(Solution Manual) Business Law and the Regulation of Business

Mann, Roberts, 13

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Author(s): Mann, Roberts

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1 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Part One: Introduction to Law and Ethics CONTENTS Chapter 1 Introduction to Law Chapter 2 Business Ethics ETHICS QUESTIONS RAISED IN THIS PART 1. Are all laws moral? Should all laws be moral? How should morality be determined? 2. Are laws always just? 3. Which is more important, morality or justice? 4. Why is there a difference between the treatment of cases brought under civil law and those brought under criminal law? Should there be a difference? ACTIVITIES AND RESEARCH PROBLEMS 1. Have students draw a diagram of two overlapping circles, with one circle labeled “Moral” and the other labeled “Legal.” The area of overlap would be both moral and legal. Then list several controversial topics of current interest (e .g., abortion, genetic engineering , marijuana smoking, etc.) for students to place within an area of the diagram (or outside the circles if it is neither moral or legal). Can any of these issues be absolutely determined to be moral or immoral? 2. Have any laws in our country’s history been repealed on the basis of their immorality? Are there any laws still in existence that should be repealed? Have students discuss their opinions. 3. How does American common law differ from English common law? 4. Have st udents write a fictitious case involving questionable ethics in a business decision . CHAPTER 1 INTRODUCTION TO LAW 2 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Chapter 1 INTRODUCTION TO LAW A. Nature of Law C. Sources of Law 1. Definition of Law 1. Constitutional Law 2. Functions of Law 2. Judicial Law 3. Law and Morals a. Common Law 4. Law and Justice b. Equity B. Classification o f Law c. Restatements of Law 1. Substantive and Procedural Law 3. Legislative Law 2. Public and Private Law a. Treaties 3. Civil and Criminal Law b. Executive Orders 4. Administrative Law D. Legal Analysis Cases in This Chapter Note: This case is provided as a part of the lesson on teaching students how to brief. Caldwell v. Bechtel, Inc. Chapter Outcomes After reading and studying this chapter, the student should be able to: • Identify and describe the basic functions of law. • Distinguish between (a) law and justice and (b) law and morals. • Distinguish between (a) substantive and procedural law, (b) public and private law, and (c) civil and criminal law. • Identify and describe the sources of law. • Explain the principle of stare decisis . TEACHING NOTES Law concerns the relations between and among individuals as those relations affect social and economic order. It affects the rights and duties of every citizen and many non -citizens. Law is both prohibitory , meaning certain acts must not be committed, and mandatory , meaning certain acts must be done, sometimes in a set way. Additionally, law is permissive : certain acts are allowed, but not required by the law. A. NATURE OF LAW The law is a continuously cha nging process of developing a workable set of rules that balance the individual and group rights of an always -changing society. Definition of Law Legal scholars have defined law in various ways, including: • “predictions of the way that a court will de cide specific legal questions” • “a rule of civil conduct prescribed by the supreme power in a state, commanding what is right, and prohibiting what is wrong” CHAPTER 1 INTRODUCTION TO LAW 3 © 201 9 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. *** Chapter Outcome *** Identify and describe the basic functions of law. Functions of Law The functions of law are to maintain stability in the social, political, and economic system through (1) dispute resolution, (2) protection of property, and (3) the preservation of the state while at the same time permitting ordered change. 1. Disputes are inevitable in a complex society and may involve criminal or noncriminal matters. Law provides rules to resolve disputes and avoid personal revenge. 2. Law protects ownership of property and allows for agreements (contracts) to exchange property. (This text deals with many aspects of this including contracts, sales, commercial paper, and business associations.) 3. Law preserves the state. It ensures that changes are result of elections, legislation, and referenda rather than revolution, sedition, and rebe llion. *** Chapter Outcome *** Distinguish between law and justice. Distinguish between law and morals. Law and Morals Though law is affected by morals, law and morality are not the same. Some actions have no moral implications but have legal sanctio ns, whereas other actions have no legal sanctions but do have moral implications. Some actions have both moral impact and legal sanction. NOTE: See Figure 1 -1: Law and Morals. Law and Justice Law and justice are distinct but interrelated concepts. • Justice may be defined as “the fair, equitable, and impartial treatment of the competing interests and desires of individuals and groups, with due regard for the common good.” • Justice depends on the law, but the law does not guarantee justice, since laws can be unjust. (Think back to “legal” slavery and the “legal” actions of Nazi Germany.) B. CLASSIFICATION OF LAW Because the law is vast, it is helpful to organize it into categories such as: (1) substantive and procedural, (2) public and private, and (3) civil and criminal. Basic to understanding these classifications are the terms right and duty. A right is the ability of a person, with the aid of the law, to require another person to perform or to refrain from performing a certain act. A duty is the obligation the law imposes upon a person to perform or to refrain from performing a certain act. Duty and right exist together: a person cannot have a right without some other person (or all persons) having the corresponding duty. NOTE: See textbook Figure 1 -2, which outlines the classifications of law. *** Chapter Outcome *** Distinguish between (a) substantive and procedural law, (b) public law and private law, and (c) civil law and criminal law. Substantive and Procedural Law Substantive law creat es, defines, and regulates legal rights and duties. Procedural law sets forth rules for enforcing those rights that are created by the substantive law. CHAPTER 1 INTRODUCTION TO LAW 4 © 201 9 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Public and Private Law Public law is the branch of substantive law that deals with the government's rights and powers and its relationship to individuals or groups. Private law is that part of substantive law governing individuals and legal entities (such as corporations) in t heir relationships with one another. Civil and Criminal Law Civil law defines duties and deals with the rights and duties of individuals among themselves. (It is part of private law.) NOTE: Civil law is not the same as a civil law system, discussed la ter in this chapter. Criminal law establishes duties and involves offenses against a whole community. (It is part of public law.) The purpose of the civil law is to compensate the injured party (plaintiff), while the purpose of criminal law is to punish the wrongdoer. Typically, the civil law awards money for damages or an order for the defendant to behave in a certain way, while criminal law imposes a fine or imprisonment on the guilty party. *** Chapter Outcome s *** Identify and describe the sources of law. Explain the principle of stare decisis . C. SOURCES OF LAW • Federal and state constitutions • Federal treaties (agreements between or among independent nations) • Interstate compacts • Federal and state statutes (laws passed by a legislative bod y such as the U.S. Congress or the legislature of a state) • Executive orders (legislation issued by a President or governor) • Ordinances of local municipal governments • Rules and regulations