BLAW Exam 3

Ch.44

Consumer Law

Ch.45

Environmental Protection

Ch.47

Professional Liability and Accountability

Ethical Leadership

leader behaviors that reflect high ethical standards Primary responsibility of a company

Goals of Bankruptcy Law

1)To protect a debtor by giving him or her a fresh start without creditors' claims. 2)To ensure equitable treatment of creditors who are competing for a debtor's asset •The bankruptcy laws attempt to balance the rights of the debtor and creditors •More of a shift to requiring more consumers to pay as many of their debts as possible instead of those debts being fully extinguished. ▫Need to pay something

Remedies for Violations

A credit reporting agency that fails to comply with the act is liable for actual damages, plus additional damages not to exceed $1,000 and attorneys' fees. Creditors and other companies that use information from credit reporting agencies may also be liable for violations of the FCRA. The United States Supreme Court has held that an insurance company's failure to notify new customers that they were paying higher insurance rates as a result of their credit scores was a willful violation of the FCRA.

Preemption

A defense that has been successfully raised by defendants in recent years is preemption—that government regula- tions preempt claims for product liability (see Spotlight Case 7.2). An injured party may not be able to sue the manufacturer of defective products that are subject to comprehensive federal regulatory schemes.

Authority to Regulate Greenhouse Gases

A growing concern among many scientists and others around the world is that greenhouse gases, such as carbon dioxide (CO2), contribute to climate change. The Clean Air Act, as amended, however, does not specifically mention CO2 emissions. Therefore, the EPA did not regulate CO2 emissions from motor vehicles until 2009, after the Supreme Court ruled that it had the authority to do so. The EPA later concluded that greenhouse gases, including CO2 emissions, do constitute a public danger. In fact, in 2015, the EPA started regulating greenhouse gas emissions from airplanes.

The Truth-in-Lending Act

A key statute regulating the credit and credit-card industries is the Truth-in-Lending Act (TILA), the name commonly given to Title I of the Consumer Credit Protection Act, as amended.25 The TILA is basically a disclosure law. It is administered by the Federal Reserve Board and requires sellers and lenders to disclose credit terms and loan terms so that individuals can shop around for the best financing arrangements.

The Fair Debt Collection Practices Act

A law that protects consumers from abusive practices by creditors and collection agencies The Fair Debt Collection Practices Act (FDCPA)attempts to curb perceived abuses by collection agencies. The act applies only to specialized debt-collection agencies and attorneys who regularly attempt to collect debts on behalf of someone else, usually for a percentage of the amount owed. Creditors attempting to collect debts are not covered by the act unless, by misrepresenting themselves, they cause debtors to believe they are collection agencies.

Fraudulent Misrepresentation

A misrepresentation leads another to believe in a condition that is different from the condition that actually exists. Although persons sometimes make misrepresentations accidentally because they are unaware of the existing facts, the tort of fraudulent misrepresentation (fraud), involves intentional deceit for personal gain. The tort includes several elements: 1)A misrepresentation of material facts or conditions with knowledge that they are false or with reckless disregard for the truth. 2)An intent to induce another party to rely on the misrepresentation. 3)A justifiable reliance on the misrepresentation by the deceived party. 4)Damages suffered as a result of that reliance. 5)A causal connection between the misrepresentation and the injury suffered. For fraud to occur, more than mere puffery, or seller's talk, must be involved. Fraud exists only when a person represents as a fact something he or she knows is untrue. For instance, it is fraud to claim that the roof of a building does not leak when one knows that it does. Facts are objectively ascertainable, whereas seller's talk (such as "I am the best accountant in town") is not, because the use of the word best is subjective.

Labeling and Packaging Laws

A number of federal and state laws deal specifically with the information given on labels and packages. In general, labels must be accurate, and they must use words that are easily understood by the ordinary consumer. In some instances, labels must specify the raw materials used in the product, such as the percentage of cotton, nylon, or other fiber used in a garment. In other instances, the product must carry a warning, such as those required on cigarette packages and advertising.

Sales

A number of statutes protect consumers by requiring the disclosure of certain terms in sales transactions and providing rules governing unsolicited merchandise. The FTC has regulatory authority in this area, as do some other federal agencies. Many states and the FTC have "cooling-off" laws that permit the buyers of goods sold door to door to cancel their contracts within three business days. The FTC rule also requires that consumers be notified in Spanish of this right if the oral negotiations for the sale were in that language. The contracts that fall under these cancellation rules include trade show sales contracts, contracts for home equity loans, Internet purchase contracts, and home (door-to-door) sales contracts. In addition, certain states have passed laws allowing consumers to cancel contracts for dating services, gym memberships, and weight loss programs.

Invasion of Privacy

A person has a right to solitude and freedom from prying public eyes—in other words, to privacy. The courts have held that certain amendments to the U.S. Constitution imply a right to privacy. Some state constitutions explicitly provide for privacy rights, as do a number of federal and state statutes. Tort law also safeguards these rights through the tort of invasion of privacy. Generally, to sue successfully for an invasion of privacy, a person must have a reasonable expectation of privacy, and the invasion must be highly offensive.

Defenses to Wrongful Interference

A person will not be liable for the tort of wrongful interference with a contractual or business relationship if it can be shown that the interference was justified or permissible. Bona-fide competitive behavior—such as marketing and advertising strategies—is a permissible interference even if it results in the breaking of a contract.

Compensatory Damages

A plaintiff is awarded compensatory damages to compensate or reimburse the plaintiff for actual losses. Thus, the goal is to make the plaintiff whole and put her or him in the same position that she or he would have been in had the tort not occurred. Compensatory damages awards are often broken down into special damages and general damages. Special Damages-compensate the plaintiff for quantifiable monetary losses, such as medical expenses and lost wages and benefits (now and in the future). Special damages might also be awarded to compensate for extra costs, the loss of irreplaceable items, and the costs of repairing or replacing damaged property. General Damages-compensate individuals (not companies) for the nonmonetary aspects of the harm suffered, such as pain and suffering. A court might award general damages for physical or emotional pain and suffering, loss of companionship, loss of consortium (losing the emotional and physical benefits of a spousal relation- ship), disfigurement, loss of reputation, or loss or impairment of mental or physical capacity.

Assumption of Risk

A plaintiff who voluntarily enters into a risky situation, knowing the risk involved, will not be allowed to recover. This is the defense of assumption of risk, which requires two elements: 1)Knowledge of the risk. 2)Voluntary assumption of the risk

Inadequate Warnings

A product may also be deemed defective because of inadequate instructions or warnings. A product will be considered defective "when the foreseeable risks of harm posed by the product could have been reduced or avoided by the provision of reasonable instructions or warnings by the seller or other distributor . . . and the omission of the instruc- tions or warnings renders the product not reasonably safe."10 Generally, a seller must also warn consumers of the harm that can result from the foreseeable misuse of its product. Important factors for a court to consider include the risks of a product, the "content and comprehensibility" and "intensity of expression" of warnings and instructions, and the "characteristics of expected user groups."11 Courts apply a "reasonable- ness" test to determine if the warnings adequately alert consumers to the product's risks. For instance, children will likely respond readily to bright, bold, simple warning labels, whereas educated adults might need more detailed information. There is no duty to warn about risks that are obvious or commonly known. Warnings about such risks do not add to the safety of a product and could even detract from it by making other warnings seem less significant. As will be discussed later in the chapter, the obviousness of a risk and a user's decision to proceed in the face of that risk may be a defense in a product liability suit based on an inadequate warning.

Actual Fraud

A professional may be held liable for actual fraud when (1) he or she intentionally misstates a material fact to mislead a client and (2) the client is injured as a result of justifiably relying on the misstated fact. A material fact is one that a reasonable person would consider important in deciding whether to act. Among other penalties, an accountant guilty of fraudulent conduct may suffer penalties imposed by a state board of accountancy.

Constructive Fraud

A professional may sometimes be held liable for constructive fraud whether or not he or she acted with fraudulent intent. Constructive fraud may be found when a professional is grossly negligent in performing his or her duties.

Knowledgeable User

A related defense is the knowledgeable user defense. If a particular danger (such as electrical shock) is or should be commonly known by particular users of a product (such as electricians), the manufacturer need not warn these users of the danger.

Application of Strict Liability to Product Liability

A significant application of strict liability is in the area of product liability—liability of manufacturers and sellers for harmful or defective products. Liability here is a matter of social policy and is based on two factors: 1)The manufacturer can better bear the cost of injury because it can spread the cost throughout society by increasing the prices of its goods. 2)The manufacturer is making a profit from its activi- ties and therefore should bear the cost of injury as an operating expense. Strict liability is also applied in certain types of bailments (a bailment exists when goods are transferred temporarily into the care of another).

The "Reasonably Foreseeable Users" Rule

A small minority of courts hold accountants liable to any users whose reliance on an accountant's statements or reports was reasonably foreseeable. This standard has been criticized as extending liability too far and exposing accountants to massive liability. The majority of courts have concluded that the Restatement's approach is more reasonable because it allows accountants to control their exposure to liability. Liability is "fixed by the accountants' particular knowledge at the moment the audit is published," not by the foreseeability of the harm that might occur to a third party after the report is released.

Trespass to Land

A trespass to land occurs when a person, without per- mission, does any of the following: 1)Enters onto, above, or below the surface of land that is owned by another. 2)Causes anything to enter onto land owned by another. 3)Remains on land owned by another or permits any- thing to remain on it. Actual harm to the land is not an essential element of this tort, because the tort is designed to protect the right of an owner to exclusive possession. Common types of trespass to land include walking or driving on another's land, shooting a gun over another's land, and throwing rocks at a building that belongs to someone else. Another common form of trespass involves constructing a building so that part of it extends onto an adjoining landowner's property. Before a person can be a trespasser, the real property owner (or another person in actual and exclusive possession of the property, such as a renter) must establish that person as a trespasser. For instance, "posted" trespass signs expressly establish as a trespasser a person who ignores these signs and enters onto the property. A guest in your home is not a trespasser, unless he or she has been asked to leave and refuses. Any person who enters onto another's property to commit an illegal act (such as a thief entering a lumberyard at night to steal lumber) is impliedly a trespasser, with or without posted signs. At common law, a trespasser is liable for any damage caused to the property and generally cannot hold the owner liable for injuries that the trespasser sustains on the premises. This common law rule is being modified in many jurisdictions, however, in favor of a reasonable duty of care rule that varies depending on the status of the parties. For instance, a landowner may have a duty to post a notice that guard dogs patrol the property. Also, if young children are attracted to the property by some object, such a swimming pool or a sand pile, and are injured, the landowner may be held liable (under the attractive nuisance doctrine). Still, an owner can normally use reasonable force to remove a trespasser from the premises or detain the trespasser for a reasonable time without liability for damages. One defense to a claim of trespass is to show that the trespass was war- ranted, such as when a trespasser enters a building to assist someone in danger. Another defense exists when the trespasser can show that she or he had a license to come onto the land. A licensee is one who is invited (or allowed to enter) onto the property of another for the licensee's benefit. A person who enters another's property to read an electric meter, for example, is a licensee. When you purchase a ticket to attend a movie or sporting event, you are licensed to go onto the property of another to view that movie or event. Note that licenses to enter onto another's property are revocable by the property owner. If a property owner asks an electric meter reader to leave and she or he refuses to do so, the meter reader at that point becomes a trespasser.

Accountant's Duty of Care

Accountants play a major role in a business's financial system. Accountants have the expertise and experience necessary to establish and maintain accurate financial records, and to design, control, and audit record-keeping systems. They also prepare reliable statements reflecting an individual's or a business's financial status, give tax advice, and prepare tax returns. Generally, an accountant is expected to possess the skills that an ordinarily prudent accountant would have and to exercise the degree of care that an ordinarily prudent accountant would exercise. The level of skill expected of accountants and the degree of care that they should exercise in performing their services are reflected in the standards discussed next.

Ch.43

Administrative Agencies

Administrative Agencies Exist at All Levels of Government

Administrative agencies are spread throughout the government. Federal Level-At the federal level, the Securities and Exchange Commission regulates a firm's capital structure and financing, as well as its financial reporting. The National Labor Relations Board oversees relations between a firm and any unions with which it may deal. The Equal Employment Opportunity Commission also regulates employer-employee relationships. The Environmental Protection Agency and the Occupational Safety and Health Administration affect the way a firm manufactures its products, and the Federal Trade Commission influences the way it markets those products. State/Local Level-There are administrative agencies at the state and local levels as well. Commonly, a state agency (such as a state pollution-control agency) is created as a parallel to a federal agency (such as the Environmental Protection Agency). Just as federal statutes take precedence over conflicting state statutes, so do federal agency regulations take precedence over conflicting state regulations. Because the rules of state and local agencies vary widely, we focus here exclusively on federal administrative law. Agencies Provide a Comprehensive Regulatory Scheme-Often, administrative agencies at various levels of government work together and share the responsibility of creating and enforcing particular regulations. The Cost of Business to be in Compliance-Legislation and regulations have significant benefits—in the example of the Clean Air Act, a cleaner environment than existed in decades past. At the same time, these benefits entail considerable costs for business. The EPA has estimated the costs of compliance with the Clean Air Act at many tens of billions of dollars yearly. Although the agency has calculated that the overall benefits of its regulations often exceed their costs, the burden on business is substantial. Business therefore has a strong incentive to try to influence the regulatory environment through lobbying(seeking to influence)

Agency Powers and the Constitution

Administrative agencies occupy an unusual niche in the U.S. governmental structure, because they exercise powers that normally are divided among the three branches of government. Agencies' powers include functions associated with the legislature (rulemaking), the executive branch (enforcement), and the courts (adjudication). e constitutional principle of checks and balances allows each branch of government to act as a check on the actions of the other two branches. Furthermore, the U.S. Constitution authorizes only the legislative branch to create laws. Yet administrative agencies, to which the Constitution does not specifically refer, can make legislative rules, or substantive rules, that are as legally binding as laws that Congress passes. Administrative agencies also issue interpretive rules, which simply declare policy and do not affect legal rights or obligations.

Claims That Appear to Be Based on Factual Evidence

Advertising that appears to be based on factual evidence but, in fact, is not reasonably supported by evidence will be deemed deceptive.

Areas of consumer law that are regulated by federal statutes

Advertising—The Federal Trade Commission Act Labeling and Packaging-The Fair Packaging and Label Act Sales-The FTC Mail Order Rule Credit Protection-The Consumer Credit Protection Act Product Safety-The Consumer Product Safety Act Food and Drugs-The Federal Food,Drug, and Cosmetic Act

Adjudication

After conducting an investigation of a suspected rule violation, an agency may initiate an administrative action against an individual or organization. Most administrative actions are resolved through negotiated settlements at their initial stages. Sometimes, though, an action ends in formal adjudication—the resolution of the dispute through a hearing conducted by the agency.

The Requirements for Strict Product Liability

After the Restatement (Second) of Torts was issued in 1964, Section 402A became a widely accepted statement of how the doctrine of strict liability should be applied to sellers of goods (including manufacturers, processors, assemblers, packagers, bottlers, wholesalers, distributors, retailers, and lessors). The bases for an action in strict liability that are set forth in Section 402A can be summarized as a set of six requirements. 1. The product must be in a defective condition when the defendant sells it. 2. The defendant must normally be engaged in the business of selling (or otherwise distributing) that product. 3. The product must be unreasonably dangerous to the user or consumer because of its defective condition (in most states). 4. The plaintiff must incur physical harm to self or prop- erty by use or consumption of the product. 5. The defective condition must be the proximate cause of the injury or damage. 6. The goods must not have been substantially changed from the time the product was sold to the time the injury was sustained. Depending on the jurisdiction, if these requirements are met, a manufacturer's liability to an injured party can be almost unlimited. Under these requirements, in any action against a manufacturer, seller, or lessor, the plaintiff need not show why or in what manner the product became defective. The plaintiff does, however, have to prove that the product was defective at the time it left the hands of the seller or lessor. The plaintiff must also show that this defective condition made the product "unreasonably dangerous" to the user or consumer.

