Legal Final Flashcards
(164 cards)
1
Q
Rule of Law
A
Laws are made generally and equally applicable, applying to all members of society in the same way. It provides certainty and trust necessary for complex business transactions. Key elements include accountability under the law, clear and stable laws, fair processes, and timely justice delivery
2
Q
Common Law
A
Emphasizes the role of judges in determining the meaning of laws and how they apply. Relies on precedent (prior judicial decisions). Used in the UK, US (except Louisiana), Canada, India, etc
Pros: stare decisis; certainty, stability and predictability
Cons: needs to be updated, large volume of cases
3
Q
Civil Law
A
Relies more on legislation than judicial decisions. Judges decide facts but generally do not make law or feel bound by precedent like in common law systems. Used in nations not colonized by England
4
Q
Public Law
A
Involves the regulation of society constitutional law, administrative law, criminal law
A government official represents society
5
Q
Private Law
A
Concerns legal problems and relationships between private individuals or groups
property law, contract law, tort law
6
Q
Sources of Law Hierarchy
A
- U.S. Constitution
- Federal Statutes (Acts of Congress)
- Federal Administrative Regulations
- State Constitutions (apply only within the state)
- State Statutes (apply only within the state)
- State Administrative Regulations (apply only within the state)
- Local Ordinances (apply in cities, counties, etc.)
- Case Law (judicial decisions interpreting other sources)
7
Q
Trial Judges
A
Determine applicable law; find facts in cases without a jury; decide questions of law in jury trials; observe witnesses
Issues of Fact and Law
8
Q
Appellate Judges (Justices):
A
Review decisions of lower courts; deal primarily with questions of law, not fact; decisions become precedent; study briefs and records.
Issues of Law
9
Q
Role of Juror
A
Juries decide questions of fact based on evidence presented
10
Q
Jury Duty
A
chosen if not served in past 12 months
11
Q
Jury Selection (Voir Dire)
A
Process to select fair and impartial jurors. Potential jurors can be challenged for cause or through peremptory challenges (limited number, no cause needed). Peremptory challenges cannot be based on race or gender.
12
Q
Petit Jury
A
verdict
13
Q
Grand Jury
A
Determines if there is sufficient evidence (probable cause) to warrant a trial in felony cases; serves an investigative role
14
Q
Role of Lawyers
A
Serve as representative advocates in an adversarial court system; present evidence and argue law; act as counselor, advocate, and public servant; duty is to the administration of justice
15
Q
Attorney-Client Privilege
A
Protects confidential communications between attorney and client; encourages full disclosure by the client; applies even if information is shared with lawyer’s employees (e.g., paralegals)
16
Q
Subject Matter Jurisdiction
A
The power of a court to hear a particular type of case. Some courts have general jurisdiction (can hear any type), others have limited jurisdiction (specific types like probate, traffic, criminal). Federal courts have limited subject matter jurisdiction, mainly hearing federal question cases and diversity of citizenship cases
17
Q
Diversity of Citizenship
A
Basis for federal court jurisdiction over lawsuits between citizens of different states. Requires complete diversity (all plaintiffs must be citizens of different states than all defendants). Corporations are citizens of their state of incorporation AND the state of their principal place of business. The amount in controversy must exceed $75,000
18
Q
Judicial Restraint
A
Philosophy that judicial review power should be used sparingly, typically associated with conservative judges. Belief that social/political change should come through the political process, not courts. Emphasizes deference to other branches of government and precedent
19
Q
Judicial Activism
A
Philosophy that courts should play a major role in correcting societal wrongs and can provide leadership for social/political change. Associated with liberal judges. Views the Constitution as relative to contemporary times. Less reliant on precedent
20
Q
Personal Jurisdiction
A
A court’s authority over the parties in the case.
Obtained over the plaintiff when they file suit.
Obtained over the defendant typically via service of a summons.
Long-arm statutes allow service beyond state borders if the defendant has sufficient minimum contacts with the state so as not to offend “traditional notions of fair play and substantial justice” (due process)
21
Q
Methods of Discovery
A
Procedures designed to ensure parties are aware of facts before trial. Encourages settlement.
22
Q
Interrogatories
A
Written questions sent to the opposing party that must be answered in writing.
23
Q
Request for Production of Documents
A
Requesting specific documents relevant to the case.
24
Q
Depositions
A
Oral questioning of a potential witness recorded by a court reporter
25
Request for an Admission
Asking the other party to admit certain issues are no longer in dispute.
