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The Legal The Legal
The Legal Environment Today

Environment Environment
Building Skills You Will Need Tomorrow

Today Today
Building Skills You Will Need Tomorrow Building Skills You Will Need Tomorrow
Roger LeRoy Miller Roger LeRoy Miller

Frank B. Cross Frank B. Cross
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9th
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Contents in Brief
Unit 1 The Foundations 1 16 Employment Discrimination 440
17 Business Organizations 465
1 Law and Legal Reasoning 2
18 Corporations 494
2 Courts and Alternative Dispute Resolution 33
19 Investor Protection and Corporate Governance 529
3 Ethics in Business 67
4 Business and the Constitution 96
5 Torts and Product Liability 119 Unit 4 The Regulatory Environment 557
6 Criminal Law and Cyber Crime 151 20 Administrative Law 558
7 International and Space Law 180 21 Consumer Protection 578
22 Environmental Law 599
Unit 2 The Commercial Environment 205 23 Real and Personal Property 620
24 Antitrust Law and Promoting Competition 646
8 Intellectual Property Rights 206
9 Internet Law, Social Media, and Privacy 233
10 The Formation of Traditional and E-Contracts 255 APPENDICES
11 Contract Performance, Breach, and Remedies 288 A The Constitution of the United States A–1
12 Sales and Lease Law 318 B The Uniform Commercial Code A–1
13 Creditor-Debtor Relations and Bankruptcy 350 C Answers to the Issue Spotters A–2
D Sample Answers for Business Case Problems
with Sample Answer A–7
Unit 3 The Employment and Business
Environment 385 Glossary G–1
14 Agency Relationships 386 Table of Cases TC–1
15 Employment, Immigration, and Labor Law 413 Index I–1
iii

Contents
Unit 1 The Foundations 1
Chapter 1 Chapter 3
Law and Legal Reasoning 2 Ethics in Business 67
Business Activities and the Legal Environment 3 Ethics and the Role of Business 68
Sources of American Law 4 ■ Business Blog: Bogus Bank and Credit Card
■ Linking Business Law to Corporate Management: Accounts at Wells Fargo Bank 69
Dealing with Administrative Law 7 ■ Digital Update: Should Employees Have a
“Right of Disconnecting”? 73
The Common Law 7
■ Landmark in the Legal Environment: Equitable Maxims 9 Case 3.1: Al-Dabagh v. Case Western Reserve University (2015) 74
■ Ethics Today: Stare Decisis versus Spider-Man 11 Ethical Principles and Philosophies 75
Classifications of Law 14 Sources of Ethical Issues in Business Decisions 80
■ Beyond Our Borders: National Law Systems 16 Case 3.2: Watson Laboratories, Inc. v. State of Mississippi (2018) 81
Appendix to Chapter 1: Finding and Analyzing the Law 21 Making Ethical Business Decisions 84
■ Building Analytical Skills: Case Briefing and ■ Building Analytical Skills: Applying the
IRAC Legal Reasoning 32 IDDR Framework 87
Business Ethics on a Global Level 88
Chapter 2 Appendix to Chapter 3: Costco Code of Ethics 95
Courts and Alternative

Chapter 4
Dispute Resolution 33
■ Business Blog: Samsung and Forced Arbitration 34 Business and the Constitution 96
The Judiciary’s Role 34 The Constitutional Powers of Government 97
Basic Judicial Requirements 35 ■ Landmark in the Legal Environment:
Spotlight on Gucci: Case 2.1: Gucci America, Inc. v. Wang Huoqing (2011) 40 Gibbons v. Ogden (1824) 98
The State and Federal Court Systems 42 Classic Case 4.1: Heart of Atlanta Motel v. United States (1964) 99
■ Beyond Our Borders: Islamic Law Courts Abroad and at Home 44 Business and the Bill of Rights 102
Case 2.2: Johnson v. Oxy USA, Inc. (2016) 45 ■ Beyond Our Borders: The Impact of Foreign Law
on the United States Supreme Court 103
Following a State Court Case 48
■ Digital Update: Does Everyone Have a Constitutional
■ Digital Update: Using Social Media for Service of Process 50 Right to Use Social Media? 105
Case 2.3: Klipsch Group, Inc. v. ePRO E-Commerce Limited (2018) 53 Case 4.2: Animal Legal Defense Fund v. Wasden (2018) 105
Courts Online 57 Spotlight on Beer Labels: Case 4.3: Bad Frog Brewery,
Alternative Dispute Resolution 58 Inc. v. New York State Liquor Authority (1998) 107
iv

Contents v
■ Building Analytical Skills: Determining When Public Religious Criminal Liability 153
Displays Violate the Establishment Clause 110 ■ Digital Update: Using Twitter to Cause Seizures—A Crime? 154
Due Process and Equal Protection 111 Case 6.1: United States v. Crabtree (2018) 155
Privacy Rights 113 Types of Crimes 158
■ Building Analytical Skills: Proof of Credit-Card Theft 159
Chapter 5 Spotlight on White-Collar Crime: Case 6.2: People v. Sisuphan (2010) 161
Defenses to Criminal Liability 165
Torts and Product Liability 119 Criminal Procedures 167
The Basis of Tort Law 119 ■ Landmark in the Legal Environment:
Miranda v. Arizona (1966) 170
■ Business Blog: Johnson & Johnson Faces Continuing
Lawsuits over Its Talcum Powder 121 Cyber Crime 171
Intentional Torts against Persons 122 Case 6.3: United States v. Warner (2016) 172
Building Analytical Skills: Analyzing Claims of Intentional
Infliction of Emotional Distress 124 Chapter 7
Case 5.1: Blake v. Giustibelli (2016) 125
■ Digital Update: Revenge Porn and Invasion of Privacy 128 International and Space Law 180
Intentional Torts against Property 131 International Law 180
Negligence 133 ■ Beyond Our Borders: Border Searches of Electronic Devices 181
Case 5.2: Bogenberger v. Pi Kappa Alpha Corp. (2018) 134 Case 7.1: Rubin v. Islamic Republic of Iran (2018) 185
■ Landmark in the Legal Environment:
Doing Business Internationally 186
Palsgraf v. Long Island Railroad Co. (1928) 137
■ Building Analytical Skills: Sovereign Immunity Claims 187
Spotlight on the Seattle Mariners: Case 5.3: Taylor v.
■ Ethics Today: Is It Ethical (and Legal) to Brew
Baseball Club of Seattle, L.P. (2006) 139
“Imported” Beer Brands Domestically? 188
Strict Liability 141
Regulation of Specific Business Activities 189
Product Liability 141
Case 7.2: Changzhou Trina Solar Energy Co. v. International Trade
■ Linking Business Law to Corporate Management: Commission (2018) 191
Quality Control 143
International Dispute Resolution 193
U.S. Laws in a Global Context 194
Chapter 6 Spotlight on International Torts: Case 7.3:
Daimler AG v. Bauman (2014) 195
Criminal Law and Cyber Crime 151 Space Law 196
Civil Law and Criminal Law 152 Unit One: Task-Based Simulation 204
Unit 2 The Commercial Environment 205

Chapter 8 ■ Beyond Our Borders: Aleve versus Flanax—
Same Pain Killer, D
ifferent Countries 212
Intellectual Property Rights 206 ■ Linking Business Law to Marketing: Trademarks and
Service Marks 214
Trademarks 207
Patents 216
Classic Case 8.1: Coca-Cola Co. v. Koke Co. of America (1920) 207 ■ Business Blog: The Battle of the Smartphone Makers 218
■ Ethics Today: Should the Law Allow Offensive
Copyrights 219
Trademark Names? 209
Case 8.2: LFP IP, LLC v. Hustler Cincinnati, Inc. (2016) 211

vi Contents
■ Building Analytical Skills: Licensing Is a E-Contracts 277

Defense to Copyright Infringement 222 ■ Ethics Today: Online Charitable Giving and Deception 279
■ Digital Update: Beyoncé, Sampling, and a
$20 Million Lawsuit 224
Case 8.3: Oracle USA, Inc. v. Rimini Street, Inc. (2018) 225 Chapter 11
Trade Secrets 226
International Protections 228
Contract Performance,
Breach, and Remedies 288
Chapter 9 Voluntary Consent 289
Case 11.1: McCullough v. Allstate Property and
Internet Law, Social Media, Casualty Insurance Co. (2018) 291
and Privacy 233 Third Party Rights 293
Performance and Discharge 295
Internet Law 234
Classic Case 11.2: Jacob & Youngs v. Kent (1921) 297
Spotlight on Internet Porn: Case 9.1: Hasbro, Inc. v. Internet
■ Building Analytical Skills: Determining When a
Entertainment Group, Ltd. (1996) 238
Breach Is Material 300
Copyrights in Digital Information 239 ■ Beyond Our Borders: Impossibility or Impracticability
■ Digital Update: Riot Games, Inc., Protects Its Online of Performance in Germany 304
Video Game Copyrights 239
Damages 304
Case 9.2: BMG Rights Management (US), LLC v. Cox ■ Ethics Today: The Effect of Breaching an Online
Communications, Inc. (2018) 242 Testing Service’s Terms of Use 306
Social Media 243 Spotlight on Liquidated Damages: Case 11.3:
Online Defamation 247 Kent State University v. Ford (2015) 308
■ Building Analytical Skills: Immunity of Internet Service Equitable Remedies 310
Providers under the Communications Decency Act 248
Case 9.3: David v. Textor (2016) 249
Privacy 250 Chapter 12
Sales and Lease Law 318
Chapter 10 The Scope of Articles 2 and 2A 319
The Formation of Traditional ■ Digital Update: Taxing Web Purchases 320
and E-Contracts 255 Formation of Sales and Lease Contracts 322

Case 12.1: Toll Processing Services, LLC v. Kastalon, Inc. (2018) 323
An Overview of Contract Law 255 ■ Building Analytical Skills: Additional Terms
■ Building Analytical Skills: How Implied Contracts between Merchants 326
Arise in the Real World 259 Classic Case 12.2: Jones v. Star Credit Corp. (1969) 328
Agreement 261 Performance 329
Classic Case 10.1: Lucy v. Zehmer (1954) 261 Remedies for Breach 332
Case 10.2: Hinkal v. Pardoe (2016) 267 Spotlight on Baseball Cards: Case 12.3: Fitl v. Strek (2005) 334
Consideration 269 Warranties 336
Contractual Capacity 272 ■ Ethics Today: Are Extended Warranties Fair? 340
Legality 273 Appendix to Chapter 12: An Example of a
Case 10.3: Woischke v. Stursberg & Fine, Inc. (2018) 274 Contract for the International Sale of Coffee 346

Contents vii
Chapter 13 Chapter 7—Liquidation 361

■ Building Analytical Skills: Violations of the Automatic Stay 365
Creditor-Debtor Relations Case 13.2: In re Cummings (2015) 371
and Bankruptcy 350 Chapter 11—Reorganization 372
Laws Assisting Creditors 350 ■ Linking Business Law to Corporate Management: What Can
You Do to Prepare for a Chapter 11 Reorganization? 373
■ Business Blog: Online Competition Causes
Brick-and-Mortar Retailers to File for Bankruptcy 351 Bankruptcy Relief under Chapter 12 and Chapter 13 375
Case 13.1: HSBC Realty Credit Corp. (USA) v. O’Neill (2014) 355 Case 13.3: In re Chamberlain (2018) 378
Protection for Debtors 359 Unit Two: Task-Based Simulation 384
Unit 3 The Employment and Business Environment 385

Chapter 14 Immigration Law 427
Labor Laws 429
Agency Relationships 386 Case 15.3: Contemporary Cars, Inc. v. National Labor Relations
Agency Law 387 Board (2016) 432
■ Ethics Today: Is It Fair to Classify Uber and Lyft
Drivers as Independent Contractors? 388 Chapter 16
Formation of Agencies 390
Case 14.1: Reidel v. Akron General Health System (2018) 391 Employment Discrimination 440
Duties of Agents and Principals 393 Title VII of the Civil Rights Act 441
Spotlight on Taser International: Case 14.2: Case 16.1: Bauer v. Lynch (2016) 445
Taser International, Inc. v. Ward (2010) 394
Case 16.2: Young v. United Parcel Service, Inc. (2015) 447
Case 14.3: NRT New England, LLC v. Jones (2016) 397 ■ Building Analytical Skills: Retaliation Claims 450
Agent’s Authority 398 Case 16.3: Franchina v. City of Providence (2018) 451
Liability in Agency Relationships 400 Discrimination Based on Age 452
■ Building Analytical Skills: Liability of Disclosed Principals 401
Discrimination Based on Disability 454
■ Beyond Our Borders: Islamic Law and Respondeat Superior 404
Discrimination Based on Military Status 457
Termination of Agency Relationships 405
Defenses to Employment Discrimination 458
Affirmative Action 459
Chapter 15
Employment, Immigration, Chapter 17
and Labor Law 413 Business Organizations 465
Employment at Will 413
Sole Proprietorships 466
Case 15.1: Caterpillar, Inc. v. Sudlow (2016) 415
Case 17.1: A. Gadley Enterprises, Inc. v. Pennsylvania
Wages, Hours, and Leave 416 Department of Labor and Industry, Office of
■ Ethics Today: Is It Fair to Dock Employees’ Unemployment Compensation Tax Services (2016) 467
Pay for Bathroom Breaks? 417 ■ Digital Update: A Sole Proprietorship, Facebook Poker,
Case 15.2: Encino Motorcars, LLC v. Navarro (2018) 418 and Bankruptcy 468
Health, Safety, Income Security, and Privacy 421 Partnerships 469
■ Building Analytical Skills: Workers’ Compensation Claims 423 Limited Liability Partnerships 476

viii Contents
Limited Partnerships 477 Shareholders 516

Limited Liability Companies 478 Major Business Forms Compared 522
■ Landmark in the Legal Environment: Limited
Liability Company (LLC) Statutes 479
Case 17.2: Schaefer v. Orth (2018) 482 Chapter 19
Franchises 484 Investor Protection and
Case 17.3: S&P Brake Supply, Inc. v. Daimler Trucks
North America, LLC (2018) 488 Corporate Governance 529
The Securities Act of 1933 530
Chapter 18 ■ Digital Update: Investment Crowdfunding—
Regulations and Restrictions 534
Corporations 494 ■ Landmark in the Legal Environment:
Changes to Regulation A: Regulation A+ 535
Nature and Classification 494
Case 19.1: Omnicare, Inc. v. Laborers District
■ Ethics Today: Programs That Predict Employee Misconduct 496 Council Construction Industry Pension
Case 18.1: Drake Manufacturing Co. v. Polyflow, Inc. (2015) 497 Fund (2015) 537
Case 18.2: Greenfield v. Mandalay Shores Community Association (2018) 501 The Securities Exchange Act of 1934 538
Corporate Formation and Powers 501 Classic Case 19.2: Securities and Exchange
■ Digital Update: Does Cloud Computing Have a Nationality? 507 Commission v. Texas Gulf Sulphur Co. (1968) 540
Piercing the Corporate Veil 507 Case 19.3: Singer v. Reali (2018) 544
■ Building Analytical Skills: Piercing the Corporate Veil 509 State Securities Laws 547
Directors and Officers 509 Corporate Governance 547
Classic Case 18.3: Guth v. Loft, Inc. (1939) 514 Unit Three: Task-Based Simulation 556
Unit 4 The Regulatory Environment 557

Chapter 20 Case 21.2: Haywood v. Massage Envy Franchising, LLC (2018) 583
Labeling and Packaging 586
Administrative Law 558 Protection of Health and Safety 587
Practical Significance 558 ■ Beyond Our Borders: Europe Bans Foods That
Americans Eat 588
Agency Creation and Powers 561
Credit Protection 590
Case 20.1: Simmons v. Smith (2018) 563
Case 21.3: Santangelo v. Comcast Corp. (2016) 592
The Administrative Process 564
Case 20.2: Craker v. Drug Enforcement Administration (2013) 569
Judicial Deference to Agency Decisions 570 Chapter 22
Case 20.3: Olivares v. Transportation Security Administration (2016) 571
Public Accountability 572 Environmental Law 599
Common Law Actions 600
Chapter 21 Government Regulations 601
Consumer Protection 578 ■ Beyond Our Borders: Can a River Be a

Legal Person? 602
Advertising, Marketing, and Sales 579 Case 22.1: Friends of Animals v. Clay (2016) 603
Case 21.1: POM Wonderful, LLC v. Federal Trade Commission (2015) 580 Air Pollution 605
■ Digital Update: Regulating “Native Ads” on the Internet 582 Case 22.2: United States v. O’Malley (2014) 607

Contents ix
Water Pollution 608 The Sherman Antitrust Act 647

Case 22.3: Sackett v. Environmental Protection Agency (2012) 611 ■ Landmark in the Legal Environment:
The Sherman Antitrust Act of 1890 648
Toxic Chemicals and Hazardous Wastes 612
Section 1 of the Sherman Act 649
Chapter 23 Section 2 of the Sherman Act 653

Case 24.1: McWane, Inc. v. Federal Trade
Real and Personal Property 620 Commission (2015) 655
The Clayton Act 657
The Nature of Real Property 620
Case 24.2: Candelore v. Tinder, Inc. (2018) 658
Ownership and Other Interests in Real Property 622
Enforcement and Exemptions 661
Transfer of Real Property Ownership 627
Case 24.3: TransWeb, LLC v. 3M Innovative
Spotlight on Sales of Haunted Houses: Case 23.1:
Properties Co. (2016) 662
Stambovsky v. Ackley (1991) 628
■ Building Analytical Skills: When Possession of the
U.S. Antitrust Laws in the Global Context 663
Property Is Not Adverse 631 ■ Digital Update: The European Union Issues Record
Fine against Google in Antitrust Case 665
Case 23.2: Montgomery County v. Bhatt (2016) 631
Unit Four: Task-Based Simulation 670
Limitations on Property Rights 633
■ Ethics Today: Should Eminent Domain Be Used to
Promote Private Development? 634
Personal Property 636 APPENDICES
■ Digital Update: The Exploding World of Digital Property 637 A The Constitution of the United States A–1
Case 23.3: State of Washington v. Preston (2018) 638 B The Uniform Commercial Code A–1
C Answers to the Issue Spotters A–2
Chapter 24 D Sample Answers for Business Case Problems
with Sample Answer A–7
Antitrust Law
and Promoting Competition 646 Glossary G–1
■ Business Blog: Facebook and Google in a World of Table of Cases TC–1
Antitrust Law 647 Index I–1

Unit 1
The Foundations
1 Law and Legal Reasoning

2 Courts and Alternative Dispute Resolution
3 Ethics in Business
4 Business and the Constitution
5 Torts and Product Liability
Michal Kalasek/Shutterstock.com
6 Criminal Law and Cyber Crime

7 International and Space Law
30318_ch01_hr_001-032.indd 1 9/12/18 7:30 AM

Feverpitched/iStock/Getty Images
Learning Objectives
1 Law and Legal Reasoning
“Laws should be like In the chapter-opening quotation, Clarence Darrow asserts
The five Learning Objectives below clothes. They should that law should be created to serve the public. As you are
are designed to help improve your part of that public, the law is important to you. Those
understanding. After reading this be made to fit the entering the world of business will find themselves sub-
chapter, you should be able to answer people they are ject to numerous laws and government regulations. A basic
the following questions: knowledge of these laws and regulations is beneficial—if
meant to serve.”
1. What are four primary not essential—to anyone contemplating a successful career
Clarence Darrow in today’s business environment.
sources of law in the United
1857–1938
States? (American lawyer) Although the law has various definitions, they all are
based on the general observation that law consists of enforce-
2. What is the common law?
able rules governing relationships among individuals and
3. What is the difference between individuals and their society. In some societies, these enforceable rules consist of
between remedies at law and unwritten principles of behavior, while in other societies they are set forth in ancient or
remedies in equity? contemporary law codes. In the United States, our rules consist of written laws and court
4. When might a court depart decisions created by modern legislative and judicial bodies. Regardless of how such rules
from precedent? are created, they all have one feature in common: they establish rights, duties, and privileges
that are consistent with the values and beliefs of a society or its ruling group.
5. What are some important In this introductory chapter, we look at how business law and the legal environment
differences between civil law affect business decisions. For instance, suppose that Hellix Telecommunications, Inc.,
and criminal law? wants to buy a competing cellular company. Once it has acquired this competitor, it wants
to offer unlimited data plans. Management fears that if it does not expand, one of its bigger
rivals will put it out of business. But Hellix cannot simply buy its rival in whatever manner
Law Enforceable rules governing it chooses. Nor is it free to offer just any low-cost cell phone plan to its customers. It has
relationships among individuals and to follow the laws and regulations pertaining to its proposed actions. Some of these rules
between individuals and their society. depend on interpretations made by various federal regulatory agencies. The rules that
30318_ch01_hr_001-032.indd 2 9/12/18 7:30 AM

CHAPTER 1: Law and Legal Reasoning 3
control Hellix’s actions reflect past and current thinking about how large telecommunications
companies should and should not act.
Our goal in this text is not only to teach you specific laws but also to teach you how to
think about the legal environment and to develop your critical thinking and legal reasoning
skills. The laws may change, but the ability to analyze and evaluate the legal (and ethical)
ramifications of situations as they arise is an invaluable and lasting skill.
1–1 Business Activities and the Legal Environment

Laws and government regulations affect all business activities—from hiring and firing
decisions to workplace safety, the manufacturing and marketing of products, business
financing, and more. To make good business decisions, businesspersons need to understand
the laws and regulations governing these activities. And simply being aware of what conduct
can lead to legal liability is not enough. Businesspersons must develop critical thinking and Liability The state of being legally
legal reasoning skills so that they can evaluate how various laws might apply to a given sit- responsible (liable) for something,
uation and determine the potential result of their course of action. Businesspersons must such as a debt or obligation.
also think critically about whether their decisions are ethical. In addition, they must consider
the consequences of their decisions for stockholders and employees.
1–1a Many Different Laws May Affect a Single Business Transaction

As you will note, each chapter in this text covers a specific area of the law and shows how
the legal rules in that area affect business activities. Although compartmentalizing the law
in this fashion facilitates learning, it does not indicate the extent to which many different
laws may apply to just one transaction. This is where the critical thinking skills that you will
learn throughout this book become important. Exhibit 1–1 illustrates various areas of law
that may influence business decision making.
Exhibit 1–1 Areas of the Law That May Affect Business Decision Making
Contracts
Environmental Intellectual
Law Property
Internet Law, Business

Social Media, Decision Torts
and Privacy Making
Sales Product Liability
Agency
30318_ch01_hr_001-032.indd 3 9/12/18 7:30 AM

4 UNIT ONE: The Foundations
Example 1.1 When Mark Zuckerberg, a Harvard student, first launched Facebook, others
claimed that Zuckerberg had stolen their ideas for a social networking site. They filed a
lawsuit against him alleging theft of intellectual property, fraudulent misrepresentation, and
violations of partnership law and securities law. Facebook ultimately paid $65 million to
settle those claims out of court.
Since then, Facebook has been sued repeatedly for violating users’ privacy (and federal
laws) by tracking their website usage and by scanning private messages for purposes of data
mining and user profiling. Facebook’s business decisions have also come under scrutiny
by federal regulators, such as the Federal Trade Commission (FTC), and by international
authorities, such as the European Union. The company settled a complaint filed by the
FTC alleging that Facebook had failed to keep “friends” lists and other user information
private. ■
1–1b Linking Business Law to the Six Functional Fields of Business

In all likelihood, you are taking a business law or legal environment course because you
intend to enter the business world, though some of you may plan to become full-time
practicing attorneys. Many of you are taking other business school
courses and may therefore be familiar with the following functional
fields of business:
1. Corporate management.
2. Production and transportation.
3. Marketing.
Minerva Studio/iStock/Getty Images
4. Research and development.

