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Chapter 2
Courts and Alternative Dispute Resolution
INTRODUCTION
Despite the substantial amount of litigation that occurs in the United States, the experience of many students
with the American judicial system is limited to little more that some exposure to traffic court. In fact, most persons
have more experience with and know more about the executive and legislative branches of government than they do
about the judicial branch. This chapter provides an excellent opportunity to make many aware of the nature and
purpose of this major branch of our government.
Among important points to remind students of during the discussion of this chapter are that most cases in the
textbook are appellate cases (except for federal district court decisions, few trial court opinions are even published),
and that most disputes brought to court are settled before trial. Of those that go through trial to a final verdict, less
than 4 percent are reversed on appeal. Also, it might be emphasized again that in a common law system, such as
2 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
the United States’, cases are the law. Most of the principles set out in the text of the chapters represent judgments in
decided cases that involved real people in real controversies.
CHAPTER OUTLINE
I. The Judiciary’s Role in American Government
The essential role of the judiciary is to interpret and apply the law to specific situations.
A. JUDICIAL REVIEW
The judiciary can decide, among other things, whether the laws or actions of the other two branches are
B. THE ORIGINS OF JUDICIAL REVIEW IN THE UNITED STATES
Judicial review was a new concept at the time of the adoption of the Constitution, but it is not mentioned
ENHANCING YOUR LECTURE—
MARBURY V. MADISON (1803)
In the edifice of American law, the Marbury v. Madisona decision in 1803 can be viewed as the keystone
of the constitutional arch. The facts of the case were as follows. John Adams, who had lost his bid for
reelection to the presidency to Thomas Jefferson in 1800, feared the Jeffersonians’ antipathy toward business
and toward a strong central government. Adams thus worked feverishly to “pack” the judiciary with loyal
MARSHALL’S DILEMMA
William Marbury and three others to whom the commissions had not been delivered sought a writ of
mandamus (an order directing a government official to fulfill a duty) from the United States Supreme Court, as
CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION 3
MARSHALL’S DECISION
Marshall masterfully fashioned his decision. On the one hand, he enlarged the power of the Supreme
Court by affirming the Court’s power of judicial review. He stated, “It is emphatically the province and duty of
the Judicial Department to say what the law is. . . . If two laws conflict with each other, the courts must
decide on the operation of each. . . . So if the law be in opposition to the Constitution . . . [t]he Court must
determine which of these conflicting rules governs the case. This is the very essence of judicial duty.”
APPLICATION TO TODAY’S WORLD
Since the Marbury v. Madison decision, the power of judicial review has remained unchallenged. Today,
this power is exercised by both federal and state courts. For example, as your students will read in Chapter 4,
several of the laws that Congress has passed in an attempt to protect minors from Internet pornography have
a. 5 U.S. (1 Cranch) 137, 2 L.Ed. 60 (1803).
ENHANCING YOUR LECTURE—
JUDICIAL REVIEW IN OTHER NATIONS
The concept of judicial review was pioneered by the United States. Some maintain that one of the rea-
sons the doctrine was readily accepted in this country was that it fit well with the checks and balances
designed by the founders. Today, all established constitutional democracies have some form of judicial
review—the power to rule on the constitutionality of laws—but its form varies from country to country.
4 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
FOR CRITICAL ANALYSIS
In any country in which a constitution sets forth the basic powers and structure of government, some
governmental body has to decide whether laws enacted by the government are consistent with that con-
II. Basic Judicial Requirements
Before a lawsuit can be heard in a court, certain requirements must be met. These requirements relate to
jurisdiction, venue, and standing to sue.
A. JURISDICTION
Jurisdiction is the power to hear and decide a case. Before a court can hear a case, it must have juris-
diction over both the person against whom the suit is brought or the property involved in the suit and the
subject matter of the case.
1. Jurisdiction over Persons or Property
Power over the person is referred to as in personam jurisdiction; power over property is referred to
as in rem jurisdiction.
a. Long Arm Statutes and Minimum Contacts
ADDITIONAL BACKGROUND—
Long Arm Statutes
A court has personal jurisdiction over persons who consent to it—for example, persons who reside within
a court’s territorial boundaries impliedly consent to the court’s personal jurisdiction. A state long arm statute
gives a state court the authority to exercise jurisdiction over nonresident individuals under circumstances
CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION 5
MCKINNEY’S CONSOLIDATED LAWS OF NEW YORK ANNOTATED
CHAPTER EIGHT OF THE CONSOLIDATED LAWS
ARTICLE 3—JURISDICTION AND SERVICE, APPEARANCE AND CHOICE OF COURT
§ 302. Personal jurisdiction by acts of non-domiciliaries
(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumer-
ated in this section, a court may exercise personal jurisdiction over any non-domiciliary, or his executor or
administrator, who in person or through an agent:
1. transacts any business within the state or contracts anywhere to supply goods or services in the state; or
2. commits a tortious act within the state, except as to a cause of action for defamation of character arising
4. owns, uses or possesses any real property situated within the state.
(b) Personal jurisdiction over non-resident defendant in matrimonial actions or family court proceed-
ings. A court in any matrimonial action or family court proceeding involving a demand for support, alimony,
maintenance, distributive awards or special relief in matrimonial actions may exercise personal jurisdiction
over the respondent or defendant notwithstanding the fact that he or she no longer is a resident or domiciliary
2. Jurisdiction over Subject Matter
Subject-matter jurisdiction involves limitations on the types of cases a court can hear.
a. General and Limited Jurisdiction
b. Original and Appellate Jurisdiction
6 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
3. Jurisdiction of the Federal Courts
a. Federal Questions
A suit can be brought in a federal court whenever it involves a question arising under the
Constitution, a treaty, or a federal law.
b. Diversity of Citizenship
A suit can be brought in a federal court whenever it involves citizens of different states, a
CASE SYNOPSIS—
Case 2.1: Mala v. Crown Bay Marina, Inc.
