Law as facilitator of business:

1

• Law as facilitator of business
• Property rights
• Enforcement of contracts
• Provider of public goods
• Law as constraint on business
• Liability risk (noncontractual liability
  noncompliance liability)
• Change in law (political risk)

2
Noncontractual Liability
3
Noncontractual Liability XYZ Corp. makes auto
body parts. It has manufacturing and
distribution operations in Canada, Germany, and
Chile. What sorts of liability risks might XYZ
face?
4

• Liability Risks
• wrongdoing
• Noncompliance
• Civil vs. criminal

5
When should a business firm be held civilly
(i.e., noncriminally) liable for the acts of its
employees?

• XYZ Co. manufactures widgets. 3 scenarios
• John, a foreman in the manufacturing plant, fails
  to follow government workplace safety standards,
  causing a visitor to the plant to be injured.

6

• XYZ Co. manufactures widgets. 3 scenarios
• After work, John, a foreman in the manufacturing
  plant, gets drunk at a bar and punches Jim (a
  customer at the bar), injuring him.

• John, a foreman in the manufacturing plant, fails
  to follow XYZ Co.s production standards,
  producing inferior parts, which injure buyers.

7
Sources of Company Liability Civil Criminal
Contractual Noncontractual Private law
Regulation Statute Regulation
8
Noncontractual Liability
9
Noncontractual Liability
10

• Private noncontractual liability Fault-based
  rationales for imposing liability
• Intentional wrongdoing
• Negligent or reckless wrongdoing
• Strict liability

11

• Private noncontractual civil liability
• Action causing physical injury individual
  wrongdoer
• E.g., Battery, trespass, false imprisonment, etc.
• Negligence ? car accident
• Dangerous activities
• Action causing economic injury business
  wrongdoer
• E.g., False advertising, Inducing breach of
  contract
• Negligence
• Products Liability, dangerous activities

12

• Noncontractual Civil Liability
• Nonfault-based rationales for imposing liability
• Compensate injury (common law of torts/statutes)
• Regulation achieving a public purpose
  protection of public health and welfare
• Remedies imposed by courts
• Damages
• statutory schedule (salary-based) vs. jury
  decision
• Compensatory / consequential / punitive
• Mandatory

13

• When should business be civilly liable for acts
  of an employee or agent?
• Business firms as legal persons or
  undertakings
• Principal-agent theory
• Business firm structure
• Sole proprietorship and partnership
• Corporation
• LLP

14
Noncontractual Liability
15

• Noncontractual Civil Liability
• Imputing employee responsibility to business
  vicarious liability and respondeat superior
• Company liability for actions of an employee if
  undertaken within the scope of his/her
  employment
• Scope of employment vs. following orders

16

• Criminal Liability
• What is the difference between civil liability
  and criminal liability?
• When criminal punishment appropriate? Why do
  governments impose criminal punishment for some
  violations and not for others?
• Traditionally, what distinguishes criminal
  wrongdoing from the wrongdoing we punish with
  only civil sanctions.

17

• Criminal Liability
• Actus reus guilty act
• Act or omission
• act ? attempt / conspiracy crimes
• Mens rea guilty mind
• Felonies vs. misdemeanors

18

• What is criminal intent?
• Knowing that what you are doing is illegal?
  Wrong? I know I am supposed to have a permit for
  this gun, but I dont get one.
• Knowingly doing something that the law defines as
  illegal? I bought a gun without getting the
  required permit.
• Defenses to criminal liability are based upon the
  defendants intent
• Insanity justification (self defense)

19
Can businesses be held criminally liable as legal
persons? If so, for whose acts is the
organization responsible? Can businesses have a
guilty state of mind? How? Can businesses be
punished criminally? How?
20
Businesses and Criminal Liability 1. If business
organizations be criminally liable, for whose
acts is the organization responsible?

• Arthur Andersen case partnership (not
  corporation)
• Should entire firm be prosecuted for the criminal
  behavior (i.e., criminal violation of SEC rules)
  of a small subset of partners?
• Judges jury instructions
• Is this typical? Were these partners acting on
  behalf of the firm? Would Andersen have been
  criminally prosecuted in other countries?

21
Businesses and Criminal Liability Hilton Hotels
case Co. policy and manager directed purchasing
agent not to participate in illegal boycott.
Court Better rule is strict vicarious liability
because violations (and individual violator) are
hard to determine, and violations benefit
company. Is this typical? Was this employee
acting on behalf of the firm? Would Hilton have
been criminally prosecuted in other countries?
22
Businesses and Criminal Liability Hilton Hotels
case Co. policy and manager directed purchasing
agent not to participate in illegal boycott.
Court Better rule is strict vicarious liability
because violations (and individual violator) are
hard to determine, and violations benefit
company. Is this typical? Was this employee
acting on behalf of the firm? Would Hilton have
been criminally prosecuted in other countries?
23

• Businesses and Criminal Liability
• Can individual managers within a business be held
  criminally liable for acts committed by
  subordinates?

U.S. v. Park
24

• Businesses and Criminal Liability
• Can individual managers within a business be held
  criminally liable for acts committed by
  subordinates?

U.S. v. Park After first violation, CEO
directed trusted subordinates to fix problem,
but violations persisted. Court CEO had a duty
and the power to prevent further violations, and
it is fair to impose liability on these
responsible corporate officers even if they did
not commit or direct the act in question or have
prior knowledge of it. Misdemeanors only?
25
Noncontractual Liability
26
What can/should managers do to protect themselves
and the company from criminal liability?