CHAPTER
5
DISPUTE RESOLUTION
Tony Caruso had not returned for dinner, and his wife, Karen, was nervous. She put on some
sandals and hurried across the dunes to the ocean shore a half mile away. She soon came upon
Tony’s dog, Blue, tied to an old picket fence. Tony’s shoes and clothing were piled neatly nearby.
Karen and friends searched frantically throughout the evening. A little past midnight, Tony’s body
washed ashore, his lungs filled with water. A local doctor concluded he had accidentally drowned.
A little past midnight, Tony’s body washed ashore, his lungs filled with water.
Karen and her friends were not the only ones distraught. Tony had been partners with Beth
Smiles in an environmental consulting business, Enviro-Vision. They were good friends, and Beth
was emotionally devastated. When she was able to focus on business issues, Beth filed an
insurance claim with the Coastal Insurance Group. Beth hated to think about Tony’s death in
financial terms, but she was relieved that the struggling business would receive $2 million on the
life insurance policy.
Several months after filing the claim, Beth received this reply from Coastal: “Under the policy
issued to Enviro-Vision, we are liable in the amount of $1 million in the event of Mr. Caruso’s
death. If his death is accidental, we are liable to pay double indemnity of $2 million. But pursuant
to section H(5), death by suicide is not covered. After a thorough investigation, we have concluded
that Anthony Caruso’s death was an act of suicide. Your claim is denied in its entirety.” Beth was
furious. She was convinced Tony was incapable of suicide. And her company could not afford the
$2 million loss. She decided to consult her lawyer, Chris Pruitt.
This case is a fictionalized version of several real cases based on double indemnity insurance
policies. In this chapter, we follow Beth’s dispute with Coastal from initial interview through
appeal, using it to examine three fundamental areas of law: the structure of our court systems,
litigation, and alternative dispute resolution (ADR).
When Beth Smiles meets with her lawyer, Chris Pruitt brings a second attorney from his firm,
Janet Booker, who is an experienced litigator; that is, a lawyer who handles court cases. If they
file a lawsuit, Janet will be in charge, so Chris wants her there for the first meeting. Janet probes
about Tony’s home life, the status of the business, his personal finances, everything. Beth becomes
upset that Janet doesn’t seem sympathetic, but Chris explains that Janet is doing her job: She needs
all the information, good and bad.
Janet starts thinking about the two methods of dispute resolution: litigation and alternative
dispute resolution. Litigation refers to lawsuits, the process of filing claims in court, trying the
case, and living with the court’s ruling. Alternative dispute resolution is any other formal or
informal process used to settle disputes without resorting to a trial. It is increasingly popular with
corporations and individuals alike because it is generally cheaper and faster than litigation.
Litigation
The process of resolving disputes in court
Alternative dispute resolution
Resolving disputes out of court, through formal or informal processes
5-1 COURT SYSTEMS
The United States has more than 50 systems of courts. One nationwide system of federal courts
serves the entire country. In addition, each individual state—such as Texas, California, and
Florida—has its own court system. The state and federal courts are in different buildings, have
different judges, and hear different kinds of cases. Each has special powers and certain limitations.
5-1a State Courts
The typical state court system forms a pyramid, as Exhibit 5.1 shows.
Trial Courts
Almost all cases start in trial courts, the ones commonly portrayed on television and in film. There
is one judge, and there will often (but not always) be a jury. This is the only court to hear testimony
from witnesses and receive evidence. Trial courts determine the facts of a particular dispute and
apply to those facts the law given by earlier appellate court decisions.
Trial
First level of courts to hear disputes
courts
In the Enviro-Vision dispute, the trial court will decide all important facts that are in dispute.
How did Tony Caruso die? Did he drown? Assuming he drowned, was his death an accident or a
suicide? Once the jury has decided the facts, it will apply the law to those facts. If Tony Caruso
died accidentally, contract law provides that Beth Smiles is entitled to double indemnity benefits.
If the jury decides he killed himself, Beth gets nothing.
Jurisdiction refers to a court’s power to hear a case. A plaintiff may start a lawsuit only in a
court that has jurisdiction over that kind of case. Some state trial courts have very limited
jurisdiction, while others have the power to hear almost any case. In Exhibit 5.1, notice that some
courts have power only to hear cases of small claims, domestic relations, and so forth. Courts must
have two types of jurisdiction.
Jurisdiction
A court’s power to hear a case and bind the parties to its determination
Subject-matter jurisdiction means that a court has the authority to hear a particular type of
case. In addition to subject-matter jurisdiction, courts must also have personal jurisdiction over the
defendant. Personal jurisdiction is the legal authority to require the defendant to stand trial, pay
judgments, and the like. Personal jurisdiction generally exists if:
•
•
•
•
The defendant is a resident of the state in which a lawsuit is filed; or
The defendant files documents in court, such as an answer to the complaint; or
A summons is served on a defendant. A summons is the court’s written notice that a lawsuit
has been filed against the defendant. The summons must be delivered to the defendant when
she is physically within the state in which the lawsuit is filed; or
A long-arm statute applies. These statutes typically claim jurisdiction over someone who
does not live in a state but commits a tort, signs a contract, causes foreseeable harm, or
conducts “regular business activities” there. Under the Due Process Clause of the Constitution,
courts can use long-arm statutes only if a defendant has had minimum contacts with a state. In
other words, it is unfair to require a defendant to stand trial in another state if he has had no
meaningful interaction with that state.
Summons
The court’s written notice that a lawsuit has been filed
Long-arm
Statutes that may broaden a state court’s jurisdiction
statute
EXHIBIT 5.1
A trial court determines facts, while an appeals court ensures that the lower court correctly applied
the law to those facts.
In the following Landmark Case, the Supreme Court explains its views on this important
constitutional issue.
Landmark Case
International Shoe Co. v. State of Washington
326 U.S. 310
United States Supreme Court, 1945
CASE SUMMARY
Facts: Although International Shoe manufactured footwear only in St. Louis, Missouri, it sold its
products nationwide. It did not have offices or warehouses in the state of Washington, but it did
send about a dozen salespeople there. The salespeople rented space in hotels and businesses,
displayed sample products, and took orders. They were not authorized to collect payment from
customers.
When the State of Washington sought contributions to the state’s unemployment fund,
International Shoe refused to pay. Washington sued. The company argued that it was not engaged
in business in the state and, therefore, that Washington courts had no jurisdiction over it.
The Supreme Court of Washington ruled that International Shoe did have sufficient contacts
with the state to justify a lawsuit there. International Shoe appealed to the U.S. Supreme Court.
Issue: Did International Shoe have sufficient minimum contacts in the state of Washington to
permit jurisdiction there?
Decision: Yes, the company had minimum contacts with the state.
Reasoning: Agents for International Shoe have operated continuously in Washington for many
years. Their presence has been more than occasional or casual. And the agents’ activities have
generated a significant number of sales for the company. Washington’s collection action is directly
related to commercially valuable activities that took place within the state’s borders.
Due process merely requires reasonable fairness. International Shoe has benefitted greatly
from activities in Washington, and it faces no injustice if this suit proceeds. The minimum contacts
doctrine is satisfied.
Affirmed.
Appellate Courts
Appellate courts are entirely different from trial courts. Three or more judges hear the case. There
are no juries, ever. These courts do not hear witnesses or take new evidence. They hear appeals of
cases already tried below. Appellate courts generally accept the facts given to them by trial courts
and review the trial record to see if the court made errors of law.
Appellate
courts
Higher courts, which generally accept the facts provided by trial courts and review the record for legal
errors
An appellate court reviews the trial record to make sure that the lower court correctly applied
the law to the facts. If the trial court made an error of law, the appeal court may require a new trial.
Suppose the jury concludes that Tony Caruso committed suicide but votes to award Enviro-Vision
$1 million because it feels sorry for Beth Smiles. That is an error of law; if Tony committed suicide,
Beth is entitled to nothing. An appellate court will reverse the decision, declaring Coastal the
victor.
The party that loses at the trial court generally is entitled to be heard at the intermediate court
of appeals. The party filing the appeal is the appellant. The party opposing the appeal (because it
won at trial) is the appellee. A party that loses at the court of appeals may ask the state supreme
court to hear an appeal, but the state’s highest court may choose not to accept the case.
Appellant
The party filing an appeal of a trial verdict
Appellee
The party opposing an appeal
5-1b Federal Courts
As discussed in Chapter 1, federal courts are established by the U.S. Constitution, which limits
what kinds of cases can be brought in any federal court. For our purposes, two kinds of civil
lawsuits are permitted in federal court: federal question cases and diversity cases.
Federal Question Cases
A claim based on the U.S. Constitution, a federal statute, or a federal treaty is called a federal
question case. Federal courts have jurisdiction over these cases. If the Environmental Protection
Agency (EPA), a part of the federal government, orders Logging Company not to cut in a particular
forest, and Logging Company claims that the agency has wrongly deprived it of its property, that
suit is based on a federal statute (a law passed by Congress) and is thus a federal question. EnviroVision’s potential suit merely concerns an insurance contract. The federal district court has no
federal question jurisdiction over the case.
Federal
question
A claim based on the U.S. Constitution, a federal statute, or a federal treaty
case
Diversity Cases
Even if no federal law is at issue, federal courts have jurisdiction when (1) the plaintiff and
defendant are citizens of different states and (2) the amount in dispute exceeds $75,000. The theory
behind diversity jurisdiction is that courts of one state might be biased against citizens of another
state. To ensure fairness, the parties have the option to use a federal court as a neutral playing field.
Enviro-Vision is located in Oregon, and Coastal Insurance is incorporated in Georgia. They
are citizens of different states and the amount in dispute far exceeds $75,000. Janet could file this
case in U.S. District Court based on diversity jurisdiction.
