Assignment
Read Smith & Roberson’s Business Law, Seventeenth Edition by Richard A. Mann and Barry S. Roberts and answer the cases problems/question in the end of each chapter.
CHAPTER 5
CASE PROBLEMS
1. In 1942, Congress passed the Emergency Price Control Act in the interest of national defense and security. The stated purpose of the Act was “to stabilize prices and to prevent speculative, unwarranted and abnormal increases in prices and rents.” The Act established the Office of Price Administration, which was authorized to establish maximum prices and rents that were to be “generally fair and equitable and [were to] effectuate the purposes of this Act.” Convicted for selling beef at prices in excess of those set by the agency, Stark appeals on the ground that the Act unconstitutionally delegated to the agency the legislative power of Congress to control prices. Is Stark correct in this contention? Explain.
2. The Secretary of Commerce (Secretary) published notice in the Federal Register inviting comments regarding flammability standards for mattresses. Statistical data were compiled, consultant studies were conducted, and seventy-five groups submitted comments. The Secretary then determined that all mattresses, including crib mattresses, must pass a cigarette test, consisting of bringing a mattress in contact with a burning cigarette. The department’s staff supported this position by stating:
“Exemption of youth and crib mattresses is not recommended. While members of these age groups do not smoke, their parents frequently do, and the accidental dropping of a lighted cigarette on these mattresses while attending to a child is a distinct possibility.” Bunny Bear, Inc., now challenges the cigarette flammability test, asserting that the standard was not shown to be applicable to crib mattresses, because “infants and young children obviously do not smoke.” Bunny Bear argues that the Secretary has not satisfied the burden of proof justifying the inclusion of crib mattresses within this general safety standard. Is Bunny Bear correct? Explain.
3. Reagan National Airport in Washington, D.C., is one of the busiest and most crowded airports in the nation.
Accordingly, the Federal Aviation Administration (FAA) has restricted the number of commercial landing and takeoff slots at National to forty per hour. Allocation of the slots among the air carriers serving National had been by voluntary agreement through an airline scheduling committee (ASC). When a new carrier requested twenty slots during peak hours, National’s ASC was unable to agree on a slot allocation schedule.
The FAA engaged in informal rulemaking and invited public comment as a means to solve the slot allocation dilemma. The FAA then issued Special Federal Aviation Regulation 43 (SFAR 43) based on public comments and a proposal made at the last National ASC meeting, thereby decreasing the number of slots held by current carriers and shifting some slots to less desirable times.
SFAR 43 also granted eighteen slots to the new carrier.
More specifically, SFAR 43 requires five carriers to give up one or more slots in specific hours during the day, requires twelve carriers to shift one slot to the latest hour of operations, and then reserves and allocates the yielded slots among the new entrants and several other carriers. Northwest Airlines seeks judicial review of SFAR 43, claiming that it is arbitrary, capricious, and not a product of reasoned decision making, and that it capriciously favors the Washington-New York market as well as the new carrier. What standard would apply to the agency’s actions? Should Northwest prevail? Explain.
4. Bachowski was defeated in a United Steelworkers of America union election. After exhausting his union remedies, Bachowski filed a complaint with Secretary of Labor Dunlop. Bachowski invoked the Labor-Management Reporting and Disclosure Act, which required Dunlop to investigate the complaint and determine whether to bring a court action to set aside the election. Dunlop decided such action was unwarranted. Bachowski then filed an action in a Federal district court to order Dunlop to file suit to set aside the election. What standard of review would apply and what would Bachowski have to prove to prevail under that standard?
5. The Federal Crop Insurance Corporation (FCIC) was created as a wholly government-owned corporation to insure wheat producers against unavoidable crop failure.
As required by law, the FCIC published in the Federal Register conditions for crop insurance. Specifically, the FCIC published that spring wheat reseeded on winter wheat acreage was ineligible for coverage. When farmer Merrill applied for insurance on his wheat crop, he informed the local FCIC agent that 400 of his 460 acres of spring wheat were reseeded on the winter wheat acre-age. The agent advised Merrill that his entire crop was insurable. When drought destroyed Merrill’s wheat, Merrill tried to collect the insurance, but the FCIC refused to pay, asserting that Merrill is bound by the notice provided by publication of the regulation in the Federal Register. Is the FCIC correct? Explain.
