Fundamentals of Business Law Fundamentals of Business Law MELISSA RANDALL AND COMMUNITY COLLEGE OF DENVER STUDENTS Fundamentals of Business Law by Melissa Randall is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted. Fundamentals of Business Law by Melissa Randall and Community College of Denver Students is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted. More information about this license may be found at https://creativecommons.org/licenses/by/4.0. Contents Introduction 1 What is an Open Textbook? 1 The Authors and Contributors 2 Feedback Requested 3 1. Introduction to Law and Types of Legal 4 Systems 1.1 Introduction to Law and Types of Legal 4 Systems 1.2 What Is Law and What Functions Does It 6 Serve? 1.3 Modern Legal Systems of the World 8 1.4 Sources of Law 14 1.5 Concluding Thoughts 22 2. The United States Court System 24 2.1 Introduction 24 2.2 Separation of Powers 25 2.3 Federalism 29 2.4 Trial and Appellate Courts 32 2.5 Concluding Thoughts 35 3. Litigation 37 3.1 Introduction 37 3.2 The Parties, Attorneys, and Jury 38 3.3 Standing 42 3.4 Subject Matter and Personal Jurisdiction 42 3.5 Venue 44 3.6 Pretrial Procedures 45 3.7 The Trial and Appeal 52 3.8 Concluding Thoughts 55 4. Alternative Dispute Resolution 56 4.1 Introduction 56 4.2 Negotiation 58 4.3 Mediation 60 4.4 Arbitration 62 4.5 Concluding Thoughts 65 5. The Constitution 66 5.1 Introduction 66 5.2 Federalism and Preemption 67 5.3 The Commerce Clause 75 5.4 Business and the Bill of Rights 76 5.5 Concluding Thoughts 86 6. International Law 89 6.1 Introduction 89 6.2 The Nature of International Law 91 6.3 Sources of International Law 93 6.4 US Laws that Apply to US Nationals 99 Abroad 6.5 Concluding Thoughts 100 7. Administrative Law 101 7.1 Introduction 101 7.2 Creation of Administrative Agencies 102 7.3 Agency Functions 105 7.4 Judicial Review of Agency Actions 109 7.5 Public Access to Agency Information 111 7.6 Concluding Thoughts 113 8. Criminal Law 114 8.1 Introduction 114 8.2 The Nature of Criminal Law 115 8.3 Constitutional Rights and Defenses 122 8.4 Common Business Crimes 129 8.5 Concluding Thoughts 133 9. Torts 134 9.1 Introduction 134 9.2 Intentional Torts 137 9.3 Negligence 145 9.4 Strict Liability 153 9.5 Concluding Thoughts 156 10. Contracts 159 10.1 Introduction 159 10.2 Contract Elements 161 10.3 Types of Contracts 165 10.4 Performance and Breach of Contract 168 10.5 Defenses to Contracts 171 10.6 Assignment, Delegation, and Third Party 177 Beneficiaries 10.7 Parol Evidence Rule 179 10.8 Remedies 179 10.9 Concluding Thoughts 186 11. Sales Contracts 187 11.1 Introduction 187 11.2 Scope of the UCC 188 11.3 Sales Contract Formation 193 11.4 Performance 198 11.5 Warranties 199 11.6 Concluding Thoughts 200 12. Writing Contracts 201 12.1 Writing Contracts 201 12.2 Structure of Contracts 202 12.3 Common Mistakes 211 12.4 Tips for Writing a Contract 213 12.5 Concluding Thoughts 218 13. Employment Law 219 13.1 Introduction 219 13.2 Employment At Will 220 13.3 Common Employment Law Torts 225 13.4 Wage and Hour Laws 225 13.5 Family Medical Leave Act 228 13.6 Occupational Safety and Health Act 229 13.7 Employee Retirement Income Security Act 230 13.8 Workers’ Compensation Laws 231 13.9 Unemployment Compensation 233 13.10 Labor Relations 234 13.11 Concluding Thoughts 242 14. Anti-Discrimination Law 243 14.1 Introduction 243 14.2 The Equal Pay Act of 1963 246 14.3 Title VII of the Civil Rights Act of 1964 248 14.4 Enforcement of Title VII 258 14.5 The Age Discrimination in Employment 261 Act of 1967 14.6 The Americans with Disabilities Act of 262 1990 14.7 Genetic Information Nondiscrimination 265 Act of 2008 14.8 Concluding Thoughts 266 15. Agency 268 15.1 Introduction 268 15.2 The Agency Relationship 269 15.3 Duties of Agents and Principals 273 15.4 Liability to Third Parties 277 15.5 Termination of Agency Relationship 280 15.6 Concluding Thoughts 281 16. Business Organizations 283 16.1 Introduction 283 16.2 Sole Proprietorship 285 16.3 Partnerships 286 16.4 Franchises 289 16.5 Joint Venture 290 16.6 Corporations 292 16.7 Limited Liability Entities 297 16.8 Concluding Thoughts 302 17. Partnerships 303 17.1 Introduction 303 17.2 Types of Partnerships 303 17.3 Partnership Agreements 305 17.4 Rights and Duties of Partners 308 17.5 Termination of a Partnership 311 17.6 Concluding Thoughts 313 18. Corporations 314 18.1 Introduction 314 18.2 Corporate Structure 315 18.3 Shareholder Rights 316 18.4 Corporate Officer and Directors 321 18.5 Legal Theories 324 18.6 Mergers, Consolidations, and Dissolutions 326 18.7 Concluding Thoughts 329 19. Antitrust Law 331 19.1 Introduction 331 19.2 Historical Development 332 19.3 Monopoly 335 19.4 Unreasonable Restraints on Trade 339 19.5 Price Discrimination 345 19.6 Enforcement 349 19.7 Concluding Thoughts 350 20. Consumer Law 351 20.1 Introduction 351 20.2 Protecting the Purchaser 352 20.3 Protecting the Debtor 355 20.4 Enforcement 363 20.5 Concluding Thoughts 364 21. Workplace Privacy and Information Security 365 21.1 Introduction 365 21.2 Right to Privacy 366 21.3 Workplace Privacy 370 21.4 Information Security Issues 380 21.5 Concluding Thoughts 386 22. Property 387 22.1 Introduction 387 22.2 Personal Property 388 22.3 Real Property 393 22.4 Wills and Trusts 404 22.5 Land Use Regulation 408 22.6 Environmental Law 410 22.7 Concluding Thoughts 417 23. Intellectual Property 419 23.1 Introduction 419 23.2 Intellectual Property 420 23.3 Constitutional Roots 423 23.4 Patents 425 23.5 Trade Secrets 431 23.6 Trademarks 432 23.7 Copyright 440 23.8 Concluding Thoughts 444 24. Bankruptcy 445 24.1 Introduction 445 24.2 Types of Bankruptcy 446 24.3 Bankruptcy Proceedings 452 24.4 Concluding Thoughts 456 Introduction What is an Open Textbook? Open textbooks are complete textbooks that have been funded, published, and licensed to be freely used, adapted, and distributed. As a particular type of Open Educational Resource (OER), this open textbook may be used and reused freely with no direct cost to the user. Unless otherwise noted, all content in this book is licensed with a Creative Commons Attribution 4.0 license (CC BY 4.0), which allows it to be adapted, remixed, and shared under the same license with attribution. Instructors and students may be interested in rearranging and adapting content or in transforming content into other formats. If so, please include the appropriate attribution under the Creative Commons license. More information about this license is available at https://creativecommons.org/licenses/by/4.0. 1 | Introduction The Authors and Contributors Melissa Randall is an attorney who teaches business law and Constitutional law at the Community College of Denver. Frustrated that the expensive textbook her business students were using contained legal errors, heavily edited case studies that confused students, and was a roadblock to their learning, Ms. Randall sought a better option, which ultimately led her down the OER path. Special thanks to Terence Lau and Lisa Johnson for their OER textbook “Introduction to Business Law,” which served as the inspiration for several chapters of this book. Ms. Randall’s business law students edited, updated, and revised the chapters contained in this textbook. They are also responsible for the visual depictions of the material. Although Ms. Randall is the subject matter expert who ensured the accuracy of the material, her students ensured the effective delivery of the content to undergraduate business students. It was truly a collaborative effort. Special thanks to Lucy Reyes and Krissy Main who turned the students’ rough visual concepts into professional quality graphics. Thanks also to the Colorado Department of Higher Education (CDHE) for the grant that partially funded the development of this book. Without it, we could not have hired Lucy and Krissy to be our graphic designers. Nor would we have been able to have written so many chapters so quickly. The CDHE’s support of OER and open pedagogy validated our classes’ commitment to doing meaningful work and to contribute to the future of higher education. Last, and certainly not least, thanks to the professionals who contributed their expertise to our book. Judges and attorneys filled our Counselor’s Corner with practical insights and advice Introduction | 2 to business professionals. Their insight from “the trenches” was an invaluable contribution. Subject matter experts peer reviewed chapters and worked with our students to ensure accurate information in dynamic areas of the law. Kathy was our dedicated copy editor who thoroughly proofread anything we gave her. Special thanks to the professional who was in the trenches the most: Tom. A successful businessman, Tom put his MBA to use by tirelessly editing the entire textbook to ensure that it was consistent and accurate in a business context. Our professional contributors volunteered their expertise and gave enthusiastically to our project. Words cannot express our gratitude for accompanying us on this journey. Feedback Requested The authors seek content-related suggestions from faculty, students, and users of this book. Please email Ms. Randall at Melissa.Randall@ccd.edu with any suggestions or feedback you may have. Also, faculty are invited to contact Ms. Randall to discuss other OER used in the business law course, including judicial opinions we use as case studies in lieu of heavily edited excerpts in textbook dialogue boxes. This textbook was finalized during the Spring 2020 semester. With the outbreak of covid-19, our collaborative efforts were curtailed. As a result, readers may find that some chapters are better edited than others. Please help us with any constructive feedback you may have to improve the book. If you are an instructor reviewing, adopting, or adapting this textbook, please help us understand how this book is being used. This helps all of us in the OER community understand our impact and justify future grant money. 3 | Introduction 1. Introduction to Law and Types of Legal Systems 1.1 Introduction to Law and Types of Legal Systems LEARNING OBJECTIVES 1. Understand the nature and sources of law. 2. Know the types of modern legal systems in the world. 3. Understand the various functions of a legal system. 4. Learn the primary sources of law in the United States. It is important for business people to understand the legal environment in which they are operating. To be successful, businesses must understand how law and economic principles influence each other. Businesses want to be successful, which usually means they want to be profitable. While a basic economic principle is that businesses act in their own selfinterest, they must do so within the parameters of the law. Sometimes businesses weigh the penalties of violating the law against the chances of getting caught to determine how they should behave. In both instances, the law is a restraint on behavior. Most people want to conduct their business legally. Following the rules saves money, time, and frustration, and it preserves individual and professional reputations. So, if businesses have Introduction to Law & Legal Systems | 4 an incentive to operate legally, why are do so many legal disputes occur? There are many reasons for this, including that many of our laws are poorly written, and reasonable people may disagree about what is “right.” Legal injuries happen even under the best of circumstances, and parties need a method to be compensated for their damages. A common theme in the study of law is responsibility. Law seeks to answer the questions: 1. Who is responsible, and what is their liability? and 2. How does a business limit exposure to liability in the first place? A solid understanding of business law minimizes the risk of liability and avoids legal disputes. The law provides a reasonable expectation of how things will be in the future based on how they have been in the past. It provides predictability and stability. This book does not teach how to practice law or conduct legal research. The goals of this book are practical. Think about studying business law as a map by which to navigate business dealings. We want to help you minimize the risk of legal liability and avoid serious legal disputes. This book serves as an introduction to legal topics that affect