Murdaugh Case Study

What legal and ethical violations has Murdaugh committed against his clients? His law firm? Explain each fully.

What steps should Murdaugh’s law firm have taken to prevent or minimize his ability to successfully defraud the firm’s clients?

Alex Murdaugh was the benefactor of being born into a South Carolina legal dynasty. For many years, he
rose to local notoriety due to his family’s legacy and his own legal conquests. In fact, Murdaugh was a
partner at the law firm on which his great grandfather founded practicing alongside his father and
brother. From the outside, he had a picture-perfect life – a wife, two sons, a successful career, multiple
homes, wealthy lifestyle, etc.
While there had been many questionable events over the years, the Murdaugh family had remained
unscathed. However, a crack to the foundation of the Murdaugh’s occurred in 2019 which put his family
in the local spotlight, and they faced scrutiny like never before. Murdaugh underage son, Paul, had a
deadly boating crash that occurred while he was heavily intoxicated. Paul was charged criminally, and
the family faced a civil suit for the accident. As a result, the community began to report prior
questionable acts of the family which included an accident that resulted in the death of their maid,
unpaid client settlements of clients, and embezzlement of funds from his law firm.
As the scrutiny heightened and legal proceedings were eminent, Murdaugh’s wife, Maggie, and his son,
Paul, were brutally murdered on the family’s hunting property. As the investigation into the deaths was
initiated, the actions of Murdaugh hit a bizarre level. He plotted his own murder in order to allow his
surviving son, Buster, to collect on a life insurance policy. However, the plot failed miserably, raising
more questions. Murdaugh immediately checked into a rehabilitation facility and admitted to a severe
addiction to opioids. The wheels of justice were in motion for Murdaugh at this point and there was no
stopping the momentum.
Murdaugh was charged, tried and found guilty of the murders of his wife and son. While likely one of
the more publicized cases, this is just one of many legal cases against Murdaugh. In the next five weeks,
we are going to review some of the other cases that are still looming for Murdaugh related to business
law.
Ethics and the law can be intertwined at a minimum standard. Many times, ethics are considered a
higher standard of operating than the law requires. It is a requirement that an organization abide by the
laws, but it is a duty to establish ethical standards in which they, as an entity and their employees, are
held accountable.
During this review of the Alex Murdaugh legal saga, we will look at not only the legal quandary that he
currently faces but also the ethical failures that occurred over time that was not questioned until these
legal woes became too big to turn a blind eye any longer.
When an attorney is sworn into the South Carolina Bar, they take an oath of their responsibilities. Two of
the excerpts of their ethical standards and duties is noted below:
“To my clients, I pledge faithfulness, competence, diligence, good judgment and prompt communication;
and
I will respect and preserve inviolate the confidences of my client, and will accept no compensation in
connection with a client’s business except from the client or with the client’s knowledge and approval;”
Based on this oath, Murdaugh owed a legal and ethical duty to his client. The law firm in which
Murdaugh was associated also had a legal and ethical duty to provide oversight of his actions as he was
an acting fiduciary of the firm. However, both Murdaugh and his law firm failed his clients to ensure
they were represented in an ethical manner. As a result of his ethical violations, Murdaugh has been
disbarred from the South Carolina bar. To mitigate their damages, the law firm in which Murdaugh
worked has sued him for his unethical practices also. Below is a summary of the cases pending against
him.
Alex Murdaugh, the disbarred South Carolina lawyer convicted of murdering his wife and son,
was indicted Wednesday on more than 20 counts of orchestrating financial schemes that
allegedly stole millions of dollars from his clients over 16 years.
Among the charges is that Murdaugh defrauded the estate of Gloria Satterfield, the housekeeper
who died at his property in 2018, out of almost $3.5 million, prosecutors say.
The 22-count indictment unsealed by the U.S. attorney’s office for the District of South Carolina
says that Murdaugh, 54, “engaged in three different schemes to obtain money and property
from his personal injury clients” while he was a practicing attorney in Hampton, S.C.
Murdaugh, who was sentenced to life in prison without parole in March for the 2021 murders of
his wife, Maggie, 52, and son Paul, 22, has been charged with counts of conspiracy to commit
wire fraud and bank fraud, and committing bank fraud, wire fraud and money laundering,
according to prosecutors.
Murdaugh admitted during his murder trial that he had created a web of financial crimes that
bilked millions from vulnerable clients of his law practice, saying: “I believe the people I had stole
money from for all of those years trusted me.” Murdaugh, the patriarch of a South Carolina legal
dynasty whose case drew international attention, apologized several times during his testimony
for swindling clients among whom were teenage girls and a quadriplegic man.
“Trust in our legal system begins with trust in its lawyers,” U.S. Attorney Adair F. Boroughs said
in a news release announcing the charges. “South Carolinians turn to lawyers when they are at
their most vulnerable, and in our state, those who abuse the public’s trust and enrich themselves
by fraud, theft and self-dealing will be prosecuted to the fullest extent of the law.”
