Legal environment of business 8th edition pdf

NANCY K.

KUBASEK M. NEIL

BROWNE BARTLEY A.

BRENNAN

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The LEGAL ENVIRONMENT

of BUSINESS

EIGHTH EDITION

A CRITICAL THINKING APPROACH

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Library of Congress Cataloging-in-Publication Data Kubasek, Nancy K., author. The legal environment of business : a critical thinking approach / Nancy K. Kubasek, Bartley A. Brennan, M. Neil Browne. — Eight edition.

pages cm ISBN 978-0-13-407403-0 (alk. paper)

1. Industrial laws and legislation—United States. 2. Trade regulation—United States. 3. Commercial law—United States. 4. Critical thinking. I. Brennan, Bartley A., author. II. Browne, M. Neil, author. III. Title. KF1600.K83 2015a 346.7307—dc23

2015036209

10 9 8 7 6 5 4 3 2 1 ISBN 10: 0-13-407403-3 ISBN 13: 978-0-13-407403-0

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http://www.pearsoned.com/permissions/
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

To Sandra for everything.

BARTLEY A. BRENNAN

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iv

Brief Contents

P A R T O N E

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 17

3 The American Legal System 35

4 Alternative Tools of Dispute Resolution 76

5 Constitutional Principles 105

6 White-Collar Crime and the Business Community 145

7 Ethics, Social Responsibility, and the Business Manager 188

8 The International Legal Environment of Business 213

P A R T T W O

Private Law and the Legal Environment of Business 249 9 The Law of Contracts and Sales—I 250

10 The Law of Contracts and Sales—II 279

11 The Law of Torts 299

12 Product and Service Liability Law 332

13 Law of Property: Real and Personal 360

14 Intellectual Property 385

15 Agency Law 408

16 Law and Business Associations—I 432

17 Law and Business Associations—II 453

P A R T T H R E E

Public Law and the Legal Environment of Business 481 18 The Law of Administrative Agencies 482

19 The Employment Relationship and Immigration Laws 503

20 Laws Governing Labor–Management Relations 538

21 Employment Discrimination 569

22 Environmental Law 617

23 Rules Governing the Issuance and Trading of Securities 647

24 Antitrust Laws 699

25 Laws of Debtor–Creditor Relations and Consumer Protection 741

APPENDIX A The Constitution of the United States 788

GLOSSARY 794

INDEX 808

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v

Contents

v

PREFACE xvii

ACKNOWLEDGMENTS xxi

ABOUT THE AUTHORS xxiii

P A R T O N E

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 4

United States of America v. Martha Stewart and Peter Bacanovic 5

The Critical Thinking Steps 7 Facts 7 Issue 7 Reasons and Conclusion 7 Rules of Law 8 Ambiguity 8 Ethical Norms 9 Analogies 10 Missing Information 10

Using Critical Thinking to Make Legal Reasoning Come Alive 11

Legal Reasoning 11

Applying the Critical Thinking Approach 15

Assignment on the Internet 16

On the Internet 16

For Future Reading 16

2 Introduction to Law and the Legal Environment of Business 17 Definition of the Legal Environment of Business 18

Definition of Law and Jurisprudence 19 Natural Law School 20 Positivist School 21 Sociological School 21 American Realist School 22 Critical Legal Studies School 22 Feminist School 22

Law and Economics School 23

Sources of Law 23 The Legislature as a Source of Statutory Law 23 The Judicial Branch as a Source of Case Law 25 The Executive Branch as a Source of Law 27 Administrative Agencies as a Source of Law 27

Classifications of Law 27 Criminal Law and Civil Law 28 Public and Private Law 28 Substantive and Procedural Law 29 Cyberlaw 29

Global Dimensions of the Legal Environment of Business 30

Summary 30

Review Questions 30

Review Problems 31

Case Problems 31

Thinking Critically about Relevant Legal Issues 33

Assignment on the Internet 33

On the Internet 34

For Future Reading 34

3 The American Legal System 35 Jurisdiction 35

Original versus Appellate Jurisdiction 35 Jurisdiction over Persons and Property 36

World-Wide Volkswagen Corp. v. Woodson, District Judge of Cook County 37

Subject Matter Jurisdiction 40

Hertz Corporation v. Friend 41

Venue 44

The Structure of the Court System 46 The Federal Court System 46 State Court Systems 46

The Actors in the Legal System and Their Relationship to the Business Community 49

The Attorney 49 The Jury 52

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The Adversary Process 52 Criticisms of the Adversary System 53

Steps in Civil Litigation and the Role of Businesspersons 53

The Pretrial Stage 53 The Trial 59

J.E.B. v. Alabama, ex rel. T.B. 60 Appellate Procedure 64 Class Actions 66

Wal-Mart Stores Inc. v. Dukes 67

Global Dimensions of the American Legal System 69

Summary 71

Review Questions 71

Review Problems 71

Case Problems 72

Thinking Critically about Relevant Legal Issues 73

Assignment on the Internet 74

On the Internet 74

For Future Reading 75

4 Alternative Tools of Dispute Resolution 76 Negotiation and Settlement 78

Mediation 78 Selection of a Mediator 78 Common Uses of Mediation 79 Advantages of Mediation 79 Criticisms of Mediation 80

Arbitration 80

Hall Street Associates, L.L.C. v. Mattel, Inc. 82 Methods of Securing Arbitration 83

Ignazio v. Clear Channel Broadcasting, Inc. et al. 84

American Express Co. vs. Italian Colors Restaurant 89

Selection of an Arbitrator 91 Common Uses of Arbitration 92 Problems with Arbitration 92

Minitrials 93

Early Neutral Case Evaluation 94

Private Trials 95

Summary Jury Trials 95

Court-Annexed Alternative Dispute Resolution 95

Use of Court-Annexed ADR in the State and Federal Systems 95 Differences between Court-Annexed and Voluntary ADR 97

The Future of Alternative Dispute Resolution 98

Global Dimensions of Alternative Dispute Resolution 98

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth 99

Summary 100

Review Questions 100

Review Problems 100

Case Problems 101

Thinking Critically about Relevant Legal Issues 102

Assignment on the Internet 103

On the Internet 103

For Future Reading 104

5 Constitutional Principles 105 The Constitution 105

Federalism 105 Supremacy Clause 106 Federal Preemption 106

Separation of Powers 107

William Jefferson Clinton v. Paula Corbin Jones 107

The Impact of the Commerce Clause on Business 110

The Commerce Clause as a Source of Federal Authority 110

Gonzales v. Raich 112 The Commerce Clause as a Restriction on State Authority 116

