You are on page 1of 399

LEGAL AND ETHICAL ENVIRONMENT OF BUSINESS

LEB 320 F

When Compliance Isnt Enough


Does the Constitution come into play? EPA is that in the Constitution? Social cost whats that? Are federal regulations mere guidelines? Was EPA supposed to stop all pollution? Cleaner water v. Steady jobs. Whoa?

Compliance???
Can WaterClear sue SunBright? Managers like Rick. Trapped in middle? Wasnt Rick doing a pretty good job? Where does globalism come into picture? What if you were a member of WaterClear?

Aaron Feuerstein, CEO Malden Mills


A fire destroyed the plant, but CEO continued payroll until he rebuilt. His unionized plant went strike free. Now the firm is in bankruptcy, like Enron, WorldCom, Adelphia, and others.

A firm should balance its profits and its good works.

Ethics or Morality
Whats the Difference???
Is one of them tougher than the other?

Ethics
Ethical Absolutes or Ethical Relativism

Doing the Right Thing


The Right Thing??? The same in U.S. Saudi Arabia, China?

Sources of Ethics
Mom and Pop Family School Community Culture Religion And you keep right on learning

Socrates
The Myth of the Cave. Realism v. Appearance. The Sun illuminates everything but itself. The Light, Absolute, Logos.

Monday, 24 February 2003


Womans right to choose. Religion life is sacred; fetus is human life. Platonic argument Secular symbiotic/parasitic relationship.

Plato
Socratic Dialogues. Women, as well as men, could hold high office. In The Laws, he described men as
Gold philosopher kings Silver soldiers Bronze- artisans and laborers Iron aggies and the like

TriPartide Self
Plato Chariot driven by Reason drawn by one Noble & one headstrong Spirit Marx Natural Self, Alienated Self, and, in time, a Species Self. Freud Ego/rationality principle, SuperEgo (conscience and ego ideal), and Id (aggression, power, dominance).

Sparta
Spartan King Leonitus saved Athens from Persians at Thermoplilea Sparta defeated Athens in Pelopenesian War In defeat, Socrates and Plato introduced the forms and philosopher kings British philosopher Bertrand Russell during Battle of Britain described Plato as fashistic

Aristotle
Happiness - a life of virtuous activity in accordance with reason. Virtue neither excess nor deficiency. Where do you get that virtue?

Stoics & Epicurians


Detachment apathia Social engagement v. separation from public affairs Logos

Utilitarianism
Greatest Good Greatest Number
A quantitative measure

BenthamPleasure/Pain Calculus
Stuffed - University of London.

Mills Examined quality of pleasures.


On Liberty virtues resembling Aristotle.

Go Figure
By keeping her promise to Margot, Alexis can create 500 units of utility. By breaking that promise, Alexis can create 5000 units of utility with Nicole. Alexis wants to know what to do?

Neitzsche
God is Dead!
Do something with your freedom; create your own values free of superstition. Selfstrength/fulfillment. Whatever doesnt kill me makes me stronger. Live it with such love for life, that youd do it again, and again, forever, throughout eternity.

Will to Power!

Eternal Return -Affirm Life!

Pragmatism
Truth look at consequences. Use rules, principles, utility, virtue. If it doesnt work well, change it. This does NOT mean anything goes. If theory does not account for facts, change the theory.

Theory of Justice
The Original Position

In the Original Position, behind a Veil of Ignorance, Rawls imagines that rational, self-interested persons who know they will live in the society they create, but do not know their race, sex, abilities, religion, interests, life plan, social position, income or other particular attributes will choose fair and impartial rules, such as the following:

Theory of Justice
John Rawls Equality Principle: Each person has maximum basic liberty compatible with others Contracts free of force, fraud, deception. Difference Principle: Social/economic inequalities should be arranged so
All offices/positions are open to everyone under conditions of fair equality of opportunity, Greatest benefit goes to least advantaged.

Business Ethics
1. 2. 3. 4. Checklist Facts Issues Stakeholders includes
stockholders but also covers everyone who impacts or is impacted by the corporation.

PERSPECTIVES
A. Legality. B. Headline News. C. Consequences (utility). D. The Right thing to do--moral rights. E. The Golden Rule--respect for others. F. Justice Fairness. G. Procedural justice. H. Character/virtue.

ENRON

VISION & VALUES


Respect Integrity Communication Excellence

Enron
Respect As opposed to entrapment of 401-K employees Integrity As opposed to greed, deceitfulness, fraud Communication As opposed to stonewalling by taking the 5th amendment Excellence As opposed to fair-to-middling

ENRON
Largest U.S. bankruptcy until WorldCom. Complex off-shore partnerships kept liabilities off Enrons books. Energy trading completely legal, but not self-dealing.

Enron Merrill Lynch


Sham energy deal with M-L allowed Enron to meet Wall Street expectations and book $60 million profit (1999). Inflated profits drove up stock price, unleashed $$millions$$ in bonuses (Lay, Skilling . . .) and was later cancelled as planned. M-L denies receiving $8 from Enron for cancellation. Still under investigation.

Arthur Andersen
Lets dont talk about Arthur Andersen.

It gave Professor Shaw an all expense paid trip to their Business Ethics seminar in Chicago.
Over 3 years, it spent $5,000,000

WorldCom
Overstated earnings by $3.8 million Laid off 17,000 employees Stock dropped from $64.50 to 0.83 Former CEO received $366 million in low interest loans

TYCO
CEO Dennis Kozlowski charged with evading $1 million in taxes and is accused with destroying documents. Kozlowski and other executives bought art work, and one executive bought a home. In other words, they looted the firm (also Adelphia) for personal gain. Tax avoidance with offshore incorporation.

ImClone Systems
CEO Samuel Waksal sold stock after learning the FDA denied certification of cancer treatment drug. Inside trading.

Martha Stewart
Martha Stewart (a director of NYSE) allegedly sold stock on inside information provided by Merrill Lynch. Stock in Stewarts Omnimedia declined 40%. (see Chpt. 16) M-L broker, Peter Bacanovic, allegedly warned her of illegality.

Chainsaw Al
Al Dunlap built his reputation on Wall Street as a CEO who could turn around failing corporations. He did it, allegedly, by an employee census and more efficient operations. The SEC now believes the turnaround at Sunbeam was engineered by financial fraud. An Arthur Andersen audit partner certified the results.

Harken Energy
In 1992, while George W. Bush was a member of Harkens audit committee, the SEC forced Harken to correct an overstatement of profit. Bush sold 212,140 sh. @ $4 prior to a restatement of profit. U.T. Poly. Science Prof. Bruce Buchanan [S]imilarity to Enron style of accounting.

Executive Compensation
How Much Are They Worth? NYSE position is that all listed companies be required to expense stock options. If options reward employees, why arent they treated expensed as other forms of compensation?

Whats the use of


The Checklist Ethical Theories If you know the right thing, does that mean that you will do the right thing???

Chapter 2
Introduction to Law

Power
Plato In The Laws, Plato would establish
Philosopher-Kings, and place these Men of Gold as governors over Men of Silver (warriors) and Men of Bronz (citizens, workers). Women were treated equally, and private property abolished.

Aristotle In The Politics, Aristotle would have


rule by Aristocrats, recognize private property, women mothers, homemakers.

Power
Hobbes life without civil government
[The Leviathan] is solitary, poor, brutish,

nasty, and short.

Locke Separation of power.

State of nature - private property. Caretaker government libertarian.

Contemporary Sources of Law


Constitution Statutes Administrative Law Treaties Common Law

INTRODUCTION
Administrative Law, e.g., EPA regs Remember the Rick Wagner hypothetical in your syllabus. Treaties: 2/3 Senate + President (supreme law of the land).

Classifications of Law
1. Criminal - Justice Department 2. Civil fines S.E.C. 3. Substantive (rights) v. Procedural (rules). 4. Public (legislation) v. Private (lawsuits)

Element of a Crime
1. Statutory violation no common law

crime. 2. Intent (mens rea or guilty mind). (a) Deliberate conduct. (b) Recklessness conscious disregard of substantial risk of harm. 3. Proof beyond reasonable doubt.

A New Criminal Defense?


Jury nullificationa S. D. referendum. Sure, I violated the law - it was too goofy. Cruelty to animals? What, I was defending myself against an attack dog. Child pornography? I just took a photo of my toddler in the bathtub?

CyberCrime
Federal Law on CyberCrime.

Criminal behavior if a person harasses someone by means of interstate telecommunications.

Cyber Defamation
Defamation in Cyberspace Civil Lawsuit, Not Criminal
Chatroom Bulletin Board

Cyber Stalking
Several state laws (not Texas) have laws prohibiting cyber stalking. Laws require either credible threat or an intention to harass, threaten, or alarm.

Cyber Theft
Access classified government info. Access info of financial institutions. Access govt. department file to affect use. Access files to defraud or obtain value. Sending viruses by hacking. Fraudulent access to government passwords Threat to cause damage to computer to extort something of value

Childrens Internet Protection


The Federal Childrens Internet Protection Act requires libraries that receive federal funds to install filtering software designed to block access to adult websites. Constitutional after the ALCU had successfully challenged the 1st two attempts to get this act on the books. .

Actual Federal Crimes


Fraudulent use of 4-H symbol or pretending to be a 4-H member. Unauthorized use of of Smoky Bear name. Illegal use of cremation urn. Interstate transportation of dentures. Issuing false weather reports. Mailing false divorce information

JurisprudenceLegal Wisdom
Legal Positivism look to Letter of the Law Natural Law look to the Source Legal Realism look to the Enforcer Legal Pragmatism finding a workable legal solution roughly in accord with the Constitution, statutes, and cases

Natural Law Natural Religion


David Hume (1711-76) Scottish skeptic, friend of Adam Smith. Laws of nature, discoverable through rational inquiry, are inconsistent with miracles of Bible. Natural law a purely secular project developed as a means of protecting and promoting life in communities.

Examples of Tort
Osborne v. Stages Music Hall, Inc.
Did Music Hall owe a duty?

Ozzie Osbournes Suicide Solution


Could Ozzie foresee this outcome?

Closing Arguments
Refresh your memory - Scan the slides chapter review. Examine problems at end of chapter. Ask a bunch of questions.

Chapter Three
Dispute Resolution

Enviro-Vision v. Coastal Ins.


