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Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

Solution and Answer Guide

Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

TABLE OF CONTENTS Critical Thinking Questions in Features .............................................................................1 Ethical Issue—Value Judgment .............................................................................................. 1 Managerial Strategy—Business Questions........................................................................... 2 Landmark in the Law—Application to Today’s World ....................................................... 3 Chapter Review ................................................................................................................... 3 Practice and Review................................................................................................................. 3 Practice and Review: Debate This ......................................................................................... 4 Issue Spotters ........................................................................................................................... 4 Business Scenarios and Case Problems .............................................................................. 5 Critical Thinking and Writing Assignments .......................................................................... 9 Critical Thinking Question in Exhibit 1A-3 .......................................................................... 10 A Sample Court Case—Critical Thinking ............................................................................. 10

CRITICAL THINKING QUESTIONS IN FEATURES ETHICAL ISSUE—VALUE JUDGMENT 1.

Should an administrative authority have the power to make decisions involving hundreds of billions of taxpayer dollars—such as canceling student loans—without input from Congress? Why or why not? Solution: When the secretary of education decided to establish a student loan forgiveness program that would have cancelled about $430 million in student debt for as many as 430 million American debtors, several states sued to prevent this unilateral policy resolution from moving forward. The case eventually made it to the United States Supreme Court, where the administration of President Joseph Biden insisted that Congress had given it this power in the HEROES Act, which allows the secretary of education to respond to a national emergency by waiving or modifying any “statutory or regulatory” provision governing student-loan programs. The Supreme Court rejected this reasoning. In his opinion, Supreme Court Chief Justice John R. Roberts, Jr., used the language of the HEROES Act to interpret congressional intent. Congress’s use of the word “modify” meant that a government agency could make “modest adjustments and additions to existing provisions,” Roberts

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

wrote. “Not transform them.” He went on to suggest that the debt-forgiveness program “modified” student loan laws in the same way that the “French Revolution ‘modified’ the status of the French nobility—it has abolished them and supplanted them with a new regime entirely.” Here, the Court asserted that an administrative body had not modified an existing Congressional plan. Rather, the Biden administration had used its authority to enact a major new law that Congress had not chosen to enact itself. Even given the leeway that administrative agencies have within the separation of powers, the executive branch had gone too far in this case. Other members of the Court, disagreeing with the majority opinion, stated that the financial burden being suffered by millions of student loan debtors was a sufficient “emergency” to justify the loan forgiveness program, no matter its cost. To this, Chief Justice Roberts responded, “The question here is not whether something should be done; it is who has the authority to do it.” Thus, when determining the ethical components of a government decision with regard to business law, one must not only consider the inherent rightness or wrongness of the decision. One must also consider the consequences of giving the government agency or individual the power to make the decision.

MANAGERIAL STRATEGY—BUSINESS QUESTIONS 1.

“When faced with a clearly erroneous precedent, my rule is simple,” writes Supreme Court Justice Clarence Thomas. “We should not follow it.” How do these words offer a cautionary tale for managers relying on stare decisis to make business decisions? Solution: Simply put, the doctrine of stare decisis applies in all instances, except when it does not. As noted in the text, a court is able to depart from precedent if it feels that legal, social, or technological changes have rendered the previous decision untenable. In this case, just because the United States Supreme Court believes, at present, that automobile salespeople are exempt from the overtime rules of the FLSA, there is a possibility that the Court could reverse itself in the future. In this context, managers need to be aware that (1) any decision they make based on a court decision is subject to change, and (2) if they believe that a previous business law-related court decision is flawed, they can challenge it in court.

2. Should Roberta consider paying her salespeople overtime even though it is not required by federal law? Why or why not? Solution: Just because Roberta is legally able to avoid paying the salespeople at her new used car dealership overtime, should she? As with so many managerial decisions, the answer to this question involves the tricky determination of costs and benefits. On the one hand, Roberta’s costs will be lower if she does not have to pay overtime to the salespeople. On the other hand, the salespeople may be more motivated if they feel they are being properly compensated for the extra hours they spend on the lot. The extra motivation will likely lead to additional sales, which very well may offset the overtime costs.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

LANDMARK IN THE LAW—APPLICATION TO TODAY’S WORLD 1.

The equitable maxims listed here underlie many of the legal rules and principles that are commonly applied by the courts today—and that you will read about in this book. For instance, in the contracts materials, you will read about the doctrine of promissory estoppel. Under this doctrine, a person who has reasonably and substantially relied on the promise of another may be able to obtain some measure of recovery, even though no enforceable contract exists. The court will estop (bar) the one making the promise from asserting the lack of a valid contract as a defense. The rationale underlying the doctrine of promissory estoppel is similar to that expressed in which of the maxims just listed? Solution: The rationale underlying the doctrine of promissory estoppel is similar to that expressed in the fourth and fifth equitable maxims listed in the feature. The fourth maxim supports the notion that the law should not be applied unfairly just because the law does not provide a solution to a particular problem. The fifth maxim holds that those administering the law should not get bogged down in technicalities when doing so leads to unfairness or injustice. In a perfect legal world, then, a lack of a valid contract should not punish a party who has justice and fairness on their side.

