanism for whistle-blowers to communicate to the board. There is some
evidence that SOXs drafters made the right call in resolving this dilemma. Most firms

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suffer employee frauds at one time or another, but one study found that firms that had
installed anonymous whistle-blower hot-lines caught frauds, on average, at half the size
of frauds that bloomed at firms without such hot-lines.

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