Small Business at the Foot of the Legal Muse: Interpreting Supreme Court Cases and Their Effects
Bardwell, Stephanie Huneycutt, Entrepreneurial Executive
INTRODUCTION AND LITERATURE REVIEW
Small businesses are less likely and less able to navigate legal complexities than multinational or large corporations for three simple reasons: A small business is less likely to have an expert legal advocate or in-house legal counselor, is presumed to be less likely to be subjected to enforcement of the governing regulations yet bears a disproportionate share of the federal regulatory burden (Crain, Hopkins 2001), and is less likely to be able to afford the time, expertise or expense of lobbying for or against legislation. In fact, the best advocate for the small business owner is typically not an individual legal advisor or attorney, but is likely the Office of Advocacy of the SBA.
The Office of Advocacy of the SBA provides extensive data and guidance related to entrepreneurship, job creation, minority and women owned business, banking, lending and credit practices, the environment, venture capitalism and many other important topics. The SBA commissions, funds and publishes research on those topics which are so important to small business interests each year. One important legal topic is the issue of regulatory burdens upon small businesses; in the research triangle of North Carolina, the private consulting firm Management Research and Planning Corporation (MRPC, 2002) investigated the means by which states attempted to piggyback states rules onto the federal Regulatory Flexibility Act. The consultants investigated whether states were effective in alleviating the regulatory burden falling on small businesses. The report concluded that only five states, Virginia, California, New York, Arizona and Illinois were effective in reducing federal regulatory burdens on their residents. However, even the passage of the federal Regulatory Flexibility Act and handmaiden bills like Executive Order 12866 and 13272 which were designed to diminish the federal regulatory burdens on small businesses, cannot fully correct the hefty and disproportionate burden of legal compliance that falls upon small businesses.
Cultivation of knowledge of legal cases related to business law requires virtual "signing up on the USSC dance card" to monitor cases under review. Small business and entrepreneurship educators who desire to further the interests of small business owners, as well as consultants, practitioners and educators can utilize a simple program to analyze the meaning of these landmark cases. It is then possible to transmit that understanding to the discipline by publishing research dedicated to the practice of advocacy for small business and all business.
Small business management experts and some scholars have recognized that familiarity with laws and regulations which have an impact upon business decisions is sometimes unrelated to decision making (Van Auken, Kauffmann and Herrmann 2009). In a remarkable study of owners' familiarity with Bankruptcy laws and their relation to capital acquisition, Van Auken et al recognized that although information is available, small firms may not have full access to the information nor perhaps do the consultants who advise them. Although the study was confined to Iowa businesses, the findings are likely to be applicable to multiple jurisdictions with similar state rules of bankruptcy exemptions, asset protection rules and states which are deed of trust states. Importantly, Van Auken et al conclude that "understanding bankruptcy laws is important to owners, consultants and policy makers." (p.35). It is significant that bankruptcy laws are exclusively federal in jurisdiction in spite of the fact that a wide variety of state customized rules on asset protection, homestead exemption amounts, etc. can lead to extreme disparity in application and results.
The data available in government repositories is a virtual goldmine for scholars who are attempting to ascertain the causes of small business success and failure and the effect of regulations on small business. The study of the burden of federal regulations upon small business has been effectively studied by Crain, W.M. and others in successive reports 1995, 2001, and 2005 defining the disproportional cost of federal regulations upon small business.
In each successive study, regulatory and paperwork burdens on small business were found to be "more onerous" (Crain 2005). Crain concluded in his 2005 study that environmental and tax compliance regulations were the worst offenders ; he found that compliance with environmental regulations costs 364% more in small firms than large firms and that tax compliance was 67% more costly to small firms than large firms.