CHAPTER REVIEW PRACTICE AND REVIEW Suppose that the California legislature passes a law that severely restricts carbon dioxide emissions of automobiles in that state. A group of automobile manufacturers files a suit against the state of California to prevent enforcement of the law. The automakers claim that a federal law already sets fuel economy standards nationwide and that these standards are essentially the same as carbon dioxide emission standards. According to the automobile manufacturers, it is unfair to allow California to impose more stringent regulations than those set by the federal law. Using the information presented in the chapter, answer the following questions. 1.

Who are the parties (the plaintiffs and the defendant) in this lawsuit? Solution: In this situation, the automobile manufacturers are the plaintiffs, and the state of California is the defendant.

2. Are the plaintiffs seeking a legal remedy or an equitable remedy? Why? Solution: The plaintiffs are seeking an injunction, which is an equitable remedy, to prevent the state of California from enforcing its statute restricting carbon dioxide emissions. 3. What is the primary source of the law that is at issue here? Solution: This case involves a law passed by the California legislature and a federal statute; thus, the primary source of the law is statutory law. 4. Read through the appendix that follows this chapter, and then answer the following question: Where would you look to find the relevant California and federal laws?

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

Solution: Federal statutes are found in the United States Code, and California statutes are published in the California Code. You would look in both of these sources to find the relevant state and federal statutes.

PRACTICE AND REVIEW: DEBATE THIS 1.

Under the doctrine of stare decisis, courts are obligated to follow the precedents established in their jurisdiction unless there is a compelling reason not to do so. Should U.S. courts continue to adhere to this common law principle, given that our government now regulates so many areas by statute? Solution: Both England and the U.S. legal systems were constructed on the common law system. The doctrine of stare decisis has always been a major part of this system—courts should follow precedents when they are clearly established, except when compelling reasons dictate otherwise. Even though more common law is being turned into statutory law, the doctrine of stare decisis is still valid. After all, statutes often must be interpreted by courts. What better basis for judges to render their decisions than by basing them on precedents related to the subject at hand? In contrast, some students may argue that the doctrine of stare decisis is passé. There is certainly less common law governing, say, environmental law than there was 100 years ago. Given that federal and state governments increasingly are regulating more aspects of commercial transactions between merchants and consumers, perhaps the courts should simply stick to statutory language when disputes arise.

ISSUE SPOTTERS 1.

The First Amendment to the U.S. Constitution provides protection for the free exercise of religion. A state legislature enacts a law that outlaws all religions that do not derive from the Judeo-Christian tradition. Is this law valid within that state? Why or why not? (See Sources of American Law.) Solution: No. The U.S. Constitution is the supreme law of the land and applies to all jurisdictions. A law in violation of the Constitution (in this question, the First Amendment to the Constitution) will be declared unconstitutional.

2. Apex Corporation learns that a federal administrative agency is considering a rule that will have a negative impact on the firm’s ability to do business. Does the firm have any opportunity to express its opinion about the pending rule? Explain. (See Sources of American Law.) Solution: Yes. Administrative rulemaking starts with the publication of a notice of the rulemaking in the Federal Register. Among other details, this notice states where and when the proceedings, such as a public hearing, will be held. Proponents and opponents can offer their comments and concerns regarding the pending rule. After reviewing all the comments from the proceedings, the agency’s decision makers consider what was presented and draft the final rule.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

BUSINESS SCENARIOS AND CASE PROBLEMS 1–1. Binding versus Persuasive Authority. A county court in Illinois is deciding a case involving an issue that has never been addressed before in that state’s courts. The Iowa Supreme Court, however, recently decided a case involving a very similar fact pattern. Is the Illinois court obligated to follow the Iowa Supreme Court’s decision on the issue? If the United States Supreme Court had decided a similar case, would that decision be binding on the Illinois court? Explain. (See The Common Law.) Solution: A decision of a court is binding on all inferior courts. Because no state’s court is inferior to any other state’s court, no state’s court is obligated to follow the decision of another state’s court on an issue. The decision may be persuasive, however, depending on the nature of the case and the particular judge hearing it. A decision of the United States Supreme Court on an issue is binding, like the decision of any higher court, on all inferior courts. The United States Supreme Court is the nation’s highest court, however, and thus, its decisions are binding on all courts, including state courts. 1–2. Sources of Law. This chapter discussed a number of sources of American law. Which source of law takes priority in the following situations, and why? (See Sources of American Law.) 1.

A federal statute conflicts with the U.S. Constitution. Solution: The U.S. Constitution—The U.S. Constitution is the supreme law of the land. A law in violation of the Constitution, no matter what its source, will be declared unconstitutional and will not be enforced.