The Final Rule

After the agency reviews the comments, it drafts the final rule and publishes it in the Federal Register. A final rule must contain a "concise general statement of . . . basis and purpose" that describes the reasoning behind the rule.7 The final rule can include modifications based on the public comments. If substantial changes are made, however, a new proposal and a new opportunity for comment are required. The final rule is later compiled along with the rules and regulations of other federal administrative agencies in the Code of Federal Regulations. Final rules have binding legal effect unless the courts later overturn them. If an agency fails to follow proper rulemaking procedures, the resulting rule may not be binding.

The Hearing

Agency adjudication may involve a trial- like arbitration procedure before an administrative law judge (ALJ). The Administrative Procedure Act (APA) requires that before the hearing takes place, the agency must issue a notice that includes the facts and law on which the complaint is based, the legal authority for the hearing, and its time and place.

The Administrative Process

All federal agencies must follow specific procedural requirements as they go about fulfilling their three basic functions: rulemaking, enforcement, and adjudication. These three functions make up what is known as the administrative process. As mentioned, the APA imposes requirements that all federal agencies must follow in the absence of contrary provisions in the enabling legislation. This act is an integral part of the administrative process.

Contributory Negligence

All individuals are expected to exercise a reasonable degree of care in looking out for themselves. In the past, under the common law doctrine of contributory negligence, a plaintiff who was also negligent (who failed to exercise a reasonable degree of care) could not recover anything from the defendant. Under this rule, no matter how insignificant the plaintiff's negligence was relative to the defendant's negligence, the plaintiff would be precluded from recovering any damages. Today, only a few jurisdictions still follow this doctrine.

Federal, State, and Local Regulations

All levels of government in the United States regulate some aspect of the environment.

Protection of Health and Safety

Although labeling and packaging laws promote consumer health and safety, there is a significant distinction between regulating the information dispensed about a product and regulating the actual content of the product. The classic example is tobacco products. Producers of tobacco products must use labels that warn consumers about the health hazards associated with their use, but the sale of tobacco products has not been subjected to significant restrictions. We now examine various laws that regulate the actual products made available to consumers.

Enforcement

Although rulemaking is the most prominent agency activity, rule enforcement is also critical. Often, an agency enforces its own rules. After a final rule is issued, agencies conduct investigations to monitor compliance with the rule or the terms of the enabling statute. An agency investigation of this kind might begin when the agency receives a report of a possible violation. In addition, many agency rules require compliance reporting from regulated entities, and such a report may trigger an enforcement investigation.

Global Accounting Rules

Although the United States has used the GAAP standards for many years, they are being replaced by global accounting rules. The Securities and Exchange Commission (SEC) now requires U.S. companies to use global accounting rules for all financial reports filed with the SEC. These rules, known as Inter- national Financial Reporting Standards (IFRS), are established by the London-based International Accounting Standards Board. The SEC decided to replace GAAP with IFRS for several reasons. GAAP are rule based, whereas IFRS focus more on general principles. As a result, GAAP are very detailed and fill nearly 25,000 pages. IFRS are simpler, more straightforward, and shorter, filling only 2,500 pages. Consequently, companies should find it less difficult to comply with IFRS. Another benefit is that investors will find it easier to make cross-country comparisons between the financial statements of, say, a technology company in Silicon Valley and one in Japan. Furthermore, having uniform accounting rules that apply to all nations makes sense in a global economy. The members of the European Union and more than one hundred other nations—including nearly all of the trading partners of the United States—use IFRS.

Amendments to Credit-Card Rules

Amendments to the TILA's credit-card rules added the following protections: 1)A company may not retroactively increase the inter- est rates on existing card balances unless the account is sixty days delinquent. 2)A company must provide forty-five days' advance notice to consumers before changing its credit-card terms. 3)Monthly bills must be sent to cardholders twenty- one days before the due date. 4)The interest rate charged on a customer's credit-card balance may not be increased except in specific situations, such as when a promotional rate ends. 5)A company may not charge over-limit fees except in specified situations. 6)When the customer has balances at different interest rates, payments in excess of the minimum amount due must be applied first to the balance with the highest rate. (For instance, a higher interest rate is commonly charged for cash advances.) 7)A company may not compute finance charges based on the previous billing cycle (a practice known as double-cycle billing). This practice hurts consumers because they are charged interest for the previous cycle even if they have paid the bill in full.

The Role of the Administrative Law Judge

An ALJ presides over the hearing and has the power to administer oaths, take testimony, rule on questions of evidence, and make determinations of fact. Technically, the ALJ, who works for the agency prosecuting the case, is not an independent judge. Nevertheless, the law requires an ALJ to be unbiased. Certain safeguards prevent bias on the part of the ALJ and promote fairness in the proceedings. For instance, the APA requires that the ALJ be separate from an agency's investigative and prosecutorial staff. The APA also prohibits ex parte (private) communications between the ALJ and any party to an agency proceeding, including the agency and the company involved. Finally, provisions of the APA protect the ALJ from agency disciplinary actions unless the agency can show good cause for such an action.

Discovering Improprieties

An accountant is not required to discover every impropriety, defalcation (embezzlement), or fraud in a client's books. If, however, an impropriety goes undiscovered because of the accountant's negligence or failure to perform a duty, the accountant will be liable for any resulting losses suffered by the client. Therefore, an accountant who uncovers suspicious financial transactions and fails to investigate the matter fully or to inform the client of the discovery can be held liable to the client for the resulting loss.

Potential Criminal Liability of Accountants

An accountant may be found criminally liable for violations of securities laws and tax laws. In addition, most states make it a crime to (1) knowingly certify false reports, (2) falsify, alter, or destroy books of account, and (3) obtain property or credit through the use of false financial statements. •Under Sox Act, could be fined up to $5 million and/or imprisoned for 20 years •Tax violations, $100,000 fine or $500,000 fine for corporate returns or 3 years imprisonment

Assault

An assault is any intentional and unexcused threat of immediate harmful or offensive contact—words or acts that create a reasonably believable threat. An assault can occur even if there is no actual contact with the plaintiff, provided that the defendant's conduct creates a reason- able apprehension of imminent harm in the plaintiff. Tort law aims to protect individuals from having to expect harmful or offensive contact.

Negligence and Strict Liability

An injured party may sue a business polluter in tort under negligence and strict liability theories. A negligence action is based on a business's alleged failure to use reasonable care toward a party whose injury was foresee- able and was caused by the lack of reasonable care. For instance, employees might sue an employer whose failure to use proper pollution controls has contaminated the air, causing the employees to suffer respiratory illnesses. Lawsuits for personal injuries caused by exposure to a toxic substance, such as asbestos, radiation, or hazardous waste, have given rise to a growing body of tort law known as toxic torts. Businesses that engage in ultra-hazardous activities— such as the transportation of radioactive materials—are strictly liable for any injuries the activities cause. In a strict liability action, the injured party does not have to prove that the business failed to exercise reasonable care.

Intentional Torts against Persons

An intentional tort, as the term implies, requires intent. The tortfeasor (the one committing the tort) must intend to commit an act, the consequences of which interfere with another's personal or business interests in a way not permitted by law. An evil or harmful motive is not required—in fact, the person committing the action may even have a beneficial motive for doing what turns out to be a tortious act. In tort law, intent means only that the person intended the consequences of his or her act or knew with substantial certainty that specific consequences would result from the act. The law generally assumes that individuals intend the normal consequences of their actions. Thus, forcefully pushing another—even if done in jest—is an intentional tort (if injury results), because the object of a strong push can ordinarily be expected to fall down. In addition, intent can be transferred when a defendant intends to harm one individual, but unintentionally harms a second person. This is called transferred intent.

Superseding Cause

An unforeseeable intervening event may break the causal connection between a wrongful act and an injury to another. If so, the intervening event acts as a superseding cause—that is, it relieves the defendant of liability for injuries caused by the intervening event.

Causation

Another element necessary to a negligence action is causation. If a person breaches a duty of care and someone suffers injury, the person's act must have caused the harm for it to constitute the tort of negligence. In deciding whether the requirement of causation is met, the court must address two questions: 1)Is there causation in fact? Did the injury occur because of the defendant's act, or would it have occurred any- way? If the injury would not have occurred without the defendant's act, then there is causation in fact. 2)Was the act the proximate, or legal, cause of the injury? Proximate cause, or legal cause, exists when the connection between an act and an injury is strong enough to justify imposing liability. Proximate cause asks whether the injuries sustained were foreseeable or were too remotely connected to the incident to trigger liability. Judges use proximate cause to limit the scope of the defendant's liability to a subset of the total number of potential plaintiffs that might have been harmed by the defendant's actions Questions of proximate cause are linked to the concept of foreseeability because it would be unfair to impose liability on a defendant unless the defendant's actions created a foreseeable risk of injury. Generally, if the victim or the consequences of a harm done were unforeseeable, there is no proximate cause.

Consumer Notification and Inaccurate Information

Any time a consumer is denied credit or insurance on the basis of her or his credit report, the consumer must be notified of that fact. The notice must include the name and address of the credit-reporting agency that issued the report. The same notice must be sent to consumers who are charged more than others ordinarily would be for credit or insurance because of their credit reports. Under the FCRA, consumers may request the source of any information used by the credit agency, as well as the identity of anyone who has received an agency's report. Consumers are also permitted to access the information about them contained in a credit reporting agency's files. If a consumer discovers that an agency's files contain inaccurate information, he or she should report the problem to the agency. On the consumer's written (or electronic) request, the agency must conduct a systematic examination of its records. Any unverifiable or erroneous information must be deleted within a reasonable period of time.

Public Accountability

As a result of growing public concern over the powers exercised by administrative agencies, Congress passed several laws to make agencies more accountable through public scrutiny.(public examination) Here, we discuss the most significant of these laws.

Strict Product Liability

As mentioned earlier, under the doctrine of strict liability, people may be liable for the results of their acts regardless of their intentions or their exercise of reasonable care. In addition, liability does not depend on privity of contract. Thus, the injured party does not have to be the buyer, as required under contract warranty theories. •Common method of holding manufacturers liable - landmark cases in the 1960s

Assumption of Risk

Assumption of risk can sometimes be used as a defense in a product liability action. To establish assumption of risk, the defendant must show the following: 1. The plaintiff knew and appreciated the risk created by the product defect. 2. The plaintiff voluntarily assumed the risk—by express agreement or by words or conduct—even though it was unreasonable to do so.

Ch.31

Bankruptcy Law

Bankruptcy Courts

Bankruptcy proceedings are held in federal bankruptcy courts, which are under the authority of U.S. district courts. Rulings from bankruptcy courts can be appealed to the district courts. A bankruptcy court can conduct a jury trial if the appropriate district court has authorized it and the par- ties to the bankruptcy consent. Bankruptcy courts follow the Federal Rules of Bankruptcy Procedure rather than the Federal Rules of Civil Procedure. Bankruptcy court judges are appointed for terms of fourteen years.

The Bankruptcy Code

Bankruptcy relief is provided under federal law. Although state laws may play a role in bankruptcy proceedings, particularly state laws governing property, the governing law is based on federal legislation. Article I, Section 8, of the U.S. Constitution gave Congress the power to establish "uniform laws on the subject of bankruptcies throughout the United States." Federal bankruptcy legislation was first enacted in 1898 and since then has undergone several modifications, most recently in the 2005 Bankruptcy Reform Act.1 Federal bankruptcy laws (as amended) are called the Bankruptcy Code or, more simply, the Code.

Violations of the Clean Water Act

Because point- source water pollution control is based on a permit system, the permits are the key to enforcement. States have primary responsibility for enforcing the permit system, subject to EPA monitoring. Discharging emissions into navigable waters with- out a permit, or in violation of pollution limits under a permit, violates the CWA. Violators are subject to a variety of civil and criminal penalties. Depending on the violation, civil penalties range from $10,000 to $25,000 per day, but not more than $25,000 per violation. Lying about a violation is more serious than admitting the truth about improper discharges. Criminal penalties apply only if a violation was intentional. Criminal penalties range from a fine of $2,500 per day and imprisonment for up to one year to a fine of $1 million and fifteen years' imprisonment. Injunctive relief and damages can also be imposed. The polluting party can be required to clean up the pollution or pay for the cost of doing so.

Damages Available in Tort Actions

Because the purpose of tort law is to compensate the injured party for the damage suffered, you need to have an understanding of the types of damages that plaintiffs seek in tort actions. Note that legal usage distinguishes between the terms damage and damages. Damage refers to harm or injury to persons or property, while damages refers to monetary compensation for such harm or injury.

Food Labeling

Because the quality and safety of food are so important to consumers, several statutes deal specifically with food labeling. The Fair Packaging and Labeling Act requires that food product labels identify (1) the product, (2) the net quantity of the contents (and, if the number of servings is stated, the size of a serving), (3) the manufacturer, and (4) the packager or distributor. The act includes additional requirements concerning descriptions on packages, savings claims, components of nonfood products, and standards for the partial filling of packages.

Potential Liability of Accountants under Securities Laws

Both civil and criminal liability may be imposed on accountants under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995.

Wrongful Interference with a Business Relationship

Businesspersons devise countless schemes to attract customers. They are prohibited, however, from unreasonably interfering with another's business in their attempts to gain a greater share of the market. There is a difference between competitive practices and predatory behavior actions undertaken with the intention of unlawfully driving competitors completely out of the market. Attempting to attract customers in general is a legitimate business practice, whereas specifically targeting the customers of a competitor is more likely to be predatory. A plaintiff claiming predatory behavior must show that the defendant used predatory methods to intentionally harm an established business relationship or gain a prospective economic advantage.

The Duty of Care and Its Breach

Central to the tort of negligence is the concept of a duty of care. The basic principle underlying the duty of care is that people are free to act as they please so long as their actions do not infringe on the interests of others. When someone fails to comply with the duty to exercise reasonable care, a potentially tortious act may have been committed. Failure to live up to a standard of care may be an act (accidentally setting fire to a building) or an omission (neglecting to put out a campfire). It may be a careless act or a carefully performed but nevertheless dangerous act that results in injury. In determining whether the duty of care has been breached, courts consider several factors: 1.The nature of the act (whether it is outrageous or commonplace). 2.The manner in which the act was performed (cautiously versus heedlessly). 3. The nature of the injury (whether it is serious or slight). Tort law measures duty by the reasonable person standard. In deter- mining whether a duty of care has been breached, the courts ask how a reasonable person would have acted in the same circumstances. The reasonable person standard is said to be objective. It is not necessarily how a particular person would act. It is society's judgment of how an ordinarily prudent person should act. If the so-called reasonable person existed, he or she would be careful, conscientious, even tempered, and honest.

Common Law Actions

Common law remedies against environmental pollution originated centuries ago in England. Those responsible for operations that created dirt, smoke, noxious odors, noise, or toxic substances were sometimes held liable under common law theories of nuisance or negligence. Today, individuals who have suffered a harm from pollution continue to rely on the common law to obtain dam- ages and injunctions against business polluters.

Business Ethics

Company Ethics begin at the top. Lead by example. Boss, peers, then own moral code

Comparative Negligence (Fault)

Comparative negligence, or fault, can also affect strict liability claims. Today, courts in many jurisdictions consider the negligent or intentional actions of both the plaintiff and the defendant when apportioning liability and damages. A defendant may be able to limit some of its liability if it can show that the plaintiff 's misuse of the product contributed to his or her injuries.

