THE LEGAL ENVIRONMENT of BUSINESS This Page Intentionally Left Blank the LEGAL ENVIRONMENT of BUSINESS

THE LEGAL ENVIRONMENT OF BUSINESS This page intentionally left blank THE LEGAL ENVIRONMENT OF BUSINESS A Critical Thinking Approach SIXTH EDITION NANCY K. BARTLEY A. M. NEIL KUBASEK BRENNAN BROWNE Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Assistant Vice President, Executive Editor: Stephanie Wall Editorial Senior Project Manager: Karen Kirincich Editorial Director: Sally Yagan Editor in Chief: Donna Battista Director of Editorial Services: Ashley Santora Editorial Assistant: Brian Reilly Director of Marketing: Patrice Jones Marketing Assistant: Ian Gold Senior Managing Editor: Cynthia Zonneveld Project Manager: Carol O’Rourke Senior Operations Specialist: Diane Peirano Art Director: Jonathon Boylan Cover Designer: Jonathon Boylan Manager, Cover Visual Research & Permissions: Karen Sanatar Cover Art: Ron Koeber/© Aurora Photos/Alamy Media Development Manager: Cathi Profitko Full-Service Project Management: S4Carlisle Publishing Services Composition: S4Carlisle Publishing Services Printer/Binder: Webcrafters Cover Printer: Lehigh-Phoenix Color/Hagerstown Text Font: 10.5/12 Garamond Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text. Copyright © 2012, 2009, 2006, 2003, 1999 Pearson Education, Inc., Upper Saddle River, New Jersey 04758. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department. Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps. Library of Congress Cataloging-in-Publication Data Kubasek, Nancy. The legal environment of business : a critical thinking approach / Nancy K. Kubasek, Bartley A. Brennan, M. Neil Brown. — 6th ed. p. cm. ISBN-13: 978-0-13-266484-4 ISBN-10: 0-13-266484-4 1. Industrial laws and legislation—United States. 2. Business law—United States. 3. Trade regulation—United States. I. Brennan, Bartley A. II. Brown, M. Neil. III. Title. KF1600.K83 2011 346.7307—dc22 2010054532 10987654321 ISBN 10: 0-13-266484-4 ISBN 13: 978-0-13-266484-4 To the numerous students who appreciate the importance of developing their critical thinking skills for their personal growth and development NANCY K. KUBASEK AND M. NEIL BROWNE In memory of Professor Thomas Dunfee of the Wharton School of Finance BARTLEY A. BRENNAN This page intentionally left blank Brief Contents PART ONE Introduction to the Law and the Legal Environment of Business 1 1 Critical Thinking and Legal Reasoning 2 2 Introduction to Law and the Legal Environment of Business 15 3 The American Legal System 33 4 Alternative Tools of Dispute Resolution 70 5 Constitutional Principles 99 6 Cyberlaw and Business 134 7 White-Collar Crime and the Business Community 160 8 Ethics, Social Responsibility, and the Business Manager 202 9 The International Legal Environment of Business 228 PART TWO Private Law and the Legal Environment of Business 261 10 The Law of Contracts and Sales—I 262 11 The Law of Contracts and Sales—II 289 12 The Law of Torts 309 13 Product and Service Liability Law 342 14 Law of Property: Real and Personal 372 15 Intellectual Property 394 16 Agency Law 413 17 Law and Business Associations—I 434 18 Law and Business Associations—II 453 PART THREE Public Law and the Legal Environment of Business 477 19 The Law of Administrative Agencies 478 20 The Employment Relationship 499 21 Laws Governing Labor–Management Relations 527 22 Employment Discrimination 557 23 Environmental Law 600 24 Rules Governing the Issuance and Trading of Securities 629 25 Antitrust Laws 680 26 Laws of Debtor–Creditor Relations and Consumer Protection 721 APPENDIX A The Constitution Of the United States 763 APPENDIX B Uniform Commercial Code (2000 Official Text), Article 2 769 GLOSSARY 783 INDEX 797 vii This page intentionally left blank Contents PREFACE xxxi ACKNOWLEDGMENTS xxxv ABOUT THE AUTHORS xxxvii PART ONE Introduction to the Law and the Legal Environment of Business 1 1 Critical Thinking and Legal Reasoning 2 The Importance of Critical Thinking 2 A Critical Thinking Model 3 United States of America v. Martha Stewart and Peter Bacanovic 4 The Critical Thinking Steps 5 Facts 5 Issue 6 Reasons and Conclusion 6 Rules of Law 6 Ambiguity 7 Ethical Norms 7 Analogies 7 Missing Information 8 Using Critical Thinking to Make Legal Reasoning Come Alive 9 Legal Reasoning 10 Applying the Critical Thinking Approach 13 Assignment on the Internet 14 On the Internet 14 For Future Reading 14 2 