978-0132718974 Chapter 4 Solution Manual Part 2

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Case 4-5: World-Wide Volkswagen v. Woodson

Facts: The Robinsons bought a new Audi from Seaway Volkswagen in New York state. While

Issue: Does the State of Oklahoma have personal jurisdiction over an auto retailer and a

wholesaler who do not sell cars in the state?

Holding: No.

Law: Under the U.S. Constitution, Fourteenth Amendment’s Due Process Clause, there must be

Explanation: Petitioners carried on no activities in Oklahoma, performed no sales or services

Order: Case against the retailer and distributor is dismissed.

Case 4-6: Asahi Metal Industry Co., Ltd. v. Superior Court of California, Solano County United

Facts: Asahi, a Japanese company, manufactured a tube valve assembly that was used in inner

Issue: Does a foreign defendant have “minimum contacts” with the U.S. if it is aware that the

product it manufactures, sells, and delivers outside the U.S. will reach the U.S. as part of the

ordinary stream of commerce?

Holding: No.

Law / Explanation: The Due Process Clause of the Fourteenth Amendment allows a state court

Order: The facts do not establish minimum contacts.

Forum Non Conveniens

The Multinational Enterprise

Unlike their approach to antitrust cases, American courts do not apply a separate test for

subject-matter jurisdiction in products liability cases. Nevertheless, the considerations the courts

look at in anti-trust cases are sometimes explored in products liability cases through the device of

forum non conveniens.

This allows courts applying this device to determine if the forum state has enough interest in the

outcome of the dispute to take jurisdiction. The factors considered are (1) the private interests of

the parties and (2) the public interest factors.

Sharp Practices – Sharp practices are dishonest business dealings meant to obtain a benefit for

an individual or firm regardless of the means used. They include such conduct as

misrepresentation and bribery.

Traditionally, only host states regulated the sharp practices of investors and MNEs. With the

adoption of the OECD Convention on Combating Bribery of Foreign Public Officials in

International Business Transactions, sharp practices are now to be regulated by home states as

well.

The one exception to the old rule that sharp practices were regulated only by host states was the

United States. In 1977, in response to several scandals involving American companies bribing

foreign government officials to obtain lucrative contracts, the United States enacted the Foreign

Corrupt Practices Act (FCPA).

The FCPA imposes accounting obligations on companies as a means of indirectly deterring

bribery. These require MNEs (1) to account with “reasonable detail” for all company transactions

(especially the transfer of assets) and (2) to maintain a system of internal accounting controls that

provide “reasonable assurances” that all transactions are properly authorized by the company.

The FCPA makes it illegal for American companies, foreign companies registered with the U.S.

Securities and Exchange Commission, or their officers, agents, or employees to knowingly bribe

a foreign government official, a foreign political party official, or a candidate for foreign political

office.

Not all of the participants in a bribery scheme are subject to prosecution under the FCPA.

Case 4-7: United States v. Blondek, Tull, Castle, and Lowry

Facts: The U.S. government sought to prosecute two Canadian officials (Castle and Lowry) as

Issue: May foreign officials be prosecuted under the general conspiracy statutes for conspiring to

violate the FCPA?

Holding: No.

Law: It was Congress’ intent that the FCPA only criminalize the payment of bribes, not the

Explanation: Following the analysis of the Gebardi v. United States case (which involved the

The Multinational Enterprise

Order: The cases against Castle and Lowry are dismissed.

Host State Regulation of Multinational Enterprises

Host states will apply their own unfair competition, products liability, and sharp practices rules to

foreign multinationals operating within their territory. The focus of host state regulation, however,

is not on making the local parent company responsible for the conduct of a foreign subsidiary, but

on making the foreign parent responsible for the conduct of the local subsidiary.

This generally leads host state courts to make three types of investigations: (1) whether a foreign

company has consented to the jurisdiction of the host state; (2) whether a local firm is part of a

common enterprise with a foreign firm, making both liable for activities of the local firm; or (3)

whether the independent corporate status of a subsidiary can be ignored so that liability can be

imposed on its parent.

Consent to the Jurisdiction of the Host State – A person or company must give its consent

(either expressly or impliedly) before either will be subject to the jurisdiction of a local state.

A company that incorporates or has its main office in a state is said to have expressly consented to

the jurisdiction of that state. Implied consent to the jurisdiction of a state can be found from a

foreign firm doing business within the state. Jurisdiction will be found if a company is—either

directly or through an agent—carrying on a business, soliciting business, or engaging in any other

persistent conduct related to the making of a profit.

Common Enterprise Liability – When individuals or companies function as part of a common

enterprise, courts will treat them as if they were members of a joint venture or partnership, with

each of them having joint or joint and several liability for the obligations of the entire enterprise.

In determining whether persons or firms are members of a common enterprise, courts look at the

intent of the parties. If the parties have not entered into a formal agreement creating a partnership

or joint venture, the courts will consider several factors in determining intent, including (1)

sharing of profits or losses, (2) sharing in the management, and (3) joint ownership of the

business.