Diversity
case
A lawsuit in which the plaintiff and defendant are citizens of different states and the amount in dispute
exceeds $75,000
Trial Courts
U.S. District Courts are the primary trial courts in the federal system. The nation is divided into
about 94 districts, and each has a district court. States with smaller populations have one district,
while those with larger populations have several. There are also specialized trial courts such as
Bankruptcy Court, Tax Court, and others, which are, you will be happy to know, beyond the scope
of this book.
Appellate Courts
United States Courts of Appeals. These are the intermediate courts of appeals. They are divided
into “circuits,” most of which are geographical areas. For example, an appeal from the Northern
District of Illinois would go to the Court of Appeals for the Seventh Circuit.
United States Supreme Court. This is the highest court in the country. There are nine justices on
the Court. One justice is the chief justice, and the other eight are associate justices. When they
decide a case, each justice casts an equal vote.
EXAMStrategy
Question: Mark has sued Janelle based on the state common law of negligence. He is testifying in
court, explaining how Janelle backed a rented truck out of her driveway and slammed into his
Lamborghini, doing $82,000 in damages. Where would this trial take place?
A. State appeals court
B. U.S. Court of Appeals
C. State trial court
D. Federal district court
E. Either state trial court or federal district court
Strategy: The question asks about trial and appellate courts, and also about state versus federal
courts. One issue at a time, please. What are the different functions of trial and appellate
courts? Trial courts use witnesses, and often juries, to resolve factual disputes. Appellate courts
never hear witnesses and never have juries. Applying that distinction to these facts tells us whether
we are in a trial or appeals court.
State trial courts may hear lawsuits on virtually any issue. Federal district courts may only
hear two kinds of cases: federal question (those involving a statute or constitutional provision); or
diversity (where the parties are from different states and the amount at issue is $75,000 or higher).
Apply what we know to the facts here.
Result: We are in a trial court because Mark is testifying. Could we be in federal district court?
No. The suit is based on state common law. This is not a diversity case because the parties live in
the same state, and this is not an appeal of a previous trial, so this is not an appeals court.
Janet Booker decides to file the Enviro-Vision suit in the Oregon trial court. She thinks that a
state court judge may take the issue more seriously than a federal district court judge.
5-2 LITIGATION
5-2a Pleadings
The documents that begin a lawsuit are called the pleadings. The most important are the complaint
and the answer.
Pleadings
The documents that begin a lawsuit, consisting of a complaint, the answer, and sometimes a reply
Complaint
The plaintiff files in court a complaint, which is a short, plain statement of the facts she is alleging
and the legal claims she is making. The purpose of the complaint is to inform the defendant of the
general nature of the claims and the need to come into court and protect his interests.
Complaint
The pleading that starts a lawsuit, this is a short statement of the facts alleged by the plaintiff and his or her
legal claims
Janet Booker files the complaint, as shown below. Because Enviro-Vision is a partnership, she
files the suit on behalf of Beth, personally.
STATE OF OREGON CIRCUIT COURT
Multnomah County
Civil Action No.
___________
Elizabeth Smiles, Plaintiff
No. _______________
JURY TRIAL DEMANDED
v.
Coastal Insurance Company, Inc.,
Defendant
_______________
COMPLAINT
Plaintiff Elizabeth Smiles states that:
1. She is a citizen of Multnomah County, Oregon.
2. Defendant Coastal Insurance Company, Inc., is incorporated under the laws of Georgia and
has as its usual place of business 148 Thrift Street, Savannah, Georgia.
3. On or about July 5, 2018, plaintiff Smiles (“Smiles”), Defendant Coastal Insurance Co, Inc.
(“Coastal”) and Anthony Caruso entered into an insurance contract (“the contract”), a copy
of which is annexed hereto as Exhibit “A.” This contract was signed by all parties or their
authorized agents, in Multnomah County, Oregon.
4. The contract obligates Coastal to pay to Smiles the sum of two million dollars ($2 million) if
Anthony Caruso should die accidentally.
5. On or about September 15, 2018, Anthony Caruso accidentally drowned and died while
swimming.
6. Coastal has refused to pay any sum pursuant to the contract.
7. Coastal has knowingly, willingly and unreasonably refused to honor its obligations under the
contract.
WHEREFORE, plaintiff Elizabeth Smiles demands judgment against defendant Coastal for all
monies due under the contract; demands triple damages for Coastal’s knowing, willing, and
unreasonable refusal to honor its obligations; and demands all costs and attorney’s fees, with
interest.
ELIZABETH SMILES,
By her attorney,
[Signed]
Janet Booker
Pruitt, Booker & Bother
983 Joy Avenue
Portland, OR
October 18, 2018
Answer
Coastal has 20 days in which to file an answer. Coastal’s answer is a brief reply to each of the
allegations in the complaint. The answer tells the court and the plaintiff exactly what issues are in
dispute. Since Coastal admits that the parties entered into the contract that Beth claims they did,
there is no need for her to prove that in court. The court can focus its attention on the issue that
Coastal disputes: whether Tony Caruso died accidentally.
Answer
The defendant’s response to the complaint
If the defendant fails to answer in time, the plaintiff will ask for a default judgment, meaning
a decision that the plaintiff wins without a trial. Two men sued Pepsi, claiming that the company
stole the idea for Aquafina water from them. They argued that they should receive a portion of the
profits for every bottle of Aquafina ever sold.
Default
A decision that the plaintiff in a case wins without going to trial
judgment
Pepsi failed to file a timely answer, and the judge entered a default judgment in the amount of
$1.26 billion. On appeal, the default judgment was overturned, and Pepsi was able to escape paying
the massive sum, but other defendants are sometimes not so lucky.
It is important to respond to courts on time.
Class Actions
Suppose Janet uncovers evidence that Coastal denies 80 percent of all life insurance claims, calling
them suicide. She could ask the court to permit a class action. If the court granted her request, she
would represent the entire group of plaintiffs, including those who are unaware of the lawsuit or
even unaware they were harmed. Class actions can give the plaintiffs much greater leverage, since
the defendant’s potential liability is vastly increased. Because Janet has no such evidence, she
decides not to pursue a class action.
Class
A suit filed by a group of plaintiffs with related claims
Motion to Dismiss
action
A party can ask the court for a judgment based simply on the pleadings themselves, by filing a
motion to dismiss. A motion is a formal request to the court that it take some step or issue some
order. During a lawsuit, the parties file many motions. A motion to dismiss is a request that the
court terminate a case without permitting it to go further. It asks the court to decide, assuming the
facts in the complaint are true, if the law offers a legal remedy for the plaintiff’s problem.
Motion
A formal request to the court that it take some step or issue some order
Motion
to
dismiss
A request that the court terminate a case because the law does not offer a legal remedy for the plaintiff’s
problem
In short, not every case continues past the pleadings process. Judges have the right to dismiss
cases before trial if the plaintiff is unlikely to win. To allow such cases to continue would be a
waste of resources.
The following Supreme Court case tells us how much information a plaintiff has to present to
survive a motion to dismiss.
Ashcroft v. Iqbal
556 U.S. 662
United States Supreme Court, 2009
CASE SUMMARY
Facts: In the months after the 9/11 attacks, the FBI arrested many suspected terrorists, most of
whom were Arab Muslim men. Javaid Iqbal, a Pakistani Muslim, was one of them. While he was
in prison, guards confined him to his cell 23 hours a day, kicked and punched him, and refused to
let him pray.
After his release, Iqbal filed a discrimination lawsuit against John Ashcroft, the former
Attorney General who was in charge of the antiterrorism investigation. Iqbal’s pleadings contained
the following information: (1) Most of the 9/11 detainees were Arab Muslim men; (2) detainees
like Iqbal suffered harsh treatment in prison; and (3) Ashcroft approved the detainment policy.
These three facts led Iqbal to conclude that Ashcroft illegally discriminated against the detainees
because they were Arab Muslims.
Ashcroft moved to dismiss the suit. He argued that Iqbal’s pleading did not contain enough
information to show that discrimination was the cause of the detainment.
Issue: Did Iqbal’s pleadings contain enough information to go forward?
Decision: No. Iqbal did not make a plausible claim, so the suit was dismissed.
Reasoning: A pleading must contain enough facts to show that the claim is plausible. The sheer
possibility that a defendant has acted unlawfully is not enough. There is an important difference
between possible and plausible. Possible means that the illegal activity could have
happened; plausible means that there is a credible basis for believing that it did.
Iqbal’s complaint only suggests that the Ashcroft, in the aftermath of a devastating terrorist
attack, detained suspected terrorists under the tightest security. He offers no facts to support that
this was done to discriminate against Arab Muslims. Iqbal would need to add more information to
nudge his claim across the line from possible to plausible. Iqbal’s lawsuit is dismissed.
Iqbal tells us that a valid complaint must show the court that the plaintiff’s claims
are plausible, not just possible. Critics argue that this rule may deny a day in court to plaintiffs
who could, in fact, discover sufficient evidence if they were allowed to proceed with the pre-trial
process of discovery. Others applaud the strict standard because it reduces pointless trials.
5-2b The Discovery Process
Discovery is the critical, pre-trial opportunity for both parties to learn the strengths and
weaknesses of the opponent’s case.
Discovery
The pre-trial opportunity for both parties to gather information relevant to the case
The theory behind civil litigation is that the best outcome is a negotiated settlement and that
parties will move toward agreement if they understand the opponent’s case. That is likeliest to
occur if both sides have an opportunity to examine the evidence their opponent will bring to trial.
Further, if a case does go all the way to trial, efficient and fair litigation cannot take place in a
courtroom filled with surprises. On television dramas, witnesses say astonishing things that amaze
the courtroom. In real trials, the lawyers know in advance the answers to practically all questions
asked because discovery has allowed them to see the opponent’s documents and question its
witnesses. The following are the most important forms of discovery.