Tony Caruso drowned. His partner, Beth Smiles, tried to collect double indemnity for accidental death. No luck! Then she turned to Janet Booker. . . . Alternative Dispute Resolution, State or Federal Court

Alternative Dispute Resolution


Negotiation Mediation Arbitration Mini-Trial panel of judges Summary jury trial

Arbitration
Private award (secret), quicker, cheaper compared to litigation. However, no class actions, no discovery procedure. No appeal unless arbitrator is corrupt.

Enforcement of Arbitration
Meehan v. Nassau Community College
Professor assigned to teach course; he had no proper credentials. 647 N.Y.S 2d 865 (1996)

Awards wont be enforced if they contravene strong public policy or corruption. An error of judgment is not sufficient.

EEOC v. Waffle House


Employee lost job-related arbitration dispute with Waffle House. EEOC permitted to sue Waffle House for employee back pay under Americans With Disabilities Act.

State and Federal Courts.


Which to choose: state or federal? Either choice, the court must have
a. Personal Jurisdiction

AND

b. Subject matter Jurisdiction

Venue
Venue designates the proper court within a state to file a lawsuit. Assuming the court has jurisdiction over the case, venue will be proper . . .
In the county where the tort happened, In the home county of the defendant, If the suit involves real estate, in the county where the property is located.

Federal Jurisdiction
Federal Jurisdiction: Diversity & Federal Question. Exclusive federal jurisdiction -bankruptcy, patent-copyright law, federal crime. Original and Exclusive. Original Louisiana v. Texas.

Diversity Jurisdiction
Federal Diversity jurisdiction requires:
(a) Complete diversity of parties, AND (b) Amount in controversy $75,000

Non-residents
Out of State Motorists Out of State Corporations

Pleadings
Plaintiff initiates suit by filing a petition in a court with jurisdiction. The petition alerts the defendant in plain language of the facts the lawsuit is based on. This is in compliance with our notion of due process. Its based on fairness.

Summons
A summons is served on the defendant with a copy of the petition by a court-authorized agent. The summons will notify the defendant of when and where to appear to answer the petition.
Normally the defendant will have an attorney answer the petition and appear on defendants behalf. Failure to appear will result in the defendants losing the the lawsuit by default.

Answer
Answer tells why defendant is
not responsible.

Dont default by failing to answer!

Answer
Answer may respond challenging the courts jurisdiction. Answer may respond that statute of limitations has expired. Answer may respond that driving while blonde in not a civil wrong. Answer may say that plaintiff hasnt alleged elements of tort or breach of contract.

Judgment of Pleadings
Court doesnt have jurisdiction, Statute of limitations expired, State doesnt give legal relief for plaintiffs claim.

Motion to Dismiss
U.S. District Court dismissed fat suit v. McDonalds. Parents had reason to know that fast food produced weight gain. Ads McChicken Everyday and Big N Tasty Everyday were mere puffery.

Class Action
If there is commonality of fact and law among plaintiffs, the judge may certify a class. Class members will be notified and may opt-out. Caesar Barber, 510 272#, represents a class v. McDonalds, Ky.Fried, Wendys, and Yum on failure to warn on cholesterol, obesity, diabetes, heart disease, high blood.

Pre-trial Discovery
Interrogatories Depositions Documents Medical Exams Admissions.

Klupt v. Krongard
Klupt, according to trial court, grossly abused the discovery process. Krongards motion to dismiss counter-claim was granted and affirmed on appeal. Abuses: Klupt routinely objected to dates for depositions; changed lawyers causing delay; lied about conflicts; managed further 6 mo. delay; destroyed tapes.

Summary Judgment
Undisputed facts. Outcome is a matter of law.

Jones v. Clinton
Summary judgment for Clinton because Jones did not show tangible job detriment or adverse employment action. Other issues trial was postponed. Settled out of court.

Burden of Proof
Preponderance evidence: Civil actions the 51-49% rule applies.
Beyond reasonable doubt: Criminal actions.

Motion for Directed Verdict.


At close of each partys case, the other will move for a directed verdict asking the judge to take the case out of the jurys hands and order it to return a verdict in his/her favor. Reason: The other has not introduced evidence to prove elements of his/her case.

Jury Instructions
If jury cannot decide whether death was accidental or suicide, there is a legal presumption that death was accidental. Is this a proper instruction?

Ponce v. Sandoval
Judgment NOV (against weight of evidence) and New Trial (error of law). Ponce v. Sandoval-Sandoval received $1600 jury verdict for medical expenses. Trial judge granted her NOV motion. Appellate court reversed NOV and reinstated jury verdict. Appellate court may affirm, modify, reverse and remand, or outright reverse.

Closing Arguments
Review Chapter ending problems

Chapter 4
Common, Statutory, & Administrative Law

Common, Statutory, & Administrative Law


Stare Decisis the doctrine of precedent. Res Ipsa Loquitur--1) defendant controls instrument of harm, 2) harm not normally occur in absence of negligence, 3) plaintiff in no way responsible for negligence or harm. Burden of proof shifts to defendant. Res Judicata.

Common,Statutes,Administrative
Common Bystanders Statutory Civil Rights Act Administrative
Chevron v. U.S. bubble concept was a
reasonable approach even though it may not have been superior to another strategy.

Holly Farms v. NLRB


Ginsburg maybe not best, but a reasonable way OConnor strict construction, plain meaning

Common Law Doctrines


Stare decisis stand by the decision.
Any case influenced, controlled by earlier case.

Res ipsa loquitur the thing speaks for itself.


Suit v. surgeon who, 8 years earlier, failed to remove IUD while doing a hysterectomy.

Going to the Rescue


Duty to go-to-the-rescue. Ethical duty. a) Ability--harm to rescuer? b) Needhow serious? c) Proximityclose by or not? d) Last Resortno one else helping.

Going to the Rescue


General RuleNO legal duty to rescue unless defendant has caused danger. Factors considered in exceptional cases.
Could harm have been prevented? Was aid negligently administered? Was harm foreseeable? Was failure to act morally wrong? Was there a special relationship to victim?

Restaurants and Bars


Restaurant served drinks to diner until he was visibly intoxicated. Drove away and killed motorcyclist.
El Chico v. Poole (Texas 1987). Texas per se statute.

Per SeWhats that??? What if diner in your restaurant is choking?

Per Se Negligence
1) DEFENDANT WITHIN CLASS OF PERSONS INTENDED, 2) TYPE OF HARM STATUTE INTENDED TO PREVENT, 3) BREACH OF STATUTE CAUSES INJURY.

Rescue
Union Pac--duty to rescue trespasser. Cappier laborer suffered heat stroke. Osterlind v. Hill canoe renter drowned. Soldano v. ODaniels Happy Jacks.

Psychiatrist
Tarasoff v. Californiaspecial relation with Poddar who confided intent to kill; the victim was foreseeable. Is psychiatrist responsible? Psychiatrist is an agent of the University of California. Special relationship.

Almonte v. Ingram
DeMasi, a psychiatrist, confided to Ingram, a child psychiatrist, that he was a pedophile. Ingram told no one; 4 months later DeMasi molested Denny Almonte. DeMasi served 5 yrs in prison. When released he violated parole and returned to prison. When released in 1995 he disappeared. Almonte experienced emotional legal & problems and was confined to institutions himself.

Almonte v. Ingram
Patients in therapy say all sorts of troubling things. In fact, its the therapists job to encourage patients to reveal deep-seated feelings. No reason to think patient would act on all of them. Therapist shouldnt breach confidentiality each time patient says something bizarre that would cause patients to avoid therapist in the first place.

Rescue in Texas
Dr. Thapar began treating Lilly in 1995; he knew about Lillys paranoia and delusional attitude toward Zezulka, his stepfather. Lilly was treated with psychotherapy and drugs; on 6 occasions he was hospitalized. Thapar testified that Lilly felt like killing Zezulka. Within a month after release, Lilly killed Zezulka. Thapar is sued by Zezulkas wife.
Thapar v. Zezulka (Texas 1999)

Rescue in Vermont
A person who knows that another is exposed to grave physical harm and can render aid without peril to himself or diminished duty to dependants must give reasonable aid if not provided by others. Reasonable assistance relieves one of civil damages unless
gross negligence (slight care), or expects remuneration.

Does not affect physicians in ordinary practice. Fine - $100. 23 Vermont Code sec. 519

Adulterous Affair
Employees of Helena Labs began having an affair. Their spouses later discovered the liaison, and sued Helena Labs for carelessly failing to prevent it. Outcome?
Helena Laboratories v. Snyder, Texas 1995.

The Legislative Process


Bills--Move from Legislature to Conference, From there back to Legislature, Finally to Executive for signature or veto. Two thirds vote of both houses passes bill over presidents veto.

Griggs v. Duke Power


Civil Rights Act of 1964 prohibits intentional racial discrimination in hiring. What if hiring policy is fair in form, but discriminates in practice? After 1964 Act a new Duke rule: Executive jobs only to those with h.s. diploma/IQ test. What if that discriminates on race??

Wards Cove v. Atonio


Whites hired for skilled jobs; nonwhites-unskilled jobs. This violated law unless employer could show a good reason (business necessity.) S.C. concluded that business necessity in hiring was NOT required despite Griggs v. Duke Power. Congress later restored requirement of business necessity. President G.H.W. Bush vetoed. Failed by one vote to pass over veto. 1991 Act just vague enough to pass Congress.

Statutory Interpretation
Statutory interpretation:
(a) plain meaning, (b) legislative intent, (c) public policy.

Griggs v. Duke Power


Title VII, based on commerce clause, prohibits job practices that are fair in form, discriminatory in practice. Ability tests developed by professionals are legal.

Administrative Law
Agencies may be executive or independent. Agencies gain power through a delegation from the legislature. Independent - SEC, FCC, FTC, NLRB. Executive IRS, FBI, NRC, EPA. Separation of powers. Formal and Informal Rules.

Subpoena duce tecum


FDIC v. Garner Subpoena duce tecum. Subpoena duce tecum must not be unreasonably burdensome or seek privileged information; it must seek only relevant documents.

Judicial Review
Holly Farms v. NLRB The S.C. found that the Boards interpretation, while not the only one possible, was reasonable, therefore the Board was affirmed. Majority Ruth Bader Ginsberg Minority Sandra Day OConnor

Chapter Five

Constitutional Law

Constitutional Law
Separation of Powers - checks and balances. Art. I - Grant of powers to Congress. Especially important is the Commerce and the Necessary and Proper clauses.

Commerce Power
Wickard v. Filburn, 317 US. 111 (1942)The Depression Era. U.S. v. Lopez, 514 U.S. 115 (1995) The Rehnquist Court.

