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Business Law Chapter 2 Homework Through Familiarity With Movies And Shows Could

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Book Title
Business Law: Text and Cases 14th Edition
Frank B. Cross, Kenneth W. Clarkson, Roger LeRoy Miller
Before bringing a lawsuit, a manager must now take into account the possibility of long delays before the
case is resolved. A cost-benefit analysis for undertaking litigation must include the delays in the calculations.
Managers can no longer just stand on principle because they know that they are right and that they will win a
lawsuit. They have to look at the bigger picture, which includes substantial court delays.
What are some of the costs of increased litigation delays caused by court budget cuts? Most
attorneys require a retaining fee. The longer this fee is held by the attorney, the higher the present value cost
of the litigation. In addition, the opportunity cost of all of the company employees who work on the litigation
must be included, too. Also, if there is any negative press during the litigation, that will have an impact on the
company’s revenues. Uncertainty about the results of the litigation may cause investors to back away.
Uncertainty about the outcome of the litigation may also cause managers to forestall new projects.
In response to budget cuts, many states have increased their filing fees. Is this fair? Why or why
not? Some argue that those businesses that avail themselves of the court system should pay a higher
percentage of the actual costs of that court system. Others point out that the higher the costs imposed by the
states to those businesses that wish to litigate, the less litigation there will be. And some of that reduced
litigation may be meritorious.
a. B&B Hardware Inc. v. Hargis Industries, Inc., ___ U.S. ___, 135 S.Ct. 1295, 191 L.Ed.3d 222 (2014).
1. Trial Courts
a. General Jurisdiction
Trial courts with general jurisdiction include county, district, and superior courts.
b. Limited Jurisdiction
Trial courts with limited jurisdiction include local municipal courts (which handle mainly traffic
cases), small claims courts, and domestic relations courts.
2. Appellate. or Reviewing, Courts
In most states, after a case is tried, there is a right to at least one appeal. Few cases are retried on
appeal. An appellate court examines the record of a case, looking at questions of law and
procedure for errors by the court below. In about half of the states, there is an intermediate level of
appellate courts.
Case 2.3: Johnson v. Oxy USA, Inc.
Jennifer Johnson was working for Oxy USA, Inc., when Oxy changed the job’s requirements. To meet the
new standards, Johnson took certain courses. Oxy’s “Educational Assistance Policy” was to reimburse
employees for the cost. Johnson further agreed that Oxy could withhold the reimbursed amount from her final
paycheck if she quit Oxy within a year. When she resigned less than a year later, Oxy withheld that amount
from her last check. Johnson filed a claim for the amount with the Texas Workforce Commission (TWC).
Without deciding whether Oxy violated its own Educational Assistance Policy as Johnson contended, the
TWC ruled that she was not entitled to the unpaid wages. She filed a suit in a Texas state court against Oxy,
alleging breach of contract. The court affirmed the TWC’s ruling, holding that Johnson’s claim for breach of
contract was barred by res judicata. Johnson appealed.
A state intermediate appellate court reversed and remanded. “The TWC did not decide the key question
of fact in dispute—whether Oxy violated its own Educational Assistance Policy when it withheld Johnson’s
final wages.” Because the question had not been resolved, res judicata did not bar the claim.
Notes and Questions
Forty states have intermediate appellate courts. Ten statesDelaware, Maine, Montana, Nevada,
New Hampshire, Rhode Island, South Dakota, Vermont, West Virginia, and Wyominghave only a
single level of appeal, which is of course the state’s supreme court. Why the difference? The primary
reason that most states have intermediate appellate courts is the size of the state’s caseload. Crowded
dockets at the appellate level led to the creation of more courts to relieve the backlog of casework. The chief
reason that some states do not have more than one level of appellate resort is that the workload is not seen
as heavy enough to warrant the expense.
When the legal systems in the states were formed, a single appellate court was generally considered
sufficient. In the nineteenth and twentieth centuries, most states’ caseloads increased significantly. This was
due to
• Population growth.
• Expanded appeal rights in criminal cases.
• More law—statutes, ordinances, rules, regulations, case law, and so on.
• Broadened appellate jurisdiction.
• Increased resort to the courts to resolve social and economic issues.
3. Highest State Courts
In all states, there is a higher court, usually called the state supreme court. The decisions of this
The federal court system is also three-tiered with a level of trial courts and two levels of appellate courts,
including the United States Supreme Court.
1. U.S. District Courts
Federal trial courts of general jurisdiction are called district courts. (A district may consist of an
entire state or part of a state. A district court has geographical jurisdiction corresponding to the
territory of its district. Congress determines the number of districts.) Trial courts of limited
jurisdiction include U.S. Tax Courts and U.S. Bankruptcy Courts.
2. U.S. Courts of Appeals
U.S. courts of appeal hear appeals from the decisions of the district courts located within their
3. The United States Supreme Court
The court at the top of the federal system is the United States Supreme Court to which further ap-
peal is not mandatory but may be possible.
a. Appeals to the Supreme Court
A party may ask the Court to issue a writ of certiorari, but the Court may deny the petition.