5. Accounting and finance.
6. Human resource management.
One of our goals in this text is to show how legal concepts can be
useful for managers and businesspersons, whether their activities focus
Why is basic knowledge of business law and the legal on management, marketing, accounting, or some other field. To that
environment so important today? end, certain chapters include a special feature called “Linking Business
Law to [one of the six functional fields of business].”
Primary Source of Law A document 1–2 Sources of American Law

that establishes the law on a particular
issue, such as a constitution, a statute, American law has numerous sources. Primary sources of law, or sources that establish the law,
an administrative rule, or a court include the following:
decision.
• The U.S. Constitution and the constitutions of the various states.
• Statutes, or laws, passed by Congress and by state legislatures.
Learning Objective 1
• Regulations created by administrative agencies, such as the federal Food and Drug Administration.
What are four primary
• Case law (court decisions).
sources of law in the United
States? We describe each of these important primary sources of law in the following pages and
discuss how to find statutes, regulations, and case law in the appendix at the end of this
chapter.
Secondary Source of Law A
Secondary sources of law are books and articles that summarize and clarify the primary
publication that summarizes or
interprets the law, such as a legal sources of law. Legal encyclopedias, compilations (such as Restatements of the Law,
encyclopedia, a legal treatise, or an which summarize court decisions on particular topics), official comments to statutes,
article in a law review. treatises, articles in law reviews published by law schools, and articles in other legal
30318_ch01_hr_001-032.indd 4 9/12/18 7:30 AM

journals are examples of secondary sources of law. Courts often refer to secondary
sources of law for guidance in interpreting and applying the primary sources of law
discussed here.
1–2a Constitutional Law

The federal government and the states have separate written constitutions that set forth the
general organization, powers, and limits of their respective governments. Constitutional law is Constitutional Law The body of
the law as expressed in these constitutions. law derived from the U.S. Constitution
The U.S. Constitution is the supreme law of the land. As such, it is the basis of all law in and the constitutions of the various
states.
the United States. A law in violation of the U.S. Constitution, if challenged, will be declared
unconstitutional and will not be enforced, no matter what its source.
The Tenth Amendment to the U.S. Constitution reserves to the states all powers not
granted to the federal government. Each state in the union has its own constitution. Unless
it conflicts with the U.S. Constitution or a federal law, a state constitution is supreme within
that state’s borders.
1–2b Statutory Law

Laws enacted by legislative bodies at any level of government, such as the statutes passed by
Congress or by state legislatures, make up the body of law generally referred to as statutory law. Statutory Law The body of law
When a legislature passes a statute, that statute ultimately is included in the federal code of enacted by legislative bodies (as
laws or the relevant state code of laws. Whenever a particular statute is mentioned in this opposed to constitutional law,
administrative law, or case law).
text, we usually provide a footnote showing its citation (a reference to a publication in which
a legal authority—such as a statute or a court decision—or other source can be found). In Citation A reference to a
the appendix following this chapter, we explain how you can use these citations to find publication in which a legal
statutory law. authority—such as a statute or a
Statutory law also includes local ordinances—statutes (laws, rules, or orders) passed court decision—or other source can
by municipal or county governing units to administer matters not covered by federal or be found.
state law. Ordinances commonly have to do with city or county land use (zoning Ordinance A regulation enacted
ordinances), building and safety codes, and other matters affecting only the local govern- by a city or county legislative body
ing unit. that becomes part of that state’s
A federal statute, of course, applies to all states. A state statutory law.
statute, in contrast, applies only within the state’s bor-
ders. State laws thus vary from state to state. No federal
statute may violate the U.S. Constitution, and no state
statute or local ordinance may violate the U.S. Constitu-
tion or the relevant state constitution.
Example 1.2 The tension between federal, state, and
local laws is evident in the national debate over so-called
“sanctuary cities”—cities that limit their cooperation
with federal immigration authorities. Normally, local law
enforcement officials are supposed to alert federal immi-
gration authorities when they come into contact with
undocumented immigrants. Then federal immigration
Michael Dwyer / Alamy
officials request that the local authorities detain the indi-

viduals for possible deportation.
A number of U.S. cities, however, have adopted either
local ordinances or explicit policies that do not follow this
procedure. Police in sanctuary cities often do not ask or How have local “sanctuary cities” frustrated federal immigration
report the immigration status of individuals with whom procedures?
they come into contact. ■
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Uniform Laws During the 1800s, the differences among state laws frequently created
difficulties for businesspersons conducting trade and commerce among the states. To
counter these problems, a group of legal scholars and lawyers formed the National Confer-
ence of Commissioners on Uniform State Laws (NCCUSL, online at www.uniformlaws.org)
Uniform Law A model law in 1892 to draft uniform laws (“model statutes”) for the states to consider adopting. The
developed by the National NCCUSL still exists today and continues to issue uniform laws: it has issued more than two
Conference of Commissioners on hundred uniform acts since its inception.
Uniform State Laws for the states
to consider enacting into statute.
Each state has the option of adopting or rejecting a uniform law. Only if a state legislature
adopts a uniform law does that law become part of the statutory law of that state. Furthermore,
a state legislature may choose to adopt only part of a uniform law or to rewrite the sections
that are adopted. Hence, even when many states have adopted a uniform law, those laws may
not be entirely “uniform.”
The Uniform Commercial Code (UCC) One of the most important uniform acts is the
Uniform Commercial Code (UCC), which was created through the joint efforts of
the NCCUSL and the American Law Institute.1 The UCC was first issued in 1952 and has
been adopted in all fifty states,2 the District of Columbia, and the Virgin Islands. The UCC
facilitates commerce among the states by providing a uniform, yet flexible, set of rules
governing commercial transactions. Because of its importance in the area of commercial
law, we cite the UCC frequently in this text.
1–2c Administrative Law

Administrative Law The body Another important source of American law is administrative law, which consists of the rules,
of law created by administrative orders, and decisions of administrative agencies. An administrative agency is a federal, state,
agencies in order to carry out their or local government agency established to perform a specific function. Regulations govern
duties and responsibilities.
a business’s capital structure and financing, its hiring and firing procedures, its relations with
Administrative Agency A federal employees and unions, and the way it manufactures and markets its products. Regulations
or state government agency created enacted to protect the environment also often play a significant role in business
by the legislature to perform a operations.
specific function, such as to make
and enforce rules pertaining to the Federal Agencies At the national level, the cabinet departments of the executive branch
environment.
include numerous executive agencies. The U.S. Food and Drug Administration, for instance,
Executive Agency An is an agency within the U.S. Department of Health and Human Services. Executive agencies
administrative agency within the are subject to the authority of the president, who has the power to appoint and remove their
executive branch of government. officers.
At the federal level, executive The president’s power is less pronounced in regard to independent regulatory agencies,
agencies are those within the cabinet whose officers serve for fixed terms and cannot be removed without just cause. Major
departments.
independent regulatory agencies at the federal level include the Federal Trade Commis-
Independent Regulatory sion, the Securities and Exchange Commission, and the Federal Communications
Agency An administrative agency Commission.
that is not considered part of the
executive branch and is not subject State and Local Agencies There are administrative agencies at the state and local levels
to the authority of the president. as well. Commonly, a state agency (such as a state pollution-control agency) is created as a
Independent agency officials cannot
be removed without cause.
parallel to a federal agency (such as the Environmental Protection Agency). Just as federal
statutes take precedence over conflicting state statutes, federal agency regulations take
precedence over conflicting state regulations. (See the Linking Business Law to Corporate
Management feature for a discussion of the levels of regulation.)
1. This institute was formed in the 1920s and consists of practicing attorneys, legal scholars, and judges.
2. Louisiana has adopted only Articles 1, 3, 4, 5, 7, 8, and 9.
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Whether you work for a large corpo- Dealing with Administrative Law Linking
ration or own a small business, you Business Law
will be dealing with multiple aspects of administrative law. All federal, state, and local government to Corporate
administrative agencies create rules that have the force of law. In fact, as a manager, you probably Management
will need to pay more attention to administrative rules and regulations than to laws passed by local,
state, and federal legislatures.
The three levels of government create three levels of rules and regulations though their respec-
tive administrative agencies. As a manager, you will have to learn about agency regulations that
pertain to your business activities. It will be up to you, as a corporate manager or a small-business
owner, to discern which of these regulations are most important and whether violating them could
create significant liability.
Critical Thinking
Why are owner/operators of small businesses at a disadvantage relative to large corporations when
they attempt to decipher complex regulations that apply to their businesses?
1–2d Case Law and Common Law Doctrines

The rules of law announced in court decisions constitute another basic source of American
law. These rules include interpretations of constitutional provisions, of statutes enacted by
legislatures, and of regulations created by administrative agencies. Today, this body of judge-
made law is referred to as case law. Case law—the doctrines and principles announced in Case Law The rules of law
cases—governs all areas not covered by statutory law or administrative law and is part of our announced in court decisions. Case
common law tradition. We look at the origins and characteristics of the common law in some law interprets statutes, regulations,
constitutional provisions, and other
detail in the pages that follow. case law.
1–3 The Common Law

Because of our colonial heritage, much of American law is based on the English legal system. Learning Objective 2
A knowledge of this tradition is crucial to understanding our legal system today because What is the common law?
judges in the United States still apply common law principles when deciding cases.
1–3a Early English Courts

In early England, disputes were settled according to local legal customs and regional tradi-
tions. As a result, similar disputes were decided differently in different regions. After the
Normans conquered England in 1066, William the Conqueror and his successors began
the process of unifying the country under their rule. One of the means they used to do this
was the establishment of the king’s courts, or curiae regis. The king’s courts sought to estab-
lish a uniform set of rules for the country as a whole. The courts decided disputes by looking
Precedent A court decision that
at the rules and principles underlying judges’ decisions in earlier cases. They attempted to serves as a guide for deciding
resolve similar controversies in a consistent way. Each judgment became part of the law on subsequent cases involving identical
the subject and served as a guide for future decisions—a legal precedent. or similar legal principles or facts.
Over several centuries, these decisions developed into a body of common law—that is, law
Common Law The body of law
developed from judicial decisions. The English eventually brought this method of deciding developed from judicial decisions
disputes to the British colonies and set up legal systems based on it. When the United States in English and U.S. courts, not
was formed, it incorporated the common law system. attributable to a legislature.
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Courts of Law and Remedies at Law The early king’s courts could grant only very
Remedy The relief given to an limited kinds of remedies (the legal means to enforce a right or redress a wrong). If one
innocent party to enforce a right or person wronged another in some way, the king’s courts could award as compensation
compensate for the violation of a right. one or more of the following: (1) land, (2) items of value, or (3) money.
Court of Law Historically, a court The courts that awarded this compensation became known as courts of law, and the three
in which the only remedies that could remedies were called remedies at law. (Today, the remedy at law normally takes the form of
be granted were things of value, such monetary damages—an amount given to a party whose legal interests have been injured.)
as money damages. This system made the procedure for settling disputes more uniform. When a complaining
party wanted a remedy other than economic compensation, however, the courts of law could
Remedy at Law A remedy available
in a court of law. Money damages are do nothing, so “no remedy, no right.”
awarded as a remedy at law.
Courts of Equity When individuals could not obtain an adequate remedy in a court of
Damages A sum of money claimed law, they petitioned the king for relief. Most of these petitions were decided by an adviser
or awarded in compensation for a
loss or injury.
to the king, called a chancellor, who had the power to grant new and unique remedies.
Eventually, formal chancery courts, or courts of equity, were established. Equity is a branch
of law—founded on notions of justice and fair dealing—that seeks to supply a remedy when
Learning Objective 3 no adequate remedy at law is available.
What is the difference
Remedies in Equity The remedies granted by the equity courts became known as
between remedies at law r emedies in equity, or equitable remedies. These remedies include specific performance,
and remedies in equity? injunction, and rescission. Specific performance involves ordering a party to perform an
agreement as promised. An injunction is an order to a party to cease engaging in a specific
activity or to undo some wrong or injury. Rescission is the cancellation of a contractual
Court of Equity A court that
decides controversies and obligation.
administers justice according to As a general rule, today’s courts, like the early English courts, will not grant equitable
equitable rules, principles, and remedies unless the remedy at law—monetary damages—is inadequate. Example 1.3 Ted forms
precedents. a contract (a legally binding agreement) to purchase a parcel of land that he thinks will be
perfect for his future home. The seller breaches (fails to fulfill) this agreement. Ted could sue
Remedy in Equity A remedy
allowed by courts in situations where the seller for the return of any deposits or down payment he might have made on the land,
remedies at law are not appropriate. but this is not the remedy he really wants. What Ted wants is to have a court order the seller
Equitable remedies include injunction, to perform the contract. In other words, Ted will seek the equitable remedy of specific perfor-
specific performance, and rescission. mance because monetary damages are inadequate in this situation. ■
Breach The failure to perform a
legal obligation. Equitable Maxims In fashioning appropriate remedies, judges often were (and continue
to be) guided by so-called equitable maxims—propositions or general statements of equitable
Equitable Maxims General rules. Because of their importance, both historically and in our judicial system today, we
propositions of law that have to do present these maxims in this chapter’s Landmark in the Legal Environment feature.
with fairness (equity).
1–3b Legal and Equitable Remedies Today

The establishment of courts of equity in medieval England resulted in two distinct court
systems: courts of law and courts of equity. The courts had different sets of judges and
granted different types of remedies. During the nineteenth century, however, most states
in the United States adopted rules of procedure that resulted in the combining of courts
of law and equity. A party now may request both legal and equitable remedies in the same
action, and the trial court judge may grant either or both forms of relief.
The distinction between legal and equitable remedies remains relevant to students of
business law and the legal environment, however, because these remedies differ. To seek
the proper remedy for a wrong, you must know what remedies are available. Additionally,
certain vestiges of the procedures used when there were separate courts of law and equity
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Equitable Maxims Landmark in the

Legal Environment
I n medieval England, courts of equity were
expected to use discretion in supplement-
ing the common law. Even today, when
5. Equity regards substance rather than form.
(Equity is more concerned with fairness
and justice than with legal technicalities.)
the same court can award both legal and 6. Equity aids the vigilant, not those who
equitable remedies, it must exercise dis- rest on their rights. (Equity will not help
cretion. Students of business law should those who neglect their rights for an
know that courts often invoke equitable unreasonable period of time.)
principles and maxims when making their
decisions. The last maxim has come to be known
as the equitable doctrine of laches. The principles that are commonly applied by
Here are some of the most significant the courts today—and that you will read
equitable maxims: doctrine arose to encourage people to
bring lawsuits while the evidence was about in this book.
1. Whoever seeks equity must do equity. fresh. If they failed to do so, they would For instance, you will read in a later
(Anyone who wishes to be treated fairly not be allowed to sue. What constitutes a chapter about the doctrine of substan-
must treat others fairly.) reasonable time, of course, varies accord- tial performance. Under this doctrine of
2. Where there is equal equity, the law ing to the circumstances of the case. contract law, a party who in good faith
must prevail. (The law will determine the Time periods for different types of substantially performs as required under
outcome of a controversy in which cases are now usually fixed by statutes a contract may be entitled to compensa-
the merits of both sides are equal.) of limitations—that is, statutes that set tion even if the performance was defec-
3. One seeking the aid of an equity court the maximum time period during which a tive in some way. A key requirement is
must come to the court with clean certain action can be brought. After the good faith, meaning that the defect in
hands. (Plaintiffs must have acted fairly time allowed under a statute of limitations the party’s performance was uninten-
and honestly.) has expired, no action can be brought, no tional or accidental. The requirement
4. Equity will not suffer a wrong to be matter how strong the case was originally. of good faith reflects the first and third
without a remedy. (Equitable relief will maxims on the list, that whoever seeks
be awarded when there is a right to Application to Today’s Legal to recover and be treated fairly by a court
relief and there is no adequate remedy Environment The equitable maxims must have acted fairly and honestly in
at law.) listed underlie many of the legal rules and the situation.
still exist. For instance, a party has the right to demand a jury trial in an action at law but
not in an action in equity. Exhibit 1–2 summarizes the procedural differences (applicable in
most states) between an action at law and an action in equity.
Exhibit 1–2 Procedural Differences between an Action at Law and an Action in Equity
Procedure Action at Law Action in Equity
Initiation of lawsuit By filing a complaint. By filing a petition.
Decision By jury or judge. By judge (no jury).
Result Judgment. Decree.
Remedy Monetary damages. Injunction, specific performance, or rescission.
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1–3c Stare Decisis

We noted earlier that the king’s courts sought to bring consistency to the court system by
basing their decisions on earlier decisions, or precedents. The practice of deciding new cases
with reference to precedents eventually became a cornerstone of the English and U.S. judi-
Stare Decisis A common law cial systems. The practice forms a doctrine called stare decisis 3 (“to stand on decided cases”).
doctrine under which judges are Under the doctrine of stare decisis, judges are obligated to follow the precedents estab-
obligated to follow the precedents lished within their jurisdictions. (The term jurisdiction refers to the power of the court to
established in prior decisions.
decide a particular type of case in a specific geographic area.) Once a court has set forth a
principle of law as being applicable to a certain set of facts, that court must apply the princi-
ple in future cases involving similar facts. Courts of lower rank within the same jurisdiction
must do likewise. Thus, stare decisis has two aspects:
1. A court should not overturn its own precedents unless there is a strong reason to do so.
2. Decisions made by a higher court are binding on lower courts.
Controlling Precedents Controlling precedents in a jurisdiction are referred to as bind-

Binding Authority Any source of ing authorities. A binding authority is any source of law that a court must follow when d
eciding
law that a court must follow when a case. Binding authorities include constitutions, statutes, and regulations that govern the
deciding a case. issue being decided, as well as court decisions that are controlling precedents within
the jurisdiction. United States Supreme Court case decisions, no matter how old, remain
controlling until they are overruled by a subsequent decision of the Supreme Court,
by a constitutional amendment, or by congressional legislation.
Stare Decisis and Legal Stability The doctrine of stare decisis helps the courts to be
Learning Objective 4 more efficient because if other courts have carefully reasoned through a similar case, their
When might a court depart legal reasoning and opinions can serve as guides. Stare decisis also makes the law more
from precedent? stable and predictable. If the law on a given subject is well settled, someone bringing a case
to court can usually rely on the court to make a decision based on what the law has been.
See this chapter’s Ethics Today feature for a discussion of how courts often defer to case
precedent even when they disagree with the reasoning in the case.
Although courts are obligated to follow precedents, a court may sometimes decide that a
precedent is incorrect or that a change in society or technology has rendered it inapplicable.
In that situation, the court may rule contrary to the precedent. Cases
that overturn precedent often receive a great deal of publicity.
Classic Case Example 1.4 The United States Supreme Court
Library of Congress, Prints & Photographs Division
expressly overturned precedent in the landmark case Brown v. Board

of Education of Topeka.4 The Court concluded that separate educa-
tional facilities for whites and blacks, which had previously been
upheld as constitutional,5 were inherently unequal. The Court’s
departure from precedent in the Brown decision received a tremen-
[LC-DIG-ppmsca-03119]
dous amount of publicity as people began to realize the ramifications

of this change in the law. ■
Note that a lower court will sometimes avoid applying a prece-
dent set by a higher court in its jurisdiction by distinguishing the
School integration occurred in 1954 after the Supreme two cases based on their facts. When this happens, the lower court’s
Court decision in Brown v. Board of Education of Topeka. ruling will stand unless it is appealed to a higher court and that court
overturns it.
3. Pronounced stahr-ee dih-si-sis.

4. 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954).
5. See Plessy v. Ferguson, 163 U.S. 537, 16 S.Ct. 1138, 41 L.Ed. 256 (1896).
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Stare Decisis versus Spider-Man Ethics Today
S upreme Court Justice Elena Kagan, in a

case involving Marvel Comics’ Spi-
der-Man, noted that, “What we can decide,
In the Kimble case, Kimble owned
the patent on a toy Spider-Man glove
equipped with a valve and a canister of
we can undecide. But stare decisis teaches pressurized foam that shot fake webs. In
that we should exercise that authority 1990, Kimble had tried to cut a deal with
sparingly.” Using words from a Spider-Man Marvel Entertainment concerning his toy,
comic book, she went on to say that “in but he was unsuccessful. Then Marvel the adherence to this precedent. In it, he
this world, with great power there must started selling its own version of the toy. stated, “The decision interferes with the
also come—great responsibility.”a In its Kimble sued Marvel for patent infringe- ability of parties to negotiate licensing
decision in the case—Kimble v. Marvel ment, and won. As a result, Kimble and agreements that reflect the true value of a
Entertainment, LLC—the Supreme Court Marvel entered into a licensing contract patent, and it disrupts contractual expec-
applied stare decisis and ruled against with a lump-sum payment plus a royalty tations. Stare decisis does not require
Stephen Kimble, the creator of a toy to Kimble of 3 percent of all sales of the us to retain this baseless and damaging
related to the Spider-Man figure.b toy. The agreement did not specify an end precedent. . . . Stare decisis is important
date for royalty payments to Kimble. to the rule of law, but so are correct judicial
Can a Patent Involving decisions.”
When the patent expired, Marvel sued to
Spider-Man Last Super Long? In other words, stare decisis means
have the payments stop, consistent with
A patent is an exclusive right granted to the Court’s earlier decision. that courts should adhere to precedent in
the creator of an invention. Under U.S. law, A majority of the Supreme Court justices order to promote predictability and consis-
patent owners generally possess that right agreed with Marvel. As Justice Kagan said tency. But in the business world, shouldn’t
for twenty years, and can license others to in the opinion, “Patents endow their holders the parties to a contract be the ones to
use their patents during that period. In with certain super powers, but only for a decide on the contract’s terms? Suppose,
other words, they can allow others (called limited time.” The Court recognized that the for instance, that a patent licensee is cash-
licensees) to use their invention in return fifty-year-old decision was perhaps based strapped in its initial use of the patent and
for a fee (called royalties). But the Supreme on what today is an outmoded understand- needs to reduce yearly costs. Why can’t
Court ruled more than fifty years ago that ing of economics. Some even claim that the the licensing agreement allow the licensee
a licensee (a party entitled to use a patent) decision may hinder competition and inno- to make smaller royalty payments over a
cannot be forced to pay royalties to a pat- vation. But “respecting stare decisis means longer time period—even if that period
ent holder after the patent has expired.c sticking to some wrong decisions.” exceeds the life of the patent?
a. “Spider-Man,” Amazing Fantasy, No. 15 (1962), p. 13. The Ethical Side Critical Thinking
b. 135 S.Ct. 2401, 192 L.Ed.2d 463 (2015). Also see Howard
v. Ford Motor Co., 2016 WL 4077260 (S.D.Miss. 2016).
Supreme Court Justice Samuel A. Alito, Jr., When is the Supreme Court justified in not
c. Brulotte v. Thys Co., 379 U.S. 29, 85 S.Ct. 176 (1964). wrote a dissenting opinion questioning following the doctrine of stare decisis?
When There Is No Precedent Occasionally, courts must decide cases for which no
precedents exist, called cases of first impression. For instance, as you will read through-
out this text, new technologies present many novel and challenging issues for the courts
to decide.
Example 1.5 Google Glass is a Bluetooth-enabled, hands-free, wearable computer. A person
using Google Glass can take photos and videos, surf the Internet, and do other things by
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using voice commands. Many people have expressed concerns about this wearable technol-
ogy because it makes it much easier to secretly film or photograph others. Numerous bars
and restaurants have banned the use of Google Glass to protect their patrons’ privacy. Driver
safety has been another concern. A California woman was ticketed for wearing Google Glass
while driving. But the court dismissed this case of first impression because it was not clear
whether the device had been in operation at the time of the offense. ■
Persuasive Authority Any legal When deciding cases of first impression, courts often look at persuasive authorities—
authority or source of law that a court legal authorities that a court may consult for guidance but that are not binding on the
may look to for guidance but need not court. A court may consider precedents from other jurisdictions, for instance, although
follow when making its decision.
those precedents are not binding. A court may also consider legal principles and policies
underlying previous court decisions or existing statutes. Additionally, a court might look
at issues of fairness, social values and customs, and public policy (governmental policy
based on widely held societal values). Today, federal courts can also look at unpublished
opinions (those not intended for publication in a printed legal reporter) as sources of
persuasive authority.
1–3d Stare Decisis and Legal Reasoning

In deciding what law applies to a given dispute and then applying that law to the facts or
Legal Reasoning The process by circumstances of the case, judges rely on the process of legal reasoning. Through the use of
which a judge harmonizes his or her legal reasoning, judges harmonize their decisions with those that have been made before, as
opinion with the judicial decisions in the doctrine of stare decisis requires.
previous cases.
Students of business law and the legal environment also engage in critical thinking and
legal reasoning. For instance, you may be asked to provide answers for some of the case
problems that appear at the end of every chapter in this text. Each problem describes the
facts of a particular dispute and the legal question at issue. If you are assigned a case prob-
lem, you will be asked to determine how a court would answer that question, and why. In
other words, you will need to give legal reasons for whatever conclusion you reach. We
look here at the basic steps involved in legal reasoning.
Basic Steps in Legal Reasoning At times, the legal arguments set forth in court opinions
are relatively simple and brief. At other times, the arguments are complex and lengthy.
Regardless of the length of a legal argument, however, the basic steps of the legal reason-
ing process remain the same. These steps—which you can also follow when analyzing
cases and case problems—form what is commonly referred to as the IRAC method of
legal reasoning. IRAC is an acronym formed from the first letters of the words Issue,
Rule, Application, and Conclusion. To apply the IRAC method, you ask the following four
questions:
1. Issue—What are the key facts and issues? This may sound obvious, but before you can analyze
or apply the relevant law to a specific set of facts, you must clearly understand those facts.
In other words, you should read through the case problem carefully—more than once, if neces-
Plaintiff One who initiates a lawsuit. sary. Make sure that you understand the identity of the plaintiff (the one who initiates the law-
suit) and defendant (the one being sued) in the case and the progression of events that led to
Defendant One against whom a
the lawsuit.
lawsuit is brought, or the accused
person in a criminal proceeding. Suppose that Anna Tovar comes before the court claiming assault (words or acts that wrongfully
and intentionally make another person apprehensive of harmful or offensive contact). Tovar claims
that Bryce Maddis threatened her while she was sleeping. Although Tovar was unaware that she
was being threatened, her roommate, Jan Simon, heard Maddis make the threat. In this scenario, the
identity of the parties is obvious. Tovar is the plaintiff, and Maddis is the defendant.
The legal issue in this case is whether the defendant’s threat constitutes the tort of assault even
though the plaintiff was unaware of that threat at the time it occurred. (A tort is a wrongful act
brought under civil rather than criminal law.)
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2. Rule—What rule of law applies to the case? A rule of law may be a state or federal statute, a state
or federal administrative agency regulation, or a rule stated by the courts in previous decisions.
Often, more than one rule of law will be applicable to a case.
In our hypothetical case, Tovar alleges (claims) that Maddis committed a tort. Therefore, the Allege To state, recite, assert, or
applicable law is the common law of torts—specifically, tort law governing assault. Case precedents charge.
involving similar facts and issues thus would be relevant.
3. Application—How does the rule of law apply to the particular facts and circumstances of this
case? This step is often the most difficult because each case presents a unique set of facts, cir-
cumstances, and parties. Although cases may be similar, no two cases are ever identical in all
respects.
Normally, judges (and lawyers and law students) try to find cases on point—previously decided Case on Point A previous case
cases that are as similar as possible to the one under consideration. In this situation, there might be involving factual circumstances and
case precedents showing that if a victim is unaware of the threat of harmful or offensive contact, issues that are similar to those in the
case before the court.
then no assault occurred. These would be cases on point that tend to prove that the defendant did
not commit assault and should win the case.
There might, however, also be cases showing that a sexual assault, at least, can occur even if the
victim is asleep. These could be cases on point in the plaintiff’s favor. You will need to c arefully ana-
lyze whether there are any missing facts in Tovar’s claim. For instance, you might want to know what
specific threat Maddis made (and Tovar’s roommate overheard). Did he threaten to rape, kill, or beat
her? Did he know that she was asleep when he made the threat? Did he know that her r oommate
heard the threat and would relay it to her when she awoke? Sometimes, you will want to obtain addi-
tional facts such as these before analyzing which case precedents should apply.
Jurisprudence The science or
4. Conclusion—What conclusion should be drawn? This step normally presents few problems. Usually, philosophy of law.
the conclusion is evident if the previous three steps have been followed carefully. In our sample
Natural Law The oldest school of
problem, for instance, your analysis may lead you to conclude that Maddis did not commit a tort
legal thought, based on the belief
because Tovar could not prove all of the required elements of assault. that the legal system should reflect
universal (“higher”) moral and ethical
There Is No One “Right” Answer Many people believe that there is one “right” answer principles that are inherent in human
to every legal question. In many legal controversies, however, there is no single correct nature.
result. Good arguments can usually be made to support either side of a legal
controversy. Quite often, a case does not involve a “good” person suing a “bad”
person. In many cases, both parties have acted in good faith in some measure
or in bad faith to some degree. Additionally, each judge has her or his own
personal beliefs and philosophy. At least to some extent, these personal factors
shape the legal reasoning process.
1–3e Schools of Legal Thought

How judges apply the law to specific cases, including disputes relating to the
business world, depends in part on their philosophical approaches to law. The
study of law, often referred to as jurisprudence, includes learning about different
schools of legal thought and discovering how each school’s approach to law can
affect judicial decision making.
Science History Images / Alamy
The Natural Law School Those who adhere to the natural law theory believe
that a higher, or universal, law exists that applies to all human beings and that
written laws should imitate these inherent principles. If a written law is unjust,
then it is not a true (natural) law and need not be obeyed.
The natural law tradition is one of the oldest and most significant schools of
jurisprudence. It dates back to the days of the Greek philosopher Aristotle (384–322 What is the basic premise of Aristotle’s natural
b.c.e.), who distinguished between natural law and the laws governing a particular law theory?
nation. According to Aristotle, natural law applies universally to all humankind.
30318_ch01_hr_001-032.indd 13 9/12/18 7:30 AM