Interrogatories
These are written questions that the opposing party must answer, in writing, under oath.
Depositions
These provide a chance for one party’s lawyer to question the other party, or a potential witness,
under oath. The person being questioned is the deponent. Lawyers for both parties are present.
Deponent
The person being questioned in a deposition
Production of Documents and Materials
Each side may ask the other side to produce relevant documents for inspection and copying; to
produce physical objects, such as part of a car alleged to be defective; and for permission to enter
on land to make an inspection, for example, at the scene of an accident.
Physical and Mental Examination
A party may ask the court to order an examination of the other party, if his physical or mental
condition is relevant, for example, in a case of medical malpractice.
Janet Booker begins her discovery with interrogatories. Her goal is to learn Coastal’s basic
position and factual evidence and then follow up with more detailed questioning during
depositions. Her interrogatories ask for every fact Coastal relied on in denying the claim. She asks
for the names of all witnesses, the identity of all documents, the description of all things or objects
that they considered. She requests the names of all corporate officers who played any role in the
decision and of any expert witnesses Coastal plans to call.
Coastal has 30 days to answer Janet’s interrogatories. Before it responds, Coastal mails to
Janet a notice of deposition, stating its intention to depose Beth Smiles. Beth and Janet will go to
the office of Coastal’s lawyer, and Beth will answer questions under oath. But at the same time
Coastal sends this notice, it sends 25 other notices of deposition. It will depose Karen Caruso as
soon as Beth’s deposition is over. Coastal also plans to depose all seven employees of EnviroVision; three neighbors who lived near Tony and Karen’s beach house; two policemen who
participated in the search; the doctor and two nurses involved in the case; Tony’s physician; Jerry
Johnson, Tony’s tennis partner; Craig Bergson, a college roommate; a couple who had dinner with
Tony and Karen a week before his death; and several other people.
Rich, the Coastal lawyer, proceeds to take Beth’s deposition. It takes two full days. He asks
about Enviro-Vision’s past and present. He learns that Tony appeared to have won their biggest
contract ever from Rapid City, Oregon, but that he then lost it when he had a fight with Rapid
City’s mayor. He inquires into Tony’s mood, learns that he was depressed, and probes in every
direction he can to find evidence of suicidal motivation. Janet and Rich argue frequently over
questions and whether Beth should have to answer them. At times, Janet is persuaded and permits
Beth to answer; other times, she instructs Beth not to answer. For example, toward the end of the
second day, Rich asks Beth whether she and Tony had been sexually involved. Janet instructs Beth
not to answer. This fight necessitates a trip into court. As both lawyers know, the parties are
entitled to discover anything that could reasonably lead to valid evidence. Rich wants his
questions answered, so he files a motion to compel discovery. The judge will have to decide
whether Rich’s questions are reasonable.
A motion is a formal request to the court. Before, during, and after trial, both parties will file
many motions. A motion to compel discovery is a request to the court for an order requiring the
other side to answer discovery. The judge rules that Beth must discuss Tony’s romantic life only
if Coastal has evidence that he was involved with someone outside his marriage. Because the
company lacks any such evidence, the judge denies Coastal’s motion.
At the same time, the judge hears one of Beth’s motions for a protective order. Beth claims
that Rich has scheduled too many depositions; the time and expense are a huge burden to a small
company. The judge limits Rich to ten depositions. Rich cancels several depositions, including
that of Craig Bergson, Tony’s old roommate. As we will see, Craig knows crucial facts about this
case, and Rich’s decision not to depose him will have major consequences.
E-Discovery
The internet age changed discovery. Companies send hundreds, thousands, or even millions of
emails every day. Many have attachments that are sometimes hundreds of pages long. In addition,
businesses large and small have vast amounts of data stored electronically. All this information is
potentially subject to discovery.
It is enormously time-consuming and expensive for companies to locate all the relevant
material, separate it from irrelevant or confidential matter, and furnish it. A firm may be obligated
to furnish millions of emails to the opposing party.
Who is to say what must be supplied? What if an email string contains individual emails that
are clearly privileged (meaning a party need not divulge them), but others that are not privileged?
May a company refuse to furnish the entire string? Many will try. However, some courts have
ruled that companies seeking to protect email strings must create a log describing every individual
email and allow the court to determine which are privileged.
Social media further complicates discovery. When a Facebook profile or Twitter account is
public, opposing parties are free to rummage through the treasure trove of personal information.
But what about access to a private social media profile? To protect people’s privacy, courts require
parties to show that the discovery request will to lead to relevant and admissible evidence. But that
standard means that private accounts are not really private.
Both sides in litigation sometimes use gamesmanship during discovery. Thus, if an individual
sues a large corporation, the company may deliberately make discovery so expensive that the
plaintiff cannot afford the legal fees. And if a plaintiff has a poor case, he might intentionally try
to make the discovery process more expensive for the defendant than a reasonable settlement offer.
5-2c Summary Judgment
When discovery is completed, both sides may consider seeking summary judgment. Summary
judgment is a ruling by the court that no trial is necessary because some essential facts are not in
dispute. The purpose of a trial is to determine the facts of the case; that is, to decide who did what
to whom, why, when, and with what consequences. If relevant facts are not in dispute, then there
is no need for a trial.
Summary
A ruling that no trial is necessary because essential facts are not in dispute
judgment
In the following case, the defendant won summary judgment, meaning that the case never
went to trial. That was good news for the defendant, who happened to be the president of the
United States at the time.
Jones v. Clinton
990 F. Supp. 657
United States District Court for the Eastern District of Arkansas, 1998
CASE SUMMARY
Facts: In 1991, Bill Clinton was governor of Arkansas. Paula Jones worked for a state agency, the
Arkansas Industrial Development Commission (AIDC). When Clinton became president, Jones
sued him, claiming that he had sexually harassed her. She alleged that in May 1991, the governor
arranged for her to meet him in a hotel room in Little Rock, Arkansas. When they were alone, he
put his hand on her leg and slid it toward her pelvis. She escaped from his grasp, exclaimed, “What
are you doing?” and said she was “not that kind of girl.” Upset and confused, she sat on a sofa near
the door. She claimed that Clinton approached her, “lowered his trousers and underwear, exposed
his penis, and told her to kiss it.” Jones was horrified, jumped up, and said she had to leave. Clinton
responded by saying, “Well, I don’t want to make you do anything you don’t want to do,” and
pulled his pants up. He added that if she got in trouble for leaving work, Jones should “have Dave
call me immediately and I’ll take care of it.” He also said, “You are smart. Let’s keep this between
ourselves.” Jones remained at AIDC until February 1993, when she moved to California because
of her husband’s job transfer.
President Clinton denied all the allegations. He also filed for summary judgment, claiming
that Jones had not alleged facts that justified a trial. Jones opposed the motion for summary
judgment.
Issue: Was Clinton entitled to summary judgment, or was Jones entitled to a trial?
Decision: Jones failed to make out a claim of sexual harassment. Summary judgment was granted
for the President.
Reasoning: To establish this type of sexual harassment case, a plaintiff must show that her refusal
to submit to unwelcome sexual advances resulted in specific harm to her job.
Jones received every merit increase and cost-of-living allowance for which she was eligible.
Her only job transfer involved a minor change in working conditions, with no reduction in pay or
benefits. Jones claims that she was obligated to sit in a less private area, often with no work to do,
and was the only female employee not to receive flowers on Secretary’s Day. However, even if
these allegations are true, all are trivial and none is sufficient to create a sexual harassment suit.
Jones has demonstrated no specific harm to her job.
In other words, the court acknowledged that there were factual disputes but concluded that
even if Jones proved each of her allegations, she would still lose the case because her allegations
fell short of a legitimate case of sexual harassment. Jones appealed the case. Later the same year,
as the appeal was pending and the House of Representatives was considering whether to impeach
President Clinton, the parties settled the dispute. Clinton, without acknowledging any of the
allegations, agreed to pay Jones $850,000 to drop the suit.
Janet and Rich each consider moving for summary judgment, but both correctly decide that
they would lose. There is one major fact in dispute: Did Tony Caruso commit suicide? Only a jury
may decide that issue. As long as there is some evidence supporting each side of a key factual
dispute, the court may not grant summary judgment.
More than 90 percent of all lawsuits are settled before trial. But the parties in the EnviroVision dispute are unable to compromise and are headed for trial.
More than 90 percent of all lawsuits are settled before trial.
EXAMStrategy
Question: You are a judge. Mel has sued Kevin claiming that, while Kevin was drunk, he
negligently drove his car into Mel’s property, destroying his rare trees. Mel’s complaint stated that
three witnesses, at a bar, saw Kevin take at least eight drinks right before the damage was done. In
Kevin’s answer, he denied being in the bar that night and causing the damage.
Kevin’s lawyer has moved for summary judgment. He proves that three weeks before the
alleged accident, Mel sold the lot to Tatiana.
Mel’s lawyer opposes summary judgment. He produces a security camera tape proving that
Kevin was at the bar, drinking beer, 34 minutes before the damage was done. He produces a signed
statement from Sandy, Mel’s neighbor. Sandy states that she heard a crash, hurried to the window,
and saw Kevin’s car weaving away from the damaged trees. Sandy is a landscape gardener and
estimates the tree damage at $30,000 to $40,000. How should you rule on the motion?
Strategy: Do not be fooled by red herrings about Kevin’s drinking or the value of the trees. Stick
to the question: Should you grant summary judgment? Trials are necessary to resolve disputes
about essential factual issues. Summary judgment is appropriate when some essential facts are not
disputed. Is there an essential fact not in dispute? Find it. Apply the rule. Being a judge is easy!