Dormant Clause
10th Amendment

Maine tried to use10th amendment tax power to deprive Camps of property tax exemption. Camps attendees were 95% out-of-state. Can Camps be penalized in comparison to in-state? What is the dormant aspect of the commerce clause?
Camps Newfoundland/Owatana v. Maine

Taxing and Spending


In addition to the Commerce Power, Art. 1, Section 8 of the Constitution gives Congress the power to lay and collects Taxes . . . to pay the Debts and provide for the Common Defence and general Welfare of the United States. Teenage drinking was a general welfare problem highway funds withheld.

Judicial Supremacy
The Case of the Midnight Judges Marbury v. MadisonChief Justice John Marshall saw a judicial veto in the Constitution. Where did he get that idea?

Judicial Supremacy
Article III -- One Supreme Court and other courts as Congress may establish. Article VI Supreme Law of the Land:
The Constitution. Laws in Pursuance of Constitution. Treaties under Authority of U.S. Treaties are made by President and 2/3 of Senate.

Executive Powers
Art. II--President is commander in chief and chief executive officer. Youngstown Sheet and Tube v. SawyerDid President Truman exceed his powers as Chief Executive? What about President Nixon fixing prices?

The First Amendment


Congress shall make NO law respecting . . .
Establishment of religion or abridging free exercise thereof, or abridging these constitutional rights: Speech, Press, Peaceable Assembly, or Petition government to redress grievance.

Fourteenth Amendment
Establishes citizenship if born or naturalized in U.S. States cannot deny life, liberty, or property to ANY PERSON without due process of law. States cannot deny any person within its jurisdiction equal protection of law.

Pledge of Allegiance
. . . Under God . . . Do these two words in the Pledge of Allegiance violate the Establishment Clause of the First Amendment? Two religious clauses: Establishment and Free Exercise. Why is this applied to states . . . ?

Ethnicity
Due process clause of 14th A. applies the Bill of Rights to the states. Massachusetts passed statute forbidding discrimination on basis of ethnicity. Porcaros awarded $1.5 million - permit for developing real estate denied on grounds that were not held against other groups. All you Italians are a bunch of thieves.

Symbolic Speech
Amendment I--Texas v. Johnson

US flag was burned at Republican Convention (1980) in Dallas.


What kind of message was that?

Symbolic Speech
U.S. v. Eichman U.S statute - flag burning Barnes v. Glen Theater non-obscene nude dancing R.A.V. v. St. Paul hate-crime ordinance penalized burning crosses the Klan Wisconsin v. Mitchell child beaten on account of race - symbolic speech?

Political Speech
Political speech receives highest protection. However, it may be criminalized if intended and likely to create imminent lawless action.

Justice Holmes
The question in every case is whether the words used are used in such circumstances and are of such a nature as to create a clear and present danger that they will bring about the substantive evils that Congress has a right to prevent. It is a matter of proximity and degree.
Schenck v. U.S., 249U.S 47, 52 (1919).

Justice Holmes
The most stringent protection of free speech would not protect a man in falsely shouting fire in a theatre and causing a panic. The [Act] punishes conspiracies as well as actual obstruction. No grounds for saying that success alone makes an action a crime.
Schenck v. U.S.

Justice Holmes
[The] ultimate good desired is better reached by free trade in ideas that the best test of truth is the power of that thought to get itself accepted in the competition of the market . . . . That at any rate is the theory of our constitution.
Abrams v. U.S., 250 U.S 616, 627-28 (1919) Dissenting Opinion

Republican Party v. White


Supreme Court struck down Minnesota law that prohibited judicial candidates from announcing position on legal and political issues. Strict scrutiny is applied to rules limiting speech.
must be narrowly tailored must be a substantial advancment must be a compelling state interest.
122 S.Ct. 2528 (2002) 5 4 Split

Cleveland Voucher Program


By a 5 4 decision, the Supreme Court concluded that school vouchers put money into the hands of parents who could use it for parochial or other private schools.
Zelman v. Simmons-Harris 122 S.Ct. 2460 (2002)

Freedom of Religion
Engle v. Vitale School Prayer. Can it acknowledge an Almighty Being. Pledge of Allegiance 10th Circuit. One Nation Under God.

Watchtower v. Stratton
Village ordinance required registration and permit to engage in door-to-door advocacy. Ordinance covered religious proselytizing, anonymous political speech, and distribution of handbills. Violation of First Amendment??
Watchtower v. Stratton, 122 S.Ct. 2080 (2002). 8 1 split

Time, Place, Manner Limitations


Park ordinance required a permit before holding large-scale events in public parks. Ordinance was content neutral regulation with adequate safeguards to guide enforcement and judicial review. Not a big surprise.
Clark v. Chicago Park District, 122 S.Ct. 775 (2002).

Yard Signs
A city ordinance prohibited yard signs of any kind. It was designed to foster an aesthetically pleasing visual environment. Could you be prosecuted if your sign supported or opposed the war on terrorism.

Nude Dancing
Was law prohibiting nudity a valid exercise of 10th amendment power to control health, safety, morals. Was law an unconstitutional suppression of expressive conduct.
Barnes v. Glen Theater, 501 U.S. 560 (1991)

Obscenity
Would AVERAGE person applying CONTEMPORARY community standards find the work as a whole appeal to PRURIENT interest. Depicts in PATENTLY OFFENSIVE way sexual conduct defined by state law. Does work as a whole lacks serious literary, artistic, political, or scientific.

Obscenity
Prurient excites lustful or lascivious thoghts. Court must distinguish between normal and shameful interest. Look to local community standards, not state or national.
Brockett v Spokane, 472 U.S. 491 (1985).

Patently offensive ultimate sex act normal or perverted, actual or simulated.


Miller v. Cal., 413 U.S. 15 (1973)

Social merit national standard/average person. Jury determines standard.


Pope v. Illinois, 481 U.S. 497 (1987).

Justice Potter Stewart


Justice Stewart concluded that he couldnt define obscenity, but

I know it when I see it.

Commercial Speech
Commercial speech may be prohibited if false or misleading. Regulations must be reasonable and must directly advance a legitimate goal.
Fane v. Florida Institute of CPA.
(see problem #2, p. 123)

LiquorMart
LiquorMart v. Rhode Island--statute prohibited truthful, non-misleading price advertising. R.I. did not show that regulation would materially advance state interest without impairing an important component of free speech. Further, it ignored easy alternatives.
LiquorMart v. Rhode Island, 517 US 484.

Execution of mentally retarded..


Eighth Amendment Cruel and unusual???
Atkins v. Virginia. 122 S.Ct. 2242 (2002) Penry v. Lynaugh, 492 U.S. 302 (1989) National consensus of 29 states plus U.S.

UNCONSTITUTIONAL!

Execution of Juveniles
S.C. Justices Stevens, Ginsberg, and Beyer dissented from majority which denied a stay of execution for Texas inmate, Toronto Patterson, who was 17 when he murdered his 3 year old cousin. An issue for the court to examine within the next few terms. WHAT DO YOU THINK? CONSTITUTIONAL!

Reproductive Rights
Amendment IX--Enumeration of rights in Constitution not deny those reserved to people. Roe v. Wade right of privacy. Fathers, husbands, boyfriends have no right to veto a womans right to have an abortion.

Reserved Powers of State


Amendment X Powers not delegated to the U.S. are reserved to the states and to people. Amendment X covers the states power to incorporate or establish cities, counties, state agencies, plus schools, roads, and all other state laws and instrumentalities.

Drug Testing
Supreme Court approved school district policy requiring random drug testing (urinalysis) of high school students in band, glee club, etc.
Interest of educators in keeping drugs out of school outweighs privacy interests. Board - Education v. Earls, 122 S.Ct. 2559 (2002).

Peyote
In 1991 the S.C. held that use of peyote in a Native American church was not protected from enforcement of Oregon criminal law. Congress passed the Religious Freedom Restoration Act forbidding government from enforcing law that substantially burdened religion without compelling need and in least restrictive manner.

Peyote
In City of Boerne v. Flores (1997) the S.C. affirmed its earlier holding. Religious Freedom Restoration Act unconstitutional. The 14th Amendment, section 5, only gives Congress the power to enforce Freedom of Religion, not to define terms. S.C. had already said Oregon criminal law did not violate the Constitution.

Due Process
Procedural due process. How much process is due? Depends on importance of liberty or property affected. Judge must be neutral.

Hearings
Attachment hearing before attachment Garnishment hearing before attachments In Texas - garnishment for child support and student loans only

Secret Settlements
Secret settlements between the parties to a lawsuit may in fact do justice. They also clear court dockets quickly, and thats a plus. But secrecy also keeps the settlement from the public. Think what might be different today if the misdeeds of Catholic priests had been revealed a long, long time ago. Secrecy in the asbestos and textile industries, most likely, cost many lives.

Taking of Private Property


Private property taken for public use requires government to pay just compensation. Amendment 5. Government may regulate private property without payment for restriction of its use, e.g., zoning.

Taking
In 1986, Lucas paid $1 million for two lots on the Isle of Palms in S.C. Two years later the state passed the Beachfront Management Act. It prohibited building homes on the property. The barrier islands protect shoreline from erosion. Is this a taking, or a regulatory measure?
Lucas v. S.C. Coastal Council, 505 U.S. 1003 (1992).

Procedural Due Process


Doehr was about to be sued for assault and battery. DiGiovanni got a $75,000 prejudgment attachment on Doehrs home. Doehr challenged the prejudgment attachment as unconstitutional. Outcome?
Connecticutt v. Doehr, 501 U.S. 1 (1991)

Substantive Due Process


Examines basic rights being affected The more important the right, the higher scrutiny that is required Economic regulation demands a reasonable relation between means and ends Fundamental rights regulation presumed invalid unless state has compelling reason

Means and Ends


Economic regulation some income brackets are taxed at a higher rate than others Social regulation speed limit and other traffic laws

Strict Scrutiny
The statute (or the means) must be necessary to promote a compelling interest. Compelling Interests - Fundamental Rights Examples: speech, voting, travel, racial discrimination, privacy

Equal Protection of Law


Minimal scrutiny economic and social regulations Intermediate scrutiny gender classifications and legitimacy Strict scrutiny race, privacy, and fundamental rights

Minimal Scrutiny
Practically always the courts can find some reasonable connection between means and ends. NYC Transit Authority v. Beazer methadone users excluded from jobs that were not safety sensitive.

Intermediate
The statute (the means) must have a substantial relationship to an important government objective (the end). Gender based discrimination. Legitimacy.

