Solution Manual for Smith and Roberson's Business Law, 18th Edition

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SolutionandAnswerGuide:Mann/Roberts,Smith &Roberson's Business Law,18e,9780357364000;Chapter2:BusinessEthics and the Social Responsibility of BusinessSolutionandAnswerGuideMann/Roberts,Smith & Roberson's BusinessLaw,18e,9780357364000;Chapter2:BusinessEthics and the Social Responsibility of BusinessTable ofContentsAnswers to Problems...................................................................................................................................................1Answers to Problems1.You have an employee who has a chemical imbalance in the brain that causes him to be severelyemotionally unstable. The medication that is available to deal with this schizophrenic condition isextremely powerful and decreases the taker's life span by oneto two years for every year that the usertakes it. You know that his doctors and family believe that it is in his best interest to take themedication. What course of action should you follow?Answer:Arguments Against Social Responsibility.This question illustrates one scenario wherearguments against corporate social responsibility could come into play.If you take the“anti-social responsibility” position that a corporation has—as its primary objective—a fundamentalresponsibility to maximize profits, the employer could make the medication a requirement forthe employee to remain in the workforce.It could be argued that this decision may alsodecrease the possibility of injury or deterioration in working conditions for other employees.Theother side of the argument, however, is that this type of decision is too personal for acorporation to make.The ultimate determination should reside with the employee and it shouldbe his free decision to take or not take the medication.This puts the responsibility back where itbelongs, on the employee and his family.2.You have a very shy employee from another country. After a time, you notice that the quality of herperformance is deteriorating rapidly. You find an appropriate time to speak with her and determinethat she is extremely distraught. She tells you that herfamily has arranged a marriage for her andthat she refuses to obey their contract. She further states to you that she is thinking about committingsuicide. Two weeks later, after her poor performance continues, you determine that she is on the vergeof anervous breakdown; and once again she informs you that she is going to commit suicide. Whatshould you do? Consider further that you can petition a court to have her involuntarily committed to amental hospital. You know, however, that her family would consider such a commitment an extremeinsult and that they might seek retribution. Does this prospect alter your decision?Answer:Arguments For Social Responsibility.A good, responsible manager would be hard-pressedto demand that the employee either improve her on-the-job performance or face dismissal.However, initiating an involuntary committal to a mental hospital could constitute an improperinvasion of rights with many legal repercussions. An interim step of providing appropriatepsychological social counseling (perhaps at company expense) would seem to best fit into theconcept of good corporate management.This wouldbenefit not only the individual, but the

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SolutionandAnswerGuide:Mann/Roberts,Smith &Roberson's Business Law,18e,9780357364000;Chapter2:BusinessEthics and the Social Responsibility of Businesscorporation may be able to keep a valued employee.The cost of counseling is likely to be lessexpensive than hiring and training a new employee.3.You receive a telephone call from a company that you never do business with requesting a referenceon one of your employees, Mary Sunshine. You believe that Mary is generally incompetent and wouldbe delighted to see her take another job. You give her a glowing reference. Is this right? Explain.Answer:Utilitarianism.Pawning off an incompetent employee would certainly help the profitabilityof an employer. However, relatively accurate referrals are expected, and good corporatecitizenship would impose a moralresponsibility to act properly.The employer would be betteradvised to give a more accurate, but not overly negative, description of Mary’s job performance(while staying within the conditional privilege of avoiding a defamation action), rather thangenerate animosity and gain a reputation as a liar among other businesses in the area.4.You have just received a report suggesting that a chemical your company uses in its manufacturingprocess is very dangerous. You have not read the report, but you are generally aware of its contents.You believe that the chemical can be replaced fairly easily, but that if word gets out, panic may set inamong employees and community members. A reporter asks if you have seen the report, and you sayno. Is your behavior right or wrong? Explain.Answer:Utilitarianism.Weighing the arguments for profitability to shareholders and fairness toshareholders and employees against the arguments for good corporate citizenship and long-runprofits, an appropriate response might be that you are aware of the report but haven’tthoroughly read or studied it.Proceeding with a course that acknowledges (at least internally)past dangerous practices, while immediately correcting the current problems, and correctingfuture problems in a timely manner, may be an appropriate legal as well as moral response tothis problem.This is one of the reasons many corporations have a corporate spokesperson togive appropriate and consistent responses.5.You and Joe Jones, your neighbor and friend, bought lottery tickets at the corner drugstore. Whilewatching the lottery drawing on television with you that night, Joe leaped from the couch, waved hislottery ticket, and shouted, “I've got the winning number!” Suddenly, he clutched his chest, keeled over,and died on the spot. You are the only living person who knows that Joe, not you, bought the winningticket. If you substitute his ticket for yours, no one will know of the switch, and you will be $10 millionricher. Joe's only living relative is a rich aunt whom he despised. Will you switch his ticket for yours?Explain.Answer:Fundamentalism. Perhaps an advocate of utilitarianism or social egalitarianism might feelthat switching the ticket would be morally appropriate on the premise that it maximizedpleasure and was an appropriate distribution of wealth.However, such a moral rationalizationwould demonstrate the flaws in both theories.There is no escaping the fact that switching thetickets would be improper under the law and most moral theories.6.Omega, Inc., a publicly held corporation, has assets of $100 million and annual earnings in the rangeof $13–$15 million. Omega owns three aluminum plants, which are profitable, and one plastics plant,which is losing $4 million a year. The plastics plantshows no sign of ever becoming profitable,

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SolutionandAnswerGuide:Mann/Roberts,Smith &Roberson's Business Law,18e,9780357364000;Chapter2:BusinessEthics and the Social Responsibility of Businessbecause of its very high operating costs; and there is no evidence that the plant and the underlyingreal estate will increase in value. Omega decides to sell the plastics plant. The only bidder for the plantis Gold, who intends to use the plant for a newpurpose, to introduce automation, and to replace allpresent employees. Would it be ethical for Omega to turn down Gold's bid and keep the plastics plantoperating indefinitely, for the purpose of preserving the employees' jobs? Explain.Answer:Egalitarianism. Indefinite maintenance of the plastics plant may strike one as being themorally correct thing to do.The moral basis for such a decision would be essentiallyegalitarianism where the wealth generated by many is redistributed to benefit others.However,as the basis for an economic system, such an approach may be doomed to ultimate failure inthat it does not rectify anything and only prolongs a perhaps snowballing problem that couldtaint and impair the job security of everyone employed by Omega.If managerial and operationalchanges truly cannot rectify the net loss situation suffered by the plastics plant, sale of the plantto Gold may, in a broader context, be the morally correct thing to do.7.You are the sales manager of a two-year-old electronics firm. At times, the firm has seemed to be onthe brink of failure, but recently has begun to be profitable. In large part, the profitability is due to theaggressive and talented sales force you haverecruited. Two months ago, you hired Alice North, anhonors graduate from State University who decided that she was tired of the research department andwanted to try sales.Almost immediately after you sent Alice out for training with Brad West, your best salesman, he beganreporting to you an unexpected turn of events. According to Brad, “Alice is terrific: she's confident,smooth, and persistent. Unfortunately, a lot of ourbuyers are good old boys who just aren'tcomfortable around young, bright women. Just last week, Hiram Jones, one of our biggest customers,told me that he simply won't continue to do business with ‘young chicks’ who think they invented theworld. It's not that Alice is a know-it-all. She's not. It's just that these guys like to booze it up a bit, tellsome off-color jokes, and then get down to business. Alice doesn't drink, and although she neverobjects to the jokes, it's clear she thinks they're offensive.” Brad felt that several potential deals hadfallen through “because the mood just wasn't right with Alice there.” Brad added, “I don't like a lot ofthese guys' styles myself, but I go along to make the sales. I just don't think Alice is going to makeit.”When you call Alice in to discuss the situation, she concedes the accuracy of Brad's report, butindicates that she's not to blame and insists that she be kept on the job. You feel committed to equalopportunity, butdo notwant to jeopardize your company's ability to survive. What should you do?Answer:Utilitarianism.This is a commonproblem with a myriad of legal and moral implications.From a profitability standpoint, especially in the case of a company on the brink of economicfailure, ignoring the requirements and whims of customers can amount to economic death.From a legal standpoint, the Equal Opportunity laws operate harshly against an employer thatdiscriminates on the basis of sex or race in hiring and promotional activities. Employees arefrequently aware of their rights, yet wishing to help the business of an employer and otherwiseacting as a good “team player.”A possible response might be (with the consent of Alice)attempting to divide sales accounts to give to Alice those accounts where her sex would be aneutral or perhaps positive factor, while retaining for Brad oversight of the “good old boy”accounts.Such an approach would acknowledge both her legal rights and her justifiableexpectations while not undermining the profitability of a company whose very existence is at

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SolutionandAnswerGuide:Mann/Roberts,Smith &Roberson's Business Law,18e,9780357364000;Chapter2:BusinessEthics and the Social Responsibility of Businessissue.Best utilization of employees is critical to any corporation, and this includes sensitivity toboth the employees’ needs and the customers’ needs.8.Major Company subcontracted the development of part of a large technology system to Start-upCompany, a small corporation specializing in custom computer systems. The contract, which was amajor breakthrough for Start-up Company and crucial to its future,provided for an initialdevelopment fee and subsequent progress payments, as well as a final date for completion.Start-up Company provided Major Company with periodic reports indicating that everything was onschedule. After several months, however, the status reports stopped coming, and the company misseddelivery of the schematics, the second major milestone. As anin-house technical consultant for MajorCompany, you visited Start-up Company and found not only that they were far behind schedule butthat they had lied about their previous progress. Moreover, you determined that this slippage put theschedule for theentire project in severe jeopardy. The cause of Start-up's slippage was the removal ofpersonnel from your project to work on short-term contracts in order to obtain money to meet theweekly payroll.Your company decided that you should stay at Start-up Company to monitor their work and to assistin the design of the project. After six weeks and some progress, Start-up is still way behind theirdelivery dates. Nonetheless, you are now familiar enough with the project to complete it in-house withMajor's personnel.Start-up is still experiencing severe cash flow problems and repeatedly requests payment from Major.But your CEO, furious with Start-up's lies and deceptions, wishes to “bury” Start-up and finish theproject using Major Company's internal resources. She knows that withholding payment to Start-upwill put them out of business. What do you do? Explain.Answer:Situational Ethics.We don't know if the development fee was ever paid to Start-upCompany.Major had an obligation to pay the initial development fee.If it was paid, and Start-updid not produce the required progress reports then Major is correct to withhold payment.Situational ethics will come into play when you decide whether or not to give Start-up more timeto complete the work.If the start-up fee was not paid, and it was Major’s failure to pay onschedule that caused Start-up to divert their personnel, then Major needs to take some share ofthe blame.9.A customer requested certain sophisticated tests on equipment he purchased from your factory. Suchtests are very expensive and must be performed by a third party. The equipment was tested and metall of the industry standards, but showed anomalies which could not be explained.Though the problem appeared to be very minor, you decided to inspect the unit to try to understandthe test data—a very expensive and time-consuming process. You informed the customer of thisdecision. A problem was found, but it was minor and was highly unlikely ever to cause the unit to fail.Rebuilding the equipment would be very expensive and time-consuming; moreover, notifying thecustomer that you were planning to rebuild the unit would also put your overall manufacturingproceduresin question. Whatshould you do:fix it, ship it,orinform the customer?Answer:Fundamentalism.You must inform the customer.The customer apparently has the right torequest such testing and as such you have ethical responsibility to inform the customer of all