2. A federal statute conflicts with a state constitutional provision. Solution: The federal statute—Under the U.S. Constitution, when there is a conflict between a federal law and a state law, the state law is rendered invalid.

3. A state statute conflicts with the common law of that state. Solution: The state statute—State statutes are enacted by state legislatures. Areas not covered by state statutory law are governed by state case law. 4. A state constitutional amendment conflicts with the U.S. Constitution. Solution: The U.S. Constitution—State constitutions are supreme within their respective borders unless they conflict with the U.S. Constitution, which is the supreme law of the land. 1–3. Remedies. Arthur Rabe is suing Xavier Sanchez for breaching a contract in which Sanchez promised to sell Rabe a Van Gogh painting for $150,000. (See The Common Law.) 1.

In this lawsuit, who is the plaintiff, and who is the defendant?

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

Solution: In a suit by Arthur Rabe against Xavier Sanchez, Rabe is the plaintiff and Sanchez is the defendant. 2. If Rabe wants Sanchez to perform the contract as promised, what remedy should Rabe seek? Solution: Specific performance is the remedy that includes an order to a party to perform a contract as promised. 3. Suppose that Rabe wants to cancel the contract because Sanchez fraudulently misrepresented the painting as an original Van Gogh when in fact it is a copy. In this situation, what remedy should Rabe seek? Solution: Rescission is a remedy that includes an order to cancel a contract. 4. Will the remedy Rabe seeks in either situation be a remedy at law or a remedy in equity? Solution: In both cases, these remedies are remedies in equity. 1–4. Philosophy of Law. After World War II ended in 1945, an international tribunal of judges convened at Nuremberg, Germany. The judges convicted several Nazi war criminals of “crimes against humanity.” Assuming that the Nazis who were convicted had not disobeyed any law of their country and had merely been following their government’s (Hitler’s) orders, what law had they violated? Explain. (See The Common Law.) Solution: Crimes against humanity constituted, at the time of the Nuremberg trials, a new international crime, consisting of “murder, extermination, enslavement, deportation, and other inhumane acts committed against any civilian population, before or during the war, or persecutions on political, racial, or religious grounds.” In response to the defendants’ assertion that they had only been following orders, the Nuremberg judges explained in part that these were familiar crimes within domestic jurisdictions and thus the accused must have known, when they committed their acts, that they would be considered criminal. In terms of a philosophy of law, it might be said that these criminals violated “natural law.” The oldest and one of the most significant schools of jurisprudence is the natural law school. Those who adhere to the natural law school of thought believe that government and the legal system should reflect universal moral and ethical principles that are inherent in human nature. Because natural law is universal, it takes on a higher order than positive, or conventional, law. The natural law tradition presupposes that the legitimacy of conventional, or positive, law derives from natural law. Whenever it conflicts with natural law, conventional law loses its legitimacy. For example, a precept of natural law may be that murder is wrong, which is a value reflected by specific laws prohibiting murder. If a specific, written law requires murder, it conflicts with the natural law precept, in which case individuals should disobey the written law and obey the natural law. 1–5. Business Case Problem with Sample Answer—Reading Citations. Assume that you want to read the entire court opinion in the case of Friends of Buckingham v. State Air Pollution Control Board, 947 F.3d 68 (4th Cir. 2020). © 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

Refer to the appendix to this chapter, and then explain specifically where you would find the court’s opinion. (See Finding Case Law.) Solution: The court’s opinion in the case Friends of Buckingham v. State Air Pollution Control Board can be found in volume 947 of the Federal Reporter, third series, on page 68. The Federal Reporter contains the decisions of all the United States Courts of Appeals, including, as is the case here, the Fourth Circuit Court of Appeals. Also, this case was decided (though not necessarily filed) in 2020. 1–6. Spotlight on Gateway Hotels—Stare Decisis. Orlando Garcia filed a lawsuit against Gateway Hotels, contending that, in violation of the Americans with Disabilities Act (ADA), the company’s website failed to indicate whether any of its rooms would accommodate his disability. After a court ruled that Gateway’s website did comply with the ADA, the company sought an award of attorney’s fees, as allowed by federal law. Garcia countered that his case was not “frivolous” and therefore he should not be forced to cover the hotel chain’s legal costs. Gateway pointed out that, according to a previous United States Supreme Court ruling, attorney’s fees could be awarded in such cases even if the original lawsuit was not frivolous. Applying the doctrine of stare decisis, will the court side with Gateway? Explain. [Garcia v. Gateway Hotel, LP, 82 F.4th 750 (9th Cir. 2023] (See The Common Law.) Solution: In Brown v. Lucky Stores (2001), the U.S. Court of Appeals for the Ninth Circuit (the authority deciding this case) ruled that ADA defendants could not recoup the legal costs of a failed discrimination lawsuit unless the action was “frivolous, unreasonable, or groundless.” Twelve years later, with its Marx v. General Revenue Corp. decision, the United States Supreme Court held that a district court has the discretion to award legal fees to a defendant regardless of whether the plaintiff’s legal action was in bad faith. Applying the doctrine of stare decisis, the U.S. Court of Appeals for the Ninth Circuit concluded that “our decision in Brown cannot be reconciled with the Court's decision in Marx, and therefore it has been effectively overruled.” Therefore, in this case, at the district court’s discretion, Garcia could be found liable for those costs that Gateway incurred in defending itself against Garcia’s failed ADA lawsuit. 1–7. A Question of Ethics—The Doctrine of Precedent. Sandra White operated a travel agency. To obtain lower airline fares for her nonmilitary clients, she booked military-rate travel by forwarding fake military identification cards to the airlines. The government charged White with identity theft, which requires the “use” of another’s identification. The trial court had two cases that represented precedents. In the first case, David Miller obtained a loan to buy land by representing that certain investors had approved the loan when, in fact, they had not. Miller’s conviction for identity theft was overturned because he had merely said that the investors had done something when they had not. According to the court, this was not the “use” of another’s identification. In the second case, Kathy Medlock, an ambulance service operator, had transported patients for whom ambulance transport was not medically necessary. To obtain payment, Medlock had forged a physician’s signature. The court concluded that this was “use” of another person’s identity. [United States v. White, 846 F.3d 170 (6th Cir. 2017)] (See Sources of American Law.)