Result: It makes no difference whether Kevin was drunk or sober, whether he caused the harm, or
whether he was at home in bed. Mel did not own the property at the time of the accident. He cannot
win. You should grant Kevin’s summary judgment motion.
5-3 TRIAL
Our system of justice assumes that the best way to bring out the truth is for the two contesting
sides to present the strongest case possible to a neutral fact finder. Each side presents its witnesses,
and then the opponent has a chance to cross-examine. The adversary system presumes that by
putting a witness on the stand and letting both lawyers question her, the truth will emerge.
Adversary
system
A system based on the assumption that if two sides present their best case before a neutral party, the truth
will be established
The judge runs the trial. Each lawyer sits at a large table near the front. Beth, looking tense
and unhappy, sits with Janet. Rich Stewart sits with a Coastal executive. In the back of the
courtroom are benches for the public. Today, there are only a few spectators. One is Tony’s old
roommate, Craig Bergson, who has a special interest in the trial.
5-3a Right to Jury Trial
Not all cases are tried to a jury. As a general rule, both plaintiff and defendant have a right to
demand a jury trial when the lawsuit is for money damages. For example, in a typical contract
lawsuit, such as Beth’s insurance claim, both plaintiff and defendant have a jury trial right whether
they are in state or federal court. Even in such a case, though, the parties may waive the jury right,
meaning they agree to try the case to a judge. Also, if the plaintiff is seeking an equitable remedy,
such as an injunction (an order not to do something), there is no jury right for either party.
Although jury selection for some cases takes many days, in the Enviro-Vision case the first
day of the hearing ends with the jury selected. In the hallway outside the court, Rich offers Janet
$200,000 to settle. Janet reports the offer to Beth, and they agree to reject it. Craig Bergson drives
home, emotionally confused. Only three weeks before his death, Tony had accidentally met his
old roommate, and they had had several drinks. Craig believes that what Tony told him answers
the riddle of this case.
5-3b Opening Statements
The next day, each attorney makes an opening statement to the jury, summarizing the proof he or
she expects to offer, with the plaintiff going first. Janet focuses on Tony’s successful life, his
business and strong marriage, and the tragedy of his accidental death.
Rich works hard to establish a friendly rapport with the jury. If members of the jury like him,
they will tend to pay more attention to his presentation of evidence. He expresses regret about the
death. Nonetheless, suicide is a clear exclusion from the policy. If insurance companies are forced
to pay claims they did not bargain for, everyone’s insurance rates will go up.
5-3c Burden of Proof
In civil cases, the plaintiff has the burden of proof. That means that the plaintiff must convince
the jury that its version of the case is correct; the defendant is not obligated to disprove the
allegations.
Burden
of
The obligation to convince the jury that a party’s version of the case is correct
proof
The plaintiff’s burden in a civil lawsuit is to prove its case by a preponderance of the
evidence. The plaintiff must convince the jury that his or her version of the facts is at
least slightly more likely than the defendant’s version. Some courts describe this as a “51–49”
persuasion, that is, that plaintiff’s proof must “just tip” credibility in its favor. By contrast, in a
criminal case, the prosecution must demonstrate beyond a reasonable doubt that the defendant
is guilty. The burden of proof in a criminal case is much tougher because the likely consequences
are too. See Exhibit 5.2.
Preponderance
of
The standard of proof required for a civil case
Beyond
a
The government’s burden in a criminal prosecution
the
reasonable
evidence
doubt
EXHIBIT 5.2
Burden of Proof. In a civil lawsuit, a plaintiff wins with a mere preponderance of the evidence.
But the prosecution must persuade a jury beyond a reasonable doubt in order to win a criminal
conviction.
5-3d Plaintiff’s Case
Since the plaintiff has the burden of proof, Janet puts in her case first. She wants to prove two
things. First, that Tony died. That is easy, since the death certificate clearly demonstrates it and
since Coastal does not seriously contest it. Second, in order to win double indemnity damages, she
must show that the death was accidental. She will do this with the testimony of the witnesses she
calls, one after the other. Her first witness is Beth. When a lawyer asks questions of her own
witness, it is direct examination. Janet brings out all the evidence she wants the jury to hear: that
the business was basically sound, though temporarily troubled, that Tony was a hard worker, why
the company took out life insurance policies, and so forth.
Direct
A lawyer asks questions of his or her own witness.
examination
Then Rich has a chance to cross-examine Beth, which means to ask questions of an opposing
witness. He will try to create doubt in the jury’s mind. He asks Beth only questions for which he
is certain of the answers, based on discovery. Rich gets Beth to admit that the firm was not doing
well the year of Tony’s death; that Tony had lost the best client the firm ever had; that Beth had
reduced salaries; and that Tony had been depressed about business.
Cross-examine
A lawyer asks questions of an opposing witness.
Janet uses her other witnesses, Tony’s friends, family, and coworkers, to fortify the impression
that his death was accidental.
5-3e Defendant’s Case
Rich now puts in his case, exactly as Janet did, except that he happens to have fewer witnesses.
He calls the examining doctor, who admits that Tony could have committed suicide by swimming
out too far. On cross-examination, Janet gets the doctor to acknowledge that he has no idea whether
Tony intentionally drowned. Rich also questions several neighbors as to how depressed Tony had
seemed and how unusual it was that Blue was tied up. Some of the witnesses Rich deposed, such
as the tennis partner Jerry Johnson, have nothing that will help Coastal’s case, so he does not call
them.
Craig Bergson, sitting in the back of the courtroom, thinks how different the trial would have
been had he been called as a witness. When he and Tony had the fateful drink, Tony had been
distraught: Business was terrible, he was involved in an extramarital affair that he could not end,
and he saw no way out of his problems. He had no one to talk to and had been hugely relieved to
speak with Craig. Several times Tony had said, “I just can’t go on like this. I don’t want to,
anymore.” Craig thought Tony seemed suicidal and urged him to see a therapist Craig knew. Tony
had said that it was good advice, but Craig is unsure whether Tony sought any help.
This evidence would have affected the case. Had Rich Stewart known of the conversation, he
would have deposed Craig and the therapist. Coastal’s case would have been far stronger, perhaps
overwhelming. But Craig’s evidence will never be heard. Facts are critical. Rich’s decision to
depose other witnesses and omit Craig may influence the verdict more than any rule of law.
5-3f Closing Argument
Both lawyers sum up their case to the jury, explaining how they hope the jury will interpret what
they have heard. Judge Rowland instructs the jury as to its duty. He tells them that they are to
evaluate the case based only on the evidence they heard at trial, relying on their own experience
and common sense.
He explains the law and the burden of proof, telling the jury that it is Beth’s obligation to
prove her case. If Beth has proven that Tony died by means other than suicide but not by accident,
she is entitled to $1 million; if she has proven that his death was accidental, she is entitled to $2
million. However, if Coastal has proven suicide, Beth receives nothing. Finally, he states that if
they are unable to decide between accidental death and suicide, there is a legal presumption that it
was accidental. Rich asks Judge Rowland to rephrase the “legal presumption” part, but the judge
declines.
5-3g Verdict
The jury deliberates informally, with all jurors entitled to voice their opinion. Some deliberations
take two hours; some take two weeks. Many states require a unanimous verdict; others require
only, for example, a 10–2 vote in civil cases.
This case presents a close call. No one saw Tony die. Yet even though they cannot know with
certainty, the jury’s decision will probably be the final word on whether he took his own life. After
a day and a half of deliberating, the jury notifies the judge that it has reached a verdict. Rich Stewart
quickly makes a new offer: $350,000. The two sides have the right to settle up until the moment
when the last appeal is decided. Beth hesitates but turns it down.
The judge summons the lawyers to court, and Beth goes as well. The judge asks the foreman
if the jury has reached a decision. He states that it has: The jury finds that Tony Caruso drowned
accidentally and awards Beth Smiles $2 million.
5-4 APPEALS
Two days later, Rich files an appeal to the court of appeal. The same day, he phones Janet and
increases his settlement offer to $425,000. Beth is tempted but wants Janet’s advice. Janet says the
risks of an appeal are that the court will order a new trial, and they would start all over. But to
accept this offer is to forfeit over $1.5 million. Beth is unsure what to do. The firm desperately
needs cash now, and appeals may take years. Janet suggests they wait until oral argument, another
eight months.
Rich files a brief arguing that there were two basic errors at the trial: First, that the jury’s
verdict is clearly contrary to the evidence; and second, that the judge gave the wrong instructions
to the jury. Janet files a reply brief, opposing Rich on both issues. In her brief, Janet cites many
cases that she claims are precedent: earlier decisions by the state supreme court on similar or
identical issues.
Precedent
Earlier decisions by a court on similar or identical issues, on which subsequent court decisions can be based
5-4a Appeal Court Options
The court of appeal can affirm the trial court, allowing the decision to stand. The court
may modify the decision, for example, by affirming that the plaintiff wins but decreasing the size
of the award. (That is unlikely here; Beth is entitled to $2 million or nothing.) The court
might reverse and remand, meaning it nullifies the lower court’s decision and returns the case to
the trial court for a new trial. Or it could simply reverse, turning the loser (Coastal) into the winner,
with no new trial.
Affirm
To allow a court decision to stand as is
Modify
To let a court decision stand, but with changes
Reverse
and
To nullify a lower court’s decision and return a case to trial
remand
Reverse
To rule that the loser in a previous case wins, with no new trial
Janet and Beth talk. Beth is very anxious and wants to settle. She does not want to wait four
or five months only to learn that they must start all over. With Beth’s approval, Janet phones Rich
and offers to settle for $1.2 million. Rich snorts, “Yeah, right.” Then he snaps, “$750,000. Take it
or leave it. Final offer.” After a short conversation with her client, Janet calls back and accepts the
offer.