of federal and state administrative agencies • Federal and sta te court decisions NOTE: See Figure 1 -3, Hierarchy of Law Constitutional Law A constitution sets forth the basic principles by which a government is guided, as well as the limitations on governmental authority. The U.S. Constitution is the supreme law of the nation; a state constitution is the highest law within that state. Federal law is supreme in cases of conflict with state law. Fundamental principles of the U.S. Constitution include: Separation of Powers (division of power among branches of govern ment) and Judicial Review (power of the Supreme Court to determine constitutionality of all laws). Judicial Law Civil Law System – This system, which is less prevalent than common law within the United States, depends on comprehensive legislative enactm ents (called codes) and an inquisitorial system of determining disputes. In the inquisitorial system , the court, rather than the parties, initiates litigation, investigates pertinent facts, and conducts the presentation of evidence. Common Law — Case decis ions establish precedent in our common law system and must also be consulted when researching a legal question. The principle of stare decisis requires that inferior courts stay consistent with prior decisions of higher courts on cases with similar facts. CHAPTER 1 INTRODUCTION TO LAW 5 © 201 9 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Equity — A supplementary system of judicial relief separate from the common law, based upon settled rules of fairness, justice and honesty. Remedies include: specific performance, injunction, reformation, rescission and decree. In most jurisdictions, a single court administers both common law and equity. Restatements of Law — This is an orderly re -writing (or re -stating) of the general common law of the United States; it is regarded as the authoritative statement of the common law of the United States. Covers many areas, including torts, contracts, agency, property, and trusts. Legislative Law Legislative law consists of statutes passed by legislatures. Statutes may repeal judge -made law as long as the statute is not unconstitutional. Legislatures hav e the freedom to choose the issues they want to address, and can make or change laws relatively quickly. Courts may only address issues that are presented in actual cases, leading to a more haphazard approach to establishing or revising laws. The need for uniformity among state statutes led to the codification of large parts of business law. The most successful example of this effort is the Uniform Commercial Code (UCC), prepared under the joint sponsorship and direction of the National Conference of Comm issioners on Uniform State Laws and the American Law Institute. The NCCUSL has drafted over 200 uniform laws including the Uniform Partnership Act, the Uniform Limited Partnership Act, and the Uniform Probate Code. The ALI has developed a number of model s tatutory formulations, including the Model Code of Evidence, the Model Penal Code, and a Model Land Development Code.,. In addition, the American Bar Association has promulgated the Model Business Corporation Act. All fifty states, the District of Columbi a, and the Virgin Islands have adopted the UCC. ( Louisiana has adopted only part.) Treaties — Agreements between or among independent nations; if signed by the President and approved by the Senate, it has the legal force of a federal statute. Executive Orders — The President has power to issue executive orders, which carry the authority of a law. Administrative Law The branch of public law that governs the powers and procedures of governmental entities (other than courts and legislatures); oft en involves public health, safety and welfare. Administrative law is created by administrative agencies in the form of rules, regulations, orders, and decisions to carry out the regulatory powers and duties of those agencies. D. LEGAL ANALYSIS Decisions in state trial courts generally are not published but are filed in the office of the clerk of the court. Decisions of state courts of appeals are published in volumes called “reports,” numbered consecutively. Some states rely on a commercial reporter an d no longer publish official reports. The decisions of courts in the federal system are found in a number of reports. For instance, Lefkowitz v. Great Minneapolis Surplus Store, Inc ., 251 Minn. 188, 86 N.W.2d 689 (1957), indicates that the opinion in this case may be found in Volume 251 of the official Minnesota Reports at page 188; and in Volume 86 of the North Western Reporter, Second Series, at page 689; and that the opinion was delivered in 1957. Normally, the reported opinion in a case includes: 1. the essential facts, the nature of the action, the parties, what happened to bring about the controversy, what happened in the lower court, and what pleadings are material ; 2. the issues of law or fact; 3. the legal principles involved; 4. the application of these principles; and 5. the decision. When briefing a case, one must determine: (1) the facts of the case, (2) the issue or question involved, (3) the decision of the court, and (4) the reasons for the decision. All cases are decided with these four presuppositions CHAPTER 1 INTRODUCTION TO LAW 6 © 201 9 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. in mind: the court must decide the issue before it and may not decide anything other than the issue before it; the court decides this particular case based on general rules; and everyth ing a judge says in an opinion must be interpreted in relation to this particular case. CASE Caldwell v. Bechtel, Inc. UNITED STATES COURT OF APPEALS, DISTRICT OF COLUMBIA 1980 631 F.2d 989 FACTS Caldwell was a laborer who now suffers from silicosis. He claims that he contracted the disease while working in a tunnel under construction as part of the Washington Metropolitan Area Transportation Authority (WMATA). He brought his action for dam ages against Bechtel, Inc., a consultant engineering firm und er contract with WMATA for the project. ISSUE Did Bechtel breach a duty of due care owed to Caldwell to take reasonable steps to protect him from the foreseeable risk of harm to his health posed by the exces sive concentration of silica dust in the subway tunnels? DECISION In favor of Caldwell. Summary judg ment reversed and case remanded to the district court. REASONS Caldwell has not brought an action for breach of contract as Bechtel seems to believe. Rather, he seeks damages for an alleged breach of the duty of reasonable care. Unlike contractual duties, which are imposed by agreement of the parties to a contract, a duty of due care under tort law is based primarily on social policy. That is, the law imposes upon individuals the expectation that their actions will not cause foresee able injury to another. These societal expectations com prise the concept of duty—a concept that varies in response to the activity engaged in by the individual. Moreover, the duty is owed to anyone who might foreseeably be inj ured by the conduct of the actor in ques tion. In contrast, under contract law, a duty is owed only to those parties specified in the contract. Here, by entering into a contract with WMATA, Bechtel placed itself in such a relation toward Caldwell that the law will impose upon it an obligation in tort, and not in contract, to act in such a way that Caldwell would not be injured. CHAPTER 2 BUSI NESS ETHICS 1 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Chapter 2 BUSINESS ETHICS A. Law versus Ethics D. Ethical Responsibilities of Business B. Ethical Theories 1. Regulation of Business 1. Ethical Fundamentalism 2. Corporate Governance 2. Ethical Relativism 3. Arguments Against Social Responsibility 3. Utilitarianism a. Profitability 4. Deontology b. Unfairness 5. Social Ethics Theories c. Accountability 6. Other Theories d. Expertise C. Ethical Standards in Business 4. Arguments in Favor of Social