Nat’l Ass’n of Optometrists & Opticians v. Brown 116

The Taxing and Spending Powers of the Federal Government 119

Taxation of the Internet? 120

The Impact of the Amendments on Business 121

The First Amendment 121

Central Hudson Gas & Electric Corp. v. Public Service Commission of New York 123

The Fourth Amendment 128

Florida v. Jardines 129 The Fifth Amendment 132

United States v. Windsor 134 The Fourteenth Amendment 139

Summary 140

Review Questions 140

Review Problems 140

vi C O N T E N T S

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C O N T E N T S vii

Case Problems 141

Thinking Critically about Relevant Legal Issues 143

Assignment on the Internet 143

On the Internet 144

For Future Reading 144

6 White-Collar Crime and the Business Community 145 Crime and Criminal Procedure 148

Crime 148 Criminal Procedure 149

Distinguishing Features of White-Collar Crime 154

The Corporation as a Criminal 154 Arguments in Support of Corporate Liability 155 Arguments in Opposition to Corporate Liability 156 Imposition of Liability on Corporate Executives 157

United States v. Park 157 Imposition of Liability on Lower-Level Corporate Criminals 160 Factors Encouraging the Commission of White-Collar Crime 160 Sentencing of White-Collar Criminals 162

Common White-Collar Crimes 164

Sekhar v. United States 164 Bribery 165 Violations of Federal Regulations 166 Criminal Fraud 167

United States v. Gray 167 Larceny 169 Embezzlement 170 Computer Crimes 170

Prevention of White-Collar Crime 173

Federal Laws Used in the Fight against White-Collar Crime 175

The Racketeer Influenced and Corrupt Organizations Act (RICO) 175 False Claims Act 177 Sarbanes-Oxley Act 178 Whistleblower Protection Act 179

State Laws Used in the Fight against White- Collar Crime 180

Global Dimensions of White-Collar Crime 181

Summary 182

Review Questions 182

Review Problems 182

Case Problems 183

Thinking Critically about Relevant Legal Issues 186

Assignment on the Internet 186

On the Internet 187

For Future Reading 187

7 Ethics, Social Responsibility, and the Business Manager 188 Definition of Business Ethics and the Social Responsibility of Business 190

Business Ethics 190 The Social Responsibility of Business 191

In re Exxon Valdez 191

Theories of Ethical Thought 193 Consequential Theories 193 Deontological Theories 194 Humanist Theories 195

Codes of Ethics 195 Individual Codes of Ethics 195 Corporate Codes of Ethics 197 Industry Codes of Ethics 198 Professional Codes of Ethics 198

Schools of Social Responsibility 201 Profit-Oriented School 201 Managerial School 204 Institutional School 204

Cooper Industries v. Leatherman Tool Group, Inc. 205

Professional Obligation School 205 Regulation School 206

Johnson Construction Co. v. Shaffer 206

Global Dimensions of Ethics and Social Responsibility 207

Code of Conduct for Transnational Corporations 207

Summary 207

Review Questions 208

Review Problems 208

Case Problems 209

Thinking Critically about Relevant Legal Issues 210

Assignment on the Internet 211

On the Internet 211

For Future Reading 211

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8 The International Legal Environment of Business 213 Dimensions of the International Environment of Business 214

Political Dimensions 214 Economic Dimensions 215 Cultural Dimensions 215 Corruption and Trade 216

United States v. Kay 216 Legal Dimensions 219 Selected National Legal Systems 221

Crosby v. National Foreign Trade Council 222

Methods of Engaging in International Business 223

Trade 223 International Licensing and Franchising 224

Russian Entertainment Wholesale, Inc. v. Close-Up International, Inc. 225

Foreign Direct Investment 226

In re Union Carbide Corp. Gas Plant Disaster v. Union Carbide Corp. 227

Risks of Engaging in International Business 229

Expropriation of Private Property 229 Sovereign Immunity Doctrine 230

Keller v. Central Bank of Nigeria 230

Act-of-State Doctrine 231

Linde v. Arab Bank, PLC 231 Export and Import Controls 232

Legal and Economic Integration as a Means of Encouraging International Business Activity 233

The World Trade Organization 233 The European Union 236 North American Free Trade Agreement 240

Global Dispute Resolution 242 Arbitration 243 Litigation 243 Globalization: Hurts or Helps 243

Summary 244

Review Questions 244

Review Problems 245

Case Problems 245

Thinking Critically about Relevant Legal Issues 246

Assignment on the Internet 246

On the Internet 247

For Future Reading 247

P A R T T W O

Private Law and the Legal Environment of Business 249

9 The Law of Contracts and Sales—I 250 Definition, Sources, and Classifications of Contract Law 251

Definition 251 Sources of Contract Law 251

Paramount Contracting Co. v. DPS Industries, Inc. 252

Classifications of Contracts 253

Pan Handle Realty, LLC v. Olins 254

Audito v. City of Providence 255

Elements of a Legal Contract 257 Legal Offer 257

Beer v. Chase 258 Legal Acceptance 260

The Private Movie Company, Inc. v. Pamela Lee Anderson et al. 260

Consideration 263 Genuine Assent 264

Stambovsky v. Ackley and Ellis Realty 265 Competent Parties 267 Legal Object 269

Brown & Brown, Inc. v. Johnson 270

Contracts That Must Be in Writing 271 Contracts for the Sale of an Interest in Land 271 Contracts to Pay the Debts of Another 271 Contracts Not Performable in One Year 271 Sale of Goods of $500 or More 272

Iacono v. Lyons 272 Nonbusiness Contracts 273

Parol Evidence Rule 273

Third-Party Beneficiary Contracts and Assignment of Rights 274

Types of Third-Party Beneficiary Contracts 274 Assignment of Rights 274

Summary 275

Review Questions 276

Review Problems 276

Case Problems 277

Thinking Critically about Relevant Legal Issues 278

On the Internet 278

For Future Reading 278

viii C O N T E N T S

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10 The Law of Contracts and Sales—II 279 Methods of Discharging a Contract 280

Discharge by Performance 280

Kohel v. Bergen Auto Enterprises, L.L.C. 280

Performance to Satisfaction of Another 281 Material Breach of Contract 281 Discharge by Mutual Agreement 282 Discharge by Conditions Precedent and Subsequent 282

Architectural Systems, Inc. v. Gilbane Building Co. 283

Discharge by Impossibility of Performance 283 Discharge by Commercial Impracticability 284 Contracts with the Government and the Sovereign Acts Doctrine 284