Litigation
1. PLEADINGS
Complaint
Answer
2. DISCOVERY
Interrogatories
Depositions
Production of documents and things
Physical and mental examinations
3. PRE-TRIAL MOTIONS
Class action
Summary judgment
4. TRIAL
Jury selection
Opening statements
Plaintiff’s case
Defendant’s case
Closing argument
5. JURY’S ROLE
Judge’s instructions
Deliberation
Verdict
6. APPEALS
Affirm
Modify
Reverse
Remand
5-5 ALTERNATIVE DISPUTE RESOLUTION
As we have seen in the previous section, trials can be trying. Lawsuits can cause prolonged periods
of stress, significant legal bills, and general unpleasantness. Many people and companies prefer to
settle cases out of court. Alternative dispute resolution (ADR) provides several semiformal
methods of resolving conflicts without litigation. We will look at two different types of ADR:
mediation and arbitration.
5-5a Mediation
Mediation is the fastest-growing method of dispute resolution in the United States. Here, a neutral
person, called a mediator, attempts to guide the two disputing parties toward a voluntary
settlement.
Mediation
A form of ADR in which a neutral third party guides the disputing parties toward a voluntary settlement
A mediator does not render a decision in the dispute but uses a variety of skills to move the
parties toward agreement. Mediators must earn the trust of both parties, listen closely, defuse anger
and fear, explore common ground, cajole the parties into different perspectives, and build the will
to settle. Good mediators do not need a law degree, but they must have a sense of humor and low
blood pressure.
Of all forms of dispute resolution, mediation probably offers the strongest “win-win” potential.
Because the goal is voluntary settlement, neither party needs to fear that it will end up the loser.
This is in sharp contrast to litigation, where one party is very likely to lose. Removing the fear of
defeat often encourages thinking and talking that are more open and realistic than negotiations
held in the midst of a lawsuit. Studies show that more than 75 percent of mediated cases do reach
a voluntary settlement.
5-5b Arbitration
In this form of ADR, the parties agree to bring in a neutral third party, but with a major difference:
The arbitrator has the power to impose an award.
Arbitration
A form of ADR in which a neutral third party has the power to impose a binding decision
The arbitrator allows each side equal time to present its case and, after deliberation, issues a
binding decision, generally without giving reasons. Unlike mediation, arbitration ensures that there
will be a final result, although the parties lose control of the outcome. Arbitration is generally
faster and cheaper than litigation.
Parties in arbitration give up many rights that litigants retain, including discovery. In
arbitration, as already discussed as applied to trials, discovery allows the two sides in a lawsuit to
obtain documentary and other evidence from the opponent before the dispute is decided.
Arbitration permits both sides to keep secret many files that would have to be divulged in a court
case, potentially depriving the opposing side of valuable evidence. A party may have a stronger
case than it realizes, and the absence of discovery may permanently deny it that knowledge.
Arbitration agreements are contracts in which the parties agree to arbitrate their claims
instead of filing a lawsuit. Traditionally, parties signed arbitration agreements after an incident. A
car accident would happen first, and then the drivers would agree to arbitration. But today, many
parties agree in advance to arbitrate any disputes that may arise in the future. It is a common clause
in both employment and consumer agreements. Despite evidence that these clauses are harmful to
plaintiffs, courts will generally enforce them if they meet two conditions. First, both parties must
promise to submit disputes to arbitration. A unilateral agreement only requiring one party to give
up its right to sue is unenforceable. Second, the contract must provide a neutral forum to resolve
disputes and adopt reasonable rules to govern proceedings. One party cannot have the exclusive
right to choose the arbitrators.
Arbitration
Contracts in which the parties agree to arbitrate their claims instead of filing a lawsuit
agreements
CHAPTER CONCLUSION
No one will ever know for sure whether Tony took his own life. Craig Bergson’s evidence
might have tipped the scales in favor of Coastal. But even that is uncertain, since the jury could
have found him unpersuasive. After two years, the case ends with a settlement and uncertainty—
both typical lawsuit results. The vaguely unsatisfying feeling about it all is only too common and
indicates why litigation is best avoided—by reasonable negotiation.
CHAPTER
6
CRIME
Crime can take us by surprise. Stacey tucks her nine-year-old daughter, Beth, into bed. Promising
her husband, Mark, that she will be home by 11:00 p.m., she jumps into her car and heads back to
Be Patient, Inc. When her iPhone connects to the sound system in her $100,000 sedan, she tries to
relax by listening to music. Be Patient is a healthcare organization that owns five geriatric facilities.
Most of its patients use Medicare, and Stacey supervises all billing to their largest client, the federal
government.
She parks in a well-lighted spot on the street and walks to her building, failing to notice two
men, collars turned up, watching from a parked truck. Once in her office, she goes straight to her
computer and works on billing issues. Tonight’s work goes more quickly than she expected, thanks
to new software she helped develop. At 10:30 p.m., she emerges from the building with a quick
step and a light heart, walks to her car—and finds it missing.
A major crime has occurred during the 90 minutes Stacey was at her desk, but she
will never report it to the police.
A major crime has occurred during the 90 minutes Stacey was at her desk, but she will never
report it to the police. It is a crime that costs Americans countless dollars each year, yet Stacey
will not even mention it to friends or family. Stacey is the criminal.
When we think of crime, we imagine the drug dealers and bank robbers endlessly portrayed on
television. We do not picture corporate executives sitting at polished desks. “Street crimes” are
indeed serious threats to our security and happiness. They deservedly receive the attention of the
public and the law. But when measured only in dollars, street crime takes second place to whitecollar crime, which costs society tens of billions of dollars annually.
The hypothetical about Stacey is based on many real cases and is used to illustrate that crime
does not always dress the way we expect. Her car was never stolen; it was simply towed. Two
parking bureau employees, watching from their truck, saw Stacey park illegally and did their job.
It is Stacey who committed a crime—Medicare fraud. Every month, she has billed the government
for work that her company has not performed. Stacey’s scheme was quick and profitable—and a
distressingly common crime.
Crime, whether violent or white-collar, is detrimental to all society. It imposes a huge cost on
everyone. Just the fear of crime is expensive—homeowners buy alarm systems, and businesses
hire security guards. But the anger and fear that crime engenders sometimes tempt us to forget that
not all accused people are guilty. Everyone suspected of a crime should have the protections that
you would want yourself. As the English jurist William Blackstone said, “Better that ten guilty
persons escape than that one innocent suffer.”
Thus, criminal law is a balancing act—between making society safe and protecting us all from
false accusations and unfair punishment.
6-1 CRIMINAL PROCEDURE
Most of this book focuses on civil law, so we begin with a discussion of the differences between
a civil and a criminal case.
6-1a A Civil versus a Criminal Case
In civil cases, the wrongdoing has harmed the safety or property of the parties, but it is not so
serious that it threatens society as a whole. Conduct becomes criminal when society outlaws
it. If a state legislature or Congress concludes that certain behavior harms public safety and
welfare, it passes a statute forbidding that activity; in other words, declaring it criminal. Medicare
fraud, which Stacey committed, is a crime because Congress has outlawed it.
The title of a criminal case is usually the government versus someone: The United States of
America v. Simpson or The State of Illinois v. Simpson. This name illustrates a daunting thought—
if you are Simpson, the vast power of the government is against you. Because of the government’s
great power and the severe penalties it can impose, criminal procedure is designed to protect the
accused and ensure that criminal trials are fair. Many of the protections for those accused of a
crime are found in the first ten amendments to the United States Constitution, known as the Bill
of Rights.
Criminal
The process by which criminals are investigated, accused, tried, and sentenced
procedure
Prosecution
Suppose the police arrest Roger and accuse him of breaking into a store and stealing 50 computers.
The owner of the store has been harmed, so he has the right to sue the thief in civil court to recover
money damages. But only the government can prosecute a crime and punish Roger by sending
him to prison. The government may also impose a fine on Roger, but it keeps the fine and does
not share it with the victim. (However, the court will sometimes order restitution, meaning that
the defendant must reimburse the victim for the harm suffered.)
Restitution
When a guilty defendant must reimburse the victim for the harm suffered
Burden of Proof
In a civil case, the plaintiff must prove her case only by a preponderance of the evidence. 1 But
because the penalties for conviction in a criminal case are so serious, the government has to
prove its case beyond a reasonable doubt. In a criminal case, if the jury has any significant doubt
at all that Roger stole the computers, it must acquit him.
Beyond
a
reasonable
doubt
The very high burden of proof in a criminal trial, demanding much more certainty than required in a civil
trial
Right to a Jury
The facts of a case are decided by a judge or jury. A criminal defendant has a right to a trial by
jury for any charge that could result in a sentence of six months or longer. The defendant may
choose not to have a jury trial, in which case, the judge decides the verdict. When the judge is the
fact finder, the proceeding is called a bench trial.
Bench
There is no jury; the judge reaches a verdict
trial
Felonies and Misdemeanors
A felony is a serious crime, for which a defendant can be sentenced to one year or more in prison.
Murder, robbery, rape, wire fraud, and embezzlement are felonies. A misdemeanor is a less
serious crime, often punishable by a year or less in a county jail. Public drunkenness, driving
without a license, and shoplifting are considered misdemeanors in many states.
Felony
A serious crime, for which a defendant can be sentenced to one year or more in prison
Misdemeanor
A less serious crime, often punishable by less than a year in a county jail
6-1b State of Mind
Voluntary Act
A defendant is not guilty of a crime if she was forced to commit it. In other words, she is not
guilty if she acted under duress. However, the defendant bears the burden of proving by a
preponderance of the evidence that she did act under duress. In 1974, a terrorist group kidnapped
heiress Patricia Hearst from her college apartment. After being tortured for two months, she
participated in a bank robbery with the group. Despite opportunities to escape, she stayed with the
criminals until her capture by the police a year later. The State of California put on her on trial for
bank robbery. One question for the jury was whether she had voluntarily participated in the crime.