Dick Harpootlian and Jim Griffin, Murdaugh’s attorneys, said in a statement to The Washington
Post that their client “has been cooperating with the United States Attorneys’ Office and federal
agencies in their investigation of a broad range of activities.”
“We anticipate that the charges brought today will be quickly resolved without a trial,” the
attorneys said.
If convicted of all of the federal charges, Murdaugh faces up to 150 years added on to his life
sentence and fines up to $4.75 million.
Meanwhile, Murdaugh is expected to be deposed in the wrongful-death lawsuit brought against
him by the family of Mallory Beach, a 19-year-old who was killed in a 2019 drunken-boating
accident involving Murdaugh’s boat and his late son, Paul Murdaugh. A South Carolina judge
filed a consent order Monday “granting leave for parties to conduct the deposition” of Alex
Murdaugh, which could take place virtually or in person. The lawsuit names other parties,
including Murdaugh’s surviving son, Buster.
Prosecutors in South Carolina say Murdaugh engaged in three separate schemes to bilk his
clients of money and property.
In the first, Murdaugh devised “a scheme to defraud and to obtain money by means of false
pretenses” between at least September 2005 and September 2021, according to the indictment.
He allegedly routed and redirected his clients’ settlement funds to personally enrich himself in
several ways, including by sending settlement funds to his accounts without proper disclosure,
and collecting attorney’s fees on fake or nonexistent annuities.
In the second alleged scheme, from around July 2011 until at least October 2021, Murdaugh
conspired with his banker, Russell Laffitte, to commit wire fraud and bank fraud, prosecutors say.
Laffitte collected more than $350,000 in fees in his role as personal representative or conservator
for numerous personal injury clients of Murdaugh’s.
“As part of the scheme, the indictment alleges Murdaugh directed law firm employees to make
settlement checks payable to ‘Palmetto State Bank.’ The checks were then delivered to Laffitte,
whom Murdaugh directed to use the settlement funds for Murdaugh’s benefit,” prosecutors
wrote. “The funds were used to pay off Murdaugh’s personal loans and for personal expenses
and cash withdrawals.”
Lafitte was convicted in November on six federal charges, including conspiracy to commit wire
and bank fraud, and committing bank fraud and wire fraud. He is awaiting sentencing.
In the third alleged scheme, prosecutors say Murdaugh set up a bank account presented as a
legitimate corporation for structuring insurance settlements between May 2017 and July 2021.
The indictment says Murdaugh funneled stolen personal injury settlements through an account
named “fake Forge” to conceal his fraud efforts.
It was during this scheme, prosecutors say, that Murdaugh defrauded Satterfield’s estate and his
insurance carriers after she died. Murdaugh recommended that the housekeeper’s estate hire an
attorney to represent the estate and file a claim against Murdaugh to collect from his
homeowner’s insurance policies. Murdaugh’s insurance companies settled the estate’s claim for
$505,000 and $3.8 million, the indictment says. Then, Murdaugh and the attorney allegedly
“conspired to siphon settlement funds, disguised as ‘prosecution expenses,’ for their own
personal enrichment.”
“The indictment further alleges that Murdaugh directed the Beaufort attorney to draft checks
totaling $3,483,431.95 made payable to ‘Forge,’” prosecutors say. “Murdaugh then deposited
the checks into his ‘fake Forge’ account and used the funds for his own personal enrichment. The
estate did not receive any of the settlement funds.”
Eric S. Bland, the Satterfield family’s attorney, tweeted that the federal charges against
Murdaugh amounted to “a great day for justice in South Carolina.”
“While it is said that Lady Justice is blind, she is not a sucker,” he wrote. “Bottom Line — Cant
run or hide from justice.”
Murdaugh claimed during his trial that bad land deals and an addiction to opiate pills fueled a decadelong cycle of borrowing and spending by him that battered his family’s finances. His attorneys
have framed his alleged financial shadiness in recent court filings as being representative of “a bleak and
dispiriting story of a man brought to his knees by a crippling drug addiction, who also had the financial
means and knowledge to effect great financial harm upon others to feed that addiction.”
Contracts are an important tool in businesses and are the foundation of a lawyer’s relationship with their
clients. Contracts ensure that all parties understand and have confirmation of what they are agreeing to,
and to ensure there is no room for misrepresentation. Additionally, because the terms are outlined
clearly, there is legal accountability if a contract is not performed by one or more of the parties.
Attorneys generally enter into contracts with each of their clients as a representative of their firm.
Additionally, the attorneys also enter into contracts with their firms to agree to the terms of employment
and the expectations of how their cases are to be handled and managed as a member of the firm. This
was no different for Alex Murdaugh; he had a contractual obligation to each of his clients as well as his
firm.