In a very thorough study measuring the burden of tax obligations imposed on small business owners at the time of their bankruptcy filing, Efrat found that small business owner- bankrupt petitioners were twice as likely as consumer-bankrupt petitioners to owe tax debts (Efrat 2008). He found that overall, 30% of petitioners reported owing tax debt and individual entrepreneurs reported owing tax debt more often than small business entities. This study included only 5 federal judicial districts (California, Tennessee, Pennsylvania, Illinois and Texas) but included almost 2,000 bankruptcy schedules filed by both individuals and entities. The data covered petitions filed under the changes in bankruptcy after October 17, 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
According to leading economists, the small business sector is an essential element of the US economy (Liao, J., Welsch, H., Moutray, C. 2008/2009) and continues to be a significant influence especially in times of economic uncertainty. In times of economic uncertainty some scholars have called for policymakers to apply a framework that accounts for predicable behaviors under known or anticipated circumstances. Economists concerned with monetary policy call for the application of a monetary framework to navigate the "sea of uncertainty" (Svensson, L. and Williams, N. 2008) perhaps to permit a fuller perception of the factors which drive success or failure and ultimately contribute to economic stability. The business disciplines routinely propose, test, criticize or justify discipline specific models to enlighten and improve organizational learning and we might find "learning and renewing to be common themes"(Hoy 2008). Studies of franchise arrangements and entrepreneurial failure also suggest that agency law and contract design may play a role in business success or failure (Michael, Combs 2008). There is grudging recognition that knowledge of information and adequate exploitation of that information are two separate issues. There is evidence (Moutray 2008), as revealed in the U.S. Department of Educations' data series called "Baccalaureate & Beyond", which implies that collegiate education and choice of major, especially management, may not be determinative of eventual employment choices; and many scholars, may come to Moutray's insightful observation that entrepreneurship education might best be served across the curriculum.
In all cases, as stated succinctly by Fiore and Lussier, folks want to know their chances of successfully creating wealth (Fiore, R.A. and Lussier 2008/2009). The models for calculating and determining this likelihood vary, but most models focus on age, experience, education, organization structure, capitalization, personality type, type of business, to name a few- however, most predictive and analytical models omit the (obvious) factor of legal knowledge.
If integrating entrepreneurship with strategy to enhance business performance is as desirable as leading scholars surmise (Morris, Kuratko and Covin 2008) and strategic entrepreneurship lessons are relevant to small business in general, then the inclusion of legal knowledge and use of legal strategies must become a part of this emerging concept (Kuratko and Audretsch 2009). Even pioneers of strategy matrix modeling, Sonfield and Lussier, who created an entrepreneurial matrix to measure risk and innovation (Sonfield and Lussier 1997), might envision the competitive advantage in using the LIDM model to diminish risk and enhance competitive advantage.
As the forum of last resort in the US, the decisions from our nine justices provide final interpretations of the supreme laws of the land. Since the mid-1970's, a diminishing number of business cases have been selected for high court review each year. For example, from the elite annual crop of controversial candidates in 2009, only 4 cases directly involve business interests. This small number has advantages; there is no data overload at the USSC level. If the cases are finite and public, then the published legal decisions and dicta can be gathered, analyzed and formulated into an effective part of all business strategy models. This new use and analysis of court uttered legal information is called Legal Insight Decision Making (Bardwell 2009) and it can be effectively researched at lower levels of the judiciary and in multiple judicial forums and venues. LIDM requires the creation of an annual audit for upcoming legal issues which should coincide with the US Supreme Court term; i.e.--create the convenient "Legal Year" of October to October. Information necessary to determine which cases are significant and might be granted certiorari is eventually made public and is available through several methods. The author's preferred method is described for the sake of simplicity.
CREATING THE LIDM MODEL
Step 1: Select Hot Circuits
Identify recalcitrant Circuits and include the circuit in which your business interests reside. Step 2: Select Hot Legislative Change Topics
Identify legislative changes and add two years to permit the appeals process to mature Step 3: Select Hot Economic Topics
a. Identify topics covered in multiple issues in the WSJ, NYT, LAT, WP related to industry performance and add 6 months to one year for trickledown effect upon small business/entrepreneurs
b. Identify topics funded by SBA over past 2 years
Step 4: Select Hot Public Topics
Identify abusive ethical or professional breach behaviors covered in popular media and determine if federal regulations govern such behaviors and add 6 months to 1 year for resultant civil or criminal prosecutions
Step 5: Map the Intersection of steps 1-4 to plot future problems
Step 6: Select USSC cases related to Step 5 and granted cert. to monitor
Step 7: Review USSC case opinions
a. Overt issues which will surface again: split decisions and dissents
b. Unambiguous decisions--per curium or unanimous
c. Track remands
Step 8: Extract key lessons from Step 7 and apply to business/educational/entrepreneurial interests
HYPOTHESES AND SIGNIFICANT CASES IN BRIEF
Atlantic Sounding Co., Inc. versus Townsend U.S. Sup. Ct. June 25, 2009 General maritime law permits injured seaman to claim common law punitive damages for employer's allegedly willful and arbitrary failure to provide maintenance & cure (Thomas, J.)