Facto v. Pantagis 285

Remedies for a Breach of Contract 286 Monetary Damages (“Legal” Remedies) 286

Hallmark Cards, Inc. v. Murley 287

Arrowhead School District No. 75, Park County, Montana v. James A. Klyap, Jr. 288

Equitable Remedies 289 Remedies for Breach of a Sales Contract (Goods) 290

Fitl v. Strek 290

E-Contracts 291 E-Signatures 292 The Uniform Computer Information Transaction Act 292

Global Dimensions of Contract and Sales Law 293

Summary 294

Review Questions 295

Review Problems 295

Case Problems 296

Thinking Critically about Relevant Legal Issues 297

Assignment on the Internet 297

On the Internet 297

For Future Reading 298

11 The Law of Torts 299 The Goals of Tort Law 299

Damages Available in Tort Cases 300 Compensatory Damages 300 Nominal Damages 301 Punitive Damages 301

Young v. Becker & Poliakoff 303

Classifications of Torts 307

Intentional Torts 307 Intentional Torts against Persons 307

Nemet Chevrolet, Ltd. v. Consumeraffairs .com, Inc. 310

Intentional Torts against Property 317 Intentional Torts against Economic Interests 318

Negligent Torts 319 Elements of Negligence 319 Defenses to Negligence 322

Coomer v. Kansas City Royals 323

Venkateswarlu Thota and North Texas Cardiology Center v. Margaret Young 324

Strict Liability Torts 326

Global Dimensions of Tort Law 326

Summary 327

Review Questions 327

Review Problems 328

Case Problems 328

Thinking Critically about Relevant Legal Issues 330

Assignment on the Internet 331

On the Internet 331

For Future Reading 331

12 Product and Service Liability Law 332 Theories of Recovery in Product Liability Cases 333

Negligence 333

Mutual Pharmaceutical Company, Inc. v. Bartlett 340

Strict Liability in Contract for Breach of Warranty 341

Williams v. Braum Ice Cream Store, Inc. 343 Strict Liability in Tort 346

Welge v. Planters Lifesavers Co. 347 Liability to Bystanders 351

Market Share Liability 351

Service Liability 352 Accountants’ Liability 353

Global Dimensions of Product Liability Law 353

Summary 355

Review Questions 355

Review Problems 356

Case Problems 356

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Thinking Critically about Relevant Legal Issues 357

Assignment on the Internet 358

On the Internet 358

For Future Reading 359

13 Law of Property: Real and Personal 360 Real Property 361

Definition of Real Property 362 Extent of Ownership 362

Interests in Real Property 362 Fee Simple Absolute 362 Conditional Estate 362 Life Estate 363 Future Interest 363 Leasehold Estates 364 Easements 364 License 364 Co-Ownership 364 Condominiums and Cooperatives 365

Plum Creek C.A. v. Oleg Borman 365

Voluntary Transfer of Real Property 368 Execution 368 Delivery 370 Acceptance 370 Recording 370

Involuntary Transfer of Real Property 370 Adverse Possession 370 Condemnation 371

Susette Kelo et al. Petitioners, v. City of New London, Connecticut et al. 372

Restrictions on Land Use 374 Restrictive Covenants 374 Zoning 374

Emine Bayram v. City of Binghamton and City of Binghamton Zoning Board of Appeals 375

Other Statutory Restrictions on Land Use 377

Personal Property 378 Voluntary Transfer of Personal Property 378 Involuntary Transfers of Personal Property 378 Bailments 379

Global Dimensions of Property Law 379

Summary 380

Review Questions 380

Review Problems 381

Case Problems 381

Thinking Critically about Relevant Legal Issues 382

Assignment on the Internet 383

On the Internet 383

For Future Reading 383

14 Intellectual Property 385 Introduction to Intellectual Property 385

Trademarks 385

Toys “R” Us, Inc. v. Canarsie Kiddie Shop, Inc. 386

Trade Dress 389 Federal Trademark Dilution Act of 1995 391

Victor Moseley and Cathy Moseley et al., dba Victor’s Little Secret v. V Secret Catalogue, Inc. et al. 391

Patents 393

Bilski v. Kappos 393

Trade Secrets 396 Economic Espionage Act 397

Copyrights 397 Fair Use Doctrine 398 Copyrights in the Digital Age 398

American Broadcasting Company, Inc. et. al. v. Aereo, Inc. 399

RealNetworks, Inc. v. DVD Control Copy Association, Inc. et al. 402

Global Dimensions of Intellectual Property Law 402

Summary 403

Review Questions 404

Review Problems 404

Case Problems 404

Thinking Critically about Relevant Legal Issues 406

Assignment on the Internet 407

On the Internet 407

For Future Reading 407

15 Agency Law 408 Definition and Types of Agency Relationships 409

Definition of Agency 409 Types of Agency Relationships 409

Coker v. Pershad 411

Creation of an Agency Relationship 412 Expressed Agency or Agency by Agreement 413 Agency by Implied Authority 413

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Penthouse International v. Barnes 414 Agency through Ratification by Principal 415 Agency by Estoppel or Apparent Authority 415

Motorsport Marketing, Inc. v. Wiedmaier, Inc. 416

Duties of Agents and Principals 416 Principal’s Duties to Agent 416 Agent’s Duties to Principal 417

Cousins v. Realty Ventures, Inc. 417

Gossels v. Fleet National Bank 419

Principal’s and Agent’s Liability to Third Parties 420

Contractual Liability 420

McBride v. Taxman Corp. 421 E-Commerce: Intelligent Agents 421 Liability of Disclosed, Partially Disclosed and Undisclosed Principals 422 Liability of Undisclosed Principal 422 Tort Liability 422 Tort Liability and Negligence 423

Auer v. Paliath 423 Criminal Liability 424

Termination of the Principal–Agent Relationship 424

Termination by Agreement 424 Termination by Operation of Law 425

Gaddy v. Douglass 425

Global Dimensions of Agency Law 426 Japan 427 European Union 427 U.S. Agents Abroad 427