Strict Scrutiny
Government restriction must be necessary to compelling interest. Abortion - women under a certain age; parents must be given notice. Adults no notice to natural father or husband.

Helmet Law
Motorcyclist challenged law as violation of Equal Protection (14th). Law upheld. It was presumptive valid; this means rationally related to legitimate end. Not unconstitutionally vague, created no suspects classification, and violated no fundamental rights.
Robotham v. State, 488 NW2d 533

City of Dallas v. Stanglin


Dallas ordinance prohibited ages 14-18 from Class E dance halls to avoid drugs and such. They were permitted in roller rinks and other places teenagers congregate. Texas S.C-distinction unconstitutionalteens mix at roller rinks too. Should U.S. Supreme Court affirm or reverse?

Examples
Plessy v. Ferguson Brown v. Board of Education Bolling v. Sharp Sweatt v. Painter Hopwood v. University of Texas

CIDs and Due Process


Common Interest Developments
CIDs: Open for private regulation?
or

Is this State Action?

Tort Law
Torts are civil wrongs, other than breach of contract, that law grants compensation to injured party.
Intentional Torts Chapter 6 Negligent Torts Chapter 7

Intentional Torts
Intentionally negative Theater reviews, Movie reviews, Book reviews.
What about . . . Restaurant reviews such as . . . yellow death on duck.

Statute of Limitations
Reminder!!!
Attached to every legal cause of action, there is a period of time in which a lawsuit tort or contract must be filed in a court of proper jurisdiction. Plaintiffs action in tort and in contract based on defendants negligent misrepresentation of contract terms. For plaintiff couldnt discover her claim existed until after statute of limitations expired.

Example Intentional Tort


Jury verdict for $5 million v. California cemetery for fraud. Two hundred fifty bodies buried in roadway of cemetery. Unusual but jury divided amount per plaintiffs. It took two days to read the verdict.
Barnes v. Angles Abbey, (Sup. Ct. L.A. ).

Elements of Tort
Fault breach of duty Causation
A) chain of dominos causation (actual cause) AND B) foreseeability

Damage physical or emotional

Defamation
DEFAMATION--intentional false statement of fact, not opinion, harmful to reputation and communicated to a third person.

Third person may be secretary receiving dictation or someone who overhears defamatory statement.

Publication
Sixty-eight year old Christine Melton was stopped by security guard and accused loudly in parking lot. Shoppers stopped and heard: nothing was found in purse. No witnesses produced by Melton. For Melton based on reasonable inference that other heard accusation of crime.

Forced Self Publication


Lewis was asked by employer to falsify records. When she refused she was fired for gross insubordination. She had to say that in answer to prospective employers question, and her explanation was not believed. She didnt get the new job. When she sued original employer, the defense was that she publicized the info herself.

Defamation per se
Accusation of serious crime Incompetence in profession Having a sexually transmitted disease Being and unchaste woman Per se Whats that????

Damages
Slander oral defamation.
Plaintiff must show actual money damages

Libel and defamation per se.


Showing of non-monetary damages such as mental anguish or humiliation is sufficient

Opinion
Yeagle v. Collegiate Times--opinion or defamation (libel) per se???

Actual Malice
Public figures must show actual malice.

What is actual malice?

Actual Malice
Actual malice--knowledge of falsity or reckless disregard for truth. Communication majors proceed with caution.

Butt Head Astronomer


A big project at Apple was code-named Sagan. Famous astronomer Carl Sagan filed suit to force Apple to stop using his name. Apple renamed the project BHA. Sagan filed second suit for defamation.
Sagan v. Apple Computer (Mass. 1994).

Libel in Cyberspace
Varian Medical Systems and two executives won libel suit against former employees for posting 14,000 defamatory messages, some vulgar, on 100 internet messages boards. Defendants alleged extramarital affairs, danger to children, videotaping office bathrooms, chronic lying , and hallucinating.
http://www.law.com

Oprah
Texas cattle ranchers sued on basis of False Disparagement of Perishable Food Products Act. Statements must have basis in reasonable and reliable scientific inquire, facts or data. Statute covers agri- and aqua-culture only. Dismissed: No cause of action in Texas. Source: Texas A&M.

Privilege
Absolute privilege
Witness in court Legislative debate

Qualified privilege
Legitimate need to know

QUALIFIED PRIVILEGE
Texas Qualified Privilege Texas employer who discloses information about a current or former employee is immune from liability unless proven by clear and convincing evidence that employer spoke with actual malice. Clear and convincing evidence. Huh???

False Imprisonment
False Imprisonment--intentional restraint without reasonable cause or consent. Sixty-eight year old Christine Melton stopped by security guard and accused of shoplifting. This is not in itself false imprisonment. That depends on the basis for accusation; nothing was found in purse.

Ruditys v J.C.Penny
Woman waiting in car for two shopping companions when asked by security guard to return to store for questioning. All charged with theft and acquitted. Awarded $250,000 for false imprisonment and malicious prosecution.
Ruditys v. J.C.Penny, Co.
No. 02-4114 Delaware (2003.

Cook v. Chrysler
Cook was induced to test spaciousness of trunk in new car she was shopping for. Salesman slammed down the trunk and gathered others to witness. When Cook emerged, salesmen were highfiving. For being 1st, salesman won $100.

Emotional Distress
Conduct - extreme & outrageous?? Was this appropriate for summary judgment?
Roe v. Lynn Mills

Assault
Assault--an act that places victim in fear of immediate battery. Western Union Telegraph V. Hill (Ala. 1933). Danny Devito???

Battery
Unwanted or offensive Intentional touching Cattle Prod
Caudel v. Betts, 512 So.2d 389 (1984)

Intentional Torts
Trespass intentionally entering anothers land without permission, or refusing to leave after permission expires. Trespass to property hiding roommates book before final. Conversion--civil action that is equivalent of theft.

Fraud
Intentional misrepresentation of material fact on which someone relies and suffers damage. Accountants liability for fraud.
Those who hired the accountant Limited to known and intended beneficiaries Reasonably foreseeable

Damages
Nominal
Small amount to vindicate right

Compensatory
Amount of money to compensate victim

Punitive
Some multiple of compensatory

Punitive Damages
Punitive damages--damages over and above compensation designed to punish defendant for conduct that is extreme and outrageous.
Grubbs Nissan v. Bien, 881 SW2d 843 (1994)

Fraud and Punitive Damages


Walston v. Monumental Life Ins. Deceptive insurance practices and wrongful denial of benefits. Punitive damages approved.
Walston v. Insurance Co., 129 Idaho 211 (1996)

Business Torts
Tortious interference with contract: Texaco v. Pennzoil.
Tortious interference with prospective advantage: The Barber Shop case.

Privacy
a) Intrusion, b) Private Facts, c) False light, d) Commercial Exploitation.

Lanham Act
Lanham Act--a) False, misleading, b) Commercial context, c) Likelihood-harm Coors v. Anheuser Busch. Natural Lite, a beer brewed by A-B on the East Coast, was being outsold by Coors. It televised a parody of Pure Rocky Mountain Spring Water. Coors wasnt amused.

Defamation Review
A. B. Elements--falsity, harm, communication to a third person. Defamation per se: (1) Accusation of serious crime, (2) Sexually transmitted disease, (3) Incompetence in profession, (4) Unchastity in women. Actual Malice--knowledge of falsity or reckless disregard for truth. Privilege: (a) Absolute--sworn testimony in court, (b) Qualified--good faith communication of information to recipient who needs to know.

C. D.

Intentional Torts

False Imprisonment--reasonable basis for suspicion and reasonable detention. Intentional infliction of emotional distress Grubbs Nissan v. Bien. Damages--nominal, compensatory, punitive. Tortious interference with contract
Texaco v. Pennzoil.

Intentional Torts
Privacy and Publicity:
Intrusion. Disclosure of embarrassing facts. False Light. Commercial Exploitation.

Lanham Act--false or misleading commercial speech which is likely to harm.

Defenses
Plaintiff fails to prove elements of tort. Written waiver of liability. Privilege: Absolute Conditional. Self defense. Statute of Limitations

Segue
A Southwest Texas student secretly video taped intercourse with a U.T. coed. Then he circulated the tape to friends, and the tape made its way to both campuses. She was outraged by this betrayal; her suit was based on negligent infliction of emotional harm. Negligence?
Boyles v. Kerr, 855 SW2d 593 (1993).

Negligent Torts
Chapter 7

Negligent Torts
TORTS--Fault + Causation + Injury. Fault --Duty of care + breach Causation -factual chain of causation and foreseeability or proximate cause Injury.

Jenny Jones
Scott Amedure was killed after revealing a same sex crush on Jonathan Schmitz. Schmitz was convicted of murder. Amedures parents claimed tha Jenny Jones ambushed Schmitz by not telling him subject matter of program. Jury - $25 million for plaintiffs.

Trip and Fall


Verdict for plaintiff $21 million. She tripped over remnant of no-parking sign which was 3-4 inches high and 2 from curb. NYC put on notice by complaints. Damages:
Skull fracture epidural hematoma Frontoparietal craniotomy Cognitive dysfunction, depression, headaches Memory loss, cognitive deficits Fired from job Paek v. NYC, Sup. Ct. 2002.

Palsgraf v. Long Island


Foreseeability

Proximate Cause
Both mean the same thing.

Joy Riders
Garage (Breisig) left keys in ignition. Before owner came, teenagers took it. Left it parked on street overnight. Next day a friend drove and injured the plaintiff, George. Defendant negligent? Proximate cause?

Brown v. P.C.O.M.
Yvette gave birth to daughter who tested positive for syphilis. Husband was confronted, and admitted an affair. Later, husband and baby retested negative. Stress - husband physically abusive. Wife chased him outside with her police revolver; shot, missed, both arrested.
760 A.2d 863 (2000)

Fault = Breach of Duty


Negligence = falling below standard of care expected of average reasonable person under the circumstances. Louisiana Civil Code, Art. 2315

Negligent Retention
$2.5 million for N.Y. woman sexually assaulted. Apple Tours employed supervisor with record of assaulting another woman years earlier. $1 million for psychological injury and $1.5 in punitive damages.

Horse Hockey
A young woman and her employees were guests of the circus owner. A dancing horse evacuated in her lap. Everyone laughed. She was mortified, and sued the the circus owner.

Was this the negligent infliction of emotional harm?

AIDS
Jennifer Lawson, 12, contracted HIV in a blood transfusion in 1985. Her doctor, affiliated with UCLA, knew this and informed the donor, but not Jennifer though he treated her for next 5 years. Three years later she had sex with Reisner, and in 1990 Jennifer died of AIDS. Reisner tested HIV+ and sued UCLA. Outcome??

