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Business Introduction Legal Environment

Project 1 Course Resources

Introduction to the Legal Environment of Business

The Legal Environment: Courts, Alternative Dispute Resolution, and Agency

Why Should I Care about the Law?

Why do business people need to know anything about the law? Some people think of lawyers in business as a necessary evil. There is some truth to the “necessary” part: if everyone were scrupulously honest and had photographic memories regarding all statements uttered that could constitute promises, perhaps lawyers wouldn’t be needed. But, alas, we are mere mortals with failing memories and sometimes failing ethics.

A Systems View of the Roles of the Lawyer and the Manager

One view of the respective roles of the lawyer and the manager in a business is that the lawyer should guide the manager in analyzing risk—this is in the lawyer’s training, and it’s the lawyer’s responsibility to accurately convey the nature of legal risks to the client; however, it is up to the manager to make the final business call.

Generally speaking, lawyers are inherently conservative when it comes to risk. Managers can’t abdicate responsibility for making the business call. This is one of the main reasons for managers to have legal literacy. You need to know when you need legal advice, and then what to do with it. Sometimes, basic legal knowledge is necessary on the front lines of dealing with customers and coworkers.

Knowing something about the law can assist you in prevention. Legal analysis skills help you to avert lawsuits and other unpleasantness so that you can stay focused on running your business. However, there will be instances in which you have to bring a legal-related matter to closure. Perhaps you’ve taken over from an executive who has left the department or company and left behind a problem that requires a legal solution. Or, you did something that triggered a legal response from a customer or vendor. If you know the relevant legal rules for your area of business, you’ll know when it’s appropriate to involve legal counsel.

Let’s begin with a basic overview of the two types of law.

Differences between Civil and Criminal Law

American society highly values ingenuity and entrepreneurship, but there are legal limits on the conduct of commerce. Some of these limits are statutory, which means that a law-making body has enacted a specific law to regulate a specific activity (e.g., the Sherman Act statute regulating antitrust). Some of these legal limits are found in the common law (e.g., tort law imposing liability on an infinite variety of behaviors). Most of the legal limits on business fall into the category of civil law.

One big difference between civil and criminal law is in the potential penalties. Civil law liability carries penalties that are monetary—so-called damages. The culpable party pays damages in an amount the court believes will make the wronged party whole. This contrasts with criminal law, where the possible penalties are limits on personal freedom (such as incarceration or death), although monetary penalties are also possible (such as a fine payable to the government or restitution to the victim).

There is one major exception to the rule that business contracts do not involve criminal penalties for breach: this is in government contracting. Because so many students at UMGC have employment that involves contracts with the US government in some manner, this is often a point of confusion.

Government contracting is a special circumstance where the contracts involve civil law, yet breach of contract potentially involves criminal penalties. The criminal penalties can include jail time for serious violations. Those of you who work in this area probably have attended or will attend a professional development seminar about contract compliance in which you learn the particulars of your contractual obligations.

Trend Developments in Business Law

The past 20 years have seen a rise in the criminalization of business law. While it’s still true that no one goes to prison for breaking the terms of a contract (notable exception: government contracting), there has been a marked increase in the number of business-related activities that carry possible criminal penalties.

Business activities that are punishable by criminal penalties (in addition to fines and damages) are known as white-collar crimes. Many of you are familiar with famous cases involving business people—Martha Stewart (ImClone), Kenneth Lay (Enron), Dennis Kozlowski (Tyco), and, of course, Bernie Madoff. Those businesspeople got themselves into the criminal justice system by committing fraud, lying to federal authorities, or otherwise invoking specific laws to deter commercial crimes such as insider trading of stock. The possible penalties for white-collar crime do include imprisonment as well as fines and damages.

When you see a businessperson in handcuffs doing the “perp walk,” ask yourself, “What law has allegedly been broken?” Typically, there will be a law (statute) or a regulation (e.g., Securities and Exchange Commission [SEC] rule) that allegedly has been transgressed.

Resources

· Court System

Learning Resource

Court System

What Is the Authority for the Federal and State Judicial Systems in the United States?

The authority for the federal and state judicial systems is found in the US and state Constitutions. Below is a breakdown of the courts as authorized under Articles I, II, and III of the US Constitution. State constitutions are modeled after the US Constitution and generally establish a similar court structure.

