7
CHAPTER 2
COURTS AND ALTERNATIVE
DISPUTE RESOLUTION
ANSWER TO CRITICAL ANALYSIS
QUESTION IN THE FEATURE
INSIGHT INTO ETHICS—CRITICAL THINKING—INSIGHT INTO THE ETHICAL ENVIRONMENT (PAGE 29)
Now that the United States Supreme Court is allowing unpublished decisions to form persuasive
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 2.1—QUESTIONS (PAGE 32)
1A. What are the factors that the court looked at in determining whether minimum contacts existed
between the defendant and the state of North Carolina? The Court of Appeals of North Carolina stated
that North Carolina courts “look at the following factors in determining whether minimum contacts
exist: (1) the quantity of the contacts, (2) the nature and quality of the contacts, (3) the source and
8 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
2A. Why did the court state that the convenience of the parties was not “determinative” in this case?
CASE 2.2—QUESTIONS (PAGE 37)
THE LEGAL ENVIRONMENT DIMENSION
Under what circumstances might a state suffer an injury that would give it the standing to sue to block
the enforcement of restrictions on the use of federal funds? If the state were the direct recipient of the
federal funds and the direct subject of the federal restrictions, it might have standing to sue to block the
enforcement of those restrictions. But the government’s financial inducement would have to be “so
coercive as to pass the point at which pressure turns into compulsion,“ in the words of the United States
Supreme Court.
THE ETHICAL DIMENSION
Would it be ethical for a state to change its policies to follow LCS’s restrictions and continue the
funding? As to whether it would be ethical for a state to alter its policies to align with LSC’s restrictions
CASE 2.3—QUESTIONS (PAGE 44)
THE LEGAL ENVIRONMENT DIMENSION
Why did NCR not want its claims decided by arbitration? A party is typically reluctant to enter into a
proceeding that he or she (or it) believes will have an unfavorable result. NCR might have had a less
complex claim that could have been resolved more favorably in a court, or its claim might have lent itself
to a legal, adversarial argument, which would have held less weight in arbitration As stated elsewhere in
this chapter, arbitration’s disadvantages include the unpredictability of results, the lack of required
written opinions, the difficulty of appeal, and the possible unfairness of the procedural rules. NCR might
have wanted to avoid arbitration for any or all of these reasons. Also, arbitration can be nearly as
expensive as litigation. NCR may have been simply trying to reduce the duration of the dispute and its
cost.
THE ETHICAL DIMENSION
Could NCR have a claim that KAL engaged in unfair competition because KAL had engaged in unethical
business practices? (Hint: Unfair competition may occur when one party deceives the public into
CHAPTER 2: COURTS AND ALTERNATIVE DISPUTE RESOLUTION 9
believing that his or her goods are the goods of another.) Why or why not? Of course, “unethical
business practices” is not an element of a claim for unfair competition, and thus NCR could not base a
legal action on that allegation alone. Also, the statement of facts in this case does not indicate whether
“the public” was “deceived” with the respect to these parties’ goods. But NCR could have a claim if it
could successfully plead the requirements of the cause as stated in this question—KAL’s deceiving the
public into believing that its goods are the goods of NCR.
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Federal jurisdiction
The federal district court exercises jurisdiction because the case involves diversity of citizenship.
Diversity jurisdiction requires that the plaintiff and defendant be from different jurisdictions and that
the dollar amount of the controversy exceed $75,000. Here, Garner resides in Illinois, and Foreman and
his manager live in Texas. Because the dispute involved the promotion of boxing matches with George
Foreman, the amount in controversy exceeded $75,000.
2A. Original or appellate jurisdiction
Original jurisdiction, because the case was initiated in that court and that is where the trial will take
3A. Jurisdiction in Illinois
No, because the defendants lacked minimum contacts with the state of Illinois. Because the defendants
were from another state, the court would have to determine if they had sufficient contacts with the
state for the Illinois court to exercise jurisdiction based on a long arm statute. Here, the defendants
never went to Illinois, and the contract was not formed in Illinois. Thus, it is unlikely that an Illinois state
court would find sufficient minimum contacts to exercise jurisdiction.