Waiver
S.C. Connecticut held that waiver signed by snowtube renter not preclude liability for damages. Ms. Hyson released White Water Mountain from inherent risks, but not negligence. Colorado law controls this issue.

Waiver
Plaintiff rented Honda ATV and signed agreement with clause that waived liability of defendant for harm caused directly or indirectly by use of ATV. Release valid if
Not contravene public policy Relates to private conduct Freely bargained, no adhesion

Dumont v. Shaws Supermarkets


Dumont slipped and fell on chocolate cream that fell from Shaws candy bin. Foreseeable? While Shaws didnt know of hazard, Shaw was aware of similar hazards in the store and failed to address this one.
664 A 2d 846 (1995)

Mulcahys Roadside Pub


Slip and Fall Plaintiff recovers $450,000 Plaintiff suffered nerve and tendon lacerations Witness for plaintiff testified that earlier that evening he had seen glass on floor in area of plaintiffs fall

Case of the Missing Finger


Wells was sent into tank by Durkee without proper gear. He was overcome by gas, and became incoherent and delirious. At hospital he bit off nurses finger. Foreseeable or Way too bizarre?
Widlowski v. Durkee Foods, (Illnois 1990)

Danger Invites Rescue


Sewage worker died in tunnel when gas mask failed. Co-workers entered tunnel in attempted rescue without masks and died. Foreseeable??? Should manufacturer be held responsible to co-workers???
Guarino v. Mine Safety Appliance Co.

Hernandez v. Univ. of Arizona


The duty to act reasonably under circumstances is socially imposedcommon law. Social host liability. Affirmative duty to act--basically no legal duty to rescue unless defendant has caused harm.

Social Host - Texas


Smith v. Merritt (1997)Smith was injured while riding with 19 year old who consumed liquor at Merritts party. Did Merritt have duty to Smith not to serve liquor to 19 year old driver? Would the result be the same if the defendant was a bar or restaurant?

Landowners duty
Trespasser--landowners only duty is not to intentionally injure.

Licensee--guest on land with consent; social host must warn of hidden dangers that are known about.
Invitee--person on property because open to public. For example, a business customer-- owner has duty of reasonable care to invitee.

Ann M. v. Strip Mall


Was the owner of strip mall responsible for sexual assault on employee. Many requests to increase security. High crime area?

Components
Negligence Per Se minimum standard of care to protect certain groups; violation of statute that injures group member is per se negligence. Factual cause--chain of dominoes. Foreseeability--can general type of harm be reasonably anticipated? Superseding cause--entirely unforeseeable; highly unusual, extraordinary, bizarre.

Coca Cola
Waitresss hand badly damaged as she was loading Cokes into cooler. Presumption of defective bottle or excessive pressure prevailed. Coke employee testified that he had seen/heard explosions in warehouse, 150 P2d 436 (1944). What about a roach in a coke bottle???

Repo Man
Should summary judgment for Repo Man be reversed and remanded for trial?

SECURITY INTEREST:

COVERAGE

The vehicle and all parts or goods installed in it; All money or goods received (proceeds) for the vehicle; All insurance . . . or other contracts we finance for you; and All proceeds from all insurance . . . or other contracts we finance for you.

WE MAY TAKE VEHICLE FROM YOU:


If you default, we may take (repossess) the vehicle from you if we do so peacefully and the law allows it.

Affirm or Reverse??
Plaintiffs argument. Valley owed duty to everyone. Foreseeable because repo involves hostility. Darkness and car alarm evidences negl. Harrision Ford fantasy. Defendants argument. Irresponsible owner at fault; not repo man. Nighttime repo was as safe as possible. Alternative: Knock on door? Negl use of gun caused injury;not repo.

The Condom Case


Reynolds v. Highland Manor.
Injury must be genuine, not speculative.

Guest fears HIV


Employee, fearing HIV, sues employer for emotional harm. Co-employee who looked and acted gay cut his hand and blood splattered on Ms. Guest. She began to suffer from panic attacks, depression, insomnia diagnosed with Post-Traumatic Stress Disorder. Five HIV tests were negative. 38% permanent partial disability.

Bystanders
Negligent infliction of emotional harm to bystander. Example: mom sees injury to child.
Elements
Plaintiff near scene Distress from contemporaneous sight of accident Plaintiff is close relative of victim

Child Molestation
Friends of owners/operators of an Austin daycare center knew of child abuse and failed to report it. Does the Texas Family Code which criminalizes the conduct of the perpetrators also impose per se tort liability on bystanders?

Contributory v. Comparative
Contributory Negligencea small degree of negligence can prohibit plaintiff from collecting any damages. Comparative Negligencea jury will assess percentage of damages attributable to each party. If damages are $1000, and defendant is 80% negligent, plaintiff can recover $800. Texas, if plaintiff is 51% negligent, no recovery.

Comparative Negligence
Texas Rule Multiple Defendants Damages $100,000 Plaintiffs fault = 10% D-1 = 30% (judgment for $30,000) D-2 = 60% (judgment for $60,000) If plaintiff over 50%, no recovery.

Ultrahazardous Activity
Strict liability. Comparative or contributory negligence is irrelevant even if victim is negligent or reckless.
Old Island Fumigation v. Barbee

Product Liabil/ity
Ford Pinto, Mustang, and Side Saddle Pickup Product liability--If manufacturer puts a product in chain of commerce that comes into possession of consumer and is used in normal way, manufacturer is liable for harm for personal injury and property loss caused by product that is defective and unreasonably dangerous.

Cost/Benefit of Ford Motor


Cost: $11 x 12.5 million = $137 million.
Benefits: 180 deaths @ $200,000 each + 180 burn injuries @ $67,000 each + 2100 burned vehicle salvage value @ $700 = $49.15 million.

Costs outweigh Benefits by $86.85 million.

Rollover
$15.5 Million
Pennsylvania jury awarded Hutchinson $15.5 million v. Freightliner. While negotiating a curve on on-ramp, driver struck guiderail and rolled over embankment; he lost an arm and wears a prosthetic. Cab not crashworthy; cruise control poorly designed; failed to disengage while braking.

Assumption of Risk
Plaintiff/spectator sued Chicago Cubs for injury pursuing a foul ball. Cubs claimed she was negligent for not moving her season ticket seat to a protected area of the park.
Held: For Plaintiff.
Comparative negligence abolished assumption of risk.
Duran v. Cubs, 1989 U.S. Dist. LEXIS 10969.

Injury
1. Physical 2. Economic 3. Pain and Suffering 4. Emotional

Contracts
Introduction
Chapter 8

Introduction to Contracts
Must Jerusalem deliver steel to Hardbody?
Does Nicole have a job with Hardbody? Must Nicole purchase Jaspers house? Do Cassandra and Jasper have a contract?

Introduction to Contracts
Contracts--legally enforceable promises.
Predictability Flexibility

Elements
Agreement Consideration Capacity Legal object. Some MUST be in writing--Statute of Frauds.

Introduction to Contracts
Types of contracts:
Bilateral-Unilateral Express-Implied Executed-Executory Valid, Voidable, Void, Unenforceable

Employment at Will???
Federal Express v Dutschmann Employment at will was confirmed by signature of plaintiff. It is enforced instead of the Hearing Policy stated in employment manual.

Dillion v. Champion JogBra


Disclaimer of JogBra: PROCEDURES CONSTITUTE GUIDELINES, NOT AN EMPLOYMENT CONTRACT. Linda Dillion sued for wrongful breach. Issue: Employee handbook promised fair discharge procedures that were inconsistent with disclaimer.
Vermont Supreme Court (2003)

Winters v. Houston Chronicle


Does Texas allow a suit for wrongful discharge of whistleblower against private employee? Plaintiff alleged violation of a crime:
Texas Deceptive Trade Practices Act
795 SW2d 723; 1990 Tex. Lexis 106.

Promissory Estoppel
Promise is made with knowledge that it will be relied upon. Actual reliance and change of position.
Injustice unless promise is enforced.
Hoffman v. Red Owl Food Store

Quasi Contract
Vortt Exploration v. Chevron
a) Benefit conferred on defendant, b) Defendant knows of plaintiffs reasonable expectation to be paid, c) Unjust enrichment.

Pyeatte v. Pyeatte
o Margrethe agreed to support husbands law school education if he, in turn, would support her for a graduate degree. o Charles got his degree and divorced Margrethe. She sued, and Charles, a newly minted attorney, defended saying No contract.
661 P2d 196 (1983)

Uniform Commercial Code


Texas Bus/Comm Code and UCC. Pittsley v. Houser--mixed goods and services. What happens if goods and services are mixed in the same transaction?

Chapter 9

Agreement

Katrina and Bob


The Handshake . . . . . . what would you enforce?

Agreement
Offer and Acceptance Meeting of the Minds Offer - intent, terms, communication Intent--objective v. subjective Invitations - Quotes, Advertisements, Auctions

Offer
An offer shows an intent to enter a contract. It names reasonably definite terms. It is communicated to offeree.

Newspaper Ad
SATURDAY 9 a.m. Sharp 1 Black Lapin Stole Beautiful Worth $139.50 FIRST COME, FIRST SERVED

Duration of Offer
An offer lasts for the specified period of time. If no time specified, lasts a reasonable time. It lasts until revoked or rejected. It expires by-operation-of-law when offeror dies. If offeror dies after acceptance, what then??

Auctions
UCC 2-328

Auctions with Reserve


Auctions without Reserve E-bay???

Sufficient Terms?
Terms have to be clear enough for a court to know what to enforce. Or else . . . What?
Lemming v. Morgan

UCC and Open Terms


UCC 2-204--goods only Price: UCC 2-305 Output v. Requirement Delivery, Time, Payment Warranties
Merchantability UCC 2-314 Fitness 2-315 Express 2-313

Gateway
Agreement to a ShrinkWrap/ClickWrap express warranty with arbitration term? P sued in N.Y D made motion to dismiss. Arbitration, but . . .
You must pay a $4000 arbitration fee, You must go to Chicago, International C.C. rules to govern process.
Brower v. Gateway, N.Y. Appellate Division (1998)

Specht v. Netscape
Netscape offered free software SmartDownLoad with click of mouse. Specht downloaded and now sues for violation of 2 federal statutes. Netscape moved to compel arbitration term of license that became binding when Specht downloaded.
150 F.Supp. 2d 585 (2001)

Termination of Offers
Revoke effective when received. Reject effective when received. Expiration terminated at end of time limit. Operation of Law death of offeror.