Federal System

Article I 

Article I of the Constitution creates the legislative branch of the federal government. Pursuant to the authorization of Article I, Congress has the authority to create inferior courts under the US Supreme Court. Also, Congress has the authority to create legislative courts and a limited ability to delegate law-making authority to other branches. The Supreme Court has ruled that Congress has the latitude to delegate regulatory powers to executive agencies as long as it provides an “intelligible principle” to govern the agency’s exercise of the delegated authority. As such, Congress delegates to the administrative agencies the responsibility for formulating regulations to effectuate and expand upon the statutes passed by Congress. These agencies, under the supervision of the executive branch, establish administrative courts to adjudicate disputes arising pursuant to agency regulations.

Ask Yourself

• How do you feel about Congress’ ability to delegate law-making authority? Have you ever thought about who drafts regulations surrounding a statute?
• Congress passes a federal act easing the restrictions on the sale of securities by private companies. Congress outlines the specific purposes of the Act, but fails to provide any procedural mechanisms for carrying out its function. Congress, in the Act, direct the Securities and Exchange Commission (an Independent federal Agency), to create regulations sufficient to carry out the statutory provisions. Where does Congress receive the authority to make this delegation and what statutory level of guidance is required to make this delegation constitutional?

Article II

Article II of the Constitution establishes the executive branch. It grants the president authority to preside over certain administrative agencies and legislative courts created by Congress. Many administrative agencies create special courts for the adjudication of disputes arising under its jurisdiction or within its regulatory authority. These administrative courts are known as “Article I courts” based upon their authorization. Legislative courts are courts of special jurisdiction created by Congress to hear special matters.

Article I courts include bankruptcy, military, tax, and immigration courts. Appeals from these special courts go to Article III courts.

Ask Yourself

• How do you feel about administrative agencies establishing their own courts? How do you feel about the executive branch overseeing administrative courts? Does the ability to appeal administrative decisions to an Article III court provide sufficient check on the executive branch’s authority?
• The Internal Revenue Service (IRS) is an executive agency under the purview of the president of the United States. John receives a letter from the IRS explaining that he has income tax liability far beyond what John believes is accurate. After disputing the IRS’s tax assessment John decides to bring a legal action in the US tax court challenging the tax amount. What is the authority of the US tax court and does it have authority to hear the matter of John’s tax assessment?

Article III

Article III of the Constitution holds, “The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.” The US Supreme Court is the only court specifically established by the Constitution. Congress has created several subordinate courts below the Supreme Court, which include the federal district courts, federal circuit courts, and numerous ancillary courts that have special jurisdiction. Pursuant to Articles I and II, all members of Article III courts and tribunals are appointed by the president and are confirmed by vote of the Senate.

Ask Yourself

• Can you think of any reasons why Congress decided to create numerous courts that are subordinate to the Supreme Court? How do you feel about the right of the president to nominate judges? How do you feel about the requirement that the Senate approve judicial nominees? Can you recall any instances where the Senate has refused to confirm a presidential nominee to a federal court?
• At the end of the year, it is expected that there will be approximately 150 federal judgeships open. The president of the United States has assembled a list of nominees for the positions. His list is very well planned and all of the candidates have the appropriate credentials for the position. Can the president rest assured that all of his nominees will receive the nominated judicial position?

Article IV

Article IV courts are US territorial courts, such as those of Guam, Northern Mariana Islands, and the US Virgin Islands, established under the Territory Clause of Article IV.

Ask Yourself

• Think about the formation of courts in these jurisdictions. These are not states and, therefore, Congress must act to establish courts with jurisdiction over these protectorates. How do you feel about territories of the United States that are not represented in the federal government, but are subject to federal jurisdiction?
• In the US territory of Guam, Hanna is the victim of a crime when someone steals her automobile. What laws would be effected in this scenario and how would this situation differ from a similar occurrence in California?

State System

The US Constitution, pursuant to the Tenth Amendment, provides for both federal and state governments. While the US Constitution provides the authority for federal courts, a state’s constitutions provides the authority for state courts. Generally state constitutions follow a model that is very similar to that of the US Constitution and allow for judicial, legislative, and administrative courts.