The notion that people have “natural rights” stems from the natural law tradition. Those
who claim that a specific foreign government is depriving certain citizens of their human
rights are implicitly appealing to a higher law that has universal applicability. The question
of the universality of basic human rights also comes into play in the context of international
business operations. U.S. companies that have operations abroad often hire foreign work-
ers as employees. Should the same laws that protect U.S. employees apply to these foreign
employees? This question is rooted implicitly in a concept of universal rights that has its
origins in the natural law tradition.
Legal Positivism Positive law, or national law, is the written law of a given society at a
particular point in time. In contrast to natural law, it applies only to the citizens of that
Legal Positivism A school of legal nation or society. Those who adhere to legal positivism believe that there can be no higher
thought centered on the assumption law than a nation’s positive law.
that there is no law higher than According to the positivist school, there is no such thing as “natural rights.” Rather,
the laws created by a national
government. Laws must be obeyed,
human rights exist solely because of laws. If the laws are not enforced, anarchy will result.
even if they are unjust, to prevent Thus, whether a law is morally “bad” or “good” is irrelevant. The law is the law and must be
anarchy. obeyed until it is changed—in an orderly manner through a legitimate lawmaking process.
A judge who takes this view will probably be more inclined to defer to an existing law than
would a judge who adheres to the natural law tradition.
Historical School A school of The Historical School The historical school of legal thought emphasizes the evolutionary
legal thought that looks to the past process of law by concentrating on the origin and history of the legal system. This school
to determine what the principles of looks to the past to discover what the principles of contemporary law should be. The legal
contemporary law should be.
doctrines that have withstood the passage of time—those that have worked in the past—are
deemed best suited for shaping present laws. Hence, law derives its legitimacy and authority
from adhering to the standards that history has shown to be workable. Followers of the
historical school are likely to adhere strictly to decisions made in past cases.
Legal Realism In the 1920s and 1930s, a number of jurists and scholars, known as legal
Legal Realism A school of legal realists, rebelled against the historical approach to law. Legal realism is based on the idea
thought that holds that the law is only that law is just one of many institutions in society and that it is shaped by social forces
one factor to be considered when and needs. This school holds that because the law is a human enterprise, judges should
deciding cases and that social and
look beyond the law and take social and economic realities into account when
economic circumstances should also
be taken into account. deciding cases.
Legal realists also believe that the law can never be applied with total uniformity.
Given that judges are human beings with unique experiences, personalities, value
systems, and intellects, different judges will obviously bring different reasoning processes
to the same case. Female judges, for instance, might be more inclined than male judges to
consider whether a decision might have a negative impact on the employment of women
or minorities.
1–4 Classifications of Law

Substantive Law Law that defines, The law can be organized according to several classification systems. One system, for
describes, regulates, and creates instance, classifies law as either substantive or procedural. Substantive law includes all laws
legal rights and obligations. that define, describe, regulate, and create legal rights and obligations. Procedural law con-
sists of all laws that establish the methods of enforcing the rights established by
Procedural Law Law that
establishes the methods of substantive law.
enforcing the rights established Note that many statutes contain both substantive and procedural provisions. Example 1.6
by substantive law. A state law that provides employees with the right to workers’ compensation benefits for
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on-the-job injuries is a substantive law because it creates legal rights. The law may also Civil Law The branch of law dealing
include procedural provisions that establish the methods by which an employee must notify with the definition and enforcement
the employer about an on-the-job injury, prove the injury, and periodically submit additional of all private or public rights, as
opposed to criminal matters.
proof to continue receiving workers’ compensation benefits. ■
Another system categorizes law as federal law or state law. Another distinguishes between
private law (dealing with relationships between persons) and public law (addressing the Learning Objective 5
relationship between persons and their governments). Still other classification systems, dis-
cussed next, identify law as civil or criminal or as national or international. What are some important
differences between civil
law and criminal law?
1–4a Civil Law and Criminal Law
Civil law spells out the rights and duties that exist between persons and between persons and Civil Law System A system of law
their governments, as well as the relief available when a person’s rights are violated. Typically, derived from Roman law that is based
in a civil case, a private party sues another private party who has failed to comply with a duty on codified laws (rather than on case
(although the government can also sue a party for a civil law violation). Much of the law precedents).
discussed in this text is civil law, including contract law and tort law. Note that civil law is
Criminal Law The branch of law
not the same as a civil law system. As you will read shortly, a civil law system is a legal system that defines and punishes wrongful
based on a written code of laws. actions committed against the public.
Criminal law, in contrast, is concerned with wrongs
committed against the public as a whole. Criminal acts
are defined and prohibited by local, state, or federal gov-
ernment statutes. Thus, criminal defendants are prose-
cuted by public officials, such as a district attorney
(D.A.), on behalf of the state, not by their victims or
other private parties. Some statutes, such as those pro-
tecting the environment or investors, have both civil and
criminal provisions.
Junial Enterprises/Shutterstock
1–4b National and International Law

The law of a particular nation, such as the United States
or Sweden, is national law. National law, of course, varies
from country to country because each country’s law
reflects its unique culture, customs, and values. Even
though the laws and legal systems of various countries A witness points out someone in the courtroom to the judge.
differ substantially, broad similarities do exist, as dis-
cussed in this chapter’s Beyond Our Borders feature.
International law, unlike national law, applies to more than one nation. International law is National Law Law that pertains
a body of written and unwritten laws observed by independent nations and governing the to a particular nation (as opposed to
acts of individuals as well as governments. It is a mixture of rules and constraints derived international law).
from a variety of sources, including the laws of individual nations, customs developed among International Law The law that
nations, and international treaties and organizations. governs relations among nations.
International law must accommodate two conflicting goals of individual nations. Every
nation desires to benefit economically from its dealings with other nations. At the same time,
each nation is motivated by a need to be the final authority over its own affairs. International
law attempts to balance these priorities by providing international rules while respecting the
rights of individual countries.
The key difference between national law and international law is that government author-
ities can enforce national law. If a nation violates an international law, however, enforcement
is up to other countries or international organizations, which may or may not choose to act.
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If persuasive tactics such as negotiation fail, the only option is to take coercive actions against
the violating nation. Coercive actions range from the severance of diplomatic relations and
boycotts to, as a last resort, war.
National Law Systems Beyond Our Borders
D espite their varying cultures and cus-

toms, almost all countries have laws
governing torts, contracts, employment,
are not binding precedents (stare decisis
does not apply).
Exhibit 1–3 lists some countries that
and other areas. Two types of legal sys- today follow either the common law sys-
tems predominate around the globe today. tem or the civil law system. Generally,
One is the common law system of England those countries that were once colonies
and the United States, which we have of Great Britain have retained their English and private lives of Islamic
discussed elsewhere. The other system common law heritage. The civil law sys- persons and directs many aspects of
is based on Roman civil law, or “code tem, which is used in most continental their day-to-day life, including politics,
law,” which relies on the legal principles European nations, has been retained in the economics, banking, business law, contract
enacted into law by a legislature or gov- countries that were once colonies of those law, and social issues.
erning body. nations. In the United States, the state of Although sharia affects the legal codes
Louisiana, because of its historical ties to of many Muslim countries, the extent of its
Civil Law Systems impact and its interpretation vary widely. In
France, has in part a civil law system, as do
Although national law systems share many Haiti, Québec, and Scotland. some Middle Eastern nations, aspects of
commonalities, they also have distinct dif- sharia have been codified in modern legal
ferences. In a civil law system, the primary Islamic Legal Systems codes and are enforced by national judicial
source of law is a statutory code, and case A third, less prevalent legal system is com- systems.
precedents are not judicially binding, as mon in Islamic countries, where the law is
they normally are in a common law sys- often influenced by sharia, the religious Critical Thinking
tem. Although judges in a civil law system law of Islam. Islam is both a religion and Discuss any advantages the civil law
commonly refer to previous decisions as a way of life. Sharia is a comprehensive system might offer over the common
sources of legal guidance, those decisions code of principles that governs the public law system and vice versa.
Exhibit 1–3 The Legal Systems of Selected Nations

Civil Law Common Law
Argentina Indonesia Australia Nigeria
Austria Iran Bangladesh Singapore
Brazil Italy Canada United Kingdom
Chile Japan Ghana United States
China Mexico India Zambia
Egypt Poland Israel
Finland South Korea Jamaica
France Sweden Kenya
Germany Tunisia Malaysia
Greece Venezuela New Zealand
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Chapter Skill-Building Exercise

Suppose that the California legislature passes a law that severely restricts carbon dioxide emissions
from automobiles in that state. A group of automobile manufacturers files a suit against the state of
California to prevent enforcement of the law. The automakers claim that a federal law already sets
fuel economy standards nationwide and that these standards are essentially the same as carbon
dioxide emission standards. According to the automobile manufacturers, it is unfair to allow
California to impose more stringent regulations than those set by the federal law. Using the infor-
mation presented in the chapter, answer the following questions.
1. Who are the parties (the plaintiffs and the defendant) in this lawsuit?
2. Are the plaintiffs seeking a legal remedy or an equitable remedy? Explain your answer.
3. What is the primary source of the law that is at issue here?
4. Read through the appendix that follows this chapter, and then answer the following question:
Where would you look to find the relevant California and federal laws?
Debate This
Under the doctrine of stare decisis, courts are obligated to follow the precedents established in
their jurisdiction unless there is a compelling reason not to do so. Should U.S. courts continue to
adhere to this common law principle, given that our government now regulates so many areas by
statute?
Key Terms
administrative agency 6 defendant 12 per curiam opinion 27
administrative law 6 dissenting opinion 27 persuasive authority 12
allege 13 equitable maxims 8 plaintiff 12
binding authority 10 executive agency 6 plurality opinion 27
breach 8 historical school 14 precedent 7
case law 7 independent regulatory agency 6 primary source of law 4
case on point 13 international law 15 procedural law 14
citation 5 jurisprudence 13 remedy 8
civil law 15 law 2 remedy at law 8
civil law system 15 legal positivism 14 remedy in equity 8
common law 7 legal realism 14 secondary source of law 4
concurring opinion 27 legal reasoning 12 stare decisis 10
constitutional law 5 liability 3 statutory law 5
court of equity 8 majority opinion 27 substantive law 14
court of law 8 national law 15 uniform law 6
criminal law 15 natural law 13
damages 8 ordinance 5
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Chapter Summary: Law and Legal Reasoning

Sources of American 1. Constitutional law—The law as expressed in the U.S. Constitution and the various state constitutions.
Law The U.S. Constitution is the supreme law of the land. State constitutions are supreme within state borders
to the extent that they do not violate the U.S. Constitution or a federal law.
2. Statutory law—Laws or ordinances created by federal, state, and local legislatures and governing bod-
ies. None of these laws can violate the U.S. Constitution or the relevant state constitutions. Uniform laws,
when adopted by a state legislature, become statutory law in that state.
3. Administrative law—The rules, orders, and decisions of federal or state government administrative
agencies.
4. Case law and common law doctrines—Judge-made law, including interpretations of constitutional pro-
visions, of statutes enacted by legislatures, and of regulations created by administrative agencies. The
common law—the doctrines and principles embodied in case law—governs all areas not covered by
statutory law or administrative law.
The Common Law 1. Common law—Law that originated in medieval England with the creation of the king’s courts, or curiae
regis, and the development of a body of rules that were common to all regions of the country.
2. Remedies—A remedy is the means by which a court enforces a right or compensates for a violation of a
right. Courts typically grant legal remedies (monetary damages) but may also grant equitable remedies
(specific performance, injunction, or rescission) when the legal remedy is inadequate or unavailable.
3. Stare decisis—A doctrine under which judges “stand on decided cases”—or follow the rule of prece-
dent—in deciding cases. Stare decisis is the cornerstone of the common law tradition.
4. Stare decisis and legal reasoning—Judges use legal reasoning to harmonize their decisions with those
that have been made before, as required by the doctrine of stare decisis. The basic steps of legal reason-
ing form the IRAC method of legal reasoning. IRAC stands for Issue, Rule, Application, and Conclusion.
First, clearly grasp the relevant facts and identify the issue. Second, determine the rule of law that applies
to the case. Third, analyze (using cases on point) how the rule of law applies to the particular facts of the
dispute, and fourth, arrive at a conclusion.
5. Schools of legal thought—Judges’ decision making is influenced by their philosophy of law. The following
are four important schools of legal thought, or legal philosophies:
a. Natural law tradition—One of the oldest and most significant schools of legal thought. Those who
believe in natural law hold that there is a universal law applicable to all human beings and that this
law is of a higher order than positive, or conventional, law.
b. Legal positivism—A school of legal thought centered on the assumption that there is no law higher than
the laws created by the government. Laws must be obeyed, even if they are unjust, to prevent anarchy.
c. Historical school—A school of legal thought that stresses the evolutionary nature of law and looks to
doctrines that have withstood the passage of time for guidance in shaping present laws.
d. Legal realism—A school of legal thought that generally advocates a less abstract and more realistic
approach to the law that takes into account customary practices and the circumstances in which
transactions take place.
Classifications of Law The law can be organized according to several classification systems, including substantive or procedural
law, federal or state law, and private or public law. Two broad classifications are civil and criminal law, and
national and international law.
Issue Spotters
1. The First Amendment to the U.S. Constitution provides protection for the free exercise of religion. A state legislature enacts a law that
outlaws all religions that do not derive from the Judeo-Christian tradition. Is this law valid within that state? Why or why not? (See
Sources of American Law.)
2. Under what circumstances might a judge rely on case law to determine the intent and purpose of a statute? (See The Common Law.)
—Check your answers to the Issue Spotters against the answers provided in Appendix C at the end of this text.
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Business Scenarios and Case Problems

1–1. Binding versus Persuasive Authority. A county court dismiss the suit? Explain. [Doe 1 v. AOL, LLC, 552 F.3d 1077 (9th
in Illinois is deciding a case involving an issue that has never Cir. 2009)] (See The Common Law.)
been addressed before in that state’s courts. The Iowa Supreme
1–6. Sources of Law. Under a Massachusetts state statute,
Court, however, recently decided a case involving a very similar
large wineries could sell their products through wholesalers
fact pattern. Is the Illinois court obligated to follow the Iowa
or to consumers directly, but not both. Small wineries could
Supreme Court’s decision on the issue? If the United States
use both methods. Family Winemakers of California filed a
Supreme Court had decided a similar case, would that decision
suit against the state, arguing that this restriction gave small
be binding on the Illinois court? Explain. (See The Common Law.)
wineries a competitive advantage in violation of the U.S.
1–2. Remedies. Arthur Rabe is suing Xavier Sanchez for breach- Constitution. The court agreed that the statute was in conflict
ing a contract in which Sanchez promised to sell Rabe a Van with the Constitution. Which source of law takes priority, and
Gogh painting for $150,000. (See The Common Law.) why? [Family Winemakers of California v. Jenkins, 592 F.3d 1 (1st
1. If Rabe wants Sanchez to perform the contract as promised, Cir. 2010)] (See Sources of American Law.)
what remedy should Rabe seek?
1–7. Business Case Problem with Sample Answer—
2. Suppose that Rabe wants to cancel the contract because Reading Citations. Assume that you want to read
Sanchez fraudulently misrepresented the painting as an the entire court opinion in the case of Worldwide
original Van Gogh when in fact it is a copy. In this situation, TechServices, LLC v. Commissioner of Revenue, 479
what remedy should Rabe seek? Mass. 20, 91 N.E.3d 650 (2018). Read the section entitled “Finding
3. Will the remedy Rabe seeks in either situation be a remedy Case Law” in the appendix that follows this chapter, and then
at law or a remedy in equity? explain specifically where you would find the court’s opinion.
1–3. Sources of Law. Which source of American law takes (See Finding Case Law.)
priority in the following situations, and why? (See Sources of —For a sample answer to Problem 1–7, go to Appendix D at the
American Law.) end of this text.
1. A federal statute conflicts with the U.S. Constitution.
2. A federal statute conflicts with a state constitutional A Question of Ethics
provision.
3. A state statute conflicts with the common law of that state. 1–8. The Doctrine of Precedent. Sandra White operated a
4. A state constitutional amendment conflicts with the U.S. travel agency. To obtain lower airline fares for her nonmilitary
Constitution. clients, she booked military-rate travel by forwarding fake mili-
tary identification cards to the airlines. The government charged
1–4. Philosophy of Law. After World War II ended in 1945, White with identity theft, which requires the “use” of another’s
an international tribunal of judges convened at Nuremberg, identification. The trial court had two cases that represented
Germany. The judges convicted several Nazi war criminals of precedents.
“crimes against humanity.” Assuming that the Nazis who were In the first case, David Miller obtained a loan to buy land
convicted had not disobeyed any law of their country and had by representing that certain investors had approved the loan
merely been following their government’s (Hitler’s) orders, what when, in fact, they had not. Miller’s conviction for identity theft
law had they violated? Explain. (See The Common Law.) was overturned because he had merely said that the inves-
1–5. Spotlight on AOL—Common Law. AOL, LLC, mistakenly tors had done something when they had not. According to the
made public the personal information of 650,000 of its court, this was not the “use” of another’s identification.
members. The members filed a suit, alleging violations In the second case, Kathy Medlock, an ambulance ser-
of California law. AOL asked the court to dismiss the vice operator, had transported patients for whom there was no
suit on the basis of a “forum-selection” clause in its member medical necessity to do so. To obtain payment, Medlock had
agreement that designates Virginia courts as the place where forged a physician’s signature. The court concluded that this
member disputes will be tried. Under a decision of the United was “use” of another person’s identity. [United States v. White,
States Supreme Court, a forum-selection clause is unenforce- 846 F.3d 170 (6th Cir. 2017)] (See Sources of American Law.)
able “if enforcement would contravene a strong public policy 1. Which precedent—the Miller case or the Medlock case—is
of the forum in which suit is brought.” California has declared similar to White’s situation, and why?
in other cases that the AOL clause contravenes a strong public 2. In the two cases cited by the court, were there any ethical
policy. If the court applies the doctrine of stare decisis, will it differences in the actions of the parties? Explain your answer.
30318_ch01_hr_001-032.indd 19 9/12/18 7:30 AM

Time-Limited Team Assignment

1–9. Court Opinions. Read through the subsection entitled 2. Another team will outline the difference between a concur-
“Decisions and Opinions” in the appendix that follows ring opinion and a dissenting opinion.
this chapter, and then break into teams to answer the 3. The third team will explain why judges and justices write
following questions. (See Reading and Understanding concurring and dissenting opinions, given that these opin-
Case Law.) ions will not affect the outcome of the case at hand, which
1. One team will explain the difference between a concurring has already been decided by majority vote.
opinion and a majority opinion.
30318_ch01_hr_001-032.indd 20 9/12/18 7:30 AM

Appendix to Chapter 1
Finding and Analyzing the Law
This text includes numerous references, or citations, to primary sources of law—federal and
state statutes, the U.S. Constitution and state constitutions, regulations issued by admin-
istrative agencies, and court cases. A citation identifies the publication in which a legal
authority—such as a statute or a court decision or other source—can be found. In this
appendix, we explain how you can use citations to find primary sources of law. Note that in
addition to being published in sets of books, as described next, most federal and state laws
and case decisions are available online.
1A–1 Finding Statutory and Administrative Law

When Congress passes laws, they are collected in a publication titled United States Statutes at
Large. When state legislatures pass laws, they are collected in similar state publications. Most
frequently, however, laws are referred to in their codified form—that is, the form in which
they appear in the federal and state codes. In these codes, laws are compiled by subject.
1A–1a United States Code

The United States Code (U.S.C.) arranges all existing federal laws of a public and permanent
nature by subject. Each of the fifty-two subjects into which the U.S.C. arranges the laws is
given a title and a title number. For example, laws relating to commerce and trade are col-
lected in “Title 15, Commerce and Trade.” Titles are subdivided by sections.
A citation to the U.S.C. includes title and section numbers. Thus, a reference to “15 U.S.C.
Section 1” means that the statute can be found in Section 1 of Title 15. (“Section” may be
designated by the symbol §, and “Sections” by §§.) In addition to the print publication, the
federal government also provides a searchable online database of the United States Code at
www.gpo.gov (click on “Explore and Research” and then “GPO’s Federal Digital System” to
find the United States Code).
Commercial publications of these laws are available and are widely used. For example,
Thomson Reuters publishes the United States Code Annotated (U.S.C.A.). The U.S.C.A. con-
tains the complete text of laws included in the U.S.C., notes of court decisions that interpret
and apply specific sections of the statutes, and the text of presidential proclamations and
executive orders. The U.S.C.A. also includes research aids, such as cross-references to related
statutes, historical notes, and other references. A citation to the U.S.C.A. is similar to a cita-
tion to the U.S.C.: “15 U.S.C.A. Section 1.”
1A–1b State Codes

State codes follow the U.S.C. pattern of arranging laws by subject. The state codes may be
called codes, revisions, compilations, consolidations, general statutes, or statutes, depending
on the state.
21
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In some codes, subjects are designated by number. In others, they are designated by name.
For example, “13 Pennsylvania Consolidated Statutes Section 1101” means that the statute
can be found in Title 13, Section 1101, of the Pennsylvania code. “California Commercial
Code Section 1101” means the statute can be found in Section 1101 under the subject
heading “Commercial Code” of the California code. Abbreviations are commonly used.
For instance, “13 Pennsylvania Consolidated Statutes Section 1101” may be abbreviated
“13 Pa. C.S. § 1101,” and “California Commercial Code Section 1101” may be abbrevi-
ated “Cal. Com. Code § 1101.”
1A–1c Administrative Rules

Rules and regulations adopted by federal administrative agencies are initially published in
the Federal Register, a daily publication of the U.S. government. Later, they are incorporated
into the Code of Federal Regulations (C.F.R.).
Like the U.S.C., the C.F.R. is divided into titles. Rules within each title are assigned section
numbers. A full citation to the C.F.R. includes title and section numbers. For example, a ref-
erence to “17 C.F.R. Section 230.504” means that the rule can be found in Section 230.504
of Title 17.
1A–2 Finding Case Law

Before discussing the case reporting system, we need to look briefly at the court system.
There are two types of courts in the United States: federal courts and state courts. Both the
federal and the state systems consist of several levels, or tiers, of courts. Trial courts, in which
evidence is presented and testimony is given, are on the bottom tier (which also includes
lower courts handling specialized issues). Decisions from a trial court can be appealed to
a higher court, which commonly is an intermediate court of appeals, or an appellate court.
Decisions from intermediate courts of appeals may be appealed to an even higher court, such
as a state supreme court or the United States Supreme Court.
1A–2a State Court Decisions

Most state trial court decisions are not published in books (except in New York and a few
other states, which publish selected trial court opinions). Decisions from state trial courts
are typically filed in the office of the clerk of the court, where the decisions are available for
public inspection. (Increasingly, they can be found online as well.)
Written decisions of the appellate, or reviewing, courts, however, are published and dis-
tributed (in print and online). Many of the state court cases presented in this textbook are
from state appellate courts. The reported appellate decisions are published in volumes called
reports or reporters, which are numbered consecutively. Thus, the appellate court decisions
of a particular state are found in that state’s reporters. Official reports are published by the
state, whereas unofficial reports are published by nongovernment entities.
Regional Reporters State court opinions appear in regional units of the National
Reporter System, published by Thomson Reuters. Most lawyers and libraries have these
reporters because they publish cases more quickly and are distributed more widely than
the state-published reporters. In fact, many states have eliminated their own reporters in
favor of the National Reporter System.
The National Reporter System divides the states into the following geographic areas: Atlantic
(A., A.2d, or A.3d), North Eastern (N.E., N.E.2d or N.E.3d), North Western (N.W. or N.W.2d),
Pacific (P., P.2d, or P.3d), South Eastern (S.E. or S.E.2d), South Western (S.W., S.W.2d, or S.W.3d),
and Southern (So., So.2d, or So.3d). (The 2d and 3d in the preceding abbreviations refer to
Second Series and Third Series, respectively.) The states included in each of these regional divi-
sions are indicated in Exhibit 1A–1, which illustrates the National Reporter System.
30318_ch01_hr_001-032.indd 22 9/12/18 7:30 AM

Appendix to Chapter 1: Finding and Analyzing the Law 23
Exhibit 1A–1 The National Reporter System—Regional/Federal
Coverage
Regional Reporters Beginning Coverage
Atlantic Reporter (A., A.2d, or A.3d) 1885 Connecticut, Delaware, District of Columbia, Maine, Maryland,
New Hampshire, New Jersey, Pennsylvania, Rhode Island, and Vermont.
North Eastern Reporter (N.E., N.E.2d, or 1885 Illinois, Indiana, Massachusetts, New York, and Ohio.
N.E.3d)
North Western Reporter (N.W. or N.W.2d) 1879 Iowa, Michigan, Minnesota, Nebraska, North Dakota, South Dakota, and
Wisconsin.
Pacific Reporter (P., P.2d, or P.3d) 1883 Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Montana,
Nevada, New Mexico, Oklahoma, Oregon, Utah, Washington, and Wyoming.
South Eastern Reporter (S.E. or S.E.2d) 1887 Georgia, North Carolina, South Carolina, Virginia, and West Virginia.
South Western Reporter (S.W., S.W.2d, or 1886 Arkansas, Kentucky, Missouri, Tennessee, and Texas.
S.W.3d)
Southern Reporter (So., So.2d, or So.3d) 1887 Alabama, Florida, Louisiana, and Mississippi.
Federal Reporters
Federal Reporter (F., F.2d, or F.3d) 1880 U.S. Circuit Courts from 1880 to 1912; U.S. Commerce Court from 1911 to
1913; U.S. District Courts from 1880 to 1932; U.S. Court of Claims (now called
U.S. Court of Federal Claims) from 1929 to 1932 and since 1960; U.S. Courts
of Appeals since 1891; U.S. Court of Customs and Patent Appeals since 1929;
U.S. Emergency Court of Appeals since 1943.
Federal Supplement (F.Supp., F.Supp.2d, 1932 U.S. Court of Claims from 1932 to 1960; U.S. District Courts since 1932;
or F.Supp.3d) U.S. Customs Court since 1956.
Federal Rules Decisions (F.R.D.) 1939 U.S. District Courts involving the Federal Rules of Civil Procedure since 1939
and Federal Rules of Criminal Procedure since 1946.
Supreme Court Reporter (S.Ct.) 1882 United States Supreme Court since the October term of 1882.
Bankruptcy Reporter (Bankr.) 1980 Bankruptcy decisions of U.S. Bankruptcy Courts, U.S. District Courts, U.S.
Courts of Appeals, and the United States Supreme Court.
Military Justice Reporter (M.J.) 1978 U.S. Court of Military Appeals and Courts of Military Review for the Army,
Navy, Air Force, and Coast Guard.
NATIONAL REPORTER SYSTEM MAP
WASH.
VT. ME.
MONTANA N. DAK.
MINN.
OREGON N.H.
IDAHO WIS. MASS.
S. DAK. N.Y.
WYOMING MICH. R.I.
CONN.
IOWA PA.
NEVADA NEBR. N.J.
OHIO DEL.
UTAH ILL. IND.
CALIF. COLORADO W.VA. MD.
KANSAS MO. VA.
KY.
N. CAR.
TENN.
ARIZONA OKLA.
N. MEXICO ARK. S. CAR.
MISS. ALA. GA. Pacific

North Western
TEXAS
South Western
LA. North Eastern
FLA. Atlantic
ALASKA South Eastern
Southern
HAWAII
30318_ch01_hr_001-032.indd 23 9/12/18 7:30 AM

Case Citations After appellate decisions have been published, they are normally referred
to (cited) by the name of the case; the volume, name, and page number of the state’s offi-
cial reporter (if different from the National Reporter System); the volume, name, and page
number of the National Reporter; and the volume, name, and page number of any other
selected reporter. (Citing a reporter by volume number, name, and page number, in that
order, is common to all citations. The year that the decision was issued is often included
at the end in parentheses.) When more than one reporter is cited for the same case, each
reference is called a parallel citation.
Note that some states have adopted a “public domain citation system” that uses a some-
what different format for the citation. For example, in Ohio, a Ohio court decision might
be designated “2018-Ohio-79,” meaning that the case was decided in the year 2018 by an
Ohio state court and was the 79th decision issued by that court during that year. Parallel
citations to the Ohio Appellate Reporter and the North Eastern Reporter are still included after
the public domain citation.
Consider the following case citation: Connecticut Coalition for Justice in Education Funding,
Inc. v. Rell, 327 Conn. 650, 176 A.3d 28 (2018). We see that the opinion in this case can be
found in Volume 327 of the official Connecticut Appellate Court Reports, on page 650. The
parallel citation is to Volume 176 of the Atlantic Reporter, Third Series, page 28.
When we present opinions in this text, in addition to the reporter, we give the name of
the court hearing the case and the year of the court’s decision. Sample citations to state court
decisions are explained in Exhibit 1A–2.
1A–2b Federal Court Decisions