EXCEPTION . . .
REVOCABILITY RULE Firm Offers UCC 2-205 Common law option contracts

UCC 2-207
Sub-part 1: Must be sale of goods.
Goods are tangible-movable things

Sub-part 2: If merchants involved on both sides of deal, WATCH OUT!!!


Merchants are in the business of buying/selling goods

Sub-part 3: Implied contract.

Leadertex v. Morganton
Sub-part 1: Offer may be accepted with
added or different terms.

Whose terms control?? Sub-part 2: Additional terms in


acceptance binding on offeror (Leadertex)

UNLESS:
(1) Offer forbids changes, (2) Material Alteration, (3) Objection

Mailbox Rule
Time of acceptance governed by Mailbox Rule--acceptance effective as soon as offeree relinquishes control Offers, revocations, rejections must be communicated (made known to addressee) to be effective

What happens if .
1. Offeror specifies mode of acceptance? 2. Offeror requires receipt of acceptance? 3. Acceptance is sent by authorized means, then offeree calls offeror to reject. 4. Rejection sent by mail, as authorized, then offeree mails acceptance letter. 5. Revocation is on the way, when acceptance is sent.

Promissory Estoppel
1. Serious promise knowing promissee would rely 2. Actual reliance by promissee 3. Enforce promise to avoid injustice

Agreement
(1) Invitations--similar to typical auction with

reserve. (2) Price quotes--Levitons price quote to Litton not specific enough to be and offer, therefore limitation on liability in Levitons quote is not part of contract. (3) Advertisements and Auctions typically are not offers.

Agreement
5. Agreement must be specific enough for judge to know what terms to enforce. 4. Open Terms & Gap Fillers.
A. B. C. D. Open price, 2-305. Output & Requirement Contracts, 2-306. Delivery, Time, Payment: UCC 2-208, 209, 210. Warranties.

6. Termination of Offers: Revocation, Rejection, Expiration of Time, Operation of Law.

Agreement
Firm Offers: UCC 2-205. Acceptance: Mirror Image v. 2-207.

UCC 2-207
Leadertex v. Morganton: Morganton, the defendant/offeree, included a new term, arbitration in its acceptance. Is new term binding on Leadertex? Was arbitration term a material alteration. Did arbitration term inflict surprise or hardship?

Mail Box Rule


Remember the mailbox rule of Soldau v. Organon. Even if the post office gives the letter back, the law still rules that the acceptance is finalized when deposited.

Stiglitz: Roaring 90s


Focusing most criticism on the Clinton Administration, Stiglitz concludes
a) Bushs tax cuts benefiting mainly the wealthy and deficit spending is the best way to end the recession. b) Clinton policies fueled the unstable expansion of a stock market bubble. c) Clinton reduced economic debate to Neanderthal simplicity. d) Clinton ended massive subsidies to domestic industries, and made global competition more equitable.

Chapter 10
Consideration

Consideration
Bargained-for exchange The price each pays for other partys promise or performance Kelsoe v. International Wood Products

Unilateral Contracts
Hamer v. Sidway Nephew (15) promises Uncle he wont smoke, drink, swear, play cards or pool for money for 6 years. Uncle promises $5,000 for restraint. Outcome? Dahl v. HEM Pharmaceuticals Clinical trial for Ampligen. Dahl signed consent form; could withdraw and was warned of side effects. HEM didnt pay off.

Adam and Eve


The Garden Drive-In, some hanky-panky. Eve became pregnant Adam? Adam made all sorts of promises if Eve promised not to sue. She promised. Turns out . . . Adam not the father. Mutual exchange of promises or is there some other issue?

Texas
Coin Toss

Adequacy v. Illusion
Adequacy of consideration.
Alaska gold mine

Illusory promise.
Culbertson v. Brodsky

Requirement & Output


The amount to be sold can be measured by all or part of the requirements of the buyer or the output of the seller.
Texas Business and Commerce Code (UCC)
Art. 2-306

Past Consideration
Past consideration = no consideration. Dementas v. Estate of Tallas. What about Kelsoe v. International Wood Products, Inc.?

Promissory Estoppel
1. Serious promise knowing promisee would rely 2. Actual reliance by promisee 3. Enforce promise to avoid injustice

UCC 2-209
An agreement modifying a contract for the sale of goods needs no consideration to be binding. Modification must be in writing if original written contract so specifies.

Liquidated v. Unliquidated
Liquidated--creditors promise to settle for less is not binding Unliquidated--agreement to settle disputed debt is binding Accord and Satisfaction-agreement is settle unliquidated debt + actual payment

Review
Consideration--a bargained-for exchange of promises or the price you pay for someone elses promise or performance. Kelsoe case--gratuitous promise, no bargain, not enforceable. Adequacy--courts allow the parties to decide what is adequate, but there must be some commitment (no illusory promises). You be the Judge, p. 276--For Culbertson v. Brody. Output-Requirement contracts: Must show good faith, 2-306.

Review
Past consideration = no consideration. Such promises are not enforceable, Dementas v. Estate of Tallas. Promissory Estoppel--Job offer, Pittsburgh Pirates, G.M. Performance of a contract that one was already under an obligation to perform is not consideration for a promise to pay extra unless a) additional work or b) unforeseen circumstances. It is possible to rescind old contract and enter new under common law, or modify old contract without consideration under UCC 2-209.

Legality
Wagers Licensing Usury Noncompete Exculpatory Unconscionable

Wagers
Gambling
Illegal unless permitted by state law. California law makes gambling-oncredit contracts void as public policy. Whatever happened to Full Faith & Credit Clause of the Constitution

Texas in Toss
Ryno was shopping for a BMW $125,000. Tyra Ft. Worth: Double or nothing. Ryno won he got car, title, keys for $0.00. Tyra repossessed BMW. A gift, a gag, gambling, or conversion?
Ryno v. Tyra, 752 SW2d 148 (1988).

Wagers
Investments
Betting on the rise and fall of stock price is illegal. Future
Derivatives are futures--the value depends on some underlying reference, e.g., exchange rate, prime rate, $bl$ of oil, weather.

Wagers
Insurance
Insurable interest. Jiminez v. Protective Life Bright-line test.

Pepsi v. Coke
Coke sued Pepsi for violation of a court order that prohibited lotteries. Lotteries:
Prize Chance Consideration

S.C. response to House-Rep concluded that promotional contests for prizes/money that did not require consideration were legal.

License
If calculated to protect public interest, fee for professional work without a license cannot be enforced. Cevern Inc. v. Furbish--contractor not licensed when agreement was signed. Later he became licensed. Result?

Bremmeyer v. Kiewit
Kiewit held road building contract from state and sub-contracted with Bremmeyer, an unlicensed firm to remove timber. Kiewit lost state contract; settled with state for $1,729,050. Offered Bremmeyer $38. Public protection statute not undercut by allowing Bremmeyer to sue Kiewit.

License
If licenses are issued as revenue-making measure for government, contracts by unlicensed person are still enforceable.

Covenants Not To Compete


Covenants Not To Compete are valid if
promisees need is not outweighed by harm to promisor and to public, ancillary to a legitimate contract, no greater than necessary to protect that contract
In time In geographic area

Non-Compete
Non-compete clauses--ancillary to legitimate bargain.
a. Sale of a business--ancillary clause must be reasonable in time, distance, scope. b. Employment--enforced to protect trade screts, confidential information, customer lists.

Metro Traffic v. ShadowShould court issue injunction against Shadow?

Exculpatory
Exculpatory clauses must be clearly written and visible. Exculpatory clauses not generally valid
(a) for intentional conduct or gross negligence, (b) for a needed public service, or (c) unequal bargaining power.

Exculpatory
Clause not valid where
(a) business suitable for public regulation, (b) business important/necessary to public, (c) business open to public, (d) party seeking exculpation holds advantage of bargaining power.

Bailments
Bailment relinquishes possession and control. Exculpatory provision frequently valid because it involves property not persons.
a) Self-storage--exculpatory clause valid for mildew. b) Auto parking lot liable for theft of car?

Stolen Cars
Plaintiff used Houston parking garage. Ticket said on back, READ CAREFULLY. WE CLOSE AT 6 p.m. It went on to limit to limit to $100 liability for theft occasioned by negligence. A notice was also posted on wall, and greater rates available with higher fee.
Schroeder v. Allright, 551 SW2d 745 (1977)

Adhesion
Adhesion Contract - Take it or leave it. WorldWide Ins. V. Klopp Was arbitration clause unconscionable? Bias favors of WorldWide:
low awards couldnt be appealed, only insurance appeals high awards.

Unconscionability
Court determines fairness. Criteria:
a) oppression, b) surprise.

EDS v. Chubb
Unconscionability (UCC 2-302). Limitation of liability (UCC 2-719). Electronic Data Systems v. Chubb.

Capacity & Consent


Minority Mental Disability Fraud (silence as fraud) Unilateral-Bilateral Mistake Duress Undue Influence

Minors Contracts
Contracts of minors (defined: 18 or under) are voidable - minor can disaffirm, but adult cannot. Minor must return the thing that has been purchased (or what remains) to get refund. Ratification--after becoming 18, a person may ratify a contract made during minority by
a) express ratification, or b) by words/action that expresses an intention to be bound.

Misrepresentation
Minor may lie about age and induce adult to enter contract. TEXAS does not allow rescission because of the fraud.

Necessaries
Food, clothing, housing, medical care

No contract because minor is incapable of creating a contract. Minors are bound in quasi contract for reasonable value of product or service.

Mental Impairment
Insanity--mental impairment whereby person cannot understand nature or consequences of transaction. Parties presumed sane. Contract is voidable - it will be void if a court had declared insanity. Restitution must be made by insane person if that condition NOT known or apparent to the other party. But, if incapacity is known . . . Hauer v. Bank.

Mental Impairment
Hauer v. Union Bank--banker was in bad faith because he knew of Hauers condition. A reasonable banker would have plenty of notice that Hauer could not understand nature or consequences of the transaction.

Fraud
Law an intentional tort Ethics
Aristotle character, integrity Kant categorical imperative Bentham & Mill utility Neitzsche you must be willing to live this life over and over again throughout eternity

Fraud
Innocent misrepresentation-speaker believes statement is true. Fraudulent misrepresentation-speaker has knowledge of falsity. Either of the above justifies rescission by injured party. Fraud permits plaintiff to pursue rescission and damages.

