Business law : the ethical, global, and e-commerce environment

1699 Pages·2013·36.742 MB·English

by  Jane P Mallor, et al

MALLOR
BARNES
BOWERS
LANGVARDT
B U S I N E S S
W E P U T T H E BU S I N E S S
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Business Law
The Ethical, Global, and E-Commerce Environment
15e
FIFTEENTH EDITION
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Business Law
The Ethical, Global, and E-Commerce Environment
15e
FIFTEENTH EDITION
Jane P. Mallor
A. James Barnes
Thomas Bowers
Arlen W. Langvardt
all of Indiana University
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BUSINESS LAW: THE ETHICAL, GLOBAL, AND E-COMMERCE ENVIRONMENT
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the
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Library of Congress Cataloging-in-Publication Data
Business law : the ethical, global, and e-commerce environment / Jane P. Mallor ... [et al.].—15th ed.
p. cm.
Includes index.
ISBN 978-0-07-352498-6 (alk. paper)—ISBN 0-07-352498-0 (alk. paper)
1. Commercial law—United States—Cases. 2. Business law—United States—Cases. 3.  Commercial
law—United States. 4. Business law—United States. I. Mallor, Jane P.
KF888.B8 2013
346.7307—dc23
2011046954
www.mhhe.com
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The Authors
The Authors
Jane P. Mallor has been a member of the Business Law Thomas Bowers Thomas Bowers is a member of the
faculty at Kelley School of Business, Indiana University, since Department of Business Law & Ethics in the Kelley School
1976. She has a B.A. from Indiana University and a J.D. from of Business at Indiana University, Bloomington. Focusing
Indiana University School of Law. She has been admitted to the primarily on the law of business organizations, securities reg-
Indiana Bar, the Bar of the Southern District of Indiana, and the ulation, professional responsibilities, and ethical and rational
Bar of the U.S. Supreme Court. She is a member of the Acad- decision making, Dr. Bowers has taught three courses in the
emy of Legal Studies in Business. Kelley School’s top-ranked Accounting Graduate Program.
Professor Mallor has taught a range of courses, including In 2005, he received the Kelley School’s Innovative Teach-
an introductory legal environment course and a graduate-level ing Award for his work with the GAP. In addition, his stu-
legal concepts course, real estate law, university pedagogy dents and colleagues have honored him with 27 outstanding
courses for business doctoral students, and an online law and teaching awards. He joined the faculty at Indiana University
ethics graduate course. She is a member of Indiana University’s in 1977 after obtaining a B.S. in fi nance summa cum laude
Faculty Colloquium for Excellence in Teaching and was a from The Ohio State University and a J.D. from New York
Lilly Postdoctoral Teaching Fellow. She has won a number of University. He is also Director of the Kelley MBA Sports
teaching awards, including the Amoco Foundation Award for & Entertainment Network. He has authored over 15 public
Distinguished Teaching, the Dow Technology Teaching Award, policy op-eds on issues ranging from paying college athletes
and the Innovative Teaching Award. Her research has focused to regulating pension plans.
primarily on punitive damages, product liability, and employ-
ment rights. Her work has been published in law reviews such A rlen W. Langvardt Professor of Business Law
as Hastings Law Journal, North Carolina Law Review, Ameri- and Eveleigh Professor of Business Ethics, joined the
can Business Law Journal, and Notre Dame Lawyer. faculty of Indiana University’s Kelley School of Business
in 1985. Professor Langvardt earned a B.A. ( summa cum
A. James Barnes, J.D. Professor of Public and laude ) from Hastings College and a J.D. (with distinction)
Environmental Affairs and Professor of Law at Indiana from the University of Nebraska. In private law practice
University, Bloomington. He previously served as Dean of the before becoming a member of the Kelley School faculty, he
School of Public and Environmental Affairs, and has taught tried cases in a variety of legal areas, including tort, con-
business law at Indiana University and Georgetown University. tract, constitutional, and miscellaneous commercial cases.