businesses. By understanding the legal landscape, you will have a better opportunity for business success. Counselor’s Corner Even if a business is not officially “international,” it is important to understand the legal systems of the world because consumers come from all over. Consumers, business partners, 5 | Introduction to Law & Legal Systems and competitors are products of their environments, including their societies and legal systems. Therefore, their expectations and how they interact with each other are influenced directly by their legal systems of origin. The most successful businesses take this into account. Not only for avoiding legal liability, but also for enhanced consumer satisfaction. ~Arham M., attorney 1.2 What Is Law and What Functions Does It Serve? Law is the system of rules which a particular nation or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties. In a nation, the law can serve to (1) keep the peace, (2) maintain the status quo, (3) preserve individual rights, (4) protect minorities, (5) promote social justice, and (6) provide for orderly social change. Some legal systems serve these purposes better than others. Although a nation ruled by an authoritarian government may keep the peace and maintain the status quo, it may also oppress minorities or political opponents (e.g., China, Zimbabwe, or Syria). Under colonialism, European nations often imposed peace in nations whose borders were created by those same European nations. With regard to the functions of the law, the empires may have kept the peace—largely with Introduction to Law & Legal Systems | 6 force—but they changed the status quo and seldom promoted the native peoples’ rights or social justice. In nations with various ethnic and tribal groups, it is often difficult for a single, united government to rule effectively. In Rwanda, for example, power struggles between Hutus and Tutsis resulted in the genocide of the Tutsi minority. In nations of the former Soviet Union, the withdrawal of a central power created power vacuums that were exploited by local leaders. When Yugoslavia broke up, the different ethnic groups—Croats, Bosniaks, and Serbs—fought bitterly rather than share power. In Iraq and Afghanistan, the blending of different groups of families, tribes, sects, and ethnic groups into an effective national governing body continues to be a challenge. These situations highlight the struggle of a nation to implement and maintain the Rule of Law. The Rule of Law is a system in which laws are public knowledge, are clear in meaning, and apply equally to everyone. These systems uphold national political and civil liberties. Rule of law systems establish authority, create expectations for behavior, and establish redress for grievances and penalties for deviance. Governance of conflict and the attainment of peace among the governed are its primary goals. One of the greatest benefits of the Rule of Law is that it allows people to understand what is expected of them. The United States is a Rule of Law System. The US Constitution is based on the principle that people have rights that cannot be taken away by the government. Instead, the role of the government is to protect the individual rights of its citizens. The US Constitution’s preamble states, “We the People…in Order to…insure domestic Tranquility.” This is just one example of how the US legal system was established to address the functions of a legal system. 7 | Introduction to Law & Legal Systems 1.3 Modern Legal Systems of the World There are four main legal systems in the modern world: 1. Common law; 2. Civil law; 3. Religious law; and 4. Customary law/monarchy. As the world becomes more interdependent, a fifth category of legal systems has developed — the hybrid legal system, which is a legal system that is a combination of two or more legal systems. Introduction to Law & Legal Systems | 8 Type of Legal System Characteristics Common Law • Written judicial decisions of appellate courts are binding legal authority on lower courts when interpreting and applying the same or similar questions of law • The legal system is adversarial • The outcome of a case is often decided by a jury of the parties’ peers Civil Law • All legal rules are in comprehensive legislative enactments often called Codes • Written judicial decisions of appellate courts are not binding legal authority • The legal system is inquisatorial Religious Law • Religious documents are used as legal sources • All major world religions have a religious legal system • Most nations that have religious legal systems use them to supplement a secular national system Customary Law • Legal system used by a monarchy or tribe • Grants specific legal powers to kings, queens, sultans or tribal leaders as heads of state • Monarchs and leaders often seen to be “above the law” Hybrid Law • Combination of 2 or more legal systems within a nation Common Law Systems The legal system in the United States comes from the English common law tradition and the US Constitution. English 9 | Introduction to Law & Legal Systems common law is a system that gives written judicial decisions the force of law. As a result, the US legal system recognizes an appellate court’s ability to interpret and apply the law to future litigants through precedent. Precedent is a judicial opinion that is considered legal authority for future cases involving the same or similar questions of law. The benefit of this system is consistency and resolution of disputes without requiring the parties to take legal matters to court. A famous example of how precedent works is the US Supreme Court case Brown v. Board of Education of Topeka. In this landmark 1954 case, the Justices unanimously ruled that racial segregation of children in public schools is unconstitutional. Brown v. Board of Education is one of the cornerstones of the Civil Rights Movement and helped establish the precedent that “separate-but-equal” education and other services were not, in fact, equal at all. The case required all racially segregated public schools to integrate, not just in Topeka, Kansas. In addition, Brown has been cited as legal precedent in thousands of cases nationwide involving racial equality. The common law legal system is adversarial. This means that the parties bring their cases to the court for resolution. The judge or jury hears the parties’ evidence and arguments before making a final decision. It is the parties’ burden to investigate the facts, argue the law, and present their best case. Judges and juries do not do independent investigations nor are they responsible for helping parties argue their cases. It is a party’s responsibility to raise all legal issues. Another characteristic of common law systems is that cases are often decided by juries of the parties’ peers. In both civil and criminal matters, the parties usually have a right to have a jury pulled from local citizens to resolve the dispute. When a jury determines the outcome of a case, the judge acts as a “gatekeeper,” who decides what evidence and legal arguments Introduction to Law & Legal Systems | 10 the jury can properly consider. The judge ensures the parties receive a fair trial while the jury decides the outcome of the trial. The common law tradition is unique to England, the United States, and former British colonies. Although there are differences among common law systems (e.g., whether judiciaries may declare legislative acts unconstitutional and how frequently juries may be used), all of them recognize the use of precedent, and none of them relies solely on the comprehensive, legislative codes that are prevalent in civil law systems. Civil Law Systems Civil law systems were developed in Europe and are based on Roman and Napoleonic law. Civil law systems are also called code systems because all the legal rules are in one or more comprehensive legislative enactments. During Napoleon’s reign, a comprehensive book of laws—a code—was developed for all of France. The code covered criminal law and procedure, non-criminal law and procedure, and commercial law. The code is used to resolve only cases brought to the courts, which are usually decided by judges without a jury. Civil law systems are inquisitorial systems in which judges actively investigate cases. Judges have the authority to request documents and testimony, as well as to shape the parties’ legal claims. In addition, judges are not required to follow the decisions of other courts in similar cases. The law is in the code, not in the cases. The legislature, not the courts, is the primary place to enact and modify laws. Civil law systems are used throughout Europe, Central and South America, Asia and Africa. France, Germany, Holland, 11 | Introduction to Law & Legal Systems Spain, and Portugal had colonies outside of Europe, and many of these colonies adopted the legal practices that were imposed on them by colonial rule. There are also communist and socialist legal systems that differ significantly from traditional civil law systems. Legal scholars debate whether this is a separate type of legal system or a subset of modern civil law systems. In a communist or socialist legal system, the nation has a code but most property is owned by the government or agricultural cooperatives. In addition, the judiciary is subservient to the Communist party and is not an independent branch of government. Religious Law Systems Religious law systems arise from the sacred texts of religious traditions and usually apply to all aspects of life, including social and business relations. In religious legal systems, a religious document is used as a primary legal source. All major world religions–Judaism, Christianity, Islam, Buddhism and Hinduism–have a religious legal system. The Islamic legal system (Sharia) with Islamic jurisprudence (Fiqh) is the most widely used religious legal system in the world. Most nations that have religious legal systems use them to supplement their secular national system. Only Saudi Arabia (Islamic) and the Vatican (Christian) are pure theocracies that have only a religious legal system in their nations. Customary Law Systems Customary legal systems are becoming increasingly less common. A customary system is used by a monarchy and grants specific legal powers to the kings, queens, sultans or Introduction to Law & Legal Systems | 12 tribal leaders as heads of state. A challenge of a customary system is that the ruler is seen to be “above the law” because the laws do not apply equally to the ruler and subjects. There are only a handful of monarchies remaining in the world, and most of them have evolved into hybrid legal systems or have adopted a different type of legal system. Hybrid Law Systems Hybrid legal systems are a combination of two or more legal systems within a nation. India is a classic example of a nation with a hybrid legal system. As a former British colony, India has a common law legal system, which recognizes the power of the Supreme Court and High Courts to make binding judicial decisions as a form of precedent. However, most of its laws are integrated codes found in a Napoleonic code system. In addition, India has separate personal codes that apply to Muslims, Christians, and Hindus. As a result, India has a hybrid system made up of common law, civil law and religious law systems. Figure 1.1 Legal Systems of the World Map 13 | Introduction to Law & Legal Systems 1.4 Sources of Law Where does law come from? How do individuals and businesses know right from wrong? Not all actions that are considered “wrong” or inappropriate are violations of the law. They simply may represent social norms. So what is the difference? There are two types of rules in our society—social norms and laws. Social norms are the informal rules that govern behavior in groups and societies. Social norms and cultural expectations may be violated with negative social or professional consequences for doing so. However, no legal repercussions follow violating social norms alone. Violations of law are different. Violating the law carries penalties, such as civil liability, fines, or loss of liberty. While it is optional to conform to social customs, people are compelled to obey the law under threat of penalty. Laws are generally classified as public law