Kelley Mala was severely burned when his boat exploded after being over-fueled at Crown Bay Marina in
the Virgin Islands. Mala filed a suit in a federal district court against Crown Bay and sought a jury trial. Crown
Bay argued that a plaintiff in an admiralty case does not have a right to a jury trial unless the court has
diversity jurisdiction. Crown Bay asserted that it, like Mala, was a citizen of the Virgin Islands. The court struck
Mala’s jury demand. From a judgment in Crown Bay’s favor, Mala appealed.
...............................................................................................................................................
Notes and Questions
How did the court’s conclusion in the Mala case affect the outcome? The court’s conclusion
determined the outcome in this case. Mala sought a jury trial on his claim of Crown Bay’s negligence, but he
ADDITIONAL BACKGROUND—
Diversity of Citizenship
CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION 7
The following is the statute in which Congress sets out the requirements for diversity jurisdiction, including
the amount in controversy.
UNITED STATES CODE
TITLE 28. JUDICIARY AND JUDICIAL PROCEDURE
PART IV—JURISDICTION AND VENUE
CHAPTER 85—DISTRICT COURTS; JURISDICTION
§ 1332. Diversity of citizenship; amount in controversy; costs
(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and costs, and is between--
(1) citizens of different States;
For the purposes of this section, section 1335, and section 1441, an alien admitted to the United States for
permanent residence shall be deemed a citizen of the State in which such alien is domiciled.
(b) Except when express provision therefore is otherwise made in a statute of the United States, where the
(c) For the purposes of this section and section 1441 of this title—
(1) a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the
(2) the legal representative of the estate of a decedent shall be deemed to be a citizen only of the same State
8 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
(d) The word “States”, as used in this section, includes the Territories, the District of Columbia, and the
Commonwealth of Puerto Rico.
4. Exclusive v. Concurrent Jurisdiction
When a case can be heard only in federal courts or only in state courts, exclusive jurisdiction exists.
Federal courts have exclusive jurisdiction in cases involving federal crimes, bankruptcy, patents,
When both state and federal courts have the power to hear a case, concurrent jurisdiction exists.
Factors for choosing one forum over another include—
B. JURISDICTION IN CYBERSPACE
The basic question in this context is whether there are sufficient minimum contacts in a jurisdiction if the
only connection to it is an ad on the Web originating from a remote location.
1. The “Sliding-Scale” Standard
One approach is the sliding scale, according to which—
2. International Jurisdictional Issues
The minimum-contact standard can apply in an international context. As in cyberspace, a firm
should attempt to comply with the laws of any jurisdiction in which it targets customers.
CASE SYNOPSIS—
Case 2.2: Gucci America, Inc. v. Wang Huoqing
Gucci America, Inc., a New York corporation, makes footwear, belts, sunglasses, handbags, and wallets.
Gucci uses twenty-one trademarks associated with its goods. Wang Huoqing, a resident of the People’s
Republic of China, offered for sale through his Web sites counterfeit Gucci goods. Gucci hired a private
investigator in California to buy goods from the sites. Gucci then filed a suit against Huoqing in a federal
district court, seeking damages and an injunction preventing further trademark infringement. The court first
had to determine whether it had jurisdiction.
...............................................................................................................................................
10 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
Notes and Questions
What do the circumstances and the holding in this case suggest to a business firm that actively
attempts to attract customers in a variety of jurisdictions? This situation and the ruling in this case
3. Minimum Contacts and Smartphones
When does the use of a phone establish jurisdiction? Is an app’s creator or purveyor subject to
jurisdiction anywhere the app is downloaded?
C. VENUE
A court that has jurisdiction may not have venue. Venue refers to the most appropriate location for a
D. STANDING TO SUE
Before a person can bring a lawsuit before a court, the party must have standing, which has three
elements-
• Harm—The party must have suffered a harm, or been threatened a harm, by the action about
III. The State and Federal Court Systems
A. THE STATE COURT SYSTEM
Many state court systems have a level of trial courts and two levels of appellate courts.
ENHANCING YOUR LECTURE—
COURT BUDGETS AND ACCESS
CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION 11
In the United States, businesses use the courts far more than anyone else. Most civil court cases involve
a business suing another business for breach of contract or fraud, for instance. Additionally, when one
company fails to pay another company for products or services, the unpaid company will often turn to the
court system. If that firm does not have ready access to the courts, its financial stability can be put at risk.
BUDGET CUTS
According to the National Center for State Courts, since 2009 forty-one state legislatures have reduced
INTELLECTUAL PROPERTY DISPUTES
Today, the value of a company’s intellectual property, such as its copyrights and patents, often exceeds
the value of its physical property. Not surprisingly, disputes over intellectual property have grown in number
and importance. As a result of the court budget cuts, these disputes also take longer to resolve. In California,
COST TO LITIGANTS
Other types of lawsuits are also taking longer to conclude. Now attorneys must tell businesses to consider
not only the cost of bringing a lawsuit, but also the length of time involved. The longer the litigation lasts, the
larger the legal bills and the greater the drain on company employees’ time. Roy Weinstein, managing
director of Micronomics in California, argues that the economic impact of court delays on businesses is
DISINCENTIVE TO FILE
Facing long delays in litigation with potential negative effects on their companies, business managers are
becoming reluctant to bring lawsuits, even when their cases clearly have merit. In Alabama, for instance, the
number of civil cases filed has dropped by more than a third in the last few years.