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SolutionandAnswerGuide:Mann/Roberts,Smith &Roberson's Business Law,18e,9780357364000;Chapter2:BusinessEthics and the Social Responsibility of Businessfactors.The ultimate decision should be made by the customer.However, you have theobligation to comply with the legal and governmental responsibilities within your industry.10.You are a project manager for a company making a major proposal to a Middle Eastern country. Yourmajor competition is from Japan.(a)Your local agent, who is closely tied to a very influential sheik, would receive a 5 percentcommission if the proposal were accepted. Near the date for decision the agent asks you for $150,000to grease the skids so that your proposal is accepted. What doyou do?(b) What if, after you say no, theagent goes to your vice president, who provides the money? What doyou do?(c) Your overseas operation learns that most other foreign companies in this Middle Eastern locationbolster their business by exchanging currency on the gray market. You discover that your division istwice as profitable as budgeted due to the amount of domestic currency you have received on the graymarket. What do you do?Answer:Ethical Theories.(a) This may cross the line from ethical to legal requirements.If this is notillegal, then applying the doctrine of ethical relativism, you must decide what is subjectively rightfor you. You also need to check the company code of conduct and any other applicable policy.(b) Again applying the doctrine of ethical relativism, if you feel strongly enough you may have toquit your job or request a transfer to another division.If this activity is not legal you have theobligation to report it to your company's superiors.(c) The Utilitarianism cost–benefit analysis will allow you to first quantify this in monetary termsand then compare the direct and indirect costs and benefits.This process may achieve the mostprofit but may ignore justice in the process.11.Explain what relevance ethics has to business.Answer:Business Ethics.Business ethics seeks to understand the moral issues that arise frombusiness practices, institutions, and decision-making and their relationship to generalizedhuman values. Unlike the law, analyses of ethics have no central authority, such as courts orlegislatures, upon which to rely; nor do they have clear-cut, universal standards. Despite theseinherent limitations, making meaningful ethical judgments is still possible and necessary in theareas of employment relationships, relationships between business and its customers,corporate governance, shareholder voting, and management’s duties to the shareholders,pollution of the physical environment, commitment to the community’s economic and socialinfrastructure, the depletion ofnatural resources, fair competition, bribery of foreign officials,exploitation of developing countries, and conflicts among differing cultures and value systems.12.How should the financial interests of stockholders be balanced with the varied interests ofstakeholders? If you were writing a code of conduct for your company, how would you address thisissue?Answer:Business Ethics.Answers will vary, but should include the idea that a corporation isresponsible to society at large, and more directly, to all those constituencies on which it dependsfor its survival. Thus, it is argued that a corporation should be managed for the benefit of all of

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SolutionandAnswerGuide:Mann/Roberts,Smith &Roberson's Business Law,18e,9780357364000;Chapter2:BusinessEthics and the Social Responsibility of Businessits stakeholders—stockholders, employees, customers, suppliers, and managers, as well as thelocal communities in which it operates.13.A company adopts a policy that (a) prohibits romantic relationships between employees of differentrank and (b) permits romantic relationships between employees of the same rank only if bothemployees waive in writing their rights to sue the company shouldthe relationship end. Violation ofthis rule is grounds for dismissal. Is this rule ethical? If not, how should it be revised? Explain.Answer:Business Ethics.Answers will vary, but may include some of the following ideas:•Acorporation’s main responsibility is to make a profit, and anything that might interfere withthat goal should be avoided.•Ethical relativismis a doctrine asserting that individuals must judge actions by what theyfeel is right or wrong for themselves.This would prohibit a corporation from making suchrestrictions.•Situational ethicsholds that the person judging must actually put herself in the otherperson’s shoes to understand what motivated the other to choose a particular course ofaction. This would prohibit a corporation from making such restrictions.•Utilitarianismis a doctrine that assesses good and evil in terms of the consequences ofactions. This would require a corporation to prove that there is more benefit from makingthe restrictions than from allowing the behavior.•Deontological theorieshold that certain underlying principles are right or wrong regardlessof calculations regarding pleasure or pain. This would require a corporation to prove thatthere is a moral value to restricting or allowing the behavior.14.A company prohibits any employee from making disparaging comments about the company throughany social media, including online blogs, email, and other electronic media. Violation of this rule isgrounds for dismissal. Explain whether this rule is ethical.If not, how should it be revised? Explain.Answer:Business Ethics.Answers will vary, but may include some of the following ideas:•Acorporation’s main responsibility is to make a profit, and anything that might interfere withthat goal should be avoided.•Ethical relativismis a doctrine asserting that individuals must judge actions by what theyfeel is right or wrong for themselves.This would prohibit a corporation from making suchrestrictions.•Situational ethicsholds that the person judging must actually put herself in the otherperson’s shoes to understand what motivated the other to choose a particular course ofaction. This would prohibit a corporation from making such restrictions.•Utilitarianismis a doctrine that assesses good and evil in terms of the consequences ofactions. This would require a corporation to prove that there is more benefit from makingthe restrictions than from allowing the behavior.•Deontological theorieshold that certain underlying principles are right or wrong regardlessof calculations regarding pleasure or pain. This would require a corporation to prove thatthere is a moral value to restricting or allowing the behavior.

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolutionSolutionandAnswerGuideMann/Roberts,Smith & Roberson's BusinessLaw,18e,9780357364000;Chapter3:Civil DisputeResolutionTable ofContentsAnswers to Questions..................................................................................................................................................1Answers to Case Problems........................................................................................................................................4Answers to Taking Sides.............................................................................................................................................9Answers to Questions1.On June 15, a newspaper columnist predicted that the coast of State X would be flooded on thefollowing September 1. Relying on this pronouncement, Gullible quit his job and sold his property at aloss so as not to be financially ruined. When the floodingdid not occur, Gullible sued the columnist ina State X court for damages. The court dismissed the case for failure to state a cause of action underapplicable State law. On appeal, the State X Supreme Court upheld the lower court. Three monthsafter thisruling, the State Y Supreme Court heard an appeal in which a lower court had ruled that areader could sue a columnist for falsely predicting flooding.(a) Must the State Y Supreme Court follow the ruling of the State X Supreme Court as a matter of staredecisis?(b) Should the State Y lower court have followed the ruling of the State X Supreme Court until the StateY Supreme Court issued a ruling on the issue?(c) Once the State X Supreme Court issued its ruling, could the United States Supreme Court overrulethe State X Supreme Court?(d) If the State Y Supreme Court and the State X Supreme Courts rule in exactly opposite ways, mustthe United States Supreme Court resolve the conflict between the two courts?Answer:StareDecisis in the Dual Court System.a. No. A decision of one state’s supreme court is notbinding on another state’s supreme court.It may be persuasive, but it’s not binding.b. Not necessarily.The decision of one state’s supreme court is not binding on the lower courtsof another state.Again, it may be persuasive, but it’s not binding.c. If the issue is one strictly of state–as opposed to federal–law, which this seems to be, then theUnited States Supreme Court could not overrule the State X Supreme Court.However, a decisionof the U.S. Supreme Court on federal questions is binding on all other courts, federal and state.d. No.If the conflict in rulings relates exclusively to state law, the U.S. Supreme Court cannotexercise jurisdiction.Even if the conflict between states related to federal law, there is nomandatory requirement that the Supreme Court intervene.The Supreme Court may intervenewhen two Circuit Courts of Appeals adopt inconsistent positions, but there is no mandatoryrequirement that it do so.

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolution2.State Senator Bowdler convinced the legislature of State Z to pass a law requiring all professors tosubmit their class notes and transparencies to a board of censors to be sure that no “lewd” materialswere presented to students at State universities. Professor Rabelais would like to challenge this law asbeing violative of his First Amendment rights under the U.S. Constitution.(a) May Professor Rabelais challenge this law in the State Z courts?(b) May Professor Rabelais challenge this law in a Federal district court?Answer:Subject MatterJurisdiction.a. Yes.Adjudicating First Amendment disputes can occur eitherin the state courts or the federal courts because they have concurrent jurisdiction over federalquestions.b. Yes, even if he cannot show a monetary loss, because a federal question exists and there is nominimum dollar requirement for federal question cases.3.While driving his car in Virginia, Carpe Diem, a resident of North Carolina, struck Butt, a resident ofAlaska. As a result of the accident, Butt suffered over $80,000 in medical expenses. Butt would like toknow if he personally serves the proper papers to Diem whether he can obtain jurisdiction againstDiem for damages in the following courts:(a) Alaska State trial court(b) Federal Circuit Court of Appeals for the Ninth Circuit (includes Alaska)(c) Virginia State trial court(d) Virginia Federal district court(e) Federal Circuit Court of Appeals for the Fourth Circuit (includes Virginia and North Carolina)(f) Virginia equity court(g) North Carolina State trial court.Answer:Jurisdiction.a. The only way that Butt could get proper service on Diem for purposes ofsuing Diem in an Alaska state court would be if Diem somehow came into the state borders andButt served himwhile he was inside the state.Butt could not use a long-arm statute to getservice since there would have been no real connection between the events leading up to thelawsuit and the State of Alaska.If the case could be tried in Alaska, the court would apply Virginialaw.b. No.A Circuit Court of Appeals is an appellate court.It never tries cases.c. Yes.The accident occurred in Virginia.This is the most logical place to try the case.d. Yes.There is diversity of citizenship, and the amount in controversy does exceed $75,000,therefore both requirements of diversity jurisdiction have been satisfied.e. No.A Circuit Court of Appeals is an appellate court.It never tries cases.f. No. A court of equity–assuming one exists in Virginia–does not hearcases in which monetarydamages would provide adequate relief.In this case, monetary damages would suffice.g. Yes, assuming proper services were obtained in North Carolina.Why Butt would want to suein North Carolina is a mystery since the North Carolina court would apply Virginia law.4.Sam Simpleton, a resident of Kansas, and Nellie Naive, a resident of Missouri, each bought $85,000 instock at local offices in their home States from Evil Stockbrokers, Inc. (“Evil”), a business incorporatedin Delaware with its principal place of business in Kansas. Both Simpleton and Naive believe that they