4A. Jurisdiction in Nevada
Yes, because the defendants met with Garner and formed a contract in the state of Nevada. A state can
10 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE AT THE END OF THE
CHAPTER
In this age of the Internet with which people communicate via e-mail, instant text messaging,
tweeting, Facebook, and MySpace, is the concept of jurisdiction losing its meaning? Explain your answer.
Many believe that yes, the idea of determining jurisdiction based on individuals’ and companies’ physical
locations no longer has much meaning. Increasingly, contracts are formed via online communications.
Does it matter where one of the parties has a physical presence? Does it matter where the e-mail server
or Web page server is located? Probably not.
ANSWERS TO QUESTIONS AND CASE PROBLEMS
AT THE END OF THE CHAPTER
2–1A. Standing
(Chapter 2—Pages 35–37)
This problem concerns standing to sue. As you read in the chapter, to have standing to sue, a party must
2-2A. QUESTION WITH SAMPLE ANSWER{ Appellate review
Trial courts, as explained in the text, are responsible for settling “questions of fact.” Often, when parties
bring a case to court there is a dispute as to what actually happened. Different witnesses have different
versions of what they saw or heard, and there may be only indirect evidence of certain issues in dispute.
2-3A. Jurisdiction
(Chapter 2—Pages 32–33)
2-4A. Jurisdiction
(Chapter 2— Pages 33–34)
The court found that the defendants’ contacts with Illinois were sufficient to establish personal
jurisdiction. The court set out the “sliding scale” standard for exercising jurisdiction over parties whose
2-5A. Jurisdiction
(Chapter 2— Pages 30–32)
A court can exercise personal jurisdiction over a non-resident defendant under the authority of a long
arm statute. First, however, it must be shown that the defendant had sufficient minimum contacts with
the jurisdiction in which the court is attempting to assert its authority. Generally, this means that the
2–6A. CASE PROBLEM WITH SAMPLE ANSWER: Arbitration clause
Based on a recent holding by the Washington state supreme court, the federal appeals court held that
the arbitration provision was invalid as unconscionable. Because it was invalid, the restriction on class
2–7A. Arbitration
(Chapter 2— Pages 43–44)
The arbitration agreement was not binding on the homeowners, so they could sue the builder, Osborne,
2–8A. Arbitration
(Chapter 2—Pages 43–44)
In many circumstances, a party that has not signed an arbitration agreement (Kobe in this case) cannot
compel arbitration. There are exceptions, however. According to the court, “The first relies on agency
2–9A. A QUESTION OF ETHICS: Agreement to arbitrate
(a) This is very common, as many hospitals and other health-care provides have arbitration
agreements in their contracts for services. There was a valid contract here. It is presumed in valid
contracts that arbitration clauses will be upheld unless there is a violation of public policy. The provision
of medical care is much like the provision of other services in this regard. There was not evidence of
fraud or pressure in the inclusion of the arbitration agreement. Of course there is concern about
mistreatment of patients, but there is no reason to believe that arbitration will not provide a
ANSWER TO VIDEO QUESTION NO. 2–10
Jurisdiction in Cyberspace
(a) What standard would a court apply to determine whether it has jurisdiction over the out–
of-state computer firm in the video? A court would apply a “sliding–scale” standard to determine
if the defendants (Wizard Internet) had sufficient minimum contacts with the state for the court
to assert jurisdiction. Generally, the courts have found that jurisdiction is proper when there is
substantial business conducted over the Internet (with contracts, sales, and so on). When there
is some interactivity through a Web site, courts have also sometimes held that jurisdiction is
proper. Jurisdiction is not proper, however, when there is merely passive advertising.
(b) What factors is a court likely to consider in assessing whether sufficient contacts existed
when the only connection to the jurisdiction is through a Web site? The facts in the video
indicate that there might be some interactivity through Wizard Internet’s Web site. The court will
business with other Montana residents.
(c) How do you think the court would resolve the issue in this case? Wizard Internet could
(according to Caleb). That would be the defendant’s strongest argument against jurisdiction. The
14 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
court, however, would also consider any other interactivity. The facts state that Wizard has done
projects in other states and might have clients in Montana (although Anna and Caleb cannot
remember). If Wizard does have clients in Montana who purchased software via the Web site,