Responsibility 1. Choosing an Ethical System a. The Social Contract 2. Corporations as Moral Agents b. Less Government Regulation c. Long -Run Profits Cases in This Chapter (NOTE: These are not actual court cases, but original vignettes which pose ethical problems in business situations. A discussion guide for each is found prior to the answers to problems at the end of this instructor’s manual chapter.) Pharmacon Drug Company Mykon’s Dilemma Oliver Winery, Inc JLM, Inc. Sword Technology, Inc. Vulcan, Inc. Chapter Outcomes After reading and studying this chapter, the student should be able to: • Describe the difference between law and ethics. • Compare the various ethical theories. • Describe cost -benefit analysis and explain when i t should be used and when it should be avoided. • Explain Kohlberg’s stages of moral development. • Explain the ethical responsibilities of business. TEACHING NOTES Ethics can be broadly defined as the study of what is right or good for human beings. It pur sues the question of what people ought to do and what goals they should pursue. Business ethics , as a branch of applied ethics, is the study and determination of right and good in business settings. Ethical questions apply to relationships among and be tween: • a business and its employees • a business and its customers • a business and its owners • competing businesses CHAPTER 2 BUSI NESS ETHICS 2 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. • a business and society at large • businesses and countries at an international level In business ethics, it is helpful to employ a seeing -knowing -doing model in which the decision maker follows these steps: • See (identify) the ethical issues in the proposed conduct and any alternative o ptions • Know (resolve) which is the best option • Do (implement) the chosen option A. LAW VERSUS ETHICS *** Chapter Outcome *** Describe the difference between law and ethics. Law is strongly affected by moral concepts (ethics), but law and morality are not the same. Legality is often a reliable guide to ethical behavior, but it cannot be relied upon as a perfect standard. Legal acts may be immoral, illegal acts may be moral. B. ETHICAL THEORIES *** Chapter Outcome *** Compare the various ethical theo ries. Certain ethical rules are based on theory rather than experimentation ( a priori reasoning). Ethical Fundamentalism Also called absolutism. Individuals look to a central authority or set of rules for guidance, e.g., the Bible, the Koran, the writings of Karl Marx. Ethical Relativism A theory under which actions must be judged by what individuals subjectively feel is right or wrong for themselves. Although bearing some similar ities, the doctrine of situational ethics differs substantially in that it requires one to judge another person’s actions by first putting oneself into that person’s situation. Utilitarianism Those actions that produce the greatest net pleasure, compared to net pain, are better in a moral sense. Act utilitarianism assesses each s eparate act in order to determine whether it produces net pleasure over pain. Rule utilitarianism supports rules that at their inception would appear to be the best hope of producing maximum pleasure for the greatest number of people. *** Chapter Outcome *** Describe a cost -benefit analysis and explain when it should be used and when it should be avoided. Utilitarian notions of moral correctness are the basis for the concept of making a cost-benefit analysis in a managerial decision. Th e purpose of a cost -benefit analysis is to choose the most cost effective method for pursuing a goal after comparing the costs and benefits of proposed alternatives. If increasing net wealth, especially on a short -term basis, is the goal, a sound cost -benefit analysis is a helpful tool. Deontology CHAPTER 2 BUSI NESS ETHICS 3 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. From the Greek word deon , meaning duty or obligation; stresses that certain principles are always right or wrong, no matter the outcome. Actions should be judged by means and motives, rather than only result s. NOTE: See textbook discussion of Immanuel Kant’s deontological theories. Social Ethics Theories Focus on a person’s obligations to other members of society and also on individual rights and obligations. Social egalitarians believe that society sho uld provide all persons with equal goods and services irrespective of their contributions to the society’s overall wealth. Distributive justice also considers the needs and rights of all people, yet stresses the equality of opportunity, not of results. Libertarians claim that differences in wealth simply demonstrate different levels of skill in the marketplace. Taking wealth earned by some and giving it to others is unfair. Other Theories Intuitionism holds that all rational people possess the ability to decide the rightness of an action, though some people have more insight into ethical behavior than others. The “good person” philosophy is similar, and declares that to act morally, we should emulate those who seem to always choose the “good” or “right” choice. “Television Test" judges the appropriateness of a decision based on whether we would be comfortable with having that decision known by all the world, as if it had been broadcast on television. C. ETHICAL STANDARDS IN BUSINESS *** Chapter Outcome *** Explain Kohlberg’s stages of moral development. Choosing an Ethical System Kohlberg’s Stages of Moral Development provides insight into ethical decision making. Under Kohlberg’s model, people progress through stages of moral deve lopment basically as a function of age and education. The pre-conventional or childhood stage, is one where a person’s moral perspective is based only on a punishment/reward concept. The conventional or adolescent stage is one where an individual conform s his behavior to meet group or peer expectations. Some people may reach the third, or post-conventional, adult level where individuals conform to internalized moral principles simply because they understand why the principles are right. NOTE: See Figure 2-1, Kohlberg's Stages of Moral Development Some psychologists assert that most people function in all three of Kohlberg's stages simultaneously. Corporations as Moral Agents Because a corporation is a statutorily created entity, is not clear whether it should be held to a standard of moral accountability. D. ETHICAL RESPONSIBILITIES OF BUSINESS Some regulation has always been necessary to check overreaching greed in our system of modified capitalism. *** Chapter Outcome *** CHAPTER 2 BUSI NESS ETHICS 4 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Explain the et hical responsibilities of business. Regulation of Business According to Adam Smith’s model for the perfect capitalistic system, governmental oversight is necessary, but should be limited. Beyond setting the rules and enforcing them, Smith felt that govern ment should stand aside. Increased governmental intervention has occurred, however, because this model cannot be relied on to achieve objectives such as national defense, conservation of natural resources, health and safety, and social security. Successfu l government regulation involves carefully balancing regulations that attempt to preserve competition and those that attempt to advance other social objectives. Corporate Governance The demand for ethical and social responsibility of business also results from the sheer size, and therefore power, of individual corporations. Many people — and even members of the corporate community itself — believe that companies have an obligation to sponsor projects that benefit society in ways beyond the economics of pr oducing goods and services. Arguments Against Social Responsibility Profitability — Since corporations are artificial entities established for profit -making activities, their only social obligation should be to return as much money as possible to the di rect stakeholders, the