Ask Yourself

• Why do you think state constitutions follow a structure that closely resembles that of the US Constitution? Is there any requirement for state judiciaries to function similarly to federal courts?
• What Is the Authority for Federal Courts?

Article I Federal Courts

Article I federal courts include legislative courts and administrative courts. Legislative courts are those created by Congress pursuant to authority granted under Article II to handle special jurisdictional matters. Administrative courts are those created to adjudicate disputes of a particular administrative agency.

Examples of legislative and administrative courts include the following: DC judiciary, DC Court of Appeals, DC Superior Court, US Court of Appeals for Armed Forces, (Several Military courts of Appeal), US Court of Appeals for Military Claims, Armed Services Board of Contract Appeals, Civilian Board of Contract Appeals, Board of Immigration Appeals, US Immigration Courts, Board of Patent Appeals and Interferences, Trademark Trial and Appeal Board, US Postal Service Board of Contract Appeals, US Court of Federal Claims, US Tax Court, US Bankruptcy Courts, Social Security Administration Office of Disability Adjudication and Review, US Merit Systems Protection Board, Board of Veterans’ Appeals, US Courts-Martial, Guantanamo Military Commissions, and US Court of Military Commission Review.

Ask Yourself

• Lawrence, a member of the US Army, is charged with deserting his unit at Fort Campbell, Kentucky. He is later apprehended by state police and extradited back to military control. The military decides to bring charges against him for the crime of desertion under the military code of justice. What is the authority for bringing criminal charges against Lawrence and who oversees the process?

Article III Federal Courts

Article III federal courts include the following:

• US Supreme Court—Article III of the Constitution establishes the US Supreme Court as the highest court in the land. It has “original jurisdiction” over certain matters, but serves almost entirely as an appellate court. It provides appellate review of the decisions of the highest state court and decisions from all federal appellate courts.
• federal appellate courts—These courts serve as the appellate courts for matters decided by judge or jury in the District Court. There are 13 federal appellate courts consisting of 11 enumerated US Circuit Courts of Appeal, the District of Columbia Circuit, and the Federal Circuit.
• ancillary federal courts—These are Article III federal courts with special authority and vested with specific jurisdiction by Congress. These ancillary courts include: US Foreign Intelligence Surveillance Court of Review; US Foreign Intelligence Surveillance Court; US Court of International Trade, and US Alien Terrorist Removal Court.
• district courts—These are the Article III trial courts for the federal system. There are approximately 94 district courts spread throughout the United States. They do not follow state boundaries; rather, they are positioned within pre-established federal jurisdictions. There are also courts of limited jurisdiction, known as federal magistrate courts, which exist in support of the federal district courts.

Ask Yourself

• Why do you think that there are such fewer federal trial and appellate courts than in the state court systems? How many cases does the US Supreme Court hear in a year? Does this number surprise you? Why or why not? What do you think is the reasoning behind the creation of special ancillary courts?
• Meredith is involved in a civil trial in the US District Court located in the state of Maryland. At the conclusion of the trial, she appeals the court’s decision to the appropriate appellate court. Which Circuit Court of Appeals would be charged with reviewing Meredith’s request for appeal?

Article IV Courts

Article IV courts are territorial courts specially created to act as the court of general jurisdiction in select federal jurisdictions. These courts have jurisdictions similar to that of a federal district courts; however, they also exercise subject-matter jurisdiction over matters typically reserved to state and local courts in a jurisdiction. These courts are designated to a specific circuit court of appeals for all appeals from the trial court.

With regard to appellate matters, the Virgin Islands district court falls under the 3rd Judicial Circuit Court of Appeals, while the district courts of Guam and the Mariana Islands fall under the 9th Circuit Court of Appeals.

Ask Yourself

· State governments generally create laws pursuant to its police power. The federal government generally creates laws pursuant to the Commerce Clause or taxing and spending power under the US Constitution. How do you feel about the creation of federal courts to hear matters traditionally controlled under state law?

What Types of Courts Exist in the State Judicial System?

State governments establish courts pursuant to Articles III and I of their respective state constitutions. The general structure for the state court system is outlined below.

Article I State Courts

All state constitutions allow for administrative state agencies to handle regulatory issues between citizens and the state government. These courts are structurally and operationally similar in nature to federal administrative courts. They fall under the state executive branch’s authority. Examples of state administrative courts include revenue (taxation), licensing, disability, employment, etc.