Case 4-8: Touche Ross & Co. v. Bank Intercontinental, Limited

Facts: Touche Ross of the Cayman Island (TR-Cay) did some audit work in the Cayman Islands

The Multinational Enterprise

Issue: Was TR-Cay part of a common multinational enterprise such that its misconduct would

make the entire enterprise liable?

Holding: Yes.

Law: When firms hold themselves out to be part of a common enterprise, they all have joint

Explanation: The evidence tended to show that TR-Cay, TR-NY, etc., were all part of a common

Order: Because the Florida court was holding a hearing on this same matter contemporaneous

with the hearing that was going on in the Cayman Islands, and because the Florida court would

not assume jurisdiction until it decided the question of whether or not TR-Int’l was a common

enterprise, the Cayman Islands court withdrew its injunction. If the Florida court decided that

there was a common Touche Ross enterprise, then it was proper for it to proceed; if it did not, and

the case was dismissed, then the Cayman Islands injunction would be meaningless anyway.

Piercing the Company Veil – In some unusual situations, a company is used by its owners to

perpetrate a fraud, to circumvent the law, or in some other way to carry out illegal activities. In

such cases, a court will ignore the corporate structure of a company and pierce the company veil,

exposing the shareholders to personal liability.

There are four circumstances under which courts will pierce the corporate veil: (1) the controlled

company, (2) the alter ego company, (3) undercapitalization, and (4) personal assumption of

liability.

The Controlled Company

The corporate status of a controlled company will be ignored if (1) its financing and management

are so closely connected to its parent that it does not have any independent decision-making

authority and (2) it is induced to enter into a transaction beneficial to the parent but detrimental to

it and to third parties.

The Alter Ego Company

The company veil will be pierced if the company is not treated by its shareholders as a separate

juridical entity—that is, if it is treated as the alter ego of the shareholders.

Undercapitalization

When a company has insufficient capital at the time it is formed to meet its prospective debts or

potential liabilities, the courts will sometimes set aside the corporate veil.

Personal Assumption of Liability

Shareholders can, of course, personally assume liability for the obligations of a company.

Creditors will seldom lend money to such a company unless the shareholders personally

guarantee the performance of the company.

II. Chapter Questions

The Multinational Enterprise

Blocking Statues

a. Students’ answers may vary. Some may argue that Regal may not succeed because blocking

b. Students’ answers may vary. Foreign courts have sometimes been willing to hand down

c. Students’ answers may vary. Some may argue that the other competitors may succeed because

d. Students’ answers may vary. Plebeian may use the clawback provision which allows defendants

Competition Law and Jurisdiction Rule of Reason

2. Students’ answers may vary. Some may argue that Goliath and Junior are correct. Section I of

3. Students’ answers may vary. Some may argue that the U.S. court has jurisdiction to hear the

case. Section 2 of the Sherman Antitrust Act forbids monopolies and attempts to monopolize

4. Students’ answers may vary. Possible arguments may include that I Company’s practice does

5. Students’ answers may vary. Section 2 of the Sherman Antitrust Act forbids monopolies and

The Multinational Enterprise

6. Students’ answers may vary. Some may argue that the case may be dismissed because Section I

7. Students’ answers may vary. Some may argue that the arrangement between Mighty and Novel

violates Article 81 of the European Community Treaty, whereby it prohibits: (1) fixing any

For non-EU firms, the most significant aspect of the EU’s business competition rules is their

extraterritorial impact. The European Commission and the European Court of Justice have

Products Liability—Jurisdiction

8. Students’ answers may vary. Some may argue that the case shall be dismissed for lack of

personal jurisdiction. Products liability is a creature of the laws of the individual states of the

United States rather than federal law. As a consequence, personal jurisdiction must be found in

the individual states’ long arm statutes.

Corrupt Practices

9. Students’ answers may vary. The Foreign Corrupt Practices Act (FCPA) imposes accounting

obligations on companies as a means of indirectly deterring bribery. These require MNEs (1) to

account with “reasonable detail” for all company transactions and (2) to maintain a system of

internal accounting controls that provide “reasonable assurances” that all transactions are

properly authorized by the company.

The FCPA makes it illegal for American companies, foreign companies registered with the U.S.

Securities and Exchange Commission, or their officers, agents, or employees to knowingly bribe

a foreign government official, a foreign political party official, or a candidate for foreign political

office. That is, firms and individuals will be criminally liable if they make a payment “knowing”

or in “conscious disregard” that it will be used as a bribe—a bribe being the giving of, or the

promise to give, anything of value to influence a foreign official to let the firm or individual

making the payment to engage in a new business or to allow that firm or individual to continue its

existing business.

The Multinational Enterprise

Common Enterprise

10. Students’ answers may vary. When individuals or companies function as part of a common

enterprise, courts will treat them as if they were members of a joint venture or partnership, with

each of them having joint or joint and several liability for the obligations of the entire enterprise.