Reason

Concern over sustainability of our environment

Regulatory Flexibility Act

Concern over the effects of regulation on the efficiency of businesses, particularly smaller ones, led Congress to pass the Regulatory Flexibility Act in 1980. Under this act, whenever a new regulation will have a "significant impact upon a substantial number of small entities," the agency must conduct a regulatory flexibility analysis. The analysis must measure the cost that the rule would impose on small businesses and consider less burdensome alternatives. The act also contains provisions to alert small businesses about forthcoming regulations. The act relieved small businesses of some record-keeping burdens, especially with regard to hazardous waste management.

Enabling Legislation—An Example

Congress created the Federal Trade Commission (FTC) in the Federal Trade Commission Act. The act prohibits unfair methods of competition and deceptive trade practices. It also describes the procedures that the FTC must follow to charge persons or organizations with violations of the act, and it provides for judicial review of agency orders. The act grants the FTC the power to do the following: 1. Create "rules and regulations for the purpose of carrying out the Act." 2. Conduct investigations of business practices. 3. Obtain reports from interstate corporations concerning their business practices. 4. Investigate possible violations of federal antitrust statutes. (The FTC shares this task with the Antitrust Division of the U.S. Department of Justice.) 5. Publish findings of its investigations. 6. Recommend new legislation. 7. Hold trial-like hearings to resolve certain trade disputes that involve FTC regulations or federal anti- trust laws.

Agency Creation and Powers

Congress creates federal administrative agencies. By delegating some of its authority to make and implement laws, Congress can indirectly monitor a particular area in which it has passed legislation. Delegation enables Congress to avoid becoming bogged down in the details relating to enforcement—details that are often best left to specialists. To create an administrative agency, Congress passes enabling legislation, which specifies the name, purposes, functions, and powers of the agency being created. Federal administrative agencies can exercise only those powers that Congress has delegated to them in enabling legislation. Through similar enabling acts, state legislatures create state administrative agencies. An agency's enabling statute defines its legal authority. An agency cannot regulate beyond the powers granted by the statute, and it may be required to take some regulatory action by the terms of that statute. When regulated groups oppose a rule adopted by an agency, they often bring a lawsuit arguing that the rule was not authorized by the enabling statute and is therefore void. Conversely, a group may file a suit claiming that an agency has illegally failed to pursue regulation required by the enabling statute.

Equal Credit Opportunity

Congress enacted the Equal Credit Opportunity Act (ECOA)26 as an amendment to the TILA. The ECOA prohibits the denial of credit solely on the basis of race, religion, national origin, color, gender, marital status, or age. The act also prohibits credit discrimination on the basis of whether an individual receives certain forms of income, such as public-assistance benefits. Under the ECOA, a creditor may not require a cosigner on a credit instrument if the applicant qualifies under the creditor's standards of creditworthiness for the amount and terms of the credit request.

Legislative Controls

Congress exercises authority over agency powers through legislation. Congress gives power to an agency through enabling legislation and can take power away—or even abolish an agency altogether—through subsequent legislation. Legislative authority is required to fund an agency, and enabling legislation usually sets certain time and monetary limits on the funding of particular pro- grams. Congress can always revise these limits. In addition to its power to create and fund agencies, Congress has the authority to investigate the implementation of its laws and the agencies that it has created. Congress also has the power to "freeze" the enforcement of most federal regulations before the regulations take effect.

Federal Regulations

Congress has passed a number of statutes to control the impact of human activities on the environment. Most of these statutes are designed to address pollution in the air, water, or land. Some specifically regulate toxic chemicals, including pesticides, herbicides, and hazardous wastes.

The Fair and Accurate Credit Transactions Act

Congress passed the Fair and Accurate Credit Transactions (FACT) Act in an effort to combat identity theft. The act established a national fraud alert system. Consumers who suspect that they have been or may be victimized by identity theft can place an alert on their credit files. When a consumer establishes that identify theft has occurred, the credit reporting agency must stop reporting allegedly fraudulent account information. The act also requires the major credit reporting agencies to provide consumers with free copies of their own credit reports every twelve months. Another provision requires account numbers on credit-card receipts to be truncated (shortened). Merchants, employees, or others who may have access to the receipts can no longer obtain the consumers' names and full credit-card numbers. Financial institutions must work with the FTC to identify "red flag" indicators of identity theft and to develop rules for the disposal of sensitive credit information.

The Delegation Doctrine

Courts generally hold that Article I of the U.S. Constitution is the basis for all administrative law. Section 1 of that article grants all legislative powers to Congress and requires Congress to oversee the implementation of all laws. Article I, Section 8, gives Congress the power to make all laws necessary for executing its specified powers. Under what is known as the delegation doctrine, courts interpret these passages as granting Congress the power to establish administrative agencies and delegate to them the power to create rules for implementing those laws. The three branches of government exercise certain controls over agency powers and functions, as discussed next, but in many ways administrative agencies function independently. For this reason, administrative agencies, which constitute the bureaucracy, are sometimes referred to as the fourth branch of the U.S. government.

Credit Protection

Credit protection is one of the more important aspects of consumer protection legislation. Nearly 80 percent of U.S. consumers have credit cards, and most carry a balance on these cards—a total of about $2.5 trillion of debt nationwide. The Consumer Financial Protection Bureau (CFPB) is the agency that oversees the credit practices of banks, mortgage lenders, and credit-card companies.

Online Deceptive Advertising

Deceptive advertising occurs in the online environment as well as offline. The FTC actively monitors online advertising. It has identified hundreds of Web sites that have made false or deceptive claims for products and services ranging from medical treatments to exercise equipment and weight-loss aids. The FTC has issued guidelines to help online businesses comply with existing laws prohibiting deceptive advertising. These guidelines include the following requirements: 1)All ads—both online and offline—must be truthful and not misleading. 2)The claims made in an ad must be substantiated— that is, advertisers must have evidence to back up their claims. 3)Ads cannot be unfair, which the FTC defines as "likely to cause substantial consumer injury that consumers could not reasonably avoid and that is not outweighed by the benefit to consumers or competition." 4)Ads must disclose relevant limitations and qualify- ing information concerning the claims advertisers are making. 5)Required disclosures must be "clear and conspicuous." For instance, because consumers may not read an entire Web page, an online disclosure should be placed as close as possible to the claim being qualified. Generally, hyperlinks to a disclosure are recommended only for lengthy disclosures. If hyperlinks are used, they should be obvious and should be placed as close as possible to the relevant information it qualifies.

Defenses to Product Liability

Defendants in product liability suits can raise a number of defenses. One defense, of course, is to show that there is no basis for the plaintiff 's claim. Thus, for instance, in an action based on negligence, If a defendant can show that the plaintiff has not met the requirements for such an action (such as causation), then generally the defendant will not be liable. Similarly, in a case involving strict product liability, a defendant can claim that the plaintiff failed to meet one of the requirements. For instance, if the defendant shows that the goods were altered after they were sold, normally the defendant will not be held liable.

Defenses to Negligence

Defendants often defend against negligence claims by asserting that the plaintiffs have failed to prove the existence of one or more of the required elements for negligence. Additionally, there are three basic affirmative defenses in negligence cases (defenses that a defendant can use to avoid liability even if the facts are as the plaintiff states): assumption of risk, superseding cause, and contributory and comparative negligence.

Negotiated Settlements

Depending on the agency, negotiations may involve a simple conversation or a series of informal conferences. Whatever form the negotiations take, their purpose is to rectify the problem to the agency's satisfaction and eliminate the need for additional proceedings. Settlement is an appealing option to firms for two reasons: to avoid appearing uncooperative and to avoid the expense involved in formal adjudication proceedings and in possible later appeals. Settlement is also an attractive option for agencies. To conserve their resources and avoid formal actions, administrative agencies devote a great deal of effort to giving advice and negotiating solutions to problems. Benefits to both parties

Disparagement of Property

Disparagement of Property occurs when economically injurious falsehoods are made about another's product or property rather than about another's reputation (as in the tort of defamation). Disparagement of property is a general term for torts that can be more specifically referred to as slander of quality or slander of title

Costs

Environmental protection is not without a price, however. For many businesses,the costs of complying with environmental regulations are high, and for some they may seem too high. A constant tension exists between the desire to increase profits and productivity and the need to protect the environment. To a great extent, environmental law consists of statutes passed by federal, state, or local governments and regulations issued by administrative agencies.

Ethics vs. Morals

Ethics = group/professional standards Morals = personal standards While they are sometimes used interchangeably, they are different: ethics refer to rules provided by an external source, e.g., codes of conduct in workplaces or principles in religions. Morals refer to an individual's own principles regarding right and wrong.

Ethics vs Compliance

Ethics and compliance are essentially different sides of the same coin. Compliance is following the law, while ethics is doing what is right regardless of what the law says. Compliance is something that the government requires you to do. Ethics, on the other hand, is something you choose to consider when taking action.

Defenses

Even if a plaintiff proves all the elements of a tort, the defendant can raise a number of legally recognized defenses (reasons why the plaintiff should not obtain damages). A successful defense releases the defendant from partial or full liability for the tortious act. The defenses available may vary depending on the specific tort involved. A common defense to intentional torts against persons, for instance, is consent. When a person consents to the act that damages her or him, there is generally no liability. The most widely used defense in negligence actions is comparative negligence. In addition, most states have a statute of limitations that establishes the time limit (often two years from the date of discovering the harm) within which a particular type of lawsuit can be filed. After that time period has run, the plaintiff can no longer file a claim.

Slander Per Se

Exceptions to the burden of proving special damages in cases alleging slander are made for certain types of slanderous statements. If a false statement constitutes "slander per se," it is actionable with no proof of special damages required. In most states, the following four types of declarations are considered to be slander perse: 1)A statement that another has a "loathsome" disease (such as a sexually transmitted disease). 2)A statement that another has committed improprieties while engaging in a profession or trade. 3)A statement that another has committed or has been imprisoned for a serious crime. 4)A statement that a person is unchaste or has engaged in serious sexual misconduct. (This usually applies only to unmarried persons and sometimes only to women.)

Types of Agencies

Federal Executive Agencies-Federal executive agencies include the cabinet departments of the executive branch, which assist the president in carrying out executive functions, and the subagencies within the cabinet departments. The Occupational Safety and Health Administration, for instance, is a sub-agency within the U.S. Department of Labor. Executive agencies usually have a single administrator, director, or secretary who is appointed by the president to oversee the agency and can be removed by the president at any time. Independent regulatory agencies-Independent regulatory agencies, such as the Federal Trade Commission and the Securities and Exchange Commission (SEC), are outside the federal executive departments (those headed by a cabinet secretary). The president's power is less pronounced in regard to independent agencies, whose officers serve for fixed terms and cannot be removed without just cause.

Air Pollution

Federal involvement with air pollution goes back to the 1950s and 1960s, when Congress authorized funds for air-pollution research and enacted the Clean Air Act.2 The Clean Air Act provides the basis for issuing regulations to control multi-state air pollution. It covers both mobile sources (such as automobiles and other vehicles) and stationary sources (such as electric utilities and industrial plants) of pollution.

Agency Orders

Following a hearing, the ALJ renders an initial order, or decision, on the case. Either party can appeal the ALJ's decision to the board or commission that governs the agency. If displeased with the result, the party can appeal that decision to a federal appellate court. If no party appeals the case, the ALJ's decision becomes the final order of the agency. The ALJ's decision also becomes final if a party appeals and the commission and the court decline to review the case. If a party appeals and the case is reviewed, the final order comes from the commission's decision or (if that decision is appealed) the decision of the reviewing court.

Comment Period

Following the publication of the notice of the proposed rulemaking proceedings, the agency must allow ample time for persons to comment in writing on the proposed rule. The purpose of this comment period is to give interested parties the opportunity to express their views on the proposed rule in an effort to influence agency policy. The comments can be made in writing or, if a hearing is held, orally. All comments become a public record that others can examine.

Nutritional Content of Food Products

Food products must bear labels detailing the nutritional content, including the number of calories and the amounts of various nutrients that the food contains. The Nutrition Labeling and Education Act requires food labels to provide standard nutrition facts and regulates the use of such terms as fresh and low fat. The U.S. Food and Drug Administration (FDA) and the U.S. Department of Agriculture (USDA) are the primary agencies that issue regulations on food labeling. These rules are published in the Federal Register and updated annually.

The Injury Requirement and Damages

For tort liability to arise, the plaintiff must have suffered a legally recognizable injury. To recover damages, the plaintiff must have suffered some loss, harm, wrong, or invasion of a protected interest. Essentially, the purpose of tort law is to compensate for legally recognized harms and injuries resulting from wrongful acts. If no harm or injury results from a given negligent action, there is nothing to compensate, and no tort exists. Compensatory damages are the norm in negligence cases. A court will award punitive damages only if the defendant's conduct was grossly negligent, reflecting an intentional failure to perform a duty with reckless disregard of the consequences to others.

Violations of the Clean Air Act

For violations of emission limits under the Clean Air Act, the EPA can assess civil penalties of up to $25,000 per day. Additional fines of up to $5,000 per day can be assessed for other violations, such as failure to maintain the required records. To penalize those who find it more cost-effective to violate the act than to comply with it, the EPA is authorized to impose a penalty equal to the violator's economic benefits from noncompliance. Persons who provide information about violators may be paid up to $10,000. Private citizens can also sue violators. Those who knowingly violate the act, including corporate officers, may be subject to criminal penalties. For instance, knowingly making false statements or failing to report violations may be punishable by fines of up to $1 million and imprisonment for up to two years.

Liability for Fraud

Fraud, or misrepresentation, involves the following elements: 1)A misrepresentation of a material fact. 2)An intent to deceive. 3)Justifiable reliance by the innocent party on the misrepresentation. In addition, to obtain damages, the innocent party must have been injured. Both actual and constructive fraud are potential sources of legal liability for an accountant or other professional.

The Purpose of Tort Law

Generally, the purpose of tort law is to provide remedies for the violation of various protected interests. Society recognizes an interest in personal physical safety. Thus, tort law provides remedies for acts that cause physical injury or that interfere with physical security and freedom of movement. Society also recognizes an interest in protecting property, and tort law provides remedies for acts that cause destruction of or damage to property.

Hearing Procedures

Hearing procedures vary widely from agency to agency. Administrative agencies generally exercise substantial discretion over the type of procedure that will be used. Frequently, disputes are resolved through informal adjudication proceedings. A formal adjudicatory hearing, in contrast, resembles a trial in many respects. Prior to the hearing, the parties are permitted to undertake discovery—involving depositions, interrogatories, and requests for documents or other information. The discovery process usually is not quite as extensive as it would be in a court proceeding, however. The hearing itself must comply with the procedural requirements of the APA and must also meet the constitutional standards of due process. The burden of proof in an enforcement proceeding is placed on the agency. During the hearing, the parties may give testimony, present other evidence, and cross-examine adverse witnesses. Trials and administrative agency hearings do differ in some respects. A significant difference is that normally much more information, including hearsay (secondhand information), can be introduced as evidence during an administrative hearing.

Formal Complaints

If a settlement cannot be reached, the agency may issue a formal complaint against the suspected violator.

Defenses to Negligence

If an accountant is found guilty of negligence, the client can collect damages for losses that arose from the accountant's negligence. An accountant facing a negligence claim, however, has several possible defenses, including the following: 1)The accountant was not negligent 2)If the accountant was negligent, this negligence was not the proximate cause of the client's losses. 3)The client was also negligent (depending on whether the state applies contributory negligence or comparative negligence)

Formal Complaint

If the FTC concludes that a given advertisement is unfair or deceptive, it drafts a formal complaint, which is sent to the alleged offender. The company may agree to settle the complaint without further proceedings. If not, the FTC can conduct a hearing in which the company can present its defense.

