Section 404 Law Case with Answer Solid Waste Agency of North Cook County v. United States Army Corps of Engineers 1. Facts Section 404 of the federal Clean Water Act (CWA) regulates the discharge of dredged or fill material into navigable waters. The U.S. Army Corps of Engineers (Corps) is authorized to enforce this statute and to issue permits for discharge of dredged or fill material into navigable waters in the United States. Section 404 defines navigable waters as “the waters of the United States, including the territorial seas.” The Solid Waste Agency of Northern Cook County, Illinois (Agency), a consortium of 23 suburban Chicago cities and villages, located a 533-acre parcel of real property that was a closed sand and gravel pit mining operation as a proposed disposal site for placing baled nonhazardous solid waste. Long since abandoned, the old mining site had permanent and seasonal water ponds of varying sizes and depths that served several species of migrating birds. The ponds were not connected to any water tributary but were filled by rain water and melting snow. Corps refused to issue the requested permit. Agency sued Corps, arguing that Corps had no jurisdiction over the site because it did not contain any navigable waters. Does the gravel and sand pit contain navigable waters that give the Army Corps of Engineers jurisdiction over the site? Answer No. The gravel and sand pit does not contain navigable waters, and thus the Army Corps of Engineers has no jurisdiction over the site. Corps could therefore not block Agency’s use of the abandoned sand and gravel pit as the dumping site for its solid wastes. Congress enacted the Clean Water Act for the purpose of restoring and maintaining the chemical, physical, and biological integrity of the nation’s water. Section 404 authorizes the U.S. Army Corps of Engineers to regulate the discharge of fill material into “navigable waters,” which the statute defines as “the waters of the United States, including the territorial seas.” Corps interpreted these words to cover the abandoned gravel pit at issue here because it is used as habitat for migratory birds. However, isolated ponds, some only seasonal, wholly located within Illinois, do not fall under Section 404’s definition of “navigable waters” merely because they serve as habitat for migratory birds. The ponds located on the sand and gravel pit are not navigable waters, as defined by Section 404 of the Clean Water Act. Therefore, the U.S. Army Corps of Engineers does not have authority or jurisdiction over these ponds. Solid Waste Agency of Northern Cook County v. United States Army Corps of Engineers, 531 U.S. 159, 121 S.Ct. 675, 2001 U.S. Lexis 640 (Supreme Court of the United States) SECTION 302 Ethics What Duties Do U.S. Companies Owe to Workers in Foreign Countries? “We agree with the district court that the language of the Standards does not create a duty on the part of Walmart to monitor the suppliers, and does not provide plaintiffs a right of action against Walmart as third-party beneficiaries.” —Gould, Circuit Judge Wal-Mart Stores, Inc. (Walmart) owns and operates a chain of large big-box discount department and warehouse stores and is the largest company in the United States. Walmart is the largest importer in the United States of foreign-produced goods. Walmart developed a code of conduct for its foreign suppliers entitled “Standards for Suppliers” (Standards). These Standards require foreign suppliers to adhere to local law and local industry working conditions such as pay, hiring forced labor, child labor, and discrimination. These Standards are incorporated into Walmart’s supply contracts with foreign suppliers. The Standards provide that Walmart may make on-site inspections of production facilities and permit Walmart to cancel orders with, or terminate, any foreign supplier that fails to comply with the Standards. Workers at foreign suppliers in China, Bangladesh, Indonesia, Swaziland, and Nicaragua who produce and sell goods to Walmart sued Walmart in U.S. federal court. The foreign workers alleged that they were third-party beneficiaries to Walmart’s contract with its foreign suppliers and that they were due damages from Walmart for Walmart’s breach of the Standards. They alleged that their employers regularly violated the Standards and that Walmart failed to investigate working conditions at foreign suppliers, knew that the Standards were being violated, and failed to enforce the Standards contained in these contracts. Are the foreign workers intended third-party beneficiaries under Walmart’s contracts with its foreign suppliers to whom Walmart owes a legal duty of protection? A verbal contract isn’t worth the paper it’s written on. Samuel Goldwyn The U.S. court of appeals held that the plaintiff foreign workers were not intended thirdparty beneficiaries to Walmart’s contracts with its foreign suppliers and that Walmart did not owe the foreign workers a duty of protection. Does I-XI, Workers in China, Bangladesh, Indonesia, Swaziland, and Nicaragua v. Wal-Mart Stores, Inc., 572 F.3d. 677, 2009 U.S. App. Lexis 15279 (United States Court of Appeals for the Ninth Circuit) Ethics Questions 1. Why does Walmart have much of the goods it sells made in foreign countries? Are Walmart’s Standards illusory if it does not consistently enforce them against foreign suppliers? Does Walmart owe a duty to require that its foreign suppliers provide the same protections to their workers as is provided to workers in the United States? SECTION 401 Labor