or private law. Public law applies to everyone. It is law that has been created by a legitimate authority with the power to create law, and it applies to the people within its jurisdiction. In the United States, the lawmaking authority itself is also subject to those laws, because no one is “above” the law. If the law is violated, penalties may be levied against violators. Examples of public law include constitutions, criminal laws, and administrative laws. For example, if someone steals items from a store, the thief is violating public law. He committed the crime of theft which affects the community as a whole (not just the store owners), and the crime is defined in public legislation. Private law is law that is binding on specific parties. For instance, parties to a contract are involved in a private law agreement. The terms of the contract apply to the parties of Introduction to Law & Legal Systems | 14 the contract but not anyone else. If the parties have a contract dispute, the terms of the contract and the remedy for breach will apply only to the parties of the contract. In addition to contracts, other examples of private law include tort and property laws. For example, if someone installs an industrial smoker on his property and the smoke creates a dense haze in the neighbor’s yard, there may be a violation of private law because the smoke is interfering with the neighbor’s right to peacefully enjoy one’s property. Laws are also classified as civil or criminal. Civil law is usually brought by a private party against another private party. For example, one company decides to sue another for breach of contract. Or a customer sues a business when injured by the company’s product. Most laws affecting businesses are civil. Criminal law involves a governmental decision to prosecute someone for violating a criminal statute. If someone breaks a criminal law, he or she could lose their freedom (i.e. be sent to prison) or lose their life (i.e. if convicted of a capital offense). In a civil action, no one is sent to prison. Usually, liability results in the loss of property such as money or assets. Civil Criminal Source of Law statute or common law statutes defining crimes Who files case? business or individual suffering harm the government (e.g. District Attorney) Burden of Proof preponderance of evidence beyond a reasonable doubt Remedy damages, injunction, specific performance punishment (e.g. fine or imprisonment) Purpose provide compensation or private relief protect society Additionally, some law is procedural and some law is substantive. Procedural law describes the legal process and 15 | Introduction to Law & Legal Systems rules that are required and must be followed. For instance, parties who are sued in court must receive notice of the lawsuit before the court can impose judgment against them. Substantive law refers to the actual substance of the law or the merits of the claim, case, or action. Substantive law embodies the ideas of legal rights and duties and is captured by different sources of law, including the Constitution, statutes, and common law. For example, if someone drives fifty-five miles per hour in a forty mile-per-hour zone, she has broken the substantive rule of law of the speed limit. However, how and what gets decided in court related to the speeding ticket is a matter of procedural law. For example, whether the driver is entitled to a hearing before a judge, whether she has a right to be represented by legal counsel, whether the hearing takes place within a certain amount of time after the ticket was issued, and what type of evidence can be presented are procedural law issues. Sources of Law In the United States, our laws come primarily from: • Federal and state constitutions; • Statutory law from Congress, the state legislatures, and local legislative bodies; • Common law from federal and state appellate courts; • Administrative rules and regulations; • Treaties and conventions; and • Executive orders. Introduction to Law & Legal Systems | 16 Constitutions The most fundamental law in the United States is the US Constitution, which is the supreme law of the nation. Any law that conflicts with it is void. The Constitution serves three important functions. First, it establishes the structure of our national government and identifies the powers of the legislative, executive, and judicial branches. Second, it defines the boundaries of each branch’s authority and creates “checks” on each branch by the other branches. For example, the president is the commander-in-chief of the armed forces, but does not have the power to declare war. That duty falls to Congress. And, third, the Constitution guarantees civil liberties and individual rights. The power granted to the federal government by the Constitution is limited. Any powers not expressly granted to the federal government by the Constitution are reserved to the states. This means that if the Constitution does not give the federal government power over a particular area, then the states regulate it. The first ten amendments to the Constitution are known as the Bill of Rights. Despite the limited power granted to the federal government by the Constitution, the Bill of Rights protects certain individual civil rights and liberties from governmental interference. These rights include the freedom of speech and religion, the right to bear arms, and the rights of individuals who are suspected and accused of crimes. Figure 1.2 Separation of Powers of the Federal Government 17 | Introduction to Law & Legal Systems Each state also has its own constitution, which serves essentially the same function for the state government as the US Constitution serves for the federal government. Specifically, they establish limits of state government power, establish the organization and duties of the different branches of government at the state level, and protect fundamental rights of state citizens. This dual system of government in the United States is called federalism, which is a governance structure whereby the federal government and the state governments coexist through a shared power scheme. Figure 1.3 Separation of Powers of the State Governments Introduction to Law & Legal Systems | 18 Statutes Statutes are laws created by a legislative body. Congress is the federal legislative body, and each state also has its own legislative body. Almost all statutes are created by the same method. An idea for a new law is proposed in the legislature. This proposal is called a bill. The House of Representatives and Senate independently vote on a bill. If the majority of both chambers approves it, the bill is sent to the president or governor for approval. If the president or governor signs the bill, then it becomes a statute. Local governments, such as counties, cities, and townships, may be authorized under a state constitution to create or adopt ordinances. An ordinance is a legislative act of a local 19 | Introduction to Law & Legal Systems government entity. Examples of ordinances include building codes, zoning laws, and misdemeanors such as jaywalking. Common Law Binding legal principles also come from the courts. When appellate courts decide a case, they may interpret and apply legal principles in a way that are binding on lower courts in the future. The process of applying a prior appellate decision to a case is called precedent. Simply put, precedent is when judges use past decisions to guide them. The benefit of precedent is that it makes the law predictable and furthers the rule of law by applying legal principles to the greater community, not just the parties to a lawsuit. Businesses value common law systems because they reduce the cost of business. For example, if a business is unsure of how its contract rights will be applied by the court, it can understand its rights by learning how courts interpreted similar contract provisions in past lawsuits. This allows businesses to assess their risks, determine their liability, and make rational business decisions without the expense of litigation. Administrative Rules and Regulations Administrative law is the collection of rules and decisions made by agencies to fill in particular details missing from constitutions and statutes. For example, the Internal Revenue Service (IRS) is the federal agency responsible for collecting national taxes and administering the Internal Revenue Code enacted by Congress. All businesses and individuals must follow the IRS rules and regulations about how to report, file, and pay applicable taxes that Congress levies. Congress passes Introduction to Law & Legal Systems | 20 statute defining “what” taxes need to be paid. The IRS adopts the rules about “how” those taxes are paid. In the United States, many of the day-to-day regulation of businesses is done by administrative agencies. These agencies are created by the legislature to implement and enforce a particular statute. Agencies often report to the executive branch, but some are run by independent commissions. Legislative bodies give agencies the power to create rules and regulations that individuals and businesses must follow to comply with the statute. For example, the Environmental Protection Agency (EPA) was created to implement and enforce the Clean Air Act and the Clean Water Act. Treaties and Conventions A treaty is a binding agreement between two nations. A convention is a binding agreement among a group of nations. In the US, a treaty or convention is generally negotiated by the executive branch. To be binding, the US Constitution requires the Senate to ratify treaties by a two-thirds vote. Once ratified, a treaty becomes part of federal law with the same weight and effect as a statute passed by the entire Congress. Therefore, treaties and conventions have equal standing as statutes in US law. Executive Orders Article II, Section 1 of the US Constitution gives the president the power to “take care that the laws be faithfully executed.” Under this power, the president may issue executive orders requiring officials in the executive branch to perform their duties in a particular manner. State governors have the same 21 | Introduction to Law & Legal Systems authority under state constitutions. Although they are not laws that apply directly to individuals and businesses, executive orders are important legal documents because they direct the government’s enforcement efforts. Hierarchy of Sources of Law Priority Source Comment 1 Constitutions Exist at both federal and state levels 2 (tie) Statutes Laws passed by the federal or state legislatures 2 (tie) Treaties and Conventions International agreements that have the same standing as statutes 4 Judicial Opinions Court interpretation and application of constitutions, statutes, treaties, agency regulations, and executive orders 5 Agency Regulations Rules and regulations adopted by administrative agencies at the federal, state, or local level 6 Executive Orders Guidance from the president or governor to executive branch officials about how to perform their duty 1.5 Concluding Thoughts Understanding business law is essential to successfully running any type of business because a solid understanding of laws and regulations helps avoid liability and minimizes risk. In business, it is not enough to conduct business ethically. Knowledge of business law is essential to successful business practices. Ultimately, business people should be able to recognize legal issues, minimize liability exposure, and know when to consult an attorney. Legal systems vary widely in their aims and in the way they Introduction to Law & Legal Systems | 22 resolve disputes. Common law systems are adversarial, use juries and adhere to precedent. Civil law systems are inquisatorial, do not use juries and do not recognize precedent. All major world religions have a legal system, although only two nations have a purely national religious system. Many nations have hybrid legal systems that combine two or more legal systems. The legal system in the United States is composed of multiple jurisdictions at the local, state and federal levels. Local and state laws may not conflict with federal laws. Primary sources of law in the United States include constitutional law, statutory law, common law, administrative law, treaties, and executive orders. 