Caperton versus A.T. Massey Coal Co., Inc. U.S. Sup. Ct. June 08, 2009 determined that State Supreme Court judge elected by state voters should have recused himself due to financial contributions from person whose case was soon to be heard (Kennedy, J.)
Montejo versus Louisiana- U.S. Sup. Ct. May 26, 2009 establishes police are no longer required to follow Michigan v. Jackson rule that they refrain from initiating questioning after suspect has invoked right to counsel (Scalia J.)
AT&T Corporation versus Hulteen U.S. Sup. Ct. May 18, 2009 found employer did not per se violate Pregnancy Discrimination Act by paying pension benefits according to calculation giving less retirement credit for pregnancy leave than for medical leave generally (Souter, J.)
Arthur Andersen LLP versus Carlisle U.S. Sup. Ct. May 04, 2009 agreed the Court of Appeals had jurisdiction to review district court's denial of request under [section] 3 of Federal Arbitration Act to stay action which could have been referred to arbitration under written agreement (Scalia, J.)
Burlington Northern & Santa Fe Railway Company versus United States U.S. Sup. Ct. May 04, 2009 decided pesticide manufacturer/seller was not liable (as "arranger") for CERCLA cleanup costs incurred in decontaminating soil and ground water where chemicals were spilled during transfers and deliveries to agricultural chemical distributor/purchaser (Stevens, J.)
Entergy Corporation versus Riverkeeper U.S. Sup. Ct. April 01, 2009 reversed the U.S. Court of Appeals for the 2nd Circuit in consolidated cases concerning regulations adopted by the EPA under Section 316(b) of the Clean Water Act, 33 U.S.C. [section] 1326(b). Environmental groups and various states challenged the regulations, and the 2nd Circuit set them aside. The issue on appeal was whether the EPA was permitted to use a cost-benefit analysis which the 2nd Circuit held it was not allowed to use. Reversing, the Supreme Court held that the EPA permissibly relied on cost-benefit analysis.
Gross versus FBL Financial Services, Inc. U.S. Sup. Ct. June 18, 2009 alters burden on the plaintiff bringing an ADEA disparate-treatment claim. Plaintiff must prove that age is the decisive factor motivating the employer's actions. It is not sufficient that age is among the factors; thus "mixed motive cases" are effectively losers! Plaintiff must establish by a preponderance of evidence that age was the decisive "but-for" cause of the challenged adverse employment action (Thomas, J.)
14Penn Plaza LLC versus Pyett U.S. Sup. Ct. April 01, 2009 reversed the U.S. Court of Appeals for the 2nd Circuit in a case considering whether a provision in a collective-bargaining agreement that clearly and unmistakably required union members to arbitrate claims arising under the Age Discrimination in Employment Act of 1967 was enforceable. The 2nd Circuit held that the Supreme Court's decision in Alexander v. Gardner-Denver Co. (1974), forbid enforcement of such arbitration provisions. The Supreme Court disagreed with the 2nd Circuit, instead holding that a provision in a collective-bargaining agreement that clearly and unmistakably required union members to arbitrate ADEA claims is enforceable as a matter of federal law.
Vaden versus Discover Bank U.S. Sup. Ct. March 09, 2009 reverses the U.S. Court of Appeals for the 4th Circuit in a case considering Section 4 of the Federal Arbitration Act, which authorizes a U.S. district court to entertain a petition to compel arbitration if the court would have jurisdiction, "save for [the arbitration] agreement," over "a suit arising out of the controversy between the parties." At issue was (a) whether a district court, if asked to compel arbitration pursuant to Section 4, should "look through" the petition and grant the requested relief if the court would have federal-question jurisdiction over the underlying controversy and (b) if the answer to question (a) is yes, whether a district court may exercise jurisdiction over a Section 4 petition when the petitioner's complaint rests on state law but an actual or potential counterclaim rests on federal law. The Court held that a federal court may "look through" a Section 4 petition to determine whether it is predicated on a controversy that "arises under" federal law; in keeping with the well-pleaded complaint rule as amplified in Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc. (2002). However, the Court stated that a federal court may not entertain a Section 4 petition based on the contents of a counterclaim when the whole controversy between the parties does not qualify for federal-court adjudication.