FTC Orders and Remedies

If the FTC succeeds in proving that an advertisement is unfair or deceptive, it usually issues a cease-and-desist order requiring the company to stop the challenged advertising. In some circumstances, it may also impose a sanction known as counteradvertising. This requires the company to advertise anew—in print, on the Internet, on radio, and on television—to inform the public about the earlier misinformation. The FTC sometimes institutes a multiple product order, which requires a firm to stop false advertising for all of its products, not just the product involved in the original action.

Battery

If the act that created the apprehension is completed and results in harm to the plaintiff, it is a battery—an unexcused and harmful or offensive physical contact intentionally performed. Ivan threatens Jean with a gun and then shoots her. The pointing of the gun at Jean is an assault. The firing of the gun (if the bullet hits Jean) is a battery. The contact can be harmful, or it can be merely offensive (such as an unwelcome kiss). Physical injury need not occur. The contact can involve any part of the body or anything attached to it—for instance, a hat, a purse, or a jacket. The contact can be made by the defendant or by some force set in motion by the defendant, such as a rock thrown by the defendant. Whether the contact is offensive is determined by the reasonable person standard. If the plaintiff shows that there was contact, and the jury (or judge, if there is no jury) agrees that the contact was offensive, then the plaintiff has a right to compensation. A plaintiff may be compensated for the emotional harm or loss of reputation resulting from a battery, as well as for physical harm. A defendant may assert self- defense or defense of others in an attempt to justify his or her conduct.

The Clean Water Act

In 1972, Congress passed amendments to the FWPCA, and the amended act became known as the Clean Water Act (CWA). The CWA established the following goals: (1) make waters safe for swimming, (2) protect fish and wildlife, and (3) eliminate the discharge of pollutants into the water. The CWA also set specific schedules, which were later extended by amendment and by the Water Quality Act.10 Under these schedules, the EPA limits the discharge of various types of pollutants based on the technology available for controlling them.

Controlling Climate Change

In 2016, a federal district court in Oregon allowed an unprecedented law- suit to go forward against the U.S. government for doing too little to control climate change. The court found that the plaintiffs had alleged particular, concrete harms to young people and future generations sufficient to give them standing to pursue their claims in court. Of course, this ruling means only that the plaintiffs have met their threshold burden of establishing standing. The court simply denied the government's motion to dismiss—it did not decide the merits of the case or grant relief to the plaintiffs. Those issues have yet to be resolved.

Accountant-Client Relationships

In a few states, accountant-client communications are privileged by state statute. In these states, accountant- client communications may not be revealed even in court or in court-sanctioned proceedings without the client's permission. The majority of states, however, abide by the common law, which provides that, if a court so orders, an accountant must disclose information about his or her client to the court. Physicians and other professionals may similarly be compelled to disclose in court information given to them in confidence by patients or clients. Communications between professionals and their clients—other than those between an attorney and her or his client—are not privileged under federal law. In cases involving federal law, state-provided rights to confidentiality of accountant-client communications are not recognized. Thus, in those cases, in response to a court order, an accountant must provide the information sought.

Marketing

In addition to regulating advertising practices, Congress has passed several laws to protect consumers against other marketing practices.

Controlling Costs of Health Insurance

In an attempt to control the rising costs of health insurance, certain restrictions were placed on insurance companies. Insurance companies must spend at least 85 percent of all premium dollars collected from large employers (80 percent of the premiums collected from individuals and small employers) on benefits and quality improvement. If insurance companies do not meet these goals, they must provide rebates to consumers. Additionally, states can require insurance companies to justify any premium increases to be eligible to participate in the new health- insurance exchanges. In spite of the legislation, health insurance costs have continued to increase.

Inspections and Tests

In conducting investigations, many agencies gather information through on-site inspections. Sometimes, inspecting an office, a factory, or some other business facility is the only way to obtain the evidence needed to prove a regulatory violation. At other times, an inspection or test is used in place of a formal hearing to show the need to correct or prevent an undesirable condition. Administrative inspections and tests cover a wide range of activities, including safety inspections of under- ground coal mines, safety tests of commercial equipment and automobiles, and environmental monitoring of factory emissions. An agency may also ask a firm or individual to submit certain documents or records to the agency for examination. Normally, business firms comply with agency requests to inspect facilities or business records because it is in any firm's interest to maintain a good relationship with regulatory bodies. In some instances, however, such as when a firm thinks an agency's request is unreasonable and disruptive, the firm may refuse to comply with the request. In such situations, an agency may resort to the use of a subpoena or a search warrant.

Damages for Slander

In contrast to cases alleging libel, in a case alleging slander, the plaintiff must prove special damages to establish the defendant's liability. The plaintiff must show that the slanderous statement caused her or him to suffer actual economic or monetary losses. Unless this initial hurdle of proving special damages is overcome, a plaintiff alleging slander normally can- not go forward with the suit and recover any damages. This requirement is imposed in slander cases because oral statements have a temporary quality. In contrast, a libelous (written) statement has the quality of permanence and can be circulated widely, especially through tweets and blogs. Also, libel usually results from some degree of deliberation by the author.

Qualified Opinions and Disclaimers

In issuing an opinion letter, an auditor may qualify the opinion or include a disclaimer. In a qualified opinion, the auditor approves the financial statements overall but identifies one or two issues that are still in question. In a disclaimer, the auditor basically states that she or he does not have sufficient information to issue an opinion. A qualified opinion or a disclaimer must be specific and identify the reason for the qualification or disclaimer.

History of Government Agencies

In its early years, the United States had a simple, nonindustrial economy with little regulation. As the economy has grown and become more complex, the size of government has also increased, and so has the number, size, and power of administrative agencies. As the number of agencies has multiplied, so have the rules, orders, and decisions that they issue. Today, there are rules covering almost every aspect of a business's operations. These regulations make up the body of administrative law.

Requirements for Maintaining Working Papers

In performing an audit for a client, an accountant accumulates various working papers—the documents used and developed during the audit. These include notes, computations, memoranda, copies, and other papers that make up the work product of an accountant's services to a client. Under the common law, which in this instance has been codified in a number of states, working papers remain the accountant's property. It is important for accountants to retain such records in the event that they need to defend against lawsuits for negligence or other actions in which their competence is challenged. The client also has a right to access an accountant's working papers because they reflect the client's financial situation. On a client's request, an accountant must return any of the client's records or journals to the client, and failure to do so may result in liability. The Sarbanes-Oxley Act initially provided that accountants must maintain working papers relating to an audit or review for five years from the end of the fis- cal period in which the audit or review was concluded. The period was subsequently increased to seven years. A knowing violation of this requirement will subject the accountant to a fine, imprisonment for up to ten years, or both.

Response to Crisis

In some instances, new agencies have been created in response to a crisis. In the wake of the financial crisis that led to the latest economic recession, for instance, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, this statute created the Financial Stability Over sight Council to identify and respond to emerging risks in the financial system. It also created the Consumer Financial Protection Bureau (CFPB) to protect consumers from alleged abusive practices by financial institutions, mortgage lenders, and credit-card companies.

Tainted Foods

In the last twenty years or so, many people in the United States have contracted food poisoning from eating foods that were contaminated, often with salmonella or E. coli bacteria. In response to the problem of food contamination, Congress enacted the Food Safety Modernization Act to provide greater government control over the U.S. food safety system. The act gives the FDA authority to directly recall any food products that it suspects are tainted, rather than relying on the producers to recall items. The FSMA requires anyone who manufactures, processes, packs, distributes, receives, holds, or imports food products to pay a fee and register with the U.S. Department of Health and Human Services. (There are some exceptions for small farmers.) Owners and operators of such facilities are required to analyze and identify food safety hazards, implement preventive controls, monitor effectiveness, and take corrective actions. The FSMA places additional restrictions on importers of food and requires them to verify that imported foods meet U.S. safety standards.

Consumer Law

Includes all statutes, agency rules, common law judicial decisions that protect interests of consumers are classified as consumer law Traditionally, in disputes involving consumers, it was assumed that the freedom to contract carried with it the obligation to live by the deal made. Over time, this attitude has changed considerably. Today, countless federal and state laws attempt to protect consumers from unfair trade practices, unsafe products, discriminatory or unreasonable credit requirements, and other problems related to consumer transactions. In recent years, there has been a renewed interest in attempting to protect consumers in their dealings with credit-card companies, financial institutions, and insurance companies.

Intentional Torts against Property

Intentional torts against property include trespass to land, trespass to personal property, conversion, and disparagement of property. These torts are wrongful actions that interfere with individuals' legally recognized rights with regard to their land or personal property.The law distinguishes real property from personal property. Real property is land and things permanently attached to the land, such as a house. Personal property consists of all other items, including cash and securities (such as stocks and bonds).

The Duty of Landowners

Landowners are expected to exercise reasonable care to protect individuals coming onto their property from harm. In some jurisdictions, landowners may even have a duty to protect trespassers against certain risks. Landowners who rent or lease premises to tenants are expected to exercise reasonable care to ensure that the tenants and their guests are not harmed in common areas, such as stairways, entryways, and laundry rooms. Retailers and other business operators who explicitly or implicitly invite persons to come onto their premises have a duty to exercise reasonable care to protect these business invitees. The duty normally requires storeowners to warn business invitees of foreseeable risks, such as construction zones or wet floors, about which the owners knew or should have known. Some risks are so obvious that an owner need not warn of them. For instance, a business owner does not need to warn customers to open a door before attempting to walk through it. Other risks, however, even though they may seem obvious to a business owner, may not be so in the eyes of another, such as a child. In addition, even if a risk is obvious, a business owner is not necessarily excused from the duty to protect customers from foreseeable harm from that risk. Persons who possess superior knowledge, skill, or training are held to a higher standard of care than others. Professionals—including physicians, dentists, architects, engineers, accountants, and lawyers, among others—are required to have a standard minimum level of special knowledge and ability. In determining what constitutes reasonable care in the case of professionals, the law takes their training and expertise into account. Thus, an accountant's conduct is judged not by the reasonable person standard, but by the reasonable accountant standard. If a professional violates his or her duty of care toward a client, the client may bring a suit against the professional, alleging malpractice, which is essentially professional negligence. For instance, a patient might sue a physician for medical malpractice. A client might sue an attorney for legal malpractice.

Joint and Several Liability of PRPs.

Liability under Superfund is usually joint and several. In other words, a PRP who generated only a fraction of the hazardous waste disposed of at a site may nevertheless be liable for all of the clean-up costs. CERCLA authorizes a party who has incurred clean-up costs to bring a "contribution action" against any other person who is liable or potentially liable for a percentage of the costs.

Liability of Attorneys to Third Parties

Like accountants, attorneys may be held liable under the common law to third parties who rely on legal opinions to their detriment. Generally, an attorney is not liable to a nonclient unless the attorney has committed fraud (or malicious conduct). The liability principles stated in the Restatement (Third) of Torts, however, may apply to attorneys as well as to accountants.

Dram Shop Acts

Many states have also passed dram shop acts,18 under which a bar's owner or bartender may be held liable for injuries caused by a person who became intoxicated while drinking at the bar. The owner or bartender may also be held responsible for continuing to serve a person who was already intoxicated. Some states' statutes also impose liability on social hosts (persons hosting parties) for injuries caused by guests who became intoxicated at the hosts' homes. Under these statutes, it is unnecessary to prove that the bar owner, bartender, or social host was negligent.

Good Samaritan Statutes

Most states now have what are called Good Samaritan statutes. Under these statutes, someone who is aided voluntarily by another cannot turn around and sue the "Good Samaritan" for negligence. These laws were passed largely to protect physicians and medical personnel who volunteer their services in emergency situations to those in need, such as individuals hurt in car accidents

Based on Negligence

Negligence is the failure to exercise the degree of care that a reasonable, prudent person would have exercised under the circumstances. If a manufacturer fails to exercise "due care" to make a product safe, a person who is injured by the product may sue the manufacturer for negligence.. Manufacturers must use due care in all of the following areas: 1. Designing the product. 2. Selecting the materials. 3. Using the appropriate production process. 4. Assembling and testing the product. 5. Placing adequate warnings on the label to inform the user of dangers of which an ordinary person might not be aware. 6. Inspecting and testing any purchased components used in the product. Aproductliability action based on negligence does not require privity of contract between the injured plaintiff and the defendant- manufacturer. Privity of contract refers to the relation- ship that exists between the parties to a contract. Privity is the reason that normally only the parties to a contract can enforce that contract. In the context of product liability law, though, privity is not required. A person who is injured by a defective product may bring a negligence suit even though he or she was not the one who actually purchased the product—and thus is not in privity. A manufacturer, seller, or lessor is liable for failure to exercise due care to any person who sustains an injury proximately caused by a negligently made (defective) product. In a product liability suit based on negligence, as in any action alleging that the defendant was negligent, the plaintiff must show that the defendant's conduct was the "cause in fact" of an injury. "Cause in fact" requires showing that "but for" the defendant's action, the injury would not have occurred. It must also be determined that the defendant's act was the proximate cause of the injury. This determination focuses on the foreseeability of the consequences of the act and whether the defendant should be held legally responsible. For proximate cause to become a relevant issue, how- ever, a plaintiff first must establish cause in fact.

Statement of Fact versus Opinion

Normally, the tort of fraudulent misrepresentation occurs only when there is reliance on a statement of fact. Sometimes, however, reliance on a statement of opinion may involve the tort of fraudulent misrepresentation if the individual making the statement of opinion has superior knowledge of the subject matter. For instance, when a lawyer makes a statement of opinion about the law in a state in which the lawyer is licensed to practice, a court might treat it as a statement of fact.

Advertising, Marketing, and Sales

Numerous federal laws have been passed to define the duties of sellers and the rights of consumers. Although we focus on federal law, realize that state consumer protection laws in these and other areas often provide more sweeping and significant protections than do federal laws.

Punitive Damages

Occasionally, the courts also award punitive damages in tort cases to punish the wrongdoer and deter others from similar wrongdoing. Punitive damages are appropriate only when the defendant's conduct was particularly egregious (flagrant) or reprehensible (blameworthy). Usually, this means that punitive damages are available in intentional tort actions and only rarely in negligence lawsuits

Ethics PPT

On Exam

Damages for Libel

Once a defendant's liability for libel is established, general damages are presumed as a matter of law. General damages are designed to compensate the plaintiff for nonspecific harms such as disgrace or dishonor in the eyes of the community, humiliation, injured reputation, and emotional distress—harms that are difficult to measure. In other words, to recover dam- ages, the plaintiff need not prove that he or she was actu- ally harmed in any specific way as a result of the libelous statement.

The Arbitrary and Capricious Test

One of Congress's goals in enacting the APA was to provide for more judicial control over administrative agencies. To that end, the APA provides that courts should "hold unlawful and set aside" agency actions found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Under this standard, parties can challenge regulations as contrary to law or as so irrational that they are arbitrary and capricious. There is no precise definition of what makes a rule arbitrary and capricious, but the standard includes factors such as whether the agency has done any of the following: 1)Failed to provide a rational explanation for its decision. 2)Changed its prior policy without justification. 3)Considered legally inappropriate factors. 4)Entirely failed to consider a relevant factor. 5)Rendered a decision plainly contrary to the evidence.

Audits

One of the more important tasks that an accoun- tant may perform for a business is an audit. An audit is a systematic inspection, by analyses and tests, of a business's financial records. An accountant qualified to perform audits is often called an auditor. After performing an audit, the auditor issues an opinion letter stating whether, in his or her opinion, the financial statements fairly present the business's financial position. The purpose of an audit is to provide the auditor with evidence to support an opinion on the reliability of the business's financial statements. A normal audit is not intended to uncover fraud or other misconduct. Nevertheless, an accountant may be liable for failing to detect misconduct if a normal audit would have revealed it. Also, if the auditor agreed to examine the records for evidence of fraud or other obvious misconduct and then failed to detect it, he or she may be liable.

