Howdy. For the last time, I'm Professor Michael Conklin of Texas A&M University School of Law, and this is our final video together. This will just be a review of some of the overarching themes of the semester and then some concluding thoughts. When studying the law, it's very important to distinguish between quote-unquote winning at trial and just avoiding a trial altogether.
as the latter is far more preferable than the former. Trials often result in lose-lose outcomes where both sides are worse off, regardless of who won the case. In the classroom, I'll often have a student say that a given course of action is perfectly fine for a corporation to pursue because, if they were sued, they would win at trial.
Well, okay, but including appeals, the litigation could cost, you know, $200,000 and take years. So you're not really winning. This principle is illustrated every time you're watching a commercial and you see some ridiculous disclaimer like the one you see right here in this image that says, do not attempt.
Cars can't jump on trains. Now this is so absurd that I'm not even sure exactly how a lawsuit would arise, but I suppose somebody might try and beat traffic by landing their car on top of a train. I don't know. But in any event, yeah, if that guy or more likely if that guy's estate tried to sue, the automobile manufacturer would win, but they would have to go to court to win.
So it's better just to be overly cautious and put the silly disclaimers in and avoid the trial altogether. When I have students who talk so positively about a defendant. quote-unquote winning at trial, I always ask, well, what did they win?
I mean, what, just the ability to not have to pay someone money? Well, whoop-dee-doo. All right, moving on to a new topic. It's important to remember that there are 51 different legal systems in the U.S.
There's actually a little more if you think about tribal law, but anyway, there's the federal system and then there's one for each of the 50 states. Yes, there's a lot of overlap, But no two of these 51 legal systems are exactly the same. What we covered in this class are the most common general principles, also referred to as the majority rules. So just be aware that there are also jurisdictions that follow different minority rules.
Similarly, remember that the sources of law we discussed, like the Uniform Commercial Code, the restatement of agency, and RUPA and UPA, those are model rules. In other words, they're just suggestions and states can pick and choose which parts to adopt. I didn't explicitly mention this during our discussion of corporations, but there's also a model set of rules for corporate law.
It's called the Model Business Corporations Act of 2016. There's a picture of it right there. And again, states are free to pick and choose which parts to adopt. Some people are surprised to learn that there is no federal corporation statute, despite advocates calling for one.
It's all done at the various state levels. However, note that there are numerous federal statutes that in some way regulate corporate behavior. The Securities Act of 1933 requires certain disclosures when corporations raise capital in public markets.
The Securities and Exchange Act of 1934 imposes reporting requirements and regulates insider trading. The Sarbanes-Oxley Act of 2002 regulates aspects of corporate auditing, forfeiture of executive pay in very rare instances, and mandates internal controls. Finally, the Dodd-Frank Act of 2010 imposes numerous regulations on whistleblower protections, corporate restructuring. It created the Consumer Financial Protection Bureau, limits speculative trading by banks, and regulates credit ranking agencies. Many people view the law as an exact science, where you simply plug in the variables and you get a concrete answer.
This is far from the truth. Throughout this semester, I've emphasized how subjective many legal standards are. If you were to go to a leading corporate attorney, and ask him some of the questions that have no doubt popped into your head during this class, the most frequent answer you would likely get is something along the lines of, I'm not sure, I'll have to research it and get back to you.
And even after researching the issue and charging you an astronomical hourly rate, you might get an answer that's just the court may hold X, Y, Z for these reasons or the court may hold A, B, C for these other reasons. And that's just the nature of the beast when studying the law. A lot of these things just haven't been decided yet.
And they're kind of open ended questions. Think about when you see experts on TV talking about upcoming Supreme Court decisions. These are people who are not just legal experts, but they're legal experts in some narrow area of the law. And this is a Supreme Court case coming up about their focus. They spent their whole life focusing on this narrow area of the law.
And then they ask them, what do you think the Supreme Court's going to do? And they'll say, oh, gosh, I don't know. They might say this. They might say that. Or one expert says they'll do this.
And the next expert says, no, they'll do the other thing. So it's obviously very subjective. Note that numerous times during this semester, we've been referencing statutes and case law from a long time ago and trying to apply it to modern scenarios. The people who originally wrote those statutes and court opinions would have had no idea the scenarios that their writings would be used to rule on.