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

Which precedent—the Miller case or the Medlock case—is similar to White’s situation, and why? Solution: In this problem, White operated a travel agency. To obtain low fares for her clients, she submitted fake military identification cards to the airlines. She was charged with the crime of identity theft, which requires the “use” of another’s identification. In a previous case, David Miller, to obtain a loan, represented that certain investors approved of the loan when they did not. Miller’s conviction for identity theft was overturned on the ground that he had not “used” the investors’ identities—he had only said that they had done something when they had not. In a second case, Kathy Medlock, the operator of an ambulance service, obtained payment for transporting patients for whom there was no medical necessity to do so by forging a physician’s signature. White’s actions most closely resemble Medlock’s forgery. White not only told the airlines that her clients were members of the military—she created false identification cards and sent them to the airlines. In all of these cases, the defendants lied about their actions. Whether or not their conduct fell within the meaning of a word within a statute, or matched the actions of a perpetrator in another case, none of these parties can claim to have acted ethically. Honesty is a part of ethical behavior in any set of circumstances, and none of these defendants were truthful about their actions. In the actual case on which this problem is based, the court concluded that White’s actions were most similar to Medlock’s. White was convicted of identity theft. On appeal, the U.S. Court of Appeals for the Sixth Circuit affirmed the conviction.

2. In the two cases cited by the court, were there any ethical differences in the actions of the parties? Explain your answer. Solution: No, in the two cases cited by the White court—and in the White case—there were no ethical differences in the actions of the parties. Almost any definition of ethics, and any set of ethical standards, includes honesty as a component. In the White case, Sandra White lied to the airlines that her clients were members of the military, and created false identification cards to obtain cheaper fares. In the first case cited by the White court, David Miller, to obtain a loan, represented that certain investors approved of the loan when they did not. In the second case cited by the White court, Kathy Medlock, the operator of an ambulance service, obtained payment for transporting patients for whom there was no medical necessity to do so by forging a physician’s signature. In all of these cases, the defendants lied. Whether or not their conduct fell within the meaning of a word within a statute, or matched the unlawful actions of each other, none of these parties can claim to have acted ethically. Honesty is a part of ethical behavior in any set of circumstances, and none of these defendants were truthful.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

CRITICAL THINKING AND WRITING ASSIGNMENTS 1–8. Business Law Writing. John’s company is involved in a lawsuit with a customer, Beth. John argues that for fifty years higher courts in that state have decided cases involving circumstances similar to his case in a way that indicates he can expect a ruling in his company’s favor. Write at least one paragraph discussing whether this is a valid argument. Write another paragraph discussing whether the judge in this case must rule as those other judges did and why. (See The Common Law.) Solution: John’s argument is valid. Under the doctrine of stare decisis, judges are generally bound to follow the precedents set in their jurisdictions by the judges who have decided similar cases. A judge does not always have to rule as other judges have, however. A judge can depart from precedent. One argument that a party might offer to counter an assertion of precedent is that the times have changed—the social, economic, political, or other circumstances have changed—and thus it is time to change the law. 1–9. Time-Limited Group Assignment—Court Opinions. Go to the section entitled Reading and Understanding Case Law in the appendix at the end of this chapter, and read the subsection entitled “Decisions and Opinions.” 1.