Summary 428

Review Questions 428

Review Problems 428

Case Problems 429

Thinking Critically about Relevant Legal Issues 430

Assignment on the Internet 431

On the Internet 431

For Future Reading 431

16 Law and Business Associations—I 432 Factors Influencing a Business Manager’s Choice of Organizational Form 434

Some Common Forms of Business Organization in the United States 434

Sole Proprietorships 434

Quality Car & Truck Leasing, Inc. v. Sark 435

General Partnerships 436

In re KeyTronics 438

Enea v. Superior Court of Monterey County 439

Limited Partnerships and Limited Liability Limited Partnerships 443

Specialized Forms of Business Associations 444

Joint Stock Company 444 Syndicate 445 Joint Venture 445 Franchising 445

Holiday Inn Franchising, Inc. v. Hotel Associates, Inc. 446

Global Dimensions of Business Associations 447

Outsourcing 448

Summary 449

Review Questions 449

Review Problems 449

Case Problems 450

Thinking Critically about Relevant Legal Issues 451

Assignment on the Internet 451

On the Internet 452

For Future Reading 452

17 Law and Business Associations— II 453 The Corporation 453

Classification of Corporations 454 Closely Held Corporation 454 Publicly Held Corporation 455 Multinational or Transnational Corporation 455 Subchapter S Corporation 455 ROBS Corporation 455 Professional Corporation 455 Nonprofit Corporation 456

Creation of Corporations 456

Brennan’s Inc. v. Colbert 457

Financing of Corporations 458 Debt Financing 458 Equity Financing 459 Consideration 461

Operation of Corporations 462 The Role of the Shareholders 462 The Role of the Board of Directors 464

C O N T E N T S xi

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In re Abbott Laboratories Derivative Shareholders Litigation 465

The Role of the Officers and Managers 466 Fiduciary Obligations of Directors, Officers, and Managers 466

Beam v. Stewart 467

Smith v. Van Gorkom 469

Limited Liability Companies 473 The Uniform Limited Liability Act 473 LLC Characteristics 473 Creating a Limited Liability Company 473 Duration of the LLC 474 Financing of the LLC 474 Control Considerations 474 Tax Ramifications 474

Gatz Properties, LLC v. Auriga Capital Corporation 474

Global Dimensions of Corporations: A “Big Fat Greek” Bailout II and III 476

Summary 476

Review Questions 477

Review Problems 477

Case Problems 478

Thinking Critically about Relevant Legal Issues 478

Assignment on the Internet 479

On the Internet 479

For Future Reading 480

P A R T T H R E E

Public Law and the Legal Environment of Business 481

18 The Law of Administrative Agencies 482 Introduction to Administrative Law and Administrative Agencies 483

Administrative Law 483 Administrative Agencies 484

Creation of Administrative Agencies 485

Functions of Administrative Agencies 486 Rulemaking 486

City of Arlington v. Federal Communications Commission 488

Adjudication 489

Fox Television Stations, Inc. v. Federal Communications Commission 493

Administrative Activities 494

Limitations on Administrative Agencies’ Powers 494

Statutory Limitations 494 Institutional Limitations 494

State and Local Administrative Agencies 496

Vonage Holdings Corp. v. Minnesota Public Utilities Commission 497

Global Dimensions of Administrative Agencies 498

Summary 498

Review Questions 498

Review Problems 498

Case Problems 499

Thinking Critically about Relevant Legal Issues 501

Assignment on the Internet 501

On the Internet 501

For Future Reading 502

19 The Employment Relationship and Immigration Laws 503 Wage and Hour Laws 504

Unemployment Compensation 506

Cassandra Jenkins v. American Express Financial Corp. 509

Consolidated Omnibus Budget Reconciliation Act of 1985 510

Workers’ Compensation Laws 510 Coverage 510 Recoverable Benefits 512 The Claims Process 12 Benefits of the Workers’ Compensation System 512

The Family and Medical Leave Act of 1993 513

Major Provisions 513

Jeffrey Bonkowski v. Oberg Industries, Inc. 514

Remedies for Violations of the FMLA 516 The Future of the FMLA 517

The Occupational Safety and Health Act of 1970 518

Occupational Safety and Health Administration 518 Occupational Safety and Health Review Commission 521 National Institute for Occupational Safety and Health 521 Implementation of the OSH Act 523

xii C O N T E N T S

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Employee Privacy Rights 523 Electronic Monitoring and Communication 523

Brian Pietrylo and Doreen Marino, Plaintiffs v. Hillstone Restaurant Group d/b/a Houston’s, Defendant 524

Drug Testing 527 Other Testing 528

Immigration Law 529 Immigration Reform and Control Act of 1986 529 Authorized Noncitizen Workers 530

Global Dimensions of the Employment Relationship 532

Summary 533

Review Questions 533

Review Problems 533

Case Problems 534

Thinking Critically about Relevant Legal Issues 535

Assignment on the Internet 536

On the Internet 536

For Future Reading 537

20 Laws Governing Labor– Management Relations 538 Structure of the Primary U.S. Labor Legislation and the Mechanisms for Its Enforcement 540

The Wagner Act of 1935 540 The Taft–Hartley Act of 1947 541 The Landrum–Griffin Act of 1959 542 The National Labor Relations Board 542

Labor Organizing 548 Board Rules 548 Unfair Labor Practices by Employers 549

Gaetano & Associates, Inc. v. National Labor Relations Board 553

Unfair Labor Practices by Employees 554

Laborers’ International Union of North America, Local 872, AFL–CIO, and Stephanie Shelby 554

Organizing the Appropriate Unit 556

Specialty Healthcare and Rehabilitation Center of Mobile and United Steelworkers, District 9, Petitioner 557

The Collective Bargaining Process 559 Subjects of Bargaining 560

Strikes, Boycotts, and Picketing 560 Strikes 561

Boycotts 563 Picketing 563

Global Dimensions of Labor–Management Relations 564

Summary 564

Review Questions 564

Review Problems 565

Case Problems 565

Thinking Critically about Relevant Legal Issues 567

Assignment on the Internet 568

On the Internet 568

For Future Reading 568

21 Employment Discrimination 569 The Employment-at-Will Doctrine 570

Constitutional Provisions 572

The Civil Rights Acts of 1866 and 1871 572 Applicability of the Acts 572

The Equal Pay Act of 1963 573 Equal Work 574 Defenses 574 Remedies 575

The Civil Rights Act of 1964, as Amended (Title VII), and the Civil Rights Act of 1991 575

Applicability of the Act 575 Proof in Employment Discrimination Cases 576

Teresa Harris v. Forklift Systems, Inc. 580

Vance v. Ball State University 583 Retaliation 583

Reya C. Boyer-Liberto v. Fontainbleu Corporation 584

Statutory Defenses 586 Protected Classes 588 Enforcement Procedures 592 Remedies 595 Lilly Ledbetter Fair Pay Act of 2009 595

The Age Discrimination in Employment Act of 1967 596

Applicability of the Statute 597 Proving Age Discrimination 597

Jones v. National American University 598 Statutory Defenses 599 Enforcement Procedures 600 Remedies under ADEA 601