Law Once permitted to do so, workers organized and joined unions in an attempt to gain bargaining strength with employers. In the early 1900s, employers used violent tactics against workers who were trying to organize into unions. At that time, courts often sided with employers in such disputes. The American Federation of Labor (AFL) was formed in 1886, under the leadership of Samuel Gompers. Only skilled craft workers such as silversmiths and artisans were allowed to belong. In 1935, John L. Lewis formed the Congress of Industrial Organizations (CIO). The CIO permitted semiskilled and unskilled workers to become members. In 1955, the AFL and CIO combined to form the AFL-CIO. Individual unions (e.g., United Auto Workers, United Steel Workers) may choose to belong to the AFLCIO, but not all unions opt to join. In the early 1900s, members of the labor movement lobbied Congress to pass laws to protect the right to organize and bargain with management. During the Great Depression of the 1930s, several statutes that were enacted gave workers certain rights and protections. Other statutes have been added since then. The following feature lists and describes major federal labor laws. Landmark Law Federal Labor Law Statutes The major federal statutes that regulate the labor–management relationship are as follows: National Labor Relations Act (NLRA) (Wagner Act) A federal statute enacted in 1935 that establishes the right of employees to form and join labor organizations. • Norris-LaGuardia Act. Enacted in 1932, the Norris-LaGuardia Act stipulates that it is legal for employees to organize.1 • National Labor Relations Act (NLRA). The National Labor Relations Act (NLRA) , also known as the Wagner Act, was enacted in 1935.2 The NLRA establishes the right of employees to form and join labor organizations, to bargain collectively with employers, and to engage in concerted activity to promote these rights. • Labor Management Relations Act. In 1947, Congress enacted the Labor Management Relations Act, also known as the Taft-Hartley Act.3 This act (1) expands the activities that labor unions can engage in, (2) gives employers the right to engage in free-speech efforts against unions prior to a union election, and (3) gives the president of the United States the right to seek an injunction (for up to 80 days) against a strike that would create a national emergency. • Labor Management Reporting and Disclosure Act. In 1959, Congress enacted the Labor Management Reporting and Disclosure Act, also known as the Landrum-Griffin Act.4 This act regulates internal union affairs and establishes the rights of union members. • Railway Labor Act. The Railway Labor Act of 1926, as amended in 1934, covers employees of railroad and airline carriers.5 These federal statutes, rules and regulations adopted pursuant to these statutes, and court decisions interpreting and applying the statutes and rules and regulations are collectively referred to as labor law. National Labor Relations Board The National Labor Relations Act created the National Labor Relations Board (NLRB) . The NLRB is an administrative body composed of five members appointed by the president and approved by the Senate. The NLRB oversees union elections, prevents employers and unions from engaging in illegal and unfair labor practices, and enforces and interprets certain federal labor laws. The decisions of the NLRB are enforceable in court. National Labor Relations Board (NLRB) A federal administrative agency that oversees union elections, prevents employers and unions from engaging in illegal and unfair labor practices, and enforces and interprets certain federal labor laws. SECTION 409 Management of an LLC An LLC can be either a member-managed LLC or a manager-managed LLC. An LLC is a member-managed LLC unless it is designated as a manager-managed LLC in its articles of organization [ULLCA Section 203(a) (b)]. The distinctions between these two are as follows: • Member-managed LLC. In this type of LLC, the members of the LLC have the right to manage the LLC. • Manager-managed LLC. In this type of LLC, the members designate a manager or managers to manage the LLC and, by doing so, they delegate their management rights to the manager or managers. Designated manager or managers have the authority to manage the LLC, and the members no longer have the right to manage the LLC. A manager of an LCC may be a member of an LLC or a nonmember. Whether an LLC is a member-managed or manager-managed LLC has important consequences on the right to bind the LLC to contracts and on determining the fiduciary duties owed by members to the LLC. These important distinctions are discussed in the paragraphs that follow. Member-Managed LLC In a member-managed LLC , each member has equal rights in the management of the business of the LLC, regardless of the size of his or her capital contribution. Any matter relating to the business of the LLC is decided by a majority vote of the members [ULLCA Section 404(a)]. member-managed LLC An LLC that has not been designated as a manager-managed LLC in its articles of organization. The LLC is managed by its members. manager-managed LLC An LLC that has designated in its articles of organization that it is a manager-managed LLC. Nonmanager members give their management rights over to designated managers, who manage the LLC. Example Allison, Jaeson, Stacy, Lan-Wei, and Ivy form North West.com, LLC. Allison contributes $100,000 capital, and the other four members each contribute $25,000 capital. When deciding whether