shareholders. Unfairness — Whenever corporations engage in social activities such as supporting the arts or education, they divert funds rightfully belonging to the shareholders and/or the employees to unrelated third parties. Accoun tability — A corporation may decide to support a variety of social causes but, unlike a governmental body, will be required to submit to little public scrutiny. Expertise — Although a corporation may have a high level of expertise in selling its goods and services, it may not be able to carry on social activities with the same degree of competence. Arguments in Favor of Social Responsibility A corporation’s primary objective is to make a return on its investment by producing a quality product at a fair price. Most people agree, however, that corporations have obligations beyond making a profit and avoiding harm to others. The Social Contract — Since society allows for the creation of corporations and gives them special rights, including a grant of limited liability, this argument holds that corporations reciprocally owe a responsibility to our society. NOTE: See Figure 2 -2, The Stakeholder Model. Less Government Regulation — When corporations act responsibly, regulation becomes unnecessary. In addition, by taking a more proactive role in aiding with society’s problems, corporations create a climate of trust and respect that may make government more lenient in regulations. Long -Run Profits — Corporate involvement in social causes has the effect o f creating goodwill which simply makes good business sense from a long -run profit perspective. CHAPTER 2 BUSI NESS ETHICS 5 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. CASE Pharmakon Drug Company ISSUES: The general issue is the appropriateness of affirmative action in the private sector. Does the use of affirmative action w hen a company is downsizing differ from when a company is hiring or conferring other benefits? The specific issue is how should Pharmakon implement its layoffs and what criteria should it use? OPTIONS: Layoffs and/or terminations should be based on which one or combination of the following? 1) Cause 2) Merit based on a newly established, reliable, and valid evaluation system 3) Seniority 4) Proportionate (maintain the current percentage of minority employees) 5) Enhancement of minority (increase the percen tage of minorities) 6) Encourage voluntary retirement (either with or without incentives) 7) Lottery 8) Pay cuts across the board 9) Other ANALYSIS OF THE VARIOUS OPTIONS: How does each of the options impact the following goals of Pharmakon? 1) Productivity 2) Fiscal soundness 3) Minority presence and preservation of minority gains 4) Employee morale 5) Potential for lawsuits 6) Public and community reaction 7) Shareholder reaction 8) Balancing of rights of current employees against past corporat e/societal discrimination DECISION: Have students justify their recommendations. ADDITIONAL DISCUSSION: • Affirmative Action : Discuss the benefits and costs of affirmative action. • Diversity : How does one place a value on diversity? How should a diversi ty policy be implemented? • Equality : How is equality determined —by outcome or by opportunity? • Political Correctness : What is political correctness? Is it appropriate? Is it relevant to the issues raised in Pharmakon? CHAPTER 2 BUSI NESS ETHICS 6 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. CASE Mykon’s Dilemma ISSUES: 1) Supply —How much of the fungus do you use immediately? How much do you conserve for future use? 2) Allocation —How should the drug be allocated? 3) Pricing —At what price should the drug be sold? ALLOCATION OPTIONS — The drug should be distributed on which one or which combination of the following criteria? 1) Based on how long a patient has been seeking medical assistance 2) Triage system —those that are in the most desperate condition get the medication first 3) Only to asymptomatic HIV patients 4) Based on fault —give priority to less culpable victims 5) Free market —the highest bidders 6) Lottery —(a) charge everyone who enters the lottery with the winners receiving the drug without additional charge or (b) an open lottery with the winners receiving th e right to purchase the drug 7) Based on patient’s nationality — (a) by the percentage of the company’s business in that country; (b) by the percentage of patients in that country, (c) by the percentage of the company’s employees in that country, (d) by the percentage of stockholders in that country, or (e) by some other nationality -based criteria 8) Give priority to stockholders of the company 9) Give priority to citizens of the country in which the fungus grows 10) Relinquish the decision to a governmental or international body PRICING OPTIONS — 1) Free market 2) Like any other new drug 3) Free—to all or to some patients 4) A healthy profit margin —that is, a profit higher than the industry norm ANALYSIS OF THE VARIOUS OPTIONS: How does each of the optio ns impact the following goals and concerns? 1) Fairness —to patients, stockholders, US citizens, other nationals, and those who cannot afford to pay 2) What can or should be done to prevent a black market in the drug? 3) Can and should a sufficient quantity of the fungus be preserved for future research? DECISION: Have the students justify their decision. ADDITIONAL DISCUSSION: • Can this case be decided without determining who lives and who dies? • Who should make this type of decision: The company? A government? An international body? CHAPTER 2 BUSI NESS ETHICS 7 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. CASE Oliver Winery, Inc. ISSUES: Should the company manufacture the new line of wine and, if so, under what conditions? OPTIONS: 1) Do not manufacture 2) Do not manufacture and try to prevent others from manufacturing this type of wine 3) Manufacture without company’s name on the wine 4) Manufacture with company’s name on the wine 5) Manufacture and invest a percentage of the profits in education or rehabilitation 6) Manufacture and put a warning on the b ottle 7) Manufacture and refuse to sell in certain neighborhoods ANALYSIS OF THE VARIOUS OPTIONS: How do these options affect the following stakeholders? 1) Oliver Winery 2) Habitual drinkers 3) Non-habitual drinkers 4) Retailers 5) Community DECISION: Have the students justify their decision. 1) Does this decision differ from the decision of a company that is already producing the wine as to whether it should continue to manufacture or not? 2) Does this decision vary or differ between a privat ely held company and a publicly traded company? ADDITIONAL DISCUSSION: 1) What is the social responsibility of business? 2) What is the intent in this type of target marketing? 3) Is target marketing appropriate (a) in this case or (b) ever? 4) Should the Reverend resign? 5) If the company does not produce the wine, will the decision have any effect? 6) What would happen if all producers stopped producing this type of wine? 7) Does this situation differ from the sale of (a) Tobacco? (b) Guns, especially Sa turday night specials ? (c) Illegal drugs? (d) High cholesterol foods? CHAPTER 2 BUSI NESS ETHICS 8 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. CASE JLM, Inc. ISSUES: The general issue is what policy should JLM adopt regarding letters of references. The specific issue is what should JLM do about the particular individuals in volved. OPTIONS: 1) Adopt a no reference policy 2) Adopt a policy that permits references to be written by certain specified employees 3) Allow references on a case by case basis 4) Permit references to be given 5) Provide (or not provide) references for each of the individuals involved 6) Allow employees to provide references as individuals but not as agents of the company ANALYSIS OF THE VARIOUS OPTIONS 1) What is the rationale behind a no reference policy? 2) What is the rationale in fav or of providing references? 3) What are the ethics of each of these policies? Is not providing references deception by silence? 