The Rehabilitation Act of 1973 601

The Americans with Disabilities Act of 1991 602

Covered Individuals 602

C O N T E N T S xiii

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McMillan v. City of New York 604 Enforcement Procedures 606 Remedies 606

Affirmative Action 606

Global Dimensions of Employment Discrimination Legislation 610

Summary 611

Review Questions 612

Review Problems 612

Case Problems 613

Thinking Critically about Relevant Legal Issues 615

Assignment on the Internet 615

On the Internet 616

For Future Reading 616

22 Environmental Law 617 Alternative Approaches to Environmental Protection 618

Tort Law 618

Boomer et al. v. Atlantic Cement Co. 618 Government Subsidies Approach 620 Emission Charges Approach 620 Marketable Discharge Permits Approach 620 Direct Regulation Approach 621

The Environmental Protection Agency 621

The National Environmental Policy Act of 1970 623

Threshold Considerations 623 Content of the EIS 623

Brodsky v. United States Nuclear Regulatory Commission 624

Effectiveness of the EIS Process 625

Regulating Water Quality 625 The Federal Water Pollution Control Act 625

Los Angeles County Flood Control District v. Natural Resources Defense Council, Inc. et al. 626

The Safe Drinking Water Act 627

Regulating Air Quality 627 The National Ambient Air Quality Standards 628 New Source Review 629 The Acid Rain Control Program 629 Climate Change 630

Regulating Hazardous Waste and Toxic Substances 631

The Resource Conservation and Recovery Act of 1976 633

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as Amended by the Superfund Amendment and Reauthorization Act of 1986 635 The Toxic Substances Control Act of 1979 636 The Federal Insecticide, Fungicide, and Rodenticide Act of 1972 637

The Pollution Prevention Act of 1990 638 Business Aspects of Voluntary Pollution Prevention 639 Sustainable Development 639

Global Dimensions of Environmental Regulation 639

The Need for International Cooperation 639 The Transnational Nature of Pollution 639 The Global Commons 641 Primary Responses of the United States 641

Summary 642

Review Questions 643

Review Problems 643

Case Problems 643

Thinking Critically about Relevant Legal Issues 645

Assignment on the Internet 645

On the Internet 646

For Future Reading 646

23 Rules Governing the Issuance and Trading of Securities 647 Introduction to the Regulation of Securities 648

Summary of Federal Securities Legislation 649 The Securities and Exchange Commission 652

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 655

Oversight of Financial Problems by Regulatory Agencies 656 Risk Taking by Large Banks and Nonbanks 656 Executive Compensation 656 Too Big to Fail 657 Credit Rating Agencies 657 Derivatives 657 Consumer Protection 658 Exemptions 658

xiv C O N T E N T S

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Regulation of the Regulators by a Court of Law 659

The Sarbanes-Oxley Act of 2002 659 Corporate Accountability 660 New Accounting Regulations 660 Criminal Penalties 660

The Securities Act of 1933 660 Definition of a Security 661

Securities and Exchange Commission v. Edwards 662

Registration of Securities under the 1933 Act 662 Securities and Transactions Exempt from Registration under the 1933 Act 666 Resale Restrictions 668 Liability, Remedies, and Defenses under the 1933 Securities Act 669

Litwin v. Blackstone Group, LP 670

The Securities Exchange Act of 1934 673 Registration of Securities Issuers, Brokers, and Dealers 673 Disclosure: Compensation 675 Securities Markets 676 Proxy Solicitations 677 Tender Offers and Takeover Bids 678 Remedies and Defensive Strategies 679

Barbara Schreiber v. Burlington Northern, Inc. 680

Securities Fraud 682

Siracusano v. Matrixx Initiatives, Inc. 683

Securities and Exchange Commission v. Texas Gulf Sulphur Co. 687

Liability and Remedies under the 1934 Exchange Act 689

The Wharf (Holdings) Limited v. United International Holdings, Inc. 690

Short-Swing Profits 691

State Securities Laws 692

E-Commerce, Online Securities Disclosure, and Fraud Regulation 692

Marketplace of Securities 692 E-Commerce and Fraud in the Marketplace 692

Global Dimensions of Rules Governing the Issuance and Trading of Securities 693

Legislation Prohibiting Bribery and Money Laundering Overseas 693 Legislation Governing Foreign Securities Sold in the United States 694 Regulations and Offshore Transactions 695

Summary 695

Review Questions 695

Review Problems 696

Case Problems 697

Thinking Critically about Relevant Legal Issues 697

Assignment on the Internet 698

On the Internet 698

For Future Reading 698

24 Antitrust Laws 699 Introduction to Antitrust Law 700

A Definition of Antitrust 700 Law and Economics: Setting and Enforcing Antitrust Policy 700

American Needle, Inc. v. National Football League 702

Goals of the Antitrust Statutes 703

Enforcement of and Exemptions from the Antitrust Laws 705

Enforcement 705 Exemptions 707

The Sherman Act of 1890 708 Section 1: Combinations and Restraints of Trade 708

Williamson Oil Co. v. Philip Morris, USA 710

Leegin Creative Leather Products, Inc. v. PSKS, Inc., dba Kay’s Kloset, Kay’s Shoes 714

Continental TV, Inc. v. GTE Sylvania 716 Section 2: Monopolies 718

E.I. DuPont de Nemours and Co. v. Kolon Industries 719

Newcal Industries, Inc. v. Ikon Office Solutions 721

United States v. Microsoft Corporation 723

The Clayton Act of 1914 725 Section 2: Price Discrimination 725 Section 3: Tying Arrangements and Exclusive-Dealing Contracts 727 Section 7: Mergers and Acquisitions 727 Section 8: Interlocking Directorates 732

Other Antitrust Statutes 732 Federal Trade Commission Act of 1914 732

California Dental Association v. Federal Trade Commission 732

Bank Merger Act 733

C O N T E N T S xv

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Global Dimensions of Antitrust Statutes 734 Transnational Reach of U.S. Antitrust Legislation 734

Carrier Corp. v. Outokumpu Oyj 735 Global Dimensions of U.S. Antitrust Laws 735 Enforcement 736

Summary 738

Review Questions 738

Review Problems 738

Case Problems 739

Thinking Critically about Relevant Legal Issues 740

Assignment on the Internet 740

On the Internet 740

For Future Reading 740

25 Laws of Debtor–Creditor Relations and Consumer Protection 741 Debtor–Creditor Relations 742

Rights of and Remedies for Creditors 743 Rights and Remedies for Debtors 744

The Federal Bankruptcy Code and the Incorporation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 745

History and Background 745 Bankruptcy Management and Proceedings 746 Chapter 7 749