Article III State Courts

State Supreme Court

The State Supreme Court is generally the highest court in a state. In some states there is a different naming convention. In New York, for example, the highest court is the Court of Appeals. Nonetheless, the purpose of the highest state court is the same across all states. They review cases generally to ensure the correct or appropriate application of law  in accordance with the state’s constitution. Cases generally go before the Supreme Court via a writ of certiorari or pursuant to request for appeal by a losing party. This process is similar to that of the federal system. Some state cases have automatic appeal rights to the state Supreme Court. This is the case for all capital murder cases.

Appellate Court 

Many state judicial systems have an intermediate court of review. Not every state is big enough to have an intermediate appeals court. As such, appeals must go directly to the State Supreme Court. The function of the intermediate state court of appeals is similar to that of the Federal Circuit Court of Appeals. It reviews the decisions of lower courts based on their interpretation and application of law to the facts of the case – as present in the record of trial.

Superior Court

The superior court is generally the naming convention for the highest level of trial court in the state. That is, the superior trial court is the court with general jurisdiction empowered by the state constitution to hear any matter of state law. It is the trial court for the most serious offenses (criminal and civil). It will hear any cases falling outside of the jurisdiction of subordinate trial courts. These courts generally employ juries as triers of fact.

Intermediate Trial Court 

Nearly all states have an intermediate trial court that has limited jurisdiction over certain types of cases. This court will generally hear criminal cases involving charges that have a specified limit in the potential sentence if found guilty. Further, it will generally hear civil lawsuits that have a specific limit in the dollar amount in dispute or in controversy. These courts often have special limitations, such as no right to jury trial and special court rules. The geographic jurisdiction of the court is generally broken down by county or district.

Courts of Limited or Special Jurisdiction

Most states designate special courts to hear cases of a particular subject matter. This frees up the intermediate and superior trial courts to focus on criminal and civil trials that meet their jurisdictional requirements. Common examples of courts of limited jurisdiction include the following:

• municipal court—Municipal courts are courts of limited jurisdiction to handle local ordinance violations. The geographic jurisdiction is generally limited to within the city or town limits. Common municipal court cases include citations (tickets) based on speeding or noise violations.
• magistrate court (small-claims court)—This is a special court of limited jurisdiction to empowered to hear minor criminal offenses and small civil disputes. Magistrate court is important for small businesses. It handles much of the litigation between businesses and customers that falls within a jurisdictional limit (commonly $10-20K or less). The benefits of the magistrate court are that it generally has very informal court procedures and low court costs.
• probate courts—Probate courts handle matters involving death and estate administration. Specifically, the word probate signifies the process of administering an individual’s estate. The court may also hear matters of child welfare and related family matters, such as guardianship, adoption, etc.
• family courts—Some states have a designated court to handle family law matters. The primary subject- matter jurisdiction for these courts includes divorce, annulments, and spousal and child support disputes.
• courts of equity—Some states designate special equity courts that operate based on principles of fairness. These courts apply “equitable maxims,” rather than statutes, to reach a fair and just result. Most states have unified courts of law and equity and do not designate stand-alone courts of equity. Equity courts often hear civil disputes that do not involve the commission of a tort (such a mortgage default). They may act as a special form of mediator to certain disputes between individuals and businesses. States that have courts of equity include: Delaware, New Jersey, Mississippi, South Carolina, and Tennessee.
• business courts—States increasingly create a separate court or docket within the trial system to hear business law matters. These courts recognize the need to employ judges who are subject-matter experts in business principles.

Ask Yourself

• How do you feel about state’s developing such extensive courts of special jurisdiction? Do these special courts provide any advantages or disadvantages for parties appearing before them?

Licenses and Attributions

Business Law: An Introduction, by TheBusinessProfessor.com, Jason M. Gordon & Colleagues has been adapted with permission from Jason M. Gordon. © Business Professor, LLC.

Employment at Will

Employment at will is a doctrine of common law that allows either the employee or the employer to terminate an employment relationship at any time, for any reason, with or without notice, and even for a morally reprehensible reason, so long as the ending of the relationship does not fall into an exception to the employment-at-will doctrine.