23 | Introduction to Law & Legal Systems 2. The United States Court System 2.1 Introduction LEARNING OBJECTIVES 1. Understand the US court system and how it affects the conduct of businesses. 2. Understand the three branches of government and how they check and balance each other’s powers. 3. Explore the state and federal court systems. In the United States, law and government are interdependent. The US Constitution establishes the basic framework of the federal government and imposes certain limitations on the powers of government. In turn, the various branches of government are intimately involved in making, enforcing, and interpreting the law. Most law comes from Congress and the state legislatures. Courts interpret the laws and apply them to cases. Laws are meaningless if they are not enforced. Companies have to make many decisions daily, from product development to marketing to maintaining growth. These decisions are based on financial considerations and legal requirements. If a company violates a law, it is often held accountable through litigation in courts. The United States Court System | 24 Counselor’s Corner Under the Supreme Court’s Citizens United decision, business entities enjoy the same right as natural persons to influence the political process through contributions. Because federal judges are appointed for life, businesses cannot directly influence actions of the judicial branch. However, they can do so indirectly by lobbying Congress on laws that it considers and lobbying the president concerning enforcement priorities. While all states have a comparable threebranch system, in some states (not in Colorado), judges obtain office through partisan elections. In such states, businesses can seek to influence the judicial branch through supporting judges whose philosophy favors business generally or a particular industry. For these reasons, in choosing whether to litigate in state or federal court, businesses should consider that federal judges may be more likely to take politically unpopular actions. ~John W., judge 2.2 Separation of Powers Under the US Constitution, power is separated among three branches of government. Article I of the Constitution allocates the legislative power to Congress, which is composed of the House of Representatives and the Senate. Congress makes laws and represents the will of the people. Article II of the Constitution creates the executive power in the president and makes the president responsible for enforcing the laws passed by Congress. Article III of the Constitution establishes a 25 | The United States Court System separate and independent judiciary, which is in charge of applying and interpreting the meaning of the law. The US Supreme Court is the highest court in the federal judiciary and consists of nine Justices. Figure 2.1 Separation of Powers of the Branches of the Federal Government The Constitution is remarkably short in describing the judicial branch. Under the Constitution, there are only two requirements to becoming a federal judge: nomination by the president and confirmation by the Senate. Article III provides: “The judicial power of the United States, shall be vested in one Supreme Court, and in such inferior courts as the Congress may from time to time ordain and establish.” The Constitution also guarantees that how judges decide cases does not affect The United States Court System | 26 their jobs because they have lifetime tenure and a salary that cannot be reduced. Separation of powers is discussed in more detail in Chapter 5. Marbury v. Madison In 1800, the presidential election between John Adams and Thomas Jefferson nearly tore the nation apart. John Adams was the President and his Vice-President, Thomas Jefferson, ran against him. They were both Founding Fathers but were members of different political parties that had opposing visions for the future of the new nation. The election was bitter, partisan, and divisive. Jefferson won but wasn’t declared the winner until early in 1801. In the meantime, Adams and other Federalists in Congress attempted to leave their mark on government by creating a slate of new life-tenured judgeships and appointing Federalists to those positions. For the judgeships to become effective, official commissions had to be delivered in person to the new judges. At the time power transitioned from Adams to Jefferson, several commissions had not been delivered, and Jefferson ordered his acting secretary of state to stop delivering them. When Jefferson came to power, there was not a single federal judge from his Democratic-Republican Party, and he refused to expand the Federalist influence any further. One Federalist judge, William Marbury, sued Secretary of State James Madison to deliver his commission. The case was filed in the Supreme Court, led by Chief Justice John Marshall, who was also a Federalist. In a shrewd move, Marshall ruled against Marbury while declaring that it was the Supreme Court’s role to decide the meaning of the Constitution. This is called judicial review, and it makes the US Supreme Court an equal branch of government to the Executive and Legislative branches. Because President Jefferson won the case, he was willing to 27 | The United States Court System accept the Supreme Court’s assertion of power as an equal branch of government. Checks and Balances The US Constitution establishes the three branches of the federal government as independent branches with their own authority. The Founding Fathers were fearful of setting up an authoritarian regime, where the rulers of the government are above the law and often rule arbitrarily. Therefore, the Founding Fathers ensured that each branch of government had a “check” on the other two branches in order to “balance” the power of the government among the branches. Therefore, if a president decided to become a dictator, the other two branches could prevent him. Figure 2.2 Checks and Balances of the Federal Government Judicial review means that any federal court can hold any act The United States Court System | 28 of the president or Congress to be unconstitutional. This is the power of the Judicial Branch to ensure that the Executive and Legislative branches do not overstep their powers and violate the Constitution. The other branches each have a “check” on the judiciary. For example, the president (Executive branch) can control the judiciary by nominating judges. The president can also pardon those convicted by a federal court. A pardon is an executive order vacating a criminal sentence for a crime. Congress also plays an important role in “checking” the judiciary. The most obvious role is in confirming judicial selections. In addition to confirmation, Congress also controls the judiciary through its annual budgetary process. Although the Constitution protects judicial salaries from any reductions, Congress is not obligated to grant any raises. Finally, Congress can control the judiciary by determining how the courts are organized and what kind of cases the courts can hear, except for the types of cases the Constitution lists as the original jurisdiction of the Supreme Court. 2.3 Federalism There are fifty-six separate legal systems in the United States: those of the fifty states, the federal government, the District of Columbia, the military, and three territorial systems. Within each legal system is a complex interplay among executive, legislative, and judicial branches of government. This division of authority between a central, federal government and state governments is known as federalism. In the United States, the federal government only has the authority given to it by the states via the US Constitution. If 29 | The United States Court System a power is not granted to the federal government, the states retain the power. For example, the federal government cannot tax the exchange of goods between states as “exports.” The Constitution limits the power of the federal government, and the state constitutions limit the power of the state governments. Figure 2.3 Federalism Between Federal and State Governments Federalism is discussed in more detail in Chapter 5. Jurisdiction The authority of a court to hear a particular type of case is called jurisdiction. State and federal courts hear different types of cases, involving different laws, different law enforcement agencies, and different judicial systems. The rules governing the procedures used in these courts are known as civil procedure or criminal procedure. The United States Court System | 30 The rules of subject matter jurisdiction dictate whether a case is heard in federal or state court. The vast majority of civil lawsuits are filed in state courts, including lawsuits involving state laws such as property, contracts, probate law, and torts. State laws also involve most criminal cases, and domestic issues such as divorce and child custody. Torts are any civil wrong other than a breach of contract and include a variety of situations in which people and businesses suffer legal injury. Some states are friendlier toward torts than others, and the resulting patchwork of tort laws means that companies that do business across the nation need to know the different standards they are held to based on the state their customers live in. Given the wide array of subject areas regulated by state law, most businesses deal with state courts. Federal court subject matter jurisdiction is generally limited to federal question jurisdiction. In other words, federal courts hear cases involving the Constitution or a federal law. Cases involving the interpretation of treaties to which the United States is a party are also subject to federal court jurisdiction. Finally, lawsuits between states can be filed directly in the US Supreme Court. Sometimes a federal court may hear a case involving state law. These cases are called diversity jurisdiction cases, and they arise when all plaintiffs in a civil case are from different states than all defendants, and the amount claimed by the plaintiffs exceeds seventy-five thousand dollars. For example, a citizen of New Jersey may sue a citizen of New York over a contract dispute in federal court. But if both were citizens of New York, the plaintiff would be limited to the state court of New York. Diversity jurisdiction cases allow one party who feels it may not receive a fair trial where its opponent has a “home court advantage” to seek a neutral forum to try the case. 31 | The United States Court System Type of Jurisdiction Description Minimum Dollar Requirement Applicable Law Federal Question Cases involving the US Constitution, treaties, or federal laws & regulations None Federal law Diversity of Citizenship Cases brought between citizens of different states $75,000 State law 2.4 Trial and Appellate Courts Within the federal court and the state court systems, there are a hierarchy of courts. The first level of court is a trial court or a court of limited jurisdiction such as traffic court and small claims court. Trial courts accept evidence and testimony to determine what happened in a case. Appellate courts review the decisions of the trial court, without holding a new trial, to determine whether the parties received a fair trial and whether the appropriate law was applied. Figure 2.4 Court System Hierarchy The United States Court System | 32 In the federal court system, cases are filed in the US District Court. There are ninety-four judicial districts in the nation, which are named for their geographical location. However, some states with low population have only one judicial district, while more populous states have multiple judicial districts. The US Department of Justice, which acts as the prosecutor representing the federal government in both civil and criminal cases, divides its attorneys among the ninety-four judicial districts. As a trial court, the US District Courts hear both civil and criminal cases. At trial, witnesses are called and their testimonies are recorded into a trial record. The losing party is entitled to appeal the case to the US Circuit Court of Appeals. There are thirteen circuit courts in the United States. A party losing an appeal at the circuit court level may ask the US Supreme Court to hear its case. However, the