to add another line of products to the business, Stacy, Lan-Wei, and Ivy vote to add the line, and Allison and Jaeson vote against it. The line of new products is added to the LLC’s business because three members voted yes, while two members voted no. It does not matter that the two members who voted no contributed $125,000 in capital collectively versus $75,000 in capital contributed by the three members who voted yes. Manager-Managed LLC In a manager-managed LLC , the members and nonmembers who are designated managers control the management of the LLC. The members who are not managers have no rights to manage the LLC unless otherwise provided in the operating agreement. In a manager-managed LLC, each manager has equal rights in the management and conduct of the company’s business. Any matter related to the business of the LLC may be exclusively decided by the managers by a majority vote of the managers [ULLCA Section 403(b)]. A manager must be appointed by a vote of a majority of the members; managers may also be removed by a vote of the majority of the members [ULLCA Section 404(b)(3)]. Certain actions cannot be delegated to managers but must be voted on by all members of the LLC. These actions include (1) amending the articles of organization; (2) amending the operating agreement; (3) admitting new members; (4) consenting to dissolve the LLC; (5) consenting to merge the LLC with another entity; and (6) selling, leasing, or disposing of all or substantially all of the LLC’s property [ULLCA Section 404(c)]. Laws too gentle are seldom obeyed; too severe, seldom executed. Benjamin Franklin Poor Richard’s Almanack (1756) CONCEPT SUMMARY Management of an LLC Type of LLC Description Member- The members do not designate managers to manage the LLC. The LLC is managed by its managed LLC members. Manager- The members designate certain members or nonmembers to manage the LLC. The LLC is managed LLC managed by the designated managers; nonmanager members have no right to manage the LLC. Agency Authority to Bind an LLC to Contracts The designation of an LLC as member-managed or manager-managed is important in determining who has authority to bind the LLC to contracts. The following rules apply: • • Member-managed LLC. In a member-managed LLC, all members have agency authority to bind the LLC to contracts. Example If Theresa, Artis, and Yolanda form a member-managed LLC, each one of them can bind the LLC to a contract with a third party such as a supplier, purchaser, or landlord. Manager-managed LLC. In a manager-managed LLC, the managers have authority to bind the LLC to contracts, but nonmanager members cannot bind the LLC to contracts. Example Alexis, Derek, Ashley, and Sadia form an LLC. They designate the LLC as a managermanaged LLC and name Alexis and Ashley as the managers. Alexis, a manager, enters into a contract to purchase goods from a supplier for the LLC. Derek, a nonmanager member, enters into a contract to lease equipment on behalf of the LLC. The LLC is bound to the contract entered into by Alexis, a manager, but it is not bound to the contract entered into by Derek, a nonmanager member. An LLC is bound to contracts that members or managers have properly entered into on its behalf in the ordinary course of business [ULLCA Section 301]. CONCEPT SUMMARY Agency Authority to Bind an LLC to Contracts Type of LLC Agency Authority Member-managed All members have agency authority to bind the LLC to contracts. LLC Manager-managed The managers have authority to bind the LLC to contracts; the nonmanager members LLC cannot bind the LLC to contracts. Duty of Loyalty A member of a member-managed LLC and a manager of a manager-managed LLC owe a fiduciaryduty of loyalty to the LLC. This means that these parties must act honestly in their dealings with the LLC. The duty of loyalty includes the duty not to usurp the LLC’s opportunities, make secret profits, deal with the LLC secretly, compete with the LLC secretly, or represent any interests adverse to those of the LLC [ULLCA Section 409(b)]. duty of loyalty A duty owed by a member of a member-managed LLC and a manager of a managermanaged LLC to be honest in his or her dealings with the LLC and not to act adversely to the interests of the LLC. Example Ester, Yi, Maria, and Enrique form the member-managed LLC Big.Business.com, LLC, which conducts online auctions over the Internet. Ester secretly starts a competing business to conduct online auctions over the Internet. Ester is liable for breaching her duty of loyalty to the LLC with Yi, Maria, and Enrique. Ester is liable for any secret profits she made, and her business will be shut down. Example In the preceding example, suppose that Ester, Yi, Maria, and Enrique designated their LLC as a manager-managed LLC and named Ester and Yi managers. In this case, only the managers owe a duty of loyalty to the LLC, but nonmanager members do not. Therefore, Ester and Yi, the named managers, could not compete with the LLC; Maria and Enrique, nonmanager members, could compete with the LLC without any legal liability. No Fiduciary Duty Owed A member of a manager-managed LLC who is not a manager owes no fiduciary duty of loyalty or care to the LLC or its other members [ULLCA Section 409(h)(1)]. Basically, a nonmanager member of a manager-managed LLC is treated equally to a shareholder in a corporation. Example Felicia is a member of a 30-person manager-managed LLC that is engaged in buying, developing, and selling real estate. Felicia is not a manager of the LLC but is just a