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolutionwere cheated by Evil Stockbrokers and would like to sue Evil for fraud. Assuming that no Federalquestion is at issue, assess the accuracy of the following statements:(a) Simpleton can sue Evil in a Kansas State trial court.(b) Simpleton can sue Evil in a Federal district court in Kansas.(c) Naive can sue Evil in a Missouri State trial court.(d) Naive can sue Evil in a Federal district court in Missouri.Answer:Subject MatterJurisdiction.a. Yes.You can always sue for fraud in state court.There aresufficient minimum contacts with that state, since Evil’s principal place of business is locatedthere.b. Simpleton cannot successfully sue Evil for fraud in federal district court because the onlypossible basis would be diversity of citizenship since no federal question is involved.There is nodiversity in this case because Simpleton and Evil are both citizens of Kansas.A corporation is acitizen both of the state of incorporation and of its principal place of business.c. Yes.You can always sue for fraud in state court.By using a long-arm statute Evil can bereached because it is transacting business within Missouri.d. In this case, Naïve can claim diversity of citizenship because Evil is not a citizen of Missouri.The mere fact that a corporation does business in a state does not make it a citizen of that state.So, if Naïve has suffered more than $75,000 in damages, this loss—coupled with diversity ofcitizenship—would make her eligible to sue Evil in a federal district court.The case does not tellus how much her loss is, however, so the facts are insufficient to make a proper determination.5.The Supreme Court of State A ruled that, under the law of State A, pit bull owners must either keeptheir dogs fenced or pay damages to anyone bitten by the dogs. Assess the accuracy of the followingstatements:(a) It is likely that the United States Supreme Court would issue a writ ofcertiorariin the “pit bull”case.(b) If a case similar to the “pit bull” case were to come before the Supreme Court of State B in thefuture, the doctrine ofstare decisiswould leave the court no choice but to rule the same way as theSupreme Court of State A ruled in the “pit bull” case..Answer:Stare Decisis in the Dual Court System.a. This statement is false.The United StatesSupreme Court would not issue awrit of certiorariin a case involving only state tort law and notpresenting a federal question.b. False.Again this is an issue of state law, specifically the law of State A.The decision of onestate’s supreme court is not binding on the courts of another state.Such a decision in State Amay be persuasive on the courts in State B, but it is not binding.6.The SupremeCourt of State G decided that the United States Constitution requires professors to warnstudents of their right to remain silent before questioning the students about cheating. This rulingdirectly conflicts with a decision of the Federal Court of Appealsfor the circuit that includes State G.(a) Must the Federal Circuit Court of Appeals withdraw its ruling?(b) Must the Supreme Court of State G withdraw its ruling?

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolutionAnswer:Stare Decisis in the Dual Court System.a.No.Decisions of a state supreme court are onlybinding on the federal courts as to questions of that state’s law.Here a federal question is atissue.b. Although a decision of a federal court, other than the U.S. Supreme Court, may be persuasivein a state court on a federal question, it is still not binding on that state court.Answers to Case Problems7.Thomas Clements brought an action to recover damages for breach of warranty against defendant,Signa Corporation. (A warranty is an obligation that the seller of goods assumes withrespect to thequality of the goods sold.) Clements had purchased a motorboat from Barney's Sporting Goods, anIllinois corporation. The boat was manufactured by Signa Corporation, an Indiana corporation with itsprincipal place of business in Decatur, Indiana. Signa has no office in Illinois and no agent authorizedto do business on its behalf within Illinois. Clements saw Signa's boats on display at the Chicago BoatShow. In addition, literature on Signa's boats was distributed at the Chicago Boat Show. Severalboating magazines, delivered to Clements in Illinois, contained advertisements for Signa's boats.Clements also had seen Signa's boats on display at Barney's Sporting Goods Store in Palatine, Illinois,where he eventually purchased the boat. A written warranty issued by Signa was delivered to Clementsin Illinois. Although Signa was served with a summons, it failed to enter an appearance in this case.The court entered a default order and, subsequently, a judgment of $6,220 against Signa. Signaappealed. Decision?Answer:PersonalJurisdiction.Judgment for Clements. Under Section 17 of the Illinois Long-ArmStatute, a nonresident corporation which transacts business within the State of Illinois is subjectto personal jurisdiction in the Illinois state courts in any lawsuit arising out of business.Theassertion of personal jurisdiction, however, must satisfy the due process clause of the 14thAmendment to the U.S. Constitution.Due process requires sufficient “minimum contacts”between Illinois and the non-residentcorporation so that the exercise of personal jurisdiction isconsistent with traditional notions of fair play and substantial justice.By displaying its boats and distributing literature at the Chicago Boat Show, advertising inmagazines with Illinois subscribers and selling its boats to Illinois retailers, Signa Corporationsatisfies the due process “minimum contacts” test and the Illinois Long-Arm Statute.Since it hasintentionally and consistently engaged in practices designed to promote sales of its boats inIllinois, it would not violate traditional notions of fair play and justice for the Illinois State court toassert personal jurisdiction over Signa on a claim which arose out of the sale of one of its boatsto an Illinois resident, in Illinois.Clements v. Barney’s Sporting Goods Store, 84 Ill.App.3d 600, 40Ill.Dec. 342, 406 N.E.2d 43 (1980).8.Mariana Deutsch worked as a knitwear mender and attended a school for beauticians. The sink in herapartment collapsed on her foot, fracturing her big toe and making it painful for her to stand. Sheclaims that as a consequence of the injury she was compelled to abandon her plans to become abeautician because that job requires long periods of standing. She also asserts that she was unable towork at her current job for a month. She filed a tort claim against Hewes Street Realty for negligencein failing properly to maintain the sink. She brought the suit in Federal district court, claimingdamages of $25,000. Her medical expenses and actual loss of salary were less than $1,500; the rest of

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolutionher alleged damages were for loss of future earnings as a beautician. Hewes Street moved to dismissthe suit on the basis that Deutsch's claim fell short of the jurisdictional requirement, which then was$10,000, and that the Federal court therefore lackedsubject matter jurisdiction over her claim.Decision?Answer:FederalJurisdiction.Judgment for Deutsch. The general rule for determining the $10,000jurisdictional amount in controversy requirement (as it was at the time of this case; therequirement now is $75,000) is that an amount alleged in good faith to exceed $10,000 willsatisfythe requirement, unless it appears to be a legal certainty that the claim is really for lessthan $10,000.The court may look beyond the face of the complaint, however, to determine thevalidity of the alleged amount.For example, the court may dismiss a suit for lack of jurisdiction:(1) if the damages claimed are not recoverable at all under applicable law, or (2) if the damagesthat are recoverable cannot as a matter of law exceed $10,000, or (3) if the amount of damageswasinflated solely to gain access to the federal courts.In this case, Deutsch’s claim for unliquidated damages of $25,000 for her loss of future earningsas a beautician satisfies the jurisdictional requirement.Although it may seem unlikely that shecould actually prove $25,000 in damages, it cannot be said with legal certainty that the damagesdo not exceed $10,000.Therefore, she should have an opportunity to have her claim decided onits merits in a federal court.Deutsch v. Hewes St. Realty Corp., 359 F2d 96 (1966).9.Vette sued Aetna under a fire insurance policy. Aetna moved for summary judgment on the basis thatthe pleadings and discoveredevidence showed a lack of an insurable interest in Vette. (An “insurableinterest” exists where the insured derives a monetary benefit or advantage from the preservation orcontinued existence of the property or would sustain an economic loss from its destruction.) Aetnaprovided ample evidence to infer that Vette had no insurable interest in the contents of the burnedbuilding. Vette also provided sufficient evidence to put in dispute this factual issue. The trial courtgranted the motion for summary judgment. Vette appealed. Decision?Answer:Summary Judgment.Judgment for Vette.Summary judgment should not be entered unlessthe pleadings, stipulations, affidavits, and admissions in the case show that there exists nogenuine issue as to any material fact.In passing upon a motion for summary judgment, thecourt is required to view the facts in the light most favorable to the party opposing the motion[Vette] and to give that party the benefit of all reasonable inferences to be drawn from theunderlying facts.Although Aetna provided ample evidence to infer that Vette had no insurableinterest in the contents of the burned building, Vette also provided sufficient evidence to put indispute this material and factual issue.As the party opposing the motion for summaryjudgment, Vette was entitled to the benefit of all reasonable inferences and to a review of thefacts in the light most favorable to him.Therefore, the motion for summary judgment should bedenied.Vette Co. v. Aetna Cas. & Sur. Co., 612 F.2d 1076 (8th Cir., 1980).10.Mark Womer and Brian Perry were members of the US Navy and were stationed in Newport, RhodeIsland. On April 10, Womer allowed Perry to borrow his automobile so that Perry could visit his familyin New Hampshire. Later that day, while operating Womer's vehicle, Perry was involved in an accidentin Manchester, New Hampshire. As a result of the accident, Tzannetos Tavoularis was injured.Tavoularis brought this action against Womer in a New Hampshire superior court, contending thatWomer was negligent in lending the automobile to Perry when he knew or should have known that

