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ALTERNATE CASE PROBLEM ANSWERS
CHAPTER 5
BUSINESS ETHICS
5-1A. Employment relationships
The court ruled in favor of Faverty. McDonald’s argued that under the Restatement (Second) of
Torts, Sections 315, that “[t]here is no duty so to control the conduct of a third person as to
prevent him from causing physical harm to another unless (a) a special relation exists between
5-2A. Ethical conduct
The court enjoined the defendants, for a period of three years, “from disclosing, using or selling
any of [Elm City’s] confidential customer information, trade secrets, procedures, technical data
or know-how relating to the products, processes, methods, research and development plans,
B-2 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 5
than Elm City’s location and would “chok[e] off” Elm City’s supplies. Federico would be “choking
5-3A. Ethical conduct
The court entered a judgment in part ordering Zandford to disgorge $343,000 in “ill-gotten
gains.” On Zandford’s appeal, the U.S. Court of Appeals for the Fourth Circuit reversed this
judgment. The SEC appealed to the United States Supreme Court, which reversed this decision
and remanded the case, holding that Zandford’s conduct was sufficiently “in connection with the
purchase or sale of any security” to violate securities law. The Court explained that “[t]his is not
a case in which, after a lawful transaction had been consummated, a broker decided to steal the
proceeds and did so. Nor is it a case in which a thief simply invested the proceeds of a routine
5-4A. Ethical conduct
You can infer from the problem that the damage award included not only actual damages to
compensate Eden for Amana’s failure to fulfill its contractual obligations but also punitive
damages. The real question here is thus whether such a high amount of punitive damages was
appropriate, or warranted, in this case. One would assume that behavior such as Amana’s
APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 5 B-3
5-5A. Ethical conduct
The court concluded that the federal laws in question protect only electronic communications in
the course of transmission, and granted a summary judgment in favor of Nationwide. Here, of
course, the e-mail had already been sent and was in storage in Nationwide’s computers.
“[R]etrieval of a message from post-transmission storage is not covered” by the federal laws in
question. Those laws provide protection “only for messages while they are in the course of
transmission. The facts of this case are that Nationwide retrieved Fraser’s e-mail from storage
5-6A. Ethical conduct
The bankruptcy court held that Schilling was not entitled to any fees because he was not a
“disinterested” party: “The moment that [Schilling] approached three of Big Rivers’ largest * * *
creditors and broached the subject of his compensation * * * he was no longer a disinterested
party.” The court also found that Schilling’s failure to disclose the fee negotiations was a
5–7A. Ethics and the law
The law does not codify all ethical requirements. A firm may have acted unethically but still not
be legally accountable unless the party that was wronged can establish some basis for liability.
B-4 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 5
5–8A. Ethical leadership
Ethical leadership is important to create and maintain an ethical workplace. Management can
set standards, and apply those standards to themselves and their firm’s employees to
encourage an ethical business environment. One of the most important factors in creating and
5–9A. Ethical misconduct
Ethics has to do with the rightness or wrongness of actions. Business ethics focuses on what is
right and wrong in the business world. Business ethics can be more complicated than personal
ethics. In the situation described in this problem, the son engaged in unethical personal and
APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 5 B-5
5-10A. A QUESTION OF ETHICS
1. The court granted the manufacturer summary judgment, and Welch appealed. The
state appellate court affirmed the lower court’s decision. The appellate court pointed out in its
discussion, “Under the open and obvious danger rule, a manufacturer of a product is liable only
2. In discussing the openness and obviousness of the dangers of a disposable lighter,
the appellate court based its conclusions on “[t]he physical characteristics of the lighter,