Federal district (trial) court decisions are published unofficially in the Federal Supplement
(F. Supp., F.Supp.2d, or F.Supp.3d), and opinions from the circuit courts of appeals (federal
reviewing courts) are reported unofficially in the Federal Reporter (F., F.2d, or F.3d). Cases
concerning federal bankruptcy law are published unofficially in Bankruptcy Reporter (Bankr.
or B.R.).
The official edition of United States Supreme Court decisions is the United States Reports
(U.S.), which is published by the federal government. Unofficial editions of Supreme Court
cases include Supreme Court Reporter (S.Ct.) and the Lawyers’ Edition of the Supreme
Court Reports (L.Ed. or L.Ed.2d). Sample citations for federal court decisions are also listed
and explained in Exhibit 1A–2.
1A–2c Unpublished Opinions

Many court opinions that are not yet published or that are not intended for publication can
be accessed through Westlaw® (abbreviated in citations as “WL”), an online legal database.
When no citation to a published reporter is available for cases cited in this text, we give the
WL citation (such as 2018 WL 266332, which means it was case number 266332 decided in
the year 2018. In addition, federal appellate court decisions that are designated as unpub-
lished may appear in the Federal Appendix (Fed.Appx.) of the National Reporter System.
Sometimes, both in this text and in other legal sources, you will see blanks left in a cita-
tion. This occurs when the decision will be published, but the particular volume number or
page number is not yet available.
1A–2d Old Case Law

On a few occasions, this text cites opinions from old, classic cases dating to the nineteenth
century or earlier. Some of these cases are from the English courts. The citations to these
cases may not conform to the descriptions given above because they were published in
reporters that are no longer used today.
30318_ch01_hr_001-032.indd 24 9/12/18 7:30 AM

Exhibit 1A–2 How to Read Citations
STATE COURTS
298 Neb. 630, 905 N.W.2d 523 (2018)a
N.W. is the abbreviation for the publication of state court decisions

rendered in the North Western Reporter of the National Reporter System.
2d indicates that this case was included in the Second Series of that
reporter.
Neb. is an abbreviation for Nebraska Reports, Nebraska’s official reports of the

decisions of its highest court, the Nebraska Supreme Court.
19 Cal.App.5th 495, 228 Cal.Rptr.3d 169 (2018)
Cal.Rptr. is the abbreviation for the unofficial reports—titled California Reporter—

of the decisions of California courts.
157 A.D.3d 486, 69 N.Y.S.3d 26 (2018)
N.Y.S. is the abbreviation for the unofficial reports—titled New York

Supplement—of the decisions of New York courts.
A.D. is the abbreviation for the New York Appellate Division Reports, which hears appeals
from the New York Supreme Court—the state’s general trial court. The New York Court
of Appeals is the state’s highest court, analogous to other states’ supreme courts.
343 Ga.App. 889, 808 S.E.2d 891 (2018)
Ga.App. is the abbreviation for Georgia Appeals Reports, Georgia’s official reports of the
decisions of its court of appeals.
FEDERAL COURTS
___ U.S. ___ , 138 S.Ct. 617, 199 L.Ed.2d 501 (2018)
L.Ed. is an abbreviation for Lawyers’ Edition of the Supreme

Court Reports, an unofficial edition of decisions of the
United States Supreme Court.
S.Ct. is the abbreviation for Supreme Court Reporter, an unofficial edition

of decisions of the United States Supreme Court.
U.S. is the abbreviation for United States Reports, the official edition of the
decisions of the United States Supreme Court. The blank lines in this citation (or
any other citation) indicate that the appropriate volume of the case reporter has
not yet been published and no page number is available.
a. The case names have been deleted from these citations to emphasize the publications. It should be kept in mind, however, that the name of a case
is as important as the specific page numbers in the volumes in which it is found. If a citation is incorrect, the correct citation may be found in a
publication’s index of case names. In addition to providing a check on errors in citations, the date of a case is important because the value of a recent
case as an authority is likely to be greater than that of older cases from the same court.
(Continues )
30318_ch01_hr_001-032.indd 25 9/12/18 7:30 AM

Exhibit 1A–2 How to Read Citations, Continued
FEDERAL COURTS (Continued)
879 F.3d 1052 (9th Cir. 2018)
9th Cir. is an abbreviation denoting that this case was decided in the
U.S. Court of Appeals for the Ninth Circuit.
___ F.Supp.3d ___ , 2018 WL 388590 (W.D.Wash. 2018)
W.D.Wash. is an abbreviation indicating that the U.S. District Court for the
Western District of Washington decided this case.
WESTLAW® CITATIONSb
2018 WL 416255
WL is an abbreviation for Westlaw. The number 2018 is the year of the document that can be found with this citation in the
Westlaw database. The number 416255 is a number assigned to a specific document. A higher number indicates that a document
was added to the Westlaw database later in the year.
STATUTORY AND OTHER CITATIONS
18 U.S.C. Section 1961(1)(A)
U.S.C. denotes United States Code, the codification of United States

Statutes at Large. The number 18 refers to the statute’s U.S.C. title number
and 1961 to its section number within that title. The number 1 in parentheses
refers to a subsection within the section, and the letter A in parentheses
to a subsection within the subsection.
UCC 2–206(1)(b)
UCC is an abbreviation for Uniform Commercial Code. The first number 2 is

a reference to an article of the UCC, and 206 to a section within that article.
The number 1 in parentheses refers to a subsection within the section, and
the letter b in parentheses to a subsection within the subsection.
Restatement (Third) of Torts, Section 6
Restatement (Third) of Torts refers to the third edition of the American

Law Institute’s Restatement of the Law of Torts. The number 6 refers to a
specific section.
17 C.F.R. Section 230.505
C.F.R. is an abbreviation for Code of Federal Regulations, a compilation of

federal administrative regulations. The number 17 designates the regulation’s
title number, and 230.505 designates a specific section within that title.
b. Many court decisions that are not yet published or that are not intended for publication can be accessed through Westlaw, an online legal database.
30318_ch01_hr_001-032.indd 26 9/12/18 7:30 AM

1A–3 Reading and Understanding Case Law

The cases in this text have been condensed from the full text of the courts’ opinions, and the
facts, decision, and remedy segments have been paraphrased by the authors. For those wish-
ing to review court cases for future research projects or to gain additional legal information,
the following sections will provide useful insights into how to read and understand case law.
1A–3a Case Titles and Terminology

The title of a case, such as Adams v. Jones, indicates the names of the parties to the
lawsuit. The v. in the case title stands for versus, which means “against.” In the trial court,
Adams was the plaintiff—the person who filed the suit. Jones was the defendant. If the case is
appealed, however, the appellate court will sometimes place the name of the party appealing
the decision first, so the case may be called Jones v. Adams. Because some reviewing courts
retain the trial court order of names, it is often impossible to distinguish the plaintiff from
the defendant in the title of a reported appellate court decision. You must carefully read the
facts of each case to identify the parties.
The following terms and phrases are frequently encountered in court opinions and legal
publications. Because it is important to understand what these terms and phrases mean, we
define and discuss them here.
Parties to Lawsuits The party initiating a lawsuit is referred to as the plaintiff or petitioner,
depending on the nature of the action, and the party against whom a lawsuit is brought is the
defendant or respondent. Lawsuits frequently involve more than one plaintiff and/or defendant.
When a case is appealed from the original court or jurisdiction to another court or jurisdic-
tion, the party appealing the case is called the appellant. The appellee is the party against whom
the appeal is taken. (In some appellate courts, the party appealing a case is referred to as the
petitioner, and the party against whom the suit is brought or appealed is called the respondent.)
Judges and Justices The terms judge and justice are usually synonymous and represent
two designations given to the judges in various courts. All members of the United States
Supreme Court, for example, are referred to as justices. And justice is the formal title usu-
ally given to judges of appellate courts, although this is not always the case. In New York, a Majority Opinion A court opinion
justice is a judge of the trial court (which is called the Supreme Court), and a member of the that represents the views of the
Court of Appeals (the state’s highest court) is called a judge. The term justice is commonly majority (more than half) of the judges
or justices deciding the case.
abbreviated to J., and justices to JJ. A Supreme Court case might refer to Justice Sotomayor
as Sotomayor, J., or to Chief Justice Roberts as Roberts, C.J. Concurring Opinion A court
opinion by one or more judges or
Decisions and Opinions Most decisions reached by reviewing, or appellate, courts are justices who agree with the majority
explained in written opinions. The opinion contains the court’s reasons for its decision, the but want to make or emphasize
rules of law that apply, and the judgment. You may encounter several types of opinions as a point that was not made or
you read appellate cases, including the following: emphasized in the majority’s opinion.
• When all the judges (or justices) agree, a unanimous opinion is written for the entire court. Dissenting Opinion A court
• When there is not unanimous agreement, a majority opinion is generally written. It outlines the opinion that presents the views of
one or more judges or justices who
views of the majority of the judges deciding the case.
disagree with the majority’s decision.
• A judge who agrees (concurs) with the majority opinion as to the result but not as to the legal reasoning
often writes a concurring opinion. In it, the judge sets out the reasoning that he or she considers correct. Plurality Opinion A court opinion
that is joined by the largest number
• A dissenting opinion presents the views of one or more judges who disagree with the majority view. of the judges or justices hearing the
• Sometimes, no single position is fully supported by a majority of the judges deciding a case. In this case, but less than half of the total
situation, we may have a plurality opinion. This is the opinion that has the support of the largest number.
number of judges, but the group in agreement is less than a majority.
Per Curiam Opinion A court
• Finally, a court occasionally issues a per curiam opinion (per curiam is Latin for “of the court”), opinion that does not indicate which
which does not indicate which judge wrote the opinion. judge or justice authored the opinion.
30318_ch01_hr_001-032.indd 27 9/12/18 7:30 AM

1A–3b A Sample Court Case

To illustrate the various elements contained in a court opinion, we present an annotated
court opinion in Exhibit 1A–3. The opinion is from an actual case that the United States
Court of Appeals for the Tenth Circuit decided in 2018.
Exhibit 1A–3 A Sample Court Case
Yeasin v. Durham
This section contains the citation—the
name of the case, the name of the court that
heard the case, the reporters in which the United States Court of Appeals, Tenth Circuit,
court’s opinion can be found, and the year
of the decision. 719 Fed.Appx. 844 (2018).
This line provides the name of the judge (or Gregory A. phillips, Circuit Judge.
justice) who authored the court’s opinion.
****
The court divides the opinion into sections,
each headed by an explanatory heading. BACKGROUND
The first section summarizes the facts of
the case. ****
[Navid] Yeasin and A.W. [were students at the University of Kansas when they] dated from
the fall of 2012 through June 2013. On June 28, 2013, Yeasin physically restrained A.W. in his
car, took her phone from her, threatened to commit suicide if she broke up with him, threat-
Battery is an unexcused and harmful or ened to spread rumors about her, and threatened to make the University of Kansas’s “campus
offensive physical contact intentionally
performed. environment so hostile, that she would not attend any university in the state of Kansas.”
For this conduct, Kansas charged Yeasin with * * * battery * * * . A.W. * * * obtained
A protection order is an order issued by a
court that protects a person by requiring
a protection order against Yeasin.
another person to do, or not to do, some-
thing. The order can protect someone from
being physically or sexually threatened or * * * A.W. filed a complaint against Yeasin with the university’s Office of Insti-
harassed.
tutional Opportunity and Access (IOA). * * * The IOA * * * issued * * * a
A no-contact order prohibits a person from no-contact order * * * [that] “prohibited [Yeasin] from initiating, or contributing through
being in contact with another person.
third-parties, to any physical, verbal, electronic, or written communication with A.W., her
A hearing is a proceeding before a deci- family, her friends or her associates.”

sion-making body. Testimony and other evi-
dence can be presented to help determine [Despite the order,] Yeasin posted more than a dozen tweets about A.W., including
the issue.
disparaging comments about her body.
To adjudicate is to hear evidence and argu- [The university held a hearing to adjudicate A.W.’s complaint against Yeasin. Both
ments in order to determine and resolve a
dispute. parties testified. The hearing panel submitted the record to Dr. Tammara Durham, the
university’s vice provost for student affairs, for a decision regarding whether and how to
A record is a written account of proceedings.
sanction Yeasin’s conduct.]
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Exhibit 1A–3 A Sample Court Case, Continued
* * * Durham found that Yeasin’s June 28, 2013 conduct and his tweets were “so severe,
pervasive and objectively offensive that it interfered with A.W.’s academic performance and
equal opportunity to participate in or benefit from University programs or activities.” She
Sexual harassment can consist of language found that his tweets violated the [university’s] sexual-harassment policy because they were
or conduct that is so offensive it creates a
hostile environment. “unwelcome comments about A.W.’s body.” And she found that his conduct “threatened the
physical health, safety and welfare of A.W., making the conduct a violation of * * * the [uni-
versity’s Student] Code.”
* * * Durham * * * expelled Yeasin from the university and banned him from campus.
****
Yeasin contested his expulsion in a Kansas state court. The court set aside Yeasin’s expul-
First Amendment rights include the freedom
sion, reasoning that * * * “KU and Dr. Durham erroneously interpreted the Student Code
of speech, which is the right to express one-
self without government interference. This
right is guaranteed under the First Amend- of Conduct by applying it to off-campus conduct.”
ment to the U.S. Constitution.
****
Moved to dismiss means that a party filed Yeasin then brought this suit in federal court, claiming that Dr. Durham had violated his
a motion (applied to the court to obtain an
order) to dismiss a claim on the ground that First Amendment rights by expelling him for * * * off-campus speech. * * * Dr. Durham
it had no basis in law.
moved to dismiss * * * Yeasin’s claim * * * . The * * * court granted the motion after con-
To appeal is to request an appellate court to
review the decision of a lower court.
cluding that Dr. Durham hadn’t violated Yeasin’s clearly established rights.
[Yeasin appealed to the U.S. Court of Appeals for the Tenth Circuit.]
The second major section of the opinion
responds to the party’s appeal. DISCUSSION
****
Yeasin’s case presents interesting questions regarding the tension between some stu-
dents’ free-speech rights and other students’ * * * rights to receive an education absent
An enclave is a distinct group within a larger * * * sexual harassment.

community.
Colleges and universities are not enclaves immune from the sweep of the First
Amendment. * * * The [courts] permit schools to circumscribe students’ free-speech rights

To circumscribe is to restrict.
in certain contexts [particularly in secondary public schools].
**** (Continues)
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Exhibit 1A–3 A Sample Court Case, Continued
Yeasin argues that [three United States Supreme Court cases—Papish v. Board of Curators
of the University of Missouri, Healy v. James, and Widmar v. Vincent] clearly establish * * *
Here, establish means to settle firmly.
that universities may not restrict university-student speech in the same way secondary
public school officials may restrict secondary-school student speech. * * * Yeasin argues
Judges are obligated to follow the precedents these cases clearly establish his right to tweet about A.W. without the university being able
established in prior court decisions.
A precedent is a decision that stands as to place restrictions on, or discipline him for, * * * his tweets.
authority for deciding a subsequent case
involving identical or similar facts. Otherwise, But none of the * * * cases present circumstances similar to his own. Papish, Healy,
the decision may be persuasive, but it is not
controlling.
and Widmar don’t concern university-student conduct that interferes with the rights of other
students or risks disrupting campus order.
****
* * * In those cases no student had been charged with a crime against another student
and followed that up with sexually-harassing comments affecting her ability to feel safe while
A reasonable belief exists when there is attending classes. Dr. Durham had a reasonable belief based on the June 28, 2013 incident
a reasonable basis to believe that a crime
or other violation is being or has been and on Yeasin’s tweets that his continued enrollment at the university threatened to disrupt
committed.
A.W.’s education and interfere with her rights.
At the intersection of university speech and social media, First Amendment doctrine is
A doctrine is a rule, principle, or tenet of
the law. unsettled. Compare Keefe v. Adams [in which a federal appellate court concluded] that a col-
lege’s removal of a student from school based on off-campus statements on his social media
page didn’t violate his First Amendment free-speech rights, with J.S. v. Blue Mountain School
District [in which a different federal appellate court held] that a school district violated the First
Amendment rights of a plaintiff when it suspended her for creating a private social media profile
mocking the school principal.
In conclusion, Yeasin can’t establish that Dr. Durham violated clearly established law
when she expelled him, in part, for his * * * off-campus tweets.
In the third major section of the opinion, the ****

court states its decision.
CONCLUSION
To affirm a lower court’s ruling is to validate
the decision and give it legal force.
For the reasons stated, we AFFIRM the [lower] court’s grant of Dr. Durham’s motion to
dismiss.
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Cases Presented in This Text Note that the cases in this text have already been analyzed
and partially briefed by the author. The essential aspects of each case are presented in a
convenient format consisting of three basic sections: Background and Facts, In the Words of
the Court (excerpts from the court’s opinion), and Decision and Remedy.
In addition to this basic format, each case is followed by one or two critical thinking
questions regarding some issue raised by the case. We offer these questions as tools to help
you develop your critical thinking and legal reasoning skills. Finally, a section entitled Impact
of This Case on Today’s Legal Environment concludes the Classic Cases that appear in selected
chapters to indicate the significance of the case for today’s legal landscape.
Editorial Practice You will note that triple asterisks (* * *) and quadruple asterisks
(* * * *) frequently appear in the court’s opinion. The triple asterisks indicate that we have
deleted a few words or sentences from the opinion for the sake of readability or brevity.
Quadruple asterisks mean that an entire paragraph (or more) has been omitted. Addition-
ally, when the opinion cites another case or legal source, the citation to the case or source
has been omitted, again for the sake of readability and brevity. These editorial practices are
continued in the other court opinions presented in this book. Lastly, whenever we present
a court opinion that includes a term or phrase that may not be readily understandable, a
bracketed definition or paraphrase has been added.
How to Brief Cases Knowing how to read and understand court opinions and the legal
reasoning used by the courts is an essential step in performing legal research. A further step
is “briefing,” or summarizing, the case. Briefing cases facilitates the development of critical
thinking skills that are crucial for businesspersons when evaluating relevant business law.
Legal researchers routinely brief cases by reducing the texts of the opinions to their essen-
tial elements. Generally, when you brief a case, you first summarize the background and facts
of the case, as the authors have done for most of the cases presented in this text. You then
indicate the issue (or issues) before the court. An important element in the case brief is, of
course, the court’s decision on the issue and the legal reasoning used by the court in reaching
that decision.
When you “brief” any court case, you will follow a fairly standard procedure. You must
first read the case opinion carefully. When you feel you understand the case, you can prepare
a brief. Typically, the format of the brief will present the essentials of the case under headings
such as the following:
1. Citation. Give the full citation for the case, including the name of the case, the court that decided it,
and the year it was decided.
2. Facts. Briefly indicate (a) the reasons for the lawsuit, (b) the identity and arguments of the plaintiff(s)
and defendant(s), and (c) the lower court’s decision, if the decision is from an appellate, or reviewing,
court.
3. Issue. Concisely phrase, in the form of a question, the essential issue before the court. (If more than
one issue is involved, you may have two—or even more—questions.)
4. Decision. Indicate here—with a “yes” or “no,” if possible—the court’s answer to the question (or
questions) in the Issue section.
5. Reason. Summarize as briefly as possible the reasons given by the court for its decision (or deci-
sions) and the case or statutory law relied on by the court in arriving at its decision.
See this chapter’s Building Analytical Skills feature for a sample case brief and a discussion
of how the brief relates to the IRAC method of legal reasoning.
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Case Briefing and IRAC Legal Reasoning Building

Analytical Skills
H ere is a sample case brief of the 2018

opinion shown in Exhibit 1A–3.
First Amendment doctrine is unset-
tled.” In some cases, the courts permit
schools to circumscribe students’ free-
1. Citation. Yeasin v. Durham, United
speech rights in certain contexts. Yeasin
States Court of Appeals for the Tenth
argued, however, that three cases
Circuit, 719 Fed.Appx. 844 (2018).
decided by the United States Supreme
2. Facts. Navid Yeasin and A.W. were
Court clearly established his right to this case is a decision of one of the U.S.
students at the University of K ansas
tweet about A.W. without the univer- courts of appeals, the lower court’s ruling,
(KU). They dated for about nine
sity being able to place restrictions on, the party appealing, and the appellant’s
months. When A.W. tried to end the
or discipline him for, his tweets. contention on appeal are included here.
relationship, Yeasin restrained her in
It is important to carefully frame the
his car, took her phone, and threatened In response, the court here pointed out
issue so that you can look for the appropri-
to make the “campus environment so that those cases did not involve circum-
ate Rule of Law that will guide a decision.
hostile that she would not attend any stances similar to Yeasin’s situation. In those
In this case, the court considers whether
university in the state of Kansas.” He cases, no student had been charged with
KU, where Yeasin was a student, and
repeatedly tweeted disparaging com- a crime against another student and then
Durham, the university’s vice provost for
ments about her. made sexually harassing comments affect-
student affairs, violated clearly established
Tammara Durham, KU’s vice provost ing her ability to feel safe while attending
law when they expelled him.
for student affairs, found that Yeasin’s classes. And, the court concluded, in this
conduct and tweets violated the school’s case, Durham could reasonably believe, Result and Reasoning: The Reason
student code of conduct and sexual- based on Yeasin’s conduct and his tweets, section includes references to the rele-
harassment policy. She expelled him. that his presence at KU would disrupt A.W.’s vant laws and legal principles that the
Yeasin filed a suit in a Kansas state court education and interfere with her rights. court applied in coming to the conclusion
against Durham, and KU reinstated him. arrived at in the case. The Rule of Law here
He then filed a suit in a federal district Analysis: Notice how the sections in included court decisions on whether, and in
court against Durham, claiming that she a case brief include the information nec- what circumstances, schools can circum-
had violated his First Amendment rights essary to perform IRAC legal reasoning. scribe students’ free-speech rights.
by expelling him for the content of his (Recall from the chapter that IRAC stands The Reason section also explains
off-campus speech. The court dismissed for Issue, Rule of Law, Application, and the court’s Application of the law to the
the claim. Yeasin appealed to the U.S. Conclusion.) Step 1 in IRAC reasoning facts in this case. Because Yeasin was
Court of Appeals for the Tenth Circuit. is Issue. You need to understand the charged with a crime for sexually harass-
3. Issue. Could KU and Durham expel relevant facts, identify the plaintiff and ing tweets that caused another student
Yeasin for his tweets? defendant, and determine the specific to fear for her safety, the court reasoned
4. Decision. Yes. The U.S. Court of issue presented by the case. You will find that the university had legitimate reasons
Appeals for the Tenth Circuit affirmed the this information in the first two sections for disciplining him. Durham could reason-
lower court’s dismissal of Yeasin’s suit. of your brief. ably believe that Yeasin’s presence at KU
“Yeasin can’t establish that Dr. Durham The Facts section identifies the plain- would disrupt A.W.’s education and inter-
violated clearly established law when tiff and the defendant. Navid Yeasin is the fere with her rights. The court arrived at
she expelled him.” plaintiff. Dr. Tammara Durham is the defen- the Conclusion that this was one of those
5. Reason. Taken together, court deci- dant. The Facts also describes the events contexts in which a court will permit a
sions show that “at the intersection of leading up to this suit and the allegations school to circumscribe students’ free-
university speech and social media, made by the plaintiff in the suit. Because speech rights.
30318_ch01_hr_001-032.indd 32 9/12/18 7:30 AM

Alina555/E+/Getty Images
Courts and Alternative

Dispute Resolution
“An eye for an eye Every society needs to have an established method for resolv-
2
Learning Objectives
will make the whole ing disputes. Without one, as Mahatma Gandhi implied in The six Learning Objectives below are
the chapter-opening quotation, the biblical “eye for an eye” designed to help improve your understand-
world blind.” would lead to anarchy. This is particularly true in the busi- ing. After reading this chapter, you should
ness world—almost every businessperson will face a lawsuit at be able to answer the following questions:
Mahatma Gandhi
1869–1948 some time in his or her career. For this reason, anyone involved 1. What is judicial review? How
(Indian political and spiritual leader) in business needs to have an understanding of court systems and when was the power of
in the United States, as well as the various methods of dispute judicial review established?
resolution that can be pursued outside the courts.
Assume that Evan Heron is a top executive at Des Moines Semiconductor Manufacturing 2. How are the courts apply-
Company (DSMC) and that DSMC is one of the largest U.S. makers of mobile phone proces- ing traditional jurisdictional
sors. Heron negotiates some of the company’s most lucrative contracts, under which DSMC concepts to cases involving
provides companies like Apple, Inc., with the chips they use in smartphones. Internet transactions?
A dispute arises between DSMC and one of its customers, a Canadian smartphone com- 3. What is the difference
pany, concerning the price the Canadian company was charged for chips. The Canadian firm between a trial court and an
threatens litigation, but Heron convinces his colleagues at DSMC to agree to arbitrate, rather appellate court?
than litigate, the dispute. The arbitration panel ends up deciding that DSMC overcharged
4. What is discovery, and how
for the chips and awards the Canadian company $800 million. Heron and DSMC are dis-
does electronic discovery dif-
satisfied with the result. Is the panel’s decision binding? Can DSMC appeal the arbitration
fer from traditional discovery?
award to a court? These are a few of the concerns discussed in this chapter. (This chapter’s
Business Blog feature deals with an arbitration clause Samsung sought to impose on buyers 5. What is an electronic court
of its smartphones.) filing system?
6. What are three alternative
methods of resolving disputes?
33
30318_ch02_hr_033-066.indd 33 9/10/18 9:49 AM

Samsung and Forced Arbitration Business Blog
S amsung, like other smartphone manu-

facturers, does not want to go to court
for every complaint that a purchaser has.
suit against Samsung did not take any
steps to opt out.
The class-action suit alleged that the
Consequently, in each new smartphone company misrepresented its smart-
box, it includes a Product Safety & War- phone’s storage capacity and “rigged the was not a
ranty Information brochure containing the phone to operate at a higher speed when signatory to
following statement: it was being tested.” Samsung moved to that agreement.a
compel arbitration by invoking the arbi- Key Point
ALL DISPUTES WITH SAMSUNG
tration provision in its Product Safety &
ARISING IN ANY WAY FROM THIS It is understandable that companies wish
Warranty Information brochure. A federal
LIMITED WARRANTY OR THE SALE, to avoid the high cost of going to court for
district court denied Samsung’s motion to
CONDITION, OR PERFORMANCE every customer grievance. Binding arbitra-
compel arbitration. On appeal, the trial
OF THE PRODUCTS SHALL BE tion offers businesses numerous advan-
court’s reasoning was accepted. There
RESOLVED EXCLUSIVELY THROUGH tages over litigation. A business must be
was no evidence that the plaintiff had
FINAL AND BINDING ARBITRATION, certain, though, that a binding arbitration
expressly agreed to submit to arbitration.
AND NOT BY A COURT OR JURY. requirement is part of an actual contractual
The mere fact that an arbitration clause
agreement between the business and its
In the same 101-page brochure, Sam- was included in the Product Safety &
customers. Placing an arbitration clause—
sung explains the procedures for arbitra- Warranty Information brochure did not
even in all capital letters—in a multi-page
tion and notes that purchasers can opt out create a binding contract between the
document that customers may never read
of the arbitration agreement by calling plaintiff and Samsung. Further, even
is usually not sufficient.
a toll-free number or sending an e-mail though the plaintiff had signed a Cus-
within thirty days of purchase. The lead tomer Agreement with the seller of the a. Norcia v. Samsung Telecommunications America, LLC, 845
plaintiff in what became a class-action smartphone (Verizon Wireless), Samsung F.3d 1279 (9th Cir. 2017).
2–1 The Judiciary’s Role