For example, we briefly discussed the Howey Test, which is still used today to determine if cryptocurrency deals constitute an investment contract. But the Howey test is from 1946. It's a Supreme Court decision from 1946. The court had absolutely no clue about cryptocurrencies back in 1946. I mean, if you went back and tried to explain it to them, I don't even think they'd be able to conceptualize it. And yet those are the writings and that's the standard that we apply to this modern thing today. Throughout this semester, recall the importance of precise.
and literal interpretation of the statutes. Now, in casual conversations, it's fine to say things like, I'm always at work. I was up all night working on this.
And things like, you know, I never watch movies anymore. And, you know, that's fine because we understand it's not to be taken literally. You're not literally always at work. Even if some people say, I'm literally always at work. You know, you may go home for three hours and then come back to work.
You know, you weren't literally up all night. Maybe you only got two hours of sleep, so you said, oh, I was up all night. Or, you know, I never watch movies anymore.
Well, maybe you just mean, you know, I only watched two movies this year, so that's so little. It's, you know, practically never. But when it comes to the law, you have to be deliberate with the language you use and how you interpret the language of others. For example, the difference between the words may and shall Or the difference between the phrase an amount in controversy exceeding $75,000 versus the phrase an amount in controversy $75,000 or over. Those little nuanced differences mean everything in the law.
You can, you know, multimillion dollar cases have been lost because of, you know, the placement of a comma. And I'm not talking about in a number, just, you know, in a sentence, the placement of a comma. The difference between the words may and shall, the difference between exceeding a dollar amount or that dollar amount and over, those things can mean everything in the law. You really have to be careful.
So when thinking about running a business generally and business law specifically, it's important to be aware of the seen and the unseen. When thinking of starting a business, it's easy to see future revenues. It's much harder to see future costs and liabilities.
Every year I serve as a judge for the local small business development center. We have a shark tank biz pitch competition and this principle is on display every time. Someone will show the projections for their proposed business and it's just, you know, I'm going to sell 100 widgets a month at $200 each. So that's $20,000 of revenue. And my costs are just going to be $3,000 in rent, $3,000 in materials, and $4,000 in employee wages.
So that's $10,000 in costs, $20,000 in revenue. I'm going to make $10,000 a month. This is a great deal.
And, of course, I get to be the jerk who squashes their dreams by saying things like, are you going to pay for water, electric, gas, and trash pickup? Are you going to have a phone line? Are you going to do any advertising?
You think you might want to buy some insurance? Are you going to hire a lawyer when you get sued? Are you going to hire an accountant to do your taxes?
What happens to your profits when just a few products get broken or stolen? And don't say you're Just going to write it off. We've talked about that in this class. There's a difference between a write off and a tax credit. Are you going to pay to create an LLC and then are you going to pay to re-up that LLC every year?
Are you going to pay your half of the over 12 percent Social Security tax for your worker? Are you going to give your worker any benefits? If you're going to accept credit card payments, that service is going to cost you about 3 percent off the top. Are you going to hire a janitor?
Are you going to pay your taxes? The list goes on and on and on. Again, the revenues are easy to see.
A second grader could see you're going to sell 100 widgets at $200 each, $20,000 a month. That's easy. Anybody can see that.
It's all the costs and the liabilities that are harder to see. And it's the same with business liability, with business law. It's impossible to predict all the myriad of ways in which you can get sued.
And notice how I didn't say it's impossible to predict all the myriad of ways in which you can be held liable, just that you can be sued because even so-called winning at court, you know, somebody sues you and you win. That's still very, very costly. Well, all good things must come to an end. And our time together this semester is no different.
I trust that you know a lot more about business law now than you did when you started this semester, but I want to caution you that there is so much more that we didn't cover, so don't hesitate to seek out legal advice or conduct further research yourself when making important business decisions. Finally, note that throughout this semester, we discussed laws as they are now, but this is an ever-evolving area. Remember all the examples of business forms that provide limited liability and avoid double taxation?
That was the S-Corp, the LP, the LLP, and the LLC. Well, those are all relatively new creations. You know, 30 years ago teaching this class, they wouldn't have existed. Maybe in the future, some of you will play a role in changing existing laws. Or even better, maybe one of you will ignite.
widespread positive change by standing up for what's right, even though doing so may come at a great cost to yourself.