The law firm that the prominent Murdaugh family helped start is now suing Alex Murdaugh.
In court documents filed Tuesday in Colleton County, the PMPED law firm is suing Murdaugh for
actual damages “together with punitive damages in an appropriate amount” after claiming
Murdaugh used money from clients and the firm for his own personal use.
A specific dollar amount was not mentioned.
According to the court filing, Murdaugh was covertly stealing the funds and putting them into a
Bank of America account in the name of “Alexander Murdaugh d/b/a Forge,” which was a
fictitious entity.
The lawsuit alleges Murdaugh put the account in that name to avoid detection, knowing the
longstanding relationship the firm had with Forge Consulting LLC in Columbia.
According to the court documents, the firm began investigating on September 2 after finding a
suspicious check on Murdaugh’s desk.
It was the following day that Murdaugh was confronted with the information PMPED learned,
and he admitted to taking the funds. The lawsuit reads that Murdaugh was asked to resign, and
he submitted his resignation that afternoon.
PMPED says it has reimbursed all client trust accounts who have suffered a loss due to
Murdaugh’s actions. But the firm says it may learn about additional losses.
“As a result of Alex Murdaugh’s conduct in breach of the contract, PMPED has suffered
damages,” the lawsuit reads. “These include but are not limited to monies paid by PMPED to
protect clients’ interests and to fully discover the improper actions of the Defendant as well as
any additional monies that may have to be paid in the future for Alex Murdaugh’s conduct.”
Jim Griffin, one of Alex Murdaugh’s lawyers, responded to the lawsuit on Wednesday.
“This is a very sad development,” he said. “Alex holds every member of the Peters, Murdaugh,
Parker, Eltzroth, Detrick law firm in very high esteem. He has pledged his full cooperation to the
firm.”
As you can see Alex’s firm has now initiated action for his breach of contract to the firm which created
significant liability for them to each of Murdaugh’s defrauded clients.
Peters, Murdaugh, Parker, Eltzroth, and Detrick, PA (PMPED) was the law firm in which Murdaugh was a
partner and his great grandfather founded. The firm was set up a Professional Association (PA) business
structure. A Professional Association is a business entity that is available to organizations offering
professional services like accounting and law firms. Professional Associations have all of the benefits of a
Limited Liability Corporation (LLC), but it is taxed as a corporation.
When a company has employees that act on their behalf or during the normal course of business to
conduct their job duties, the employer becomes a respondeat superior. This doctrine states an
employer is responsible for the actions of its employees performed during the course of their
employment.
This is a key reason for companies (or firms) to develop and implement policies and train employees on
the expectations and requirements. It is unknown what, if any, policies existed at PMPED or if attorneys
or employees received any training.
Referenced Articles:
https://www.washingtonpost.com/nation/2023/05/24/alex-murdaugh-federal-charges-stealing-millions/
https://www.greenvilleonline.com/story/news/2022/07/13/alex-murdaugh-news-officially-disbarred-scsupreme-court/10044376002/
https://www.cnn.com/2021/10/06/us/alex-murdaugh-sued-former-law-firm/index.html
https://www.wjcl.com/article/alex-murdaugh-pmped-lawsuit/37886606
https://abc7chicago.com/alex-murdaugh-fraud-case-news/12938583/
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The Legal & Regulatory
Chapter 5
Environment of Business 19e
Alternative Dispute Resolution
Pagnattaro Cahoy Magid
Shedd
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
5-2
Learning Objectives
• To understand why disputing parties seek
alternatives to the litigation process as
methods to resolve their differences
• To appreciate the importance of effective
negotiation and to recognize the basic
methods of negotiation
• To evaluate the various forms of ADR systems
so that efficient choices can be made as to the
means of resolving disputes
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5-3
Learning Objectives, II
• To explain the differences between arbitration
and mediation and to know when each is the
most appropriate method of ADR
• To comprehend why courts have a very limited
role in reviewing the actions of arbitrators and
mediators
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5-4
Think Tank
think think think
TANK TANK TANK
Can a pie be cut in more than one
way?