Fraud:

Fraud

a) Intentional b) Misrepresentation c) Material fact d) Justifiable reliance e) Damage/injury to victim.

Misstatement must be of fact, not opinion. Fraud if person intends to induce while knowing statement was false or statement is spoken with reckless

Materiality & Remedies


o Material fact, or materiality, means the factual statement is important enough for plaintiff to rely upon. o Reliance must be justifiable - something that a reasonable person would have done. o Remedies:
o Misrepresentation=rescission. o Fraud = rescission + damages. o UCC 2-721 = recission + damages.

Silence as Fraud
a) Correct a previous statement later found to be untrue: Nonrecourse loan. b) Correct a basic mistaken assumption: Haunted House. c) Latent defect - seller knew but buyer didnt. Strawn v. Canuso.

Mistake
Mistake-assumptions not in
accord with facts.
#1. The sell of old records to X not realizing they had been lost in a fire. #2. A miscalculated construction bid accepted by X who relies on it.

Bilateral & Unilateral


Bilateral--normal remedy is to allow injured party to rescind. Reilley v. Richards--mutual mistake regarding floodplain. Richards, the purchaser, was entitled to rescind. Unilateralrescission (1) if non-mistaken party knew of the victims error, or (2) if enforcement would be unconscionable. Example: Valuable painting sold cheaply but without knowledge of its origin.

Release
Plaintiff Hoggatt was injured when he lost control of his motorcycle while passing Jorgensens car. The parties settled financially, and Hoggatt signed a release. Hoggatt then realized the full extent of his spinal injuries can he set aside the release based on mutual mistake of fact? What is the single recovery rule?

Bidding
Success, Inc., bids on job to prime contractor, Arango. Arango is awarded the main bid with X. Success wants to withdraw because of error in bid. Can Success use mistake to justify withdrawal?
Arango v. Success Roofing, 730 P2d 720 (1996).

Duress
Duress--voidable if wrongful threat impairs free choice and victim had no reasonable alternative. However, a threat to do something you have a legal right to do is not duress. Economic Duress: Ponder v. Lincoln National Sales-most economic duress plaintiffs lose, and so did Ponder. Lincoln had option NOT to renew. Undue influence:
a) Relationship of trust/confidence & b) improper persuasion.

Bonds v. Bonds
Undue influence:
a) Relationship of trust/confidence & b) improper persuasion.

Bonds v. Bonds in 1987, while earning only


$107,000, Barry met a Montreal bartender, Sun, and were married the next year in Las Vegas. On Barrys initiative they stopped in Phoenix and signed a pre-nuptual agreement. Whoa!

Statute of Frauds
Certain Contracts MUST be in writing to be enforceable even though there is an agreement, consideration, legal object, and competent parties.

Statute of Frauds
Unenforceable unless in writing:
a) Land, b) Debt of another, c) Long duration, d) Executors promise, e) Marriage promise.

UCC 2-201. Parol Evidence Rule.

Statute of Frauds
Contracts that are required to be in writing, e.g., contracts for the sale of interest in land, will be unenforceable if made orally. These contracts are not void because, once they are executed or performed, neither party can demand a rescission. Contracts for the sale of any interest in land-any legal right regarding land--must be in writing to be enforceable.

Exceptions
Exceptions:
a) Full performance by seller b) Part performance by buyer c) Promissory estoppel

Hershon v. Cannon: Purchase of 54 acre Tulip Hill.


a) Promise not to solicit other offers and right of first refusal were inducements to Hershon.. b) Promissory Estoppel-not enough relianceposition/part performance by Hershon.

Year + 1 day
Contracts that cannot be fully performed w/i one year from time they are made must be in writing. Example: Contract to work for one month beginning 2 years from now must be in writing. Wior v. Anchor--Wiors employment contract was for 20 plus years, until he retired. Should have been in writing since that cannot possibly be performed within one year. For Anchor. Lifetime employment--oral contract is enforceable since a person can die within first year.

Debts of Another
Promise to pay debt of another has to be in writing because, while you are normally responsible for your own debts, its unusual to require you to pay the debt of a 3rd person. Same rule, requiring writing, if executor promises to pay debt of estate. Leading Object Rule--If promise to pay debt of 3rd is mainly for promisors benefit, i.e., self-interest, then an oral promise is enforceable. Farm Credit promised to pay Perrys debt to Sunrise so Perry could feed hogs and repay loan to Farm Credit. Sunrise v. Farm Credit--held for whom?

UCC 2-201
Sufficiency of the written agreement: a) names of both, b) subject matter, c) essential terms,+SIGNED BY DEFENDANT. Contracts for sale of goods priced $500 or more must be written, must specify the quantity of goods, and must be signed by defendant.

Merchants Exception
UCC 2-201 (2)

GPL Treatment v. Louisiana-Pacific


Louisiana-Pacific did not object to GPLs confirmation within 10 days of receipt. Result?

UCC 2-201 (3)


Specially manufactured goods.

Admissions in court under oath.


Goods
To extent seller has delivered. To extent buyer has paid for.

Parol Evidence
UCC 2-202. Parol Evidence Rule. A contract intended to be final and complete cannot be changed by parol (oral) evidence. But, if it is ambiguous, the ambiguity may be explained by parol evidence. Cheyenne v. Thompson - contract unclear on payment for unused vacation. Outcome?

Introduction to Sales
Harold and Maude

Introduction to Sales
Art. 2 of the UCC always has something to do with transations in goods (tangible, movable things). If goods and services are mixed (e.g., If hardware store sells and installs washing machine), the UCC controls the transaction if goods predominate. See, Perma Sash v. Scandinavian House. Merchants, UCC 2-103, deal in particular kinds of goods, e.g. a clothing merchant or an auto parts merchant.

Insul-Mark v. Kor-It
Kor-It (distributors) supplied defendant with nails to be rust proofed. Defendant repacked nails and shipped back to Kor-It, who then sold to contractors. The coating did not work and Kor-It lost customers and profit. Kor-It sued for breach of warranty. UCC supplies warranty; common law does not. Outcome?

Introduction to Sales
Good faith, UCC 104, = honesty (if a merchant, honesty + reasonable commercial standards. Unconscionability: UCC 2-302--court need not enforce if contract is shockingly unfair and lop-sided. Colorado-Kansas Grain v. Reifschneider-Farmer didnt respond to letter of confirmation within ten days, is he bound on the confirmation even though he didnt sign it.

Superior Boiler v. Sanders


UCC 2-207--Acceptance may create a contract even though it includes new or different terms. Do both parties have to be merchants? In Superior Boiler v. Sanders, sub-part (2) of UCC 2-207 applies. Delivery terms in contract conflicted. What then?

Price and Quantity


UCC 2-305. Open price--reasonable price at time of delivery. UCC 2-306. Output and Requirement contracts. Parties must act in good faith.

Modifications
Contract modifications need no consideration, but get it in writing!!! Tennis Club v. T.J. International Oral modifications may be forbidden. Between merchants, the contract may require all modifications to be in writing and signed. Roof collapsed 25 years later. Outcome?

Auto Purchase
HOW THIS CONTRACT CAN BE CHANGED:
This contract contains the entire agreement between you and us relating to this contract. Any change to this contract must be in writing, and both you and we must sign it. No oral changes to this contract are binding. This provision must be separately signed by the buyer.

Negotiable Instruments
Detective Tony Jenkins Waterston - partner Sergent Letitia Malloy Lamour Haverstock - payee deceased

Negotiable Instruments
Checks and Notes

FUNDAMENTAL RULE
Possessor - unconditional right to
payment Paper is Negotiable Paper is in the hands of a Holder Holder is Holder in Due Course There are no Real defenses.

NEGOTIABLE INSTRUMENTS
Two types of negotiable instruments:
Notes--two party instruments and promises to pay
Purchase of auto from G.M.

Drafts--three party instruments and orders to pay


Payment of tuition to the Universisty.

Non-negotiable
Legal and enforceable. Subject to same defenses you studied in chapters on Agreement, Consideration, Legal Object, and Competent Parties. May be assigned, but not if contract is for special expertise, e.g., surgeon, architect.

NEGOTIABLE INSTRUMENTS
Formal requirements of negotiability:
a) WRITTEN b) SIGNED by maker or drawer

c) UNCONDITIONAL promise or order to pay


d) CERTAIN AMOUNT of money e) Payment on DEMAND or at a DEFINITE time f) To ORDER or BEARER.

Trade Acceptance
Check You draw a check on Hometown Bank payable to order of U.T. (tuition) Note You make note payable to order of Cowtown Ford for a new car. Trade Acceptance Sasha (seller) draws Trade Acceptance on Circle S (buyer/drawee) payable to order of herself or to one of her creditors, e.g.,Citizens Bank (payee). Circle S accepts by signing.

BOARDWALK
Estimated time of payment not sufficient for negotiability Must be payable on demand or at definite time

Ambiguities
a) Words control figures, b) Handwriting controls typed or printed terms, c) Typed terms controls printed.

Holder in Due Course


Holder-in-Due-Course (HDC). Holder who has

given value in good faith without notice of


claim or defense.

INDORSEMENTS
Blank Indorsers name only Negotiated by Delivery. Changes Order Paper into Bearer Paper if its the last or only indorsement.

Special Indorsement
Special indorsement names indorsee
Pay to Kristen, (signed) Lily Changes bearer paper into order paper if its the last or only indorsement. Order paper needs indorsement plus delivery for negotiation.

Restrictive Indorsement
Amy, drawer, issues check payable to order of Lindsey, payee: (a) Lindsey, payee, indorses For deposit, (signed) Lindsey, and deposits check into her account in Houston 1st Fed.Bk. (b) Lindseys bank credits her account and sends check through bank channels to drawee Hometown Bank for collection. (c) Drawee debits Amys checking account. (d) Drawee may refuse payment if NSF or stop order.

Indorser Liability
Indorser liability is secondary. For an indorser to become liable, the holder must
Present the instrument to the primary party, The primary party must dishonor by refusing payment, The indorser must be given notice of dishonor.

Qualified Indorsement
Indorsement without recourse means not liable as an indorser. Qualified indorsers make transfer warranties.
Transferor is a holder, All signatures are genuine, No material alterations, No defense is good against transferor, and No knowledge of issurers insolvency.

NEGOTIABLE INSTRUMENTS
Notice of the following prevents holder from becoming a HDC: a) Overdue, b) Dishonor, c) Alteration, Forgery, Incompleteness, and d) Notice of a defense. Hartford Ins. Co. (Avon) v. American Express-Dishonest employee (Skalkos) wrote company checks to pay personal debts, but disguised payees name. American Express was in good faith (HDC).