His teaching interests include commercial law, environmental Professor Langvardt has received several teaching awards
law, alternative dispute resolution, law and public policy, and at the graduate and undergraduate levels. His graduate
ethics and the public offi cial. He is the co-author of several teaching assignments have included Critical Thinking, Law
leading books on business law. and Ethics, Managing Legal Risk, Legal Issues in Market-
From 1985 to 1988 Professor Barnes served as the deputy ing Management, Legal Concepts and Trends Affecting
administrator of the U.S. Environmental Protection Agency. Business, and Legal Issues in the Arts. His undergraduate
From 1983 to 1985 he was the EPA general counsel and in the teaching assignments have included Legal Environment of
early 1970s served as chief of staff to the fi rst administrator of Business, Legal Aspects of Marketing, Law and the Arts,
EPA. Professor Barnes also served as a trial attorney in the U.S. and Personal Law. From 2000 to 2009, Professor served as
Department of Justice and as general counsel of the U.S. De- chair of the Kelley School’s Department of Business Law.
partment of Agriculture. For six years, from 1975 to 1981, he Professor Langvardt’s wide-ranging research interests are
had a commercial and environmental law practice with the fi rm refl ected in his articles on such topics as intellectual prop-
of Beveridge and Diamond in Washington, D.C. erty, commercial speech, medical malpractice, and other
Professor Barnes is a Fellow of the National Academy of healthcare-related subjects. He has published numerous
Public Administration, and a fellow in the American College articles in journals such as the American Business Law Jour-
of Environmental Lawyers. He recently served as the Chair of nal , the Harvard Journal of Sports & Entertainment Law ,
EPA’s Environmental Finance Advisory Board, and as a member the M innesota Law Review , the University of Pennsylvania
of the U.S. Department of Energy’s Environmental Manage- Journal of Business Law , the Trademark Reporter , and the
ment Advisory Board. From 1992 to 1998 he was a member of Journal of Marketing. Professor Langvardt has won several
the Board of Directors of the Long Island Lighting Company research awards from professional associations, including
(LILCO). He received his B.A. from Michigan State University the Holmes/Cardozo and Hoeber Awards from the Academy
and a Juris Doctor degree, c um laude , from Harvard Law School. of Legal Studies in Business.
v
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Preface
Preface
This is the 15th UCC Edition (and the twenty-fi rst overall edition) context, several text chapters enhance students’ understanding
of a business law text that fi rst appeared in 1935. Throughout of how political and social changes infl uence business and the
its over 75 years of existence, this book has been a leader and law. For example, Chapter 4 discusses the ethical issues of re-
an innovator in the fi elds of business law and the legal environ- cent years, and Chapters 43 and 45 address the mortgage lend-
ment of business. One reason for the book’s success is its clear ing crisis, the current credit crunch, and options backdating.
and comprehensive treatment of the standard topics that form Chapter 51’s discussion of employment discrimination law
the traditional business law curriculum. Another reason is its re- certainly speaks to the subject of workplace diversity. Finally,
sponsiveness to changes in these traditional subjects and to new the 15th UCC Edition examines many specifi c legal issues in-
views about that curriculum. In 1976, this textbook was the fi rst to volving e-commerce and the Internet.
inject regulatory materials into a business law textbook, defi ning
the “legal environment” approach to business law. Over the years, Features The 15th Edition continues 10 features intro-
this textbook has also pioneered by introducing materials on busi- duced by previous editions:
ness ethics, corporate social responsibility, global legal issues, and O pening Vignettes precede the chapter discussion in order
e-commerce law. The 15th Edition continues to emphasize change to give students a context for the law they are about to study.
by integrating these four areas into its pedagogy. Many opening vignettes raise issues that come from the corpo-
rate social responsibility crisis that students have read about the
last few years. Others place students in the position of executives
Continuing Strengths
and entrepreneurs making management decisions and creating
new business.
T he 15th UCC Edition continues the basic features that have
E thics in Action boxes are interspersed where ethical issues
made its predecessors successful. They include:
arise, asking students to consider the ethics of actions and laws.