26
Burden of Proof
The responsibility a party has to present evidence and persuade the fact-finder on an issue.
27
Criminal Cases Burden of Proof
Prosecution must prove guilt "beyond a reasonable doubt"
28
Civil Cases Burden of Proof
Usually the "preponderance of the evidence" standard (evidence tilts slightly one way). Some civil cases use the "clear and convincing proof" standard (scales must tilt heavily)
29
Freedom of Speech
Protects verbal, written, and symbolic expression from governmental restriction. Not absolute; does not protect "fighting words" or obscenity. Protects commercial speech, though potentially less extensively than individual speech. Includes freedom of the press.
30
overbreadth doctrine
prevents laws that restrict more speech than necessary
31
Establishment Clause
Prohibits government from establishing a religion. Creates separation of church and state
32
Free Exercise Clause
Prohibits government from interfering with the practice of religion.
33
Commercial Speech
Speech done on behalf of a company or individual for the intent of making a profit. Protected under the First Amendment but less extensively than individual speech. Government needs a compelling interest to restrict it.
34
Freedom of Press
Explicitly protected by the First Amendment. Prohibits prior restraints on publication. The press can be liable (civilly or criminally) if it publishes illegal or libelous material.
35
Eminent Domain (Takings Clause)
Found in the Fifth Amendment. Allows the government to take private property for "public use" upon payment of "just compensation". "Public use" has been interpreted broadly to mean public purpose, including economic development. "Just compensation" generally means fair market value.
36
Rule of Capture
Principle in oil and gas law stating there's no liability for draining oil/gas from under another's land as long as there's no trespass. Applies even with artificial stimulation methods like hydraulic fracturing, provided no physical invasion occurs.
37
Air Rights
Ownership of the air above land to the extent it can be occupied or used in connection with the land. Allows prevention of encroachments like overhanging decks or trees. Does not prevent aircraft overflight. Can potentially be sold or transferred.
38
Zoning
Governmental regulation of land use through police powers. Divides areas into districts (residential, commercial, industrial) and restricts land use accordingly. Can regulate building height, size, location, and aesthetics.
Variances may be granted if the ordinance prevents reasonable economic return. Existing uses before the ordinance are usually allowed as "nonconforming uses"
39
Bailments
A property arrangement where an owner (bailor) puts personal property into the intentional possession of another (bailee) with the understanding it will be returned or disposed of as directed.
Three categories: sole benefit of bailor (slight care duty for bailee), sole benefit of bailee (very high care duty for bailee), and mutual benefit (reasonable care duty for bailee)
40
Deed
Documents transferring ownership of land
41
Warranty Deed
Grantor promises good ownership and full power to convey; buyer can sue seller if another claim arises.
42
Special Warranty Deed
Specifies certain existing claims (like mortgages) but guarantees no others exist
43
Quitclaim Deed
Grantor surrenders all claims against the land but makes no guarantees about ownership
44
Offeror's Revocation Effective
An offeror's revocation (retraction) of an offer is effective only when the offeree actually receives it
45
Offeree's Acceptance Effective (Mailbox Rule)
Acceptance usually binds the parties when the offeree dispatches it (e.g., puts it in the mail), unless the offeror specifies otherwise. This is the mailbox rule or deposited acceptance rule. This means an offeror cannot revoke once the acceptance is dispatched, even if the revocation is already in the mail.
46
Undue Influence
Occurs when one party is taken advantage of unfairly through a contract by misusing a position of relationship (like family) or legal confidence (like attorney-client). Often involves persons weakened by age or illness. Makes the contract voidable
47
Duress
Force or threat of force (physical or economic) used to induce a contract. Cannot be based on mere assertion of legitimate business consequences. Threatening to sue is generally not duress.
48
Contracts with Minors:
Generally, minors (under 18) lack capacity and can disaffirm (void) contracts. The adult party is bound unless the minor disaffirms. Minors can ratify contracts after reaching majority. Exception for "necessaries" (food, clothing, shelter, etc.) where minor is liable for reasonable value (quasi-contract)
49
Consideration
The incentive or inducement (legal benefit or detriment) for a promise, necessary for enforceability. Can be a promise to do something one isn't obligated to do, or refrain from doing something one has a right to do. Must be bargained for. Past consideration doesn't count. A promise to make a gift lacks consideration. An agreement not to sue can be consideration.
50
Specific Performance
Court order compelling the breaching party to perform the promised act. Usually granted only when the subject matter is unique, like land. Not available for breach of service contracts.
