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C H A P T E R 3
COURTS, SOURCES OF LAW, AND DISPUTE RESOLUTION
This chapter explains federal and state court systems, how jurisdiction is determined,
and various responses to litigation. It also examines common law and explains how
to read case citations.
I. HOW TO READ A CASE CITATION.
II. SOURCES OF LAW.
In order to decide how to rule on a case, courts look to federal and state
constitutions, statutes, regulations, and common law (previous court rulings).
A. Constitutions.
B. Statutes.
C. Regulations.
D. Common Law. Settled legal principles and case law, made by judges.
1. Stare Decisis is a doctrine in law used to guide judicial decisions.
E. Restatements.
III. THE U.S. AND STATE COURT SYSTEMS.
The United States has two co-existing judicial systems, federal and state.
IV. FEDERAL JURISDICTION.
A. Federal Question Jurisdiction. Exists when the dispute concerns
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C. Jurisdiction in Cases in Which the United States is a Party.
V. FEDERAL COURTS.
A. U.S. District Courts. Ninety-four trial courts of the federal system.
B. U.S. Courts of Appeal. Thirteen courts of appeal.
VI. STATE COURTS.
State Courts handle the bulk of American cases, decide criminal matters, civil
suits, and other specialized legal disputes.
A. State Trial Courts.
VII. STANDING.
Courts will not hear cases unless a party has standing: the party seeking relief
VIII. PERSONAL JURISDICTION.
State courts must have personal (in personam) jurisdiction, or legal authority,
over the parties of the property (in rem) involved in the case.
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A. Minimum Contacts. State courts acquire personal jurisdiction over out-
of-state defendants through “long–arm” statutes when defendants have
“minimum contacts” with the state.
B. Personal Jurisdiction and the Internet. Exercising personal
IX. CHOICE OF FORUM, WAIVER OF RIGHT TO TRIAL BY JURY, AND CHOICE OF
LAW.
A. Choice of Forum. Courts will honor clauses in valid contracts in
which the parties have agreed upon a state or forum to hear a dispute
concerning the contract, unless there was fraud, it would deny a
party’s day in court, enforcement would be against public policy.
Doctrine of Forum non conveniens. In the event of a choice-of-forum
CASE 3.1 Radeljak v. Daimler-Chrysler Corp., 719 N.W.2d 40
(Mich. 2006). Plaintiffs, Croatians and residents of
Michigan, were injured in an automobile accident in
B. Waiver of Right to Jury Trial.
C. Choice of Law. In diversity cases, generally the law of the state
having the most contacts to the litigants or most interest to the
litigation will be applied.
X. LAWS FAVORING SETTLEMENT OR ALTERNATIVE DISPUTE RESOLUTION
OVER LITIGATION.
A. Pretrial Conferences.
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B. Rejected-Offer Sanctions.
XI. TORTIOUS DISPUTE RESOLUTION.
As discussed more fully in Chapter 9, managers should be careful not to
pursue settlement without counsel.
XII. CLASS ACTIONS.
If the conduct of the defendant affected numerous persons in a common way,
the case may be certified as a class action by a representative of the class of
persons affected. Individuals may opt out of the class and pursue private or
CASE 3.2 Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). One
million female Wal-Mart employees sued Wal-Mart in a
nationwide class action suit claiming Wal-Mart had violated
XIII. CIVIL PROCEDURE: LITIGATION STEPS.
A. Filing, Prosecuting, and Defending Against a Claim.
1. Complaint.
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B. Pretrial Activity.
1. Pretrial Motions: Motion to Dismiss, Summary Judgment.
C. Trial.
1. Selection of Jury. Presentation of Case—plaintiff, then
defendant.
D. Posttrial Motions.
1. Judgment Notwithstanding the Verdict (JNOV).
E. Appeals.
XIV. ALTERNATIVE DISPUTE RESOLUTION.
A. Negotiation is the give-and-take people engage in when coming to
terms with each other.
1. Transactional Negotiation: concern for desired relationship.
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B. Mediation occurs when the parties themselves agree to reach a
mutually beneficial resolution with the assistance of a third person (the
crucial in the process: make sure to hire someone who is certified and
experienced.
1. Mediation Process.
C. Arbitration is the resolution of a dispute by a neutral third party,
usually binding, and created by contract.
1. Arbitration Process.
4. Judicial Enforcement of Arbitration Clauses: Federal
Arbitration Act. U.S. Supreme Court has enforced
employment arbitration clauses, especially when there is
CASE 3.3 AT&T Mobility, LLC v. Concepcion, 131 S.Ct.
1740 (2011). Concepcion purchased AT&T
Mobility cellular service which advertised free
phones. AT&T did not charge Concepcion for
the phone, but charged $30.22 in sales tax based
on the phones’ retail value. The contract
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provided for arbitration of all disputes between
the parties, but required that claims be brought
in the parties’ “individual capacity, and not as a
plaintiff or class member in any purported class
4. Judicial Review of Awards. FAA lists four criteria upon which
a court can set aside an arbitration award: (1) the award was
procured by corruption, fraud, or undue means; (2) the
1. Med-Arb is a combination of mediation and arbitration.
2. Arb-Med. Parties go first to an arbitrator. If mediation fails,
the arbitrator’s award is unsealed.
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5. Collaborative Law and Other Techniques.
XV. DISCOVERY.
Objects of discovery include depositions (sworn usually oral questions of a
witness), interrogatories (written questions to the parties), and requests for
XVI. DOCUMENT RETENTION AND DESTRUCTION.
A. Designing a Policy.
B. Necessary Elements of a Document-Retention Program. Legal and
acceptable document-retention (destruction) programs must be
XVII. ATTORNEY-CLIENT PRIVILEGE, ATTORNEY WORK-PRODUCT DOCTRINE,
AND OTHER PRIVILEGES
A. Attorney-Client Privilege. Communications that are intended to be
confidential, only revealed between the client and the attorney.
Privilege does not protect communications that are made to further a
crime or illegal act. The communication must regard legal advice.
1. Corporate Clients. Any employee-counsel communication is
protected if the subject matter of the communication relates to
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3. Limitations. To apply the privilege must be between a
practicing attorney and a current or prospective client seeking
4. Attorney-Client Privilege Under Siege? Sarbanes-Oxley
demands that attorneys report corporate financial malfeasance.
B. Attorney Work Product. This doctrine is broader than attorney-client
privilege, protects discovery of materials not protected by the attorney-
client privilege. Includes private notes and thoughts in preparing for
trial.
RESPONSIBLE MANAGERS: TEACHING SUGGESTIONS
1. How can managers accept responsibility for managing disputes in their firms?
2. Should state courts raise the subject matter jurisdiction amounts to try to force
3. If all people truly have a right to “their day in court,” how does ADR affect
that?
4. What do you think about online ADR? See, for example,
5. Other than for ethical reasons, should a company have a document destruction
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