Introduction to Law and the Legal Environment of Business 15 Definition of the Legal Environment of Business 16 Definition of Law and Jurisprudence 17 Natural Law School 18 Positivist School 19 Sociological School 19 American Realist School 20 Critical Legal Studies School 20 Feminist School 20 Law and Economics School 21 Sources of Law 21 The Legislature as a Source of Statutory Law 21 The Judicial Branch as a Source of Case Law 23 The Executive Branch as a Source of Law 25 Administrative Agencies as a Source of Law 25 ix x CONTENTS Classifications of Law 26 Criminal Law and Civil Law 26 Public and Private Law 27 Substantive and Procedural Law 27 Cyberlaw 27 Global Dimensions of the Legal Environment of Business 28 Summary 28 Review Questions 28 Review Problems 29 Case Problems 29 Thinking Critically about Relevant Legal Issues 31 Assignment on the Internet 31 On the Internet 32 For Future Reading 32 3 The American Legal System 33 Jurisdiction 33 Original versus Appellate Jurisdiction 33 Jurisdiction over Persons and Property 34 World-Wide Volkswagen Corp. v. Woodson, District Judge of Cook County 35 Subject Matter Jurisdiction 37 West Virginia University Board of Governors for and on Behalf of West Virginia University v. Richard Rodriguez 39 Venue 40 The Structure of the Court System 42 The Federal Court System 42 State Court Systems 42 The Actors in the Legal System and their Relationship to the Business Community 45 The Attorney 45 The Judge 46 The Jury 48 The Adversary Process 49 Criticisms of the Adversary System 49 Steps in Civil Litigation and the Role of Businesspersons 50 The Pretrial Stage 50 The Trial 55 J.E.B. v. Alabama, ex rel. T.B. 56 Appellate Procedure 60 Class Actions 62 Global Dimensions of the American Legal System 63 Summary 65 Review Questions 65 Review Problems 65 Case Problems 66 Thinking Critically about Relevant Legal Issues 68 Assignment on the Internet 68 CONTENTS xi On the Internet 69 For Future Reading 69 4 Alternative Tools of Dispute Resolution 70 Negotiation and Settlement 71 Mediation 72 Selection of a Mediator 72 Common Uses of Mediation 73 Advantages of Mediation 73 Criticisms of Mediation 74 Arbitration 74 Hall Street Associates, L.L.C. v. Mattel, Inc. 75 Methods of Securing Arbitration 76 Southland Corp. v. Keating 77 Ignazio v. Clear Channel Broadcasting, Inc., et al. 80 Selection of an Arbitrator 84 Common Uses of Arbitration 85 Problems with Arbitration 86 Minitrials 87 Early Neutral Case Evaluation 88 Private Trials 88 Summary Jury Trials 89 Court-Annexed Alternative Dispute Resolution 89 Use of Court-Annexed ADR in the State and Federal Systems 89 Differences between Court-Annexed and Voluntary ADR 90 The Future of Alternative Dispute Resolution 91 Global Dimensions of Alternative Dispute Resolution 92 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth 92 Summary 93 Review Questions 94 Review Problems 94 Case Problems 94 Thinking Critically about Relevant Legal Issues 97 Assignment on the Internet 97 On the Internet 98 For Future Reading 98 5 Constitutional Principles 99 The Constitution 99 Federalism 99 Supremacy Clause 100 Federal Preemption 100 Separation of Powers 101 William Jefferson Clinton v. Paula Corbin Jones 102 The Impact of the Commerce Clause on Business 104 The Commerce Clause as a Source of Federal Authority 104 xii CONTENTS Gonzales v. Raich 106 The Commerce Clause as a Restriction on State Authority 108 United Haulers Association, Inc. v. Oneida-Herkimer Solid Waste Management Authority 110 The Taxing and Spending Powers of the Federal Government 113 The Impact of the Amendments on Business 114 The First Amendment 114 Central Hudson Gas & Electric Corp. v. Public Service Commission of New York 116 The Fourth Amendment 121 The Fifth Amendment 123 D.A.B.E., Inc. v. City of Toledo 126 The Fourteenth Amendment 128 Summary 128 Review Questions 129 Review Problems 129 Case Problems 130 Thinking Critically about Relevant Legal Issues 131 Assignment on the Internet 132 On the Internet 132 For Future Reading 133 6 Cyberlaw and Business 134 Cyberlaw and Business: How Law Changes as Society Changes 135 The Flexibility of Law 135 Changes in the Ways Courts Function 136 Challenges to the Limits and Powers of Government 137 Janet Reno, Attorney General of the United States, et al., Appellants v. American Civil Liberties Union, et al., Appellee 137 Intellectual

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