• Comprehensive Coverage. We believe that the text continues The ethics boxes often ask students to apply their learning from
to excel both in the number of topics it addresses and the depth Chapter 4, the chapter on ethical and rational decision making.
of coverage within each topic. This is true both of the basic The boxes also feature the most important corporate social re-
business law subjects that form the core of the book and also sponsibility legislation of the last 20 years, the Sarbanes–Oxley
of the regulatory and other subjects that are said to constitute Act of 2002.
the “legal environment” curriculum. C yberlaw in Action boxes discuss e-commerce and Internet
• Style and Presentation. This text is written in a style that is law at the relevant points of the text.
direct, lucid, and organized, yet also relatively relaxed and T he Global Business Environment boxes address the legal
conversational. For this reason, we often have been able to and business risks that arise in international business transac-
cover certain topics by assigning them as reading without lec- tions, including being subject to the laws of other countries. By
turing on them. As always, key points and terms are empha- the integration of the global business environment boxes in each
sized; examples, charts, fi gures, and concept summaries are chapter, students are taught that global issues are an integral part
used liberally; and elements of a claim and lists of defenses of business decision making.
are stated in numbered paragraphs. L og On boxes direct students to Internet sites where they can
• Case Selection. We try very hard to fi nd cases that clearly il- fi nd additional legal and business materials that will aid their
lustrate important points made in the text, that should interest understanding of the law.
students, and that are fun to teach. Except when older deci- O nline Research Boxes close each chapter by challenging
sions are landmarks or continue to best illustrate particular students to use their Internet research skills to expand their un-
concepts, we also try to select recent cases. Our collective in- derstanding of the chapter.
class teaching experience with recent editions has helped us C oncept Reviews appear throughout the chapters. These
determine which of those cases best meet these criteria. Concept Reviews visually represent important concepts pre-
• AACSB Curricular Standards. The AACSB’s curriculum sented in the text to help summarize key ideas at a glance and
standards say that both undergraduate and MBA curricula simplify students’ conceptualization of complicated issues.
should include ethical and global issues; should address the C ases include the judicial opinions accompanying court de-
infl uence of political, social, legal and regulatory, environ- cisions. These help to provide concrete examples of the rules
mental, and technological issues on business; and should also stated in the text, and to provide a real-life application of the
address the impact of demographic diversity on organizations. legal rule.
In addition to its obvious emphasis on legal and regulatory P roblem Cases are included at the end of each chapter to
issues, the book contains considerable material on business provide review questions for students.
ethics, the legal environment for international business, and K ey Terms are bolded throughout the text and defi ned in the
environmental law, as well as Ethics in Action boxes. By Glossary at the end of the text for better comprehension of im-
putting legal changes in their social, political, and economic portant terminology.
vi
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Preface vii
Important Changes • Berghuis v. Thompkins, U.S. Supreme Court’s 2010 decision
establishing that person held for custodial interrogation must
in This Edition
affi rmatively speak up in order to invoke right to remain si-
lent, included as new text case in section dealing with Fifth
I n this edition, there are many new cases, the text has been thor-
Amendment and Miranda warnings.
oughly updated, and a good number of problem cases have been
replaced with new ones. The cases continue to include both hy- Chapter 6
pothetical cases as well as real-life cases so that we can target • New text case dealing with intentional infl iction of emotional
particular issues that deserve emphasis. The 15th UCC Edition distress (Durham v. McDonald’s Restaurants of Oklahoma,
continues the development of components that were added to Inc., Oklahoma Supreme Court, 2011).
the text’s previous edition. Examples of these components are • New Global Business Environment box dealing with whether
as follows: the right of publicity is violated when the relevant activities
occurred outside the United States.
• Active Learning Objectives open each chapter, and are tied
to AACSB standards. LOs inform you of specifi c outcomes Chapter 7
you should have after fi nishing the chapter. Icons reference • New introductory problem dealing with duty, breach of duty,
each LO’s reference within the chapter. respondeat superior, and comparative negligence issues
(problem based on Cabral v. Ralphs Grocery Co., California
Chapter 1
Supreme Court, 2011).
• Two new text cases on statutory interpretation—both of which
• New text case dealing with business owner’s potential neg-
are 2011 decisions of the U.S. Supreme Court. One, Federal
ligence liability when customer is attacked by third party in
Communications Commission v. AT&T, deals with whether
parking lot outside business premises (Kroger v. Plonski,
the statutory phrase “personal privacy” applies to corpora-
I ndiana Supreme Court, 2010).
tions. The other, Kasten v. Saint-Gobain Performance Plas-
tics Corp, involves an interpretation of a Fair Labor Standards
Chapter 8
Act provision in light of its purpose and historical context.