Deceptive Advertising

One of the most important federal consumer protection laws is the Federal Trade Commission Act.1 The act created the Federal Trade Commission (FTC) to carry out the broadly stated goal of preventing unfair and deceptive trade practices, including deceptive advertising. Generally, deceptive advertising occurs if a reason- able consumer would be misled by the advertising claim. Vague generalities and obvious exaggerations are permissible.(allowed) These claims are known as puffery. When a claim takes on the appearance of authenticity, however, it may create problems.

Minimizing Liability

One way for a business to minimize its potential liability under Superfund is to conduct environmental compliance audits of its own operations regularly. That is, the business can investigate its own operations and property to determine whether any environmental hazards exist. The EPA encourages companies to conduct self-audits and promptly detect, disclose, and correct wrongdoing. Companies that do so are subject to lighter penalties for violations of environmental laws. (Fines may be reduced as much as 75 percent.) In addition, under EPA guidelines, the EPA will waive all fines if a small company corrects environmental violations within 180 days after being notified of the violations (or 360 days if pollution-prevention techniques are involved). The policy does not apply to criminal violations of environmental laws, though, or to violations that pose a significant threat to public health, safety, or the environment.

Market-Share Liability

Ordinarily, in all product liability claims, a plaintiff must prove that the defective product that caused his or her injury was the product of a specific defendant. In a few situations, however, courts have dropped this requirement when plaintiffs could not prove which of many distributors of a harmful product supplied the particular product that caused the injuries. Under a theory of market-share liability, a court can hold each manufacturer responsible for a percentage of the plaintiff's dam- ages that is equal to the percentage of its market share.

Toxic Chemicals and Hazardous Waste

Originally, most environmental clean-up efforts were directed toward reducing smog and making water safe for fishing and swimming. Today, control of toxic chemicals and hazardous waste has become increasingly important. If not properly disposed of, these substances may seriously endanger human health and the environment—for instance, by contaminating public drinking water.

Confidentiality and Privilege

Professionals are restrained by the ethical tenets of their professions to keep all communications with their clients confidential.

Professionals

Professionals, such as accountants,physicians, attorneys, and many more are increasingly faced with the threat of a liability. In part, this is because the public has become more aware that professionals are required to deliver competent services and adhere to certain standards of performance within their professions. The failure of several major companies and leading public accounting firms in the past twenty years has focused attention on the importance of abiding by professional accounting standards. Numerous corporations and former corporations have been accused of engaging in accounting fraud. These include American International Group (AIG, the world's largest insurance company), HealthSouth and many more. These companies may have reported fictitious revenues, concealed liabilities or debts, or artificially inflated their assets. Considering the many potential sources of legal liability that they face, accountants, attorneys, and other professionals should be very aware of their legal obligations. In this chapter, we look at the potential liability of professionals under both the common law and statutory law.

Informal Agency Actions

Rather than take the time to conduct notice-and-comment rulemaking, agencies have increasingly been using more informal methods of policymaking, such as issuing interpretive rules and guidance documents. As mentioned earlier, unlike legislative rules, interpretive rules simply declare policy and do not affect legal rights or obligations. Guidance documents advise the public on the agencies' legal and policy positions. Informal agency actions are exempt from the APA's requirements because they do not establish legal rights. A party cannot be directly prosecuted for violating an interpretive rule or a guidance document. Nevertheless, an informal action can be important because it warns regulated entities that the agency may engage in formal rulemaking if they ignore its informal policymaking.

Standards for Equipment

Regulations generally specify that the best available control technology, or BACT, be installed. The EPA issues guidelines as to what equip- ment meets this standard. Essentially, the guidelines require the most effective pollution-control equipment available. New sources must install BACT equipment before beginning operations. Existing sources are subject to timetables for the installation of BACT equipment and must immediately install equipment that utilizes the best practical control technology, or BPCT. The EPA also issues guidelines as to what equipment meets this standard.

Mobile Sources

Regulations governing air pollution from automobiles and other mobile sources specify pollution standards and establish time schedules for meeting the standards. The EPA periodically updates the pollution standards in light of new developments and data, usually reducing the amount of emissions allowed.

Product Misuse

Similar to the defense of voluntary assumption of risk is that of product misuse, which occurs when a product is used for a purpose for which it was not intended. The courts have severely limited this defense, however, and it is now recognized as a defense only when the particular use was not foreseeable. If the misuse is reasonably foreseeable, the seller must take measures to guard against it.

Claims Based on Half-Truths

Some advertisements contain "half-truths," meaning that the presented information is true but incomplete and may therefore lead consumers to a false conclusion.

Comparative Negligence

Some jurisdictions have adopted a "pure" form of com- parative negligence that allows the plaintiff to recover, even if the extent of his or her fault is greater than that of the defendant. Under pure comparative negligence, if the plaintiff was 80 percent at fault and the defendant 20 percent at fault, the plaintiff can recover 20 percent of his or her damages. Many states' comparative negligence statutes, how- ever, contain a "50 percent" rule that prevents the plaintiff from recovering any damages if she or he was more than 50 percent at fault. Under this rule, a plaintiff who was 35 percent at fault can recover 65 percent of his or her damages, but a plaintiff who was 65 percent (more than 50 percent) at fault can recover nothing

The Administrative Procedure Act

Sometimes, Congress specifies certain procedural requirements in an agency's enabling legislation. In the absence of any directives from Congress concerning a particular agency procedure, the Administrative Procedure Act (APA) applies.

Negligent Misrepresentation

Sometimes, a tort action can arise from misrepresentations that are made negligently rather than intentionally. The key difference between intentional and negligent misrepresentation is whether the person making the misrepresentation had actual knowledge of its falsity. Negligent misrepresentation requires only that the person making the statement or omission did not have a reasonable basis for believing its truthfulness. Liability for negligent misrepresentation usually arises when the defendant who made the misrepresentation owed a duty of care to the plaintiff to supply correct information. (We discuss the duty of care in more detail later in the chapter.) Statements or omissions made by attorneys and accountants to their clients, for instance, can lead to liability for negligent misrepresentation

Unaudited Financial Statements

Sometimes, accountants are hired to prepare unaudited financial statements. (A financial statement is considered unaudited if incomplete auditing procedures have been used in its preparation or if insufficient procedures have been used to justify an opinion.) Lesser standards of care are typically required in this situation. Nevertheless, accountants may be liable for omissions from unaudited statements. Accountants may be subject to liability for failing, in accordance with standard accounting procedures, to designate a balance sheet as "unaudited." An accountant will also be held liable for failure to disclose to a client facts or circumstances suggesting that misstatements have been made or that fraud has been committed.

Legislative Caps on Damages

State laws may limit the amount of damages—both punitive and general—that can be awarded to the plaintiff. More than half of the states have placed caps ranging from $250,000 to $750,000 on noneconomic general damages (such as for pain and suffering), especially in medical malpractice suits. More than thirty states have limited punitive damages, with some imposing outright bans.

State and Local Regulations

State laws may restrict a business's discharge of chemicals into the air or water or regulate its disposal of toxic wastes. States may also regulate the disposal or recycling of other wastes, including glass, metal, plastic containers, and paper. Additionally, states may restrict emissions from motor vehicles. City, county, and other local governments also regu- late some aspects of the environment. For instance, local zoning laws may be designed to inhibit or regulate the growth of cities and suburbs. In the interest of safeguarding the environment, such laws may prohibit certain land uses. Even when zoning laws permit a business's proposed development plan, the plan may have to be altered to lessen the development's environmental impact. In addition, cities and counties may impose rules regulating methods of waste removal, the appearance of buildings, the maximum noise level, and other aspects of the local environment. State and local regulatory agencies also play a significant role in implementing federal environmental legislation. Typically, the federal government relies on state and local governments to enforce federal environmental statutes and regulations, such as those regulating air quality.

Statutes of Limitations and Repose

Statutes of limitations restrict the time within which an action may be brought. The statute of limitations for product liability cases varies according to state law. Usually, the injured party must bring a product liability claim within two to four years. Often, the running of the prescribed period is tolled (that is, suspended) until the party suffering an injury has discovered it or should have discovered it. To ensure that sellers and manufacturers will not be left vulnerable to lawsuits indefinitely, many states have passed statutes of repose, which place outer time limits on product liability actions. For instance, a statute of repose may require that claims be brought within twelve years from the date of sale or manufacture of the defective product. If the plaintiff does not bring an action before the prescribed period expires, the seller cannot be held liable.

Ch.7

Strict Liability and Product Liability

Abnormally Dangerous Activities

Strict liability for damages proximately caused by an abnormally dangerous, or ultrahazardous, activity is one application of strict liability. Courts apply the doctrine of strict liability in these situations because of the extreme risk of the activity. Abnormally dangerous activities are those that involve a high risk of serious harm to persons or property that cannot be completely guarded against by the exercise of reasonable care. Activities such as blasting or storing explosives qualify as abnormally dangerous, for instance. Even if blasting with dynamite is performed with all reasonable care, there is still a risk of injury. Considering the potential for harm, it seems reasonable to ask the person engaged in the activity to pay for injuries caused by that activity. Although there is no fault, there is still responsibility because of the dangerous nature of the undertaking. Similarly, persons who keep wild animals are strictly liable for any harm inflicted by the animals. The basis for applying strict liability is that wild animals, should they escape from confinement, pose a serious risk of harm to people in the vicinity. Even an owner of domes- tic animals (such as dogs or horses) may be strictly liable for harm caused by those animals if the owner knew, or should have known, that the animals were dangerous or had a propensity to harm others.

Strict Liability of PRPs

Superfund imposes strict liability on PRPs, and that liability cannot be avoided through transfer of ownership. Thus, selling a site where hazardous wastes were disposed of does not relieve the seller of liability, and the buyer also becomes liable for the clean-up. Liability also extends to businesses that merge with or buy corporations that have violated CERCLA. A parent corporation is not automatically liable for the violations of its subsidiary. It can be held liable, however, if the subsidiary was merely a shell company or if the parent corporation participated in or controlled the facility.

Potentially Responsible Parties

Superfund provides that when a release or a potential release of hazardous chemicals from a site occurs, the following persons may be held responsible for cleaning up the site: 1)The person who generated the wastes disposed of at the site. 2)The person who transported the waste to the site. 3)The person who owned or operated the site at the time of the disposal. 4)The current owner or operator. A person falling within one of these categories is referred to as a potentially responsible party (PRP). If the PRPs do not clean up the site, the EPA can clean up the site and recover the clean-up costs from the PRPs.

Application

TILA requirements apply only to those who, in the ordinary course of business, lend funds, sell on credit, or arrange for the extension of credit. Thus, sales or loans made between two consumers do not come under the protection of the act. Additionally, this law protects only debtors who are natural persons (as opposed to the artificial "person" of a corporation). It does not extend to other legal entities.

What is Ethical?

Teachings regarding right and wrong, a basic requirement for the journey toward spiritual fulfillment the word is used for people who follow the moral standards of their profession. An ethical lawyer or doctor does not try to take advantage of the client or patient's unfortunate situation.

Fair Notice

The APA also includes many requirements concerning the notice that regulatory agencies must give to those affected by its regulations. For instance, an agency may change the way it applies a certain regulatory principle. Before the change can be carried out, the agency must give fair notice of what conduct will be expected in the future.

Types of Bankruptcy Relief

The Bankruptcy Code is contained in Title 11 of the United States Code and has eight chapters. Chapters 1, 3, and 5 of the Code contain general definitional provi- sions, as well as provisions governing case administration, creditors, the debtor, and the estate. These three chapters normally apply to all kinds of bankruptcies. Four chapters of the Code set forth the most important types of relief that debtors can seek: 1)Chapter 7 provides for liquidation proceedings (the selling of all nonexempt assets and the distribution of the proceeds to the debtor's creditors). 2)Chapter 11 governs reorganizations. 3)Chapter 12 (for family farmers and family fishermen) and 13 (for individuals) provide for the adjustment of debts by persons with regular incomes.

Permit System for Point-Source Emissions

The CWA established a permit system for regulating discharges from "point sources" of pollution, which include industrial, municipal (such as sewage pipes and treatment plants), and agricultural facilities. Under this system, called the National Pollutant Discharge Elimination System (NPDES), any point source emitting pollutants into water must have a permit. Pollution not from point sources, such as runoff from small farms, is not subject to much regulation.

Wetlands

The CWA prohibits the filling or dredging of wetlands unless a permit is obtained from the Army Corps of Engineers. The EPA defines wetlands as "those areas that are inundated or saturated by surface or ground water at a frequency and duration sufficient to support . . . vegetation typically adapted for life in saturated soil conditions." Wetlands are thought to be vital to the eco- system because they filter streams and rivers and provide habitat for wildlife.

Stationary Sources

The Clean Air Act also authorizes the EPA to establish air-quality standards for stationary sources (such as manufacturing plants). But the act recognizes that the primary responsibility for implementing these standards rests with state and local governments. The standards are aimed at controlling hazardous air pollutants—those likely to cause death or a serious, irreversible, or incapacitating condition, such as cancer or neurological or reproductive damage. The EPA sets primary and secondary levels of ambient standards—that is, maximum permissible levels of certain pollutants—and the states formulate plans to achieve those standards. Different standards apply depending on whether the sources of pollution are located in clean areas or polluted areas and whether they are existing sources or major new sources. The Clean Air Act requires the EPA to list all hazardous air pollutants (HAPs) on a prioritized schedule. In all, nearly two hundred substances—including asbestos, benzene, beryllium, cadmium, mercury, and vinyl chloride—have been classified as hazardous. They are emitted from stationary sources by a variety of business activities, including smelting (melting ore to produce metal), dry cleaning, house painting, and commercial baking. Instead of establishing specific emissions standards for each hazardous air pollutant, the Clean Air Act requires major new sources to use pollution-control equipment that represents the maximum achievable control technology, or MACT, to reduce emissions. The EPA issues guidelines as to what equipment meets this standard.

Superfund

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund, regulates the clean-up of disposal sites in which hazardous waste is leaking into the environment. CERCLA, as amended, has four primary elements: 1)It established an information-gathering and analysis system that enables the government to identify chemical dump sites and determine the appropriate action. 2)It authorized the EPA to respond to emergencies and to arrange for the clean-up of a leaking site directly if the persons responsible fail to clean up the site. 3)It created a Hazardous Substance Response Trust Fund (also called Superfund) to pay for the clean-up of hazardous sites using funds obtained through taxes on certain businesses. 4)It allowed the government to recover the cost of clean-up from persons who were (even remotely) responsible for hazardous substance releases.

The Consumer Product Safety Act

The Consumer Product Safety Act created a comprehensive regulatory scheme over consumer safety matters and established the Consumer Product Safety Commission (CPSC). The CPSC conducts research on the safety of individual consumer products and maintains a clearinghouse on the risks associated with various products. The Consumer Product Safety Act authorizes the CPSC to do the following: 1)Set safety standards for consumer products. 2)Ban the manufacture and sale of any product that the commission believes poses an "unreasonable risk" to consumers. (Products banned by the CPSC have included various types of fireworks, cribs, and toys, as well as many products containing asbestos or vinyl chloride.) 3)Remove from the market any products it believes to be imminently hazardous. The CPSC frequently works in conjunction with manufacturers to con- duct voluntary recalls of defective products from stores. 4)Require manufacturers to report on any products already sold or intended for sale if the products have proved to be hazardous. 5)Administer other product-safety legislation, including the Child Protection and Toy Safety Act and the Federal Hazardous Substances Act.