51
Injuction
court order directing party to do/refrain from doing something
52
Rejection
court cancels agreement and returns consideration exchanged back to each respective party
53
Interpretation of Contracts & Hierarchy of Terms
Courts interpret contract meaning as a question of law. Rules include: giving common words usual meaning (unless trade usage applies);
handwritten
typed
printed
54
Parol Evidence Rule
prevents oral evidence from changing final written contract terms, unless it explains meaning or prevents fraud.
55
Duty to Mitigate/Mitigation
The victim of a contract breach must take reasonable steps to reduce (mitigate) damages. Failure to do so may prevent recovery for damages that could have been avoided.
56
Intentional Torts (Intent to do act vs. intent of harm)
Intentional torts involve deliberate actions that cause injury. Intent means the desire to bring about certain results, OR results that are "substantially likely" to occur from an action. The intent relates to the ACT itself, not necessarily the specific harm caused. For example, intentionally touching someone offensively is battery, even if no physical injury was desired or occurred
57
Assault
apprehension for their physical safety
58
Battery
offensive, unconsented-to physical contact with someone
59
Intentional Infliction of Mental Distress
Outrageous, intentional conduct that carries a strong probability of causing severe emotional distress to the person it's directed at. Often requires proof of physical symptoms resulting from the distress.
60
Invasion of Privacy
Misappropriation of Name or Likeness: Using someone's name or picture without permission for commercial advantage (e.g., in advertising).
Intrusion Upon Physical Solitude: Illegally invading someone's home or private possessions, illegal wiretapping, or persistent, unwanted telephoning.
Public Disclosure of Highly Objectionable, Private Information: Revealing private information about someone publicly, even if true, if it's highly objectionable (e.g., publicly stating someone doesn't pay their debts).
61
False Imprisonment
The intentional, unjustified confinement of a nonconsenting person DETAINED
62
Malicious Prosecution (False Arrest)
Causing someone to be arrested criminally without proper grounds, often to harass them.
ARREST
63
Trespass to Land
Entering another's land without consent or remaining after being asked to leave. Also includes placing objects (like pollution particles) on another's land without consent.
64
Trespass to Personal Property/Chattel
Wrongfully using or interfering with the possession of another's personal property (non-land items).
65
Conversion
Wrongful exercise of power and control over another's personal property, amounting to a serious deprivation of their ownership rights (e.g., stealing business inventory, failing to return borrowed items, destroying another's property).
66
Defamation
Publication of untrue statements about another that harm their character or reputation.
Slander: Spoken defamation.
Libel: Written or broadcast defamation.
67
Fraud (Deceit)
Intentional misrepresentation of a material fact that is justifiably relied upon by someone to their injury (e.g., lying about assets to get a loan, selling a product with a known hidden defect)
68
Injurious Falsehood (Trade Disparagement):
Publishing untrue statements that disparage a business owner's product or its quality
69
Duty of Care (Legal Duty vs. Moral Duty)
Negligence requires the defendant to owe a duty of care to the plaintiff. This duty usually arises from conduct; a person doing something must use reasonable care. Generally, there's no legal duty to prevent injury through nonconduct (failure to act), even if there's a moral responsibility (e.g., warning a stranger of danger). However, special relationships (like business-customer) can create a duty to act.
70
Assumption of the Risk
A defense to negligence where the plaintiff knowingly and willingly undertook an activity made dangerous by another's negligence. Requires voluntary assumption and understanding of the risk. May be implied or arise from express agreement. Not applicable if plaintiff is trying to rescue property from defendant-created risk.
70
Strict Products Liability
Commercial sellers (retailers, wholesalers, manufacturers) are strictly liable for selling an unreasonably dangerous defective product that causes injury. Applies only to commercial sellers, not casual sellers. Covers production defects (product doesn't meet manufacturer's standards) and design defects (product unsafe as designed, including inadequate warnings). Protects against personal injury or property damage, not purely economic loss. Defenses include assumption of risk and misuse, but not contributory negligence.
71
Patents
An exclusive right granted by the PTO for an invention.
Types include utility (functional inventions), design (appearance), and plant (asexually reproduced plants).
Requirements: must be novel, nonobvious, and useful appropriate subject matter (not laws of nature, natural phenomena, abstract ideas).
Term: Utility/Plant = 20 years from filing;
Design = 15 years from issue. Enforcement involves suing for infringement.