• As new text cases, recent Supreme Court decisions on patent

Chapter 2 law. Chapter 8 also includes new material on the Trademark
• A discussion of the new federal rules governing discovery of Dilution Revision Act of 2006.
electronically stored information. • The contracts chapters integrate e-commerce issues at various
• The Dodd-Frank Wall Street Reform and Consumer Protection points. Examples include treatments of the proposed Uniform
Act of 2010 is covered throughout the corporations chapters. Computer Information Transactions Act in Chapter 9, shrink-
This important legislation gives shareholders a greater role in wrap and clickwrap contracts in Chapter 10, and digital or
corporate governance and expands the liability of corporate of- electronic signatures in Chapter 16.
fi cers and those involved in securities transactions. The Dodd- • New— and extensive—discussion of various patent reform is-
Frank Act receives treatment in Chapters 43, 45, and 46. sues and changes in U.S. patent law (including, but not limited
• Expanded treatment of class-action issues, including discus- to, switching the U.S. from a “fi rst-to-invent” approach to a
sion of the U.S. Supreme Court’s infl uential 2011 decision in “fi rst-to-fi le” approach).
Wal-Mart Stores, Inc. v. Dukes. • Bilski v. Kappos, the U.S. Supreme Court’s high-profi le 2010
• New text case dealing with class arbitration issues (U.S. decision dealing with business method patents, included as
Supreme Court’s infl uential 2011 decision in AT&T Mobility new text case.
v. Concepcion).
Chapter 9
Chapter 3 • Aceves v. U.S. Bank, a topical case involving mortgage fore-
• Citizens United v. Federal Election Commission, the U.S. Su- closure and loan modifi cation.
preme Court’s landmark 2010 decision, included as new text
case in First Amendment section. Chapter 10
• New text case dealing with whether federal law on employ- • Added the case of Hines v. Overstock.com (a topical case in-
ment of illegal immigrants preempts Arizona law dealing with volving website terms and conditions).
same subject (U.S. Supreme Court’s 2011 decision in Cham-
Chapter 20
ber of Commerce v. Whiting).
• A new section on the preemption and regulatory compliance
Chapter 5 defenses in product liability cases, and features the Supreme
• Chapter title changed to “Criminal Law and Procedure.” Court’s recent Riegel decision in that section.
• Skilling v. United States, U.S. Supreme Court’s 2010 deci- • New text case dealing with alleged design defects and the neg-
sion, included as new text case in section dealing with consti- ligence and strict liability theories (Branham v. Ford Motor
tutional challenges to criminal statutes on vagueness grounds. Co., South Carolina Supreme Court, 2010).
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viii Preface
• New discussion of two key U.S. Supreme Court decisions • The Securities Regulation chapter also updates information on
dealing with possible federal preemption of state product the cost of complying with Sarbanes–Oxley Act section 404.
liability claims (Wyeth v. Levine, 2009, and Pliva, Inc. v. • One of the fi rst cases addressing the liability of banks as a re-
Mensing, 2011). sult of the current credit crisis, S RM Global Fund L.P. v. Coun-
trywide Financial Corp. , is a new text case in Chapter 45.
Chapter 27
• The insider trading materials, including a concept review,
• New feature discussing the Patient Protection and Affordable
have been clarifi ed in Chapter 45.
Care Act, which was enacted by Congress and signed into law
• Chapter 45 new material on the safe harbor for issuers releas-
by President Obama in 2010.
ing forward-looking information.
Chapter 30 (Bankruptcy) • A problem case in Chapter 45 addresses whether Dallas
• A case from the Madoff bankruptcy, I n Re Bernard Madoff Mavericks owner Mark Cuban may be liable for insider trading.
Investment Securities LLC.