One group will explain the difference between a concurring opinion and a majority opinion. Solution: A majority opinion is a written opinion outlining the views of the majority of the judges or justices deciding a particular case. A concurring opinion is a written opinion by a judge or justice who agrees with the conclusion reached by the majority of the court but not necessarily with the legal reasoning that led the conclusion.

2. Another group will outline the difference between a concurring opinion and a dissenting opinion. Solution: A concurring opinion will voice alternative or additional reasons as to why the conclusion is warranted or clarify certain legal points concerning the issue. A dissenting opinion is a written opinion in which judges or justices who do not agree with the conclusion reached by the majority of the court expound their views on the case. 3. The third group will explain why judges and justices write concurring and

dissenting opinions, given that these opinions will not affect the outcome of the case at hand, which has already been decided by majority vote. Solution: Obviously, a concurring or dissenting opinion will not affect the case involved—because it has already been decided by majority vote. Nevertheless, such opinions often are used by another court later to support its position on a similar issue.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 01: Law and Legal Reasoning

CRITICAL THINKING QUESTION IN EXHIBIT 1A-3 A SAMPLE COURT CASE—CRITICAL THINKING 1.

What If the Facts Were Different? Suppose the evidence showed that, during the five-year period in question, Kirkland’s employees felt free to leave the store without being stopped by their managers and routinely did so. Would the appeals court have come to the same conclusion? Explain. Solution: Most likely, under this different scenario, the appeals court would not have come to the same conclusion. In its Kirkland’s Stores, Inc. opinion, the court specifically stated that Kirkland’s Stores’ break policy, by itself, was not enough to support a class action lawsuit by Miles and her coworkers. The plaintiffs also had to prove that Kirkland’s “consistently implemented and enforced the policy.” If the evidence showed that—despite a policy indicating otherwise—Kirkland’s employees felt free to leave the store during breaks, then such proof would not be available. Despite the lower court’s erroneous reliance on employees who did not work at Kirkland’s during the five-year period in question, the appeals court would very probably have ruled in the chain’s favor.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

Solution and Answer Guide

Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

TABLE OF CONTENTS Critical Thinking Questions in Features .............................................................................1 Landmark in the Law—Application to Today’s World ........................................................ 1 Adapting the Law to the Online Environment—Critical Thinking.................................... 2 Ethical Issue—Value Judgment ............................................................................................. 2 Building Analytical Skills—Result and Reasoning .............................................................. 3 Cybersecurity and the Law—Critical Thinking .................................................................... 3 Critical Thinking Questions in Cases ................................................................................. 4 Case 2.1—Critical Thinking ...................................................................................................... 4 Case 2.2—Critical Thinking ..................................................................................................... 5 Case 2.3—Critical Thinking ..................................................................................................... 5 Chapter Review ................................................................................................................... 6 Practice and Review................................................................................................................. 6 Practice and Review: Debate This ......................................................................................... 7 Issue Spotters ........................................................................................................................... 7 Business Scenarios and Case Problems .............................................................................. 7 Critical Thinking and Writing Assignments ......................................................................... 13

CRITICAL THINKING QUESTIONS IN FEATURES LANDMARK IN THE LAW—APPLICATION TO TODAY’S WORLD 1.

Marshall’s conclusion that the power to regulate interstate commerce was an exclusive power of the federal government has also had significant consequences. For one thing, it means that a state law regulating in-state activities normally will be invalidated if the state law substantially burdens interstate commerce. What if a law passed by State A’s legislature has a negative impact within State B? Applying Marshall’s reasoning, what recourse would State B have? Solution: Marshall’s ruling in Gibbons v. Ogden implies that a state cannot regulate activities that extend beyond its borders. The power to regulate interstate commerce rests squarely with the federal government. Therefore, in most circumstances, State B

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

would have little or no legal avenue to change State A’s law. Assume, for example, that state B bans the sale of liquor on weekends, but neighboring State A allows the sale of liquor on weekends. Residents of State B routinely drive to State A to purchase liquor on weekends. State B has no means to regulate State A’s liquor laws to stop this practice. Could State B pass a law punishing a resident who drove to State A on a Saturday to buy a bottle of vodka? This kind of question entered the public discourse after the United States Supreme Court ruled that the U.S. Constitution does not confer a right to abortion, a decision that left it up to the individual states to pass their own abortion laws. Several anti-abortion states considered laws to make it illegal for their residents to travel to another state for the procedure. Such a law, if passed, would provide a stern test for the principles laid down by Marshall in Gibbons v. Ogden.

ADAPTING THE LAW TO THE ONLINE ENVIRONMENT—CRITICAL THINKING 1.

One observer has said that the American legal system should evaluate social media companies based on how “they affect us as citizens, not only [on how] they affect us as consumers.” What is your opinion of this statement? Solution: The person who made this statement clearly sees a “citizen” as having different motivations and concerns than a “consumer.” Presumably, a citizen is mostly concerned with the good of society as a whole and therefore would be open to the idea of government regulation that restricted the negative influence of social media, regardless of the First Amendment. A consumer, by contrast, would be primarily concerned with having a marketplace that offers the widest possible varieties of freedom (of choice, of speech, etc.) and would for that reason be opposed to government regulation of social media. There is, however, an argument to be made that the citizens that make up a society benefit when the marketplace of ideas— whether they are subjectively “positive” or “negative”—is allowed to flourish in the absence of government regulation.