In re Savage v. United States Bankruptcy 750

Chapter 13 752 Chapter 11 753

RadLAX Gateway Hotel, LLC v. Amalgamated Bank 754

Chapter 12 756 The New Bankruptcy Law—2011 757

The Evolution of Consumer Law 758 Economics 758

Federal Regulation of Business Trade Practices and Consumer–Business Relationships 759

The Federal Trade Commission: Functions, Structure, and Enforcement Powers 759 Deceptive and Unfair Advertising 760

Federal Trade Commission v. Verity International, Ltd. 761

Federal Trade Commission v. QT, Inc. 763

Paduano v. American Honda Motor Co. 765 Consumer Legislation 765

Federal Laws Regulating Consumer Credit and Business Debt-Collection Practices 769

Truth-in-Lending Act 769

Household Credit Services, Inc. v. Pfenning 771

Credit Card Accountability, Responsibility and Disclosure Act of 2009 772 The Electronic Fund Transfer Act 773 A Plastic Society 773 The Fair Credit Reporting Act 774

Safeco Insurance Co. v. Burr 775 Identity Theft and Credit Ratings 776 Equal Credit Opportunity Act 777 The Fair Credit Billing Act 778 The Fair Debt Collection Practices Act 778

Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA 779

Dodd-Frank Act and Consumer Protection 781

Credit and Debit Cards 781 Consumer Loans 781 Credit Scores 781 Residential Mortgages 782

State Consumer Legislation 782 Uniform Consumer Credit Code 782 Unfair and Deceptive Practices Statutes 782 Arbitration of Disputes 783

Global Dimensions of Consumer Protection Laws 783

Summary 783

Review Questions 784

Review Problems 784

Case Problems 785

Thinking Critically about Relevant Legal Issues 786

Assignment on the Internet 787

On the Internet 787

For Future Reading 787

APPENDIX A THE CONSTITUTION OF THE UNITED STATES 788

GLOSSARY 794

INDEX 808

xvi C O N T E N T S

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xvii

Preface The Legal Environment of Business: A Critical Thinking Approach, 8th Edition, is exactly what its name implies: a comprehensive textbook that not only helps students develop a thorough understanding of the legal environment of business but also enhances their ability to engage in critical thinking and ethical analysis. Students thus develop the knowledge and skills necessary to survive in an increasingly competitive global environment.

The initial motivation for this book was the authors’ perceptions that there was no legal environment book available that explicitly and adequately facili- tated the development of students’ critical thinking skills. Nor was there a book that really integrated ethical analysis throughout the text.

Some people may argue that the traditional method of case analysis allows students to develop their critical thinking skills. The problem with this approach, however, is that it focuses only on the analytical skills, while ignoring the evalu- ative component that is the essence of critical thinking; it also lacks an ethics component. To engage in critical thinking necessarily includes consideration of the impact of values on the outcome being considered.

The use of cases in the legal environment of a business classroom, however, can provide an excellent opportunity for the development of students’ critical thinking abilities when the traditional case method is modified to emphasize development of these critical thinking skills. In addition, as students enhance their critical thinking skills, their understanding of the substance of the law also improves.

The following components of The Legal Environment of Business: A Criti- cal Thinking Approach ensure that the textbook’s goal of developing critically thinking students who understand the important concepts of business law and the legal environment of business is attained.

• An explicit critical thinking model, set forth in the first chapter, developed by the author of the best-selling critical thinking text- book. An eight-step model has as its base the traditional method of case analysis, but adds crucial critical thinking questions that also incorporate ethical analysis. The steps are clearly explained, and students are encour- aged to apply the steps to every case in the text.

• Additional critical thinking and ethical analysis questions incorpo- rated at the beginning of each chapter and after selected cases. These additional questions help to reinforce the skills emphasized in the model.

• “Thinking Critically about Relevant Legal Issues” essays at the end of each chapter, which give students additional opportunities to develop their critical thinking skills. These essays, found at the end of each chapter, allow students to extend their use of their newly developed critical thinking skills beyond cases to the kinds of arguments they will encounter in their daily lives.

Other Points of Distinction • Explicit links connecting the law to other disciplines. This text is the

only legal environment book to respond to the call for more integration among courses in colleges of business. “Linking Law and Business” boxes explicitly state how the law in an area directly affects or is affected by a con- cept in one of the core areas of business, such as accounting, management, and marketing. These boxes appear in every chapter.

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xviii P R E F A C E

• A balanced mix of classic and current cases. This book contains many of the most significant classic and contemporary cases, including key U.S. Supreme Court decisions handed down as recently as 2015. Whenever pos- sible, cases were chosen that not only demonstrate important concepts but also contain fact situations that interest students.

• Applying the Law to the Facts. This pedagogical feature appears in every chapter beginning with Chapter 4. It provides periodic hypothetical situa- tions to which students apply legal concepts they just learned. This feature allows students to continually check their understanding of new legal con- cepts as they read the material.

• Emphasis on the global environment. Many students will be working in countries other than the United States, and U.S. companies will have many dealings with foreign companies. Thus, an understanding of the global envi- ronment is essential for today’s business student. This text emphasizes the importance of the global environment by using both the stand-alone and infusion approaches. Chapter 9 focuses explicitly on the global environment of business, and global considerations are integrated into every chapter with the global dimensions sections and the “Comparative Law Corner,” which allows students to see how U.S. law compares to that of other nations around the world. The feature can also sensitize students to the idea that if something is not working well in the United States, it might make sense to see how other countries address similar issues. Examples include:

• Eminent domain in Germany

• The judicial system in Germany

• Corporate speech in Canada

• Unions in Sweden

• Pollution controls in Japan

• For Future Reading feature. It is important that students become lifelong learners and that they continue learning about the law. But how do they know where to go? This feature, found at the end of each chapter, provides a short list of books and articles related to the material in each chapter that interested students may read to learn more about the new areas of law they just discovered.

New to This Edition • America Invents Act—Discussion of the America Invents Act, which had a

significant impact on patent law, has been added to Chapter 12.

• Immigration law—A new section about immigration law has been added to Chapter 19.

• New procedures in Representation Cases—New procedures in Repre- sentation Cases that went into effect in 2015 have been added to Chapter 19.