The body of American law includes the federal and state constitutions, statutes passed by
legislative bodies, administrative law, and the case decisions and legal principles that form
the common law. These laws would be meaningless, however, without the courts to interpret
and apply them. This is the essential role of the judiciary—the courts—in the American
governmental system: to interpret and apply the law.
2–1a Judicial Review

As the branch of government entrusted with interpreting the laws, the judiciary can decide,
among other things, whether the laws or actions of the other two branches are constitutional.
Judicial Review The process The process for making such a determination is known as judicial review. The power of judi-
by which a court decides on the cial review enables the judicial branch to act as a check on the other two branches of gov-
constitutionality of legislative ernment, in line with the checks-and-balances system established by the U.S. Constitution.
enactments and actions of the
(Today, nearly all nations with constitutional democracies, including Canada, France, and
executive branch.
Germany, have some form of judicial review.)
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CHAPTER 2: Courts and Alternative Dispute Resolution 35
2–1b The Origins of Judicial Review in the United States

The power of judicial review is not mentioned in the U.S. Constitution (although many
constitutional scholars believe that the founders intended the judiciary to have this power). Learning Objective 1
The United States Supreme Court explicitly established this power in 1803 in the case What is judicial review? How
Marbury v. Madison.1 In that decision, the Court stated, “It is emphatically the province and when was the power of
[authority] and duty of the Judicial Department to say what the law is. . . . If two laws conflict judicial review established?
with each other, the courts must decide on the operation of each. . . . [I]f both [a] law and
the Constitution apply to a particular case, . . . the Court must determine which of these
conflicting rules governs the case. This is of the very essence of judicial duty.”
Since the Marbury v. Madison decision, the power of judicial review has remained
unchallenged. Today, this power is exercised by both federal and state courts.
2–2 Basic Judicial Requirements

Before a court can hear a lawsuit, certain requirements must first be met. These
requirements relate to jurisdiction, venue, and standing to sue. We examine each
Library of Congress Prints and Photographs Division

of these important concepts here.
2–2a Jurisdiction
In Latin, juris means “law,” and diction means “to speak.” Thus, “the power to
speak the law” is the literal meaning of the term jurisdiction. Before any court can
hear a case, it must have jurisdiction over the person (or company) against whom
the suit is brought (the defendant) or over the property involved in the suit. The
court must also have jurisdiction over the subject matter of the dispute.
Jurisdiction over Persons or Property Generally, a court can exercise per- In 1803, James Madison was a party in the
sonal jurisdiction (in personam jurisdiction) over any person or business that Marbury v. Madison case. What did that case
resides in a certain geographic area. A state trial court, for instance, normally has say about judicial duty?
jurisdictional authority over residents (including businesses) in a particular area
of the state, such as a county or district. A state’s highest court (often called the Jurisdiction The authority of a
state supreme court) has jurisdiction over all residents of that state. court to hear and decide a specific
A court can also exercise jurisdiction over property that is located within its boundaries. case.
This kind of jurisdiction is known as in rem jurisdiction, or “jurisdiction over the thing.”
Example 2.1 A dispute arises over the ownership of a boat in dry dock in Fort Lauderdale,
Florida. The boat is owned by an Ohio resident, over whom a Florida court normally cannot
exercise personal jurisdiction. The other party to the dispute is a resident of Nebraska. In
this situation, a lawsuit concerning the boat could be brought in a Florida state court on the
basis of the court’s in rem jurisdiction. ■
Long Arm Statutes. Under the authority of a state long arm statute, a court can exercise Long Arm Statute A state statute
personal jurisdiction over certain out-of-state defendants based on activities that took place that permits a state to exercise
within the state. Before exercising long arm jurisdiction over a nonresident, however, the jurisdiction over nonresident
defendants.
court must be convinced that the defendant had sufficient contacts, or minimum contacts,
with the state to justify the jurisdiction.2 Generally, this means that the defendant must
have enough of a connection to the state for the judge to conclude that it is fair for the state
1. 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803).

2. The minimum-contacts standard was established in International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154,
90 L.Ed. 95 (1945).
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to exercise power over the defendant. If an out-of-state defendant caused an automobile

accident or sold defective goods within the state, for instance, a court will usually find that
minimum contacts exist to exercise jurisdiction over that defendant.
Spotlight Case Example 2.2 An Xbox game system caught fire in Bonnie Broquet’s home
in Texas and caused substantial personal injuries. Broquet filed a lawsuit in a Texas court
against Ji-Haw Industrial Company, a nonresident company that made the Xbox components.
Broquet alleged that Ji-Haw’s components were defective and had caused the fire. Ji-Haw
argued that the Texas court lacked jurisdiction over it, but a state appellate court held that
the Texas long arm statute authorized the exercise of jurisdiction over the out-of-state defen-
dant.3 Similarly, a state may exercise personal jurisdiction over a nonresident defendant who
is sued for breaching a contract that was formed within the state, even when that contract
was negotiated over the phone or through correspondence. ■
Corporate Contacts. Because corporations are considered legal persons, courts use similar
principles to determine whether it is fair to exercise jurisdiction over a corporation. A cor-
poration normally is subject to personal jurisdiction in the state in which it is incorporated
and has its principal office.
Courts apply the minimum-contacts test to determine if they can exercise jurisdiction
over out-of-state corporations. In the past, corporations were normally subject to jurisdiction
in states in which they were doing business, such as advertising or selling products. The
United States Supreme Court has now clarified that large corporations that do business in
many states are not automatically subject to jurisdiction in all of them. A corporation is
subject to jurisdiction only in states where it does such substantial business that it is “at
home” in that state.4 To determine minimum contacts, the
courts look at the amount of business the corporation does
within the state relative to the amount it does elsewhere.
Case Example 2.3 Norfolk Southern Railway Company is a
Virginia corporation. Russell Parker, a resident of Indiana and
a former employee of Norfolk, filed a lawsuit against the railroad
in Missouri. Parker claimed that while working for Norfolk in
Indiana he had sustained an injury. Norfolk argued that
Missouri courts did not have jurisdiction over the company. The
Rusla Ruseyn/Shutterstock.com
Supreme Court of Missouri agreed. Simply having train tracks

running through Missouri was not enough to meet the
minimum-contacts requirement. Norfolk also had tracks and
operations in twenty-one other states. The plaintiff worked and
was allegedly injured in Indiana, not Missouri. Even though
Is the presence of a railroad company’s tracks in one state enough
Norfolk did register its corporation in Missouri, the amount of
to satisfy the minimum-contacts requirement? business that it did in Missouri was not so substantial that it was
“at home” in that state.5 ■
Jurisdiction over Subject Matter Jurisdiction over subject matter is a limitation on the
types of cases a court can hear. In both the federal and state court systems, there are courts
of general (unlimited) jurisdiction and courts of limited jurisdiction.
A court of general jurisdiction can decide cases involving a broad array of issues. An
example of a court of general jurisdiction is a state trial court or a federal district court.
Probate Court A state court of
limited jurisdiction that conducts In contrast, a court of limited jurisdiction can hear only specific types of cases. An example
proceedings relating to the settlement of a state court of limited jurisdiction is a probate court. Probate courts are state courts
of a deceased person’s estate. that handle only matters relating to the transfer of a person’s assets and obligations after
3. Ji-Haw Industrial Co. v. Broquet, 2008 WL 441822 (Tex.App.—San Antonio 2008).

4. Daimler AG v. Bauman, 571 U.S. 117, 134 S.Ct. 746, 187 L.Ed. 624 (2014).
5. State ex rel. Norfolk Southern Railway Co. v. Dolan, 512 S.W.3d 41 (Mo. 2017).
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that person’s death, including matters relating to the custody and guardianship of children.
An example of a federal court of limited subject-matter jurisdiction is a bankruptcy court.
Bankruptcy courts handle only bankruptcy proceedings, which are governed by federal bank- Bankruptcy Court A federal court
ruptcy law. of limited jurisdiction that handles
A court’s jurisdiction over subject matter is usually defined in the statute or constitution only bankruptcy proceedings,
which are governed by federal
creating the court. In both the federal and state court systems, a court’s subject-matter juris- bankruptcy law.
diction can be limited by any of the following:
1. The subject of the lawsuit.
2. The sum in controversy.
3. Whether the case involves a felony (a serious type of crime) or a misdemeanor (a less serious type
of crime).
4. Whether the proceeding is a trial or an appeal.
Original and Appellate Jurisdiction The distinction between courts of original juris-
diction and courts of appellate jurisdiction normally lies in whether the case is being heard
for the first time. Courts having original jurisdiction are courts of the first instance, or trial
courts—that is, courts in which lawsuits begin, trials take place, and evidence is presented.
In the federal court system, the district courts are trial courts. In the various state court
systems, the trial courts are known by various names, as will be discussed shortly.
The key point here is that any court having original jurisdiction is normally known as a
trial court. Courts having appellate jurisdiction act as reviewing courts, or appellate courts.
In general, cases can be brought before appellate courts only on appeal from an order or a
judgment of a trial court or other lower court.
Jurisdiction of the Federal Courts Because the federal government is a government of

limited powers, the jurisdiction of the federal courts is limited. Federal courts have sub-
ject-matter jurisdiction in two situations: those involving federal questions and diversity
of citizenship.
Federal Questions. Article III of the U.S. Constitution establishes the boundaries of federal
judicial power. Section 2 of Article III states that “[t]he judicial Power shall extend to all
Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and
Treaties made, or which shall be made, under their Authority.” This clause means that when-
ever a plaintiff’s cause of action is based, at least in part, on the U.S. Constitution, a treaty,
or a federal law, then a federal question arises, and the federal courts have jurisdiction. Any Federal Question A question that
lawsuit involving a federal question, such as a person’s rights under the U.S. Constitution, pertains to the U.S. Constitution,
can originate in a federal court. Note that in a case based on a federal question, a federal an act of Congress, or a treaty
and provides a basis for federal
court will apply federal law. jurisdiction in a case.
Diversity of Citizenship. Federal district courts can also exercise original jurisdiction over
cases involving diversity of citizenship. The most common type of diversity jurisdiction has Diversity of Citizenship A basis
two requirements:6 for federal court jurisdiction over a
lawsuit between citizens of different
1. The plaintiff and defendant must be residents of different states. states or between U.S. citizens and
2. The dollar amount in controversy must exceed $75,000. non-U.S. citizens.
For purposes of diversity jurisdiction, a corporation is a citizen of both the state in which it
is incorporated and the state in which its principal place of business is located. A case involv-
ing diversity of citizenship can be filed in the appropriate federal district court. If the case
starts in a state court, it can sometimes be transferred, or “removed,” to a federal court. A large
percentage of the cases filed in federal courts each year are based on diversity of citizenship.
6. Diversity jurisdiction also exists in cases between (1) a foreign country and citizens of a state or of different states and (2) citizens of a state
and citizens or subjects of a foreign country. These bases for diversity jurisdiction are less commonly used.
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As noted, a federal court will apply federal law in cases

involving federal questions. In a case based on diversity of
citizenship, in contrast, a federal court will apply the relevant
state law (which is often the law of the state in which the
court sits).
Case Example 2.4 Kelley Mala, a U.S. citizen of the Virgin
Islands, was driving his powerboat near St. Thomas, Virgin
Islands. When Mala stopped at Crown Bay Marina to buy gas,
a pump malfunctioned, and gas overflowed and spilled into
jfmdesign/E+/Getty Images
his boat. Later, when he left the dock, Mala’s engine caught
fire and exploded, severely burning him and destroying the boat.
Mala sued the marina for negligence in a federal district court
in the Virgin Islands. He claimed that the court had d iversity
jurisdiction (which would mean that the court would apply state
If a marina employee commits a negligent act while servicing a boat law and he would be entitled to a jury trial).
owned by someone whose legal residence is nearby, can the injured The court found that it did not have diversity jurisdiction
boat owner have the case removed to a federal court? because Crown Bay and the plaintiff were both citizens of the
Virgin Islands. A federal appellate court affirmed. Therefore,
Mala had to sue the marina under admiralty law (law governing transportation on the seas
and ocean waters), which meant that he did not have a right to a jury trial.7 ■
Exclusive versus Concurrent Jurisdiction When both federal and state courts have
Concurrent Jurisdiction the power to hear a case, as is true in lawsuits involving diversity of citizenship, concurrent
Jurisdiction that exists when two jurisdiction exists. When cases can be tried only in federal courts or only in state courts,
different courts have the power to exclusive jurisdiction exists. Federal courts have exclusive jurisdiction in cases involving
hear a case.
federal crimes, bankruptcy, most patent and copyright claims, suits against the United
Exclusive Jurisdiction States, and some areas of admiralty law (law governing transportation on the seas and ocean
Jurisdiction that exists when a case waters). State courts also have exclusive jurisdiction over certain subject matter—for
can be heard only in a particular instance, divorce and adoption.
court or type of court. When concurrent jurisdiction exists, a party may bring a suit in either a federal court or
a state court. Many factors can affect a party’s decision to litigate in a federal versus a state
court. Examples include the availability of different remedies, the distance to the respective
courthouses, or the experience or reputation of a particular judge. For instance, if the dis-
pute involves a trade secret, a party might conclude that a federal court—which has exclu-
sive jurisdiction over copyrights, patents, and trademarks—would have more expertise in
the matter.
A resident of another state might also choose a federal court over a state court if he or she
is concerned that a state court might be biased against an out-of-state plaintiff. In contrast, a
plaintiff might choose to litigate in a state court if it has a reputation for awarding substan-
tial amounts of damages or if the judge is perceived as being pro-plaintiff. The concepts of
exclusive and concurrent jurisdiction are illustrated in Exhibit 2–1.
2–2b Jurisdiction in Cyberspace

The Internet’s capacity to bypass political and geographic boundaries undercuts the tra-
Learning Objective 2 ditional basis on which courts assert personal jurisdiction. As already discussed, for a
How are the courts applying state court to compel a defendant to come before it, the defendant must have a sufficient
traditional jurisdictional connection—that is, minimum contacts—with the state. When a defendant’s only contacts
concepts to cases involving with the state are through a website, it can be difficult to determine whether these
Internet transactions? contacts are sufficient.
7. Mala v. Crown Bay Marina, Inc., 704 F.3d 239 (3d Cir. 2013).
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Exhibit 2–1 Exclusive and Concurrent Jurisdiction
Exclusive Federal Concurrent Jurisdiction Exclusive State Jurisdiction

Jurisdiction (most cases involving (cases involving all matters
(cases involving federal federal questions, not subject to federal
crimes, federal antitrust law, diversity-of-citizenship cases) jurisdiction—for example,
bankruptcy, patents, copyrights, divorce and adoption
trademarks, suits against the cases)
United States, some areas of
admiralty law, and certain other
matters specified in federal
statutes)
The “Sliding-Scale” Standard The courts have developed a

“sliding-scale” standard to determine when they can exercise personal
jurisdiction over an out-of-state defendant based on the defendant’s
online activities. The sliding-scale standard identifies three types
of Internet business contacts and outlines the following rules for
slobo/iStock Unreleased/Getty Images

jurisdiction:
1. When the defendant conducts substantial business over the Internet (such
as contracts and sales), jurisdiction is proper.
2. When there is some interactivity through a website, jurisdiction may be
proper, depending on the circumstances.
3. When a defendant merely engages in passive advertising on the Web, juris-
diction is never proper. An Internet communication is typically considered When would a court have jurisdiction over a dispute
passive if people have to voluntarily access it to read the message and active between an online customer and Costco.com?
if it is sent to specific individuals.
It is up to the courts to decide how much online interactivity is enough to satisfy the
inimum-contacts requirement. Case Example 2.5 Dr. Arthur Delahoussaye, a Louisiana resi-
m
dent, bought a racing bicycle listed on eBay from Frederick Boelter, who lived in Wisconsin.
Later, while Delahoussaye was riding the bicycle, he had to jump over a gap in the pave-
ment. When he landed, the front wheel disconnected, pushing the forks of the bicycle into
the ground and propelling him over the handlebars and onto the pavement. Delahoussaye
suffered serious injuries. He sued Boelter in a Louisiana court, alleging that Boelter had
negligently removed the secondary retention devices designed to prevent the detachment
of the front wheel.
The Louisiana court ruled that the state did not have jurisdiction over Boelter, and a state
appellate court affirmed. Boelter did not have any prior relationship with Delahoussaye, did
not initiate communications with Delahoussaye, and discussed the transaction with
Delahoussaye only over the Internet. Payment was made through PayPal, and Boelter shipped
the bicycle to Louisiana. The sale of a single bicycle to Delahoussaye via eBay was not enough
to give Louisiana jurisdiction over Boelter, so the plaintiff’s case was dismissed.8 ■
8. Delahoussaye v. Boelter, 199 So.3d 633 (La.App. 2016).
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International Jurisdictional Issues Because the Internet is global in scope, it obviously

raises international jurisdictional issues. The world’s courts seem to be developing a stan-
dard that echoes the minimum-contacts requirement applied by U.S. courts.
Most courts are indicating that minimum contacts—doing business within the jurisdic-
tion, for instance—are enough to compel a defendant to appear and that a physical pres-
ence is not necessary. The effect of this standard is that a business firm has to comply with
the laws in any jurisdiction in which it targets customers for its products. This situation
is complicated by the fact that many countries’ laws on particular issues—free speech, for
example—are very different from U.S. laws
The following Spotlight Case illustrates how federal courts apply a sliding-scale standard
to determine if they can exercise jurisdiction over a foreign defendant whose only contact
with the United States is through a website.
Spotlight on Gucci: Case 2.1

Gucci America, Inc. v. Wang Huoqing
United States District Court, Northern District of California, 2011 WL 30972 (2011).
Background and Facts Wang Huoqing, a The courts apply a three-part test to determine
resident of the People’s Republic of China, oper- whether specific jurisdiction exists:
ated numerous websites. When Gucci discovered
Alessia Pierdomenico/Bloomberg/Getty Images
(1) The nonresident defendant must do some act

that Wang Huoqing’s websites offered for sale or consummate some transaction with the forum or
counterfeit goods—products that bear Gucci’s perform some act by which he purposefully avails
trademarks but are not genuine Gucci articles—it himself of the privilege of conducting activities
hired a private investigator (Robert Holmes) in San in the forum, thereby invoking the benefits and
Jose, California, to buy goods from the websites. protections of its laws; (2) the claim must be one
The investigator purchased a wallet that was which arises out of or results from the defendant’s
labeled Gucci but was counterfeit. Gucci filed a forum-related activities; and (3) exercise of jurisdic-
trademark infringement lawsuit against Wang Gucci luxury leather products
tion must be reasonable.
Huoqing in a federal district court in California are often counterfeited. Can
Gucci sue an Asian company in ****
seeking damages and an injunction to prevent the United States nonetheless? In order to satisfy the first prong of the test for
further infringement. Wang Huoqing was notified
specific jurisdiction, a defendant must have either
of the lawsuit via e-mail but did not appear in
purposefully availed itself of [taken advantage of] the privilege of
court. Gucci asked the court to enter a default judgment—that is,
conducting business activities within the forum or purposefully
a judgment entered when the defendant fails to appear—but
directed activities toward the forum. Purposeful availment typi-
the court first had to determine whether it had personal jurisdic-
cally consists of action taking place in the forum that invokes the
tion over Wang Huoqing based on the Internet sales.
benefits and protections of the laws of the forum, such as execut-
In the Words of the Court ing or performing a contract within the forum. To show purposeful
Joseph C. SPERO, United States Magistrate Judge. availment, a plaintiff must show that the defendant “engage[d]
**** in some form of affirmative conduct allowing or promoting the
**** Under California’s long-arm statute, federal courts in transaction of business within the forum state.” [Emphasis added.]
California may exercise jurisdiction to the extent permitted by the “In the Internet context, the Ninth Circuit utilizes a sliding scale
Due Process Clause of the Constitution. The Due Process Clause analysis under which ‘passive’ websites do not create sufficient
allows federal courts to exercise jurisdiction where * * * the contacts to establish purposeful availment, whereas interactive
defendant has had sufficient minimum contacts with the forum websites may create sufficient contacts, depending on how inter-
to subject him or her to the specific jurisdiction of the court. active the website is.” * * * Personal jurisdiction is appropriate
30318_ch02_hr_033-066.indd 40 9/10/18 9:49 AM

where an entity is conducting business over the Internet and has privilege of conducting activities within the forum, thus invoking
offered for sale and sold its products to forum [California] resi- the benefits and protections of its laws. Accordingly, the Court
dents. [Emphasis added.] concludes that Defendant’s contacts with California are sufficient
Here, the allegations and evidence presented by Plaintiffs in to show purposeful availment.
support of the Motion are sufficient to show purposeful availment
Decision and Remedy The U.S. District Court for the North-
on the part of Defendant Wang Huoqing. Plaintiffs have alleged
ern District of California held that it had personal jurisdiction over
that Defendant operates “fully interactive Internet websites
the foreign defendant, Wang Huoqing. The court entered a default
operating under the Subject Domain Names” and have presented
judgment against Wang Huoqing and granted Gucci an injunction.
evidence in the form of copies of web pages showing that the web-
sites are, in fact, interactive. * * * Additionally, Plaintiffs allege Critical Thinking
Defendant is conducting counterfeiting and infringing activities
within this Judicial District and has advertised and sold his coun- • What If the Facts Were Different? Suppose that Gucci
terfeit goods in the State of California. * * * Plaintiffs have also had not presented evidence that Wang Huoqing had made one
presented evidence of one actual sale within this district, made actual sale through his website to a resident (the private investi-
by investigator Robert Holmes from the website bag2do.cn. gator) of the court’s district. Would the court still have found that
* * * Finally, Plaintiffs have presented evidence that Defen- it had personal jurisdiction over Wang Huoqing? Why or why not?
dant Wang Huoqing owns or controls the twenty-eight websites • Legal Environment Is it relevant to the analysis of juris-
listed in the Motion for Default Judgment. * * * Such commer- diction that Gucci America’s principal place of business is in New
cial activity in the forum amounts to purposeful availment of the York rather than California? Explain.
2–2c Venue
Jurisdiction has to do with whether a court has authority to hear a case involving specific
persons, property, or subject matter. Venue9 is concerned with the most appropriate physical Venue The geographic district in
location for a trial. Two state courts (or two federal courts) may have the authority to exercise which a legal action is tried and from
jurisdiction over a case, but it may be more appropriate or which the jury is selected.
convenient to hear the case in one court than in the other.
The concept of venue reflects the policy that a court try-
ing a suit should be in the geographic neighborhood (usually
the county) where the incident occurred or where the parties
reside. Venue in a civil case typically is where the defendant
resides or does business, whereas venue in a criminal case nor-
mally is where the crime occurred.
Gilbert Carrasquillo/Getty Images
In some cases, pretrial publicity or other factors may

require a change of venue to another community, especially in
criminal cases when the defendant’s right to a fair and impar-
tial jury has been impaired. Note, though, that venue has lost
some significance in today’s world because of the Internet
and 24/7 news reporting. Courts now rarely grant requests
for a change of venue. Because everyone has instant access to In a criminal trial involving comedian Bill Cosby, the venue
all information about a purported crime, courts reason that was changed from his hometown of Philadelphia to western
no community is more or less informed or prejudiced for or Pennsylvania. Why do courts sometimes change venue?
against a defendant.
9. Pronounced ven-yoo.
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2–2d Standing to Sue

Standing to Sue The legal Before a person can bring a lawsuit before a court, the party must have standing to sue, or a
requirement that an individual sufficient “stake” in the matter to justify seeking relief through the court system. Standing
must have a sufficient stake in a means that the party that filed the action in court has a legally protected interest at stake in
controversy before he or she can
bring a lawsuit.
the litigation. At times, a person can have standing to sue on behalf of another person, such
as a minor (child) or mentally incompetent person.
Standing to sue can be broken down into three elements:
1. Harm. The party bringing the action must have suffered harm—an invasion of a legally protected
interest—or must face imminent harm. The controversy must be real and substantial rather than
hypothetical.
2. Causation. There must be a causal connection between the conduct complained of and the injury.
3. Remedy. It must be likely, as opposed to merely speculative, that a favorable court decision will
remedy the injury suffered.
Case Example 2.6 Harold Wagner obtained a loan through M.S.T. Mortgage Group to buy
a house in Texas. After the sale, M.S.T. transferred its interest in the loan to another lender,
which assigned it to another lender, as is common in the mortgage industry. Eventually, when
Wagner failed to make the loan payments, CitiMortgage, Inc., notified him that it was going
to foreclose on the property and sell the house.
Wagner filed a lawsuit claiming that the lenders had improperly assigned the mortgage
loan. A federal district court ruled that Wagner lacked standing to assert defects in the
assignment. Under Texas law, only the parties directly involved in an assignment can chal-
lenge its validity. In this case, the assignment was between two lenders and did not directly
involve Wagner.10 ■
2–3 The State and Federal Court Systems

Each state has its own court system. Additionally, there is a system of federal courts.
Exhibit 2–2 illustrates the basic organizational structure characteristic of the court systems in
many states. The exhibit also shows how the federal court system is structured. Keep in mind
that the federal courts are not superior to the state courts. They are simply an independent
system of courts, which derives its authority from Article III, Sections 1 and 2, of the U.S.
Constitution.
2–3a The State Court Systems

No two state court systems are exactly the same. Typically, though, a state court system will
include several levels, or tiers, of courts. As indicated in Exhibit 2–2, state courts may include
(1) trial courts of limited jurisdiction, (2) trial courts of general jurisdiction, (3) appellate
courts, and (4) the state’s highest court (often called the state supreme court).
Generally, any person who is a party to a lawsuit has the opportunity to plead the case
before a trial court and then, if he or she loses, before at least one level of appellate court.
If the case involves a federal statute or a federal constitutional issue, the decision of a state
supreme court on that issue may be further appealed to the United States Supreme Court.
Trial Courts Trial courts are exactly what their name implies—courts in which trials are
held and testimony taken. State trial courts have either general or limited jurisdiction. Trial
10. Wagner v. CitiMortgage, Inc., 995 F.Supp.2d 621 (N.D.Tex. 2014).
30318_ch02_hr_033-066.indd 42 9/10/18 9:49 AM