ETHICAL ISSUE—VALUE JUDGMENT 1.

What are the pros and cons of a workplace policy that prohibits employees from discussing politics while on the job? Solution: The main benefit of a policy that prohibits employees from discussing politics while at work would seem to be increased workplace harmony. Politics is a touchy subject. It is reasonable for management to conclude that arguments over political views could negatively impact employee relationships, which could have a negative impact on productivity, which would definitely have a negative impact on the bottom line. At the same time, employees do not like being told they cannot express themselves. “People need to be able to discuss what’s going on in the world,” said one management expert skeptical of the changes at Google. “Communities are where you do that, and the community where people spend most of their waking time is at the office.” Furthermore, workplace speech policies can be difficult to carry out. Imagine a situation in which an employee complains to a supervisor about a co-worker’s derogatory comments concerning a presidential candidate. The co-worker denies

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

making the comments. The first employee insists. Suddenly, management is dealing with a conflict that has the potential to take up a good deal of at least three employees’ valuable time. Later in the textbook, you will learn that, in general, private employers are able to terminate the employment of workers for expressing political viewpoints. In contrast, public entities often cannot because of the protections provided to such speech by the First Amendment to the U.S. Constitution.

BUILDING ANALYTICAL SKILLS—RESULT AND REASONING 1.

The Supreme Court ruled that Colorado cannot force Smith to speak in a manner that aligns with state law but goes against her religious beliefs. In other words, the state’s interest in preventing discrimination does not outweigh a business owner’s right to free speech. As part of its reasoning, the Court asserted that Smith was not, in fact, negatively disposed toward same-sex couples. It was their “message” that she objected to. Why might this distinction be legally important in these types of cases? Solution: In his majority opinion for this case, Associate Justice Neil Gorsuch explained that while Lorie Smith was willing to serve gay customers, she was not willing to allow her website to be used as a platform of gay marriage, which she believed “contradicts biblical truth.” In doing so, Gorsuch drew a distinction between a business discriminating against a customer based on the customer’s status, which is not allowed, and a business discriminating against the message a customer represents, which, according to this ruling, is allowed. Critics of this Supreme Court decision rejected this line of legal reasoning as being a distinction without a difference. Whether Smith is objecting to the “message” promoted by homosexual couples or the homosexual couples themselves, the result is the same. Many states have public accommodation laws similar to Colorado’s, and civil rights activists worry that the Court has given American businesses a broad First Amendment excuse to refuse service based on a customer’s race, religion, gender, or sexual orientation.

CYBERSECURITY AND THE LAW—CRITICAL THINKING 1.

Tim Cook, currently Apple’s chief executive officer, has suggested that the United States Congress should pass a law limiting the ability of Apple and other tech companies to keep consumer data private. Why would a business executive make such a request? Solution: Cook may have wanted to end a controversy that puts Apple squarely at odds with the federal government. After all, large companies such as Apple rely on favorable treatment from the government in regulatory matters, international trade agreements, and many other areas. Also, large corporations such as Apple sometimes gain an advantage over competitors when their industries are regulated. For example, Apple has significant resources with which to lobby Congress for favorable treatment, and it is better positioned to bear the costs of regulation than are other, smaller tech companies. Finally, Apple’s position as a champion of consumer privacy would be damaged if it “caved” and changed its stance without being forced to do so by federal law.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

CRITICAL THINKING QUESTIONS IN CASES CASE 2.1—CRITICAL THINKING 1.

Cultural. What “dangerous conditions” might have prompted the city to enact the ordinances at issue in this case? Why? Solution: As noted in the facts of the case, both ordinances at issue included an extensive rationale for their adoption, stating essentially that a geographically small city has the right to restrict a business from operating within the city when the restriction is for the safety of the city’s citizens and visitors. As the basis for the city’s regulation, the appellate court referred to “the dangerous conditions” created by the irresponsible driving behavior of scooter renters, especially at night, amplified by the lack of training, supervision, and oversight practiced by the rental scooter businesses that “existed throughout the entire city.” The court paraphrased the expressive clauses in the ordinances more specifically: • • • • • •

The City is geographically small and crowded and is being besieged by inexperienced scooter drivers seeking amusement and driving in a dangerous manner. The City is a tourist destination frequented by tens of thousands of individuals, and its streets are congested by scooters that are being driven illegally and in areas where they are not permitted. The City’s residents and visitors are put in dangerous situations as a result of the improper use of scooters, especially at night. City businesses have complained about numerous trespasses on their property by people driving scooters while being disruptive. City police have been unable to cope with the situation, and essential police resources are being drained. The City has been unable to control the situation through less restrictive means.