4) Should states adopt laws to protect companies from tort liability (defamation) for providing references? Explain. 5) Should a company be held liable for negligent hiring? When? 6) Should the law enforce an employee’s promise not to sue made in consideration of the employer’s providing a letter of reference? 7) Who is harmed by no reference policies? 8) Should JLM provide referen ces for the particular individuals involved in this case? Explain. 9) For whom are you most inclined to provide a reference? The least inclined? Explain. 10) What is the cost to JLM of each option? What is the cost to society in general? DECISION: Have s tudents justify their recommendations. ADDITIONAL DISCUSSION: • Employment at will —Is it fair? Explain. • Right to lie —Is it ever appropriate to lie in business? If so, when? • Society’s responsibility —Should there be laws regulating this area? Explain. CHAPTER 2 BUSI NESS ETHICS 9 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. CASE Sword Technology, Inc. ISSUES: Should the company follow the legal and ethical practices of its home country or the legal and ethical practices of the host country? SITUATION DISCUSSION Transfer Payments • Is a cost/benefit analysis appropriate? • Is it significant that other companies do it? Customs Expediting Is it legal and ethical in home country? In host country? (Probably is not a violation of Foreign Corrupt Practices Act.) Campaign Contributions Is it legal and ethical in home country? In host country? (Probably is a violation of Foreign Corrupt Practices Act.) Lake Tahoe Is it legal and ethical in home country? In host country? (Probably is a violation of Foreign Corrupt Practices Act.) Design of Plant Is it legal and ethical in home country? In host country? Child Labor • Is it legal and ethical in home country? In host country? • Who is causing the harm? Does that matter? • Is a cost/benefit analysis appropriate? Discrimination • Is it le gal and ethical in home country? In host country? • Is it fair? Nepotism • Is it legal and ethical in home country? In host country? • Is it fair? DECISION: Have the students justify their decision. ADDITIONAL DISCUSSION: • Does the decision whether to follow the home or host country’s practice depend on the level of economic development of each country? • Should a host country’s practice be permissible if the home country would do the same if it were at the same economic stage as the host cou ntry? • Are there moral minimums that must be satisfied in all countries? Are any of these moral minimums applicable to any of the ethical issues raised in this case? CHAPTER 2 BUSI NESS ETHICS 10 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. CASE Vulcan, Inc. ISSUES: What circumstances constitute insider trading? Is it ethical to use non -disclosed agents to buy land for a price lower than its known (but undisclosed) value? ACTION DISCUSSION Stock Options Was it ethical to issue stock options to the executives who knew about the impending land acquisition and mineral strike? Misleading Press Release Although the press release issued in response to rumors was technically accurate, its downplaying of the situation is misleading. Is this a legal or ethical practice? Land Acquisition Is it legal and ethical to use multiple non -disclosed agents to mask the volume and value of land purchases in order to obtain land at a price lower than its actual value? Is it ethical to buy land at a low price, knowing its value is going to go up, then sell it at the elevated price? Stock Purchase by Executives Who Know About Mineral Find Is this insider trading? Stock Purchase by Eavesdropper Who Does Not Know Executives Is this insider trading? Stock Purchase by Security Guard Who Gets Tip From Executive Is this insider tradin g? Stock Purchase by Agent Who Knows About Land Purchases Is this insider trading? Stock Purchase by Friends and Family of Executives Who Know About Mineral Find Is this insider trading? Stock Purchase by Stockbroker (and His Clients) Who Notices Other Unusual Purchases Is this insider trading? DECISION: Have the students justify their decision. ADDITIONAL DISCUSSION: • Is there ever a time when it is ethical and legal to buy stocks based on insider information? CHAPTER 2 BUSI NESS ETHICS 11 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. ANSWERS TO QUESTIONS AND PROBLE MS 1. You have an employee who has a chemical imbalance in the brain that causes him to be severely unstable. The medication that is available to deal with this schizophrenic condition is extremely powerful and decreases the taker's life span by one to two ye ars for every year that the user takes it. You know that his doctors and family believe that it is in his best interest to take the medication. What course of action should you follow ? Answer: Arguments Against Social Responsibility . This question illustrates one scenario where arguments against corporate social responsibility could come into play. If you take the “anti - social responsibility” position that a corporation has -- as its primary objective -- a fundamental responsibility to maximize pro fits, the employer could make the medication a requirement for the employee to remain in the workforce. It could be argued that this decision may also decrease the possibility of injury or deterioration in working conditions for other employees. The othe r side of the argument, however, is that this type of decision is too personal for a corporation to make. The ultimate determination should reside with the employee and it should be his free decision to take or not take the medication. This puts the responsibility back where it belongs, on the employee and his family. 2. You have a very shy employee from another country . After a time, you notice that the quality of her performance is deteriorating rapidly. You find an appropriate time to speak with her and determine that she is extremely distraught. She tells you that her family has arranged a marriage for her and that she refuses to obey their contract. She further states to you that she is thinking about committing suicide. Two weeks later, after her poor performance continues, you determine that she is on the verge of a nervous breakdown; and once again she informs you that she is going to commit suicide. What should you do? Consider further that you can petition a court to have her involuntarily committed to a mental hospital. You know, however, that her family would consider such a commitment an extreme insult and that they might seek retribution. Does this prospect alter your decision? Answer: Arguments For Social Responsibility . A good, responsible man ager would be hard - pressed to demand that the employee either improve her on -the-job performance or face dismissal. However, initiating an involuntary committal to a mental hospital could constitute an improper invasion of rights with many legal repercuss ions. An interim step of providing appropriate psychological social counseling (perhaps at company expense) would seem to best fit into the concept of good corporate management. This would benefit not only the individual, but the corporation may be able t o keep a valued employee. The cost of counseling is likely to be less expensive than hiring and training a new employee. 