Employment at will is the prevailing legal doctrine concerning employment relationship termination in 49 US states (not Montana). In the overwhelming majority of the United States, employment at will and its exceptions govern the rules by which one may legally terminate an employee.

The generally accepted exceptions to employment at will include

• express contract,
• implied contract,
• promissory estoppel,
• public policy violations, and
• good faith and fair dealing.

We discuss these five exceptions below.

Express Contract Exception

If an employer terminates an employee in violation of the terms of an express contract between the employer and employee, then the employee can sue the employer for breach of contract (and, in some states, wrongful termination).

For example, an employment contract guarantees that the employee will be employed by the employer for a definite duration of time, with cognizable boundaries, such as a “one-year period” or “for six months.” The employer terminates the employee before the stated period has expired, and that termination is not otherwise permitted by the contract.

Likewise, consider a case where an employment contract states that an employee can be terminated only “for cause” or “for just cause,” and the employee is terminated without cause.

Implied Contract Exception

Implied contracts are contracts created by the conduct of the parties, which include any representations or assurances made by the employer prior to or during the term of employment. In some states, an implied contract is an exception to the employment-at-will doctrine.

For example, if an employer provides an employee handbook to a new employee, the provisions in the handbook may be considered part of the contractual relationship. Often, such handbooks outline a procedure for performance review, discipline, and discharge of the employee. An employer who fails to live up to procedural obligations prior to discharging an employee could be liable.

Promissory Estoppel Exception

In many states, promissory estoppel acts as an exception to the employment-at-will doctrine. That is, when an employer makes a promise to an employee of employment or a period of employment, and the employee relies on that promise to his detriment, and it leads to injustice, then an employee may be able to have that promise enforced regardless of employment at will.

For example, John is offered a job with Widget Co. He discusses with Widget’s manager that, to take the job, he needs to move from California to New Jersey and give up an already lucrative position with benefits. The manager assures John that he will have gainful employment and a substantially larger income with Widget Co. for at least a year if he makes the move. In reliance on this promise, John quits his job and moves to New Jersey to begin work at Widget Co. After one week, John is laid off. Despite being an employee at will, John may be able to recover under the theory of promissory estoppel.

Public Policy Violations Exception

Most states in the United States prohibit an employer from firing an employee if the reason for the action violates some readily accepted public policy. This prohibition prevents an employer from terminating an employee for exercising a legal right, including a right contained in state and federal laws; or for failing to perform an illegal act for the employer.

Firing an employee for performing some public duty (showing up to jury duty), for exposing illegal conduct (such as reporting violation of some law to the employer or a government agency), or for exercising her rights as a US or state citizen (such as voting) are all against public policy.

This exception to employment at will encompasses the inability to terminate an employee if doing so would violate her state or federal statutory rights. If an employee is terminated because of her race, this may be a violation of Title VII of the Civil Rights Act of 1964, and so an otherwise at-will employee would have a claim against the employer for violating a federal statute.

Moreover, it is against public policy to terminate an employee for refusing to commit an illegal act, such as a crime.

Good Faith and Fair Dealing Exception

A minority of states impose upon the employer a duty to exercise good faith and fair dealing in regard to all employees. This doctrine, to varying degrees, means that an employer must treat an employee fairly in the decision to fire her. This generally means that an employer would violate these duties in firing an employee without due cause or justification.

The preceding five generally accepted exceptions to employment at will allow injured parties to seek recovery even in the face of the employment-at-will doctrine. As such, they limit the circumstances by which an employer can terminate an employee.

Licenses and Attributions

Business Law: An Introduction, by TheBusinessProfessor.com, Jason M. Gordon & Colleagues has been adapted with permission from Jason M. Gordon. © Business Professor, LLC.

Business Criminal Law

Criminal laws prohibit or require certain conduct such that violations of the laws would constitute an offense against the general public (society as a whole). Criminal law convictions may result in jail or prison sentences, fines (paid to the government), or, in some cases (in some states and federally), the death penalty.

The Constitution provides both state governments and the federal government with the power to pass and enforce criminal laws, and also places limitations and affirmative obligations on the government in relation to criminal defendants. That is, the Constitution sets the outermost boundaries of how the government can investigate, arrest, try, and sentence criminal defendants. The Constitution, through its Eighth Amendment, also sets the minimum requirements for the bail and prison conditions of criminal offenders.