72
Conspiracy (Overt Act)
An agreement between two or more persons to accomplish a common unlawful plan. Requires proof that: (1) parties came to mutual understanding, (2) defendant willfully joined, (3) one conspirator committed an overt act during the conspiracy, and (4) the overt act was to further the conspiracy.
An overt act is any transaction/event knowingly committed to accomplish an object of the conspiracy; can be innocent on its own
73
Larceny
Unlawful taking of personal property intending to permanently deprive the owner. Commonly called theft/stealing
74
Robbery
Larceny by violence or threat.
75
Burglary
Breaking into a building with intent to commit a felony (often larceny)
76
Embezzlement
Employee appropriates employer funds for own use. Often involves trusted employees with access to funds/checks
77
Obstruction of Justice
Committing an act with intent to obstruct legislative or judicial processes, or proceedings before federal agencies. Interpreted broadly. Examples include altering/destroying documents or testifying falsely
78
America Invents Act
first to invent changed to first to file
79
RICO (Racketeer Influenced and Corrupt Organizations Act)
Imposes criminal and civil liability on those engaging in prohibited activities involving interstate commerce. Requires proof of a "pattern of racketeering activity" (at least two acts within 10 years) or collection of unlawful debt. Racketeering includes specified state/federal crimes like bribery, fraud, extortion, etc.. Allows for triple damages in civil suits.
80
4th Amendment Searches and Seizures & Expectations of Privacy
Protects against unreasonable searches/seizures by government. Requires search warrant based on probable cause, usually.
Exceptions: search incident to arrest (person and immediate area for weapons); exigent circumstances (e.g., evidence destruction).
Warrant needed for building code inspections if owner objects.
Businesses in pervasively regulated industries have reduced expectation of privacy.
No warrant needed for border searches or airport checkpoints. Cell phone data generally requires a warrant.
81
Grand Juries
Determine if sufficient evidence (PROBABLE CAUSE) exists to warrant a trial for felony/infamous crimes. Prevents unjustified prosecutions. Does not determine guilt. Investigative body; can subpoena witnesses and records. Proceedings are secret.
82
Misdemeanor
Punishable by fine or jail sentence less than one year. Usually commenced by government filing an INFORMATION
83
Felony
Punishable by fine or imprisonment in penitentiary for one year or more. Commenced by GRANDY JURY INDICMENT
84
General Partners
Manage the business; have unlimited personal liability for debts
85
Limited Partners
Not personally liable for debts beyond their investment. Cannot participate in management without becoming liable as a general partner (though some activities like advising or voting on major issues are permitted)
86
General Partnerships
Agreement between two or more persons/entities to share common interest in business and share profits/losses. Each partner generally has equal management voice unless agreed otherwise. All partners have unlimited, joint and several liability for partnership debts. Partnership itself not taxed; income/loss allocated to partners individually. Dissolved upon change in partners.
87
Limited Liability Partnerships (LLPs)
Often used by professionals. Has characteristics of both partnership and corporation. Specific details depend on state law but generally offer limited liability similar to LLCs.
88
Who Controls a Corporation
Shareholders, BOD, Officers
89
Shareholders
Owners; elect the Board of Directors (BOD
90
Board of Directors
Set objectives/goals; appoint officers. Have fiduciary duty to act in corporation's best interest
91
Officers
(President, VP, etc.) Manage daily operations
92
Control Dynamics
publicly held corps, management often controls via proxies. I
In closely held corps, majority shareholders often control BOD and officers. Minority shareholders have rights, including bringing DERIVATIVE SUITS if majority acts illegally or oppressively.
93
Publicly Held
Owned by many shareholders; stock often traded on public exchange. Management control often separate from majority ownership
94
Closely Held
Owned by only a few persons; often family businesses. Majority shareholders often control management. No ready market for stock usually exists.
95
Employer Liability for Employee Negligence
Employers are liable for torts (including negligence) committed by employees acting within the scope of employment. This is vicarious liability under the doctrine of RESPONDEAT SUPERIOR.
Employer is liable even if they warned the employee against the conduct. Defense: employee was outside scope of employment (frolic and detour).
96
Regulations (Rules)
Issued by agencies under quasi-legislative power; have the force and effect of law. Require public notice and comment period before adoption.
97
Guidelines:
Administrative interpretations of statutes; explain agency policy. Do not have the same force of law as regulations.