Notification Requirements

The Consumer Product Safety Act requires the distributors of consumer products to notify the CPSC immediately if they receive information that a product "contains a defect which . . . creates a substantial risk to the public" or "an unreasonable risk of serious injury or death."

Automobile Fuel Economy Labels

The Energy Policy and Conservation Act (EPCA) requires automakers to attach an information label to every new car. The label must include the Environmental Protection Agency's fuel economy estimate for the vehicle.

Drugs and Medical Devices

The FDA is also responsible under the FDCA for ensuring that drugs are safe and effective before they are marketed to the public. Because the FDA must ensure the safety of new medications, there is always a delay before drugs are available to the public, and this sometimes leads to controversy.

Bait-and-Switch Advertising

The FTC has issued rules that govern specific advertising techniques. One of the most important rules is contained in the FTC's "Guides Against Bait Advertising." Some retailers systematically advertise merchandise at low prices to get customers into their stores. But when the customers arrive, they find that the merchandise is not in stock. Salespersons then encourage them to purchase more expensive items instead. This practice, known as bait-and-switch advertising, is a form of deceptive advertising. The low price is the "bait" to lure the consumer into the store. The salesperson is instructed to "switch" the consumer to a different, more expensive item. Under the FTC guidelines, bait-and-switch advertising occurs if the seller does any of the following: 1)Refuses to show the advertised item. 2)Fails to have a reasonable quantity of the item in stock. 3)Fails to promise to deliver the advertised item within a reasonable time. 4)Discourages Employees from selling the advertised item

Federal Trade Commission Actions

The FTC receives complaints from many sources, including competitors of alleged violators, consumers, trade associations, Better Business Bureaus, and government organizations and officials. When the agency receives numerous and widespread complaints about a particular problem, it will investigate.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) protects consumers against inaccurate credit reporting and requires that lenders and other creditors report correct, relevant, and up-to-date information. The act provides that consumer credit reporting agencies may issue credit reports to users only for specified purposes. Legitimate purposes include the extension of credit, the issuance of insurance policies, and responding to the consumer's request.

Pesticides and Herbicides

The Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) regulates the use of pesticides and herbicides. These substances must be (1) registered before they can be sold, (2) certified and used only for approved applications, and (3) used in limited quantities when applied to food crops. The EPA can cancel or suspend registration of substances that it has identified as harmful and can inspect the factories where the chemicals are made. A substance is deemed harmful if human exposure to the substance, including exposure through eating food, results in a risk of one in a million (or higher) of developing cancer. It is a violation of FIFRA to sell a pesticide or herbicide that is either unregistered or has had its registration canceled or suspended. It is also a violation to sell a pesticide or herbicide with a false or misleading label. For instance, it is an offense to sell a substance that has a chemical strength that is different from the concentration described on the label. It is also a violation to destroy or deface any labeling required under the act. Penalties for commercial dealers include imprisonment for up to one year and a fine of up to $25,000 (producers can be fined up to $50,000). Farmers and other private users of pesticides or herbicides who violate the act are subject to a $1,000 fine and incarceration for up to thirty days. Note that a state can also regulate the sale and use of federally registered pesticides.

Enforcement of the Act

The Federal Trade Commission is primarily responsible for enforcing the FDCPA. A debt collector who fails to comply with the act is liable for actual damages, plus additional damages not to exceed $1,000 and attorneys' fees.

Search Warrants

The Fourth Amendment protects against unreasonable searches and seizures by requiring that in most instances a physical search for evidence must be conducted under the authority of a search warrant. An agency's search warrant is an order directing law enforcement officials to search a specific place for a specific item and seize it for the agency. It was once thought that administrative inspections were exempt from the warrant requirement, but the United States Supreme Court has held that the requirement does apply to the administrative process.10 Nevertheless, agencies can conduct warrantless searches in several situations. Warrants are not required to conduct searches in highly regulated industries. Firms that sell firearms or liquor, for instance, are automatically subject to inspections without warrants. Sometimes, a statute permits warrantless searches of certain types of hazardous operations, such as coal mines. Also, a warrantless inspection in an emergency situation is normally considered reasonable.

Freedom of Information Act

The Freedom of Information Act (FOIA) requires the federal government to disclose certain records to any person or entity on written request, even if no reason is given for the request. All federal government agencies must make their records available electronically on the Internet and in other electronic formats. The FOIA exempts certain types of records, such as those pertaining to national security and those containing information that is confidential or personal. For other records, a request that complies with the FOIA procedures need only contain a reasonable description of the information sought. An agency's failure to comply with an FOIA request can be challenged in a federal district court. The media, industry trade associations, public-interest groups, and even companies seeking information about competitors rely on these FOIA provisions to obtain information from government agencies.

Government in the Sunshine Act

The Government in the Sunshine Act,14 or open meeting law, requires that "every portion of every meeting of an agency" be open to "public observation." The act also requires that the public be provided with adequate advance notice of scheduled meetings and agendas. Like the FOIA, the Sunshine Act contains certain exceptions. Closed meetings are permitted in the following situations: 1. The subject of the meeting concerns accusing any person of a crime. 2. Open meetings would frustrate implementation of future agency actions. 3. The subject of the meeting involves matters relating to future litigation or rulemaking. Courts interpret these exceptions to allow open access whenever possible.

False Advertising Claims under the Lanham Act

The Lanham-Act protects trademarks, as discussed elsewhere. The act also covers false advertising claims. To state a successful claim for false advertising under this act, a business must establish each of the following elements: 1)An injury to a commercial interest in reputation or sales. 2)Direct causation of the injury by false or deceptive advertising. 3)A loss of business from buyers who were deceived by the advertising.

Ocean Dumping

The Marine Protection, Research, and Sanctuaries Act (popularly known as the Ocean Dumping Act) regulates the transportation and dumping of pollutants into ocean waters. It prohibits the ocean dumping of any radiological, chemical, and biological warfare agents and high- level radioactive waste. The act also established a permit program for trans- porting and dumping other materials, and designated certain areas as marine sanctuaries. Each violation of any provision or permit requirement in the Ocean Dumping Act may result in a civil penalty of up to $50,000. A knowing violation is a criminal offense that may result in a $50,000 fine, imprisonment for not more than a year, or both. A court may also grant an injunction(warning) to prevent an imminent or continuing violation.

Reducing Emissions

The Obama administration set a long-term goal of reducing emissions, including those from cars and sport utility vehicles, by 80 percent by 2050. The administration also ordered the EPA to develop national standards regulating fuel economy and emissions for medium- and heavy-duty trucks starting with 2014 models.

The Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act made some changes to the potential liability of accountants and other professionals in securities fraud cases. Among other things, the act imposed a statutory obligation on accountants. An auditor must use adequate procedures in an audit to detect any illegal acts of the company being audited. If something illegal is detected, the auditor must disclose it to the company's board of directors, the audit committee, or the SEC, depending on the circumstances

The Resource Conservation and Recovery Act

The Resource Conservation and Recovery Act (RCRA) was Congress's response to growing concerns about the effects of hazardous waste materials on the environment. The RCRA required the EPA to determine which forms of solid waste should be considered hazardous and to establish regulations to monitor and control hazardous waste disposal. Among other things, the act requires all producers of hazardous waste materials to label and package properly any hazardous waste to be transported. Amendments to the RCRA decrease the use of land containment in the disposal of hazardous waste and require smaller generators of hazardous waste to comply with the act. Under the RCRA, a company may be assessed a civil penalty of up to $25,000 for each violation. The penalty is based on the seriousness of the violation, the prob- ability of harm, and the extent to which the violation deviates from RCRA requirements. Criminal penalties include fines of up to $50,000 for each day of violation, imprisonment for up to two years (in most instances), or both. Criminal fines and the time of imprisonment can be doubled for certain repeat offenders.

Product Defects

The Restatement (Third) of Torts: Products Liability defines the three types of product defects that have traditionally been recognized in product liability law—manufacturing defects, design defects, and inadequate warnings.

Unreasonably Dangerous Products

The Restatement recognizes that many products cannot be made entirely safe for all uses. Thus, sellers or lessors are liable only for products that are unreasonably dangerous. A court could consider a product so defective as to be an unreasonably dangerous product in either of the following situations: 1. The product was dangerous beyond the expectation of the ordinary consumer. 2. A less dangerous alternative was economically feasible for the manufacturer, but the manufacturer failed to produce it.

Drinking Water

The Safe Drinking Water Act requires the EPA to set maximum levels for pollutants in public water systems. The operators of public water systems must come as close as possible to meeting the EPA's standards by using the best available technology that is economically and technologically feasible. Under the act, each supplier of drinking water is required to send an annual statement describing the source of its water to every household it supplies. The statement must also disclose the level of any contaminants in the water and any possible health concerns associated with the contaminants.

The Sarbanes-Oxley Act

The Sarbanes-Oxley Act imposes a number of strict requirements on both domestic and foreign public accounting firms. These requirements apply to firms that provide auditing services to companies ("issuers") whose securities are sold to public investors. The act defines the term issuer as a company (1) that has securities registered under Section 12 of the Securities Exchange Act of 1934, (2) that is required to file reports under Section 15(d) of the 1934 act, or (3) that has filed a registration statement that has not yet become effective under the Securities Act of 1933.

Liability under the Securities Act of 1933

The Securities Act of 1933 requires registration statements to be filed with the Securities and Exchange Commission (SEC) prior to an offering of securities.10 Accountants frequently prepare and certify the issuer's financial statements that are included in the registration statement. Section 11 of the Securities Act imposes civil liability on accountants for misstatements and omissions of material facts in registration statements. Accountants may be held liable if a financial statement they prepared for inclusion "contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading." Section 11 imposes a duty on accountants to use due diligence in preparing financial statements included in the filed registration statements. Once a purchaser has proved a loss on a security, the accountant has the burden of showing that he or she exercised due diligence. To prove due diligence, the accountant must demonstrate that she or he followed generally accepted standards and did not commit negligence or fraud. Section 12(2) of the 1933 Securities Act imposes civil liability for fraud in relation to offerings or sales of securities.13 Liability arises when the offeror or seller makes an oral statement to an investor or provides a written prospectus that includes an untrue statement or omits a material fact. Accountants may be liable under Section 12(2) if they participated in preparing materials in which the false misrepresentation or omission was made.

Small Business Regulatory Enforcement Fairness Act

The Small Business Regulatory Enforcement Fairness Act includes various provisions intended to ease the regulatory burden on small businesses: 1)Federal agencies must prepare guides that explain in plain English how small businesses can comply with federal regulations. 2)Congress may review new federal regulations for at least sixty days before they take effect, giving opponents of the rules time to present their arguments. 3)The courts may enforce the Regulatory Flexibility Act. This provision helps to ensure that federal agencies will consider ways to reduce the economic impact of new regulations on small businesses. 4)The Office of the National Ombudsman at the Small Business Administration was set up to receive com- ments from small businesses about their dealings with federal agencies. Based on these comments, Regional Small Business Fairness Boards rate the agencies and publicize their findings.

Credit-Card Rules

The TILA also contains provisions regarding credit cards. One provision limits the liability of a cardholder to $50 per card for unauthorized charges made before the creditor is notified that the card has been lost. If a consumer receives an unsolicited credit card in the mail that is later stolen, the company that issued the card cannot charge the consumer for any unauthorized charges. Another provision requires credit-card companies to disclose the balance computation method that is used to determine the outstanding balance and to state when finance charges begin to accrue. Other provisions set forth procedures for resolving billing disputes with the credit-card company. These procedures are used if, for instance, a cardholder thinks that an error has occurred in billing or wishes to withhold payment for a faulty product purchased by credit card.

Disclosure Requirements

The TILA's disclosure requirements are contained in Regulation Z, issued by the Federal Reserve Board of Governors. If the contracting parties are subject to the TILA, the requirements of Regulation Z apply to any transaction involving an installment sales contract that calls for payment to be made in more than four installments. Transactions subject to Regulation Z typically include installment loans, retail and installment sales, car loans, home-improvement loans, and certain real estate loans if the amount of financing is less than $25,000. Under the provisions of the TILA, all of the terms of a credit instrument must be clearly and conspicuously disclosed. A lender must disclose the annual percentage rate (APR), finance charge, amount financed, and total payments (the sum of the amount loaned, plus any fees, finance charges, and interest). If a creditor fails to follow the exact procedures required by the TILA, the creditor risks contract rescission (cancellation) under the act.

Fraudulent Telemarketing

The Telemarketing and Consumer Fraud and Abuse Prevention Act directed the FTC to establish rules governing telemarketing and to bring actions against fraudulent telemarketers. The FTC's Telemarketing Sales Rule (TSR) requires a telemarketer to identify the seller's name, describe the product being sold, and disclose all material facts related to the sale (such as the total cost). The TSR makes it illegal for telemarketers to misrepresent information or facts about their goods or services. A telemarketer must also remove a consumer's name from its list of potential contacts if the customer so requests. An amendment to the TSR established the national Do Not Call Registry. Telemarketers must refrain from calling those consumers who have placed their names on the list. Significantly, the TSR applies to any offer made to consumers in the United States—even if the offer comes from a foreign firm. Thus, the TSR helps to protect consumers from illegal cross-border telemarketing operations.

Telephone Solicitation

The Telephone Consumer Protection Act (TCPA) prohibits telephone solicitation using an automatic telephone dialing system or a prerecorded voice. In addition, most states have statutes regulating telephone solicitation. The TCPA also makes it illegal to transmit ads via fax without first obtaining the recipient's permission. (Most states also have laws regulating telephone solicitation.) It is a telephone call that acts as an advertisement. However, calls or messages placed with a person's prior permission, by or on behalf of a tax-exempt non-profit organization, or from a person or organization with which one has an established business relationship (EBR) is not considered telephone solicitation. The Federal Communications Commission (FCC) enforces the TCPA. The FCC imposes substantial fines ($11,000 each day) on companies that violate the junk fax provisions of the act. The TCPA also gives consumers a right to sue for either $500 for each violation of the act or for the actual monetary losses resulting from a violation, whichever is greater. If a court finds that a defendant willfully or knowingly violated the act, the court has the discretion to treble (triple) the amount of damages awarded.

Toxic Substances

The Toxic Substances Control Act regulates chemicals and chemical compounds that are known to be toxic, such as asbestos and polychlorinated biphenyls (PCBs). The act also controls the introduction of new chemical compounds by requiring investigation of any possible harmful effects from these substances. Under the act, the EPA can require that manufacturers, processors, and other entities planning to use chemicals first determine their effects on human health and the environment. The EPA can regulate substances that could pose an imminent hazard or an unreasonable risk of injury to health or the environment. The EPA can also require special labeling, limit the use of a substance, set production quotas, or prohibit the use of a substance altogether.

The Restatement Rule

The Ultramares rule has been severely criticized. Much of the work performed by auditors is intended for use by persons who are not parties to the contract. Critics of the Ultra- mares rule assert that auditors should owe a duty to these third parties. As support for this position has grown, there has been an erosion of the Ultramares rule, and accountants may now be liable to third parties in some situations. The majority of courts have adopted the position taken by the Restatement (Third) of Torts. This rule states that accountants are subject to liability for negligence not only to their clients but also to foreseen, or known, users of their reports or financial statements. Under the Restatement (Third) of Torts, an accountant's liability extends to: 1)Persons for whose benefit and guidance the accountant intends to supply the information or knows that the recipient intends to supply it. 2)Persons whom the accountant intends the information to influence or knows that the recipient so intends. The majority of courts have adopted this rule.