Exhibit 2–2 The State and Federal Court Systems
Supreme Court
of the United States
U.S. Courts Highest

of Appeals State Courts
State Courts
Federal U.S. District Specialized of Appeals
Administrative Courts U.S. Courts
Agencies • Bankruptcy Courts State Trial Courts State Administrative
• Court of of General Jurisdiction Agencies
Federal Claims
• Court of International
Trade Local Trial Courts of
• Tax Court Limited Jurisdiction
courts that have general jurisdiction as to subject matter may be called county, district,
superior, or circuit courts.11 State trial courts of general jurisdiction have jurisdiction over
a wide variety of subjects, including both civil disputes and criminal prosecutions. (In some
states, trial courts of general jurisdiction may hear appeals from courts of limited
jurisdiction.)
Courts of limited jurisdiction as to subject matter are generally inferior trial courts
or minor judiciary courts. Limited jurisdiction courts might include local municipal
courts (which could be separate traffic courts and drug courts) and domestic relations courts Small Claims Courts A special
(which handle divorce and child-custody disputes). Small claims courts are inferior trial court in which parties can litigate
courts that hear only civil cases involving claims of less than a certain amount, such as small claims without an attorney.
$5,000 (the amount varies from state to state). A few states have even tried to establish
Question of Fact In a lawsuit, an
Islamic law courts, which are courts of limited jurisdiction that serve the American Muslim issue that involves only disputed
community. (See this chapter’s Beyond Our Borders feature for a discussion of the rise of facts, and not what the law is on a
Islamic law courts.) given point.
Appellate, or Reviewing, Courts As mentioned, a party who loses at trial can nor-
mally take the case to a court of appeals (also called an appellate, or a reviewing, court). Learning Objective 3
Every state has at least one court of appeals, which may be an intermediate appellate court What is the difference
or the state’s highest court. About three-fourths of the states have intermediate appellate between a trial court and an
courts. Generally, courts of appeals do not conduct new trials, in which evidence is sub- appellate court?
mitted to the court and witnesses are examined. Rather, an appellate court panel of three
or more judges reviews the record of the case on appeal, which includes a transcript of
the trial proceedings, and determines whether the trial court committed an error.
Focus on Questions of Law. Appellate courts generally focus on questions of law, not Question of Law In a lawsuit, an
questions of fact. A question of fact deals with what really happened in regard to the dispute issue involving the application or
being tried—such as whether a party actually burned a flag. A question of law concerns the interpretation of a law.
11. The name in Ohio is court of common pleas, and the name in New York is supreme court.
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Islamic Law Courts Abroad and at Home Beyond Our Borders
I slamic law is one of the world’s three

most common legal systems, along with
civil law and common law systems. In
sharia. To date, this tribunal has resolved
only marital disagreements and some
other civil disputes. Under Ontario law, the
most Islamic countries, the law is based regular judicial system must uphold such
on sharia, a system of law derived from agreements as long as they are voluntary
the Qur’an and the sayings and doings of and negotiated through an arbitrator. Any
Muhammad and his companions. Today, agreements that violate Canada’s Charter proceedings. Other states
many non-Islamic countries are establish- of Rights and Freedoms will not be upheld. followed suit. Voters in Oklahoma
ing Islamic courts for their Muslim citizens. Belgium has also established a sharia enacted a referendum banning courts from
court. This court handles primarily family considering sharia law, but the ban was
Islamic Law in Britain, law disputes for Muslim immigrants in later held to be unconstitutional.a Legisla-
Canada, and Belgium Belgium. tion enacted in Arizona, Kansas, Louisiana,
North Carolina, Oklahoma, South Dakota,
For a number of years, Great Britain has had
councils that arbitrate disputes between Islamic Law Courts in and Tennessee bans judicial consideration
the United States of foreign law. (These laws do not explicitly
British Muslims involving child custody,
mention Islamic, or sharia, law because that
property, employment, and housing. These The use of Islamic courts in the United
might be ruled discriminatory and
councils do not deal with criminal law or States has been controversial. The legality
unconstitutional.)
with any civil issues that would put sharia of arbitration clauses that require disputes
in direct conflict with British statutory law. to be settled in Islamic courts has been Critical Thinking
Most Islamic law cases involve marriage or upheld by regular state courts in some
One of the arguments against allowing
divorce. Starting in 2008, Britain officially states, including Minnesota and Texas.
sharia courts in the United States is that
sanctioned the authority of sharia judges In some other states, however, there
we would no longer have a common legal
to rule on divorce and financial disputes of has been a public backlash against the use
framework within our society. Do you agree
Muslim couples. Britain now has eighty- of Islamic courts. For instance, in Detroit,
or disagree? Why?
five officially recognized sharia courts that Michigan, which has a large American
have the full power of their equivalent Muslim population, a controversy erupted
courts within the traditional British judi- over the community’s attempt to establish
cial system. Islamic courts. Legislators in Michigan then a. Awad v. Zirax, 670 F.3d 1111 (10th Cir. 2012). A lower court
later issued a permanent injunction to prevent enforcement
In Ontario, Canada, a group of Canadian introduced a bill to limit consideration of of the ban, Awad v. Zirax, 966 F.Supp.2d 1198 (W.D.Okla.
Muslims established a judicial tribunal using foreign or religious laws in state court 2013).
application or interpretation of the law—such as whether flag-burning is a form of speech

protected by the First Amendment to the U.S. Constitution. Only a judge, not a jury, can
rule on questions of law.
Defer to the Trial Court’s Findings of Fact. Appellate courts normally defer (give significant
weight) to a trial court’s findings on questions of fact because the trial court judge and jury were
in a better position to evaluate testimony. The trial court judge and jury can directly observe
witnesses’ gestures, demeanor, and other nonverbal behavior during the trial. An appellate court
cannot. At the appellate level, the judges review the written transcript of the trial.
In the following case, neither the administrative agency that initially ruled on the dispute
nor the trial court to which the agency’s decision was appealed made a finding on a crucial
question of fact. Faced with that circumstance, what should a state appellate court do?
30318_ch02_hr_033-066.indd 44 9/10/18 9:49 AM

Case 2.2
Johnson v. Oxy USA, Inc.

Court of Appeals of Texas, Houston, 14th District, 533 S.W.3d 395 (2016).
Background and Facts Jennifer John- To support this contention, Johnson points to
son was working as a finance analyst for the following excerpt from the * * * decision:
Oxy USA, Inc., when Oxy changed the job’s * * * The TWC does not interpret contracts
fotoinfot/Shutterstock.com
requirements. To meet the new standards, between employers and employee but only
Johnson took courses to become a certified enforces the Texas Payday Law [the Texas
public accountant. Johnson and Oxy signed an state law that governs the timing of employ-
agreement regarding reimbursement from Oxy ees’ paychecks]. * * * The question of whether
to Johnson for the cost of the courses. When Did the lower court commit a the employer properly interpreted their policy
Johnson resigned less than a year after hav- reversible error when it upheld the on reimbursed educational expenses versus a
TWC’s ruling?
ing been reimbursed for the coursework, Oxy business expense is a question for a different
withheld the amount of the reimbursement forum.
from her last check. Oxy argued that under the agreement, it was According to Johnson, this language shows that the TWC
entitled to do this because Johnson had worked less than a year refused to consider the merits of the issue she raised as “beyond
from the date of reimbursement. its reach.” In contrast, the defendants contend that Johnson’s
Johnson contended that the agreement did not apply because claims are barred by res judicata because they are based on claims
the funds should have been classified as a business expense, previously decided by the TWC.
which did not have to be repaid under Oxy’s Educational Assis- ****
tance Policy. Johnson filed a claim for the amount with the Texas In Johnson’s case, however, the TWC did not decide the key
Workforce Commission (TWC). The TWC ruled that she was not question of fact in dispute—whether Oxy violated its own Educa-
entitled to the unpaid wages. She filed a suit in a Texas state court tional Assistance Policy when it withheld Johnson’s final wages
against Oxy, alleging breach of contract. The court affirmed the as reimbursement for the CPA courses. In fact, the TWC explicitly
TWC’s ruling. Johnson appealed. refused to do so, stating that the agency “does not interpret con-
tracts between employers and employee.” * * * Because this ques-
In the Words of the Court tion goes to the heart of Johnson’s breach of contract * * * claim, we
Ken WISE, Justice
hold that res judicata does not bar [that] claim. [Emphasis added.]
****
The defendants argue that because Johnson seeks to recover
* * * The trial court * * * held that Johnson’s [claim for breach
the same wages in this suit as she did in her claim with the TWC,
of contract was] barred by res judicata [“a matter judged”]. In
res judicata must bar her common law cause of action. However,
a court of law, a claimant typically cannot pursue one remedy
* * * res judicata would only bar a claim if TWC’s order is consid-
to an unfavorable outcome and then seek the same remedy in
ered final. * * * Here, the order in Johnson’s case made no such
another proceeding before the same or a different tribunal. Res
findings with regard to the Educational Assistance Policy. The
judicata bars the relitigation of claims that have been finally
order expressly declined to address that issue. Therefore, * * *
adjudicated or that could have been litigated in the prior action.
res judicata will not bar Johnson’s breach of contract * * * claim.
[Emphasis added.]
Johnson argues that res judicata does not apply here because Decision and Remedy A state intermediate appellate
the TWC did not render a final judgment on the merits of her court reversed the lower court’s decision. “The TWC did not
claim that Oxy misinterpreted its Educational Assistance Policy. decide the key question of fact in dispute—whether Oxy vio-
Specifically, Johnson claims she was “denied the right of full adju- lated its own Educational Assistance Policy when it withheld
dication of her claim because the TWC refused to consider her Johnson’s final wages. In fact, the TWC explicitly refused to do
arguments at the administrative level as beyond its jurisdiction.” so, stating that the agency ‘does not interpret contracts between
(Continues)
30318_ch02_hr_033-066.indd 45 9/10/18 9:49 AM

employers and employee.’“ The appellate court remanded the • Global In some cases, a court may be asked to determine and
case for a trial on the merits. interpret the law of a foreign country. Some states consider the
issue of what the law of a foreign country requires to be a ques-
Critical Thinking tion of fact. Federal rules provide that this issue is a question of
• Legal Environment Who can decide questions of fact? law. Which position seems more appropriate? Why?
Who can rule on questions of law? Why?
Highest State Courts The highest appellate court in a state is usually called the supreme
court but may be called by some other name. For instance, in both New York and Maryland,
the highest state court is called the Court of Appeals. The highest state court in Maine and Mas-
sachusetts is the Supreme Judicial Court. In West Virginia, it is the Supreme Court of Appeals.
The decisions of each state’s highest court on all questions of state law are final. Only
when issues of federal law are involved can the United States Supreme Court overrule a
decision made by a state’s highest court. Example 2.7 A city enacts an ordinance that prohibits
citizens from engaging in door-to-door advocacy without first registering with the mayor’s
office and receiving a permit. A religious group then sues the city, arguing that the law vio-
lates the freedoms of speech and religion guaranteed by the First Amendment to the U.S.
Constitution. If the state supreme court upholds the city ordinance, the group could appeal
the decision to the United States Supreme Court, because a constitutional (federal) issue is
involved. ■
2–3b The Federal Court System

The federal court system is basically a three-tiered model consisting of (1) U.S. district
courts (trial courts of general jurisdiction) and various courts of limited jurisdiction, (2) U.S.
courts of appeals (intermediate courts of appeals), and (3) the United States Supreme Court.
Exhibit 2–3 shows the boundaries of the U.S. district courts and the U.S. courts of appeals.
Unlike state court judges, who are usually elected, federal court judges—including the
justices of the Supreme Court—are appointed by the president of the United States and
confirmed by the U.S. Senate. All federal judges receive lifetime appointments because under
Article III they “hold their offices during Good Behavior.”
U.S. District Courts At the federal level, the equivalent of a state trial court of general
jurisdiction is the district court. There is at least one federal district court in every state.
The number of judicial districts can vary over time, primarily owing to population changes
and corresponding caseloads. Today, there are ninety-four federal judicial districts. U.S.
district courts have original jurisdiction in federal matters. Federal cases typically originate
in district courts. Federal courts with original, but special (or limited), jurisdiction include
bankruptcy courts and tax courts, among others.
U.S. Courts of Appeals In the federal court system, there are thirteen U.S. courts of
appeals—also referred to as U.S. circuit courts of appeals. The federal courts of appeals
for twelve of the circuits, including the U.S. Court of Appeals for the District of Columbia
Circuit, hear appeals from the federal district courts located within their respective judicial
circuits. The Court of Appeals for the Thirteenth Circuit, called the Federal Circuit, has
national appellate jurisdiction over certain types of cases, such as cases involving patent law
and cases in which the U.S. government is a defendant. The decisions of the circuit courts
of appeals are final in most cases, but appeal to the United States Supreme Court is possible.
30318_ch02_hr_033-066.indd 46 9/10/18 9:49 AM

Exhibit 2–3 Boundaries of the U.S. District Courts and the Courts of Appeals
Puerto Rico
1 Maine
W E Vermont
1
Washington
Michigan New
Montana No. Dakota
Minnesota W New 2 Hampshire
Boston
Oregon 7 York Massachusetts

N Rhode Island
W E W Connecticut
So. S
Idaho
Dakota 8 Wisconsin W New York
3
Wyoming Iowa
E
Michigan 3 M
New
Pennsylvania
9
N Chicago 6 W
E Jersey
Philadelphia
Nebraska S N N N Virgin
N Delaware Islands
E Nevada Illinois Ohio N
Colorado Indiana S Maryland
Utah Denver
C Cincinnati
W. Va. E District of Columbia
San Missouri S S
California E Virginia Washington, D.C.
Francisco
10 Kansas W St. Louis S
Kentucky
W
E
Richmond
E W No. Carolina
C Tennessee W M 12 D.C.
N Circuit
S
Arizona W
Oklahoma
Arkansas W M E So. 4 Washington, D.C.
New E Carolina
Mexico E W
11 N
13 Federal
5 Alabama
N Atlanta
Circuit
Northern N Georgia
Mariana Washington, D.C.
Islands N M M S
S
9 Texas E N
S
Guam W W Legend
M Mississippi Florida
M
Alaska Circuit boundaries
E New Orleans
State boundaries
S
9 Hawaii
S Louisiana District boundaries
Location of U.S.
Court of Appeals
Source: Administrative Office of the United States Courts.
The United States Supreme Court The highest level of the three-tiered model of the
federal court system is the United States Supreme Court. According to the language of Arti-
cle III of the U.S. Constitution, there is only one national Supreme Court. All other courts
in the federal system are considered “inferior.” Congress is empowered to create other
inferior courts as it deems necessary. The inferior courts that Congress has created include
the second tier in our model—the U.S. courts of appeals—as well as the district courts and
any other courts of limited, or specialized, jurisdiction.
The United States Supreme Court consists of nine justices. Although the Supreme Court
has original, or trial, jurisdiction in rare instances (set forth in Article III, Section 2), most
of its work is as an appeals court. The Supreme Court can review any case decided by any of
Writ of Certiorari A writ from a
the federal courts of appeals, and it also has appellate authority over some cases decided
higher court asking a lower court for
in the state courts. the record of a case.
Appeals to the Supreme Court. To bring a case before the Supreme Court, a party requests
Rule of Four A rule of the United
that the Court issue a writ of certiorari. A writ of certiorari 12 is an order issued by the Supreme
States Supreme Court under which the
Court to a lower court requiring that court to send the record of the case for review. Under Court will not issue a writ of certiorari
the rule of four, the Court will not issue a writ of certioriari unless at least four of the nine unless at least four justices approve of
justices approve. the decision to issue the writ.
12. Pronounced sur-shee-uh-rah-ree.
30318_ch02_hr_033-066.indd 47 9/10/18 9:49 AM

Whether the Court will issue a writ is entirely within its

iscretion. The Court is not required to issue one, and most peti-
d
tions for writs are denied. (Although thousands of cases are filed
with the Supreme Court each year, it hears, on average, fewer
than one hundred of these cases.)13 A denial is not a decision
on the merits of a case, nor does it indicate agreement with the
lower court’s opinion. Furthermore, a denial of the writ has no
Supreme Court of the United States

value as a precedent.
Petitions Granted by the Court. Typically, the Court grants
petitions when cases raise important constitutional questions or
when the lower courts are issuing conflicting decisions on a sig-
nificant issue. The justices, however, never explain their reasons
for hearing certain cases and not others, so it is difficult to predict
Consisting of nine justices, the United States Supreme Court is which type of case the Court might select.
most often an appeals court. What is the rule of four?
“Lawsuit: A machine 2–4 Following a State Court Case

which you go into as a
To illustrate the procedures that would be followed in a civil lawsuit brought in a state court,
pig and come out of as we present a hypothetical case and follow it through a state court system. The case involves
a sausage.” an automobile accident in which Kevin Anderson, driving a Lexus, struck Lisa Marconi,
driving a Hyundai Genesis. The accident occurred at the intersection of Wilshire Boulevard
Ambrose Bierce
1842–1914 and Rodeo Drive in Beverly Hills, California. Marconi suffered personal injuries and incurred
(American journalist) medical and hospital expenses as a result, as well as lost wages for four months. Anderson
and Marconi are unable to agree on a settlement, and Marconi sues Anderson. Marconi is the
plaintiff, and Anderson is the defendant. Both are represented by lawyers.
Litigation The process of resolving During each phase of the litigation (the process of working a lawsuit through the court
a dispute through the court system. system), Marconi and Anderson will have to observe strict procedural requirements. A large
body of law—procedural law—establishes the rules and standards for determining disputes
in courts. Procedural rules are very complex, and they vary from court to court and from
state to state. In addition to the various sets of rules for state courts, the federal courts have
their own rules of procedure. Additionally, the applicable procedures will depend on whether
the case is a civil or criminal proceeding. Generally, cases like the Marconi-Anderson civil
lawsuit will involve the procedures discussed in the following subsections. Keep in mind
that attempts to settle the case may be ongoing throughout the trial.
2–4a Pretrial Procedures

The pretrial litigation process involves the filing of the pleadings, the gathering of evidence
(called discovery), and possibly other procedures, such as a pretrial conference and jury
selection.
Pleadings Statements by the
plaintiff and the defendant that detail
the facts, charges, and defenses in
The Pleadings The complaint and answer (and the counterclaim and reply)—all of which
a case. are discussed next—taken together are called the pleadings. The pleadings inform each party
of the other’s claims and specify the issues (disputed questions) involved in the case. The
Complaint The pleading made by style and form of the pleadings may be quite different in different states.
a plaintiff alleging wrongdoing on
the part of the defendant. When filed The Plaintiff’s Complaint. Marconi’s suit against Anderson commences when her lawyer
with a court, the complaint initiates files a complaint with the appropriate court. The complaint contains a statement alleging
a lawsuit. (1) the facts necessary for the court to take jurisdiction, (2) a brief summary of the facts
13. From the mid-1950s through the early 1990s, the United States Supreme Court reviewed more cases per year than it has in the last few years.
In the Court’s 1982–1983 term, for example, the Court issued opinions in 151 cases. In contrast, in its 2016–2017 term, the Court issued opin-
ions in only 70 cases.
30318_ch02_hr_033-066.indd 48 9/10/18 9:49 AM

necessary to show that the plaintiff is entitled to relief (a remedy), and (3) a statement of
the remedy the plaintiff is seeking. Complaints may be lengthy or brief, depending on the
complexity of the case and the rules of the jurisdiction.
Service of Process. Before the court can exercise personal jurisdiction over the defendant
(Anderson)—in effect, before the lawsuit can begin—the court must have proof that the defen-
dant was notified of the lawsuit. Formally notifying the defendant of a lawsuit is called service Service of Process The delivery
of process. of the complaint and summons to the
The plaintiff must deliver, or serve, a copy of the complaint and a summons (a notice defendant.
requiring the defendant to appear in court and answer the complaint) to the defendant. The Summons A document informing
summons notifies Anderson that he must file an answer to the complaint within a specified a defendant that a legal action has
time period (typically twenty to thirty days) or suffer a default judgment against him. A been commenced against her or him
default judgment in Marconi’s favor would mean that she would be awarded the damages and that the defendant must appear
alleged in her complaint because Anderson failed to respond to the allegations. in court on a certain date to answer
How service of process occurs depends on the rules of the court or jurisdiction in which the plaintiff’s complaint.
the lawsuit is brought. Usually, the server hands the summons and complaint to the defen- Default Judgment A judgment
dant personally or leaves it at the defendant’s residence or place of business. In some states, entered by a court against a
process can be served by mail if the defendant consents (accepts service). When the defen- defendant who has failed to appear in
dant cannot be reached, special rules provide for alternative means of service, such as pub- court to answer or defend against the
plaintiff’s claim.
lishing a notice in the local newspaper. In some situations, courts allow service of process
via e-mail.
Case Example 2.8 A New York county filed a petition to remove
a minor child from his mother’s care due to neglect. The child’s
father had been deported to Jordan, and the county sought to
terminate the father’s parental rights. Although the father’s exact
whereabouts were unknown, the county caseworker had been
in contact with him via e-mail. Therefore, the court allowed the
father to be served via e-mail because it was reasonably calcu-
lated to inform him of the proceedings and allow him an oppor-
tunity to respond.14 ■ Some courts have even allowed service
of process by social media, as discussed in this chapter’s Digital
Bonnie Kamin/PhotoEdit
Update feature.
In cases involving corporate defendants, the summons and
complaint may be served on an officer or on a registered agent
(representative) of the corporation. The name of a corporation’s
registered agent can usually be obtained from the secretary of Usually, a summons is hand-delivered to the defendant.
state’s office in the state where the company is incorporated. What other ways could a summons be served using today’s
technologies?
The Defendant’s Answer. The defendant’s answer either admits
the statements or allegations set forth in the complaint or denies
them and outlines any defenses that the defendant may have. If Anderson admits to all of Marconi’s Answer Procedurally, a defendant’s
allegations in his answer, the court will enter a judgment for Marconi. If Anderson denies any of response to the plaintiff’s complaint.
Marconi’s allegations, the litigation will go forward. Counterclaim A claim made by a
Anderson can deny Marconi’s allegations and set forth his own claim that Marconi was defendant in a civil lawsuit against
negligent and therefore owes him compensation for the damage to his Lexus. This is appro- the plaintiff. In effect, the defendant is
priately called a counterclaim. If Anderson files a counterclaim, Marconi will have to answer suing the plaintiff.
it with a pleading, normally called a reply, which has the same characteristics as an answer.
Anderson can also admit the truth of Marconi’s complaint but raise new facts that may Reply Procedurally, a plaintiff’s
response to a defendant’s answer.
result in dismissal of the action. This is called raising an affirmative defense. For instance,
Anderson could assert the expiration of the time period under the relevant statute of limita-
tions (a state or federal statute that sets the maximum time period during which a certain
action can be brought or rights enforced).
14. In re J.T., 53 Misc.3d 888, 37 N.Y.S.3d 846 (2016).
30318_ch02_hr_033-066.indd 49 9/10/18 9:49 AM

Using Social Media for Service of Process Digital Update
H istorically, when process servers failed

to reach a defendant at home, they
attempted to serve process at the defen-
Facebook account. She had moved out of
the house and provided no forwarding
address. A U.S. district court in Virginia
dant’s workplace, by mail, and by publica- allowed a plaintiff in a trademark case to
tion. In our digital age, does publication via serve a defendant residing in Turkey using
social media qualify as legitimate service Facebook, LinkedIn, and e-mail.a A federal
of process? judge in San Francisco allowed a plaintiff media to serve pro-
Facebook has more than 1.6 billion active to use Twitter accounts to serve several cess. After all, it is r elatively
users per month. Assume that a man has a defendants located in Kuwait who had simple to create a fake Facebook account
Facebook account and so does his spouse. He allegedly financed terrorism.b and nearly impossible to verify the true
has moved out and is intentionally avoiding The key requirement appears to be that owner of that account. Some judges have
service of a divorce summons. Even a private the plaintiff has diligently and reasonably voiced concerns that serving process via
investigator has not been able to deliver that attempted to serve process by traditional Facebook and other social media raises
summons. What to do? According to some means. Once the plaintiff has exhausted the significant questions of whether that ser-
courts today, the lawyer for the woman can usual means to effect service, then a court vice comports with due process.d
serve the divorce summons through a private is likely to allow service via social media.c
message from her Facebook account. Critical Thinking
Not All Courts Agree, Though In our connected world, is there any way a
An Increasing Use of Social
In spite of these examples, the courts have defendant could avoid service of process
Media for Service of Process
not uniformly approved of using social via social media?
More and more courts are allowing service
of process via Facebook and other social
media. One New York City family court a. WhosHere, Inc. v. Orun, 2014 WL 670817 (E.D.Va. 2014).
b. St. Francis Assisi v. Kuwait Finance House, 2016 WL d. Federal Trade Commission v. PCCare247, Inc., 2013 WL
judge ruled that a divorced man could 5725002 (N.D.Cal. 2016). 841037 (S.D.N.Y. 2013), and In re Adoption of K.P.M.A., 341
serve his ex-wife through her active c. MetroPCS v. Devor, 256 F.Supp.3d 807 (N.D.Ill. 2017). P.3d 38 (Sup.Ct.Okla. 2014).
Motion to Dismiss A pleading in Motion to Dismiss. A motion to dismiss requests the court to dismiss the case for stated
which a defendant admits the facts reasons. Grounds for dismissal of a case include improper delivery of the complaint and
as alleged by the plaintiff but asserts summons, improper venue, and the plaintiff’s failure to state a claim for which a court could
that the plaintiff’s claim to state a
cause of action has no basis in law.
grant relief. For instance, if Marconi had suffered no injuries or losses as a result of Ander-
son’s negligence, Anderson could move to have the case dismissed because Marconi would
not have stated a claim for which relief could be granted.
If the judge grants the motion to dismiss, the plaintiff generally is given time to file an
amended complaint. If the judge denies the motion, the suit will go forward, and the defen-
dant must then file an answer. Note that if Marconi wishes to discontinue the suit because,
for instance, an out-of-court settlement has been reached, she can likewise move for dis-
missal. The court can also dismiss the case on its own motion.
Case Example 2.9 Espresso Disposition Corporation 1 entered into a contract with Santana
Sales & Marketing Group, Inc. The agreement included a mandatory forum-selection clause—
that is, a provision designating that any disputes arising under the contract would be decided
by a court in Illinois. When Santana Sales filed a lawsuit against Espresso in a Florida state
court, Espresso filed a motion to dismiss based on the agreement’s forum-selection clause.
Santana claimed that the forum-selection clause had been a mistake. The court denied
30318_ch02_hr_033-066.indd 50 9/10/18 9:49 AM