Resources

• Receiving Stolen Property
• Criminal Law & Procedure

Receiving Stolen Property

All jurisdictions criminalize receiving stolen property to deter theft and to break up organized criminal enterprises that benefit from stealing and selling stolen goods. Criminal statutes on receiving stolen property are often targeted at pawnbrokers or fences who regularly buy and sell property that is the subject of one of the theft crimes. The Model Penal Code, a model law adopted by many states, includes receiving stolen property in its consolidated theft offense (Model Penal Code §§ 223.1, 223.6). Receiving stolen property has the elements of criminal act, criminal intent, attendant circumstances, causation, and harm.

Receiving Stolen Property Act

The criminal act element required for receiving stolen property in many jurisdictions is receiving, retaining, disposing of (Ala. Code § 13A-8-16, 2011), selling (Cal. Penal Code § 496, 2011), trafficking in (Fla. Stat. Ann. § 812.019, 2011), buying, or aiding in concealment (Mass. Gen. Laws ch. 266 § 60) of stolen personal property. The Model Penal Code defines the criminal act element as receiving, retaining, or disposing of stolen movable property (Model Penal Code § 223.6(1)). The criminal act does not generally require the defendant to be in actual physical possession of the property, as long as the defendant retains control over the item(s) (Ga. Code § 16-8-7, 2011). This would be a constructive possession. The Model Penal Code defines receiving as “acquiring possession, control or title, or lending on the security of the property” (Model Penal Code § 223.6(1)). Note that the criminal act element of receiving stolen property includes both buying and selling. Thus dealers that regularly purchase and then sell stolen items can be prosecuted for both of these acts under the same statute.

Example of Receiving Stolen Property Act

Chanel, a fence who deals in stolen designer perfume, arranges a sale between one of her thieves, Burt, and a regular customer, Sandra. Chanel directs Burt to drop off a shipment of one crate of the stolen perfume at Chanel’s storage facility and gives Burt the key. Chanel pays Burt five thousand dollars for the perfume delivery. Chanel thereafter accepts a payment of ten thousand dollars from Sandra and gives Sandra another key with instructions to pick up the perfume the next day after it has been delivered. Chanel could probably be charged with and convicted of receiving stolen property in most jurisdictions. Although Chanel did not ever acquire actual possession of the stolen designer perfume, Chanel had control over the property or constructive possession through her storage facility. Chanel’s acts of buying the perfume for five thousand dollars and then selling it for ten thousand dollars both would be criminalized under one statute in many jurisdictions. Chanel could be prosecuted for both acts as separate charges of receiving stolen property.

Receiving Stolen Property Intent

The criminal intent element required for receiving stolen property has two parts. First, the defendant must have the intent to commit the criminal act, which could be specific intent or purposely, general intent or knowingly, recklessly, or negligently to either buy-receive or sell-dispose of stolen personal property, depending on the jurisdiction. This means that the defendant must have actual knowledge that the property is stolen (Mass. Gen. Laws ch. 266 § 60, 2011), or the defendant must be aware or should be aware of a risk that the property is stolen (Ala. Code § 13A-8-16(a), 2011). The Model Penal Code requires the defendant to purposely commit the act knowing that the property is stolen or believing that the property has probably been stolen (Model Penal Code § 223.6(1)). The Model Penal Code also provides a presumption of knowledge or belief when the defendant is a dealer, which is defined as a “person in the business of buying or selling goods, including a pawnbroker,” and has been found in possession or control of property stolen from two or more persons on more than one occasion, or has received stolen property in another transaction within the year preceding the transaction charged, or acquires the property for consideration far below its reasonable value (Model Penal Code § 223.6(2)). Many state statutes have a similar provision (Ala. Code § 13A-8-16, 2011).

The second aspect of criminal intent for receiving stolen property is the defendant’s specific intent or purposeful desire to deprive the victim of the property permanently, which is required in some jurisdictions (Hawaii Criminal Jury Instructions No. 10.00, 10.20, 2011). This creates a failure of proof or affirmative defense that the defendant received and retained the stolen property with the intent to return it to the true owner (Ga. Code § 16-8-7(a), 2011). The Model Penal Code also provides a defense if “the property is received, retained, or disposed of with purpose to restore it to the owner” (Model Penal Code § 223.6(1)).