3. You receive a telephone call from a company that you never do business with requesting a reference on one of your employees, Mary Sunshine. You believe that Mary is generally incompetent and would be delighted to see her take another job. You give her a glowing reference. Is this right? Explain. Answer: Utilitarianism . Pawning off an incompetent employee would certai nly help the profitability of an employer. However, relatively accurate referrals are expected, and good CHAPTER 2 BUSI NESS ETHICS 12 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. corporate citizenship would impose a moral responsibility to act properly. The employer would be better advised to give a more accurate, but not overl y negative, description of Mary’s job performance (while staying within the conditional privilege of avoiding a defamation action), rather than generate animosity and gain a reputation as a liar among other businesses in the area. 4. You have just received a report suggesting that a chemical your company uses in its manufacturing process is very dangerous. You have not read the report, but you are generally aware of its contents. You believe that the chemical can be replaced fairly easily, but that if word ge ts out, panic may set in among employees and community members. A reporter asks if you have seen the report, and you say no. Is your behavior right or wrong? Explain. Answer: Utilitarianism . Weighing the arguments for profitability to shareholders and fai rness to shareholders and employees against the arguments for good corporate citizenship and long - run profits, an appropriate response might be that you are aware of the report but haven’t thoroughly read or studied it. Proceeding with a course that ackno wledges (at least internally) past dangerous practices, while immediately correcting the current problems, and correcting future problems in a timely manner, may be an appropriate legal as well as moral response to this problem. This is one of the reasons many corporations have a corporate spokesperson to give appropriate and consistent responses. 5. You and Joe Jones, y our neighbor and friend, bought lottery tickets at the corner drugstore. While watching the lottery drawing on television with you that nigh t, Joe leaped from the couch, waved his lottery ticket, and shouted, “I've got the winning number!” Suddenly, he clutched his chest, keeled over, and died on the spot. You are the only living person who knows that Joe, not you, bought the winning ticket. I f you substitute his ticket for yours, no one will know of the switch, and you will be $10 million richer. Joe's only living relative is a rich aunt whom he despised. Will you switch his ticket for yours? Explain. Answer: Fundamentalism . Perhaps an advocat e of utilitarianism or social egalitarianism might feel that switching the ticket would be morally appropriate on the premise that it maximized pleasure and was an appropriate distribution of wealth. However, such a moral rationalization would demonstrate the flaws in both theories. There is no escaping the fact that switching the tickets would be improper under the law and most moral theories. 6. Omega, Inc., a publicly held corporation, has assets of $100 million and annual earnings in the range of $13 –$15 million. Omega owns three aluminum plants, which are profitable, and one plastics plant, which is losing $4 million a year. The plastics plant shows no sign of ever becoming profitable, because of its very high operating costs; and there is no evidence that the plant and the underlying real estate will increase in value. Omega decides to sell the plastics plant. The only bidder for the plant is Gold, who intends to use the plant for a new purpose, to introduce automation, and to replace all present emplo yees. Would it be ethical for Omega to turn down Gold's bid and keep the plastics plant operating indefinitely, for the purpose of preserving the employees' jobs? Explain. CHAPTER 2 BUSI NESS ETHICS 13 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Answer: Egalitarianism . Indefinite maintenance of the plastics plant may strike one as being the morally correct thing to do. The moral basis for such a decision would be essentially egalitarianism where the wealth generated by many is redistributed to benefit others. However, as the basis for an economic system, such an approach may be doomed to ultimate failure in that it does not rectify anything and only prolongs a perhaps snowballing problem that could taint and impair the job security of everyone employed by Omega. If managerial and operational changes truly cannot rectify the net loss situation suffered by the plastics plant, sale of the plant to Gold may, in a broader context, be the morally correct thing to do. 7. You are the sales manager of a two -year-old electronics firm. At times, the firm has seemed to be on the brink of fail ure, but recently has begun to be profitable. In large part, the profitability is due to the aggressive and talented sales force you have recruited. Two months ago, you hired Alice North, an honors graduate from State University who decided that she was ti red of the research department and wanted to try sales. Almost immediately after you sent Alice out for training with Brad West, your best salesman, he began reporting to you an unexpected turn of events. According to Brad, “Alice is terrific: she's confid ent, smooth, and persistent. Unfortunately, a lot of our buyers are good old boys who just aren't comfortable around young, bright women. Just last week, Hiram Jones, one of our biggest customers, told me that he simply won't continue to do business with ‘ young chicks’ who think they invented the world. It's not that Alice is a know -it-all. She's not. It's just that these guys like to booze it up a bit, tell some off -color jokes, and then get down to business. Alice doesn't drink, and although she never obj ects to the jokes, it's clear she thinks they're offensive.” Brad felt that several potential deals had fallen through “because the mood just wasn't right with Alice there.” Brad added, “I don't like a lot of these guys' styles myself, but I go along to ma ke the sales. I just do not think Alice is going to make it.” When you call Alice in to discuss the situation, she concedes the accuracy of Brad's report, but indicates that she's not to blame and insists that she be kept on the job. You feel committed to equal opportunity, but don't want to jeopardize your company's ability to survive. Explain w hat you should do? Answer: Utilitarianism . This is a common problem with a myriad of legal and moral implications. From a profitability standpoint, especially in the case of a company on the brink of economic failure, ignoring the requirements and whims of customers can amount to economic death. From a legal standpoint, the Equal Opportunity laws operate harshly against an employer that discriminates on the basis o f sex or race in hiring and promotional activities. Employees are frequently aware of their rights, yet wishing to help the business of an employer and otherwise acting as a good “team player.” A possible response might be (with the consent of Alice) atte mpting to divide sales accounts to give to Alice those accounts where her sex would be a neutral or perhaps positive factor, while retaining for Brad oversight of the “good old boy” accounts. Such an approach would acknowledge both her legal rights and he r justifiable expectations while not undermining the profitability of a company whose very existence is at issue. Best utilization of employees is critical to any corporation, and this includes sensitivity to both the employees’ needs and the customers’ needs. CHAPTER 2 BUSI NESS ETHICS 14 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. 