Attorney's Duty of Care

The conduct of attorneys is governed by rules established by each state and by the American Bar Association's Model Rules of Professional Conduct. All attorneys owe a duty to provide competent and diligent representation. Attorneys are required to be familiar with well-settled principles of law applicable to a case and to find relevant law that can be discovered through a reasonable amount of research. They must also investigate and discover facts that could materially affect clients' legal rights. Normally, an attorney's performance is expected to be that of a reasonably competent general practitioner of ordinary skill, experience, and capacity. Often, an attorney holds himself or herself out as having expertise in a particular area of law (such as intellectual property). In this instance, the attorney is held to a higher standard of care in that area of law than attorneys without such knowledge.

Attorney-Client Relationships

The confidentiality of attorney-client communications is protected by law, which confers a privilege on such communications. This privilege exists because of the client's need to fully disclose the facts of his or her case to the attorney. To encourage frankness, confidential attorney-client communications relating to representation are normally held in strictest confidence and protected by law. The attorney and her or his employees may not discuss the client's case with anyone—even under court order—with- out the client's permission. The client holds the privilege, and only the client may waive it—by disclosing privileged information to someone outside the privilege, for example.

Commonly Known Dangers

The dangers associated with certain products (such as matches and sharp knives) are so commonly known that, as mentioned, manufacturers need not warn users of those dangers. If a defendant succeeds in convincing the court that a plaintiff's injury resulted from a commonly known danger, the defendant will not be liable

Executive Controls

The executive branch of government exercises control over agencies both through the president's power to appoint federal officers and through the president's veto power. The president may veto enabling legislation passed by Congress or congressional attempts to modify an existing agency's authority.

Invasion of Privacy under the Common Law

The following four acts qualify as an invasion of privacy under the common law: 1)Intrusion into an individual's affairs or seclusion. Invading someone's home or searching some- one's briefcase or laptop without authorization is an invasion of privacy. This tort has been held to extend to eavesdropping by wiretap, unauthorized scanning of a bank account, compulsory blood testing, and window peeping. 2)False light. Publication of information that places a person in a false light is also an invasion of privacy. For instance, writing a story that attributes to a per- son ideas and opinions not held by that person is an invasion of privacy. (Publishing such a story could involve the tort of defamation as well.) 3)Public disclosure of private facts. This type of invasion of privacy occurs when a person publicly discloses private facts about an individual that an ordinary person would find objectionable or embarrassing. A newspaper account of a private citizen's sex life or financial affairs could be an actionable invasion of privacy. This is so even if the information revealed is true, because it should not be a matter of public concern. 4)Appropriation of identity. Using a person's name, picture, likeness, or other identifiable characteristic for commercial purposes without permission is also an invasion of privacy. An individual's right to privacy normally includes the right to the exclusive use of her or his identity. Most states today have codified the common law tort of appropriation of identity in statutes that establish the distinct tort of appropriation, or right of publicity. States differ as to the degree of likeness that is required to impose liability for appropriation, however. Some courts have held that even when an animated character in a video or a video game is made to look like an actual person, there are not enough similarities to constitute appropriation.

Defamation

The freedom of speech guaranteed by the First Amendment is not absolute. The courts are required to balance the vital guarantee of free speech against other pervasive and strong social interests, including society's interest in preventing and redressing attacks on reputation. Defamation of character involves wrongfully hurting a person's good reputation. The law imposes a general duty on all persons to refrain from making false, defamatory statements of fact about others. Breaching this duty in writing or other permanent form (such as a digital recording) involves the tort of libel. Breaching this duty orally involves the tort of slander. The tort of defamation also arises when a false statement of fact is made about a person's product, business, or legal ownership rights to property. Establishing defamation involves proving the following elements: 1)The defendant made a false statement of fact. 2)The statement was understood as being about the plaintiff and tended to harm the plaintiff 's reputation. 3)The statement was published to at least one person other than the plaintiff. 4)If the plaintiff is a public figure, she or he must also prove actual malice writing = libel, spoken = slander

Caloric Content of Restaurant Foods

The health-care reforms enacted in 2010 (the Affordable Care Act, or Obamacare) included provisions aimed at com- bating the problem of obesity in the United States. All restaurant chains with twenty or more locations are now required to post the caloric content of the foods on their menus so that customers will know how many calories the foods contain.16 Foods offered through vending machines must also be labeled so that their caloric content is visible to would-be purchasers. In addition, restaurants must post guidelines on the number of calories that an average person requires daily so that customers can determine what portion of a day's calories a particular food will provide. The hope is that consumers, armed with this information, will consider the number of calories when they make their food choices. The federal law on menu labeling supersedes all previous state and local laws in this area.

Health-Care Reforms

The health-care reforms enacted in 2010 gave Americans new rights and benefits with regard to health care. The legislation also prohibited certain insurance company practices.

Judicial Controls

The judicial branch exercises control over agency powers through the courts' review of agency actions. As you will read shortly, the Administrative Procedure Act provides for judicial review of most agency decisions. Agency actions are not automatically subject to judicial review, however. The party seeking court review must first exhaust all administrative remedies under what is called the exhaustion doctrine. In other words, the complaining party normally must have exhausted all available administrative remedies before seeking court review

Strict Product Liability and Public Policy

The law imposes strict product liability as a matter of public policy. This public policy rests on a threefold assumption: 1. Consumers should be protected against unsafe products. 2. Manufacturers and distributors should not escape liability for faulty products simply because they are not in privity of contract with the ultimate user of those products. 3. Manufacturers and distributors can better bear the costs associated with injuries caused by their prod- ucts, because they can ultimately pass the costs on to all consumers in the form of higher prices. Public policy may be expressed in a statute or in the common law. Sometimes, public pol- icy may be revealed in a court's interpretation of a statute

Strict Liability

The legal responsibility for damage or injury even if you are not negligent

Rulemaking

The major function of an administrative agency is rule- making—the formulation of new regulations, or rules. The APA defines a rule as "an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law and policy." Regulations are sometimes said to be legislative because, like statutes, they have a binding effect. Thus, violators of agency rules may be punished. Because agency rules have such significant legal force, the APA established procedures for agencies to follow in creating rules. Many rules must be adopted using the APA's notice- and-comment rulemaking, which involves three basic steps: 1. Notice of the proposed rulemaking. 2. A comment period. 3. The final rule.

The Federal Food, Drug, and Cosmetic Act

The most important federal legislation regulating food and drugs is the Federal Food, Drug, and Cosmetic Act (FDCA). The act protects consumers against adulterated (contaminated) and misbranded foods and drugs. The FDCA establishes food standards, specifies safe levels of potentially hazardous food additives, and provides classifications of foods and food advertising. Most of these statutory requirements are monitored and enforced by the Food and Drug Administration (FDA).

Environmental Regulatory Agencies

The primary federal agency regulating environmental law is the Environmental Protection Agency (EPA). Other federal agencies with authority to regulate specific environmental matters include the Department of the Interior, the Department of Defense, the Department of Labor, the Food and Drug Administration, and the Nuclear Regulatory Commission. In addition, as mentioned, state and local agencies play an important role in enforcing federal environmental legislation. Most federal environmental laws provide that citizens can sue to enforce environmental regulations if government agencies fail to do so. Similarly, citizens can sue to limit enforcement actions if agencies go too far in their actions. Typically, a threshold hurdle in such suits is meeting the requirements for standing to sue.

Slander of Quality

The publication of false information about another's product, alleging that it is not what its seller claims, constitutes the tort of slander of quality, or trade libel. To establish trade libel, the plaintiff must prove that the improper publication caused a third person to refrain from dealing with the plaintiff and that the plaintiff sustained economic damages (such as lost profits) as a result.

Expanded Coverage for Children and Seniors

The reforms enabled more children to obtain health- insurance coverage and allowed young adults (under age 26) to remain on their parents' health insurance policies. The legislation also ended lifetime limits and most annual limits on care, and gave insured persons access to recommended preventive services (such as cancer screening and vaccinations) without cost. People can no longer be denied insurance because of preexisting conditions. Medicare recipients now receive a 50 percent discount on name-brand drugs, and the reforms will eliminate a gap in Medicare's prescription drug coverage by 2020.

The Requirement of Privity

The requirement of privity has since been referred to as the Ultramares rule, or the New York rule. It continues to be used in some states. The Ultramares rule was restated and somewhat modified in a 1985 New York case, Credit Alliance Corp. v. Arthur Andersen & Co.8 In that case, the court held that if a third party has a sufficiently close relationship or nexus (connection) with an accountant, then the Ultramares privity requirement may be satisfied without the establishment of an accountant-client relationship. The rule enunciated in the Credit Alliance case is often referred to as the "near privity" rule. Only a minority of states have adopted this rule of accountants' liability to third parties.

Intentional Infliction of Emotional Distress

The tort of intentional infliction of emotional distress involves an intentional act that amounts to extreme and outrageous conduct resulting in severe emotional distress to another. To be actionable (capable of serving as the ground for a lawsuit), the act must be extreme and outrageous to the point that it exceeds the bounds of decency accepted by society. Outrageous Conduct-Courts in most jurisdictions are wary of emotional distress claims and confine them to situations involving truly outrageous behavior. Generally, repeated annoyances (such as those experienced by a person who is being stalked), coupled with threats, are enough. Acts that cause indignity or annoyance alone usually are not sufficient. Limited by the First Amendment-When the outrageous conduct consists of speech about a public figure, the First Amendment's guarantee of freedom of speech also limits emotional distress claims.

Unintentional Torts—Negligence

The tort of negligence occurs when someone suffers injury because of another's failure to live up to a required duty of care. In contrast to intentional torts, in torts involving negligence, the tortfeasor neither wishes to bring about the consequences of the act nor believes that they will occur. The person's conduct merely creates a risk of such consequences. If no risk is created, there is no negligence. Moreover, the risk must be foreseeable. In other words, it must be such that a reasonable person engaging in the same activity would anticipate the risk and guard against it. In determining what is reasonable conduct, courts consider the nature of the possible harm To succeed in a negligence action, the plaintiff must prove each of the following: 1. Duty. The defendant owed a duty of care to the plaintiff. 2 Breach. The defendant breached that duty. 3.Causation. The defendant's breach caused the plain- tiff's injury. 4 Damages. The plaintiff suffered a legally recognizable injury

Wrongful Interference

The torts known as business torts generally involve wrongful interference with another's business rights. Public policy favors free competition, and these torts protect against tortious interference with legitimate business. Business torts involving wrongful interference generally fall into two categories: interference with a contractual relation- ship and interference with a business relationship.

The Ultramares Rule

The traditional rule regarding an accountant's liability to third parties based on privity of contract was enunciated by Chief Judge Benjamin Cardozo in 1931

Defenses

There are a few defenses to liability under CERCLA. The most important is the innocent land owner defense. This defense may protect a landowner who acquired the property after it was used for hazardous waste disposal. The landowner claiming the innocent landowner defense must not have had a contractual or employment relationship with the person (or other entity) who owned the land when the contamination occurred. Because land is often transferred by contract, it would seem that this defense would not normally be available. However, a landowner who can show that he or she had no knowledge of the hazardous waste disposal at the time of purchase can still assert the defense. To succeed, the landowner must show that at the time the property was acquired, she or he had no reason to know that it had been used for hazardous waste disposal. The landowner must also show that at the time of the purchase, she or he undertook "all appropriate inquiries." That is, he or she investigated the previous ownership and uses of the property to determine whether there was reason for concern about hazardous substances. In effect, then, this defense protects only property owners who took precautions and investigated the possibility of environmental hazards before buying the property.

Subpoenas

There are two basic types of subpoenas. The subpoena ad testificandum ("to testify") is an ordinary subpoena. It is a writ, or order, compelling a witness to appear at an agency hearing. The subpoena duces tecum ("bring it with you") compels an individual or organization to hand over books, papers, records, or documents to the agency. An administrative agency may use either type of subpoena to obtain testimony or documents. There are limits on what an agency can demand. To determine whether an agency is abusing its discretion in pursuing information as part of an investigation, a court may consider such factors as the following: 1. The purpose of the investigation. An investigation must have a legitimate purpose. Harassment is an example of an improper purpose. An agency may not issue an administrative subpoena to inspect business records if the motive is to harass or pressure the business into settling an unrelated matter. 2. The relevance of the information being sought. Information is relevant if it reveals that the law is being violated or if it assures the agency that the law is not being violated. 3. The specificity of the demand for testimony or documents. A subpoena must, for instance, adequately describe the material being sought. 4. The burden of the demand on the party from whom the information is sought. For instance, the cost to the company of copying requested documents or providing digital information may become burdensome. (Note that a business generally is protected from revealing information such as trade secrets.)

Classification of Torts

There are two broad classifications of torts: intentional torts and unintentional torts (torts involving negligence). The classification of a particular tort depends largely on how the tort occurs (intentionally or negligently) and the surrounding circumstances. Intentional torts result from the intentional violation of person or property (fault plus intent). Negligence results from the breach of a duty to act reasonably (fault without intent).

Product Liability

Those who make, sell, or lease goods can be held liable for physical harm or property damage caused by those goods to a consumer, user, or bystander. This is called product liability. Product liability may be based on the theories of negligence, misrepresentation, strict liability, and warranties. Multiple theories of liability can be, and often are, asserted in the same case.

Wrongful Interference with a Contractual Relationship

Three elements are necessary for wrongful interference with a contractual relationship to occur: 1)A valid, enforceable contract must exist between two parties. 2)A third party must know that this contract exists. 3)This third party must intentionally induce a party to the contract to breach the contract. The body of tort law relating to wrongful interference with a contractual relationship has increased greatly in recent years. In principle, any lawful contract can be the basis for an action of this type. The contract could be between a firm and its employees or a firm and its customers. Sometimes, a competitor of a firm lures away one of the firm's key employees. In this situation, the original employer can recover damages from the competitor only if it can be shown that the competitor knew of the contract's existence and intentionally induced the breach.

Ch.6

Tort Law and Negligence

Abusive or Frivolous Litigation

Tort law recognizes that people have a right not to be sued without a legally just and proper reason, and there- fore it protects individuals from the misuse of litigation. Torts related to abusive litigation include malicious prosecution and abuse of process. If a party initiates a lawsuit out of malice and without a legitimate legal reason, and ends up losing the suit, that party can be sued for malicious prosecution. Abuse of process can apply to any person using a legal process against another in an improper manner or to accomplish a purpose for which the process was not designed. The key difference between the torts of abuse of process and malicious prosecution is the level of proof. Unlike malicious prosecution, abuse of process is not limited to prior litigation and does not require the plain- tiff to prove malice. It can be based on the wrongful use of subpoenas, court orders to attach or seize real property, or other types of formal legal process.

Potential Liability to Third Parties

Traditionally, a professional owed a duty only to those with whom she or he had a direct contractual relation- ship—that is, those with whom she or he was in privity of contract. A professional's duty was only to her or his client. Violations of statutes, fraud, and other intentional or reckless acts of wrongdoing were the only exceptions to this general rule. Today, this situation has changed, perhaps most noticeably with respect to accountants who conduct audits (auditors). Numerous third parties—including investors, shareholders, creditors, corporate managers and directors, and regulatory agencies—rely on the opinions of auditors when making decisions. In view of this extensive reliance, many courts have all but abandoned the privity requirement in regard to accountants' liability to third parties. In this discussion, we focus primarily on the potential liability of auditors to third parties. Understanding an auditor's common law liability to third parties is critical. Often, when a business fails, its independent auditor may be one of the few defendants still solvent—that is, able to pay expenses and debts. The majority of courts now hold that auditors can be held liable to third parties for negligence, but the standard for the imposition of this liability varies.