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolutionPerry did not have a valid driver's license. Womer sought to dismiss the action on the ground that theNew Hampshire courts lacked jurisdiction over him, citing the following facts: (a) he lived and workedin Georgia; (b) he had no relatives in New Hampshire; (c) he neither owned property nor possessedinvestments in New Hampshire; and (d) he had never conducted business in New Hampshire. Did theNew Hampshire courts have jurisdiction? Explain.Answer:PersonalJurisdiction.Yes, judgment affirmed.The long-arm statute in New Hampshireprovides that any person who “in person or through an agent . . . commits a tortious act withinthis state . . . submits himself . . . to the jurisdiction of the courts of this state as to any cause ofaction arising from or growing out of the [tortious] act . ..”Although Womer’s allegedly “tortiousact”–lending the car to Perry–occurred in Rhode Island, and only the injury occurred in NewHampshire, this does notpreclude the exercise of jurisdiction over Womer under the long-armstatute.The jurisdiction over Womer in this case accords with constitutional due process, whichrequires that a defendant have “minimum contacts” with a State such that the jurisdiction doesnot offend “traditional notions of fair play and substantial justice.”Womer should haveanticipated being brought into court in NH.He authorized Perry to drive there, and it wasreasonably foreseeable that Womer would be sued in NH for negligently entrusting his vehicle toPerry.Womer had sufficient contacts with New Hampshire for the constitutional exercise ofjurisdiction by its courts.Tavoularis v. Womer, 462 A.2d 110 (N.H., 1983).11.Kenneth Thomas brought suit against his former employer, Kidder, Peabody & Company, and two ofits employees, Barclay Perry and James Johnston, in a dispute over commissions on sales of securities.When he applied to work at Kidder, Peabody & Company, Thomas had filled out a form, whichcontained an arbitration agreement clause. Thomas had also registered with the New York StockExchange (NYSE). Rule 347 of the NYSE provides that any controversy between a registeredrepresentative and a member company shallbe settled by arbitration. Kidder, Peabody is a memberof the NYSE. Thomas refused to arbitrate, relying on Section 229 of the California Labor Code whichprovides that actions for the collection of wages may be maintained “without regard to the existenceof any private agreement to arbitrate.” Perry and Johnston filed a petition in a California State court tocompel arbitration under Section 2 of the Federal Arbitration Act. Should the petition of Perry andJohnson be granted?Answer:Arbitration.Yes, the petition should be granted. Judgment for Perry and Johnston.When itpassed the Federal Arbitration Act, Congress declared a national policy favoring arbitration andwithdrew the power of the states to require a judicial forum for the resolution of claims thecontracting parties had agreed to resolve by arbitration.Enacted pursuant to the CommerceClause of the U.S. Constitution, the Federal Arbitration Act is enforceable in both state andfederal courts.This Act embodies a clear federal policy of requiring arbitration unless theagreement to arbitrate is not part of a contract evidencing interstate commerce, or is revocableupon such grounds as exist at law or in equity for the revocation of any contract.This clearfederal policy places the Federal Arbitration Act inunmistakable conflict with California statute’srequirement that litigants be provided a judicial forum for resolving wage disputes.Therefore,under the supremacy clause of the U.S. Constitution, the state statute must give way to thefederal law.

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolution12.Steven Gwin bought a lifetime Termite Protection Plan for his home from the local office of Allied-Bruce, a franchise of Terminix International Company. The plan provided that Allied-Bruce would“protect” Gwin’s house against termite infestation, reinspect periodically, provide additional treatmentif necessary, and repair damage caused by new termite infestations. Terminix Internationalguaranteed the fulfillment of these contractual provisions. The plan also provided that all disputesarising out of thecontract would be settled exclusively by arbitration. Four years later, Gwin hadAllied-Bruce reinspect the house in anticipation of selling it. Allied-Bruce gave the house a “clean bill ofhealth.” Gwin then sold the house and transferred the Termite Protection Plan to Dobson. Shortlythereafter, Dobson found the house to be infested with termites. Allied-Bruce attempted to treat andrepair the house, using materials from out of state, but these efforts failed to satisfy Dobson. Dobsonthen sued Gwin, Allied-Bruce, and Terminix International in an Alabama state court. Allied-Bruce andTerminix International asked for a stay of these proceedings until arbitration could be carried out asstipulated in the contract. The trial court refused to grant the stay. The Alabama Supreme Courtupheld that ruling, citing a state statute that makes predispute arbitration agreements unenforceable.The court found that the Federal Arbitration Act, which preempts conflicting state law, did not apply tothis contract because its connection to interstate commerce was too slight. Was the Alabama SupremeCourt correct? Explain.Answer:Arbitration.No, the Alabama Supreme Court was wrong in upholding the trial court’srefusal to grant a stay.The trial court should have granted the stay to allow arbitration to becarried out.The Federal Arbitration Act provides that written arbitration provisions in contractsfor transactions involving commerce are generally enforceable.These transactions do notalways have to directly involve interstate commerce, but merely affect interstate commerce.Inaddition, the statute applies where a transaction has in fact involved interstate commerce eventhough the parties did not contemplate interstate commerce when creating the contract.In thiscase, the parties do not contest that the transaction, in fact, involved interstate commerce.Inaddition to the multistate operations of Terminix and Allied-Bruce, the materials used by Allied-Bruce in its efforts to carry out the terms of the Plan came from outside Alabama. Therefore, theFederal Arbitration Act preempts Alabama’s anti-arbitration statute and requires enforcement ofthe contract’s arbitration provision.13.Eddie Lee Howard and Shane D. Schneider worked for Nitro-Lift Technologies LLC. As a condition ofemployment, they entered into confidentiality and noncompetition agreements that contained aclause requiring any dispute between Nitro-Lift and its employeesto be settled in arbitration. Afterworking for Nitro-Lift on wells in Oklahoma, Texas, and Arkansas, the plaintiffs quit and beganworking for one of Nitro-Lift’s competitors. Claiming that the plaintiffs had breached theirnoncompetition agreements, Nitro-Lift served them with a demand for arbitration. The plaintiffs thenfiled suit in the District Court of Johnston County, Oklahoma, asking the court to declare thenoncompetition agreements null and void and to enjoin their enforcement. The court dismissed thecomplaint, finding that the contracts contained valid arbitration clauses under which an arbitrator,and not the court, must settle the parties’ disagreement. On appeal the Oklahoma Supreme Courtreversed, holding that despite the “[U.S.] Supreme Court cases on which the employers rely,” the“existence of an arbitration agreement in an employment contract does not prohibit judicial review ofthe underlying agreement.” Finding that the arbitration clauses were no obstacle to its review, theOklahoma Supreme Court held that the noncompetition agreements were “void and unenforceable as

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolutionagainst Oklahoma’s public policy,” expressed in an Oklahoma statute. Did the Oklahoma SupremeCourt err in preventing the arbitration of the noncompetition agreement?Answer:Arbitration.Yes. The judgment of the Supreme Court of Oklahoma is vacated, and the caseis remanded. State courts rather than federal courts are most frequently called upon to applythe Federal Arbitration Act (FAA), [citation], including the Act's national policy favoringarbitration. It is a matter of great importance, therefore, that state supreme courts adhere to acorrect interpretation of the legislation. ***The Oklahoma Supreme Court’s decision disregards this Court’s precedents on the FAA. That Act,which “declare[s] a national policy favoring arbitration,” [citation], provides that a “writtenprovision in . . . a contract evidencing a transaction involvingcommerce to settle by arbitration acontroversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable,and enforceable, save upon such grounds as exist at law or in equity for the revocation of anycontract.” [Citation.]It is well settled that “the substantive law the Act created [is] applicable instate and federal courts.” [Citations.] And when parties commit to arbitrate contractual disputes,it is a mainstay of the Act’s substantive law that attacks on the validity ofthe contract, as distinctfrom attacks on the validity of the arbitration clause itself, are to be resolved “by the arbitrator inthe first instance, not by a federal or state court.” [Citations.] ***When parties commit to arbitrate contractual disputes, the FAA requires that attacks on thevalidity of the contract, as distinct from attacks on the validity of the arbitration clause itself, areto be resolved by thearbitrator in the first instance, not by a federal or state court.14.Llexcyiss Omega and D. Dale York, both residents of Indiana, jointly listed a Porsche automobile forsale on eBay, a popular auction website. The listing stated that the vehicle was located in Indiana andthat the winning bidder would be responsible for arranging and paying for delivery of the vehicle. TheAttaways, residents of Idaho, entered a bid of $5,000 plus delivery costs. After being notified that theyhad won the auction, the Attaways submitted payment to Omega and York through PayPal (an onlinepayment service owned by eBay), which charged the amount to the Attaways’ MasterCard account. TheAttaways arranged for CarHop USA, a Washington-based auto transporter, to pick up the Porsche inIndiana and deliver it to their Idaho residence. After taking delivery of the Porsche, the Attaways filed aclaim with PayPal, asking for a refund of its payment to Omega and York because the Porsche was“significantly not-as-described” in its eBay listing. PayPal informed the Attaways via email that theirclaim was denied. The Attaways convinced MasterCard to rescind the payment that had been made toOmega and York. Omega and York filed suit against the Attaways in small claims court in Indiana,demanding $5,900 in damages. Explain whether the Indiana courts have jurisdiction over theAttaways.Answer:Jurisdiction.Yes, the Indiana courts do have jurisdiction.The U.S. Supreme Court has established that a nonresident defendant must have “certainminimum contacts with [the forum state] such that the maintenance of the suit does not offendtraditional notions of fair play and substantial justice.” The Court laterclarified this test to meanthat the nonresident defendant must engage in “some act by which [he] purposefully avails[himself] of the privilege of conducting activities within the forum State, thus invoking thebenefits and protections of its laws.” If the defendant's contacts with the forum state aresufficient, due process requires that the assertion of personal jurisdiction would comport with“fair play and substantial justice.” To make this determination, the court may consider five

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolutionfactors: (1) the burden on the defendant; (2) the forum state's interest in adjudicating thedispute; (3) the plaintiff's interest in obtaining convenient and effective relief; (4) the interstatejudicial system's interest in obtaining the most efficient resolution of controversies; and (5) theshared interest of the several states in furthering fundamental substantive shared policies. 105S.Ct. 2174.Here, the Indiana sellers, filed suit against the Idaho buyers, the Attaways, after the Attawaystook delivery of the vehicle and then rescinded payment. The Attaways were able to see thesellers' location prior to making their bid on the Porsche. Presumably, a person consideringplacing a bid in an online auto auction would note the vehicle's location, particularly when, ashere, the seller states that the buyer will be responsible for arranging and paying for delivery.Obviously, delivery fees could varysignificantly, depending upon how far away the vehicle isfrom the buyer's home.By submitting a bid, the Attaways agreed to appear, in person or by representative, in Indiana topick up the vehicle. After they won the Porsche, they hired an auto shipping company, based inWashington, to enter the state of Indiana as their representative, pick up the Porsche, anddeliver it to them in Idaho. In sum, during the course of this transaction, there was more thanjust a single online purchase to satisfy the personal jurisdiction requirements of the federal dueprocess clause. Therefore, the Attaways purposefully availed themselves of the privilege ofconducting activities within the state of Indiana such that they could reasonably anticipatedefending a lawsuit in Indiana related to this eBay purchase.As for whether the assertion of personal jurisdiction comports with fair play and substantialjustice, it appears that the burden on the Attaways is no greater than the burden would be onOmega and York if they were forced to bring this case in Idaho. As for efficient resolution of thecontroversies, it is not evident that there would be greater travel expenses or inconvenience formore people if the case is tried in Indiana. In weighing the interests of the states, it is certainlywithin the bounds of fairplay and substantial justice to allow Indiana to exercise personaljurisdiction over individuals who have entered into a contract with an Indiana resident for thepurchase of property located in Indiana, have removed that property from the state of Indiana,and then rescinded payment.Attaway v. Omega, Indiana Court of Appeals, 903 N.E.2d 73 (2009).Answers to Taking SidesJohn Connelly suffered personal injuries when a tire manufactured by Uniroyal failed while his 1969Opel Kadett was being operated on a highway in Colorado. Connelly’s father had purchased theautomobile from a Buick dealer in Evanston, Illinois. The tirebore the name “Uniroyal” and the legend“made in Belgium” and was manufactured by Uniroyal, sold in Belgium to General Motors, andsubsequently installed on the Opel when it was assembled at a General Motors plant in Belgium. Theautomobile was shipped tothe United States for distribution by General Motors. It appears thatbetween the years 1968 and 1971 more than 4,000 Opels imported into the United States fromAntwerp, Belgium, were delivered to dealers in Illinois each year; that in each of those yearsbetween600 and 1,320 of the Opels delivered to Illinois dealers were equipped with tires manufactured byUniroyal, and that the estimated number of Uniroyal tires mounted on Opels delivered in Illinoiswithin each of those years ranged from 3,235 to 6,630. Connelly brought suit in Illinois againstUniroyal to recover damages for personal injuries. Uniroyal asserted that it was not subject to the