8. Major Company subcontracted the development of part of a large technology system to Start - up Company, a small corporation specializing in custom computer systems. The contract, which was a major breakthrough for Start -up Company and crucial to its f uture, provided for an initial development fee and subsequent progress payments, as well as a final date for completion. Start -up Company provided Major Company with periodic reports indicating that everything was on schedule. After several months, however , the status reports stopped coming, and the company missed delivery of the schematics, the second major milestone. As an in -house technical consultant for Major Company, you visited Start -up Company and found not only that they were far behind schedule bu t that they had lied about their previous progress. Moreover, you determined that this slippage put the schedule for the entire project in severe jeopardy. The cause of Start -up's slippage was the removal of personnel from your project to work on short -term contracts in order to obtain money to meet the weekly payroll. Your company decided that you should stay at Start -up Company to monitor their work and to assist in the design of the project. After six weeks and some progress, Start -up is still way behind their delivery dates. Nonetheless, you are now familiar enough with the project to complete it in -house with Major's personnel. Start -up is still experiencing severe cash flow problems and repeatedly requests payment from Major. But your CEO, furious with Start -up's lies and deceptions, wishes to “bury” Start -up and finish the project using Major Company's internal resources. She knows that withholding payment to Start -up will put them out of business. What do you do? Explain. Answer: Situational Ethics. We don't know if the development fee was ever paid to Start -up Company. Major had an obligation to pay the initial development fee. If it was paid, and Start -up did not produce the required progress reports then Major is correct to withhold payment. Situ ational ethics will come into play when you decide whether or not to give Start -up more time to complete the work. If the start -up fee was not paid, and it was Major’s failure to pay on schedule that caused Start -up to divert their personnel, then Major n eeds to take some share of the blame. . 9. A customer requested certain sophisticated tests on equipment he purchased from your factory. Such tests are very expensive and must be performed by a third party. The equipment was tested as requested and met all o f the industry standards but showed anomalies which could not be explained. Though the problem appeared to be very minor, you decided to inspect the unit to try to understand the test data —a very expensive and time -consuming process. You informed the customer of this decision. A problem was found, but it was minor and was highly unlikely ever to cause the unit to fail. In addition to the time and expense required to rebuild the equipment , notifying the customer that you were planning to rebuild the uni t would also put your overall manufacturing procedures in question. Should you fix the problem, ship the equipment as -is, or inform the customer? Explain. Answer: Fundamentalism. You must inform the customer. The customer apparently has the right to requ est such testing and as such you have ethical responsibility to inform the customer of all factors. The ultimate decision should be made by the customer. However, CHAPTER 2 BUSI NESS ETHICS 15 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. you have the obligation to comply with the legal and governmental responsibilities within your industry. 10. You are a project manager for a company making a major proposal to a Middle Eastern country. Your major competition is from Japan. (a) Your local agent, who is closely tied to a very influential sheik h, would receive a 5 percent commission if the proposal were accepted. Near the date for decision the agent asks you for $150,000 to grease the skids so that your proposal is accepted. What do you do? (b) What do you do if, after you say no, the agent goes to your vice president, who provides the mone y? (c) Your overseas operation learns that most other foreign companies in this Middle Eastern location bolster their business by exchanging currency on the gray market. You discover that your division is twice as profitable as budgeted due to the amount of domestic currency you have received on the gray market. What do you do? Answer: Ethical Theories. (a) This may cross the line from ethical to legal requirements. If this is not illegal, then applying the doctrine of ethical relativism, you must decide what is subjectively right for you. You also need to check the company code of conduct and any other applicable policy. (b) Again applying the doctrine of ethical relativism, if you feel strongly enough you may have to quit your job or request a t ransfer to another division. If this activity is not legal you have the obligation to report it to your company's superiors. (c) The Utilitarianism cost –benefit analysis will allow you to first quantify this in monetary terms and then compare the direct and indirect costs and benefits. This process may achieve the most profit but may ignore justice in the process. 11. Explain what relevance ethics has to business . Answer: Business Ethics . Business ethics is the study and determination of what is right and good in business settings. Business ethics seeks to understand the moral issues that arise from business practices, institutions, and decision making, and their relationship to generalized human values. Unlike legal analyses, analyses of ethics have no central authority, such as courts or legislatures, upon which to rely; nor do they follow clear -cut universal standards. Nonetheless, despite these inherent limitations, it still may be possible to make meaningful ethical judgments. 12. How should the financ ial interests of stockholders be balanced with the varied interests of stakeholders? If you were writing a code of conduct for your company, how would you address this issue? Answer: Social Responsibility . Finding this balance has been the struggle for most, if not all businesses throughout time. Historically, the stockholder model for the role of business has been the norm. Under this theory, a corporation is viewed as private property owned by and for the benefit of its owners —the stockholders of the corporation. The stake holder model, on the other hand, holds that corporations are responsible to society at large and more directly to all those constituencies on which they depend for their survival. Thus, it is argued that a corporation should be managed for the benefit of all of its stakeholders —stockholders, CHAPTER 2 BUSI NESS ETHICS 16 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as perm itted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. employees, customers, suppliers, and managers, as well as the local communities in which it operates. (Student answers will vary, but should address these two models.) 13. A company adopts a policy that (a) prohibits romantic relationships between employees of different rank and (b) permits romantic relationships between employees of the same rank only if both employees waive in writing their rights to sue the company should the relationship end. Violation of this rule is grounds for dismissal. Is this rule ethical? If not, how should it be revised? Explain. Answer: Ethical Theories . Student answers will vary, but should address ways to find a balance between individual freedoms or rights and the good of the company. Presumably, this policy was made for a purpose that serves to protect the company (which in turn protects the employee’s job and other stakeholders’ interests.) A discussion of t he theory of utilitarianism would be appropriate in the answer to this question. 14. A company prohibits any employee from making disparaging comments about the company through any social media, including online blogs, email, and other electronic media. Viola tion of this rule is grounds for dismissal. Explain whether this rule is ethical. If not, how should it be revised? Explain. Answer: Ethical Theories . Student answers will vary, but should address ways to find a balance between individual freedoms or rights and the good of the company. An argument against this policy would probably be grounded in the Constitutional protection of free speech, which an argument in favor of the policy would center on the good that comes from protecting the company. A discussion of the theory of utilitarianism would be appropriate in the answer to this question. 