United States versus Eurodif S.A. U.S. Sup. Ct. January 26, 2009 reversed the U.S. Court of Appeals for the Federal Circuit in a case considering Section 731 of the Tariff Act of 1930 (Act) which calls for "anti-dumping" duties on "foreign merchandise" sold in the United States at "less than its fair value," but does affect international sales of services. At issue was the application of the anti-dumping provision to imports of low enriched uranium, a highly processed derivative of natural uranium used as nuclear fuel, in situations where domestic utilities contracted to obtain low enriched uranium for cash plus unenriched uranium delivered to a foreign enricher. Although the parties' contracts called these transactions sales of uranium enrichment services, the U.S. Commerce Department treated them as sales of "foreign merchandise" subject to the anti-dumping provision. The Court held that the Commerce Department's view of these transactions as sales of goods rather than of services was a permissible interpretation and application of the act.
Crawford versus Metropolitan Govt. of Nashville and Davidson County, Tennessee U.S. Sup. Ct. January 26, 2009 reversed the U.S. Court of Appeals for the 6th Circuit in a case considering whether Title VII of the Civil Rights Act of 1964 extends to protect an employee who speaks out about discrimination not on her own initiative, but in responding to questions during an employer's internal investigation. The Supreme Court held that it does, noting that the word "oppose" in the "opposition clause" of Title VII, 42 U. S. C. [section] 2000e3(a), is statutorily undefined. Thus, the Court held, the word carries its ordinary dictionary meaning and covers the petitioner's statement in the present case.
Kennedy versus Plan Administrator for DuPont Savings and Investment Plan U.S. Sup. Ct. January 26, 2009 affirmed the U.S. Court of Appeals for the 5th Circuit in a case considering the Employee Retirement Income Security Act of 1974, which generally obligates administrators to manage ERISA plans "in accordance with the documents and instruments governing" them. At a more specific level, ERISA requires covered pension benefit plans to "provide that benefits ... under the plan may not be assigned or alienated," but this bar on alienation and assignment does not apply to qualified domestic relations orders. The question before the Court was whether the terms of a limitation on assignment or alienation invalidated the act of a divorced spouse, the designated beneficiary under her ex-husband's ERISA pension plan, who purported to waive her entitlement by a federal common law waiver embodied in a divorce decree that was not a qualified domestic relations order. The Supreme Court held (a) that such a waiver is not rendered invalid by the text of the anti-alienation provision, but also (b) that the plan administrator properly disregarded the waiver owing to its conflict with the designation made by the former husband in accordance with plan documents.
Recognizing the significance of these cases and interpreting the results of the cases at question is an essential part of strategic planning for large firms; as a strategy of war, this knowledge permits enhanced tactics and strategies only to those businesses aware of the consequences of judicial pronouncements.
However, these USSC decisions also provide a competitive advantage to small businesses, entrepreneurs, owners, consultants and educators. Legal Insight Decision Making proposes a nuanced change in the attitudes of entrepreneurs and educators towards the lessons found within the court's words. It is time to recognize the value of polishing the insights gleaned from these select gems and incorporating these lessons to entrepreneurial and small business strategic models.
Bardwell, S. (2009) Legal Insight Decision-Making: A Judicious Approach, 2009, The Entrepreneurial Executive, Vol.14, pgs. 65-80.
Crain, W.M. and T.D. Hopkins (2001) The Impact of Regulatory Costs on Small Firms, research paper authorized and produced under contract SBAHQ-00-R-0027, 60 pages. http://www.sba.gov/advo/research; www.ntis.gov PB2001-107067
Crain, W.M. (2005) The Impact of Regulatory Costs on Small Firms, research paper authorized and produced under contract SBAHQ-03-M-0522, 93 pages. http://www.sba.gov/advo/research; www.ntis.gov PB2005-108597
Efrat, R. (2008) The Tax Debts of Small Business Owners In Bankruptcy, research paper authorized and produced under contract SBAHQ-06-M-0515, 36 pages. http://www.sba.gov/advo/research; www.ntis.gov PB2008-105140
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Stephanie Huneycutt Bardwell, Christopher Newport University…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Small Business at the Foot of the Legal Muse: Interpreting Supreme Court Cases and Their Effects. Contributors: Bardwell, Stephanie Huneycutt - Author. Journal title: Entrepreneurial Executive. Volume: 15. Publication date: Annual 2010. Page number: 1+. © 2008 The DreamCatchers Group, LLC. COPYRIGHT 2010 Gale Group.
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