• Updated cases—Cases in this edition have been significantly updated. The classic cases from the previous edition have been retained, as have those that students find especially interesting or that do an exceptional job of illus- trating an important point of law. All of the other cases have been replaced by more current cases that will be of greater interest to students and that capture the most current changes in the law. A few examples of new cases include:

• American Express Co. v. Italian Colors Restaurant (United States Supreme Court, 2013) (Chapter 4)

• Plum Creek C.A. v. Oleg Borman (Illinois State Court of Appeals, 2013) (Chapter 8)

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• Mutual Pharmaceutical Company, Inc. v. Bartlett (United States Supreme Court, 2013) (Chapter 12)

• American Broadcasting Company, Inc. et al. v. Aereo, Inc. (United States Supreme Court, 2014) (Chapter 14)

• Quality Car & Truck Leasing, Inc. v. Sark (Ohio Court of Appeals, 2013) (Chapter 16)

• Reya C. Boyer-Liberto v. Fontainebleau Corporation (Fourth Circuit Court of Appeals, 2015) (Chapter 21)

• Los Angeles County Flood Control District v. Natural Resources Defense Council, Inc. et al. (United States Supreme Court, 2013) (Chapter 22)

• Case problems—Approximately one-third of the case problems from the seventh edition have been replaced with more current case problems.

• Revised “For Future Reading” sections—Suggested readings at the end of each chapter have been updated to emphasize more current legal issues.

For Instructors At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format.

If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers.

The following supplements are available with this text:

• Instructor’s Resource Manual

• Test Bank

• TestGen® Computerized Test Bank

• PowerPoint Presentation

P R E F A C E xix

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Acknowledgments The authors would like to acknowledge, with thanks, the following reviewers of the current and past editions of this text:

Robert Aalberts, University of Nevada, Las Vegas Victor Alicea, Normandale Community College Carlos Alsua, University of Alaska, Anchorage S. Catherine Anderson, Queens University of Charlotte Teddy Jack Armstrong, Carl Albert State College Janie Blankenship, Del Mar College William Bockanic, John Carroll University Heidi Bulich, College of Business, Michigan State University Kimble Byrd, Rowan University Greg Cermignano, Widener University Glenn Chappell, Coker College William Christian, College of Santa Fe Linda Christiansen, Indiana University Southeast Patrick Cihon, Whitman School of Management, Syracuse University Michael Costello, University of Missouri–St. Louis Robert Cox, Salt Lake Community College Jamey Darnell, Barton College Regina Davenport, Pearl River Community College Kevin Derr, Pennsylvania College of Technology Julia Derrick, Brevard Community College David F. Dieteman, Penn State Erie, The Behrend College Joseph Dworak, San Jose State University Bruce Elder, University of Nebraska, Kearney Gail Evans, University of Houston, Downtown David Forsyth, ASU Polytechnic Lucky Franks, Bellevue University Samuel B. Garber, DePaul University Rosario Girasa, Pace University Van Graham, Gardner-Webb University John Gray, Loyola College in Maryland David Griffis, University of San Francisco Jason Harris, Augustana College Norman Hawker, Haworth College of Business, Western Michigan University Richard Hunter, Seton Hall University Marilyn Johnson, Mississippi Delta Community College Nancy Johnson, Mt. San Jacinto Community College Catherine Jones-Rikkers, Grand Valley State University James Kelley, Notre Dame de Namur University Lara Kessler, Grand Valley State University Ernest King, University of Southern Mississippi Audrey Wolfson Latourette, Richard Stockton College of New Jersey Larry Laurent, McCoy College of Business, Texas State University Marty Ludlum, Oklahoma City Community College Leslie S. Lukasik, Skagit Valley College Vicki Luoma, Minnesota State University Daniel Lykins, Oregon State University Bryan Jon Maciewski, Fond du Lac Tribal and Community College Maurice McCann, Southern Illinois University George McNary, College of Business Administration, Creighton University Don Miller-Kermani, Brevard Community College

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David Missirian, Bentley College Odell Moon, Victor Valley College Henry Moore, University of Pittsburgh, Greensburg Mark Muhich, Mesabi Range Community & Technical College Kimber Palmer, Texas A&M International University Steve Palmer, Eastern New Mexico University Darka Powers, Northeastern Illinois University Charles Radeline, St. Petersburg College Linda Reid, University of Wisconsin–Whitewater Bruce Rockwood, College of Business, Bloomsburg University Robert Rowlands, Harrisburg Area Community College Kenneth J. Sanney, Central Michigan University Ira Selkowitz, University of Colorado at Denver and Health Sciences Center Mary Sessom, Cuyamaca College James Smith, Bellevue University Craig Stilwell, Michigan State University Pamela Stokes, Texas A&M–Corpus Christi Keith Swim, Jr., Mays Business School, Texas A&M University Harold Tepool, Vincennes University Daphyne Saunders Thomas, James Madison University David Torres, Angelo State University Kyle Usre, Whitworth College Deborah Walsh, Middlesex Community College Joe Walsh, Lees-McRae College Dalph Watson, Madonna University Mary Ellen Wells, Alvernia College John Whitehead, Kilgore College John Williams, Northwestern State University Levon Wilson, Georgia Southern University Rob Wilson, Whitworth College Andrew Yee, University of San Francisco

xxii A C K N O W L E D G M E N T S

The authors would also like to acknowledge Tami Thomas and Meghan Moore for their assistance in typing the manuscript.

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About the Authors NANCY KUBASEK is a Professor of Legal Studies at Bowling Green State Uni- versity, where she teaches the Legal Environment of Business and Environmen- tal Law courses. For eight years, she team-taught a freshman honors seminar on critical thinking and values analysis. She has published another undergraduate textbook with Pearson Education, Environmental Law (8th ed., 2012) and more than 75 articles. Professor Kubasek’s articles have appeared in such journals as the American Business Law Journal, the Journal of Legal Studies Education, the Harvard Women’s Law Journal, the Georgetown Journal of Legal Ethics, and the Harvard Journal on Legislation. She received her J.D. from the University of Toledo College of Law and her B.A. from Bowling Green State University.

Active in her professional associations, Professor Kubasek has served as pres- ident of the TriState Regional Academy of Legal Studies in Business and president of the national professional association of undergraduate professors of law, the Academy of Legal Studies in Business (ALSB). Committed to helping students be- come excited about legal research, she organized the first Undergraduate Student Paper Competition of the ALSB’s Annual Meeting, an event that now provides an annual opportunity for students to present their original legal research at a na- tional convention. She has also published several articles with students and has received her university’s highest award for faculty–student research. She states:

The most important thing that a teacher can do is to help his or her students develop the skills and attitudes necessary to become lifelong learners. Professors should help their students learn the types of ques- tions to ask to analyze complex legal issues and to develop a set of criteria to apply when evaluating reasons. If we are successful, students will leave our legal environment of business classroom with a basic understanding of important legal concepts, a set of evaluative criteria to apply when evaluating arguments that includes an ethical component, and a desire to continue learning.