1 Part Two: The Legal Environment of Business CONTENTS Chapte r 3 Civil Dispute Resolution Chapter 4 Constitutional Law Chapter 5 Administrative Law Chapter 6 Criminal Law Chapter 7 Intentional Torts Chapter 8 Negligence and Strict Liabi lity ETHICS QUESTIONS RAISED IN THIS PART 1. In some cultures being involved in a lawsuit is something about which to be ashamed. Our society has been criticized for being overly litigious. In fact, we even go on television to sue in "The People's Court" and other similar shows. Is our culture “sue -happy?” Should access to the court system be restricted? 2. From an ethical perspective, what obligations does a person who has been harmed by another person or by a business have to attempt settlement of the matter through negotiation before resorting to a lawsuit? 3. The Bill of Rights was drafted to protect individuals from their own government, not from criminals. Because of this, the defendant in a criminal case has rights that are constitutionally protected. The victims of the crime do not have as many rights in the criminal trial as does the defendant. Should our legal system pay more attention to the victims of crime? How should the victim's rights be protected in a criminal tr ial? 4. Is a no -fault system covering torts ethically preferable to the fault -based negligence system we now have? 5. Are businesses morally responsible for injuries that are caused by products they sell or manufacture? What about copy -cat injuries? ACTI VITIES AND RESEARCH PROBLEMS 1. For a general discussion of law, or preceding the study of criminal law and procedure recruit someone outside the class to rush in and commit a "crime" such as stealing the professor's textbook. After the stranger leaves, h ave the students write a description of what happened. Then compare the details of the eyewitnesses and discuss the legal implications of the event. 2. Have students make a list of the key events in their lives, then have them list and discuss laws that r elate to those events. 3. Research the historic legal codes of other civilizations, such as the Hebrews and Babylonians, or of other societies around the world today, and compare the crimes, punishments, and criminal procedures to those in the United State s today. 4. Have students prepare a survey form on crimes affecting businesses. The form could include types of crime that affect the business (such as customer theft, employee theft, and bad checks); the amount of loss; the cost of the crimes; and the co st of security. Then have the class or part of the class interview the managers of businesses. Have the students report to the class and compare the results with local and national statistics available from law enforcement professionals. 5. In recent yea rs many states have instituted victim's assistance programs and crime victim's restitution programs. Investigate to find whether your state has such programs. You might also compare the programs in various states. CHAPTER 3 CIVIL DISPUTE RESOLUTION 2 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. Chapter 3 CIVIL DISPUTE RESOLUTION I. The Court System A. The Federal Courts 1. District Courts 2. Courts of Appeals 3. The Supreme Court 4. Special Courts B. State Courts 1. Inferior Trial Courts 2. Trial Courts 3. Appellate Courts II. Jurisdiction A. Subject Matter Jurisdiction 1. Federal Jurisdiction a. Exclusive Federal Jurisdiction b. Concurrent Federal Jurisdiction 2. Exclusive State Jurisdiction 3. Stare Decisis in the Dual Court System B. Jurisdiction over the Parties 1. In Personam Jurisdiction 2. In Rem Jurisdiction 3. Attachment Jurisdiction 4. Venue III. Civil Dispute Resolution A. Civil Procedure 1. The Pleadings a. Complaint and Summons b. Responses to Complaint 2. Pretrial Procedure a. Judgment on the Pleadings b. Discovery c. Pretrial Conference d. Summary Judgment 3. Trial a. Jury Selection b. Conduct of Trial c. Jury Instructions d. Verdict e. Motions Challenging Verdict 4. Appeal 5. Enforcement B. Alternative Dispute Resolution 1. Arbitration a. Types of Arbitration b. Procedure c. Court -Annexed Arbitration 2. Conciliation 3. Mediation 4. Mini -Trial 5. Summary Jury Trial 6. Negotiation Cases in This Chapter Mims v. Arrow Financial Services, LLC World -Wide Volkswagen Corp. v. Woodson Parker v. Twentieth Century -Fox Film Corp. Edmonson v. Leesville Concrete Company, Inc. DirectTV, Inc. v. Imburgia Chapter Outcomes After reading and studying this chapter, the student should be able to: • List and describe the courts in the federal court system and in a typical state court system. • Distinguish among exclusive federal jurisdiction, concurrent federal jurisdiction, and exclusive state jurisdiction. • Distinguish among (a) subject matter jurisdiction and jurisdiction over the parties and (b) the three types of jurisdiction over the parties. • List and explain the various stages of a civil proceeding. • Compare and contrast litigation, arbitration, conciliation, and mediation. CHAPTER 3 CIVIL DISPUTE RESOLUTION 3 © 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password -protected website for classroom use. TEACHING NOTES I. THE COURT SYST EM Courts are established by governmental bodies; a court may render a binding decision only when it has jurisdiction over the dispute and the parties to that dispute. The United States has a dual court system: (1) a federal court system and (2) a system within each of the fifty states and District of Columbia. *** Chapter Outcome *** List and describe the courts in the federal court system and in a typical state court system. A. THE FEDERAL COURTS The judicial power of the United States is placed in one Supreme Court and the lower courts established by Congress, including special courts, district courts and appeals courts. Judges in the federal courts are appointed for life by the president, subject to Senate confirmation. NOTE: Figure 3-1 in the textbook shows the structure of the Federal court system. District Courts The general trial level in the federal court system, where issues of fact are decided, serve districts each located entirely in a particular state. All states have at l east one district; about half of the states contain more than one district. Each district court is presided over by one judge, except in certain cases, when three judges preside. Appeals from district courts usually go to the Circuit Court of Appeals w here the district court is located. In a few cases, the appeals are taken directly to the U.S. Supreme Court. Courts of Appeals Twelve Circuit Courts of Appeals are the next level in the federal system. They primarily hear appeals from the district co urts and review decisions of administrative agencies, the Tax Court, and the Bankruptcy Courts. They generally hear cases in panels of three judges, although in some instances all judges of the circuit will sit en banc (all together in a session) to decid e a case. NOTE: See Figure 3 -2 in the textbook for a map showing the district and circuit courts. Appellate courts do not hear evidence or conduct a trial — they examine the record of a case to determine if the trial court committed prejudicial error (er ror substantially affecting the appellant’s rights and duties). If so, the appellate court will reverse or modify the judgment and, if necessary, remand or send the case back to the lower court for further proceeding. If there is no prejudicial error, th e appellate court will affirm the decision of the lower court. The Supreme Court The nation’s highest tribunal — consisting of a Chief Justice and eight Associate Justices — principally reviews cases of the Federal Courts of Appeals but sometimes has or iginal jurisdiction. Appellate cases reach the Supreme Court by: 1. appeal by right where review by the court is mandatory (very few cases), or 2. the discretionary writ of certiorari (sir’•sho•rare’•ee) (most cases). If four Justices vote to hear the c ase, a writ is granted when there is a federal question of substantial importance or a conflict in the decisions. Special Courts