2. Economic. What is the likely economic impact of the ordinances on the businesses in the city? Discuss. Solution: With the exception of the scooter rental businesses, the effect on the city’s economy is likely to be positive in light of the result in the Classy case. The answer to the previous question contains the reasons in support of this outlook. With a ban on motorized scooters, the “small and crowded” city is not likely to be “besieged by inexperienced scooter drivers seeking amusement and driving in a dangerous manner.” The streets, filled with “tens of thousands” of tourists, will not be “congested by scooters that are being driven illegally and in areas where they are not permitted.” Residents and visitors will not be “put in dangerous situations as a result of the improper use of scooters, especially at night.” There will be an end to the “numerous trespasses” on business property “by people driving scooters while being disruptive.” And “essential police resources” will not be “drained,” at least not by irresponsible scooter drivers and riders. All of which bodes well for business.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

CASE 2.2—CRITICAL THINKING 1.

What If the Facts Were Different? If this case had involved a small, private retail business that did not advertise nationally, would the result have been the same? Why or why not? Solution: It is not likely that the result in this case would have been different even if the facts had involved a small, private retail business that did not advertise nationally. The intended impact of the decision in Heart of Atlanta was to uphold the constitutionality of the Civil Rights Act of 1964 and the power of Congress to regulate interstate commerce to stop local discriminatory practices. In the Supreme Court’s opinion, “The power of Congress to promote interstate commerce also includes the power to regulate the local incidents thereof, including local activities in both the States of origin and destination, which might have a substantial and harmful effect upon that commerce.” Thus, if the case had involved a small, local retail business, the Court would have found participation in interstate commerce based on the use of a phone, or a Facebook page (or other internet presence), or sales to customers who traveled across state lines—or, as in Wickard v. Filburn, participation might have been based on any transaction that might otherwise have occurred in interstate commerce.

CASE 2.3—CRITICAL THINKING 1.

Economic. Whose interests are advanced by laws designed to regulate the labeling of plant-based meat products? Solution: Certainly, the overriding objective of such laws is to protect the consumer. Indeed, the stated goal of Louisiana’s Truth in Labeling of Food Products Act is to “protect consumers from misleading and false labeling of food products that are edible by humans.” It would be naïve, however, to ignore the role that special interest groups play in getting legislation passed. Here, critics of the Louisiana statute, including animal rights and environmental groups, pointed out that the law was supported by “animal agriculture interests,” otherwise known as meat-producing businesses. Presumably, these businesses assumed that a product labeled “veggie burger” was more appealing to consumers searching for meat alternatives than would have been a product labeled “veggie puck.” As the court pointed out, however, the Louisiana law has not had this effect.

2. What If the Facts Were Different? Assume the Louisiana statute explicitly prohibited companies from labeling plant-based products in a manner that potentially could confuse consumers about the products’ meat content. Would the court’s ruling likely have been the same? Explain. Solution: Probably not. In general, under the First Amendment, free speech protections only apply to commercial speech that is neither misleading nor related to unlawful activity. That is, if commercial speech is either of these things, it is not protected and can be regulated by the government. Commercial speech that is potentially misleading is protected by the First Amendment, but this protection is not absolute. In other words, courts will consider the facts on a case-by-case basis to determine whether commercial speech that is potentially confusing can be regulated.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

In this case, the district court agreed with Tofurky that the Louisiana law threatened commercial speech that is only potentially misleading, leading it to find the statute unconstitutional. In reversing, the appellate court ruled that Louisiana was not, in fact, trying to prohibit potentially confusing commercial speech. Rather, the law applied only to food labels that were actually and intentionally misleading. It is likely that the law’s emphasis on intent was included expressly to protect it from First Amendment challenges such as the one brought by Tofurky.

CHAPTER REVIEW PRACTICE AND REVIEW A state legislature enacted a statute that required any motorcycle operator or passenger on the state’s highways to wear a protective helmet. Jim Alderman, a licensed motorcycle operator, sued the state to block enforcement of the law. Alderman asserted that the statute violated the equal protection clause because it placed requirements on motorcyclists that were not imposed on other motorists. Using the information presented in the chapter, answer the following questions. 1.

Why does this statute raise equal protection issues instead of substantive due process concerns? Solution: When a law or action limits the liberty of some persons but not others, it may violate the equal protection clause. Here, because the law applies only to motorcycle operators and passengers, it raises equal protection issues.