a. Yes
b. No
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5-5
Conflict and Disputes
Conflict leads to disputes when
one party makes claim that
other denies
Point of
View
CONFLICT
Point of
View
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5-6
Negotiation
• Process used to persuade or coerce someone
to do what a person wants them to do
• Styles
– Avoid
– Accommodate
– Compete
– Collaborate
– Compromise
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5-7
Positional Negotiation
• Positional bargaining: Used instinctively by
people
• Parties begin in a competitive style by stating
their respective expectations
• Does not focus on the underlying conflicts
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5-8
Principled Negotiation
VII. Commitment
I. Communication
II. Relationship
VI. Alternatives
III. Interests
V. Legitimacy
IV. Options
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5-9
Alternative Dispute Resolution (ADR) Systems
• Litigation does not prevent the use of ADR
techniques
• Lawsuits are not required to use ADR methods
• Usage can be part of a contractual relationship
between parties
• Effective use can save costs associated with
litigation
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5-10
Figure 5.1 – Scale of Dispute Resolution
Systems
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5-11
Settlements
• Parties to litigation are losers
• Desire to resolve differences is instinctive for
many Americans
• Businesses settle disputes with customers to
retain goodwill and avoid huge fines
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5-12
Focus Groups
• Assembled by attorneys
• Makes findings from the evidence provided by
attorneys
• Lawyers argue on the basis of assumed facts
and jury delivers a verdict
• Help disputing parties to engage in more
meaningful negotiations
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5-13
Arbitration
• ADR system in which the disputing parties
agree to have a third party decide the merits
of the dispute
• Arbitrator: Authorized to make decisions that
are binding on the parties
• Helps parties to avoid litigation expenses and
courtroom formalities
• Serves to ease congested court dockets
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5-14
Arbitration, II
• Allows to submit several disputes to experts
for solutions
• Submission: Act of referring a matter to
arbitration
• Voluntary arbitration: Submission to
arbitration by the parties
• Mandatory arbitration: Occurs when a statute
or court requires parties to arbitrate
• Award: Decision made by an arbitrator
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5-15
Submission
• Submission by contract
– Occurs when the parties enter into an agreement
to arbitrate an existing dispute
• Parties can contractually agree to submit to
arbitration all issues that arise in the future
• Statutes require submission within a stated
time period
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5-16
Factors that Influence the Selection
Process of Arbitrators
• Expertise
– Use of an expert to resolve disputes makes
arbitration preferable to litigation
• Number chosen
– Number of arbitrators is based on the agreement
of the parties
• Authority over certain matters
– Arbitrators’ authority is a topic of controversy and
litigation
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5-17
Case 5.1: Arbitrators’ Authority
• Case
– Rent-A-Center, West, Inc., v. Antonio Jackson
– 130 S. Ct. 2772 (2010)
– Supreme Court
• Issue
– Jackson filed a race discrimination lawsuit in
federal court instead of arbitrating his claim
• He claimed that the agreement to arbitrate was
unconscionable and unenforceable under Nevada law
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5-18
Think Tank, II
think think think
TANK TANK TANK
All of the following are advantages of
arbitration over litigation except:
a. Right to appeal
b. Takes less time
c. Nonpublic
d. Not as expensive
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5-19
Awards
• Decision by an arbitrator
• Findings and reasons of the award must be
disclosed if required by the submission
• U.S. Supreme Court favors a broad scope of
the arbitrators’ authority
• Final on all issues submitted and enforceable
by the courts
• Not subject to judicial review on the merits of
the decision
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5-20
Federal Arbitration Act (FAA)
• Encourages disputing businesses to utilize
arbitration
• Impact on policy
– FAA covers any arbitration clause in a contract that
involves interstate commerce
– Courts should enforce arbitration agreements
– Federal policy favors arbitration of commercial
disputes
– U.S. Supreme Court offers strong support to the use of
arbitration
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5-21
Federal Arbitration Act (FAA), II
• Impact on state laws
– Some state laws specify that designated matters
are not to be submitted to arbitration
– Commerce Clause and Supremacy Clause of the
U.S. Constitution invalidate state laws that deny
arbitration of certain disputes
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5-22
Case 5.2: FAA’s Impact on Policy
• Case
– 14 Penn Plaza LLC. v. Pyett
– 129 S. Ct. 1456 (2009)
– Supreme Court
• Issue
– Plaintiffs filed a lawsuit against 14 Penn Plaza
alleging age discrimination
– Defendant asserted that the union members were
required to arbitrate their claims
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5-23
Statutorily Mandated Arbitration
• States statutes require mandatory arbitration
for certain types of disputes
• Viable alternative for controlling court
congestion
• Arbitrators are retired judges and practicing
lawyers
• Types of cases
– Statute applies to claims for money of a small
amount
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5-24
Statutorily Mandated Arbitration, II
Certain statutes require arbitration of specific
subject matter
• Procedures
– Mandatory arbitration does not provide speedy
justice
– Discovery procedures are used prior to the
hearing on arbitration
– Arbitrators have the power to:
• Determine the admissibility of evidence
• Decide the law and facts of the case
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5-25
Forms of Voluntarily Arbitration Agreements