Espresso’s motion to dismiss. Espresso appealed. A state intermediate appellate court reversed
the trial court’s denial of Espresso’s motion to dismiss and remanded the case to the lower
court for the entry of an order of dismissal.15 ■
Pretrial Motions Either party may attempt to get the case dismissed before trial through
the use of various pretrial motions. We have already mentioned the motion to dismiss. Two
other important pretrial motions are the motion for judgment on the pleadings and the
motion for summary judgment.
At the close of the pleadings, either party may make a motion for judgment on the pleadings, Motion for Judgment on the
or on the merits of the case. The judge will grant the motion only when there is no dispute Pleadings A motion by either
over the facts of the case and the sole issue to be resolved is a question of law. In deciding party to a lawsuit at the close of
the pleadings requesting the court
on the motion, the judge may consider only the evidence contained in the pleadings. to decide the issue solely on the
In contrast, in a motion for summary judgment, the court may consider evidence outside the pleadings without proceeding to trial.
pleadings, such as sworn statements (affidavits) by parties or witnesses, or other documents The motion will be granted only if no
relating to the case. Either party can make a motion for summary judgment. Like the motion facts are in dispute.
for judgment on the pleadings, a motion for summary judgment will be granted only if there
Motion for Summary Judgment A
are no genuine questions of fact and the sole question is a question of law. motion requesting the court to enter a
judgment without proceeding to trial.
Discovery Before a trial begins, each party can use a number of procedural devices to The motion can be based on evidence
obtain information and gather evidence about the case from the other party or from third outside the pleadings and will be
parties. The process of obtaining such information is known as discovery. Discovery includes granted only if no facts are in dispute.
gaining access to witnesses, documents, records, and other types of evidence.
The Federal Rules of Civil Procedure governs discovery in federal courts, and similar Discovery A method by which the
opposing parties obtain information
rules set forth procedures used in the states. Generally, discovery is allowed regarding any from each other to prepare for trial.
matter that is not privileged and is relevant to the claim or defense of any party. Discovery
rules also attempt to protect witnesses and parties from undue harassment and to safeguard
privileged or confidential material from being disclosed. Learning Objective 4
If a discovery request involves privileged or confidential business information, a court can What is discovery, and how
deny the request and can limit the scope of discovery in a number of ways. For instance, a does electronic discovery
court can require the party to submit the materials to the judge in a sealed envelope so that differ from traditional
the judge can decide if they should be disclosed to the opposing party. discovery?
Discovery prevents surprises at trial by giving parties access to evidence that might oth-
erwise be hidden. This allows both parties to learn what to expect during a trial before they
reach the courtroom. Discovery also serves to narrow the issues so that trial time is spent on
the main questions in the case.
Depositions and Interrogatories. Discovery can involve the use of depositions or inter-
rogatories, or both. A deposition is sworn testimony by a party to the lawsuit or any witness. Deposition The testimony of a party
The person being deposed gives testimony and answers questions asked by the attorneys to a lawsuit or a witness taken under
from both sides. The questions and answers are recorded, sworn to, and signed. (Occasion- oath before a trial.
ally, written depositions are taken when witnesses are unable to appear in person.) These
answers, of course, will help the attorneys prepare for the trial. They can also be used in
court to impeach (challenge the credibility of ) a party or a witness who changes her or his
testimony at the trial. In addition, a witness’s deposition can be used as testimony if he or
she is not available for the trial.
Interrogatories are written questions for which written answers are prepared and then Interrogatories A series of written
signed under oath. The main difference between interrogatories and written depositions is questions for which written answers
that interrogatories are directed to a party to the lawsuit (the plaintiff or the defendant), not are prepared by a party to a lawsuit,
usually with the assistance of the
to a witness, and the party can prepare answers with the aid of an attorney. The scope of party’s attorney, and then signed
interrogatories is broader because parties are obligated to answer the questions, even if that under oath.
means disclosing information from their records and files.
15. Espresso Disposition Corp. 1 v. Santana Sales & Marketing Group, Inc., 105 So.3d 592 (Fla.App. 3 Dist. 2013).
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Note that a court can impose sanctions on a party who fails to answer discovery requests
or interrogatories. Case Example 2.10 Construction Laborers Trust Funds for Southern Califor-
nia Administrative Company (the plaintiff) administers vari-
ous Southern California employee benefit plans. The plaintiff
sued Mario Miguel Montalvo (the defendant) in a federal dis-
trict court in California. The plaintiff alleged that Montalvo
had failed to pay benefit contributions for his employees as
required under federal law. The plaintiff also claimed that
Montalvo had refused to allow an audit of his payroll and
business records and had failed to submit monthly employ-
ment records needed to determine the amounts due.
Montalvo did not respond to the plaintiff’s interrogatories.
Jetta Productions/Getty Images

Three times, the court ordered Montalvo to answer the inter-
rogatories and produce the necessary documents. He contin-
ued to disobey the court’s orders and told the plaintiff’s
attorney that he was “too busy” to comply with the discovery
requests. Eventually, the court entered a default judgment
against Montalvo, noting that he had willfully disobeyed mul-
In a dispute over employee benefits, a construction company owner
tiple court orders.16 ■
does not respond to repeated plaintiff interrogatories. What can a
court do in such a situation? Requests for Other Information. A party can serve a written
request on the other party for an admission of the truth on
matters relating to the trial. Any matter admitted under such
a request is conclusively established for the trial. For example, Marconi can ask Anderson
to admit that his driver’s license was suspended at the time of the accident. A request for
admission saves time at trial because the parties will not have to spend time proving facts
on which they already agree.
A party can also gain access to documents and other items not in her or his possession in
order to inspect and examine them. Likewise, a party can gain “entry upon land” to inspect
the premises. Anderson’s attorney, for instance, normally can gain permission to inspect and
make copies of Marconi’s car repair bills.
When the physical or mental condition of one party is in question, the opposing party
can ask the court to order a physical or mental examination. The court will do so only if
the need for the information outweighs the right to privacy of the person to be examined.
Electronic Discovery Any relevant material, including information stored electronically,

can be the object of a discovery request. The federal rules and most state rules specifically
E-Evidence A type of evidence that allow all parties to obtain electronic “data compilations.” Electronic evidence, or e-evidence,
consists of computer-generated or includes all types of computer-generated or electronically recorded information, such as
electronically recorded information. e-mail, voice mail, tweets, blogs, social media posts, and spreadsheets, as well as documents
and other data stored on computers.
E-evidence can reveal significant facts that are not discoverable by other means. Comput-
ers, smartphones, cameras, and other devices automatically record certain information about
files—such as who created the file and when, as well as who accessed, modified, or trans-
Metadata Data that are mitted it—on their hard drives. This information is called metadata, which can be thought
automatically recorded by electronic of as “data about data.” Metadata can be obtained only from the file in its electronic format—
devices and provide information not from printed-out versions.
about who created a file and when,
Example 2.11 In 2012, John McAfee, the programmer responsible for creating McAfee anti-
as well as who accessed, modified,
or transmitted the file. It can be virus software, was wanted for questioning in the murder of his neighbor in Belize. McAfee
described as data about data. left Belize and was on the run from police, but he allowed a journalist to come with him and
16. Construction Laborers Trust Funds for Southern California Administrative Co. v. Montalvo, 2011 WL 1195892 (C.D.Cal. 2011).
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photograph him. When the journalist posted photos of McAfee online, some metadata were
attached to a photo. The police used the metadata to pinpoint the latitude and longitude of
the image and subsequently arrested McAfee in Guatemala. ■
E-Discovery Procedures. The Federal Rules of Civil Procedure deal specifically with the “The judicial system
preservation, retrieval, and production of electronic data. Although traditional means, such is the most expensive
as interrogatories and depositions, are still used to find out about the e-evidence, a party
must usually hire an expert to retrieve evidence in its electronic format. The expert uses machine ever invented
software to reconstruct e-mail, text, and other exchanges to establish who knew what and for finding out what
when they knew it. An expert can even recover files that the user thought had been deleted happened and what to
from a computer.
do about it.”
Advantages and Disadvantages. E-discovery has significant advantages over paper
discovery. Back-up copies of documents and e-mail can provide useful—and often quite Irving R. Kaufman
1910–1992
damaging—information about how a particular matter progressed over several weeks or (American jurist)
months. E-discovery can uncover the proverbial smoking gun that will win the lawsuit, but
it is also time consuming and expensive, especially when lawsuits involve large firms with
multiple offices. Many firms are finding it difficult to fulfill their duty to preserve electronic
evidence from a vast number of sources.
A failure to provide e-evidence in response to a discovery request does not always arise
from an unintentional failure to preserve documents and e-mail. The following case involved
a litigant that delayed a response to gain time to intentionally alter and destroy data. At issue
was the amount of sanctions imposed for this spoliation. (Spoliation of evidence occurs when
a document or information that is required for discovery is destroyed or altered significantly.)
Case 2.3
Klipsch Group, Inc. v. ePRO E-Commerce Limited

United States Court of Appeals, Second Circuit, 880 F.3d 620 (2018).
Background and Facts Klipsch Group, Inc., makes sound $2.7 million for its restorative discovery efforts. ePRO appealed,
equipment, including headphones. Klipsch filed a suit in a federal contending that the sanctions were “disproportionate.”
district court against ePRO E-Commerce Limited, a Chinese cor-
poration. Klipsch alleged that ePRO had sold $5 million in coun- In the Words of the Court
terfeit Klipsch products. ePRO claimed that the sales of relevant Gerard E. LYNCH, Circuit Judge:
products amounted to less than $8,000 worldwide. In response ****
to discovery requests, ePRO failed to timely disclose the majority ePRO argues that the monetary sanctions imposed against it
of the responsive documents in its possession. In addition, ePRO are so out of proportion to the value of the evidence uncovered
restricted Klipsch’s access to its e-data. The court directed by Klipsch’s efforts or to the likely ultimate value of the case as
ePRO to impose a litigation hold on the custodians of the data to be impermissibly punitive [punishing] and a violation of due
to preserve evidence, but the defendant failed to do so. This led to process. That position, although superficially sympathetic given
the deletion of thousands of documents and significant quantities the amount of the sanction, overlooks the fact that ePRO caused
of data. To determine what data had been blocked or lost, and Klipsch to accrue those costs by failing to comply with its discov-
what might and might not be recovered, Klipsch spent $2.7 million ery obligations. Such compliance is not optional or negotiable;
on a forensic examination. rather, the integrity of our civil litigation process requires that the
The federal district court concluded that ePRO had willingly parties before us, although adversarial to one another, carry out
engaged in spoliation of e-evidence. For this misconduct, the court their duties to maintain and disclose the relevant information
imposed sanctions, including an order to pay Klipsch the entire in their possession in good faith. [Emphasis added.]
(Continues)
30318_ch02_hr_033-066.indd 53 9/10/18 9:49 AM

The extremely broad discovery permitted by the Federal Rules In sum, we see nothing in ePRO’s proportionality arguments
depends on the parties’ voluntary participation. The system func- compelling us to conclude that the district court abused its discre-
tions because, in the vast majority of cases, we can rely on each tion by awarding full compensation for efforts that were * * * a
side to preserve evidence and to disclose relevant information reasonable response to ePRO’s own evasive conduct. The propor-
when asked (and sometimes even before then) without being tionality that matters here is that the amount of the sanctions was
forced to proceed at the point of a court order. The courts are ill- plainly proportionate—indeed, it was exactly equivalent—to the
equipped to address parties that do not voluntarily comply: we do costs ePRO inflicted on Klipsch in its reasonable efforts to remedy
not have our own investigatory powers, and even if we did, the ePRO’s misconduct.
spoliation of evidence would frequently be extremely difficult for
Decision and Remedy The U.S. Court of Appeals for the
any outsider to detect.
Second Circuit affirmed the sanctions. “The district court’s award
Moreover, noncompliance vastly increases the cost of litigation
properly reflects the additional costs ePRO imposed on its oppo-
* * * . Accordingly, we have held that discovery sanctions are
nent by refusing to comply with its discovery obligations.”
proper * * *, because an alternative rule would encourage dilatory
tactics, and compliance with discovery orders would come only Critical Thinking
when the backs of counsel and the litigants were against the wall.
When we apply those principles to the case at hand, it is clear • Economic Should the cost of corrective discovery efforts be
that the district court did not abuse its discretion by imposing imposed on an uncooperative party if those efforts turn up nothing
monetary sanctions calculated to make Klipsch whole for the extra of real value to the case? Why or why not?
cost and efforts it reasonably undertook in response to ePRO’s • Legal Environment Should it be inferred from a business’s
recalcitrance. failure to keep backup copies of its database that the business
**** must therefore have destroyed the data? Explain.
Pretrial Conference Either party or the court can request a pretrial conference, or hear-
ing. Usually, the hearing consists of an informal discussion between the judge and the
opposing attorneys after discovery has taken place. The purpose of the hearing is to explore
the possibility of a settlement without trial and, if this is not possible, to identify the matters
that are in dispute and to plan the course of the trial.
Jury Selection A trial can be held with or without a jury. The Seventh Amendment to
the U.S. Constitution guarantees the right to a jury trial for cases in federal courts when the
amount in controversy exceeds $20, but this guarantee does not apply to state courts. Most
states have similar guarantees in their own constitutions (although the threshold dollar
amount is higher than $20). The right to a trial by jury does not have to be exercised, and
many cases are tried without a jury. In most states and in federal courts, one of the parties
must request a jury in a civil case, or the judge presumes that the parties waive the right.
Before a jury trial commences, a jury must be selected. The jury selection process is
Voir Dire An important part of the known as voir dire.17 In most jurisdictions, attorneys for the plaintiff and the defendant ask
jury selection process in which prospective jurors oral questions during voir dire to determine whether a potential jury
the attorneys question prospective member is biased or has any connection with a party to the action or with a prospective wit-
jurors about their backgrounds,
attitudes, and biases to ascertain
ness. In some jurisdictions, the judge may do all or part of the questioning based on written
whether they can be impartial jurors. questions submitted by counsel for the parties.
During voir dire, a party may challenge a prospective juror peremptorily—that is, ask that
an individual not be sworn in as a juror without providing any reason. Alternatively, a party
may challenge a prospective juror for cause—that is, provide a reason why an individual
17. Pronounced vwahr deehr.
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should not be sworn in as a juror. If the judge grants the

challenge, the individual is asked to step down. A prospective
juror may not be excluded from the jury by the use of dis-
criminatory challenges, such as those based on racial criteria
or gender.
2–4b At the Trial

At the beginning of the trial, the attorneys present their open-
moodboard/Vetta/Getty Images
ing arguments, setting forth the facts that they expect to prove
during the trial. Then the parties present their cases.
Presentation of Evidence First, the plaintiff’s case is

presented. In our hypothetical case, Marconi’s lawyer would
introduce evidence (relevant documents, exhibits, and the
Can a lawyer choosing a jury exclude potential jurors for any reason
testimony of witnesses) to support Marconi’s position. The
whatsoever?
defendant has the opportunity to challenge any evidence
introduced and to cross-examine any of the plaintiff ’s
witnesses.
At the end of the plaintiff’s case, the defendant’s attorney has the opportunity to ask
the judge to direct a verdict for the defendant on the ground that the plaintiff has pre-
sented no evidence that would justify the granting of the plaintiff’s remedy. This is called
a motion for a directed verdict (known in federal courts as a motion for judgment as a matter Motion for a Directed Verdict
of law). A motion for the judge to take the
If the motion is not granted (it seldom is granted), the defendant’s attorney then presents decision out of the hands of the jury
and to direct a verdict for the party
the evidence and witnesses for the defendant’s case. At the conclusion of the defendant’s making the motion on the ground
case, the defendant’s attorney has another opportunity to make a motion for a directed ver- that the other party has not produced
dict. The plaintiff’s attorney can challenge any evidence introduced and cross-examine the sufficient evidence to support her or
defendant’s witnesses. his claim.
Closing Arguments and Awards After the defense concludes its presentation, the attor-
neys present their closing arguments, each urging a verdict in favor of her or his client. The
judge instructs the jury in the law that applies to the case (these instructions are often
called charges), and the jury retires to the jury room to deliberate a verdict. In the Marconi-
Anderson case, the jury will decide either for the plaintiff or for the defendant. If it finds
for the plaintiff, it will also decide on the amount of the award (the compensation to be Award The monetary compensation
paid to her). given to a party at the end of a trial or
other proceeding.
2–4c Posttrial Motions

After the jury has rendered its verdict, either party may make a posttrial motion. If Marconi
wins and Anderson’s attorney has previously moved for a directed verdict, Anderson’s attor- Motion for Judgment N.O.V. A
ney may make a motion for judgment n.o.v. (from the Latin non obstante veredicto, which means motion requesting the court to grant
“notwithstanding the verdict”—called a motion for judgment as a matter of law in the federal judgment in favor of the party making
the motion on the ground that the
courts). Such a motion will be granted only if the jury’s verdict was unreasonable and erro- jury’s verdict against him or her was
neous. If the judge grants the motion, the jury’s verdict will be set aside, and a judgment will unreasonable and erroneous.
be entered in favor of the opposite party (Anderson).
Alternatively, Anderson could make a motion for a new trial, asking the judge to set aside Motion for a New Trial A motion
the adverse verdict and to hold a new trial. The motion will be granted if, after looking at asserting that the trial was so
fundamentally flawed (because of
all the evidence, the judge is convinced that the jury was in error but does not feel that it error, newly discovered evidence,
is appropriate to grant judgment for the other side. A judge can also grant a new trial prejudice, or another reason) that a
on the basis of newly discovered evidence, misconduct by the participants or the jury new trial is necessary to prevent a
during the trial, or error by the judge. miscarriage of justice.
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2–4d The Appeal

Assume here that any posttrial motion is denied and that Anderson appeals the case.
(If Marconi wins but receives a smaller monetary award than she sought, she can appeal
also.) Keep in mind, though, that a party cannot appeal a trial court’s decision simply because
he or she is dissatisfied with the outcome of the trial. A party must have legitimate grounds to
file an appeal. In other words, he or she must be able to claim that the lower court committed
an error. If Anderson has grounds to appeal the case, a notice of appeal must be filed with
the clerk of the trial court within a prescribed time. Anderson now becomes the appellant,
or petitioner, and Marconi becomes the appellee, or respondent.
Filing the Appeal Anderson’s attorney files the record on appeal with the appellate court.
The record includes the pleadings, the trial transcript, the judge’s rulings on motions made
by the parties, and other trial-related documents. Anderson’s attorney will also provide the
reviewing court with a condensation of the record, known as an abstract, and a brief. The
Brief A written summary or brief is a formal legal document outlining the facts and issues of the case, the judge’s rulings
statement prepared by one side in or jury’s findings that should be reversed or modified, the applicable law, and arguments on
a lawsuit to explain its case to the Anderson’s behalf (citing applicable statutes and relevant cases as precedents).
judge.
Marconi’s attorney will file an answering brief. Anderson’s attorney can file a reply to
Marconi’s brief, although it is not required. The reviewing court then considers the case.
Appellate Review As explained earlier, a court of appeals does not hear evidence.
Instead, the court reviews the record for errors of law. Its decision concerning a case is
based on the record on appeal, the abstracts, and the attorneys’ briefs. The attorneys can
present oral arguments, after which the case is taken under advisement.
After reviewing a case, an appellate court has the following
options:
1. The court can affirm the trial court’s decision.
2. The court can reverse the trial court’s judgment if it concludes
that the trial court erred or that the jury did not receive proper
instructions.
3. The appellate court can remand (send back) the case to the trial court
for further proceedings consistent with its opinion on the matter.
thepixelchef/E+/Getty Images
4. The court might also affirm or reverse a decision in part. For exam-
ple, the court might affirm the jury’s finding that Anderson was
negligent but remand the case for further proceedings on another
issue (such as the extent of Marconi’s damages).
5. An appellate court can also modify a lower court’s decision. If
Do parties to a trial decision always have a right to appeal that
the appellate court decides that the jury awarded an excessive
decision? amount in damages, for example, the court might reduce the award
to a more appropriate, or fairer, amount.
Appeal to a Higher Appellate Court If the reviewing court is an intermediate appellate

court, the losing party may decide to appeal to the state supreme court (the highest
state court). Such a petition corresponds to a petition for a writ of certiorari from the
United States Supreme Court. Although the losing party has a right to ask (petition) a
higher court to review the case, the party does not have a right to have the case heard by
the higher appellate court.
Appellate courts normally have discretionary power and can accept or reject an appeal.
Like the United States Supreme Court, state supreme courts generally deny most appeals. If
the appeal is granted, new briefs must be filed before the state supreme court, and the attor-
neys may be allowed or requested to present oral arguments. Like the intermediate appellate
30318_ch02_hr_033-066.indd 56 9/10/18 9:49 AM

court, the supreme court may reverse or affirm the appellate court’s decision or remand the
case. At this point, the case typically has reached its end (unless a federal question is at issue
and one of the parties has legitimate grounds to seek review by a federal appellate court).
2–4e Enforcing the Judgment

The uncertainties of the litigation process are compounded by the lack of guarantees that
any judgment will be enforceable. Even if a plaintiff wins an award of damages in court, the
defendant may not have sufficient assets or insurance to cover that amount. Usually, one of
the factors considered before a lawsuit is initiated is whether the defendant has sufficient
assets to pay the damages sought, should the plaintiff win the case.
2–5 Courts Online

Most courts today have websites. Of course, each court decides what to make available at its
site. Some courts display only the names of court personnel and office phone numbers.
Others add court rules and forms. Many appellate court sites include judicial decisions,
although the decisions may remain online for only a limited time. In addition, in some states,
including California and Florida, court clerks offer information about the court’s docket (its Docket The list of cases entered
schedule of cases to be heard) and other searchable databases online. on a court’s calendar and thus
Appellate court decisions are often posted online immediately after they are rendered. scheduled to be heard by the court.
Recent decisions of the U.S. courts of appeals, for instance, are available online. The United
States Supreme Court also has an official website and publishes its opinions there immedi-
ately after they are announced to the public. Even decisions that are designated as “unpub-
lished” opinions by the appellate courts are usually published online.
2–5a Electronic Filing

The federal court system has implemented its electronic filing system, Case Management/
Electronic Case Files (CM/ECF), in nearly all of the federal courts. The system is available in Learning Objective 5
federal district, appellate, and bankruptcy courts, as well as the U.S. Court of International What is an electronic court
Trade and the U.S. Court of Federal Claims. More than 33 million cases are on the CM/ECF filing system?
system. Users can create a document using conventional document-creation software, save
it as a PDF (portable digital file), then log on to a court’s website and submit the PDF to
the court via the Internet. Access to the electronic documents filed on CM/ECF is available
through a system called PACER (Public Access to Court Electronic Records), which is a
service of the U.S. Courts.
A majority of the states have some form of electronic filing, although often it is not yet avail-
able in state appellate courts. Some states, including Arizona, California, Colorado, Delaware,
Mississippi, New Jersey, New York, and Nevada, offer statewide e-filing systems. Generally,
when electronic filing is made available, it is optional. Nonetheless, some state courts have
made e-filing mandatory in certain types of disputes, such as complex civil litigation.
2–5b Cyber Courts and Proceedings

Eventually, litigants may be able to use cyber courts, in which judicial proceedings take place
only on the Internet. The parties to a case could meet online to make their arguments and
present their evidence. Cyber proceedings might involve e-mail submissions, video cameras,
designated chat rooms, closed sites, or other Internet facilities. The promise of these virtual
proceedings is greater efficiency and lower costs.
Electronic courtroom projects have already been developed in some federal and state
courts. For instance, the state of Michigan has cyber courts that hear cases involving technol-
ogy issues and high-tech businesses. Other states that have introduced cyber courts include
30318_ch02_hr_033-066.indd 57 9/10/18 9:49 AM

California, Delaware, Louisiana, and North Carolina. The Federal Rules of Civil Procedure
authorize video conferencing, and some federal bankruptcy courts offer online chatting at
their websites.
2–6 Alternative Dispute Resolution

Litigation is expensive. It is also time consuming. Because of the backlog of cases pending
in many courts, several years may pass before a case is actually tried. For these and other
Alternative Dispute reasons, more and more businesspersons are turning to alternative dispute resolution (ADR) as a
Resolution (ADR) The resolution means of settling their disputes.
of disputes in ways other than those The great advantage of ADR is its flexibility. Methods of ADR range from the parties sitting
involved in the traditional judicial
process, such as negotiation,
down together and attempting to work out their differences to multinational corporations
mediation, and arbitration. agreeing to resolve a dispute through a formal hearing before a panel of experts. Normally,
the parties themselves can control how they will attempt to settle their dispute, what pro-
cedures will be used, whether a neutral third party will be present or make a decision, and
whether that decision will be legally binding or nonbinding.
Today, more than 90 percent of cases are settled before trial through some form of ADR.
Indeed, most states either require or encourage parties to undertake ADR before trial. Many
federal courts have instituted ADR programs as well.
2–6a Negotiation
Negotiation A process in which The simplest form of ADR is negotiation, in which the parties attempt to settle their dispute
parties attempt to settle their dispute informally, with or without attorneys to represent them. Attorneys frequently advise their
informally, with or without attorneys clients to negotiate a settlement voluntarily before they proceed to trial. Parties may even try
to represent them.
to negotiate a settlement during a trial or after the trial but before an appeal.
Negotiation traditionally involves just the parties themselves and (if attorneys are involved)
their attorneys. The attorneys still act as are advocates—they are obligated to put their clients’
interests first. In contrast, other forms of ADR generally also involve neutral third parties.
2–6b Mediation
Mediation A method of settling In mediation, a neutral third party acts as a mediator and works with both sides in the dispute
disputes outside the courts by using to facilitate a resolution. The mediator talks with the parties separately as well as jointly and
the services of a neutral third party, emphasizes their points of agreement in an attempt to help the parties evaluate their options.
who acts as a communicating agent
between the parties and assists them
Although the mediator may propose a solution (called a mediator’s proposal), he or she does
in negotiating a settlement. not make a decision resolving the matter. States that require parties to undergo ADR before
trial often offer mediation as one of the ADR options or (as in Florida) the only option.
One of the biggest advantages of mediation is that it is not as adversarial as litigation. In
a trial, the parties “do battle” with each other in the courtroom, trying to prove each other
wrong, while the judge is usually a passive observer. In mediation, the mediator takes an
active role and attempts to bring the parties together so that they can come to a mutually
satisfactory resolution. The mediation process tends to reduce the hostility between the
disputants, allowing them to resume their former relationship without bad feelings. For
this reason, mediation is often the preferred form of ADR for disputes involving business
partners, employers and employees, or other parties involved in long-term relationships.
Example 2.12 Two business partners, Mark Shalen and Charles Rowe, have a dispute over
how the profits of their firm should be distributed. If the dispute is litigated, Shalen and
Rowe will be adversaries, and their respective attorneys will emphasize how the parties’ posi-
tions differ, not what they have in common. In contrast, when the dispute is mediated, the
mediator emphasizes the common ground shared by Shalen and Rowe and helps them work
toward agreement. The two men can work out the distribution of profits without damaging
their continuing relationship as partners. ■
30318_ch02_hr_033-066.indd 58 9/10/18 9:49 AM

2–6c Arbitration
In arbitration, a more formal method of ADR, an arbitrator (a neutral third party or a panel Arbitration The settling of a dispute
of experts) hears a dispute and imposes a resolution on the parties. Arbitration differs from by submitting it to a disinterested
other forms of ADR in that the third party hearing the dispute makes a decision for the par- third party (other than a court), who
renders a decision.
ties. Exhibit 2–4 outlines the basic differences among the three traditional forms of ADR.
Usually, the parties in arbitration agree that the third party’s decision will be legally bind-
ing, although the parties can also agree to nonbinding arbitration. (Arbitration that is man- Learning Objective 6
dated by the courts often is nonbinding.) In nonbinding arbitration, the parties can go What are three alternative
forward with a lawsuit if they do not agree with the arbitrator’s decision. methods of resolving
In some respects, formal arbitration resembles a trial, although usually the procedural disputes?
rules are much less restrictive than those governing litigation. In the typical arbitration, the
parties present opening arguments and ask for specific rem-
edies. Both sides present evidence and may call and examine
witnesses. The arbitrator then renders a decision.
The Arbitrator’s Decision The arbitrator’s decision is

called an award. It is usually the final word on the matter.
Although the parties may appeal an arbitrator’s decision, a
court’s review of the decision will be much more restricted in
scope than an appellate court’s review of a trial court’s deci-
Marcin Balcerzak/Shutterstock.com
sion. The general view is that because the parties were free
to frame the issues and set the powers of the arbitrator at the
outset, they cannot complain about the results. A court will
set aside an award only in the event of one of the following:
1. The arbitrator’s conduct or “bad faith” substantially prejudiced the
rights of one of the parties.
2. The award violates an established public policy. The arbitrator’s award is usually considered the final word in
a dispute. Under what circumstances, however, can a court set
3. The arbitrator exceeded her or his powers—that is, arbitrated aside an award?
issues that the parties did not agree to submit to arbitration.
Arbitration Clauses Just about any commercial matter can be submitted to arbitration.
Frequently, parties include an arbitration clause in a contract. The clause provides that any Arbitration Clause A clause in
dispute that arises under the contract will be resolved through arbitration rather than a contract that provides that, in the
through the court system. Parties can also agree to arbitrate a dispute after a dispute arises. event of a dispute, the parties will
submit the dispute to arbitration
Arbitration Statutes Most states have statutes under which arbitration clauses will be rather than litigate the dispute in
court.
enforced. Indeed, some state statutes compel arbitration of certain types of disputes, such
as those involving public employees.
Exhibit 2–4 Types of Alternative Dispute Resolution