This was an issue on which many people had strong opinions. Ultimately Hearst was convicted,
sent to prison, and then later pardoned.
Entrapment
When the government induces the defendant to break the law, the prosecution must prove
beyond a reasonable doubt that the defendant was predisposed to commit the crime. The goal
is to separate the cases where the defendant was innocent before the government tempted him from
those where the defendant was only too eager to break the law.
Kalchinian and Sherman met in the waiting room of a doctor’s office where they were both
being treated for drug addiction. After several more meetings, Kalchinian told Sherman that the
treatment was not working for him and he was desperate to buy drugs. Could Sherman help him?
Sherman repeatedly refused, but ultimately agreed to help end Kalchinian’s suffering by providing
him with drugs. Little did Sherman know that Kalchinian was a police informer. Sherman sold
drugs to Kalchinian a number of times. Kalchinian rewarded this act of friendship by getting
Sherman hooked again and then turning him in to the police. A jury convicted Sherman of drug
dealing, but the Supreme Court overturned the conviction on the grounds that Sherman had been
entrapped. The Court felt there was not enough evidence that Sherman was predisposed to commit
the crime.
Conspiracy
Jeen and Sunny Han were 22-year-old identical twin sisters with a long history of physical and
verbal fights. One day, Jeen and two teen-age boys purchased gloves, twine, tape, Pine Sol, and
garbage bags. While Jeen waited outside Sunny’s apartment, the boys forced their way in, tied up
Sunny and her roommate, and put them in the bathtub. Luckily, Sunny had a chance to dial 911 as
she heard the boys breaking in. When the police arrived, the two boys fled. This case raises several
questions: Has Jeen committed a crime? Are the boys guilty of anything more than breaking into
Sunny’s apartment? How did this family go so terribly wrong? (Because this is a business law text,
we can only answer the first two questions.)
If the police discover a plot to commit a crime, they can arrest the defendants before any harm
has been done. It is illegal to conspire to commit a crime, even if that crime never actually
occurs. A defendant can be convicted of taking part in a conspiracy if:
•
•
•
A conspiracy existed,
The defendants knew about it, and
Some member of the conspiracy voluntarily took a step toward implementing it.
In the Han case, the jury convicted Jeen and the two boys of a conspiracy to murder her sister.
As the court asked: What was she planning to do with the Pine Sol and plastic bags, given that she
did not have a home? She was sentenced to a long prison term. The two boys got lesser (but still
substantial) sentences because the judge believed Jeen had masterminded the crime.
6-1c Gathering Evidence: The Fourth Amendment
If the police suspect that a crime has been committed, they will need to obtain evidence. The
Fourth Amendment to the Constitution prohibits the government from making illegal
searches and seizures. This amendment applies to individuals, corporations, and other
organizations. The goal of the Fourth Amendment is to protect individuals and businesses from
the powerful state.
Warrant
As a general rule, the police must obtain a warrant before conducting a search. A warrant is
written permission from a neutral official, such as a judge or magistrate, to conduct a search.2
Warrant
Written permission from a neutral officer to conduct a search
The warrant must specify with reasonable precision the place to be searched and the
items to be seized. Thus, if the police say they have reason to believe that they will find bloody
clothes in the suspect’s car in his garage, they cannot also look through his house and confiscate
file folders.
Probable Cause
The magistrate will issue a warrant only if there is probable cause. Probable cause means that,
based on all the information presented, it is likely that evidence of a crime will be found in the
place to be searched.
Probable
It is likely that evidence of a crime will be found in the place to be searched
cause
Searches without a Warrant
There are seven circumstances under which police may search without a warrant.
Plain View. When Rashad Walker opened his door in response to a police officer’s knock, he was
holding a marijuana joint in his hand. The court held that the police did not need a warrant to make
an arrest because evidence of the crime was in plain view.
Emergencies. If the police believe that evidence is about to be destroyed, they can search without
a warrant. Thus, if they suspect someone is using illegal drugs in an apartment, they can enter
without a warrant because, in the time it would take to contact a magistrate, the drugs might be
gone.
Automobiles. If police have lawfully stopped a car and then observe evidence of other crimes in
the car, such as burglary tools, they may search.
Lawful Arrest. Police may always search a suspect they have arrested. The goal is to protect the
officers and preserve evidence.
Consent. Anyone lawfully living in a dwelling can allow the police in to search without a warrant.
If your roommate gives the police permission to search your house, that search is legal.
Stop and Frisk. None of us wants to live in a world in which police can randomly stop and frisk
us on the street anytime they feel like it. The police do have the right to stop and frisk, but only if
they have a clear and specific reason to suspect that criminal activity may be afoot and that the
person may be armed and dangerous.
In the following case, the police had the right to stop the driver, but could they search his car?
You Be the Judge
Rodriguez v. United States
135 S. Ct. 1609
United States Supreme Court, 2015
Facts: Driving along a highway just after midnight, Dennys Rodriguez briefly swerved onto the
highway shoulder, which is a violation of the law. Officer Morgan Struble stopped him, questioned
him, ran a records check on the car registration and his driver’s license, and then gave him a
warning ticket.
After explaining the warning to Rodriguez and returning the documents to him, Struble asked
permission to walk his police dog around Rodriguez’s vehicle. Rodriguez said no. On the officer’s
orders, Rodriguez exited the car. Then Struble walked his dog twice around the vehicle. The dog
signaled the presence of drugs. While searching the car, Struble found methamphetamine, an
illegal drug.
At trial, Rodriguez argued that the dog sniff was illegal for two reasons. First, Struble had
conducted a stop and frisk after the traffic stop was over. Second, for a search to be legal, police
must have a good reason to suspect a specific criminal activity, which Struble did not have. Both
the trial court and the appellate court disagreed with Rodriguez. The Supreme Court
granted certiorari.
You Be the Judge: Was the dog sniff legal?
Argument for the Government: Officer Struble stopped a car that had swerved onto the shoulder
of the highway. Maybe the driver was tired, or drunk, or high on drugs. In any event, Struble had
reason to be suspicious. The dog sniff took minutes. That is not an unreasonable burden.
Argument for the Defendant: Officer Struble saw Rodriguez driving dangerously. Stopping the
car and running a records check are reasonable ways to protect highway safety. A dog sniff is
entirely different—its goal is to detect crime. But the officer had no reason to believe that a crime
had been committed. Briefly swerving on a highway after midnight is no evidence of wrongdoing.
The police should not be allowed to conduct random searches of cars that have been stopped for a
trivial traffic offense.
No Expectation of Privacy. The police have a right to search any area in which the defendant
does not have a reasonable expectation of privacy. For example, Rolando Crowder was staying at
his friend Bobo’s apartment. Hearing the police in the hallway, he ran down to the basement. The
police found Crowder in the basement with drugs nearby. Crowder argued that the police should
have obtained a warrant, but the court ruled that Crowder had no expectation of privacy in Bobo’s
basement.
Technology and social media have created new challenges in determining what is a reasonable
expectation of privacy. For example, police do need a warrant to:
•
•
•
•
•
Search the contents of your cell phone or personal computer,
Intercept email in transit,
Read private Facebook profiles and postings,
Attach a GPS tracking device to your car, or
Require a blood test.
They do not need a warrant to:
•
•
•
•
•
•
Require a DNA test on someone arrested for a serious crime,
Require a breathalyzer test,
Obtain records from the phone company (such as a phone’s location or a list of numbers called),
Find out whom you have emailed or what websites you have visited,
Search your internet messages, or
Check your public social media profiles or your Twitter posts.
Exclusionary Rule
Under the exclusionary rule, any evidence the government acquires illegally may not be used
at trial. The Supreme Court created the exclusionary rule to prevent governmental misconduct.
The theory is simple: If police and prosecutors know in advance that illegally obtained evidence
cannot be used in court, they will not be tempted to make improper searches or engage in other
illegal behavior.
Opponents of the rule argue that a guilty person may go free because one police officer
bungled. They are outraged by cases like Coolidge v. New Hampshire. Pamela Mason, a 14-yearold babysitter, was brutally murdered. Because citizens of New Hampshire were so angry and
scared, the state’s attorney general personally led the investigation. Police found strong evidence
that Edward Coolidge had committed this terrible crime. They took the evidence to the attorney
general, who personally issued a search warrant. After a search of Coolidge’s car uncovered
incriminating evidence, he was found guilty of murder and sentenced to life in prison. But the
Supreme Court reversed the conviction. The warrant had not been issued by a neutral magistrate.
A law officer may not lead an investigation and simultaneously decide what searches are
permissible. Ultimately, Coolidge pleaded guilty to second degree murder and served many years
in prison.
Is it reasonable to let a few dangerous criminals go free to discourage improper police
behavior? Or is that price too high?
6-1d After Arrest
Right to a Lawyer: The Sixth Amendment
The Sixth Amendment guarantees the right to a lawyer at all important stages of the criminal
process. Because of this right, the government must appoint a lawyer to represent, free of charge,
any defendant who cannot afford one.
Double Jeopardy
The prohibition against double jeopardy means that a defendant may be prosecuted only once for
a particular criminal offense. The purpose is to prevent the government from destroying the lives
of innocent citizens with repeated prosecutions.
Double
A criminal defendant may be prosecuted only once for a particular criminal offense.
jeopardy
Indictment
Once the police provide the prosecutor with evidence, he presents this evidence to a grand jury.
Only the prosecutor presents evidence, not the defense attorney, because it is better for the
defendant to save her evidence for the trial jury.