Constitution only requires the Supreme Court to hear a few types of appeals. Figure 2.5 Map of Federal Circuit Courts 33 | The United States Court System In the state court system, a trial court of general jurisdiction accepts most types of civil and criminal cases. These courts are called various names such as superior court, circuit court, or district court. There may be other courts of limited jurisdiction at the state level, such as traffic court, family court, or small claims court. Like their federal counterparts, state trial courts hold trials, and preserve a trial record for review by an appellate court. Finally, in certain state cases that involve a federal constitutional right, a party that loses at the state supreme court level can appeal to the US Supreme Court. These cases typically involve the application of the Constitution to criminal procedure, evidence collection, or punishment. Whenever an appeal is filed, the trial record is forwarded to the appellate court for review. Appellate courts do not conduct new trials and are unable to recall witnesses or call new witnesses. The trial court’s duty is to figure out the facts of the case—who did what, when, why, or how. This process of factfinding is an important part of the judicial process, and a great deal of deference is placed on the judgment of the fact finder, which is usually the jury. The issues on appeal are therefore limited to questions of law or legal errors. The deference to the The United States Court System | 34 fact finder means that, as a practical matter, appeals are hard to win. Figure 2.6 Roles of Trial and Appellate Courts 2.5 Concluding Thoughts The US Constitution establishes the three branches of the federal government and gives them the ability to check each other’s authority. The Judicial branch oversees the actions of the Executive and Legislative branches through judicial review to ensure that they do not violate the Constitution. While not perfect, the US federalist system was designed to restrain governmental power and to prevent the rise of an authoritarian regime. 35 | The United States Court System The Judicial Branch is the only unelected branch of government. Marbury v. Madison established the doctrine of judicial review, which allows courts to determine the final validity of laws as well as the meaning of the Constitution. The president can check the judiciary through appointments and the pardon power. Congress can check the judiciary through confirming judges, administrative control of court calendars and funds, and legislation about the types of cases a court can hear. There are fifty-six separate legal systems in the United States. Subject matter jurisdiction is the authority of a court to hear a case based on the type of dispute. State law claims are generally heard in state courts, while federal question cases are generally heard in federal court. Federal courts may hear state law claims under diversity jurisdiction. Federal cases are filed in a US District Court and appealed to a US Circuit Court of Appeals. State cases are typically filed in a trial court and appealed to an intermediate court of appeals. The United States Court System | 36 3. Litigation 3.1 Introduction LEARNING OBJECTIVES 1. Identify the parties involved in litigation. 2. Explore the responsibilities of attorneys. 3. Understand the roles and types of juries. 4. Explore the standing requirement. 5. Follow a trial from opening statements to closing arguments. Litigation provides an opportunity for each side in a dispute to tell their story to an impartial jury or judge to decide who wins. Business professionals have a responsibility to their company and stakeholders to avoid legal liability. Acting ethically helps achieve this goal. Agreeing to mediation or arbitration may help businesses avoid court. However, litigation may be the only dispute-resolution mechanism available or the one that is best for the situation. Counselor’s Corner Litigation is like any other business effort: you are trying to get someone to see things your way. The best way to do that is to be likable and persuasive to the judge, other lawyers, and the jury. Construct your theory of the case early on. Meet your deadlines. Maintain a strict ethical 37 | Litigation standard in your professional life. Work hard to explore both sides of the case, and develop a short and compelling statement about why your side should prevail. If you do all that, you will make it easy for others to want to find in your favor. Why does this work? Because as humans, we want good to prevail. Be good. ~Valerie M., magistrate 3.2 The Parties, Attorneys, and Jury The Parties The litigation system relies on parties to bring forth and defend their respective claims. The party that begins a civil lawsuit is called the plaintiff. The plaintiff sues the defendant to recover damages for, or to stop, a legal wrong. In a criminal trial, the party that initiates litigation is the prosecution, representing the people within a state or federal government. In a criminal trial the accused wrongdoer is also called the defendant. Cases may involve multiple plaintiffs and multiple defendants. Civil procedure encourages parties to bring their complaints against each other at once. All parties, and every possible claim (each claim is a separate violation of law) arising out of a single incident or series of related incidents, should be identified and raised in a lawsuit. Except in some small-claims courts, parties may hire attorneys to represent them. Individuals who represent themselves are called pro se litigants. The complexities of litigation require Litigation | 38 knowledge and objectivity to succeed. Courts hold pro se litigants to the same standards as they do attorneys. Therefore, a pro se litigant is expected to understand and follow all the rules of the court and applicable laws. Attorneys In the United States, law school is a graduate-level program that usually takes three years to complete. Law school graduates earn a Juris Doctorate degree, or JD. Graduates then take the bar exam in the state where they wish to practice. If they pass the exam and background check, they can apply to be licensed in that state. Because the practice of law in the United States varies widely by jurisdiction, attorneys are only permitted to practice in jurisdictions where they are licensed. Attorneys are bound by a professional code of ethics that is overseen by the supreme court of the state where they are licensed. One of the most important rules of professional responsibility is the obligation to keep a client’s secrets. The communications between a client and his or her attorney are absolutely confidential under the attorney-client privilege doctrine. The privilege belongs to the client, and the attorney is not permitted to reveal any of these communications without the client’s consent. A narrow exception exists for clients who tell their attorneys they intend to harm others or themselves. Attorneys must avoid violating the privilege because it exists for the client’s benefit. Someone who cannot communicate with his or her attorney freely is unable to help the attorney prepare the best possible case. In spite of an attorney’s professional obligations to his or her client, it’s important to remember that ultimately an attorney’s first duty is to the administration of justice. The requirements 39 | Litigation for attorneys to be civil, honest, and fair are written to ensure that attorneys represent the very best aspects of the judicial system. For example, a client admits to his attorney that he is guilty of a crime. The client then wants to testify under oath that he is innocent. Although an attorney cannot reveal what her client has told her, the attorney is prohibited from knowingly suborning perjury. The attorney must either convince the client to not testify or withdraw from the case. An attorney owes her client zealous advocacy, but her zeal must be constrained within the bounds placed on her as an officer of the Court and under the Court’s rules. Attorneys cannot assert legal claims or arguments that are not wellfounded under existing law or through the modification or expansion of law. Attorneys are also prohibited from using the courts for a purpose unrelated to the resolution of a legitimate legal cause of action. The Jury In the US legal system, the jury has a very special role of citizen participation in the administration of justice. As the trier of fact, the jury has the duty of determining the truth in any given situation: who said and did what, why, and when. The litigation system is a process in which each side gets to present its case to a group of unbiased citizens, and then ask them to decide who wins the case. There are two types of juries. A grand jury is a group of citizens convened by the prosecution in serious criminal cases to determine (1) whether probable cause exists to believe that a crime has occurred, and (2) whether it’s more likely than not that the defendant committed the crime. If the grand jury decides probable cause exists, then the government may bring Litigation | 40 criminal charges against the defendant. The grand jury prevents prosecutors from abusing their powers of arrest and indictment. The grand jury requirement exists at the federal level and in most states. A grand jury typically meets for an extended period of time and hears several different cases. The grand jury does not determine guilt or innocence. A petit jury does that. This jury is impaneled for a specific trial. During the trial, members of the jury listen to the evidence presented and then deliberate as a group on the facts of the case. They then apply the law, as instructed by the judge, to the facts. There are typically twelve members in a petit jury in criminal trials and from six to twelve members in civil trials. In a criminal trial, a jury must arrive at a unanimous verdict to convict a defendant of the crimes charged. The jury system is incredibly important because ordinary citizens adjudicate all sorts of disputes. There are problems with administering this system, however. Both grand and petit juries are drawn from citizen voter and driver license rolls. In high-profile cases, it may be difficult to find citizens who have not heard about the case or who can be impartial. Another problem arises from the burdens placed on jurors’ personal lives through their service. While most states have laws that prevent an employer from firing a worker or taking any negative action against workers on jury duty, there is no legal requirement that an employer continue to pay a worker on jury duty. Some citizens, such as those who are selfemployed, risk losing personal income by serving on juries. Another potential problem arises in the composition of the jury. To provide a fair jury, courts attempt to draw from a crosssection of society to reflect the diversity of the surrounding community. Local court rules typically allow judges to excuse potential jurors for hardship or extreme inconvenience. The only professions that are automatically exempt are active-duty 41 | Litigation military members, police officers, firefighters, and public officers. In spite of these administrative problems, the jury system remains a cornerstone of the US legal system. 3.3 Standing Standing is a constitutional requirement. Article III of the US Constitution grants the judiciary the power to hear “cases” and “controversies.” This means actual cases and controversies, not merely hypothetical ones. The standing requirement means that courts are unable to give advisory opinions. Standing is a doctrine that limits judicial overreach by limiting the types of cases that are litigated in court. To demonstrate standing, a party has to prove that it has an actual case to proceed. This is a procedural matter, and it requires the case to be brought at the right time. If a case is brought too early, it is not yet ripe. If it’s brought too late, then the case is moot. The case also has to be brought by the right person. To show standing, a plaintiff has to demonstrate that he or she has an actual stake in the litigation, or something of value that would be lost if he or she loses the case. It’s important to note that standing is not related to the merits of the case. It only means that a party may proceed with litigation. 