• Predispute arbitration clause: Contracting
parties understand that disputes are better
resolved through arbitration
• Postdispute arbitration agreement: Occurs
when parties in dispute decide that arbitration
is better than litigation
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5-26
Review of Voluntary/Contract-based
Arbitration Awards
• Judicial review of an award is restricted and
limited
• Error of law renders the award void if it
requires the parties to violate the law
• Courts do not interfere with an award
• Review can correct fraudulent actions by an
arbitrator
• Award against public policy is rescinded
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5-27
Review of Statutorily Mandated Arbitration
• Higher level of judicial review of the award is
required
• Belief that mandatory arbitration statutes are
against public policy and unconstitutional
• De novo judicial review: Court tries the issues
anew as if no arbitration occurred
• Right to reject the award exists without regard
to the basis for the rejection
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5-28
Review of the Federal Arbitration Act
• Grounds on which arbitration can be vacated
– Award was procured by corruption, fraud, or other
undue means
– Arbitrators:
• Were partial or corrupt
• Were guilty of misconduct
• Exceeded or imperfectly executed their powers
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5-29
Mediation
• Mediator attempts to assist disputing parties
in resolving their differences
• Mediator: Third person
– Cannot impose a binding solution on parties
– Utilizes the principles of interest-based
negotiations
• Court-annexed mediations are local in nature
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5-30
Reason for Increase in Mediation
• Parties retain control over when to settle and
continue disputing
• Cost savings
• Reduction of the legal system governing the
process
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5-31
Procedures
• Mediator explains the procedures to which
the parties should agree
• Parties make statements about the dispute
• Exchange phase – Parties talk to one another
and decide what can be done
• Possible solutions are brainstormed
• Caucus: Occurs when the mediator meets
privately with one party without other party
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5-32
Procedures, II
• Common agreement is achieved when
differences between parties are resolved
• Agreement is written and signed by the
parties
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5-33
Advantages and Disadvantages of
Mediation
• Advantages
– Disputing parties retain full control over the resolution
of controversy
– Efficient as it does not involve any presentation
• Disadvantages
– No enforcement mechanism to ensure the parties will
mediate in good faith
– Selection of the neutral mediator
– Training and licensing requirements for a mediator are
non-existent
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5-34
Food for Thought…
Mediation has emerged as the primary
ADR process in Federal Courts
–ADR and Settlement in Federal District Courts
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5-35
Pop Quiz
pop pop pop
QUIZQUIZQUIZ
If the parties to a mediation sign an
agreement at the end, that agreement is
usually legally binding (can be enforced
in court.)
a. True
b. False
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5-36
Lack of Judicial Involvement
• Mediations do not involve legal issues of the
arbitration process
• Conduct of the mediator is not subject to
judicial review
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5-37
Combination of ADR Systems
• Flexibility of mediation allows parties to utilize
the process in combination with other dispute
resolution systems
• Med-Arb: Parties resolve the matters they can
and agree to arbitrate the unresolved matters
• Laws encourage the parties to be creative in
utilizing ADR systems
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5-38
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The Legal & Regulatory
Environment of Business Chapter
19e
3
Understanding the Court
System
Pagnattaro Cahoy Magid
Shedd
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-2
Learning Objectives
• To recognize the role of key personnel
associated with the courts
• To know the organization of the state and
federal court systems
• To understand the power of judicial review
and the philosophies of judicial restraint and
judicial activism
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3-3
Learning Objectives, II
• To appreciate and contrast the background
and judicial alignment of the justices of the
U.S. Supreme Court
• To analyze a sample case from the U.S.
Supreme Court, including the majority,
concurring, and dissenting opinions
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3-4
Judges and Justices
• Individuals who operate courts
• Judges – Trial court persons
– Determine the rules of law for cases
• Justices – Reviewing court persons
– Decide appeals and provide reasons for their
decisions
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3-5
Jurors
• Fact-finding body
• Trial by jury is guaranteed by the Bill of Rights
• Petit jury: Trial jury that returns a verdict in
criminal and civil situations
• Consist of 12 persons
– Smaller juries are acceptable
• Decision must be unanimous in most states
– Reason is not provided
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3-6
Lawyers
• Serve as representative advocates in court
system
• Present evidence, points of law, and
arguments
– Help juries and judges in making decisions
• Primary duty is to the administration of justice
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3-7
Lawyers, II
• Serve as counselor, advocate, and public
servant
• Rules of evidence provide confidential
communications to a lawyer
• Attorney-client privilege
– Forbids a lawyer to reveal confidential facts and
testify against a client
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3-8
Organization of the Court System
Supreme Courts
Appellate Courts
Subject Matter
Jurisdiction –
Power over
Particular
Issues
Trial Courts
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3-9
Think Tank
think think think
TANK TANK TANK
Is the state Supreme Court
always the state’s highest
court?