In determining whether persons or firms are members of a common enterprise, courts look at the

intent of the parties. Students may argue that Local may be successful if it asks the court in which

it is suing the GBB-X firm to join others of the GBB firms as codefendants.

11. Students’ answers may vary. When individuals or companies function as part of a common

enterprise, courts will treat them as if they were members of a joint venture or partnership, with

each of them having joint or joint and several liability for the obligations of the entire enterprise.

In determining whether persons or firms are members of a common enterprise, courts look at the

intent of the parties. To avoid potential liability from shipping crude oil from the Persian Gulf to

Europe in the antiquated single-hull ships that it owns, the Big Shipping Lines set up 14 different

companies (including the Small Shipping Co.) and transferred ownership of one ship to each of

them. Each company then purchased insurance to cover the losses of the ship and the ship’s

cargo. Students may argue that the court may rule by dismissing the complaints against the sister

companies and Big Shipping Lines.

III. Key Terms

Agent—An independent person or company with authority to act on behalf of another.

Blocking statute—Law enacted in some states to obstruct the extraterritorial application of

U.S. antitrust laws by limiting a plaintiff’s right to obtain evidence or to enforce a judgment,

and that allows a defendant to bring suit locally to recover punitive damages paid in the

United States.

Branch—Unit or part of a company. It is not separately incorporated.

Burden of proof—The responsibility of proving a disputed charge or allegation.

Clayton Act—Expands the enforcement provisions of the Sherman Antitrust Act. Defines

exclusive dealing and tying clauses, mergers that result in monopolies, and interlocking

directorates as being unfair business practices.

Common enterprise liability—Each member of a common enterprise will have liability for

the conduct of the entire enterprise.

European Community Treaty, Article 81—Forbids competitors to enter into agreements to

prevent, restrain, or distort trade.

European Community Treaty, Article 82—Forbids dominant businesses from taking

advantage of their position to the detriment of consumers.

Forum non conveniens—(From Latin: “inconvenient forum.”) Doctrine that a municipal court

will decline to hear a dispute when it can be better or more conveniently settled in a foreign

forum.

Holding company—Company owned by a parent or parents to supervise and coordinate the

operations of subsidiary companies.

International multinational enterprise—An enterprise made up of two or more parents from

different states that co-own subordinate operating businesses in two or more states.

Joint venture—An association of persons or companies collaborating in a business venture

for more than a transitory time period.

Long arm statute—A law defining the conduct of a foreign person within a state that will

subject that person to the jurisdiction of the state.

The Multinational Enterprise

National multinational enterprise—An enterprise organized around a parent firm established

in one state that operates through branches and subsidiaries in other states.

Negligence—The neglect or omission of reasonable precaution or care.

Negligence per se—Conduct defined by statute as automatically constituting negligence.

Nonmultinational enterprise—A domestic firm that operates internationally through

independent foreign agents.

Pierce the company veil—An expression indicating that the legal fiction that a company is a

separate legal entity will be set aside and the shareholders of the company will be held liable

for its conduct as if they were partners in a partnership.

Privity—A legal relationship sufficiently close and direct to support a legal claim on behalf of

or against another with whom the relationship exists.

Products liability—Liability of a manufacturer for the injuries caused by its defective

products.

Representative office—A contact point where interested parties can obtain information about

a company. It does not conduct business for the company.

Robinson-Patman Act—Forbids price discrimination.

Rule of reason—Rule applied by courts on a case-by-case basis requiring them to consider all

of the circumstances in deciding whether a restrictive practice should be prohibited as

imposing an unreasonable restraint on competition in violation of Sherman Act Section 1.

Sharp practices—Business dealings meant to obtain a benefit for a person or firm regardless

of the means used.

Sherman Antitrust Act, Section 1—Forbids combinations and conspiracies in restraint of

interstate and international trade.

Sherman Antitrust Act, Section 2—Forbids monopolies and attempts to monopolize interstate

and international trade.

Strict liability—Imposing liability on an actor regardless of fault.

Subsidiary—Company owned by a parent or a parent’s holding company. Unlike a branch, it

is separately incorporated.

United States effects test—A jurisdictional test that subjects foreign businesses to U.S.

anti-trust laws if their activities were intended to affect U.S. commerce and the effect was

other than minimal.

U.S. jurisdictional rule of reason test—A jurisdictional test that allows U.S. courts to assume

jurisdiction over a foreign business for violation of U.S. anti-trust laws if (1) the alleged

conduct was intended to affect the foreign commerce of the United States, (2) it was of such a

type and magnitude as to violate the Sherman Act, and (3) as a matter of international comity

and fairness, a U.S. court ought to assume extraterritorial jurisdiction over the matter.

United States minimum contacts test— A jurisdictional test required by due process that

looks to see if a person had such contacts with a state, did business within the state, and could

reasonably have anticipated that it would have to defend itself there.