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolutionjurisdiction of the Illinois courts because it is not registered to do business and has never had anagent, employee, representative, or salesperson in Illinois; that it has never possessed or controlledany land or maintained any office or telephone listing in Illinois; that it has never sold or shipped anyproducts into Illinois, either directly or indirectly; and that it has never advertised in Illinois.a.What arguments could Connelly make in support of its claim that Illinois courts have jurisdictionover Uniroyal?b.What arguments could Uniroyal make in support of its claim that Illinois courts do not havejurisdiction over it?c.Who shouldprevail? Explain.ANSWER:a.Connelly could argue that Uniroyal was subject to the jurisdiction of the Illinois courtsunder that state’s long-arm statute because Uniroyal had transacted business in Illinoisand that business is the subject matter of Connelly’s lawsuit. Connelly couldalso arguethat this exercise of jurisdiction over Uniroyal does not offend traditional notions of fairplay and substantial justice.b.Uniroyal could argue that Uniroyal was not subject to the jurisdiction of the Illinois courtsunder that state’s long-arm statute because Uniroyal had never transacted business inIllinois. Uniroyal could also argue that this exercise of jurisdiction overUniroyal offendstraditional notions of fair play and substantial justice because there is a total lack ofcontact between Uniroyal and the state of Illinois so that an assertion of jurisdiction by anIllinois court over Uniroyal would be contrary to substantial justice and would violate therights of Uniroyal under the U.S. Constitution.c.The court in this case found for Connelly.Connelly v. Uniroyal, Inc., Illinois Supreme Court,1979, 75 Ill.2d 393, 389 N.E. 2d 155, http://scholar.google.com/scholar_case?case=5833115262180270768&hl=en&as_sdt=2,34Uniroyal argues thatthe requirements of due process are not satisfied unless a corporation hasexercised the privilege of conducting activities within the state and thereby enjoyed the benefitsand protections of the laws of that state and that there has been no action on itspart by which itpurposely availed itself of the privilege of conducting activities within Illinois and therebyinvoked the benefits and protections of its laws.“The ‘quality and nature of the activity’ in which a foreign corporation must engage within a statein order to be subject to the jurisdiction of its courts has been the subject of much litigation. (SeeAnnots., 19 A.L.R.3d 13 (1968), 24 A.L.R.3d 532 (1969).) The diametrically opposed andirreconcilable views on the question whether a manufacturer whose product has beendistributed in a State by a third party is insulated from in personam jurisdiction under the dueprocess clause of the fourteenth amendmentin a product liability case because the sale anddistribution of the product into the forum State was through an intermediary, rather than by themanufacturer, are well demonstrated by the majority and dissenting opinions [in numerouscases.]”“A manufacturer whose products pass through the hands of one or more middlemen beforereaching their ultimate users cannot disclaim responsibility for the total distribution pattern ofthe products. If the manufacturer sells its products in circumstances such that it knows or

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter3:Civil DisputeResolutionshould reasonably anticipate that they will ultimately be resold in a particular state, it should beheld to have purposefully availed itself of the market for its products in that state. 71 Cal.2d 893,902, 458 P.2d 57, 64, 80 Cal. Rptr. 113, 120.”“[Uniroyal’s] tires, introduced into the stream of commerce in obvious contemplation of theirultimate sale or use in other nations or States, came into Illinois on a regular basis and insubstantial numbers, and we hold that its activities rendered it amenable to process undersections 13.3 and 16 of the Civil Practice Act. Given the nature and quality of its activities, wehold further that [Uniroyal] has purposefully invoked the benefits and protections of the law ofIllinois, that as required by International Shoe and Shaffer there were present ‘such contacts ofthe corporation with the state of the forum as make it reasonable, in the context of our federalsystem of government, to require the corporation to defend the particular suit which is broughtthere’ (326 U.S. 310, 317, 90 L.Ed. 95, 102, 66 S.Ct. 154, 158; 433 U.S. 186, 203, 53 L.Ed.2d 683,697, 97 S.Ct. 2569, 2580), and that requiring it to defend this action does not offend ‘traditionalnotions of fair play and substantial justice’ (326 U.S. 310, 316, 90 L.Ed. 95, 102, 66 S.Ct. 154, 158).”

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawSolutionandAnswerGuideMann/Roberts,Smith & Roberson's BusinessLaw,18e,9780357364000;Chapter4:Constitutional LawTable ofContentsAnswers to Questions..................................................................................................................................................1Answers to Case Problems........................................................................................................................................2Answers to Taking Sides..........................................................................................................................................12Answersto Questions1.In May, Patricia Allen left her car on the shoulder of a road in the city of Erehwon after the car stoppedrunning. A member of the Erehwonpolice dept. came upon the car later that day and placed on it asticker which stated that unless the carwasmoved, it would be towed. After a week the car had notbeen removed, and the police department authorized Baldwin Auto Wrecking Co. to tow it away andstore it on its property. Allen was told by a friend that her car was at Baldwin's. Allen asked Baldwintoallow her to take possession of her car, but Baldwin refused to relinquish the car until the $70 towingfee was paid. Allen could not afford topay the fee and the car remained at Baldwin's for six weeks. Atthat time, Baldwin requested the police department for a permit to dispose of the automobile. Afterthe police department tried unsuccessfully to telephone Allen, the department issued the permit. Inlate July, Baldwin destroyed the automobile. Allen brings an action against the city and Baldwin fordamages for loss of the vehicle, arguing that she was denied due process. Decision?Answer:Due Process. Judgment for Allen. These facts raise the question of due process under theFourteenth Amendment.As the Appellate Court of Illinois stated inValdez v. City of Ottawa, 434N.E. 2d 1192 (1982) upon which this problem is based:Due process is not an inflexible standard and does not require a trial-type hearing in everyconceivable case of government impairment of private interest.Nonetheless, due processrequires that, at a minimum, . . . deprivation of life, liberty or property by adjudication bepreceded by notice and an opportunity for hearing appropriate to the nature of the case.Thenotice must be reasonably calculated to convey the necessary information and to afford theinterested parties a reasonable time for a hearing.Those parties must be given notice and anopportunity before the deprivation takes place, unless there exists extraordinary circumstancesrequiring immediate action to protect a valid governmental interest.Furthermore, there is noquestion that ownership of an automobile and continued access to it is a property interestwithin the protection of the Fourteenth Amendment, and whether the deprivation will bepermanent or temporary is immaterial.Towing a car without prior notice [subject to exceptionsnoted later] is a violation of due process rights.On these facts itseems clear that the auto posed no substantial danger to traffic when it wasparked on the shoulder.This conclusion is supported by the fact that the police saw no need todisturb the car for at least one week.In the absence of an emergency the city violated Allen'sconstitutional rights when it seized, towed and refused to relinquish the auto before payment of

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawa towing fee.Moreover, the city failed to provide Allen with proper notice before towing; underthese facts, notice by certified or registered mail would have been appropriate.Even if pre-towing notice had not been required, due process demands prompt notice and an opportunityto a hearing before the government makes any disposition of the vehicle.Additionally, theowner must have an opportunity to contest the seizure and tow before she can be required topay any charges or fees.SeeStypmann v.City & County of San Francisco, 557 F. 2d 1338 (1977).Accordingly, the city and Baldwin violated Allen's right to due process when they destroyed herautomobile without any notice.AnswerstoCase Problems2.In 1967, large oil reserves were discovered in the Prudhoe Bay area of Alaska. As a result, Staterevenues increased from $124 million in 1969 to $3.7 billion in 1981. In 1980, the State legislatureenacted a dividend program that would distribute annuallya portion of these earnings to the State'sadult residents. Under the plan, each citizen eighteen years of age or older receives one unit for eachyear of residency subsequent to 1959, the year Alaska became a State. Crawford, a resident since1978, brings suit challenging the dividend distribution plan as violative of the equal protectionguarantee. Did the dividend program violate the Equal Protection Clause of the FourteenthAmendment?Explain.Answer:Equal Protection.Decision for Crawford.When a state distributes benefits unequally, thedistinctions it makes are subject to scrutiny under the Equal Protection Clause of the FourteenthAmendment.Generally, a law will survive the scrutiny if the distinction it makes rationallyfurthers a legitimate state purpose.The state advanced three purposes justifying the distinctionsmade by the dividend program; (a) creation of a financial incentive for individuals to establishand maintain residence in Alaska; (b) encouragement of prudent management of the earnings;and (c) apportionment of benefits in recognition of undefined "contributions of various kinds,both tangible and intangible, which residents have made during their years of residency."The U.S. Supreme Court held that none of these purposes rationally furthered a legitimate statepurpose.Zobel v. Williams, 457 U.S. 55 (1982).The court determined that the first two purposeswere not rationally related to the distinctions the statute makes between newer residents andthose who have been in the state since 1959.As the Court stated with repectto the firstobjective: “Newcomers seem more likely to become dissatisfied and to leave the State than well-established residents; it would thus seem that the State would give a larger, rather than asmaller, dividend to new residents if it wanted to discourage emigration. The separation ofresidents into classes hardly seems a likely way to persuade new Alaskans that the Statewelcomes them and wants them to stay.” The Court explained its rejection of the secondobjective: “Assuming, arguendo, that granting increased dividend benefits for each year ofcontinued Alaska residence might give some residents an incentive to stay in the State in orderto reap increased dividend benefits in the future, the State’s interest is not in any way served bygranting greater dividends to persons for their residency during the 21 years prior to theenactment.”The last objective–to reward citizens for past contributions–was held not to be a legitimate statepurpose.As the court stated:

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawIf the states can make the amount of a cash dividend depend on length of residence, whatwould preclude varying university tuition on a sliding scale based on years of residence–oreven limiting access to finite public facilities, eligibility for student loans, for civil service jobs,or for government contracts by length of domicile?Could States impose different taxesbased on length of residence?Alaska's reasoning could open the door to stateapportionment of other rights, benefits and services according to length of residency.Itwould permit the states to divide citizens into expanding numbers of permanent classes.Such a result would be clearly impossible.3.Maryland enacted a statute prohibiting any producer or refiner of petroleum products from operatingretail service stations within the State. The statute also required that any producer or refinerdiscontinue operating its company-owned retail service stations. Approximately 3,800 retail servicestations in Maryland sell more than twenty different brands of gasoline. All of this gasoline is broughtin from other states, as no petroleum products are produced or refined in Maryland. Only 5 percent ofthe total number of retailers are operated by a producer or refiner. Maryland enacted the statutebecause a survey conducted by the State comptroller indicated that gasoline stations operated byproducers or refiners had received preferential treatment during periods of gasoline shortage. Sevenmajor producers and refiners bring an action challenging the statute on the ground that itdiscriminated against interstate commerce in violation of the Commerce Clause of the United StatesConstitution. Are they correct?Explain.Answer:State Regulation of Commerce.No they are not correct.The Maryland statute isconstitutional.InExxon Corp. v. Governor of Maryland, 437 U.S. 117 (1978) the U.S. Supreme Courtstated:Plainly, the Maryland statute does not discriminate against interstate goods, nor does it favorlocal producers and refiners.Since Maryland's entire gasoline supply flows in interstatecommerce and since there are no local producers or refiners, such claims of disparate treatmentbetween interstate and local commerce would be without merit.Appellants, however, focus onthe retail market, arguing that the effect of the statute is to protect in-state independent dealersfrom out-of-state competition.They contend that the divestiture provisions "create a protectedenclave for Maryland independent dealers. . ."As support for this proposition, they rely on thefact that the burden of the divestiture requirements falls solely on interstate companies.But thisfact does not lead, either logically or practically, to a conclusion that the state is discriminatingagainst retail interstate commerce.As the record shows, there are several major interstate marketers of petroleum that own andoperate their own retail gasoline stations.These interstate dealers, who compete directly withthe Maryland independent dealers, are not affected by the Act because they do not refine orproduce gasoline.In fact, the Act creates no barriers whatsoever against interstate independentdealers; it does not prohibit the flow of interstate goods, place added costs upon them, ordistinguish between in-state and out-of-state companies in the retail market.The absence of anyof these factors fully distinguishes this case from those in which the state is found to havediscriminated against interstate commerce.The fact that the burden of a state regulation falls onsome interstate companies does not, by itself, establish a claim of discrimination againstinterstate commerce.

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLaw4.The Federal Aviation Act of 1958 provides that “The United States of America is declared to possessand exercise complete and exclusive national sovereignty in the airspace of the United States.” The cityof Orion adopted an ordinance that makes it unlawful for jet aircraft to take off from its airportbetween 11:00 P.M. of one day and 7:00 A.M. of the next day. Jordan Airlines, Inc., is adversely affectedby this ordinance and brings suit challenging it under the Supremacy Clause of the United StatesConstitution as conflicting with the Federal Aviation Act or preempted by it. Is the ordinance valid?Explain.Answer:Federal Supremacy and Preemption.No.Decision for Jordan Airlines.The Federal AviationAct (FAA) of 1958, as amended by the Noise Control Act of 1972, preempts the field.Any controlof noise pollution must be consistent with the "highest degree of safety."The FAA requires adelicate balance between safety and efficiency, and the protection of the persons on the ground.The interdependence of these factors requires a uniform and exclusive system of federalregulation if the congressional objectives underlying the Federal Aviation Act are to be fulfilled.As the U.S. Supreme Court stated inCity of Burbank v. Lockheed Air Terminal, Inc., 411 U.S. 624(1973) upon which this problem is based:If we were to uphold the Burbank ordinance and a significant number of municipalities followedsuit, it is obvious that fractionalized control of the timing of takeoffs and landings would severelylimit the flexibility of the FAA in controlling air trafficflow.The difficulties of scheduling flights toavoid congestion and the concomitant decrease in safety would be compounded.Moreover, as the court had stated in the earlier decision ofNorthwest Airlines, Inc. v. Minnesota:Federal control is intensive and exclusive.Planes do not wander about in the sky like vagrantclouds.They move only by federal permission, subject to federal inspection, in the hands offederally certified personnel and under an intricate system of federal commands.The moment aship taxis onto a runway it is caught up in an elaborate and detailed system of controls.Thus, the pervasive nature of the scheme of federal regulations of aircraft noise demonstratesthat federal law has preempted the field.5.The Public Service Commission of State X issued a regulation completely banning all advertising that“promotes the use of electricity” by any electric utility company in State X. The commission issued theregulationto conserve energy. Central Electric Corporation of State X challenges the order in the Statecourts, arguing that the commission has restrained commercial speech in violation of the FirstAmendment. Was their freedom of speech unconstitutionally infringed? Explain.Answer:Commercial Speech.Yes, Central Electric’s freedom of speech was infringed.Decision forCentral Electric Corporation.This problem is based uponCentral Hudson Gas and ElectricCorporation v. PublicService Commission, 447 U.S. 557 (1980) in which the Court concisely statedthe test for commercial speech cases:In commercial speech cases, then, a four-part analysis has developed.At the outset, we mustdetermine whether the expression is protected by the First Amendment.For commercial speechto come within that provision, it at least must concern lawful activity and not be misleading.Next, we ask whether the asserted governmental interest is substantial.If both inquiries yieldpositive answers, we must determine whether the regulation directly advances thegovernmental interest asserted, and whether it is not more extensive than is necessary to servethat interest.

Solution Manual for Smith and Roberson's Business Law, 18th Edition - Page 23 preview image

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawOn these facts the court found the promotional advertising to be commercial speech eventhough the electric utility had a monopoly in electricity since it nonetheless competed with fueloil and natural gas.It was conceded by the Commission that the advertising was neitherinaccurate nor relating to unlawful activities.The Court agreed that the governmental interest ofconservation was substantial and found that this interest was directly advanced by theprohibition upon advertising.However, the court concluded that the regulation was moreextensive than was necessary in that it reachedallpromotional advertising, regardless of itsimpact upon overall energy use:The commission also has not demonstrated that its interest in conservation cannot be protectedadequately by more limited regulation of appellant's commercialexpression.To further its policyof conservation, the Commission could attempt to restrict the format and content of CentralHudson's advertising.It might, for example, require that the advertisements include informationabout the relative efficiency and expense of the offered service, both under current conditionsand for the foreseeable future.In the absence of a showing that more limited speech regulationwould be ineffective, we cannot approve the complete suppression of Central Hudson'sadvertising.6.E—Z—Rest Motel is a motel with 216 rooms located in the center of a large city in State Y. It is readilyaccessible from two interstate highways and three major State highways. The motel solicits patronagefrom outside of State Y through various national advertising media, including magazines of nationalcirculation. It accepts convention trade from outside State Y, and approximately 75 percent of itsregistered guests are from out of State Y. An action under the Federal Civil Rights Act has been broughtagainst E—Z—Rest Motel alleging that the motel discriminates on the basis of race and color. Themotel contends that the statute cannot be applied to it because it is not engaged in interstatecommerce. Can the Federal government regulate this activity underthe Interstate Commerce Clause?Why?Answer:Federal Commerce Power.Yes, the Federal government can regulate this activity. Decisionagainst the E-Z Rest Motel.This problem is based uponHeart of Atlanta Motel v. United States, 379U.S. 241 (1964) in which the court discussed the legislative history of the Civil Rights Act of 1964:While the Act as adopted carried no congressional findings the record of its passage througheach house is replete with evidence of the burdens that discrimination by race or color placesupon interstate commerce . . .This testimony included the fact that our people have becomeincreasingly mobile with millions of people of all races traveling from state to state; that Negroesin particular have been the subject of discrimination in transient accommodations, having totravel great distances to secure the same; that often they have been unable to obtainaccommodations and have had to call upon friends to put them up overnight, . . . and that theseconditions had become so acute as to require the listing of available lodging for Negroes in aspecial guidebookwhich was itself "dramatic testimony to the difficulties" Negroes encounter intravel, . . . This testimony indicated a qualitative as well as quantitative effect on interstate travelby Negroes.The former was the obvious impairment of the Negro traveler's pleasure andconvenience that resulted when he continually was uncertain of finding lodging.As for the latter,there was evidence that this uncertainty stemming from racial discrimination had the effect ofdiscouraging travel on the part of a substantial portion of the Negro community . . .