a. Yes
b. No
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3-10
Subject Matter Jurisdiction
• Power over the issues involved in the case
• Jurisdiction can be limited to a subject matter
or area in which the parties live
• Probate courts – Deal with wills and estates of
deceased persons
• Traffic courts – Deal with traffic violations
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3-11
State Courts
• Sources that create and govern state court
systems
– State constitutions
– State legislature
– Other legislation
• Trial courts: Initial level for filing lawsuits
– Referred to as superior or circuit or district court
– Responsible for determining the facts and law in
the case
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3-12
State Courts, II
• Appellate courts: Review the results of lower
courts
– Some states have one appellate court
– Certain states have two levels of review
• Courts of appeal: Intermediate courts
• Supreme court: Highest court
– Writ of certiorari: Procedure for requesting a
Supreme Court review
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3-13
Figure 3.1 – State Court System
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3-14
Federal Courts
•Article III Of Constitution
• Reviews:
• Questions of
Federal Law
• U.S. As Party
• State Disagreements
• Suits Between
Citizens Of
Different States
Federal
Jurisdiction
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-15
Federal Question Cases
Federal
Questions
U.S.
Constitution
Issues
Federal
Statute
Issues
No $ Limit
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-16
Diversity Of Citizenship
Diversity
Plaintiffs/
Defendants –
Citizens of
Different States
Each
Claim
Must Be
$75,000+
Guard
Against
State Court
Bias
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3-17
Figure 3.2 – Federal Court System
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3-18
District Courts
• Trial courts of the federal judicial system
• At least one court in every state and the
District of Columbia
• Federal Rules of Civil Procedure: Provide the
details concerning procedures to be followed
in federal court litigation
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3-19
Appellate Courts
• 13 Courts of Appeal (12 U.S. Courts of Appeal
plus a special Court of Appeals for the Federal
Circuit)
• The Federal Circuit hears appeals from
– Special courts
– Administrative decisions
• Other courts have been created to handle
special subject matter
– Court of Appeals for Armed Forces
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3-20
Pop Quiz
pop pop pop
QUIZQUIZQUIZ
General role of an appellate court
is to:
a. Review questions of fact
b. Review questions of fact and law
c. Review questions of law
d. Review only constitutional questions
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-21
Decisions by the U.S. Supreme Court
• Review by the U.S. Supreme Court requires a
petition for a writ of certiorari
• Supreme Court resolves cases involving major
constitutional issues or interpretation of
federal law
• Final judgments of the highest state court are
reviewed only by the Supreme Court of the
U.S.
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-22
Power of Judicial Review
• Judicial review: Ultimate power to invalidate
actions by the executive or the legislative
branches
• Judicial restraint: Power should not be used
except in unusual cases
• Judicial activism: Power should be used when
the needs of society justify its use
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-23
Judicial Restraint
• Philosophy is referred to as strict
constructionism or judicial abstention
• Followers favor a very limited role for the
courts in system of government
• Belief that change in society should result
from the political process
• Supporters take a pragmatic approach to
litigation
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-24
Judicial Activism
• Supporters favor a more expansive role for the
courts in system of government
• Activists are value oriented and policy directed
• Courts are more result conscious and place
less reliance on precedent
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-25
Think Tank, II
think think think
TANK TANK TANK
Is the power of judicial review
important?
a. Yes
b. No
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-26
Case 3.1: Supreme Court’s Influence on Law
• Case
– Iancu v. Brunetti, 588 U.S. ___ (2019)
– U.S. Supreme Court
• Issue
– The Court considered a First Amendment
challenge to the Lanham Act, prohibiting the
registration of immoral or scandalous trademarks.
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3-27
Nature of the Judicial Process
Case To Be Decided
Use
Existing
Statutes &
Precedent
Create Law
Where
None Exists
Refuse
To Apply
Case Law or
Find Unconstitutional
Will Ruling Provide Justice and
Sound Precedent?
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3-28
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
The Legal & Regulatory
Environment of Business 19e
Chapter 2
The Role of Ethics in Decision
Making
Pagnattaro Cahoy Magid
Shedd
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-2
Learning Objectives
• To consider ethical challenges facing business in the
21st century.
• To compare the connection between law and ethical
principles
• To analyze why ethical consequentialism and not
ethical formalism has been the chief source of values
for business ethics
• To generate an individual framework for ethical values
in business
• To evaluate the obstacles and rewards of ethical
business practice in our property-based legal system
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-3
Contemporary Business Ethics
• Companies hire ethics officers to:
– Develop ethics policies
– Listen to complaints of ethics violations
– Investigate ethics abuses
• Sarbanes-Oxley Act (SOX) of 2002
– Established higher standards for corporate
responsibility and governance
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-4
Modern Ethical Challenges in
Innovation and Technology
• New ethical questions have emerged in the
21st century due to significant business
advances
• Artificial intelligence poses risks from
cybersecurity to bias in algorithms
– Is ethical AI even possible?
• Ethical decision making is a necessary aspect
of continued positive innovation
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-4
Food for Thought…
2014 National Business Ethics
Survey found a decline in observed
misconduct in the workplace.