To attain these goals, the classroom must be an interactive one, where students learn to ask important questions, define contexts, generate sound reasons, point out the flaws in erroneous reasoning, recognize alternative perspectives, and consider the impacts that their decisions (both now and in the future) have on the broader community beyond themselves.

BARTLEY A. BRENNAN is an Emeritus Professor of Legal Studies at Bowling Green State University. He is a graduate of the School of Foreign Service, Georgetown University (B.S. International Economics); the College of Law, State University of New York at Buffalo ( J.D.); and Memphis State University (M.A. Economics). He was a volunteer in the U.S. Peace Corps, was employed by the Office of Opinions and Review of the Federal Communications Commission, and worked in the general counsel’s office of a private international corporation. Professor Brennan has received appointments as a visiting associate professor at the Wharton School, University of Pennsylvania, and as a Research Fellow at the Ethics Resource Center, Washington, DC. He is the author of articles dealing with the Foreign Corrupt Practices Act of 1977, as amended; the business judgment rule; law and economics; and business ethics. He has published numerous arti- cles in such journals as the American Business Law Journal, University of North Carolina Journal of International Law, and the Notre Dame University Journal of Legislation. He is a coauthor of Modern Business Law (3rd ed.). He has testi- fied on amending the Foreign Corrupt Practices Act before the Subcommittee on International Economics and Finance of the House Commerce, Energy, and Telecommunications Committee.

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M. NEIL BROWNE is a Distinguished Teaching Professor of Economics; direc- tor of IMPACT, an Honors Residential Learning Community Centered around the Principles of Intellectual Discovery and Moral Commitment; and coach of the Mock Trial Team at Bowling Green State University. He received a J.D. from the University of Toledo and a Ph.D. from the University of Texas. He is the coauthor of seven books and more than a hundred research articles in profes- sional journals. One of his books, Asking the Right Questions: A Guide to Critical Thinking (6th ed.), is a leading text in the field of critical thinking. His most recent book, Striving for Excellence in College: Tips for Active Learning, provides learners with practical ideas for expanding the power and effectiveness of their thinking. Professor Browne has been asked by dozens of colleges and universi- ties to aid their faculty in developing critical thinking skills on their campuses. He also serves on the editorial board of the Korean Journal of Critical Thinking. In 1989, he was a silver medalist for the Council for the Advancement and Sup- port of Education’s National Professor of the Year award. Also, in 1989, he was named the Ohio Professor of the Year. He has won numerous teaching awards on both local and national levels. He states:

When students come into contact with conflicting claims, they can react in several fashions; my task is to enable them to evaluate these persua- sive attempts. I try to provide them with a broad range of criteria and attitudes that reasonable people tend to use as they think their way through a conversation. In addition, I urge them to use productive ques- tions as a stimulus to deep discussion, a looking below the surface of an argument for the assumptions underlying the visible component of the reasoning. The eventual objectives are to enable them to be highly selective in their choice of beliefs and to provide them with the greater sense of meaning that stems from knowing that they have used their own minds to separate sense from relative nonsense.

xxiv A B O U T T H E A U T H O R S

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1

Introduction to the Law and the Legal

Environment of Business

Part One introduces the concept of critical thinking. A business

manager needs to learn and practice asking questions that ensure the

selection of the best advice and subsequent strategy. In addition, we

provide an overview of how the American legal system works. This

overview requires us to understand alternative philosophies of law,

alternative approaches to ethics, the constitutional foundations of our

legal system, and alternative methods of resolving disputes. Part One

concludes with a discussion of white-collar crime, a major problem in

the legal environment of business.

P A R T O N E

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Critical Thinking and Legal Reasoning

THE IMPORTANCE OF CRITICAL THINKING

A CRITICAL THINKING MODEL

THE CRITICAL THINKING STEPS

USING CRITICAL THINKING TO MAKE LEGAL REASONING COME ALIVE

APPLYING THE CRITICAL THINKING APPROACH

The Importance of Critical Thinking Success in business requires the development of critical thinking skills. Busi- ness leaders regularly list these skills as the first set of competencies needed in business. A simple Google search for “critical thinking in business” produces more than 80 million suggested URLs.

Critical thinking refers to the ability to understand what someone is saying and then to ask specific questions enabling you to evaluate the quality of the reasoning offered to support whatever advice someone has given you. Because firms are under increasing competitive pressure, business and industry need managers with advanced thinking skills.1 Highlighting this need, a report by the U.S. secretary of education states that because “one of the major goals of business education is preparing students for the workforce, students and their professors must respond to this need for enhancing critical thinking skills.”2

Calls for improvements in critical thinking skills also come from those concerned about business leadership. David A. Garvin of the Harvard Busi- ness School argues that there is a general feeling in the business community that business leaders need to sharpen their critical thinking skills.3 As a future business manager, you will experience many leadership dilemmas: All such questions require legal analysis and business leadership, guided by critical thinking.

A business leader must listen to many sources of information and many advisors. They are not all going to give advice that leads in a single direc- tion. Critical thinking skills enable you to weigh the relative worth of alterna- tive courses of action. For example, there will always be reasons you should encourage the growth of your labor force, but there will also be reasons you should not. You do not want these options to paralyze you, nor do you want to latch onto one approach for insubstantial reasons and then pay the price later.

C H A P T E R O N E

22

critical thinking skills The ability to understand the structure of an argument and apply a set of evaluative criteria to assess its merits.

1C. Sormunen and M. Chalupa, “Critical Thinking Skills Research: Developing Evaluation Techniques,” Journal of Education for Business 69: 172 (1994). 2 Id. 3 John Baldon, “How Leaders Should Think Critically,” HBR Blog Network, January 20, 2010.

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C H A P T E R 1 Critical Thinking and Legal Reasoning 3

Courtesy Holly Barnes

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4 P A R T O N E Introduction to the Law and the Legal Environment of Business

The message is clear: Success in business today requires critical thinking skills, and there is no better context in which to develop them than in the study of business law. Critical thinking skills learned in the Legal Environment of Business course will be easily transferred to your eventual role as a manager, entrepre- neur, or other business professional. The law develops through argument among various parties. Critical thinking facilitates the development of more effective law.

Legal reasoning is like other reasoning in some ways and different in others. When people, including lawyers and judges, reason, they do so for a purpose. Some problem or dilemma bothers them. The stimulus that gets them thinking is the issue. It is stated as a question because it is a call for action. It requires them to do something, to think about answers.