Denying a petition is not a decision on the merits of the case. Most petitions are denied.
b. Petitions Granted by the Court
IV. Alternative Dispute Resolution
The advantage of alternative dispute resolution (ADR) is its flexibility. Normally, the parties themselves can
control how the dispute will be settled, what procedures will be used, and whether the decision reached
(either by themselves or by a neutral third party) will be legally binding or nonbinding. Approximately 95
percent of cases are settled before trial through some form of ADR.
In mediation, the parties attempt to come to an agreement with the assistance of a neutral third party, a
mediator. Mediation is essentially a form of “assisted negotiation.” The mediator does not make a
decision on the matter being disputed.
A more formal method of ADR is arbitration, in which a neutral third party or a panel of experts hears a
dispute and renders a decision. The decision can be legally binding. Formal arbitration resembles a trial.
The parties may appeal, but a court’s review of an arbitration proceeding is more restricted than a review
of a lower court’s proceeding.
1. The Arbitration Decision
An arbitrator’s award will be set aside only if—
2. Arbitration Clauses
Virtually any commercial matter can be submitted to arbitration. Often, parties include an arbitration
clause in a contract. Parties can also agree to arbitrate a dispute after it arises.
ADR and the Courts
States in which one or more
local state court has
States in which one or more
federal court has
New Hampshire
New Jersey
New Mexico
New York
North Carolina
New Jersey
New York
West Virginia
Source: Richard Reuben, “The Lawyer Turns Peacemaker,” ABA Journal (August 1996), p. 56.
3. Arbitration Statutes
Most states have statutes (often based on the Uniform Arbitration Act of 1955) under which
arbitration clauses are enforced, and some state statutes compel arbitration of certain types of
disputes. At the federal level, the Federal Arbitration Act (FAA), enacted in 1925, enforces
arbitration clauses in contracts involving maritime activity and interstate commerce.
4. The Issue of Arbitrability
5. Mandatory Arbitration in the Employment Context
Generally, mandatory arbitration clauses in employment contracts are enforceable.
New types of ADR have emerged.
Early neutral case evaluationThe parties select a neutral third party (generally an expert in the
subject of the dispute) to evaluate their positions. This forms the basis for negotiations.
Mini-trialEach party’s attorney argues the party’s case. Typically, a neutral third party (often an
expert in the disputed subject) acts as an adviser. If the parties fail to reach an agreement, the
adviser renders an opinion as to how a court would likely decide the issue.
A major provider of ADR services is the American Arbitration Association (AAA). Most of the largest law
firms in the nation are members of this nonprofit association, which settles nearly sixty thousand
disputes a year. Hundreds of for-profit firms around the country also provide dispute-resolution services.
When outside help is needed to resolve a dispute, there are a number of Web sites that offer online
dispute resolution (ODR). ODR may be best for resolving small- to medium-sized business liability
claims, which may not be worth the expense of litigation or traditional ADR.
V. International Dispute Resolution
International treaties sometimes stipulate arbitration for resolving disputes.
Parties to international contracts may include forum-selection and choice-of-law clauses to protect
themselves if disputes arise.
Parties to international contracts may include arbitration clauses to be applied if disputes arise.
1. Divide students into small groups and assign one of the text chapter’s end-of- chapter problems to each
group. Have each group determine whether or not the assigned problem is one that would lend itself to alter-
native dispute resolution. If not, why not? If so, which form of alternative dispute resolution would the
group recommend?
2. Obtain a standard arbitration agreement form from a national arbitration organization such as the
American Arbitration Association. Ask students to discuss specific features of these agreements and the fac-
tors that might make them hesitant to submit a dispute to arbitration.
3. Some students may find it enlightening to be reminded the law corresponds to the many ways in which
4. In the courtroom, changes are being wrought by television. There is an increasing reliance on video
testimony. Children who allege physical or sexual abuse, for example, may give video testimony outside a
courtroom to be shown during trial proceedings. Lawyers who represent accident victims often commission
videos to visually show the court the impact of accident-related injuries on the daily lives of their clients. In
criminal trials, judges have allowed juries to see filmed reenactments of crimes. To further blur the line
between simulation and reality is the increasing number of cameras that videotape the commission of alleged
crimes and other wrongs. What effect are these uses of television having on the judicial system? Could
jurors watch trials on their televisions at home and reach a verdict by interactive cable? Through a
familiarity with movies and TV shows, could jurors come to expect more excitement than is generated
in the usual courtroom when at least some of the proceeding is on video? Will lawyers argue their
cases to appeal to home audiences? And what effect might all of this have on the U.S. judicial
system’s impartiality and fairness?
Cyberlaw Link
Ask your students to what extent those who send e-mail over the Internet should be liable for the content
of their messages in states other than their own (or nations other than the United States). Is the existence of
a Web site a sufficient basis to exercise jurisdiction?