Solution Manual for Smith and Roberson's Business Law, 18th Edition - Page 24 preview image

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawThe court relied upon these facts and the motel's operation to hold that the motel is subject toCongress because 'if it is interstate commerce that feels the pinch, it does not matter how localthe operation which applies the squeeze' . . . Thus the powerof Congress to promote interstatecommerce also includes the power to regulate the local incidents thereof, including localactivities in both the states of origin and destination, which might have a substantial andharmful effect upon that commerce.Oneneed only examine the evidence which we havediscussed above to see that Congress may–as it has–prohibit racial discrimination by motelsserving travelers, however 'local' their operations may appear . . ."Congress may act under theCommerce Clause when the activity sought to be regulated is "commerce which concerns morestates than one" and has a real and substantial relation to the national interest.7.State Z enacted a Private Pension Benefits Protection Act requiring private employers with 100 or moreemployees to pay a pension funding charge upon terminating a pension plan or closing an office inState Z. Acme Steel Company closed its offices in StateZ, whereupon the State assessed the company$185,000 under the vesting provisions of the act. Acme challenged the constitutionality of theActunder the Contract Clause (Article I, Section 10) of the U.S. Constitution. Was the act constitutional?Explain.Answer:Contract Clause.Decision for Acme.The statute is unconstitutional under the ContractClause.As the U.S. Supreme Court stated inAllied Structural Steel Company v. Spannus, 438 U.S.234 (1978) upon which this problem is based:Entering a field it had never before sought to regulate, the State Z Legislature grossly distortedthe company's existing contractual relationships with its employees by superimposingretroactive obligations upon the company substantially beyond the termsof its employmentcontracts.And that burden was imposed upon the company only because it closed its office inthe state.This State Z law simply does not possess the attributes of those state laws that in the past havesurvived challenge under the Contract Clause of the Constitution.The law was not evenpurportedly enacted to deal with a broad, generalized economic or social problem.It did notoperate in an area already subject to state regulation at the time the company's contractualobligations were originally undertaken, but invaded an area never before subject to regulationby the state.It did not effect simply a temporary alteration of the contractual relationships ofthose within its coverage, but worked a severe, permanent, and immediate change in thoserelationships–irrevocably and retroactively.And its narrow aim was leveled not at every State Zemployer, not even at every State Z employer who left the state, but only at those who had inthe past been sufficiently enlightened as voluntarily to agree to establish pension plans for theiremployees.8.A State statute empowered public school principals to suspend students for up to ten days without anynotice or hearing. A student who was suspended for ten days challenges the constitutionality of hissuspension on the grounds that he was denied due process. Was due process denied? ExplainAnswer:Due Process.Yes, due process was denied.Decision for the student.The plaintiffstudent's denial of an evidentiary hearing violated the Due Process Clause of the FourteenthAmendment according the U.S. Supreme Court decision inGoss. v. Lopez, 419 U.S. 565 (1975).Atthe very minimum students facing suspension and the consequent interference with a protected

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawproperty interest must be given some kind of notice and afforded some kind of hearing.The DueProcess Clause does not require that students be afforded the opportunity to secure counsel, toconfront and cross-examine witnesses supporting the charge, or to call his own witnesses toverify his version of the incident.It does, however, require that the student be given notice andan informal hearing permitting him to give his version of the events.Longer suspensions andexpulsions may require more formality, and procedural due process laws within each statecover this process.9.Iowa enacted a statute prohibiting the use of sixty-five-foot double trailer truck combinations. All ofthe other midwestern and westernstates permit such trucks to be used on their roads. Despite theserestrictions, Iowa’s statute permits cities abutting the state line to enact local ordinances adopting thelength limitations of the adjoining state.In cases in whicha city has exercised this option, otherwiseoversized trucks are permitted within the city limits and in nearby commercial zones. ConsolidatedFreightways is adversely affected by this statute and brings suit against Iowa, alleging that the statuteviolates the Commerce Clause.The District Court found that the evidence established that sixty-five-foot doubles were as safe as the shorter truck units. Does the statute violate the Commerce Clause?Explain.Answer:Commerce Clause.Yes.Decision for Consolidated Freightways.The U.S. Supreme Court saidinKassel v. Consolidated Freightways Corporation, 450 U.S. 662 (1981) that because Iowa imposedthis burden without any significant countervailing safety interest, its statute violated theCommerce Clause.The court said that the statute seemed to have been designed not to bandangerous trucks, because it included a "border cities exemption," but rather to discourageinterstate truck traffic.A state cannot constitutionally promote its own parochial interest byrequiring vehicles which have no known safety hazards to detour around it.Note, however, thatthis was a plurality decision by Justice Powell and three other justices.There were two otherjustices who had a concurring opinion and there were three justices who dissented.Thisprovides subsequent litigants with arguments upon which to present their case.10.Metropolitan Edison Company is a privately owned and operated Pennsylvania corporation subject toextensive regulation by the Pennsylvania Public Utility Commission. Under a provision of its generaltariff filed with the commission, Edison had the right todiscontinue electric service to any customer onreasonable notice of nonpayment of bills. Catherine Jackson had been receiving electricity fromMetropolitan Edison when her account was terminatedbecause of her delinquency in payments.Edison later openeda new account for her residence in the name of James Dodson, another occupantof Jackson's residence. In Augustof the following year, Dodson moved away and no further paymentswere made to the account. Finally, in October, Edison disconnected Jackson's service without any priornotice. Jackson brought suit claiming that her electric service could not be terminated without noticeand ahearing. She further argued that such action, allowed by a provision of Edison's tariff filed withthe commission, constituted “state action” depriving her of property in violation of the FourteenthAmendment's guarantee of due process of law. Should Edison’s actions be considered state action?Explain.Answer:Due Process.No, it is not state action.Decision for Metropolitan Edison Company.InJacksonv. Metropolitan Edison Co., 419 U.S. 345 (1974) the U.S. Supreme Court stated that deprivations ofproperty without due process by the state are prohibited by the Fourteenth Amendment, but

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawprivate actions depriving individuals of property are immune from the due process requirement.The termination of Jackson's service by Edison was a private action, immune from theFourteenth Amendment's due process requirement.Even though Edison is closely regulated bythe commission and enjoys at least a partial monopoly, it is still a privately owned utility.Jackson's service was terminated in a manner the commission found permissible under statelaw.11.Miss Horowitz was admitted as an advanced medical student at the University of Missouri-Kansas City.During her first year, several faculty members expressed dissatisfaction with Miss Horowitz's clinicalperformance, noting that it was below that of her peers, that she was erratic in attendance at herclinical sessions, and that she lacked a critical concern for personal hygiene. Upon therecommendation of the school's Council on Evaluation, she was advanced to her second and finalyear on a probationary basis. After subsequent unfavorable reviews during her second year and anegative evaluation of her performance by seven practicing physicians, the council recommended thatMiss Horowitz be dismissed from the school for her failure to meet academic standards. The decisionwas approved by the dean and later affirmed by the provost after an appeal by Miss Horowitz. Shebrought suit against the school's Board of Curators, claiming that her dismissal violated her right toprocedural due process under the Fourteenth Amendment and deprived her of “liberty” bysubstantially impairing her opportunities to continue her medical education or to return toemployment in a medically related field. The trial court found for the defendant, but the appellatecourt reversed. The Board of Curators appealed. Is her claim correct? Explain?Answer:Procedural Due Process.No. Judgment for the Board of Curators.Oral or written notice andan opportunity for the student to present her side of the story at a "hearing" is only required fordismissals or suspensions based on disciplinary grounds.In contrast, a dismissal on academicground demands a less stringent procedure–merely an "informal give and take" between thestudent and administrative body which provides the student "the opportunity to characterize hisconduct and put it in what he deems the proper context.”(Quotes from the Supreme Courtopinion.)Since the Council dismissed Miss Horowitz for failure to meet the school's academicstandards, and not for disciplinary reasons, a hearing was not required.In this case the facultyfully informed Miss Horowitz of her unsatisfactory performance ratings and the dangers theyposed to her timely graduation and continued enrollment.Furthermore, the Council wentbeyond the constitutionally required procedural due process by affording her the opportunity tobe examined by independent physicians before reaching a final decision.Because the Councilmore than satisfied the constitutional requirement of procedural due process, its decision isupheld.Board of Curators of the University of Missouri v. Horowitz.12.The McClungs own Ollie’s Barbecue, a restaurant located a few blocks from the interstate highway inBirmingham, Alabama, with dining accommodations for whites only and a take-out service for blacks.In the year preceding the passage of the Civil Rights Act of 1964, the restaurant had purchased asubstantial portion of the food it served from outside the state.The restaurant has refused to serveblacks since its original opening in 1927 and asserts that if it were required to serve blacks it wouldlose muchof its business.The McClungssought a declaratory judgment to render unconstitutional theapplication of the Civil Rights Act to their restaurant because their admitted racial discrimination didnot restrict or significantly impede interstate commerce.Decision?

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawAnswer:Commerce Clause.The Commerce Clause of the Constitution empowers Congress toregulate interstate commerce and to make all laws necessary and proper for that purpose.Evenif a business’s activity is local it may be reached by Congress if the activity directly or indirectlyburdens or obstructs interstate commerce.Title II of the Civil Rights Act passed by Congress in1964 prohibits racial discrimination in a restaurant if it serves or offers to serve interstatetravelers or if a substantial portion of the food it serves has moved in interstate commerce.Testimony introduced during the Congressional hearings on the act revealed that racialdiscrimination by restaurants, especially in the South, has resulted in the sale of fewer interstategoods, obstructed interstate travel by blacks, deterred new businesses from being establishedthere, and caused business in general to suffer.Consequently, there is a connection betweendiscrimination by restaurants and the movement of interstate commerce.Ollie’s Barbecue purchases through interstate commerce a substantial portion of the food itserves, thereby at least indirectly burdening interstate commerce.Not only would theapplication of the Civil Rights Act to the McClungs’ restaurant not violate any expressconstitutional limitations, it would also remain within the limits of the Commerce Clause.Therefore, as applied to restaurants like the McClungs’, the act is constitutionally valid.Katzenbach v. McClung, 379 U.S.294 (1964).13.Drug compounding is a process by which apharmacist or doctor combines, mixes, or altersingredients to create a medication tailored to the needs of an individual patient. Compounding istypically used to prepare medications that are not commercially available, such as medication for apatient who is allergic to an ingredient in a mass-produced product.The Federal Food, Drug, and Cosmetic Act of 1938 (FDCA) regulates drug manufacturing, marketing,and distribution, providing that no person may sell any new drug unless approved by the Food andDrug Administration (FDA). The Food and Drug Administration Modernization Act of 1997 (FDAMA),which amends the FDCA, exempts compounded drugs from the FDCA’s requirements provided thedrugs satisfy a number of restrictions, including that the prescription must be “unsolicited,” and theprovider compounding the drugmay “not advertise or promote the compounding of any particulardrug, class of drug, or type of drug.” The provider, however,may“advertise and promote thecompounding service.”A group of licensed pharmacies that specialize in drug compounding challenged the FDAMA’srequirement that they refrain from advertising and promoting their products if they wish to continuecompounding on the basis that it violates the Free Speech Clauseof the First Amendment. What testshould the court apply in determining the validity of the FDAMA.Answer:First Amendment.The restricted speech is commercial speech. Central Hudson articulateda test for determining whether a particular commercial speech regulation is constitutionallypermissible. Under that test a threshold matter is whether the commercial speech concernsunlawful activity or is misleading. If so, then the speech is not protected by the First Amendment.If the speech concerns lawful activity and is not misleading, however, the next question is“whether the asserted governmental interest is substantial.” If it is, then the courts “determinewhether the regulation directly advances the governmental interest asserted,” and, finally,“whether it is not more extensive than is necessary to serve that interest.” Each of these latterthree inquiries must be answered in the affirmative for the regulation to be found constitutional.In this case the U.S. Supreme Court found that the government restriction on nonmisleading