Defenses to Defamation

Truth is normally an absolute defense against a defamation charge. In other words, if a defendant in a defamation case can prove that the allegedly defamatory statements of fact were true, normally no tort has been committed. Privileged Communications-In some circumstances, a person will not be liable for defamatory statements because she or he enjoys a privilege, or immunity. Privileged communications are of two types: absolute and qualified. Only in judicial proceedings and certain government proceedings is an absolute privilege granted. Thus, statements made by attorneys and judges in the courtroom during a trial are absolutely privileged, as are statements made by government officials during legislative debate. In other situations, a person will not be liable for defamatory statements because he or she has a qualified, or conditional, privilege. An employer's statements in written evaluations of employees, for instance, are protected by a qualified privilege. Generally, if the statements are made in good faith and the publication is limited to those who have a legitimate interest in the communication, the statements fall within the area of qualified privilege. Public Figures.-Politicians, entertainers, professional athletes, and others in the public eye are considered public figures. Public figures are regarded as "fair game." False and defamatory statements about public figures that are published in the media will not constitute defamation unless the statements are made with actual malice. To be made with actual malice, a statement must be made with either knowledge of its falsity or a reckless disregard of the truth. Statements made about public figures, especially when they are communicated via a public medium, usu- ally relate to matters of general interest. They are made about people who substantially affect all of us. Further- more, public figures generally have some access to a public medium for answering belittling falsehoods about them- selves. For these reasons, public figures have a greater burden of proof in defamation cases—to show actual malice—than do private individuals.

Misconduct

Typically,state rules of professional conduct for attorneys provide that committing a criminal act that reflects adversely on the attorney's "honesty or trustworthiness, or fitness as a lawyer" is professional misconduct. The rules often further provide that a lawyer should not engage in conduct involving "dishonesty, fraud, deceit, or misrepresentation." Under these rules, state authorities can discipline attorneys for many types of misconduct. Note, though, that states do not frequently discipline attorneys if their misconduct does not reflect on their honesty and trustworthiness. •Committing a crime is not necessarily per se misconduct=is on its face. The court, however, explained that the "commission of a criminal act by a Wisconsin licensed lawyer does not, per se, constitute professional misconduct." The OLR had not proved that Johns's crime reflected adversely on his honesty, trustworthiness, or fitness as a lawyer in other respects. In fact, except for this one tragic event, Johns had led an exemplary life without a hint of professional misconduct.

Liability under the Securities Exchange Act of 1934

Under Sections 18 and 10(b) of the 1934 Securities Exchange Act and SEC Rule 10b-5, an accountant may be found liable for fraud. A plaintiff has a substantially heavier burden of proof under the 1934 act than under the 1933 act because an accountant does not have to prove due diligence to escape liability under the 1934 act. The 1934 act relieves an accountant from liability if the accountant acted in "good faith." Section 18 of the 1934 act imposes civil liability on an accountant who makes or causes to be made in any application, report, or document a statement that at the time and in light of the circumstances was false or misleading with respect to any material fact.

Requirements of the Act

Under the FDCPA, a collection agency may not do any of the following: 1. Contact the debtor at the debtor's place of employment if the debtor's employer objects. 2. Contact the debtor at inconvenient or unusual times (such as three o'clock in the morning), or at any time if the debtor is being represented by an attorney. 3. Contact third parties other than the debtor's parents, spouse, or financial adviser about payment of a debt unless a court authorizes such action. 4. Harass or intimidate the debtor (by using abusive language or threatening violence, for instance) or make false or misleading statements (such as posing as a police officer). 5. Communicate with the debtor at any time after receiving notice that the debtor is refusing to pay the debt, except to advise the debtor of further action to be taken by the collection agency. The FDCPA also requires a collection agency to include a validation notice when it initially contacts a debtor for payment of a debt or within five days of that initial contact. The notice must state that the debtor has thirty days in which to dispute the debt and to request a written verification of the debt from the collection agency.

Nuisance

Under the common law doctrine of nuisance, persons may be held liable if they use their property in a manner that unreasonably interferes with others' rights to use or enjoy their own property. Courts typically balance the harm caused by the pollution against the costs of stop- ping it. Courts have often denied injunctive relief on the ground that the hardships that would be imposed on the polluter and on the community are greater than the hardships suffered by the plaintiff. To obtain relief from pollution under the nuisance doctrine, a property owner may have to identify a distinct harm separate from that affecting the general public. This harm is referred to as a "private" nuisance. Under the common law, individuals were denied standing (access to the courts) unless they suffered a harm distinct from that suffered by the public at large. Some states still require this. A public authority (such as a state's attorney general), however, can sue to stop a "public" nuisance.

Potential Liability to Clients

Under the common law, professionals may be liable to clients for breach of contract, negligence, or fraud Liability for Breach of Contract-Accountants and other professionals face liability under the common law for any breach of contract. A professional owes a duty to her or his client to honor the terms of their contract and to perform the contract within the stated time period. If the professional fails to perform as agreed in the contract, then she or he has breached the contract, and the client has the right to seek to recover damages from the professional. Damages can include expenses incurred by the client to hire another professional to provide the contracted-for services and any other reasonable and foreseeable losses that arise from the professional's breach. Liability for Negligence-Accountants and other professionals may also be held liable under the common law for negligence in the performance of their services. Recall that to establish negligence, the plaintiff must prove four elements: duty, breach, causation, and damages. Negligence cases against professionals often focus on the standard of care exercised by the professionals. All professionals are subject to the standards of conduct and the ethical codes established by their profession, by state statutes, and by judicial decisions. They are also governed by the contracts they enter into with their clients. In performing their contracts, professionals must exercise the established standards of care, knowledge, and judgment generally accepted by members of their professional group.

Design Defects

Unlike a product with a manufacturing defect, a product with a design defect is made in conformity with the manufacturer's design specifications. Nevertheless, the product results in injury to the user because the design itself was faulty. A product "is defective in design when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design by the seller or other distributor, or a predecessor in the commercial chain of distribution, and the omission of the alternative design renders the product not reasonably safe. To successfully assert a design defect, a plaintiff has to show that: 1. A reasonable alternative design was available. 2. As a result of the defendant's failure to adopt the alternative design, the product was not reasonably safe. In other words, a manufacturer or other defendant is liable only when the harm was reasonably preventable. Most courts engage in a risk- utility analysis to determine whether the risk of harm from the product as designed outweighs its utility to the user and to the public. Other courts apply the consumer-expectation test to determine whether a product's design was defective. Under this test, a product is unreasonably dangerous when it fails to perform in the manner that would reasonably be expected by an ordinary consumer.

Water Pollution

Water pollution stems mostly from industrial, municipal, and agricultural sources. Pollutants entering streams, lakes, and oceans include organic wastes, heated water, sediments from soil runoff, nutrients (including fertilizers and human and animal wastes), and toxic chemicals and other hazardous substances. Federal regulations governing water pollution can be traced back to the 1899 Rivers and Harbors Appropriations Act.7 These regulations prohibited ships and manufacturers from discharging or depositing refuse in navigable waterways without a permit.8 In 1948, Congress passed the Federal Water Pollution Control Act (FWPCA), but its regulatory system and enforcement powers proved to be inadequate.

Damages When Consumers Are Injured

When a company's deceptive ad involves wrongful charges to consumers, the FTC may seek other remedies, including damages.

Restitution Possible

When a company's deceptive ad leads to wrongful payments by consumers, the FTC may seek other remedies, including restitution.(the restoration of something lost or stolen to its proper owner.)

Notice of Proposed Rulemaking

When a federal agency decides to create a new rule, the agency publishes a notice of the proposed rulemaking proceedings in the Federal Register. The Federal Register is a daily publication of the executive branch that prints government orders, rules, and regulations. The agency's notice states where and when the proceedings will be held, the agency's legal authority for making the rule (usually its enabling legislation), and the terms or subject matter of the rule. The agency must also make available to the public certain other information, such as the key scientific data underlying the proposal. The proposed rule is often reported by the news media and published in the trade journals of the industries that will be affected.

Slander of Title

When a publication falsely denies or casts doubt on another's legal ownership of property, resulting in financial loss to the property's owner, the tort of slander of title occurs. Usually, this is an intentional tort in which someone knowingly publishes an untrue statement about another's ownership of certain property with the intent of discouraging a third person from deal- ing with the person slandered.

Misrepresentation

When a user or consumer is injured as a result of a manufacturer's or seller's fraudulent misrepresentation, the basis of liability may be the tort of fraud. In this situation, the misrepresentation must have been made knowingly or with reckless disregard for the facts. The intentional mislabeling of packaged cosmetics, for instance, or the intentional concealment of a product's defects would constitute fraudulent misrepresentation. In addition, the misrepresentation must be of a mate- rial fact, and the seller must have intended to induce the buyer's reliance on the misrepresentation. Misrepresentation on a label or advertisement is enough to show an intent to induce the reliance of anyone who may use the product. In addition, the buyer must have relied on the misrepresentation.

Liability for Malpractice

When an attorney fails to exercise reasonable care and professional judgment, she or he breaches the duty of care and can be held liable for malpractice (professional negligence). In malpractice cases— as in all cases involving allegations of negligence—the plaintiff must prove that the attorney's breach of the duty of care actually caused the plaintiff to suffer some injury.

Judicial Deference to Agency Decisions

When asked to review agency decisions, courts historically granted deference to the agency's judgment. In other words, the courts tended to accept the agency's judgment, often citing the agency's great expertise in the subject area of the regulation. This deference seems especially appropriate when applied to an agency's analysis of factual questions, but should it also extend to an agency's interpretation of its own legal authority? By so ruling, the Court created a standard of broadened deference to agencies on questions of legal interpretation.

Oil Pollution

When more than 10 million gallons of oil leaked into Alaska's Prince William Sound from the Exxon Valdez supertanker in 1989, Congress responded by passing the Oil Pollution Act.15 (At that time, the Exxon Valdez disaster was the worst oil spill in U.S. history, but the British Petroleum oil spill in the Gulf of Mexico in 2010 surpassed it.) Under the Oil Pollution Act, any oil facility, oil ship- per, vessel owner, or vessel operator that discharges oil into navigable waters or onto an adjoining shore may be liable for clean-up costs and damages. The polluter can also be ordered to pay for damage to natural resources, private property, and the local economy, including the increased cost of providing public services.

GAAP and GAAS

When performing their services, accountants must comply with generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS). The Financial Accounting Standards Board (FASB, usually pronounced "faz-bee") determines what accounting conventions, rules, and procedures constitute GAAP at a given point in time. Similarly, the American Institute of Certified Public Accountants established GAAS to identify the professional qualities and the judgment that an auditor should exercise in auditing financial records. A violation of GAAP and GAAS is considered prima-facie evidence of negligence on the part of the accountant. Compliance with GAAP and GAAS, however, does not necessarily relieve an accountant from potential legal liability. An accountant may be held to a higher standard of conduct established by state statutes or by judicial decisions.

Trespass to Personal Property

Whenever any individual wrongfully takes or harms the personal property of another or otherwise interferes with the lawful owner's possession and enjoyment of personal property, trespass to personal property occurs. This tort may also be called trespass to chattels or trespass to personalty. In this context, harm means not only destruction of the property, but also anything that diminishes its value, condition, or quality. If it can be shown that trespass to personal property was warranted, then a complete defense exists. Most states, for instance, allow automobile repair shops to hold a customer's car (under what is called an artisan's lien) when the customer refuses to pay for repairs already completed. Any act that deprives an owner of personal property or of the use of that property without the owner's permission and without just cause can constitute conversion. Even the taking of electronic records and data may form the basis of a conversion claim. Often, when conversion occurs, a trespass to personal property also occurs. The original taking of the personal property from the owner was a trespass. Wrongfully retaining the property is conversion. Conversion is the civil side of crimes related to theft, but it is not limited to theft. Even when the rightful owner consented to the initial taking of the property, so no theft or trespass occurred, a failure to return the property may still be conversion. Conversion can occur even when a person mistakenly believed that she or he was entitled to the goods. In other words, good intentions are not a defense against conversion. Someone who buys stolen goods, for instance, may be sued for conversion even if he or she did not know the goods were stolen. If the true owner of the goods sues the buyer, the buyer must either return the property to the owner or pay the owner the full value of the property. Conversion can also occur from an employee's unauthorized use of a credit card.

The Practical Significance of Administrative Law

Whereas statutory law is created by legislatures, administrative law is created by administrative agencies. When Congress—or a state legislature—enacts legislation, it typically adopts a rather general statute and leaves its implementation to an administrative agency. The agency then creates the detailed rules and regulations necessary to carry out the statute. The administrative agency, with its specialized personnel, has the time, resources, and expertise to make the detailed decisions required for regulation.

What is a profession?

a paid occupation, especially one that involves prolonged training and a formal qualification.

Manufacturing Defects

a product "contains a manufacturing defect when the product departs from its intended design even though all possible care was exercised in the preparation and marketing of the product." Basically, a manufacturing defect is a departure from a product unit's design specifications that results in products that are physically flawed, damaged, or incorrectly assembled. A glass bottle that is made too thin and explodes in a consumer's face is an example of a product with a manufacturing defect. Usually, manufacturing defects occur when a manufacturer fails to assemble, test, or check the quality of a product adequately. Liability is imposed on the manufacturer (and on the wholesaler and retailer) regardless of whether the manufacturer's quality control efforts were "reasonable." The idea behind holding defendants strictly liable for manufacturing defects is to encourage greater investment in product safety quality quality control standards. Cases involving allegations of a manufacturing defect are often decided based on the opinions and testimony of experts.

False Imprisonment

e imprisonment is the intentional confinement or restraint of another person's activities without justification. False imprisonment interferes with the freedom to move without restraint. The confinement can be accomplished through the use of physical barriers, physical restraint, or threats of physical force. Moral pressure does not constitute false imprisonment. It is essential that the person being restrained does not wish to be restrained. (The plaintiff 's consent to the restraint bars any liability. Businesspersons often face suits for false imprisonment after they have attempted to confine a suspected shoplifter for questioning. Under the "privilege to detain" granted to merchants in most states, a merchant can use e to detain or delay persons suspected of shoplifting and hold them for the police. Although laws pertaining to this privilege vary from state to state, generally any detention must be conducted in a reasonable manner and for only a reasonable length of time. Undue force or unreasonable detention can lead to liability for the business. Cities and counties may also face lawsuits for false imprisonment if they detain individuals without rea- son.

The FTC Mail or Telephone Order Merchandise Rule

protects consumers who purchase goods via mail, Internet, phone, or fax. Merchants are required to ship orders within the time promised in their advertisements and to notify consumers when orders cannot be shipped on time. If the seller does not give an estimated shipping time, it must ship within thirty days. Merchants must also issue a refund within a specified period of time when a consumer cancels an order.

Embezzlement

theft or misappropriation of funds placed in one's trust or belonging to one's employer. •Loans, bonuses, feel they are owed something •Compensation •Red flags

Bankruptcy Overview

•Bankruptcy - the last resort in resolving debtor-creditor problems •The right to petition for bankruptcy under federal law is an essential aspect of our capitalistic society •Opportunities for financial success, but also for financial difficulties •Effects personal/professional •Fresh start

Why our we teaching Business Ethics?

•Cheating in business schools - more than their counterparts in other fields •Why? ▫Nature of testing ▫Personalities of the students •Social environment •Software •Law school

Tort Law

•Part of doing business is the risk of being involved in a lawsuit Two notions serve as the basis of all torts: wrongs and compensation. Tort law is designed to compensate those who have suffered a loss or injury due to another person's wrongful act. In a tort action, one person or group brings a lawsuit against another person or group to obtain compensation (monetary damages) or other relief for the harm suffered.

Who is there to blame

•People in charge •Senior executives •Auditors, accountants •Attorneys •Government •Boards of directors •Business professors •Ourselves