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2-5
Contemporary Business Ethics
Ethics
…and Society
•Changing values
•Economic
interdependence
•News media and the
Internet
…and Government
•Government may
take action
•Companies can selfregulate
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2-7
Ethics and Morality
• Morality: Values that guide one’s behavior
– Sharing moral values promotes social cooperation
and control
– Businesses need to instill shared moral values in
employees
• Ethics: Formal system for deciding what is
right and wrong and to justify moral decisions
• The good: Moral goals and objectives one
chooses to pursue
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2-7
Ethics and Law
• Society’s ethical values may become law
through:
– Legislation
– Court decisions
• Many ethical values are not enforced by the
state
• Motivation to follow laws and ethics differ
• Ethical systems involve a broader-based
commitment to behavior than the law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-8
Systems of Ethics
Formalism
Consequentialism
Affirms absolute
morality
•Duty-based view
•Categorical imperative
•Social contract
Concerned with moral
consequences of
actions
•Utilitarianism
•Protestant ethic
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2-9
Figure 2.1 – A Common Result
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2-10
Pop Quiz
pop pop pop
QUIZQUIZQUIZ
Philosophers call the end result of
ethical examination –
a. The good
b. The bad
c. The ugly
d. The rule of law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-11
Think Tank
think think think
TANK TANK TANK
Is there a relationship between
law and ethics?
a. Yes
b. No
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-12
Sources of Values for Business Ethics
Legal regulation
Professional
codes of ethics
Organizational
codes of ethics
Individual
values
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-13
Legal Regulation – Ethical Rules Drawn
from the Law
Respect liberty and rights of others
Act in good faith
Exercise due care
Honor confidentiality
Avoid conflicts of interest
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2-14
Professional Codes of Ethics
• Certain professions have long traditions of
codes of ethical conduct
– More recent professions have developed and
adopted their codes
• Ethical codes of organizations are a form of
self-regulation
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2-15
Organizational Codes of Ethics
• Businesses have adopted ethical codes at the
individual organization level
– Take varied approaches to suit their organizations
• Effective implementation and enforcement of
codes is more important than their creation
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-16
Individual Values: SelfExamination
Questions to ask
yourself to help
explore ethical
values before
making decisions
1. Have I thought if my
action is right or
wrong?
2. Will I be proud to tell
of my action?
3. Am I willing for
everyone to act like
me?
4. Will my decision cause
harm?
5. Will my actions violate
the law?
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-18
Achieving Ethical Business Corporation
• Obstacles
– Emphasis on profit conflicts with ethical
responsibility
– Effect of the group
• Individuals feel less responsible
– Control of resources by non-owners
• Managerial agents can manipulate resources in their
own interest
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-18
Steps to Promote Business Ethics in Corporate
Life
• Involve top management
– Top management should act as a role model
• Must believe in the expressed values
• Openness in communication
– Promotes trust
– Required due to the complexity of information
• Consideration of stakeholders
– Stakeholder theory: Directors and managers must
take into account stakeholders whose interests the
corporation impacts
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2-19
Rewards
• Popular observations about business ethics
– Profits and ethics are not contradictory
– Ethical organizational life is a business asset
– Ethics are of concern to the business community
• Requires constant re-evaluation
– Business ethics reflect business leadership
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-20
Think Tank, II
think think think
TANK TANK TANK
Can an act be ethical but
not legal?
a. Yes
b. No
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-21
Think Tank, III
think think think
TANK TANK TANK
Can an act be legal but
not ethical?
a. Yes
b. No
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-22
Can a Business Have a Conscience?
• Personhood rights of a corporation have been
recognized in the law
• Laws that force individuals to violate a
religious value are problematic
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
2-23
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
The Legal & Regulatory
Environment of Business 19e
Chapter 1
Law as a Foundation for Business
Pagnattaro Cahoy Magid
Shedd
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-2
Learning Objectives
• To understand that laws and regulations are
fundamental foundations for business
• To explain that “property” in the law refers
not to something that is owned but to the
right of ownership itself, which gives incentive
for wealth creation
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-3
Learning Objectives, II
• To analyze why stare decisis is different in
common law nations than in civil law nations
• To classify what legal sources lawyers turn to
in answering legal questions from their clients
and the hierarchy of those sources
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-4
Law and Regulations are Fundamental
Foundations for Business
• Companies in the U.S. must:
– Be aware of the legal and regulatory landscape
– Take steps to ensure full compliance with the law
to avoid civil and criminal liability
• Lawyers play a positive role in corporate
boards
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-5
Law
• Rules established by the state and backed up
by enforcement
• Formal social force
• Adequate enforcement institutions are
necessary to maintain order in society
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1-6
Rule of Law
• Laws are generally and equally applicable
– Applies to all members of society
• Rule-of-law nations adopt laws supporting the
private market
• Judges play a vital role in maintaining the rule
of law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-7
Food for Thought…
All wealthy countries embrace
the rule of law
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1-8
Pop Quiz
pop pop pop
QUIZQUIZQUIZ
What is the rule of law?