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawcommercial speech concerning lawful activity was invalid under the First Amendment becausethe regulation was more extensive than necessary to directly advance a substantial governmentinterest.Thompson v. Western States Medical Center, Supreme Court of the United States, 2002, 535.14.A Massachusetts statute established differential methods by which wineries may distribute wines inMassachusetts. The statute allows only “small” wineries, defined as those producing 30,000 gallons orless of grape wine a year, to obtain a “small winery shipping license.” This license allows them to selltheir wines in Massachusetts in three ways: through shipments made directly to consumers, throughwholesaler distribution, and through retail distribution. All of Massachusetts's wineries are “small”wineries. Some out-of-state wineries also meet this definition. Wines from “small” Massachusettswineries compete with wines from “large” wineries, which Massachusetts has defined as thoseproducing more than 30,000 gallons of grape wine annually. These “large”wineries must choosebetween relying upon wholesalers to distribute their wines in-state or applying for a “large wineryshipping license” to sell directly to Massachusetts consumers. They cannot, by law, use both methodsto sell their wines in Massachusetts, and they cannot sell wines directly to retailers under either option.Plaintiffs, a group of California winemakers and Massachusetts residents, assert that the statute wasdesigned with the purpose, and has the effect, of advantaging Massachusetts wineries to the detrimentof those wineries that produce 98 percent of the country’s wine, in violation of the Commerce Clause.Decision?Answer:State Regulation of Commerce. The statute violates the Commerce Clause. FamilyWinemakers of California v. Jenkins, 592 F.3d 1 (1st Cir. 2010).The Commerce Clause vests Congress with the authority to “regulate Commerce ... among theseveral States.” U.S. Const. art. I, § 8, cl. 3. This grant of exclusive federal power carries an implicitconsequence for states' powers. When states regulate commerce within their own borders, theycannot enact laws that discriminate againstout-of-state economic interests in favor of in-statecompetitors absent congressional authorization or some other source of constitutionalauthority. Or. Waste Sys., Inc. v. Dep't of Envtl. Quality, 511 U.S. 93, 98, 114 S.Ct. 1345, 128L.Ed.2d 13 (1994). This aspect of the Commerce Clause is commonly referred to as the “dormantcommerce clause” because its limitations upon states are not stated in the text.But § 19F [of the statute] is neutral on its face; it does not, by its terms, allow only Massachusettswineries to distribute their wines through a combination of direct shipping, wholesalerdistribution, and retail sales. Section 19F instead uses a very particular gallonage cap to conferthis benefit upon “small” as opposed to “large” wineries.We hold that § 19F violates the Commerce Clause because the effect of its particular gallonagecap is to change the competitive balance between in-state and out-of-state wineries in a waythat benefits Massachusetts's wineries and significantly burdens out-of-state competitors.Massachusetts has used its 30,000 gallon grape wine cap to expand the distribution optionsavailable to “small” wineries, including all Massachusetts wineries, but not to similarly situated“large” wineries, all of which are outsideMassachusetts. The advantages afforded to “small”wineries by these expanded distribution options bear little relation to the market challengescaused by the relative sizes of the wineries. Section 19F's statutory context, legislative history,and other factors also yield the unavoidable conclusion that this discrimination was purposeful.Nor does § 19F serve any legitimate local purpose that cannot be furthered by a non-discriminatory alternative.

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLaw15.American Express Travel Related Services (“Amex”) sells Amex Travelers Cheques (“TCs”), which arepreprinted checks for specified amounts with a unique serial number and no expiration date. Amex isable to sell TCs for their face value because Amex’s contract with TC owners gives Amex the right toretain, use, and invest funds from the sale of TCs until the date the TCs are cashed.All States have unclaimed property laws requiring abandoned property to be turned over to the Statewhile the original property owner still maintains the right to the property. The purpose of unclaimedproperty laws is to provide for the safekeeping of abandoned property and then to allow the rightfulowner to claim the abandoned property. As these laws are applied to TCs, Amex sends the funds heldas TCs to the State as unclaimed property with the serial number, amount, and date of sale since thename of TC owner is not known. When one of these TCs is cashed, Amex seeks to reclaim those fundsfrom that State. In New Jersey, the Treasurer returns the funds with interest. Until recently, all Stateshad a fifteen-year abandonment period for travelers checks. In 2010, New Jersey passed Chapter 25,shortening the abandonment period for travelers checks to three years. Amex challenges theconstitutionality of the amendment. Explain whether the amendment violates any of the followingprovisions of the U.S Constitution: (a) Due Process Clause, (b) Contract Clause, (c) Takings Clause, and(d) Commerce Clause.Answer:Due Process Clause/Contract Clause/Takings Clause/Commerce Clause. Amex failed toshow a likelihood of success on the merits of its Due Process Clause, Contract Clause, TakingsClause, and Commerce Clause claims. American Exp. Travel Related Services, Inc. v. Sidamon-Eristoff, 669 F.3d 359(3rd Cir.2012); certiorari denied, ___ U.S. ____, 133 S.Ct. 345, 184 L.Ed.2d157.(a)Amex failed to show a likelihood of success on the merits of its Due Process Clause claim.The amendment served legitimate state interest, as required to withstand challenge onsubstantive due process grounds. Amex argues that the sole purpose behind enactingChapter 25 was to raise revenue for the State, which is not a legitimate state interest. ButtheState has offered several legitimate interests that justify shortening the abandonmentperiod for travelers checks from fifteen years to three years..(b)Amex failed to establish likelihood of success on the merits of its Contract Clause claim.To ascertain whether there has been a Contract Clause violation, a court must firstinquire whether the change in State law has “operated as a substantial impairmentof acontractual relationship.”If this threshold inquiry is met, the court must then determine“whether the law at issue has a legitimate and important public purpose.” If so, the courtmust ascertain “whether the adjustment of the rights of the parties to the contractualrelationship was reasonable and appropriate in light of that purpose.”Amex fails to show that Chapter 25 imposes a substantial impairment on Amex'scontractual relationships with TC owners.(c)Amex failed to establish reasonable probability of success on the merits of its takingsclaim. The Takings Clause of the Fifth Amendment prohibits the federal government fromtaking private property for public use without providing just compensation. Whena statedirectly appropriates private property, it is considered a per se taking, and the state has aduty to compensate the owner. Where, as here, a party asserts a regulatory taking, thereis no set formula. Rather, courts must engage in a factual inquiry to determine whether ataking has been effected.

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLaw(d)Amex did not show reasonable probability of success on the merits of its dormantCommerce Clause claim. Under the Commerce Clause, Congress has the power to“regulate Commerce ... among the several States.” U.S. Const. Art. I, § 8, cl. 3. “This clausealso has an implied requirement (often called the ‘negative’ or ‘dormant’ aspect of theclause) that the states not ‘mandate differential treatment of in-state and out-of-stateeconomic interests that benefits the former and burdens the latter.’ ” Our inquiry as towhether a state law violates the dormant Commerce Clause is twofold: first, wedetermine whether heightened scrutiny applies, and, if not, then we determine whetherthe law is invalid. We apply heightened scrutiny when a law “discriminates againstinterstate commerce” in purpose or effect.Amex contends that Chapter 25, if implemented, will violate the dormant CommerceClause because its effects will be projected into other states. Specifically, Amex claimsthat it will be forced to choose between: (a) selling TCs in New Jersey at a marginalprofitor at a loss; (b) not selling TCs in New Jersey; (c) charging a fee for selling TCs in NewJersey; or (d) charging a fee to sell TCs throughout the country so that it can maintainuniform conditions. If it chooses to charge a fee to sell TCs throughout the country, Amexargues, then Chapter 25 will have dictated commercial activity in other states.Unlike these statutes, Chapter 25 does not directly regulate travelers checks sold in otherstates or force Amex to conform its out-of-state practices to less favorable in-stateconditions. Nothing prevents other states from regulating travelers checks differentlyfrom the way New Jersey has chosen to do in Chapter 25. And by Amex's own admission,the costs of compliance could be passed on to New Jersey travelers check customers orbe absorbed by issuers like Amex. Therefore, Amex failed to show a reasonableprobability of success on the merits of its Commerce Clause claim.Answersto Taking SidesAlabama was one of only sixteen states that permitted commercial hazardous waste landfills. From1985 through 1989, the tonnage of hazardous waste received per year more than doubled. Of this, upto 90 percent of the hazardous waste was shipped in from other states. In response, Alabamaimposed a hazardous waste disposal fee of$72per ton on hazardous waste generated outside thestate and disposed of at a commercial facility in Alabama. The fee does not apply to such wastehaving a source in Alabama. (Thislaw imposes a fee of $97.60 per ton for hazardous waste generatedoutside Alabama compared with a fee of $25.60 per ton for hazardous wastes generated withinAlabama.)Chemical Waste Management, Inc., which operates a commercial hazardous waste land disposalfacility in Emelle, Alabama, filed suit asserting that the Alabama law violated the Commerce Clause ofthe U.S. Constitution.a.What arguments could Chemical Waste Management, Inc. make in support of its claim that thestatute is unconstitutional?b.What arguments could Alabama make to defend the constitutionality of the statute?c.Who should prevail? Explain.

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SolutionandAnswerGuide:Mann/Roberts,Smith & Roberson's Business Law,18e,9780357364000;Chapter4:ConstitutionalLawANSWER:a.Chemical Waste Management, Inc. could argue that the Alabama statute imposes anunfair burden on interstate commerce that is excessive compared to the local benefit andthat there are non-discriminatory alternatives available. It also could contend thatAlabama’s tax interfered with interstate commerce.b.Alabama could argue that the additional fee of $72.00 served a legitimate local purposerelated to its citizens’ health and safety that could not be adequately served byreasonable non-discriminatory alternatives, given recent large increases in the hazardouswaste received into the state and the possible adverse effects of such waste. Alabamaalso could contend that it is bearing the health risk that other states refused to accept.c.Answer: The additional fee is in violation of the U.S. Constitution.Chemical WasteManagement, Inc. v. Hunt, U. S. Supreme Court 1992, 504 U.S. 334.No state may attempt to isolate itself from a problem common to the several states by raisingbarriers to the free flow of interstate trade. Ultimately, the state’s concern focuses on thevolume of the waste entering the Emelle facility.Less discriminatory alternatives, however, areavailable to alleviate this concern, not the least of which are a generally applicable per-tonadditional fee on all hazardous waste disposed of within Alabama, or a per-mile tax on allvehicles transporting hazardous waste across Alabama roads, or an evenhanded cap on thetotal tonnage landfilled at Emelle, which would curtail volume from all sources.

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