6. The Department of Energy (DOE) issued a subpoena requesting information regarding purchases, sales, exchanges, and other transactions in crude oil from Phoenix Petroleum Company (Phoenix). The aim of the DOE audit was to uncover violations of the Emergency Petroleum Allocation Act (EPAA), which provided for summary, or expedited, enforcement of DOE decisions.
However, after the subpoena was issued but before Phoenix had responded, the EPAA expired. The EPAA provided that:
The authority to promulgate and amend any regulation, or to issue any order under this Chapter shall expire at midnight September 30, 1981, but such expiration shall not affect any action or pending proceedings, administrative, civil or criminal action or proceeding, whether or not pending, based upon any act committed or liability incurred prior to such expiration date.
Using the summary enforcement provisions of the now-defunct EPAA, the DOE sues to enforce the subpoena. Phoenix argues that because the EPAA has expired, the DOE lacks the authority either to issue the subpoena or to use the summary enforcement provisions. Is Phoenix correct? Why or why not?
7. Under the Communications Act, the Federal Communications Commission may not impose common carrier obligations on cable operators. A common carrier is one that “makes a public offering to provide [communication facilities] whereby all members of the public who choose to employ such facilities may communicate or transmit.” In May 1976, the Commission issued rules requiring cable television systems of a designated size (a) to develop a minimum twenty-channel capacity by 1986, (b) to make available on a first-come, nondiscriminatory basis certain channels for access by third parties, and (c) to furnish equipment and facilities for such access. The purpose of these rules was to ensure public access to cable systems. Midwest Video Corporation claimed that the access rules exceeded the Commission’s jurisdiction granted it by the Communications Act of 1934, because the rules infringe upon the cable systems’ journalistic freedom by in effect treating the cable operators as “common carriers.” The Commission contended that its expansive mandate under the Communications Act to supervise and regulate broadcasting encompassed the access rules. Did the Commission exceed its authority under the Act? Why or why not?
8. Congress enacted the National Traffic and Motor Vehicle Safety Act of 1966 (the Act) for the purpose of reducing the number of traffic accidents that result in death or personal injury. The Act directs the Secretary of Transportation to issue motor vehicle safety standards in order to improve the design and safety features of cars. The Secretary has delegated authority to promulgate safety standards to the National Highway Traffic Safety Administration (NHTSA) under the informal rulemaking procedure of the APA. The Act also authorizes judicial review under the provisions of the Administrative Procedure Act (APA) of all orders establishing, amending, or revoking a Federal motor vehicle safety standard issued by the NHTSA.
Pursuant to the Act, the NHTSA issued Motor Vehicle Safety Standard 208, which required all cars made after September 1982 to be equipped with passive restraints (either automatic seat belts or airbags). The cost of implementing the standard was estimated to be around $1 billion. However, early in 1981, due to changes in economic circumstances and particularly due to complaints from the automotive industry, the NHTSA rescinded Standard 208. The NHTSA had originally assumed that car manufacturers would install air-bags in 60 percent of new cars and passive seat belts in 40 percent. However, by 1981, it appeared that manufacturers were planning to install seat belts in 99 percent of all new cars. Moreover, the majority of passive seatbelts could be easily and permanently detached by consumers.
Therefore, the NHTSA felt that Standard 208 would not result in any significant safety benefits.
State Farm Mutual Automobile Insurance Company (State Farm) and the National Association of Independent Insurers (NAII) filed petitions in Federal court for review of the NHTSA’s rescission of Standard 208. What standard of review would apply to the rescission? Should it be set aside? Explain.
9. David Diersen filed a complaint against the Chicago Car Exchange (CCE), an automobile dealership, alleging that the CCE fraudulently furnished him an inaccurate odometer reading when it sold him a 1968 Dodge Charger, in violation of the Vehicle Information and Cost Savings Act (the Odometer Act or the Act). The Odometer Act requires all persons transferring a motor vehicle to give an accurate, written odometer reading to the purchaser or recipient of the transferred vehicle. Under the Act, those who disclose an inaccurate odometer reading with the intent to defraud are subject to a private cause of action by the purchaser and may be held liable for treble damages or $1,500, whichever is greater.