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1-9
Think Tank
think think think
TANK TANK TANK
Were you impacted by the law
on the way to class today?
a. Yes
b. No
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-10
Property (Ownership)
• Legal right that allows a person to exclude
others from his/her resources
• Types of ownership fences
– Public property
– Private property
– Common property
• Exclusionary right of property provides a basis
for the private market and modern business
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-11
Property in its Broadest Sense
• Central concept of Western legal systems
• Includes ownership of individual
constitutional and human rights
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1-12
Figure 1.1 – Wheel of Property
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1-13
Jurisprudence
Natural Law
Jurisprudence
Philosophies that
explain origin of
law, and its
justification.
Positive Law
Historical School
Sociological
Legal Realism
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-14
Classification of Law
Common law and civil law
Public and private law
Civil law and criminal law
Substantive law and procedural
law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-15
Common Law and Civil Law
• Common law
– Emphasizes the role of judges in determining the
meaning of laws
• Civil law
– Relies more on legislation than judicial decisions
for law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-16
Public and Private Law
• Public law: Includes matters that involve the
regulation of society
– Constitutional law
– Administrative law
– Criminal law
• Private law: Covers legal problems and issues
that concern private resource relationships
– Property law
– Contract law
– Tort law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-17
Civil Law and Criminal Law
• Civil cases
– Include suits for breach of contract or tort cases
– Involve requests for damages or appropriate relief
• Criminal cases
– A government representative attempts to prove
the wrong committed against society
– Result in punishment
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-18
Substantive Law and Procedural Law
• Substantive law
– Defines the legal relationship of people with other
people or with the state
• Procedural law
– Method and means by which substantive law is
made and administered
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-19
Sources of Law
Federal law
State law
Judicial
decisions or
case law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-20
Federal Law
Constitution
Legislation
Administrative
law or regulation
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-21
State Law
State constitution
Statutes or acts
Regulatory law of state
administrative agencies
Ordinances
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1-22
Judicial Decisions or Case Law
• Interpret the constitutional, legislative, and
regulatory laws
• Opinions: Decisions made by judges on legal
issues
– Become precedents for future cases involving
similar facts and legal issues
– Citation: Enables location of the case in a library
or computer databases
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-23
Judicial Decisions or Case Law, II
Advantages
• Stare decisis
– Judges follow precedents
whenever possible
– Ensures certainty and
predictability in the law
• Specifies the boundaries of
property-based legal system
Disadvantages
• Volume of cases
• Conflicting precedents
• Distinction between the
holding and dicta
– Increases the difficulty of
determining the precedent
• Rejection of precedent
• Conflicts of law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-24
Hierarchy of Sources of Law
• U.S. Constitution and Amendments
• Statutes of Congress
• Federal administration regulation
• State constitutions
• State statutes
• State administrative regulation
• Local ordinances
• Case law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-25
Legal Sanctions
• Methods used by law enforcement officials
and courts to encourage or force compliance
with and obedience to the law
• Remedy: Right of an individual to take another
person’s resources as that person failed to
meet the requirements of the law
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-26
Sanctions for Criminal Conduct
Crime
Punishments
•Public wrong
against society
•Death
•Imprisonment
•Fine
•Removal
•Disqualification
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-27
Sanctions for Breach of Contract
Remedies
•Damages (Money)
•Compensatory
Breach of
contract
•Failure to perform
contractual promise
•Consequential
•Specific performance
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1-28
Sanctions for Tortious Conduct
Tort
•Civil wrong (other than
breach of contract)
•Intentional
•Negligence
•Strict liability
Remedies
•Compensatory
damages (Money)
•Punitive damages
(Exemplary damages)
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1-29
Sanctions for Violating Statutes and
Regulations
• Similar to those imposed for criminal conduct,
breach of contract, or tortious conduct
– Statutes impose a fine for a violation and
authorized damages to injured parties
• Help define boundaries and protect people
from the boundary infringements of others
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1-30
Think Tank, II
think think think
TANK TANK TANK
Would you be comfortable to enter
into a business deal if you knew
that the contract could not be
adequately enforced?
a. Yes
b. No
Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-31
Property and Corporate
Governance
• Businesses chartered by the state to do
business as legal persons
• Owned by shareholders
• Board of directors run the business
• Managers are in charge of day-to-day business
operations
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1-32
Specific Sense of Corporate
Governance
• Corporate governance: Legal relationship
between corporate agents and the
shareholders of the corporation
• Value of corporations will be destroyed when
managers abuse their control of resources for
personal benefits
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1-33
General Sense of Corporate
Governance
• Corporate governance applies to legal
relationships that businesses have with
customers and society
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1-34