3.4 Subject Matter and Personal Jurisdiction In order to hear a case, courts must have subject matter jurisdiction over the type of dispute and personal jurisdiction Litigation | 42 over the parties. As discussed in Chapter 2, subject matter jurisdiction is the legal authority to hear and decide a case or controversy. The court must dismiss a case if it lacks either form of jurisdiction. Personal jurisdiction is the power of the court to compel the parties to appear in court. Personal jurisdiction requires litigants to have some form of minimum contacts with the state where the case is filed. Personal jurisdiction seeks to avoid inconvenient litigation, even if the case has merit. A court obtains personal jurisdiction over the plaintiff when the plaintiff files a lawsuit. The court obtains personal jurisdiction over a defendant when he or she is served with process or waives service. Obtaining personal jurisdiction over the defendant requires some connection between the defendant and the state where the court is located. Businesses that incorporate, have a physical location, or do business in a state create personal jurisdiction through their actions within the state. Owning property in a state also creates personal jurisdiction. Personal jurisdiction, like standing, is a constitutional requirement. Most states have long-arm statutes that set forth the procedure by which out-of-state defendants can be required to appear before a court. The statutes provide for how service of process occurs. Service of process is the process by which a defendant is notified that it is being sued. Service of process typically requires a copy of the notice to appear before a court to be personally delivered to the defendant or the defendant’s agent. In the case of businesses, service of process is usually delivering a copy of the notice to appear to their registered agent. Service can be more challenging with individuals. 43 | Litigation Basis of Personal Jurisdiction Description Consent • A business or individual agrees to the jurisdiction of the court Residence • A business or individual resides in the state Service of Process • The defendant is served a summons and complaint within the state Long-arm Statute • A resident business or individual was involved in an incident in another state; or • A non-resident business or individual was involved in an incident within the state 3.5 Venue Venue is the proper geographic location of the court to hear a case because the place has some connection with the events that give rise to the lawsuit. While multiple courts may have subject matter and personal jurisdiction over a dispute, only a few may be the proper venue. For example, by doing business in Colorado a company is subject to the jurisdiction of Colorado courts. However, the court in the county where the plaintiff was injured or where the business maintains an office would be the proper court to hear the dispute. Litigation | 44 3.6 Pretrial Procedures Figure 3.1 Litigation Flowchart Pleadings In civil cases, litigation begins with the filing of a complaint by the plaintiff. The complaint is a legal document setting forth who the parties are, the facts of the case, and what laws the plaintiff claims defendant has violated. The complaint ends with a prayer for relief. The plaintiff may be seeking damages (money), specific performance in certain types of contract cases, or an injunction. The complaint is filed with the clerk of the court where the lawsuit is to be heard. The clerk will issue a summons, which is 45 | Litigation an official notice that a lawsuit has been filed with the court and summons the defendant(s) to court to defend against it. To be effective, the defendant(s) must be served the summons and a copy of the complaint. In certain types of cases, there may be a large number of plaintiffs injured by a defendant’s actions. This may happen in a product liability lawsuit where a product is purchased by many thousands of consumers, all of whom experience the same product failure. In these cases, several lead plaintiffs may attempt to form a class in a class action lawsuit against the defendant(s). Under federal civil procedure rules, class actions may be granted when: 1. There are so many plaintiffs that 2. It is impractical for them to file separate lawsuits; 3. There are questions of law or fact that are common to members of the class; and 4. The lead plaintiffs will fairly and adequately protect the interests of the class. The defendant must file an answer to the complaint within a specified period of time, usually thirty days. The answer is a paragraph-by-paragraph response to the complaint, admitting certain allegations and denying others. The answer may admit, for example, noncontroversial claims by the plaintiff such as the defendant’s name, address, and the nature of the defendant’s relationship with the plaintiff. Each time the defendant denies a plaintiff’s claim in the complaint, that sets up a controversy or argument that must be litigated. The answer may also contain any affirmative defenses and counterclaims the defendant wishes to pursue. Taken together, the complaint and answer are known as the pleadings. Litigation | 46 Discovery After pleadings are filed, litigation moves into the discovery phase. Discovery is a process in which each side finds out information about the other’s case. Discovery is designed to prevent trial by surprise, where either side may suddenly produce a damning piece of evidence. Because trials are based on the discovery of truth, they should be tried on the merits of the case rather than a party’s deceit. In that spirit, the rules of discovery are broad. Relevant evidence is discoverable even if it is later ruled to be inadmissible at trial by the judge. Parties are also obligated to turn over material that supports their case, without demand from the other side unless it is protected by the attorney-client privilege. 47 | Litigation Type of Discovery Description Request for Admission • Ask opposing party to admit specific facts or claims • Ex: confirm legal name and address, existence of contract, etc. Interrogatory • Written questions to opposing party about nature of claim • Ex: identity of witnesses, extent of injuries, description of injury, etc. Request for Production • Ask opposing party to produce documents and evidence relevant to lawsuit • Ex: copies of contracts, records, reports, emails, etc. Deposition • Sworn testimony of potential witnesses at trial • Court reporter is present and makes official transcript of questions and answers but judge is not present There are four types of discovery. The simplest is a request for admission. Remember that a complaint contains a series of claims the plaintiff is making against the defendant. The parties may ask each other to admit that certain facts are true or that a contested claim is true. Doing so narrows the issues for trial because it is one less thing that the jury has to decide. Even if the parties dispute legal liability, if they agree upon the facts that caused the dispute, the case may take less time and money to resolve. The second type of discovery is an interrogatory. These are written questions addressed to the other party. The questions tend to be simple and straightforward. Interrogatories seek to gather information about what happened, who was involved, Litigation | 48 a company’s structure, and the names and addresses of witnesses. A third form of discovery is a request for production. A party can request another party produce relevant documents to the lawsuit, including internal company reports, emails, product manuals, and employee records. In some cases physical evidence may also be produced. For example, if a consumer sued a vehicle manufacturer because a wheel fell off while driving, the manufacturer may ask the consumer to produce the vehicle so that its engineers can inspect it. Failure to preserve and produce key evidence in litigation can lead to charges of spoliation, which may result in severe sanctions against the offending party. Finally, discovery can take the form of a deposition. A deposition is a sworn oral statement, in response to questions, given by a potential witness in a trial to the attorneys in the case. A deposition is attended by the witness being deposed, attorneys from all the parties, and a court reporter who keeps a written or video transcript of the deposition. There is no judge present, so there is great latitude for parties to ask questions, even if the answers are not admissible in court. Depositions help prepare for trial by knowing everything a witness may say in court. They also serve to pin down a witness’s testimony, because a witness who changes testimony between a deposition and trial can be impeached. Motions At any point in litigation, either party may file motions with the court. A motion is a request to the court to rule on an issue or claim. If a defendant is properly served and does not answer the 49 | Litigation complaint, the plaintiff can file a motion for default judgment. In essence, the plaintiff asks the court to enter judgment in his or her favor because the defendant refused to show up to court to defend against the case. The alleged facts are admitted by default and the plaintiff may receive all the relief requested. At the beginning of a lawsuit, a party can file a motion to dismiss for failure to state a claim. In this motion, the defendant argues that even if everything in the complaint is factually true, the plaintiff is not entitled to legal relief. In other words, the defendant’s conduct has not broken any laws. If a long period of time has passed since the incident in question and the filing of the lawsuit, a defendant may file a motion to dismiss based on the statute of limitations. Every civil and criminal action has a statute of limitations, which requires lawsuits to be brought within a specified period of time. Statutes of limitations exists to encourage parties to file their lawsuits quickly, while evidence is still fresh and relevant witnesses remember what occurred. As time passes, evidence may be destroyed, witnesses may die or move away, and those who can be located can’t remember what they saw or heard. In other words, the quicker a lawsuit is filed, the more likely that the truth will be discovered through litigation. For businesses, a statute of limitations also allows it to “close the books” on past liabilities. Another motion that is filed before discovery and trial is a motion for judgment on the pleadings. This motion asks the court to determine whether a genuine issue of material fact exists that allows the case to proceed. These motions are not as common as motions to dismiss but they are an important tool to dismiss lawsuits that are fatally flawed before the parties spend too much money. For example, if a business is sued by several parties for injuries resulting from a common cause but the complaints allege conflicting facts, the business may Litigation | 50 file a motion for judgment on the pleadings. In other words, the defendant is asking the court to dismiss the complaints because they contradict each other in a way that it is impossible to reconcile. If dismissed, the plaintiffs may file new complaints that are not flawed. Similar to a motion for judgment on the pleadings, a motion for summary judgment asks the court to enter judgment in a party’s favor instead of trying the case. Filed after discovery, this motion asks the court to rule that there are no genuine issues of facts for trial. For example, if a plaintiff admits during his deposition that he lied about being involved in an accident, the defendant may bring a motion for summary judgment because the plaintiff brought a fraudulent lawsuit. Although any party may file a motion for summary judgment, defendants file and win many more motions for summary judgment than plaintiffs. 