Defenses
Real defenses essentially this means no contract or that the law forbids enforcement. Personal defenses there is a contract but something is defective about it.

FTC Rule
Background: Far too many consumer credit transactions were for defective goods, but consumers note would be negotiated to HDC. This led FTC to ban HDC in consumer transactions.

FTC Rule
NOTICE: Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder.

SECURITIES
Inside Trading

Securities
Firms that have issued publicly traded stock must make current information available continuously.

Proxies
o SEC Act sec. 14--Proxies needed for business meeting quorum, and for info on officers, candidates, issues. If you dont vote your proxy, the firm will vote for its own slate of directors.

INSIDE TRADING
SEC Act sec. 10(b)--prohibits fraud in connection with purchase or sale of any security whether or not registered under the 1934 Act.

Elements of Inside Trading


Misstatement or Omission of Material Fact. Scienter--statement must be willfully, recklessly, or knowingly made and with intent that it be relied on. Purchase or sale. Reliance--courts assume reliance.

Levison v. Basic, Inc.


Secret negotiations between CEI and Basic regarding a merger. Secret leaked out and stock sales +++ Press release said Nothing unusual happening here. NYSE alerted by Stockwatch - phoned and was told by Basic, No way.

INSIDE TRADING
FUNDAMENTALLY UNFAIR-marked cards or a stacked deck. DESTROYS CONFIDENCE IN PUBLIC SECURITIES MARKET--the insider will always win (right up until indictment).

INSIDE TRADING
Insider is someone who has fiduciary duty to company whose stock he has traded. Fiduciary must not trade company stock while in possession of material, nonpublic information.

Tippers Liability
Tippers who pass on inside info are liable if they know the info is confidential and they expect some personal gain. Paul ThayerDeputy Secretary of Defense.

INSIDE TRADING
Tippees, having no fiduciary duty, are liable if
(a) they know the info is confidential, (b) know the insider is violating a duty, and (c) the insider expects some personal gain.

SEC v. Barry Switzer

Tipper - Tippee
SEC v. Dirks (1983) Dirks was a stock analyst of insurance companies. He heard and investigated fraud at Equity Funding. The he reported to clients who sold their Equity Funding stock. Tippees liability for trades is derivative liable only if tipper is liable. Outcome???

INSIDE TRADING
SEC Rule 14-e. Prohibits inside trading during tender offer if trader knows info came from bidder or target. Misappropriation--liability for profitable trades using inside information if breach of duty is to source of information.

INSIDE TRADING
Carpenter v. U.S.--Wall Street Journal. Foster Winans, writer of Heard on the Street, in WSJ bought of X-Corp. before he wrote/published good things about X-Corporation. Stock price +++ Then he sold X and made profit. LEGAL???

Constructive Insiders

Constructive or Temporary Insiders

U.S. v. OHagenOHagens harm to securities market was the same as in typical inside trading case.

Misappropriation liability: Fraud on the source. The source was his law firm.

Constructive Insider
Constructive and Temporary Insiders are treated the same way. Herbst prepared press releases for X-Corp and traded its stock depending on the news and before the news became public.

Chapter 18

Environmental Law

$$$$$ v. $$$$$
Energy Efficiency--Paper v. Paperless East Texas lumber to paper mill to U.of T. Strip mined lignite to power plant to U.of T. Energy Efficient v. Wealth Transfer.

Environmental Law
CLEAN AIR ACT--National Uniform Ambient Air Quality Standards. PRIMARY STANDARDS--Protect public health w/o regard to cost + adequate margin of safety (3 yrs). SECONDARY STANDARDS--Protect public welfare within reasonable period of time.

Environmental Law
STATE IMPLEMENTATION PLANS-states were to identify polluters and issue air pollution permits. CITIZEN SUITS--citizen may sue polluter for violating permit or sue the state or EPA for failing to enforce.

Environmental Law
CENTRAL ARIZONA WATER CONSERVATION DISTRICT V. EPA.

A Citizen Suit spurred EPA into action v. Navaho Generating Station. Was the EPA order arbitrary and capricious, i.e., a waste of money in relation to air quality improvement?

P.S.D.
PREVENTION OF SIGNIFICANT DETERIORATION

NEW SOURCES: The CAA protects and enhances air quality, so new sources that cause major increases in pollution must get a permit. Under the PSD program, a permit will be granted only if (a) emissions wont cause an overall decline in air quality, and (b) the applicant installs BACT -- Best Available Control Tech

ACID RAIN
ALTERNATIVE TECHNOLOGIES

Scrubbers. Low Sulfur Coal. Use alternative fuels (e.g., gas). Trade emission allowances.

AUTOMOBILE EMISSIONS
GM built catalytic converter (1975). Auto travel quadrupled, 1970-2000. Oil companies must produce cleaner fuel. Auto companies must produce lowemission vehicles. Highly polluted cities must arrange for car pools.

AIR TOXICS
1990 Amendments to CAA requires EPA to set standards for 189 pollutants based on MACT (Maximum Achievable Control Technology).

INTERNATIONAL LAW
Export Controls: Export Administration Act: protects national security and conserves resources. Secretary of Commerce approves/denies license. Arms Export Control Act: President controls list of military weaponry.

INTERNATIONAL LAW
Import Controls: Average duty on goods entering U.S., 1997, was between 3-4%. Marubeni Corp. v. US (1994)Nissan Pathfinder (SUV) initially classified for transport of goods reduced on appeal to transport of persons. Tariff reduced from 25% to 2.5%. Dumping, Subsidizing: Sales in US by a foreign firm at less than fair value triggers a dumping duty by the Secretary of Commerce. Goods that are subsidized by a foreign government will draw a countervailing duty.

INTERNATIONAL LAW
Nontariff Barriers: Quotas and Import Bans. B-West Imports v. US (1996) presidents authority to control arms imports under Arms Export Control Act empowers ban on imports from China because of human rights abuses.

GATT
General Agreement on Tariffs and Trade
Between 1947 & 1994, GATT reduced tariffs worldwide by 35%. This is expected to boost world trade by $500 billion by 2005. WTO resolves trade disputes; US can opt-out if 3 unprincipled decisions are rendered against it in a 5 yr. Period. Environmental and child labor problems are exacerbated with global free trade. Intellectual property is granted new protection. Regional Pacts: EU, NAFTA, ASEAN, Mercosur.

World Trade Organization


Evolved from GATT. WTO authorized European Union to impose $4 billion penalty on U.S. because of tax breaks given to corporations operating abroad. Penalty will be enforced by retaliatory tariffs on American exports.

INTERNATIONAL LAW
International Sales Agreements: A. Direct Sales: UCC and CISG are similar, but note differences.
1) CISG does not require written contracts (see UCC 2-201). 2) CISGsome offers irrevocable even if not written (see UCC 2-205). 3) CISGacceptances must be mirror images (see UCC 2-207). 4) CISG authorizes specific performance in some cases but not the UCC.

INTERNATIONAL LAW
International Sales Agreements: Parties may choose which forum (which national court system) will hear the case. Also, which language will be official and which currency to use.

INTERNATIONAL LAW
International Sales Agreements:
Letter of Credit: Buyer (account party) arranges with its
bank, for a fee, to issue a letter of credit to seller (beneficiary). This obligates the buyers bank to pay the seller on the basis of certain documents (bills of lading) that will be issued by the carrier when the goods are deposited with the airline or other freight company. If the letter of credit is confirmed, sellers bank, for a fee, will guarantee the soundness of buyers bank and pay the sellers draft (bill of exchange similar to a check) when the bills of lading are presented to it. The confirming, sellers bank will then collect its money under the letter of credit from the buyers bank, and the buyers bank will debit the buyers account.

INTERNATIONAL LAW
International Sales Agreements:
Centrifugal Casting Machine, Co. v. American Bank (1992)the buyer of Centrifugals goods was an agency of the Iraqi government, and Iraqis assets in the US had been frozen because of the Kuwait invasion. The Central Bank of Iraqi issued an irrevocable letter of credit (LOC), and it was confirmed by the defendant bank. CCM is entitled to payment despite Iraqis assets being frozen because the obligation to pay is on the defendant, not the Iraqi government.

INTERNATIONAL LAW
International Sales Agreements:
Indirect Sales via Distributor:
Exclusive distributorships in the EU must account for Art. 85, Treaty of Rome, forbidding agreements that distort competition. The Sherman Antitrust Act will allow a domestic firm to sue foreign firms for anti-competitive agreements that are made overseas if they intend to affect the US market and the harm is direct and substantial.

INTERNATIONAL LAW
International Sales Agreements: Indirect Sales via Distributor:
Hartford Fire Insurance v. California (1993) plaintiffs sued insurance companies based in Britain for conduct legal in Britain. The defendant companies, acting in conjunction, pressured/forced US firms to change the terms of their policies in the US. The changes were favorable to the British firms but not to US policyholders. The US Supreme Court allowed the suits to go forward. There was no requirement or compulsion under British law for the firms to take this action, even though it was permitted. Since there was no compulsion or conflict with US law, comity, which would prevent US legal proceedings, was not applicable.

INTERNATIONAL LAW
International Sales Agreements:
Licensing a Foreign Manufacturer: Patents and trademarks get protection under GATT, but other antitrust issues may arise in US or EU as discussed above.

INTERNATIONAL LAW
Investing Abroad: A. Repatriation of ProfitsUS investors in foreign countries may have difficulty getting their profits back home in the absence of treaty guarantees. B. ExpropriationNot considered to be illegal if just compensation is paid (eminent domain). C. Sovereign ImmunityThe courts of each nation lack to power/jurisdiction to hear suits v. a foreign nation unless the foreign nation has waived the immunity or the suit involves some commercial activity

INTERNATIONAL LAW
Investing Abroad: D. Act of State Doctrine. Lawsuits v. foreign nations not permitted if they interfere with right of the President or Congress to manage foreign affairs. E. Overseas Private Investment Corp.US investors may insure against political violence, expropriation and the like.

Bribery
D. Foreign Corrupt Practices ActCriminalizes gifts (anything of value) from US citizen to a foreign official to influence commercial transactions.
1. Illegal for US firm to bribe foreign officials to gain, or maintain, business. 2. All publicly traded companies must keep detailed records to document legal/illegal transactions.

Student Law
University of Texas
At

Austin

Thanks for stopping in. Have a lovely day.

Bill Shaw and Anna Kylie Clark, napping in the lazy boy. December 1998