The CCE had purchased the vehicle from Joseph Slaski, who certified to the CCE that the mileage was approximately 22,600. The CCE did not suspect that the odometer reading was inaccurate. After purchasing the vehicle, Diersen conducted an extensive investigation and discovered that the vehicle’s title documents previously listed its mileage as 75,000. Before Diersen filed this lawsuit, the CCE offered to have Diersen return the car for a complete refund. Diersen refused this offer and decided instead to sue the CCE under the Act. The district court granted the defendant’s motion for summary judgment, relying upon a regulation promulgated by the National Highway Traffic Safety Administration (NHTSA) which purports to exempt vehicles that are at least ten years old (such as the one Diersen purchased from the CCE) from the Act’s odometer disclosure requirements. Diersen then filed a motion for reconsideration of the court’s summary judgment order, arguing that the older-car exemption created by the NHTSA lacked any basis in the Act and was therefore invalid. Should Dierson’s motion for reconsideration be granted? Explain.
10. The Public Company Accounting Oversight Board (PCAOB) was created as part of a series of accounting reforms in the Sarbanes-Oxley Act of 2002. The PCAOB is a Government-created entity with expansive powers to govern an entire industry. Every accounting firm that audits public companies under the securities laws must register with the PCAOB, pay it an annual fee, and comply with its rules and oversight. The PCAOB may inspect registered firms, initiate formal investigations, and issue severe sanctions in its disciplinary proceedings. While the Securities and Exchange Commission (SEC) appoints PCAOB members and has oversight of the PCAOB, it cannot remove PCAOB members at will, but only “for good cause shown,” “in accordance with” specified procedures. The SEC Commissioners, in turn, cannot themselves be removed by the President except for “inefficiency, neglect of duty, or malfeasance in office.” Parties with standing have challenged the constitutionality of the Sarbanes-Oxley Act’s creation of the PCAOB because it conferred executive power on PCAOB members without subjecting them to Presidential control. Decision?
11. Present and former law review editors who were researching disciplinary systems and procedures at the military service academies for an article were denied access to case summaries of honor and ethics hearings, with personal references or other identifying information deleted, maintained in the United States Air Force Academy’s Honor and Ethics Code reading files. It was the Academy’s practice to post copies of such summaries on forty squadron bulletin boards throughout the Academy and to distribute copies to Academy faculty and administration officials. The editors brought an action under the Freedom of Information Act (FOIA) against the Department of the Air Force to compel disclosure of the case summaries. Which exemptions to FOIA are most applicable? Explain whether any of these exemptions would enable the Academy to withhold the requested case summaries.
Section 7(a)(2) of the Endangered Species Act of 1973 (ESA) provides (in relevant part) that: Each Federal agency shall, in consultation with and with the assistance of the Secretary (of the Interior), insure that any action authorized, funded, or carried out by such agency … is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of habitat of such species which is determined by the Secretary, after consultation as appropriate with affected States, to be critical.
In 1978, the Fish and Wildlife Service and the National Marine Fisheries Service, on behalf of the Secretary of the Interior and the Secretary of Commerce respectively, promulgated a joint regulation stating that the obligations imposed by Section 7(a)(2) extend to actions taken in foreign nations.
In 1983, the Interior Department proposed a revised joint regulation that would require consultation only for actions taken in the United States or on the high seas. Shortly there-after, Defenders of Wildlife and other organizations filed an action against the Secretary of the Interior, seeking a declaratory judgment that the new regulation is in error as to the geographic scope of Section 7(a)(2) and an injunction requiring the Secretary to promulgate a new regulation restoring the initial interpretation. The Secretary asserted that the plaintiffs did not have standing to bring this action.
a. What arguments would support the plaintiff’s standing to bring this action?
b. What arguments would support the Secretary’s claim that the plaintiffs did not have standing to bring this action?
c. Which side’s arguments are most convincing? Explain.