51 | Litigation Pretrial Motion Description Motion for Default Judgment • Defendant was served but does not answer the complaint • Plaintiff wins because defendant does not defend against the lawsuit Motion to Dismiss for Failure to State a Claim • Determination of whether the law supports the plaintiff’s claim(s) • Defendant wins because conduct did not break the law Motion for Judgment on the Pleadings • Determination of whether plaintiff is entitled to judgment or damages, even if the facts alleged are true • Defendant wins because complaint is fatally flawed Motion for Summary Judgment • Determination of whether genuine issue of material fact exists to support plaintiff’s claim(s) based on pleadings and evidence during discovery • Defendant wins because evidence does not support plaintiff’s claim(s) A party may submit an affidavit in support of any motion. An affidavit is a written statement made under oath. Affidavits play an important role in pretrial procedure because they are an effective way for parties to tell their side of the story to the judge. 3.7 The Trial and Appeal After discovery is completed, the case is scheduled for a trial. In civil litigation, well over 90 percent of cases filed are resolved Litigation | 52 or settled before trial. If a case goes to trial, it means there are genuine issues of fact that the parties cannot resolve, and both sides are determined to win. The first step in this process is to select a jury. The process of selecting a jury is called voir dire. Voir dire typically begins with the jurors filling out a written questionnaire. The questionnaire asks the jurors to identify their occupation, any work or occupational conflicts, and any potential conflicts of interest with the case. The process then continues with attorneys quizzing each potential juror to determine if he or she has any biases against upholding the law and whether he or she can keep an open mind during the trial. After a jury has been selected and sworn in, the trial begins. The plaintiff or prosecution begins by giving an opening statement that is a preview of the trial. Attorneys inform the jury during opening statements what they expect to prove at trial. Attorneys do not make any arguments during the opening statement; they simply lay out what jurors can expect from the trial ahead. After plaintiff’s opening statement, the defendant may give an opening statement. After opening statements, the trial moves into the examination phase. The plaintiff presents evidence first. Evidence may be in the form of documents and witness testimony. The other parties have the right to cross-examine witnesses who testify at trial. During the cross-examination, the attorney will try to discredit the witness to convince the jury that the witness is not credible. The attorney may probe into any potential biases the witness may have or try to prove that the witness’s recollection of events may not be as clear or certain as the witness believes. Once the plaintiff has called all their witnesses and introduced all their evidence, the plaintiff will rest their case. The defendant then has an opportunity to present witnesses and 53 | Litigation evidence on their behalf. After the defense has rested its case, the attorneys once again address the jury in closing arguments. Here, the attorneys summarize the case for the jury. They address what witnesses were called and what the witnesses said. During closing arguments, the attorneys are permitted to be much more persuasive and argumentative than during the opening statement. They appeal to the jury’s emotions and argue how the jury should interpret the evidence before them. After closing arguments are made, the judge instructs the jury on the relevant law. The jury then deliberates. During deliberations, the jury will decide what facts are true. Then it will apply those facts to the law as outlined in the jury instructions. Central to the jury’s deliberations is the burden of proof applicable to the case. In civil cases the burden of proof is preponderance of the evidence. This standard requires the scales of justice to tilt ever so slightly toward one party. If the jury believes one side is 51 percent correct and the other is 49 percent correct, that is enough to declare a winner. It is an easy standard to meet because it only requires a party to prove that its side is more likely than not telling the truth. During jury deliberations, the jurors are permitted to ask the judge for clarification about the law and to request to see the evidence again. If the jury is unable to come to a verdict, the jury is said to be deadlocked, and a mistrial results. Since trials are expensive and time consuming, the judge will usually instruct the jury to try its best before giving up. If the jury arrives at a decision, it is called a verdict. The judge enters the jury’s verdict as a judgment of the court. After that, the losing party has the right to file an appeal. The appellate court only reviews the record for legal errors and Litigation | 54 cannot call new witnesses or substitute its judgment on the facts for the jury’s. Once all appeals are exhausted, the winning party may collect the judgment entered in its favor. This process is called execution. If a party is unable or unwilling to pay the judgment, the court can order the party’s assets to be sold to satisfy the judgment. A party cannot refile a lawsuit once it has been decided in the hopes of a more favorable outcome. The doctrine of res judicata holds that once a dispute is litigated and resolved, the parties are barred from relitigating the issue again. Res judicata is a Latin phrase that means “the thing has been decided” and it is a rule of finality in the legal system. 3.8 Concluding Thoughts Litigation is a method for parties who cannot resolve their disputes to have a judge or jury determine what happened and whether legal liability exists. Although it may be challenging to keep the names of the parties, motions, and parts of the process straight, businesses need to understand the process to navigate it successfully. Litigation is a long and expensive process, but is often a part of a business’s activities. The goal of civil litigation is to find the truth. An attorney’s highest duty is to the administration of justice. Attorneys are ethically bound to represent their clients with zealous advocacy. A grand jury acts as a body of citizens to prevent abuse by prosecutors. A petit jury sits in trials as the trier of fact to ascertain the truth through their observations of the presented evidence. 55 | Litigation 4. Alternative Dispute Resolution 4.1 Introduction LEARNING OBJECTIVES 1. Understand alternative dispute resolution (ADR) methods. 2. Learn the benefits and drawbacks of different methods of dispute resolution. Imagine that someone has a legal claim against a supplier, employer, or a business where he or she is a customer. What will happen? They probably don’t want to immediately initiate litigation because litigation is very expensive and time consuming. Besides, they may want to continue doing business with the supplier, employer, or business. Perhaps the matter is of a private nature, and they do not want to engage in a public process to determine the outcome. They would like the dispute to be resolved, but do not want to engage in a public, time-consuming, expensive process like litigation to do it. A common method of dispute resolution that avoids many of the challenges associated with litigation is alternative dispute resolution. Alternative dispute resolution (ADR) encompasses many different methods of resolving disputes outside of the judicial process. Some ADR methods vest power to resolve the dispute in a neutral third party, while other strategies vest that power in the parties themselves. Figure 4.1 Alternative Dispute Resolution Continuum Alternative Dispute Resolution | 56 The most common methods of ADR are negotiation, mediation, and arbitration. ADR is often used to resolve disputes among businesses, employers and employees, and businesses and consumers. ADR methods are used outside of the courtroom, but participation in ADR has important legal consequences. For instance, parties that have agreed by contract to be subject to binding arbitration give up their constitutional right to go to court. The Federal Arbitration Act (FAA) is a federal statute that requires parties to participate in arbitration when they have agreed by contract to do so, even in state court matters. The FAA preempts state power to create a judicial forum for disputes arising under contracts with mandatory arbitration clauses. The FAA encompasses transactions within the broadest permissible exercise of congressional power under the Commerce Clause in the US Constitution. This means that the FAA requires mandatory arbitration clauses to be enforceable for virtually any transaction involving interstate commerce, which is very broadly construed. This is an example 57 | Alternative Dispute Resolution of federal preemption exercised through the Supremacy Clause in the US Constitution. Counselor’s Corner “Alternative dispute resolution.” The term suggests that litigation is the primary means of dispute resolution and that mediation, arbitration, and other means are “alternatives.” But, actually, negotiation is the primary means of dispute resolution and the others are the alternative means—with litigation being the last (legal) alternative. In negotiation and mediation, the participants make decisions based on their values and predispositions, needs, criteria for satisfying those needs, pertinent information they are aware of, and available ways to satisfy their needs. Negotiation is the most used means of resolving disputes. It is an invaluable life skill. Don’t wing it—learn how to do it well. ~Russell C., judge 4.2 Negotiation Imagine that Han is a tent manufacturer. Han’s supplier of tent fabric routinely supplies him with appropriate water-resistant fabric to construct tents, so that he can make and sell them. After many years of a good working relationship, Han’s fabric supplier delivered nonconforming goods. Specifically, the fabric delivered was not water-resistant, despite the need for water-resistant fabric to make tents. However, when Han notified the supplier of the problem, the supplier denied that the fabric was nonconforming to his order. Han refused to pay Alternative Dispute Resolution | 58 for the goods. The fabric supplier insisted on payment before future delivery of any additional fabric. Without water-resistant fabric, Han cannot continue to make tents. This is an example of a business to business dispute. Despite the problem, Han wants to continue working with this supplier, since they have a good, long-standing relationship. This problem seems to be a “hiccup” in the regular business relationship so they want to resolve this dispute quickly and without hard feelings. It is very unlikely that Han will immediately hire an attorney to file a formal complaint against his supplier. However, that does not change the fact that there is a dispute that needs to be resolved. One of the first strategies that Han and his supplier are likely to use is negotiation. Negotiation is a method of alternative dispute resolution in which the parties retain power to resolve their dispute. No outside party is vested with decision-making power. Negotiation requires the parties to define the conflict and agree to an outcome. Often, this can take the form of a compromise. Note that a compromise does not mean that anyone “loses.” If both parties are satisfied with the result of the negotiation and the business relationship can continue moving forward, then both parties will likely consider the settlement a “win.” Benefits to negotiation as a method of ADR include its potential for a speedy resolution, the inexpensive nature of participation, and the fact that parties participate voluntarily. Drawbacks include the fact that there are no set rules, and either party may bargain badly or even unethically. In a negotiation, there is no neutral third party to ensure that rules are followed, that the negotiation strategy is fair, or that the overall outcome is sound. Moreover, any party can walk away whenever it wishes. There is no guarantee of resolution 59 | Alternative Dispute Resolution through this method. The result may not be “win-win” or “winlose,” but no resolution at all. In addition, the parties may not have equal bargaining power. If Han’s business and the supplier are both dependent on each other for roughly equal portions of their businesses, then they are most likely relatively equal with respect to bargaining power. However, if Han has a small business but his supplier has a large business, then negotiation is potentially unbalanced, since one party has a much more powerful bargaining position than the other. For example, if Han needs that particular type of fabric, which is only available from one supplier. But the supplier does not need Han’s business because he do not provide a significant amount of its profit. This would be an example of unequal bargaining power. 