 

Example of Receiving Stolen Property Intent

Chip’s iPod breaks, so he decides to go to the local electronics store and buy a new one. As he is approaching the store, Heather saunters over from a nearby alley and asks him if he wants to buy a brand new iPod for ten dollars. Suspicious of the price, Chip asks Heather to see the iPod. She hands it to him, and he notices that the box looks like it has been tampered with and a price tag removed. He shrugs, takes ten dollars out of his wallet, and hands it to Heather in exchange for the iPod. In jurisdictions that require actual knowledge that the property is stolen, Chip probably does not have the appropriate criminal intent for receiving stolen property because he did not know Heather and had no way of knowing if Heather was selling him stolen property. In jurisdictions that require awareness of a risk that the property is stolen, Chip may have the appropriate criminal intent because he knew the price was too low and noticed that the box had been tampered with to remove evidence of an actual price or vendor.

Change the example so that Chip is a pawnshop broker, and Heather brings the iPod into his shop to pawn for the price of ten dollars. In many jurisdictions, if Chip accepts the iPod to pawn, this creates a presumption of receiving stolen property criminal intent. Chip is considered a dealer, and in many jurisdictions, dealers who acquire property for consideration that they know is far below the reasonable value are subject to this type of presumption.

Change the example again so that Chip notices the following message written on the back of the iPod box: “This iPod is the property of Eugene Schumaker.” Chip is Eugene Schumaker’s friend, so he pays Heather the ten dollars to purchase the iPod so he can return it to Eugene. In many jurisdictions and under the Model Penal Code, Chip can use his intent to return the stolen property to its true owner as a failure of proof or affirmative defense to receiving stolen property.

Licenses and Attributions

4.6 SWOT Analysis from Mastering Strategic Management by the University of Minnesota Libraries Publishing is an adaptation of a work whose original author and publisher request anonymity and is available under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International license. © 2015, University of Minnesota.

Criminal Law and Procedure

Criminal law is public law passed by the federal, state, or local government. It restricts or requires affirmative conduct of its citizens under the threat of prosecution. These prohibitions may be in the form of a statute, common law rule, regulatory rule or decision, or local ordinance. Criminal laws prohibit conduct that is either considered malum in se or malum prohibitum:

• Malum in se  means that conduct is inherently wrong without regard to a statute proscribing the conduct. For example, most people consider murder and theft to be innately wrong or evil without regard to a government’s prohibition of the conduct.
• Malum prohibitum  means that conduct is not necessarily wrong or evil, but it is made illegal based upon a law. For example, a public company’s failure to adequately disclose corporate information to the public is made illegal by statute. Without such a statute, it may not be considered inherently wrong.

The authority for each type of law may differ, but generally criminal laws are enforced by the government and exist to protect the health, safety, and welfare of citizens. This includes protecting the property and rights of those citizens. Failing to comply with criminal laws can result in fines or imprisonment.

Ask Yourself

• Do you generally believe that criminal laws are effective at curbing prohibited conduct? Do they effectively protect the health, safety, and welfare of citizens? Does a criminal penalty ever violate the purpose of protecting citizens? With the prison population at record levels in the US, is there a need to reform the criminal punishment system? If so, what are some alternatives that may achieve a similar purpose to the penalty of imprisonment?
• Explain the primary differences between criminal law and civil law?
• What Are the Elements of a Crime?
• Every crime is composed of certain elements. Common among all crimes are the physical and mental characteristic of the defendant in failing to comply with the criminal law.

Actus Reus

Actus reus is a latin phrase meaning “guilty act.” This element simply means that the individual committed the act proscribed by the statute. In some cases a threat to act or a failure to act constitutes the crime. In any event, the defendant must be responsible for that action or inaction.

For example, if an individual is involuntarily intoxicated, this may negate the actus reus. If someone slips drugs in a person’s drink unknowingly, it may excuse the voluntary act required to find a person guilty of a criminal offense. That is, she may not have the control over her physical actions necessary to satisfy the actus reus. The act of voluntary intoxication, however, will not excuse the actus reus. Voluntarily drinking or taking medications is a sufficient act.

Mens Rea

Mens rea is a latin phrase meaning a “guilty mind.” This generally means that there must be some mental intent to commit the act that is wrongful under the law.