98
Administrative Agencies
board, beaureu, commission or org set up by federal/state government which creates rules (regulations). and enforce laws impacting LEGL environment of business
99
Exhaustion of Remedies
Court doctrine limiting review of agency decisions until the complaining party has used all available administrative remedies/procedures. Applies when claim must first go to the agency. Exceptions exist (e.g., constitutional issues, inadequate remedy, agency acts beyond jurisdiction, fraud)
99
Get their power
Executive: enforcing law/regulations, power to investigate, prosecute, advise & supervise
Quasi-legislative: make regulations, power to create rules
Quasi-judicial: adjudication violation for laws/regulations, power to decide controversies
100
Primary Jurisdiction
Applies when a claim is originally filed in court but involves issues within the special competence of an administrative agency. Court suspends proceedings pending referral to the agency for its views
101
Standing (to Sue an Agency)
To challenge an agency action in court, a party must have "standing." T
his requires demonstrating two things:
Reviewability: The agency action must be subject to judicial review (most are, unless a statute specifically prohibits it or the action is committed solely to agency discretion).
Aggrieved Party: The plaintiff must be an "aggrieved party," meaning they have suffered a legal wrong because of the agency action or have been adversely affected or harmed by it (e.g., economically). They must show a concrete and particularized injury that is traceable to the agency action and likely to be redressed by a favorable court decision.
102
Cease and Desist Order
This is a formal order issued by an agency after an administrative hearing (adjudication) has determined that a party violated a law or regulation. It commands the party to stop (cease) the illegal activity and refrain (desist) from doing it in the future. Violating a cease and desist order can lead to significant penalties.
103
Consent Order
This is essentially a settlement agreement between an agency and the party being investigated or prosecuted. The party agrees to stop the disputed practice without formally admitting guilt or wrongdoing. In exchange, the agency typically drops the investigation or charges. It saves litigation costs and has the same legal force as a final cease and desist order.
104
ALJ Role
ALJs preside over administrative adjudications, which are like trials held within the agency to determine if a party violated agency rules or statutes. They take evidence, make findings of fact and law, and issue decisions. Their role is functionally comparable to that of a trial court judge in the civil court system.
105
Protection/Independence
ALJs are employed by the agency but are typically kept separate from the agency's investigative and prosecutorial staff to maintain impartiality. They are protected from adverse agency actions (like firing or demotion) except for good cause, ensuring a degree of independence from political pressures within the agency. Their decisions are usually initial or recommended decisions, subject to review by the head(s) of the agency.
106
Quasi-Legislative
This refers to an agency's power to issue rules and regulations that have the force and effect of law, much like statutes passed by Congress. Agencies exercise this power to fill in the details of broad statutes passed by the legislature. (Example: The EPA issuing specific emission standards for factories under the Clean Air Act).
107
Quasi-Judicial
This is the agency's power to conduct administrative adjudications – holding hearings and making decisions in specific cases, similar to a court. This involves applying statutes or regulations to particular parties. (Example: The FTC holding a hearing to determine if a company engaged in deceptive advertising). ALJs preside over these hearings.
108
Executive Functions
This covers the agency's day-to-day responsibilities, including investigating potential violations, prosecuting cases before ALJs, advising regulated parties, supervising regulated industries, and issuing advisory opinions.
109
Reasons for Administrative Agencies
Specificity: Congress cannot legislate in minute detail for every industry or issue, so it delegates power to agencies to create specific rules.
Expertise: Agencies can employ experts (scientists, engineers, economists) to handle complex technical issues beyond the capability of Congress or generalist courts.
Regulation: Continuous supervision and regulation of certain activities (like banking, broadcasting, environmental protection) require a dedicated body.
Protection: Agencies can regulate in the public interest, protecting consumers, workers, or the environment from potential harm by businesses.
Buffering: Agencies can sometimes take political heat for necessary but unpopular decisions, shielding Congress or the President.
Efficiency/Supplementing Courts: Agencies can often handle disputes and compliance issues more efficiently and quickly than the traditional court system in specialized areas
110
Do we normally uphold decisions made by administrative agencies? (Judicial Review)
Generally, yes, with deference. Courts tend to uphold agency decisions if the agency acted within its authority, followed proper procedures, and the decision was supported by substantial evidence in the record (for adjudications) or was not arbitrary and capricious (for rulemaking).
C
ourts typically defer to an agency's expertise, especially regarding factual findings and interpretations of the statutes it administers (though the level of deference to legal interpretations can vary).
However, courts will overturn agency decisions if the agency exceeded its statutory authority, violated constitutional rights, acted arbitrarily or capriciously, abused its discretion, or failed to follow required procedures. Doctrines like exhaustion of remedies and standing also limit judicial review.