4.3 Mediation Mediation is a method of ADR in which parties work to form a mutually acceptable agreement to resolve their dispute with the help of a neutral third party. Like negotiation, parties in mediation do not vest authority in a third party to decide the dispute. Instead, this authority remains with the parties themselves, who are free to end mediation if it is not working. Often, when parties end mediation, they pursue another form of ADR, such as arbitration, or they choose to litigate their claims in court. Like negotiation, mediation seeks a “win-win” outcome for the parties involved. Additionally, mediation is confidential, which may be attractive to people who wish to avoid the public nature of litigation. Discussions during a mediation are not admissible as evidence if the parties proceed to litigation. This encourages parties to be open with each other when trying to resolve their dispute. Finally, the Alternative Dispute Resolution | 60 mediation process is usually much faster than litigation, and the associated costs can be substantially less. Unlike negotiation, a third party is involved in mediation. Indeed, a neutral mediator is crucial to the mediation process. Mediators act as a go-between for the parties, seeking to facilitate the agreement. Mediators do not provide advice on the subject matter of the dispute. Mediators might not possess any subject-matter expertise concerning the nature of the dispute. The value of mediators, however, is their training and experience in conflict resolution, which they use to facilitate an agreement between the parties. Advantages of Mediation • Quick resolution • Less expensive than litigation & arbitration • Non-adversarial process that can preserve the relationship between the parties • Allows parties to work together to solve shared problem • Confidentiality • Set ground rules by a third party • Possibility of a “win-win” outcome Drawbacks of Mediation • Requires genuine participation by parties • Results may depend on skill of mediator • No uniform rules or procedures that apply to all mediations • No guarantee of a mutually agreeable outcome Parties often enter into a legally binding contract that embodies the terms of the resolution immediately after a successful mediation. Therefore, the terms of the mediation can become binding if they are reduced to a contract. Mediation is often required by courts as part of the litigation process. In an effort to reduce the court’s docket and encourage the parties to settle their own disputes, parties to lawsuits often must mediate their disputes after discovery and 61 | Alternative Dispute Resolution before trial. If the parties cannot settle their dispute with the help of a mediator, the case will proceed to trial before a judge or jury who will determine the outcome of the case. 4.4 Arbitration Arbitration is a method of ADR in which parties vest authority in a neutral third-party decision maker to hear their case and issue a decision, which is called an arbitration award. An arbitrator presides over arbitration proceedings. Arbitrators are neutral decision makers who are often experts in the law and subject matter at issue in the dispute. Arbitrators act like judges during trials. For instance, they determine which evidence can be introduced, hear the parties’ cases, and issue decisions. They may be certified by the state in which they arbitrate, and they may arbitrate only certain types of claims. For instance, the Better Business Bureau trains its own arbitrators to hear common complaints between businesses and consumers (B2C). However, their decisions do not form binding precedent like appellate court decisions. Participation in the arbitration proceeding is sometimes mandatory. Parties must arbitrate if they signed a contract requiring mandatory arbitration for that type of dispute. Arbitration is also mandatory when state law requires it. Voluntary arbitration is frequently used in business disputes. Sometimes parties simply agree that they do not want to litigate a dispute because they believe that the benefits of arbitration outweigh the costs of litigation, so they choose arbitration in hopes of a speedy and relatively inexpensive outcome. In binding arbitration, the arbitration award is final. Therefore, Alternative Dispute Resolution | 62 appealing the merits of a binding arbitration award to court is not available. An arbitration award may be converted to a judgment by the court, thereby creating the legal mechanism through which the judgment can be collected. This process is called confirmation. Although courts review arbitration awards, their review is very limited and all doubts are resolved in favor of the validity of the award. Courts review whether (1) the arbitration award covered matters beyond the issues submitted; (2) the arbitrator failed to apply the law correctly; and (3) fraud occurred. Courts do not review the merits of the award. Like any other form of dispute resolution, arbitration has certain benefits and drawbacks. Arbitration is an adversarial process like a trial, and it will produce a “winner” and a “loser.” Arbitration is more formal than negotiation and mediation and, in many ways, it resembles a trial. Parties present their cases to the arbitrator by introducing evidence. After both sides have presented their cases, the arbitrator issues an arbitration award. The rules of procedure during arbitration are often less formal or less restrictive on the presentation of evidence than in litigation. Arbitrators decide which evidence to allow, and they are not required to follow precedents or to provide their reasoning in the final award. In short, arbitration adheres to rules, but those rules are not the same as the rules for litigation. Arbitration can be more expensive than negotiation or mediation, but it is often less expensive than litigation. Parties must pay the costs of the arbitrator, and they often hire attorneys to represent them. Additionally, in mandatory arbitration clause cases, the arbitration may be required to take place far from one of the parties. This means that a party may have to pay travel costs during the arbitration proceeding. Arbitration is also faster than litigation. 63 | Alternative Dispute Resolution A common issue is whether mandatory arbitration is fair in certain circumstances. It’s easy to imagine that arbitration is fair when both parties are equally situated. For example, business to business (B2B) arbitration is often perceived as fair, especially if businesses are roughly the same size or have roughly equal bargaining power. This is because they will be able to devote approximately the same amount of resources to resolve the dispute, and they both understand the issues involved. However, issues of fairness often arise in business to employee (B2E) and business to consumer (B2C) disputes, particularly where parties with unequal bargaining power have entered into a contract that contains a mandatory arbitration clause. In such cases, the weaker party has no real negotiating power to modify or to delete the mandatory arbitration clause, so that party is required to agree to such a clause if it wants to engage in certain types of transactions. In B2E contexts, unequal bargaining power alone is insufficient to hold arbitration agreements unenforceable. In B2C cases, different issues of fairness exist. As noted previously, when the parties possess unequal power, these issues can be magnified. Consumers tend to fare better in litigation than in arbitration. Incentives exist to favor businesses over consumers in the arbitration process, including the lack of appeal rights to the courts, the limits on consumers’ remedies, prohibitions against class-action suits, limitations on access to jury trials, limitations on abilities to collect evidence, and greater out-of-pocket expenses. Not all binding arbitration clauses have been upheld by courts in B2C cases. The FAA does not prevent the courts from applying state law, including the unconscionability of contract terms. In other words, if the terms of the contract make it Alternative Dispute Resolution | 64 unreasonable to enforce the arbitration provision, then a party may still bring claims to court for resolution. Similarly, arbitration agreements may be rescinded on the same grounds as other contracts. Fraud, mutual mistake, and lack of capacity are grounds for voiding arbitration contracts. Revocation is also possible in the event of death or bankruptcy of one of the parties, as well as destruction of the subject matter of the underlying contract. 4.5 Concluding Thoughts ADR is the body of dispute-resolution methods outside of the litigation process. ADR is often faster, less expensive, and more private than litigation. For this reason, ADR may be the preferred dispute resolution method, particularly when an ongoing relationship between parties is desired. Common methods of dispute resolution are negotiation, mediation, and arbitration. Mandatory arbitration clauses are common in contracts, and such clauses are usually enforceable against the parties even if they wish to litigate their claims. 65 | Alternative Dispute Resolution 5. The Constitution 5.1 Introduction LEARNING OBJECTIVES 1. Explore how the US Constitution creates a limited government through the separation of powers and through checks and balances among the three branches of government. 2. Learn how the US Constitution resolves conflicts between state and federal laws. 3. Explore how the US Constitution grants Congress the power to regulate interstate commerce. 4. Understand how the US Constitution protects the civil liberties of business entities. Our first national constitution was the Articles of Confederation. The Articles granted limited authority to the federal government, including the power to wage wars, conduct foreign policy, and resolve issues regarding claims by the states on western lands. Many leading statesmen, known as Federalists, thought the Articles created a federal government that was too weak to survive. The lack of power to tax, for example, meant that the federal government was frequently near bankruptcy. Larger states resented the structure under the Articles, which gave small states an equal vote as larger states. Finally, the Articles reserved the power to regulate commerce to the states, meaning each pursued its own trade and tariff policy with other states and with foreign nations. Because the federal government was too weak to The Constitution | 66 function, the Articles were abandoned and the current Constitution was adopted in 1787. Counselor’s Corner The Constitution is the fundamental law of our nation and is extremely powerful. It’s also beautiful in its simplicity. The Constitution in action, though, is often messy. People’s rights conflict with each other. Branches of government clash over which has the power to act. Federal and state governments argue over who has ultimate authority to govern. But as long as we continue to cherish the values instilled in the document, the Constitution will remain a living protection against tyranny. We must protect it at all costs if we expect it to protect us. Tyranny starts when our dedication to Constitutional principles ends. ~John K., judge 5.2 Federalism and Preemption Much of the Constitution deals with the allocation of power among three separate and coequal branches of government. Substantively, much more attention is paid to the limitations on the power given to each of the three branches than to any positive grant of rights. The Constitution is a document of prohibition, outlining what government cannot do as opposed to what go...
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