Negotiation Mediation Arbitration
Description Parties meet informally with or A neutral third party meets with the The parties present their arguments
without their attorneys and attempt parties and emphasizes points of and evidence before an arbitrator
to agree on a resolution. This is the agreement to bring them toward at a formal hearing. The arbitrator
simplest and least expensive method resolution of their dispute, reducing renders a decision to resolve the
of ADR. hostility between the parties. parties’ dispute.
Neutral Third No Yes Yes
Party Present?
Who Decides The parties themselves reach a The parties, but the mediator may The arbitrator imposes a resolution
the Resolution? resolution. suggest or propose a resolution. on the parties that may be either
binding or nonbinding.
30318_ch02_hr_033-066.indd 59 9/10/18 9:49 AM

At the federal level, the Federal Arbitration Act (FAA), enacted in 1925, enforces arbi-
tration clauses in contracts involving maritime activity and interstate commerce (though
its applicability to employment contracts has been controversial, as discussed later in the
chapter). Because of the breadth of the commerce clause arbitration agreements involving
transactions only slightly connected to the flow of interstate commerce may fall under the
FAA. (You will read about the commerce clause in a later chapter.)
Case Example 2.13 Cleveland Construction, Inc. (CCI), was the general contractor on a
project to build a grocery store in Houston, Texas. CCI hired Levco Construction, Inc., as
a subcontractor. Their contract included an arbitration provision stating that any disputes
would be resolved by arbitration in Ohio. When a dispute arose between the parties, Levco
filed a suit against CCI in a Texas state court. CCI sought to compel arbitration in Ohio
under the Federal Arbitration Act (FAA), but a Texas statute allows a party to void a con-
tractual provision that requires arbitration outside Texas. Ultimately, a Texas appellate court
held that the FAA preempted (took priority over) the state law. CCI could compel arbitration
in Ohio.18 ■
The Issue of Arbitrability The terms of an arbitration agreement can limit the types of
disputes that the parties agree to arbitrate. Disputes can arise, however, when the parties
do not specify limits or when the parties disagree on whether a particular matter is covered
by their arbitration agreement.
When one party files a lawsuit to compel arbitration, it is up to the court to resolve the
issue of arbitrability. That is, the court must decide whether the matter is one that must
be resolved through arbitration. If the court finds that the subject matter in controversy is
covered by the agreement to arbitrate, then it may compel arbitration.
Usually, a court will allow a claim to be arbitrated if the court finds that the relevant
statute (the state arbitration statute or the FAA) does not exclude such claims. No party,
however, will be ordered to submit a particular dispute to arbitration unless the court is
convinced that the party has consented to do so. Additionally, the courts will not compel
arbitration if it is clear that the arbitration rules and procedures are inherently unfair to one
of the parties.
Mandatory Arbitration in the Employment Context A significant question for busi-

nesspersons concerns mandatory arbitration clauses in employment contracts. Many
employees claim that they are at a disadvantage when they are forced, as a condition
of being hired, to agree to arbitrate all disputes and thus waive their rights under stat-
utes specifically designed to protect employees. The United States Supreme Court, how-
ever, has generally held that mandatory arbitration clauses in employment contracts are
enforceable.
Classic Case Example 2.14 In a landmark decision, Gilmer v. Interstate Johnson Lane Corp.,19
the Supreme Court held that a claim brought under a federal statute prohibiting age discrim-
ination could be subject to arbitration. The Court concluded that the employee had waived
his right to sue when he agreed, as part of a required registration application to be a securities
representative with the New York Stock Exchange, to arbitrate “any dispute, claim, or con-
troversy” relating to his employment. ■
Since the Gilmer decision, some courts have refused to enforce one-sided arbitration
clauses.20 Nevertheless, the policy favoring enforcement of mandatory arbitration agreements
in employment contracts remains strong.
18. Cleveland Construction, Inc. v. Levco Construction, Inc., 359 S.W.3d 843 (Tex.App. 2012).
19. 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991).
20. See, for example, Ridgeway v. Nabors Completion & Production Services Co., 139 F.Supp.3d 1084 (C.D.Cal. 2015).
30318_ch02_hr_033-066.indd 60 9/10/18 9:49 AM

2–6d Other Types of ADR

The three forms of ADR—negotiation, mediation, and arbitration—are the oldest and tradi-
tionally the most commonly used forms. In addition, a variety of newer types of ADR have
emerged, including those described here.
1. In early neutral case evaluation, the parties select a neutral third party (generally an expert in the
subject matter of the dispute) and explain their respective positions to that person. The case evalua-
tor assesses the strengths and weaknesses of each party’s claims.
2. In a mini-trial, each party’s attorney briefly argues the party’s case before the other party and a panel
of representatives from each side who have the authority to settle the dispute. Typically, a neutral
third party (usually an expert in the area being disputed) acts as an adviser. If the parties fail to reach
an agreement, the adviser renders an opinion as to how a court would likely decide the issue.
3. Numerous federal courts hold summary jury trials, in which the parties present their arguments and
evidence and the jury renders a verdict. The jury’s verdict is not binding, but it does act as a guide to
both sides in reaching an agreement during the mandatory negotiations that immediately follow the trial.
4. Other alternatives being employed by the courts include summary proceedings, which dispense with
some formal court procedures, and the appointment of special masters to assist judges in deciding
complex issues.
2–6e Providers of ADR Services

ADR services are provided by both government agencies and private organizations. A major
provider of ADR services is the American Arbitration Association (AAA), which handles
more than 200,000 claims a year in its numerous offices worldwide. Most of the largest U.S.
law firms are members of this nonprofit association. Cases brought before the AAA are heard
by an expert or a panel of experts in the area relating to the dispute and are usually settled
quickly. The AAA has a special team devoted to resolving large, complex disputes across a
wide range of industries.
Hundreds of for-profit firms around the country also provide various forms of dispute-
resolution services. Typically, these firms hire retired judges to conduct arbitration hearings
or otherwise assist parties in settling their disputes. The judges follow procedures similar
to those of the federal courts and use similar rules. Usually, each party to the dispute pays a
filing fee and a designated fee for a hearing session or conference.
2–6f Online Dispute Resolution

An increasing number of companies and organizations offer dispute-resolution services using
the Internet. The settlement of disputes in these online forums is known as online dispute Online Dispute Resolution (ODR)
resolution (ODR). The disputes have most commonly involved disagreements over the rights The resolution of disputes with the
to domain names or the quality of goods sold via the Internet, including goods sold through assistance of organizations that offer
dispute-resolution services via the
Internet auction sites. Internet.
ODR may be best suited for resolving small- to medium-sized business liability claims,
which may not be worth the expense of litigation or traditional ADR. Rules being developed in
online forums may ultimately become a code of conduct for everyone who does business
in cyberspace. Most online forums do not automatically apply the law of any specific juris-
diction. Instead, results are often based on general, universal legal principles. As with most
offline methods of dispute resolution, any party may appeal to a court at any time.
Interestingly, some local governments are using ODR to resolve claims. Example 2.15 New York
City has used Cybersettle.com to resolve auto accident, sidewalk, and other p ersonal-injury
claims made against the city. Parties with complaints submit their demands, and the city
submits its offers confidentially online. If an offer exceeds a demand, the claimant keeps
half the difference as a bonus. ■
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Chapter Skill-Building Exercise

Stan Garner resides in Illinois and promotes boxing matches for SuperSports, Inc., an Illinois corpora-
tion. Garner created the promotional concept of the “Ages” fights—a series of three boxing matches
pitting an older fighter (George Foreman) against a younger fighter, such as John Ruiz or Riddick
Bowe. The concept included titles for each of the three fights (“Challenge of the Ages,” “Battle of
the Ages,” and “Fight of the Ages”), as well as promotional epithets to characterize the two fight-
ers (“the Foreman Factor”). Garner contacted George Foreman and his manager, who both reside
in Texas, to sell the idea, and they arranged a meeting at Caesar’s Palace in Las Vegas, Nevada.
At some point in the negotiations, Foreman’s manager signed a nondisclosure agreement prohib-
iting him from disclosing Garner’s promotional concepts unless they signed a contract. Nevertheless,
after negotiations between Garner and Foreman fell through, Foreman used Garner’s “Battle of the
Ages” concept to promote a subsequent fight. Garner filed a lawsuit against Foreman and his man-
ager in a federal district court in Illinois, alleging breach of contract. Using the information presented
in the chapter, answer the following questions.
1. On what basis might the federal district court in Illinois exercise jurisdiction in this case?
2. Does the federal district court have original or appellate jurisdiction?
3. Suppose that Garner had filed his action in an Illinois state court. Could an Illinois state court
exercise personal jurisdiction over Foreman or his manager? Why or why not?
4. Assume that Garner had filed his action in a Nevada state court. Would that court have personal
jurisdiction over Foreman or his manager? Explain.
Debate This
In this age of the Internet, when people communicate via e-mail, tweets, FaceBook, and Skype, is
the concept of jurisdiction losing its meaning?
Key Terms
alternative dispute e-evidence 52 motion to dismiss 50
resolution (ADR) 58 exclusive jurisdiction 38 negotiation 58
answer 49 federal question 37 online dispute resolution (ODR) 61
arbitration 59 interrogatories 51 pleadings 48
arbitration clause 59 judicial review 34 probate court 36
award 55 jurisdiction 35 question of fact 43
bankruptcy court 37 litigation 48 question of law 43
brief 56 long arm statute 35 reply 49
complaint 48 mediation 58 rule of four 47
concurrent jurisdiction 38 metadata 52 service of process 49
counterclaim 49 motion for a directed verdict 55 small claims court 43
default judgment 49 motion for a new trial 55 standing to sue 42
deposition 51 motion for judgment n.o.v. 55 summons 49
discovery 51 motion for judgment on the venue 41
diversity of citizenship 37 pleadings 51 voir dire 54
docket 57 motion for summary judgment 51 writ of certiorari 47
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Chapter Summary: Courts and Alternative Dispute Resolution

The Judiciary’s Role The role of the judiciary—the courts—in the American governmental system is to interpret and apply
the law. Through the process of judicial review—determining the constitutionality of laws—the judicial
branch acts as a check on the executive and legislative branches of government.
Basic Judicial 1. Jurisdiction—Before a court can hear a case, it must have jurisdiction over the person against
Requirements whom the suit is brought or the property involved in the suit, as well as jurisdiction over the subject
matter.
a. Limited versus general jurisdiction—Limited jurisdiction exists when a court is limited to a spe-
cific subject matter, such as probate or divorce. General jurisdiction exists when a court can
hear any kind of case.
b. Original versus appellate jurisdiction—Original jurisdiction exists when courts have authority
to hear a case for the first time (trial courts). Appellate jurisdiction is exercised by courts of
appeals, or reviewing courts, which generally do not have original jurisdiction.
c. Federal jurisdiction—Arises (1) when a federal question is involved (when the plaintiff’s cause of
action is based, at least in part, on the U.S. Constitution, a treaty, or a federal law) or (2) when a
case involves diversity of citizenship (citizens of different states, for example) and the amount in
controversy exceeds $75,000.
d. Exclusive versus concurrent jurisdiction—Concurrent jurisdiction exists when two different
courts have authority to hear the same case. Exclusive jurisdiction exists when only state courts
or only federal courts have authority to hear a case.
2. Jurisdiction in cyberspace—Because the Internet does not have physical boundaries, traditional
jurisdictional concepts have been difficult to apply in cases involving activities conducted via the
Web. Gradually, the courts are developing standards to use in determining when jurisdiction over a
website owner or operator located in another state is proper.
3. Venue—Venue has to do with the most appropriate location for a trial, which is usually the geo-
graphic area where the event leading to the dispute took place or where the parties reside.
4. Standing to sue—A requirement that a party must have a legally protected and tangible interest at
stake sufficient to justify seeking relief through the court system.
The State and Federal Court 1. Trial courts—Courts of original jurisdiction, in which legal actions are initiated.
Systems a. State—Courts of general jurisdiction can hear any case. Courts of limited jurisdiction include
domestic relations courts, probate courts, traffic courts, and small claims courts.
b. Federal—The federal district court is the equivalent of the state trial court. Federal courts of
limited jurisdiction include the U.S. Tax Court, the U.S. Bankruptcy Court, and the U.S. Court of
Federal Claims.
2. Intermediate appellate courts—Courts of appeals, or reviewing courts, which generally do not
have original jurisdiction. Many states have an intermediate appellate court. In the federal court
system, the U.S. circuit courts of appeals are the intermediate appellate courts.
3. Supreme (highest) courts—Each state has a supreme court, although it may be called by some
other name. Appeal from the state supreme court to the United States Supreme Court is possible
only if the case involves a federal question. The United States Supreme Court is the highest court in
the federal court system and the final arbiter of the U.S. Constitution and federal law.
Following a State Court Rules of procedure prescribe the way in which disputes are handled in the courts. Rules differ from
Case court to court, and separate sets of rules exist for federal and state courts, as well as for criminal and
civil cases. A civil court case in a state court would involve the following procedures:
1. The pleadings—
a. Complaint—Filed by the plaintiff with the court to initiate the lawsuit. The complaint is served
with a summons on the defendant.
b. Answer—A response to the complaint in which the defendant admits or denies the allegations
made by the plaintiff. The answer may assert a counterclaim or an affirmative defense.
c. Motion to dismiss—A request to the court to dismiss the case for stated reasons, such as the
plaintiff’s failure to state a claim for which relief can be granted.
(Continues)
30318_ch02_hr_033-066.indd 63 9/10/18 9:49 AM

2. Pretrial motions (in addition to the motion to dismiss)—

a. Motion for judgment on the pleadings—May be made by either party. It will be granted if the
parties agree on the facts and the only question is how the law applies to the facts. The judge
bases the decision solely on the pleadings.
b. Motion for summary judgment—May be made by either party. It will be granted if the parties
agree on the facts and the sole question is a question of law. The judge can consider evidence
outside the pleadings when evaluating the motion.
3. Discovery—The process of gathering evidence concerning the case. Discovery involves depositions
(sworn testimony by a party to the lawsuit or any witness), interrogatories (written questions and
answers to these questions made by parties to the action with the aid of their attorneys), and various
requests (for admissions, documents, and medical examinations, for example). Discovery may also
involve electronically recorded information, such as e-mail, voice mail, word-processing documents,
and other data compilations. Although electronic discovery has significant advantages over paper
discovery, it is also more time consuming and expensive and often requires the parties to hire experts.
4. Pretrial conference—Either party or the court can request a pretrial conference to identify the mat-
ters in dispute after discovery has taken place and to plan the course of the trial.
5. Trial—Following jury selection (voir dire), the trial begins with opening statements from both par-
ties’ attorneys. The following events then occur:
a. The plaintiff’s introduction of evidence (including the testimony of witnesses) supporting the plain-
tiff’s position. The defendant’s attorney can challenge evidence and cross-examine witnesses.
b. The defendant’s introduction of evidence (including the testimony of witnesses) supporting the
defendant’s position. The plaintiff’s attorney can challenge evidence and cross-examine witnesses.
c. Closing arguments by the attorneys in favor of their respective clients, the judge’s instructions to
the jury, and the jury’s verdict.
6. Posttrial motions—
a. Motion for judgment n.o.v. (“notwithstanding the verdict”)—Will be granted if the judge is con-
vinced that the jury was in error.
b. Motion for a new trial—Will be granted if the judge is convinced that the jury was in error. The
motion can also be granted on the grounds of newly discovered evidence, misconduct by the
participants during the trial, or error by the judge.
7. Appeal— Either party can appeal the trial court’s judgment to an appropriate court of appeals. After
reviewing the record on appeal, the abstracts, and the attorneys’ briefs, the appellate court holds a
hearing and renders its opinion.
Courts Online Almost every court has a website offering information about the court and its procedures, and
increasingly courts are publishing their opinions online. A number of state and federal courts allow
parties to file litigation-related documents with the courts via the Internet or other electronic means.
Nearly all of the federal appellate courts and bankruptcy courts and a majority of the federal district
courts have implemented electronic filing systems. In the future, we may see cyber courts, in which all
trial proceedings are conducted online.
Alternative Dispute 1. Negotiation—The parties come together, with or without attorneys to represent them, and try to
Resolution reach a settlement without the involvement of a third party.
2. Mediation—The parties themselves reach an agreement with the help of a neutral third party, called
a mediator. The mediator may propose a solution but does not make a decision resolving the matter.
3. Arbitration—A more formal method of ADR in which the parties submit their dispute to a neutral
third party, the arbitrator, who renders a decision. The decision may or may not be legally binding,
depending on the circumstances.
4. Other types of ADR—These include early neutral case evaluation, mini-trials, summary jury trials,
and summary proceedings.
5. Providers of ADR services—The leading nonprofit provider of ADR services is the American
Arbitration Association. Hundreds of for-profit firms also provide ADR services.
6. Online dispute resolution—A number of organizations and firms are now offering negotiation,
mediation, and arbitration services through online forums. These forums have been a practical
alternative for the resolution of domain name disputes and e-commerce disputes in which the
amount in controversy is relatively small.
30318_ch02_hr_033-066.indd 64 9/10/18 9:49 AM

Issue Spotters
1. At the trial, after Sue calls her witnesses, offers her evidence, and otherwise presents her side of the case, Tom has at least two
choices between courses of action. Tom can call his first witness. What else might he do? (See Following a State Court Case.)
2. Lexi contracts with Theo to deliver a quantity of computers to Lexi’s Computer Store. They disagree over the amount, the delivery date,
the price, and the quality. Lexi files a suit against Theo in a state court. Their state requires that their dispute be submitted to mediation
or nonbinding arbitration. If the dispute is not resolved, or if either party disagrees with the decision of the mediator or arbitrator, will
a court hear the case? Explain. (See Alternative Dispute Resolution.)
—Check your answers to the Issue Spotters against the answers provided in Appendix C at the end of this text.
Business Scenarios and Case Problems

2–1. Standing to Sue. Jack and Maggie Turton bought a house 2–4. Arbitration. Horton Automatics and the Industrial Division of
in Jefferson County, Idaho, located directly across the street the Communications Workers of America—the union that rep-
from a gravel pit. A few years later, the county converted the resented Horton’s workers—negotiated a collective bargaining
pit to a landfill. The landfill accepted many kinds of trash that agreement. If an employee’s discharge for a workplace-rule vio-
cause harm to the environment, including major appliances, ani- lation was submitted to arbitration, the agreement limited the
mal carcasses, containers with hazardous content warnings, arbitrator to determining whether the rule was reasonable and
leaking car batteries, and waste oil. The Turtons complained to whether the employee had violated it. When Horton discharged
the county, but the county did nothing. The Turtons then filed a its employee, Ruben de la Garza, the union appealed to arbitra-
lawsuit against the county alleging violations of federal environ- tion. The arbitrator found that de la Garza had violated a rea-
mental laws pertaining to groundwater contamination and other sonable safety rule, but “was not totally convinced” that Horton
pollution. Do the Turtons have standing to sue? Why or why not? should have treated the violation more seriously than other rule
(See Basic Judicial Requirements.) violations. The arbitrator ordered de la Garza reinstated to his
job. Can a court set aside this order from the arbitrator? Explain.
2–2. Jurisdiction. Marya Callais, a citizen of Florida, was walking
[Horton Automatics v. The Industrial Division of the Communica-
along a busy street in Tallahassee when a large crate flew off a
tions Workers of America, AFL-CIO, 506 Fed.Appx. 253 (5th Cir.
passing truck and hit her. Callais sustained numerous injuries.
2013)] (See Alternative Dispute Resolution.)
She incurred a great deal of pain and suffering plus significant
medical expenses, and she could not work for six months. She 2–5. Discovery. Jessica Lester died from injuries suffered in an
wishes to sue the trucking firm for $300,000 in damages. The auto accident caused by the driver of a truck owned by Allied
firm’s headquarters are in Georgia, although the company does Concrete Co. Jessica’s widower, Isaiah, filed a suit against
business in Florida. In what court may Callais bring suit—a Allied for damages. The defendant requested copies of all of
Florida state court, a Georgia state court, or a federal court? Isaiah’s Facebook photos and other postings. Before respond-
What factors might influence her decision? (See Basic Judicial ing, Isaiah “cleaned up” his Facebook page. Allied suspected
Requirements.) that some of the items had been deleted, including a photo of
Isaiah holding a beer can while wearing a T-shirt that declared
2–3. Minimum Contacts. Seal Polymer Industries sold two
“I [heart] hotmoms.” Can this material be recovered? If so, how?
freight containers of latex gloves to Med-Express, Inc., a com-
What effect might Isaiah’s “misconduct” have on the result in
pany based in North Carolina. When Med-Express failed to
this case? Discuss. [Allied Concrete Co. v. Lester, 285 Va. 295,
pay the $104,000 owed for the gloves, Seal Polymer sued in an
736 S.E.2d 699 (2013)] (See Following a State Court Case.)
Illinois court and obtained a judgment against Med-Express.
Med-Express argued that it did not have minimum contacts 2–6. Business Case Problem with Sample Answer—
with Illinois and therefore the Illinois judgment based on per- Corporate Contacts. LG Electronics, Inc., a South
sonal jurisdiction was invalid. Med-Express stated that it was Korean company, and nineteen other foreign com-
incorporated under North Carolina law, had its principal place of panies participated in the global market for cathode
business in North Carolina, and therefore had no minimum con- ray tube (CRT) products. CRTs were integrated as components
tacts with Illinois. Was this statement alone sufficient to prevent in consumer goods, including television sets, and were sold for
the Illinois judgment from being collected against Med-Express many years in high volume in the United States, including the
in North Carolina? Why or why not? [Seal Polymer Industries v. state of Washington. The state filed a suit against LG and the
Med-Express, Inc., 218 N.C.App. 447, 725 S.E.2d 5 (2012)] (See others, alleging a conspiracy to raise prices and set production
Basic Judicial Requirements.) levels in the market for CRTs in violation of a state consumer
30318_ch02_hr_033-066.indd 65 9/10/18 9:49 AM

protection statute. The defendants filed a motion to dismiss capacities. The charge against the Queirozes was for a breach
the suit for lack of personal jurisdiction. Should this motion be of their personal guaranty for Soho Bay’s debt to Bentley Bay.
granted? Explain your answer. [State of Washington v. LG Elec- The plaintiff filed notices with the court to depose the Queirozes,
tronics, Inc., 185 Wash.App. 394, 341 P.3d 346 (2015)] (See Basic who reside in Brazil. The Queirozes argued that they could
Judicial Requirements.) not be deposed in Brazil. The court ordered them to appear
—For a sample answer to Problem 2–6, go to Appendix D at in Florida to provide depositions in their corporate capacity.
the end of this text. Witnesses appearing in court outside the jurisdiction of their
residence are immune from service of process while in court.
2–7. Appellate, or Reviewing, Courts. Angelica Westbrook On the Queirozes’ appearance in Florida, can they be served
was employed as a collector for Franklin Collection Service, Inc. with process in their individual capacities? Explain. [Queiroz v.
During a collection call, Westbrook allegedly told a debtor that Bentley Bay Retail, LLC, 43 Fla.L.Weekly. D85, __ So.3d __ (3 Dist.
a $15 processing fee was an “interest” charge. This violated 2018)] (See Following a State Court Case.)
company policy, and Westbrook was fired. She filed a claim for
unemployment benefits, which the Mississippi Department of
Employment Security (MDES) approved. Franklin objected. At an A Question of Ethics
MDES hearing, a Franklin supervisor testified that she had heard
Westbrook make the false statement, although she admitted 2–9. Complaint. John Verble worked as a financial advisor for
that there had been no similar incidents involving Westbrook. Morgan Stanley Smith Barney, LLC. After nearly seven years,
Westbrook denied making the statement, but added that if she Verble was fired. He filed a lawsuit in a federal district court
had said it, she did not remember doing so. The agency found against his ex-employer. In his complaint, Verble alleged that he
that Franklin’s reason for terminating Westbrook did not amount had learned of illegal activity by Morgan Stanley and its clients.
to the misconduct required to disqualify her for benefits and He claimed that he had reported the activity to the Federal
upheld the approval. Franklin appealed to a state intermedi- Bureau of Investigation, and that he was fired in retaliation.
ate appellate court. Is the court likely to uphold the agency’s His complaint contained no additional facts. [Verble v. Morgan
findings of fact? Explain. [Franklin Collection Service, Inc. v. Stanley Smith Barney, LLC, 676 Fed.Appx. 421 (6th Cir. 2017)]
Mississippi Department of Employment Security, 184 So.3d 330 (See Following a State Court Case.)
(Miss.App. 2016)] (See The State and Federal Court Systems.) 1. To avoid a dismissal of his suit, does Verble have a legal
2–8. Service of Process. Bentley Bay Retail, LLC, filed a suit in obligation to support his claims with more facts? Explain.
a Florida state court against Soho Bay Restaurant, LLC, and its 2. Does Verble owe an ethical duty to back up his claims with
corporate officers, Luiz and Karine Queiroz, in their individual more facts? Why or why not?
Time-Limited Team Assignment

2–10. Access to Courts. Assume that a statute in your state 1. One team will argue that the state statute violates litigants’
requires that all civil lawsuits involving damages of rights of access to the courts and trial by jury.
less than $50,000 be arbitrated. Such a case can be 2. Another team will argue that the statute does not violate lit-
tried in court only if a party is dissatisfied with the arbi- igants’ right of access to the courts.
trator’s decision. The statute also provides that if a trial does 3. A third team will evaluate how the determination on right
not result in an improvement of more than 10 percent in the of access would be changed if the statute was part of a
position of the party who demanded the trial, that party must pay pilot program that affected only a few judicial districts in
the entire cost of the arbitration proceeding. (See Alternative the state.
Dispute Resolution.)
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The Legal Environment Today

Building Skills You Will Need Tomorrow

Roger LeRoy Miller Roger LeRoy Miller

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Chapter 2 Appendix to Chapter 3: Costco Code of Ethics 95

Courts and Alternative

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Unit 2 The Commercial Environment 205

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■ Building Analytical Skills: Licensing Is a E-Contracts 277

and E-Contracts 255 Formation of Sales and Lease Contracts 322

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Chapter 13 Chapter 7—Liquidation 361

Unit 3 The Employment and Business Environment 385

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Limited Partnerships 477 Shareholders 516

Unit 4 The Regulatory Environment 557

Consumer Protection 578 ■ Beyond Our Borders: Can a River Be a

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Water Pollution 608 The Sherman Antitrust Act 647

Chapter 23 Section 2 of the Sherman Act 653

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1 Law and Legal Reasoning

6 Criminal Law and Cyber Crime

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1–1 Business Activities and the Legal Environment

1–1a Many Different Laws May Affect a Single Business Transaction

Internet Law, Business

Sales Product Liability

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1–1b Linking Business Law to the Six Functional Fields of Business

4. Research and development.

Primary Source of Law A document 1–2 Sources of American Law

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1–2a Constitutional Law

1–1b Linking Business Law to the Six Functional Fields of Business

dous amount of publicity as people began to realize the ramifications