Grand
jury
A group of ordinary citizens that decides whether there is probable cause the defendant committed the crime
with which she is charged
If the grand jury determines that there is probable cause that the defendant committed the
crime with which she is charged, an indictment is issued. An indictment is the government’s
formal charge that the defendant has committed a crime and must stand trial. Because the grand
jury never hears the defendant’s evidence, it is relatively easy for prosecutors to obtain an
indictment. In short, an indictment is not the same thing as a guilty verdict.
Indictment
The government’s formal charge that the defendant has committed a crime and must stand trial
Arraignment
At an arraignment, a clerk reads the formal charges of the indictment. The defendant must enter a
plea to the charges. At this stage, most defendants plead not guilty.
Plea Bargaining
A plea bargain is an agreement between prosecution and defense that the defendant will plead
guilty to a reduced charge, and the prosecution will recommend to the judge a relatively lenient
sentence. About 97 percent of all federal prosecutions end in a plea bargain. Such a high percentage
has led to some concern that innocent people may be pleading guilty to avoid the risk of tough
mandatory sentences. A judge need not accept the bargain but usually does.
Plea
bargain
An agreement in which the defendant pleads guilty to a reduced charge, and the prosecution recommends
to the judge a relatively lenient sentence
In the federal court system, about 97 percent of all prosecutions end in a plea
bargain.
Self-Incrimination: The Fifth Amendment
The Fifth Amendment bars the government from forcing any person to provide evidence
against himself. This provision means that an accused cannot be forced to testify at trial.
Indeed, many criminal defendants do not. After all, the burden of proof is on the prosecution,
so the defendant may not testify if his lawyer feels the prosecution has not proved its case.
In addition, this provision means that the police may not use mental or physical coercion to
force a confession or any other information out of someone. Society does not want a government
that engages in torture. Such abuse might occasionally catch a criminal, but it would injure
innocent people and make all citizens fearful of the government that is supposed to represent them.
Also, coerced confessions are unreliable because the defendant may confess simply to end the
torture. If the police do force a confession, the exclusionary rule prohibits the evidence from being
admitted in court.
In the following landmark case, the Supreme Court established the requirement that police
remind suspects of their right to protection against self-incrimination—with the very same warning
that we have all heard so many times on television shows.
Landmark Case
Miranda v. Arizona
384 U.S. 436
United States Supreme Court, 1966
CASE SUMMARY
Facts: Ernesto Miranda was a mentally ill, penniless Mexican immigrant. At a Phoenix police
station, a rape victim identified him as her assailant. The police did not tell him that he had a right
to have a lawyer present during questioning. After two hours of interrogation, Miranda signed a
confession that said that it had been made voluntarily.
At Miranda’s trial, the judge admitted this written confession into evidence. The officers
testified that Miranda had also made an oral confession during the interrogation. The jury found
Miranda guilty of kidnapping and rape. After the Supreme Court of Arizona affirmed the
conviction, the U. S. Supreme Court agreed to hear his case.
Issue: Was Mirandas confession admissible at trial? Should his conviction be upheld?
Decision: Neither his written nor his oral confession was admissible. His conviction was
overturned.
Reasoning: The Supreme Court had heard a series of cases in which the police had not only
engaged in lengthy secret interrogations but had also beaten, hanged, and whipped suspects. The
court’s goals in this case were to prevent police wrongdoing, fairly balance state power and
individual rights, and respect human dignity.
Justice requires that the government, when seeking to punish an individual, must find the
evidence itself rather than force him to reveal it from his own mouth. Therefore, once the police
deprive a suspect of his freedom, they are required to protect his constitutional right to avoid selfincrimination. To do so, they must warn him that he has a right to remain silent, that any statement
he does make may be used as evidence against him, and that he has a right to the presence of an
attorney, either hired by him or provided by the government. If the police do not inform the accused
of these rights, then nothing he says or writes can be admitted in court.
The defendant may waive these rights, provided the waiver is made voluntarily, knowingly,
and intelligently. If, however, he indicates in any manner and at any stage of the process that he
does not want to be interrogated or wishes to talk with an attorney, then the police cannot question
him. The mere fact that he may have volunteered some statements on his own does not deprive
him of the right to refrain from answering any further questions until he has consulted with an
attorney.
Trial and Appeal
At trial, it is the prosecution’s job to convince the jury beyond a reasonable doubt that the defendant
committed every element of the crime charged. Convicted defendants have a right to appeal.
Punishment
The Eighth Amendment prohibits cruel and unusual punishment. Courts are generally
unsympathetic to claims under this provision. For example, the Supreme Court has ruled that the
death penalty is not cruel and unusual as long as it is not imposed in an arbitrary or capricious
manner.
6-2 CRIMES THAT HARM BUSINESSES (AND THEIR
CUSTOMERS)
Businesses must deal with five major crimes: larceny, embezzlement, fraud, arson, and hacking.
6-2a Larceny
It is holiday season at the mall, the period of greatest profits—and the most crime. At the Foot
Forum, a teenager limps in wearing ragged sneakers and sneaks out wearing Super Sneakers,
valued at $145. Sweethearts swipe sweaters, pensioners pocket produce. All are committing
larceny.
Larceny is the trespassory taking of personal property with the intent to steal
it. “Trespas-sory taking” means that someone else originally has the property. The Super Sneakers
are personal property (not real estate), they were in the possession of the Foot Forum, and the
teenager deliberately left without paying, intending never to return the goods. That is larceny. By
contrast, suppose Fast Eddie leaves Blooming-dale’s in New York, descends to the subway system,
and jumps over a turnstile without paying. Larceny? No. He has “taken” a service—the train ride—
but not personal property.
Larceny
The trespassory taking of personal property with the intent to steal it
6-2b Embezzlement
This crime also involves illegally obtaining property, but with one big difference: The culprit
begins with legal possession. Embezzlement is the fraudulent conversion of property already in
the defendant’s possession.
Embezzlement
The fraudulent conversion of property already in the defendant’s possession
There is no love in this story: For 15 years, Kristy Watts worked part time as a bookkeeper for
romance writer Danielle Steele, handling payroll and accounting. During that time, Watts stole
$768,000 despite earning a substantial salary. Watts said that she had been motivated by envy and
jealousy. She was sentenced to three years in prison and agreed to pay her former boss almost $1
million.
6-2c Fraud
Robert Dorsey owned Bob’s Chrysler in Highland, Illinois. When he bought cars, the First
National Bank of Highland paid Chrysler, and Dorsey—supposedly—repaid the bank as he sold
the autos. Dorsey, though, began to suffer financial problems, and the bank suspected he was
selling cars without repaying his loans. A state investigator notified Dorsey that he planned to
review all dealership records. One week later, the dealership burned down. An arson investigator
discovered that an electric iron, connected to a timer, had been placed on a pile of financial papers
doused with accelerant. Dorsey had committed two crimes that cost businesses billions of dollars
annually—fraud (for failing to repay the loans) and arson (for burning down the dealership).
Fraud refers to various crimes, all of which have a common element: deception for the
purpose of obtaining money or property. Robert Dorsey’s precise violation was bank fraud
because he had taken money from the bank even after he knew he could not pay it back. It is bank
fraud to use deceit to obtain money, assets, securities, or other property under the control of any
financial institution.
Fraud
Deception for the purpose of obtaining money or property
Wire Fraud and Mail Fraud
Wire and mail fraud are additional federal crimes involving the use of interstate mail, telegram,
telephone, radio, or television to obtain property by deceit. For example, if Marsha makes an
interstate phone call to sell land that she does not own, that is wire fraud.
Internet Fraud
Online scams are common and include the sale of merchandise that is either defective or
nonexistent, the so-called Nigerian letter scam,3 billing for “free” services, and romance fraud (you
meet someone online who wants to visit you but needs money for travel expenses).
Other common forms of internet fraud include the following.
Auctions. Internet auctions are the number one source of consumer complaints about online fraud.
Wrongdoers either sell goods they do not own, provide defective goods, or offer fakes.
Identity Theft. In identity theft, thieves steal the victim’s social security number and other
personal information such as bank account numbers and mother’s maiden name, which they use
to obtain loans and credit cards. The Identity Theft and Assumption Deterrence Act of
1998 prohibits the use of false identification to commit fraud or other crime, and it also permits
the victim to seek restitution in court. The Aggravated Identity Theft statute imposes a
mandatory additional sentence of two years on anyone who engages in identity theft during the
commission of certain crimes. Also, many states have their own identity theft statutes.
Phishing. In this crime, a fraudster sends a message directing the recipient to enter personal
information on a website that is an illegal imitation of a legitimate site. The message might be an
email telling you that you need to update your email or bank account information, or it might be
an online message that appears to be from a friend suggesting that you click on a link to a great
article.
EXAMStrategy
Question: Eric mails glossy brochures to 25,000 people, offering to sell them a one-month timeshare in a stylish apartment in Las Vegas. To reserve a space, customers need only send in a $2,000
deposit. Three hundred people respond, sending in the money. In fact, there is no such building.
Eric is planning to flee with the cash. Once arrested, he faces a 20-year sentence. (1) With what
crime is Eric charged? (2) Is it a felony or misdemeanor? (3) Does Eric have a right to a jury trial?
(4) What is the government’s burden of proof?
Strategy: (1) Eric is deceiving people, and that should tell you the type of crime. (2, 3) The
potential 20-year sentence determines whether Eric’s crime is a misdemeanor or felony and
whether or not he is entitled to a jury trial. (4) We know that the government has the burden of
proof in criminal prosecutions—but how high is that burden?
Result: Eric has committed fraud. A felony is a crime in which the sentence could be a year or
more. The potential penalty here is 20 years, so it is a felony. Eric has a right to a jury trial because
the sentence could be six months or longer. The prosecution must prove its case beyond a
reasonable doubt, a much higher burden than that in a civil case.