111
Required to give public notice/hold public hearings before a rule or regulation is adopted?
Yes, typically notice and comment are required. For most rulemaking ("informal rulemaking"), the Administrative Procedure Act (APA) requires agencies to:
Publish a Notice of Proposed Rulemaking in the Federal Register, outlining the proposed rule and the legal authority for it.
Provide an opportunity for interested parties to submit written comments (data, views, arguments).
Publish the final rule in the Federal Register, including a concise general statement of its basis and purpose, at least 30 days before it becomes effective.
Public hearings are generally not required for informal rulemaking unless mandated by the specific statute the agency operates under. More formal, trial-like hearings are only required for "formal rulemaking," which is much less common.
112
Chevron Deference:
Historically, the Chevron deference doctrine (from the 1984 case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.) instructed courts to defer to an administrative agency's reasonable interpretation of an ambiguous statute that Congress empowered the agency to administer. If a law was unclear, courts would generally accept the agency's interpretation as long as it was reasonable.
113
Loper Bright Enterprises v. Raimondo (2024):
The Supreme Court overturned the Chevron deference doctrine in this case.
Impact: Courts will no longer defer to an agency's interpretation simply because a statute is ambiguous. Instead, courts will exercise their own independent judgment to determine the best reading of the law. This significantly shifts power from agencies to the judiciary, increasing judicial oversight of agency actions.
Connection to Chart: This directly corresponds to the chart point stating "SCOTUS overturned Chevron, increased scrutiny of agency actions".
114
Corner Post, Inc. v. Board of Governors of the Federal Reserve System (2024)
This case addressed the statute of limitations for challenging final agency actions under the Administrative Procedure Act (APA).
The Court ruled that the six-year time limit to bring an APA challenge begins when the plaintiff suffers actual harm from the agency action, not necessarily when the final rule itself was published.
Impact: This decision potentially extends the time frame during which parties can sue to challenge long-standing agency rules, as the clock starts ticking when they are specifically injured by the rule, rather than when the rule was first issued. This further impacts the dynamic between agencies and judicial review.
115
Regulatory Rollbacks
The chart indicates agencies may be directed to rescind rules conflicting with recent Supreme Court rulings (like Loper Bright). This aligns with the reduced deference agencies now receive.
116
Agency Restructuring, Workforce Overhaul, DEI Elimination, Independent Agency Control, Agency Closures
These points mentioned in the chart represent other potential or proposed administrative changes that seem separate from the direct legal doctrines established in Loper Bright or Corner Post. They appear to be broader policy or structural changes affecting agency operations and oversight.
117
Section 16
Prohibits insiders (directors, officers, >10% owners) from profiting from short-swing transactions (purchase and sale within 6 months).
Liability is absolute regardless of intent or use of nonpublic info. Profits belong to the company. Enforced by issuer or shareholders. Requires public filings of transactions.
118
Section 10(b)/Rule 10b-5
Broader anti-fraud provisions. Unlawful to use mails/interstate commerce/exchanges to defraud in connection with security purchase/sale.
Liability requires material misrepresentation/omission and intent (scienter).
Covers insiders trading on material nonpublic information and tippees who receive such information if the tipper breached a fiduciary duty for personal gain.
Also covers misappropriation theory (trading on confidential info obtained through breach of duty to the source)
119
Tippee
Person who learns nonpublic information from an insider. Liable for trading if the tipper breached a fiduciary duty for personal gain.
120
Classical Theory
Insider violates 10(b)/Rule 10b-5 by trading in their own company's securities based on material nonpublic information, breaching duty to shareholders.
121
Misappropriation Theory
Person (insider or outsider) violates 10(b)/Rule 10b-5 by trading on confidential information obtained through breach of a duty owed to the source of the information (not necessarily the company whose stock is traded).
122
Short Swing Profits
section 16 prohibits insider trading reaping shrt term/swing profits
6 month period
123
Blue Sky Laws
State laws regulating securities. Govern intrastate transactions not covered by federal law. Often require registration.
Types of registration:
Notification (minimal filing for established issuers);
Qualification (issuer provides detailed disclosure);
Coordination (issuer registering with SEC simultaneously files duplicate info with state).