Chapter 46
Chapters 35 and 36 • A discussion of the recent Supreme Court case, Janus Capital
• Expanded coverage of the R estatement (Third) of Agency , Group, Inc. v. First Derivative Traders , limiting the persons
making it the primary source of law for those chapters. who can have liability under Securities Exchange Act Rule
Changes include the new Restatement’s change in terminol- 10b-5.
ogy, such as nonemployee agent (instead of independent con- • The Frank–Dodd Act’s imposition of greater liability on bro-
tractor) and unidentifi ed principal (instead of partial disclosed kers and dealers who tout securities is covered in the profes-
sional liability chapter.
principal), as well as different defi nitions for express and im-
• New language in Chapter 45’s coverage of negligent misrep-
plied authority.
• Ederer v. Gursky, a decision of New York’s highest court, ex- resentation clarifi es the application of the Ultramares case.
ploring whether partners in limited liability partnership have
Chapter 47
limited liability to their partners, has been added to Chapter 38.
• Chapter title changed to “Administrative Law.”
• The Supreme Court’s decision in G oodyear Dunlop Tires Op-
• New introductory problem dealing with the saga of the FDA’s
erations, S.A. v. Brown , explaining the limits of the Interna-
attempts to regulate tobacco problems (including the Supreme
tional Shoe case regarding state jurisdiction over foreign and
Court’s decision that Congress had not given the FDA such
alien corporations, is a new text case in Chapter 41.
authority and the later action by Congress to grant the FDA
Chapter 41 such authority).
• A new Ethics in Action box that considers the State of
Chapter 48
Indiana’s grant to Amazon.com of an exemption from the
• Contains new text material discussing recent amendments to
Indiana sales tax in exchange for Amazon’s building ware-
the Consumer Product Safety Act.
houses in Indiana.
• The Dodd-Frank Act’s provisions requiring periodic share- Chapter 49
holder approval of executive compensation and expanding li- • As a new text case, the recent Leegin decision, in which the
ability of offi cers is covered in Chapter 43. Supreme Court held that vertical minimum price-fi xing would
• The recent Delaware Supreme Court case, Versata Enter- be treated under the rule of reason rather than as a per se viola-
prises, Inc. v. Selectica, regarding the legality of poison pills, tion of the Sherman Act.
is cited in Chapter 43’s coverage of directors’ duties when • Recent Supreme Court cases, such as EXXON Shipping Co. v.
adopting tender offer defenses. Baker (Chapter 52), have been integrated in this edition.
• American Needle, Inc. v. National Football League—the U.S.
Chapter 44
Supreme Court’s 2010 decision dealing with the concerted
• As a text case the Delaware Supreme Court’s decision in City
action requirement under Sherman Act § 1 and with rule of
of Westland Police & Fire Retirement System v. Axelis Tech-
reason analysis—included as new text case.
nologies, Inc., which delineated the limits of the shareholder
inspection right.

Chapter 45 Acknowledgments
• Securities Regulation, clarifi es the distinction between the
preliminary and fi nal prospectuses, on the one hand, and the We would like to recognize Professor Jamie D. Prenkert of
free-writing prospection, on the other. Indiana University, who authored the revisions of Chapter 51
• The Dodd–Frank Act requirement that the SEC issue rules ( Employment Law).
expanding shareholder proxy solicitation rights is covered We would also like to thank the many reviewers who have
in Chapter 45, as is the Act’s dictate that the SEC give cash contributed their ideas and time to the development of this text.
awards to whistleblowers who report securities violations. Our sincere appreciation to the following:
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Preface ix
Sandra Jackson, Lincoln Land Community College Michael Zugelder, Old Dominion University
Judith Wright, Indiana University, Kelley School of
Business–Indianapolis W e also acknowledge the assistance of Professors Sarah Jane
Joseph Zavaglia, Brookdale Community College Hughes and Dennis Long of the Indiana University Law School,
Kurt Saunders, California State University–Northridge and research assistants Elise Boruvka and Scott Corba.
Melanie Stallings Williams, California State
University–Northridge
George A. Nation III, Lehigh University Jane P. Mallor
Christine R. Bork, Esq., Gloucester County College A. James Barnes
Gideon Mark, University of Maryland Smith School of Business
Thomas Bowers
Richard J. Guertin, Orange County Community College
Arlen W. Langvardt
Remy C. Orffeo, Erie Community College
Floyd Woodard, Jr., J.D., Indiana University & Purdue
University–Indianapolis
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