memberowner. If a third party approaches Felicia with the opportunity to purchase a large and valuable piece of real estate that is ripe for development, and the price is below fair market value, Felicia owes no duty to offer the opportunity to the LLC. She may purchase the piece of real estate for herself without violating any duty to the LLC. The following feature compares an LLC to other forms of business and highlights the advantages of an LLC over other forms of business. Business Environment Advantages of Operating a Business as an LLC What are the advantages of operating a business as an LLC rather than a sole proprietorship, general partnership, limited partnership, C corporation, or S corporation? Some of the differences and advantages are as follows: • • • • • • • • • • An LLC can have any number of member-owners, whereas an S corporation can have only 100 shareholders. An LLC has flow-through taxation the same as general and limited partnerships and S corporations. Unlike an S corporation, an LLC does not have to file a form with the IRS to obtain flow-through taxation. S corporations cannot have shareholders other than estates, certain trusts, and individuals, whereas an LLC can have these and other types of shareholders such as general and limited partnerships, corporations, and other LLCs. An LLC can have nonresident alien member-owners, whereas an S corporation cannot have nonresident aliens as stockholders. An S corporation can have only one class of stock, whereas an LLC can have more than one class of interest, thereby permitting a more complex capital structure. An S corporation may not own more than 80 percent of another corporation, whereas an LLC may own 100 percent of other businesses. An S corporation cannot be affiliated with other businesses, whereas an LLC can be part of an affiliated group of businesses. Members of LLCs can manage the LLC similarly to general partners, who can manage a general partnership or a limited partnership, whereas shareholders of an S corporation do not have rights to manage the corporation. Members of LLCs can manage the business and still have limited liability, whereas the general partners of a general or limited partnership can manage the business of the partnership but do not have limited liability. Members of an LLC have limited liability like limited partners of a limited partnership, but unlike limited partners, member-owners of an LLC have a say in management without losing their limited liability. • A limited partnership must have at least one general partner who is personally liable for the obligations of the partnership. An LLC provides limited liability to all members. • Similar to corporations having professional management, an LLC can choose to be a manager-managed LLC whereby designated managers manage the affairs of the business. Non-manager members thereby do not have rights to manage the LLC’s business affairs. • An LLC can be owned by one owner in most states. Therefore, an owner obtains limited liability that is not available to a sole proprietor of a sole proprietorship. • The formation of an LLC is no more complex than forming a corporation. The formation of an LLC is more complex and costly than forming a sole proprietorship and usually more complex and costly than forming a general partnership and limited partnership. For these reasons LLCs have become a preferred form of operating businesses in the United States. Critical Legal Thinking 1. Describe the advantages of operating as an LLC versus operating as a (1) sole proprietorship, (2) general partnership, (3) limited partnership, (4) C corporation, and (5) S corporation. LAW/531 WEEK 6 INDIVIDUAL ASSIGNMENT Instructions Cheeseman, Henry (2016). Legal Environment of Business: Online Commerce, Business Ethics, and Global Issues (8th ed.). Upper Saddle River, NJ: Pearson Education, Inc. HERE IS THE ASSIGNMENT AND REQUIREMENTS BELOW: Regulatory Compliance and Governance Instructions: Purpose of Assignment Corporate fraud has cost businesses and their shareholders millions of dollars and has been the source of legislation and regulations attempting to provide oversight and guidance to corporate boards, executives, and practitioners. Think about how these laws have changed the practices of corporate executives and, in light of the Enron scandal, et al., has it been enough? Assignment Steps Resources: Legal Environment of Business: Online Commerce, Business Ethics, and Global Issues: Ch. 16 (pp. 364 -368), 22, and 23. Scenario: The Sarbanes-Oxley Act (SOX) has been in effect since 2002 and has cost businesses millions of dollars in personnel and administrative costs. Your company is in the process of "going public," has underwritten its Initial Public Offering (IPO), and filed its registration statement with the Securities Exchange Commission. Your current executive team has asked you to create a plan ensuring SOX compliance is followed once you become a publicly traded company. Review the pertinent sections of The Sarbanes-Oxley Act (SOX) Act. For purposes of this proposal to the board, only concern yourself with the compliance provisions of SOX (Sections 302, 401, 404, 409, and 802). Create a maximum 1,050-word proposal to the board outlining the compliance policies necessary to implement SOX. Cite a minimum of one reference for the five content areas taken from a business or legal resource. One resource must be from the University Library. Format your paper consistent with APA guidelines.
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