1. If a corporation is incorporated in Delaware, has its main office in New York, and does business in
California, but its president lives in Connecticut, in which state(s) can it be sued? Delaware, New York, and
2. What is the difference between a court of general jurisdiction and a court of limited jurisdiction? A
court with general jurisdiction can hear virtually any type of case, except a case that is appropriate for a court with
limited jurisdiction. Trial courts with general jurisdiction include county, district, and superior courts. Trial courts with
3. What is the role of a court with appellate jurisdiction? Courts of appellate jurisdiction are reviewing
4. When may a federal court hear a case? Federal courts have jurisdiction in cases in which federal
questions arise, in cases in which there is diversity of citizenship, and in some other cases. When a suit involves a
5. When may the United States Supreme Court hear a case? The United States Supreme Court has original
6. When may a court exercise jurisdiction over a party whose only connection to the jurisdiction is via
the Internet? One way to phrase the issue is when, under a set of circumstances, there are sufficient minimum
7. How does the process of negotiation work? In the process of negotiation, the parties come together in-
formally, with or without attorneys to represent them. Within this informal setting the parties air their differences and
8. What is the principal difference between negotiation and mediation? The major difference between
negotiation and mediation is that mediation involves the presence of a third party called a mediator. The mediator
9. What is arbitration? The process of arbitration involves the settling of a dispute by an impartial third party
(other than a court) who renders a legally binding decision. The third party who renders the decision is called an
10. What kinds of disputes may be subject to arbitration? The FAA requires that courts give deference to all
1. Have students prepare a chart showing the relationships between the various courts having jurisdiction in
your state. (There is a digest of each state’s courts in Martindale-Hubbell Law Directory, which might be placed on
reserve in the library.) Assign a few jurisdiction hypotheticals. For exampleThrough which of these courts
could a divorce decree be appealed? Which court(s) would have original jurisdiction in a truck accident in-
volving out-of-state residents (does the dollar amount of injuries and damage make a difference)? Which
court(s) would have jurisdiction to render a judgment in a case arising from food poisoning at a local
cheeseburger stand that is part of a nationwide corporate chain? In which court(s) could you file a suit alleg-
ing discrimination, and if you lost, to which court could you appeal the decision?
2. Ask the class to research the reasons behind the earlier hostility of the courts towards arbitration procedures.
Were they concerned solely with parties being divested of their rights or did they see arbitration as a
challenge to their own authority?
3. Have students investigate the dispute resolution services discussed in this chapter by going online and
reading some the disputes submitted for resolution or the results in individual cases (on the ICANN Web site, for
Footnote 5: In International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95
(1945), the state of Washington sought unemployment contributions from the International Shoe Company based on
commissions paid to its sales representatives who lived in the state. International Shoe claimed that its activities
within the state were not sufficient to manifest its “presence.” It argued that (1) it had no office in Washington; (2) it
employed sales representatives to market its product in Washington, but no sales or purchase contracts were made
in the state; and (3) it maintained no inventory in Washington. The company claimed that it was a denial of due
process for the state to subject it to suit. The Supreme Court of Washington ruled in favor of the state, and
International Shoe appealed to the United States Supreme Court.
Footnote 9: In Zippo Manufacturing Co. v. Zippo Dot.Com, Inc., 952 F.Supp. 1119 (W.D.Pa. 1997), a
federal district court proposed three categories for classifying the types of Internet business contact: (1) substantial
business conducted online, (2) some interactivity through a Web site, and (3) passive advertising. Jurisdiction is
proper for the first category, improper for the third, and may or may not be appropriate for the second. Zippo
Manufacturing Co. (ZMC) makes, among other things, “Zippo” lighters. ZMC is based in Pennsylvania. Zippo Dot
Footnote 19: Cleveland Construction, Inc. (CCI), was the general contractor on a project to build a grocery
store in Houston, Texas. CCI hired Levco Construction, Inc., as a subcontractor to perform excavation and grading.
The contract provided that any dispute would be resolved by arbitration in Ohio. When a dispute arose, Levco filed a
suit against CCI in a Texas state court. CCI sought to compel arbitration in Ohio under the Federal Arbitration Act
(FAA). Because a Texas statute allows a party to void a contract provision that requires arbitration outside Texas, the
court denied CCI’s request. CCI appealed.
In Cleveland Construction, Inc. v. Levco Construction, Inc., a state intermediate appellate court reversed.
The parties had a valid arbitration agreement. If the court applied the Texas statute, it would void the agreement.
This, the court decided, “would undermine the declared federal policy of rigorous enforcement of arbitration
agreements.” And the FAA, as a federal law, preempted the Texas statute under the supremacy clause.
Considering the relative bargaining power of the parties, was it fair to enforce the arbitration clause in
this contract? Yes, because either party could have refused to agree to the contract when it contained the arbitration
clause. Of course, such clauses are likely to be ruled fair and enforceable when the parties are of equal bargaining
Why do you think that Levco did not want its claim 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. Levco 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,
How would business be affected if each state could pass a statute, like the one in Texas, allowing
parties to void out-of-state arbitrations? If all states could pass statutes like the one in Texas, many parties would
probably be less inclined to transact business. An arbitration provision allows a party to limit the burden and expense

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