6-2d Arson
Robert Dorsey, the Chrysler dealer, committed a second serious crime. Arson is the malicious use
of fire or explosives to damage or destroy any real estate or personal property. It is both a federal
and a state crime. Dorsey used arson to conceal his bank fraud. Most arsonists hope to collect on
insurance policies. Every year, thousands of buildings are burned as owners try to extricate
themselves from financial difficulties. Everyone who purchases insurance ends up paying higher
premiums because of this wrongdoing.
Arson
The malicious use of fire or explosives to damage or destroy real estate or personal property
6-2e Hacking
During the 2008 presidential campaign, college student David Kernell guessed vice presidential
candidate Sarah Palin’s email password, accessed her personal email account, and published the
content of some of her emails. To some, his actions seemed like an amusing prank. The joke turned
out not to be so funny when Kernell was sentenced to one year in prison.
Gaining unauthorized access to a computer system is called hacking. It is a crime under the
federal Computer Fraud and Abuse Act of 1986 (CFAA). This statute applies to any computer,
cell phone, or other equipment attached to the internet. The CFAA prohibits:
•
•
•
Accessing a computer without authorization and obtaining information from it,
Intentional, reckless, and negligent damage to a computer, and
Trafficking in computer passwords.
Hacking
Gaining unauthorized access to a computer system
6-3 CRIMES COMMITTED BY BUSINESS
A corporation can be found guilty of a crime based on the conduct of any of its agents, who include
anyone undertaking work on behalf of the corporation. An agent can be a corporate officer, an
accountant hired to audit financial statements, a sales clerk, or almost any other person performing
a job at the company’s request.
If an agent commits a criminal act within the scope of his employment and with the intent
to benefit the corporation, the company is liable.4 This means that the agent himself must first
be guilty. If the agent is guilty, the corporation is too.
Some critics believe that the criminal law has gone too far. They argue that
imposing criminal liability on a corporation is unfair to its innocent employees and shareholders,
unless high-ranking officers were directly involved in the illegal conduct.
Others argue that making companies criminally liable deters wrongdoing and emphasizes the
importance of complying with the law. Indeed, they argue that current fines are too small, that they
should be large enough to really hurt the companies and deter future criminal acts.
6-3a Making False Statements
It is illegal to make false statements or engage in a cover up during any dealings with the U. S.
government. Sometimes this provision is used to convict someone who is suspected of committing
a complex crime that may itself be difficult to prove. In the most famous case, the government
accused Martha Stewart, the celebrity homemaker and entrepreneur, of engaging in insider trading.
At trial, that charge was thrown out, but the jury nevertheless convicted her of lying to the officers
who had investigated the alleged insider trading. Stewart ultimately served five months in prison.
However, the Justice Department recently announced that it would only use this statute against
defendants who knew their conduct was illegal.
6-3b RICO
The Racketeer Influenced and Corrupt Organizations Act (RICO) is one of the most powerful
and controversial statutes ever written. Congress passed the law primarily to prevent gangsters
from taking money they earned illegally and investing it in legitimate businesses. But RICO has
expanded far beyond the original intentions of Congress and is now used more often against
ordinary businesses than against organized criminals. Some regard this wide application as a
tremendous advance in law enforcement, but others view it as an oppressive weapon used to club
ethical companies into settlements they should never have to make.
Racketeer
Influenced
and
Corrupt
Organizations
Act
(RICO)
A powerful federal statute, originally aimed at organized crime, now used against many ordinary businesses
RICO prohibits using two or more racketeering acts to accomplish any of these goals:
(1) investing in or acquiring legitimate businesses with criminal money, (2) maintaining or
acquiring businesses through criminal activity, or (3) operating businesses through criminal
activity.
What does that mean in English? It is a two-step process to prove that a person or an
organization has violated RICO:
1. The prosecutor must show that the defendant committed two or more racketeering acts,
which are any of a long list of specified crimes: embezzlement, arson, mail fraud, wire fraud,
and so forth. Thus, if a gangster ordered a building torched in January and then burned a
second building in October, that would be two racketeering acts. If a stockbroker sold a fake
stock to two customers, that would be two racketeering acts.
Racketeering
Any of a long list of specified crimes, such as embezzlement, arson, mail fraud, and wire fraud
acts
2. The prosecutor must then show that the defendant used these racketeering acts to accomplish
one of the three purposes listed above. If the gangster committed two arsons and then used
the insurance payments to buy a dry cleaning business, that would violate RICO.
The government may prosecute both individuals and organizations for violating RICO. It may
prosecute a mobster, claiming that he has run a heroin ring for years. It may also prosecute a
business, claiming that it lied about corporate assets in a stock sale. If the government proves its
case, the defendant can be punished with large fines and a prison sentence of up to 20 years. And
the court may order a convicted defendant to hand over any property or money used in the criminal
acts or derived from them.
In addition to criminal penalties, RICO also creates civil law liabilities. The government,
organizations, and individuals all have the right to file civil lawsuits seeking damages and, if
necessary, injunctions. For example, a physician sued State Farm Insurance, alleging that the
company had hired doctors to produce false medical reports that the company used to cut off claims
by injured policy holders. As a result of these fake reports, the company refused to pay the plaintiff
for legitimate services he performed for the policy holders. RICO is powerful (and for defendants,
frightening) in part because a civil plaintiff can recover treble damages, that is, a judgment for
three times the harm actually suffered, as well as attorney’s fees.
Treble
A judgment for three times the harm actually suffered
damages
6-3c Money Laundering
Money laundering consists of taking the proceeds of certain criminal acts and either (1) using the
money to promote crime or (2) attempting to conceal the source of the money.
Money
laundering
Using the proceeds of criminal acts either to promote crime or conceal the source of the money
Money laundering is an important part of major criminal enterprises. Successful criminals earn
enormous sums, which they must filter back into the flow of commerce in a way that allows their
crimes to go undetected. Laundering is an essential part of the corrosive traffic in drugs. Profits,
all in cash, may mount so swiftly that dealers struggle to use the money without attracting the
government’s attention. Colombian drug cartels set up a sophisticated system in which they
shipped money to countries such as Dubai that do not keep records on cash transactions. This
money was then transferred to the United States disguised as offshore loans. Prosecution by the
U.S. government led to the collapse of some of the banks involved.
6-3d Hiring Illegal Workers
It is illegal knowingly to employ unauthorized workers. Thus, employers are required to verify
their workers’ eligibility for employment in the United States. Within three days of hiring a worker,
the employer must complete an I-9 form, documenting each worker’s eligibility. The government
has the right to arrest employees working illegally and to bring charges against the business that
hired them.
EXAMStrategy
Question: Mohawk Industries was one of the largest carpet manufacturers in the United States.
Some of its workers alleged that the company routinely hired illegal immigrants and, as a result,
the pay of legal workers was lower than it otherwise would have been. If these allegations are true,
what laws has the company violated?
Strategy: What law prohibits a company from committing two or more illegal acts? What is the
illegal act here?
Result: It is illegal to employ unauthorized workers. Repeatedly doing so is a RICO violation.
6-3e Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (FCPA) prohibits American companies from paying
bribes overseas. Under this statute:
•
•
•
It is illegal for any employee or agent of a U.S. company (and some foreign companies) to give
anything of value to any foreign official for purposes of influencing an official decision.
A facilitating payment for a routine governmental action does not count as a bribe and is legal.
Examples of routine governmental action include processing visas or supplying utilities such as phone,
power, or water. To be legal, these payments must simply be hastening an inevitable result that does
not involve discretionary action. Thus, for example, “paying an official a small amount to have the
power turned on at a factory might be a facilitating payment; paying an inspector to ignore the fact that
the company does not have a valid permit to operate the factory would not be.”5
All publicly traded companies—whether they engage in international trade or not— must keep
accurate and detailed records to prevent hiding or disguising bribes.
Punishments for violations of this act can be severe. A company may face large fines and the
loss of profits earned as a result of illegal bribes. In 2016, a Dutch telecommunications company
paid $795 million in fines for having given bribes to Uzbek officials. In addition to financial
penalties, individuals who violate the FCPA can face up to five years in prison.
6-3f Punishing a Corporation
Fines
The most common punishment for a corporation is a fine. This makes sense, in that a major purpose
of a business is to earn a profit, and a fine, theoretically, hurts. But most fines are modest by the
present standards of corporate wealth. BP was found guilty of two serious legal violations. In
Alaska, company pipelines spilled 200,000 gallons of crude oil onto the tundra. In Texas, a
catastrophic explosion at a refinery killed 15 people and injured 170 more. The total fine for both
criminal violations was $62 million, which sounds like a large number. But it was not enough,
evidently, to change BP’s practices. The company pleaded guilty to criminal charges in connection
with a 2010 oil rig explosion in the Gulf of Mexico, which killed 11 workers and caused the largest
marine oil spill ever. The rig that exploded had many safety violations. Will that $4.5 billion fine
change BP’s business practices?
Compliance Programs
The Federal Sentencing Guidelines are the detailed rules that judges must follow when
sentencing defendants convicted of federal crimes. The guidelines instruct judges to determine
whether, at the time of the crime, the corporation had in place a serious compliance program, that
is, a plan to prevent and detect criminal conduct at all levels of the company. A company that can
point to a detailed, functioning compliance program may benefit from a dramatic reduction in the
fine or other punishment. Indeed, a tough compliance program may even convince federal
investigators to limit any prosecution to those directly involved rather than attempting to convict
high-ranking officers or the company itself.
Federal
Sentencing
Guidelines
The detailed rules that judges must follow when sentencing defendants convicted of federal crimes
Compliance
A plan to prevent and detect improper conduct at all levels of a company
program
CHAPTER CONCLUSION
Crime has an enormous impact on society. Companies are victims of crimes, and sometimes
they also commit criminal actions. Successful business leaders are ever vigilant to protect their
company from those who wish to harm it, whether from inside or out.
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