124
Registration Statement
Filed with SEC before initial public offering under 1933 Act. Contains detailed financial and other info about issuer and controlling persons
Prefiling period: prelim negotiations
Waiting: accuracy of statment, get offers but not accept (tombstone ads: brief announcement)
Posteffective: can sell
125
Prospectus
Contains essential info from registration statement. Must be furnished to interested investors before or during sale. Must state SEC has not approved/disapproved the securities
126
Sarbanes-Oxley Act (SOX) (2002)
Response to Enron/WorldCom scandals. Increased SEC budget. Created Public Company Accounting Oversight Board (PCAOB). Reformed corporate audit committees. Requires CEO/CFO certification of financial statements. Increased whistleblower protection
127
Dodd-Frank Act (2010)
Response to 2008 financial crisis. Enhanced consumer protection (created CFPB). Addressed "Too Big to Fail" bailouts. Reformed Federal Reserve. Implemented mortgage reforms. Regulated various financial instruments/organizations. Reformed SEC and investor protection. Expanded extraterritorial reach of 1934 Act.
128
Howey Test:
Test from SEC v. Howey to determine if an arrangement is an "investment contract" and thus a security. Asks if there is: (1) investment of money,
(2) in a common enterprise,
(3) with profits expected,
(4) solely from efforts of others.
129
Parties Regulated under '33 Act
**Issuers:** This is the individual or business organization offering a security for sale to the public.
Example: A technology company selling its stock to the public for the first time through an IPO.
**Underwriters:** These are typically investment banks or brokerage firms that participate in the original distribution of securities. They might sell the securities for the issuer or guarantee their sale.
Example: Investment banks like Goldman Sachs or Morgan Stanley when they manage a company's IPO.
**Controlling Persons:** This is a person who controls the issuer, such as a major stockholder, or is controlled by the issuer. They also fall under the act's regulations.
Example: The founder or majority shareholder of a company that is going public.
**Sellers:** This category includes anyone who contracts with a purchaser or is a motivating influence that causes the purchase transaction to occur.
Example: A brokerage firm or individual broker who actively markets and sells the newly offered securities to investors.Issuer (offering entity), Underwriter (participates in distribution/guarantees sale), Controlling Person (controls/is controlled by issuer),
Seller (contracts with purchaser/motivates purchase)
130
'33 Act
Governs initial public offerings (IPOs) of securities. Requires registration and prospectus disclosure.
131
34 Act
overns subsequent trading of securities after initial sale. Created SEC. Regulates exchanges, brokers, dealers. Requires periodic reporting by registered issuers. Contains anti-fraud (10b-5) and insider trading (16) provisions.
132
Defenses under '33 Act:
Materiality (misstatement/omission not material),
Statute of Limitations (suit filed too late - generally 1 year from discovery, max 3 years from sale),
Due Diligence (for non-issuers like experts, showing reasonable investigation was conducted).
133
Due Diligence Defense
Expert must prove reasonable investigation conducted, and no reason to believe info was false/misleading. Standard is that of a prudent person managing own property
134
Statute of Limitations
Generally 1 year from discovery of untrue statement/omission (or when discovery should have happened with reasonable diligence), maximum 3 years after sale
135
FMLA Leave/Rules
amily and Medical Leave Act allows eligible workers up to 12 weeks unpaid leave per year for: birth/care of newborn, adoption/foster care placement, care for immediate family member with serious health condition, or employee's own serious health condition. Employers must keep job available upon return. Applies to employers with 50+ employees.
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Exclusive Remedy Rule (Workers' Comp)
Limits an injured employee's claim against the employer to workers' compensation. Prevents employee from suing employer for negligence related to the workplace injury.
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Employment at Will
Traditional doctrine; employers can discharge employees without cause at any time. Exceptions: violation of statutes (e.g., discrimination laws), public policy exceptions (e.g., firing for jury duty), implied contract theories based on manuals/promises
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Workers' Compensation
State laws providing benefits (medical costs, lost wages) to workers injured on the job. Based on strict liability of employer, regardless of fault. Injury must arise out of and in the course of employment. Exclusive remedy against employer. Replaced older common law defenses like assumption of risk, contributory negligence, and fellow-servant rule
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Fellow-Servant Rule
Old common law defense where employer wasn't liable if injury resulted from negligence of a coworker. Abolished by workers' compensation laws.
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Minimum Wage Laws (FLSA)
Fair Labor Standards Act provides basic protections including federal minimum wage and maximum hours before overtime must be paid.
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Informing Employer of Accommodation Needs
Generally, yes. Under the Americans with Disabilities Act (ADA), employees usually need to inform employers of a disability and request reasonable accommodation. Similarly, for religious accommodation under Title VII
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Back Pay
Money awarded for time employee was unlawfully denied work (e.g., fired, not hired) up to the date of judgment
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Front Pay
Money awarded for lost earnings that would likely occur after the date of judgment if reinstatement isn't feasible.
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Quid Pro Quo
This for that"; promise of benefit or threat of loss in exchange for sexual favors.
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Hostile Work Environment
Offensive sexual comments, propositions, touching, etc., unreasonably interfere with work performance or create intimidating/hostile environment
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Interview Questions re: Disabilities
ADA limits employer's ability to ask disability-related questions before making a job offer. Cannot ask about nature/severity of disability. Can ask about ability to perform specific job functions. Post-offer medical exams allowed if required for all entering employees in similar jobs.
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Religion (Title VII)
Employers must make reasonable accommodation for religious observances/practices unless it causes undue hardship.
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Disability (ADA)
Employers must make reasonable accommodation for qualified disabled individuals unless it causes undue hardship
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Qualified Disabled
Individual with a disability who, with or without reasonable accommodation, can perform the essential functions of the job
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Protected Classes under Title VII
Prohibits employment discrimination based on
race
color
religion
sex
national origin.
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Sex Discrimination
Treating individuals differently in employment based on their sex. Includes discrimination based on pregnancy (Pregnancy Discrimination Act) and sexual harassment.
Includes pay discrimination (Equal Pay Act requires equal pay for equal work). Recent Supreme Court ruling (Bostock) clarified that Title VII protects against discrimination based on sexual orientation and gender identity.
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Disparate Treatment:
Employer intentionally treats some individuals less favorably because of protected class status. Plaintiff must show discriminatory motive. Employer defense: legitimate, nondiscriminatory reason (Bona Fide Occupational Qualification - BFOQ - very limited defense).
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Disparate Impact
Employer's practices, although facially neutral, have a discriminatory effect/impact on a protected group. Plaintiff shows practice disadvantages protected group. Employer defense: practice is job-related and consistent with business necessity
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Who does Title VII apply to?
Employers with 15 or more employees, labor unions, employment agencies.
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Employment Agency vs. Employer Discrimination
Both are covered under Title VII and prohibited from discriminating.
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Age Discrimination (ADEA)
Age Discrimination in Employment Act protects individuals 40 and over. Prohibits discrimination based on age in employment decisions. Also prohibits mandatory retirement in most cases. Plaintiff must show age was the "but-for" cause of adverse action.
Defenses include legitimate reasons other than age or Bona Fide Occupational Qualification (BFOQ).
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FDA v. Brown & Williamson Tobacco Corp. (2000):
The Supreme Court ruled that the Food, Drug, and Cosmetic Act, as it was structured at the time alongside specific tobacco legislation passed by Congress, did not grant the FDA the authority to regulate tobacco products as "drugs" or "devices." Congress had created a distinct regulatory scheme for tobacco. (Note: Congress later explicitly granted the FDA this authority via the 2009 Tobacco Control Act).
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Lucia v. SEC (2018)
The Supreme Court held that the Securities and Exchange Commission's Administrative Law Judges (ALJs) are "Officers of the United States" and therefore must be appointed according to the Constitution's Appointments Clause (by the President, a Head of Department, or the Courts), not merely by SEC staff. This ruling required the SEC (and potentially other agencies) to ensure their ALJs were properly appointed.
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Lorenzo v. SEC (2019)
The Court ruled that an individual who knowingly disseminates false or misleading statements with the intent to defraud investors can be held primarily liable under subsections (a) and (c) of SEC Rule 10b-5 (for employing a "device, scheme, or artifice to defraud" or engaging in fraudulent acts/practices), even if they did not technically "make" the statement themselves under Rule 10b-5(b) as defined in Janus.
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United States v. O'Hagan (1997)
The Supreme Court upheld the "misappropriation theory" of insider trading under SEC Rule 10b-5. This theory holds that a person commits securities fraud when they trade securities based on confidential information obtained by breaching a duty owed to the source of the information (e.g., breaching a duty to their employer or client), even if they owe no duty to the shareholders of the company whose stock they traded.
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Thompson v. North American Stainless, LP (2011)
The Court held that Title VII's anti-retaliation provision prohibits employer actions that might dissuade a reasonable worker from making or supporting a discrimination charge. This protection extends to third parties; the Court ruled that firing the fiancée of an employee who filed an EEOC charge could constitute unlawful retaliation, and the fiancée had standing to sue under Title VII.
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