2. What are the three levels of scrutiny that the courts use in determining whether a law violates the equal protection clause? Solution: The three levels of scrutiny that courts apply to determine whether the law or action violates equal protection are strict scrutiny (if fundamental rights are at stake), intermediate scrutiny (in cases involving discrimination based on gender or legitimacy), and the “rational basis” test (in matters of economic or social welfare). 3. Which level of scrutiny or test would apply to this situation? Why? Solution: The court would likely apply the rational basis test, because the statute regulates a matter of social welfare by requiring helmets. Similar to seat-belt laws and speed limits, a helmet statute involves the state’s attempt to protect the welfare of its citizens. Thus, the court would consider it a matter of social welfare and require that it be rationally related to a legitimate government objective. 4. Under this standard or test, is the helmet statute constitutional? Why or why not? Solution: The statute is probably constitutional, because requiring helmets is rationally related to a legitimate government objective (public health and safety). Under the rational basis test, courts rarely strike down laws as

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

unconstitutional, and this statute will likely further the legitimate state interest of protecting the welfare of citizens and promoting safety.

PRACTICE AND REVIEW: DEBATE THIS 1.

Legislation aimed at protecting people from themselves concerns the individual as well as the public in general. Protective helmet laws are just one example of such legislation. Should individuals be allowed to engage in unsafe activities if they choose to do so? Solution: Certainly many will argue in favor of individual rights. If certain people wish to engage in risky activities such as riding motorcycles without a helmet, so be it. That should be their choice. No one is going to argue that motorcycle riders believe that there is zero danger when riding a motorcycle without a helmet. In other words, individuals should be free to make their own decisions and consequently, their own mistakes. In contrast, there is a public policy issue involved. If a motorcyclist is injured in an accident because that motorcyclist was not wearing a protective helmet, society ends up paying in the form of increased medical care expenses, lost productivity, and even welfare for other family members. Thus, the state has an interest in protecting the public in general by limiting some individual rights.

ISSUE SPOTTERS 1.

South Dakota wants its citizens to conserve energy. To help reduce consumer consumption of electricity, the state passes a law that bans all advertising by power utilities within the state. What argument could the power utilities use as a defense to the enforcement of this state law? (See Business and the Bill of Rights.) Solution: Even if commercial speech is neither related to illegal activities nor misleading, it may be restricted if a state has a substantial interest that cannot be achieved by less restrictive means. In this situation, however, the interest in energy conservation is substantial, but it could be achieved by less restrictive means. That would be the utilities’ defense against the enforcement of this state law.

2. Suppose that a state imposes a higher tax on out-of-state companies doing business in the state than it imposes on in-state companies. Is this a violation of the equal protection clause if the only reason for the tax is to protect local firms from out-of-state competition? Explain. (See Due Process and Equal Protection.) Solution: Yes. The tax would limit the liberty of some persons (out-of-state businesses), so it is subject to a review under the equal protection clause. Protecting local businesses from out-of-state competition is not a legitimate government objective. Thus, such a tax would violate the equal protection clause.

BUSINESS SCENARIOS AND CASE PROBLEMS 2–1. The Free Exercise Clause. Thomas worked in the nonmilitary operations of a large firm that produced both military and nonmilitary goods. When the company discontinued the production of nonmilitary goods, Thomas was transferred to the plant producing military equipment. Thomas left his job, claiming that it violated his religious principles to participate

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

in the manufacture of goods to be used in destroying life. In effect, he argued, the transfer to the military equipment plant forced him to quit his job. He was denied unemployment compensation by the state because he had not been effectively “discharged” by the employer but had voluntarily terminated his employment. Did the state’s denial of unemployment benefits to Thomas violate the free exercise clause of the First Amendment? Explain. (See Business and the Bill of Rights.) Solution: Thomas has a constitutionally protected right to the free exercise of his religion. In denying his claim for unemployment benefits, the state violated this right. Employers are obligated to make reasonable accommodations for their employees’ beliefs that are openly and sincerely held, as were Thomas’s beliefs. By moving him to a department that made military goods, his employer effectively forced him to choose between his job and his religious principles. This unilateral decision on the part of the employer was the reason Thomas left his job and why the company was required to compensate Thomas for his resulting unemployment. 2–2. Spotlight on Plagiarism—Due Process. The Russ College of Engineering and Technology of Ohio University announced in a press conference that it had found “rampant and flagrant plagiarism” in the theses of mechanical engineering graduate students. Faculty singled out for “ignoring their ethical responsibilities” included Jay Gunasekera, chair of the department. Gunasekera was prohibited from advising students. He filed a suit against Dennis Irwin, the dean of Russ College, for violating his due process rights. What does due process require in these circumstances? Why? [Gunasekera v. Irwin, 551 F.3d 461 (6th Cir. 2009)] (See Due Process and Equal Protection.) Solution: To adequately claim a due process violation, a plaintiff must allege that he was deprived of “life, liberty, or property” without due process of law. A faculty member’s academic reputation is a protected interest. The question is what process is due to deprive a faculty member of this interest, and in this case, whether Gunasekera was provided with it. When an employer inflicts a public stigma on an employee, the only way that an employee can rectify the situation is through publicity. Gunasekera’s alleged injury was his public association with the plagiarism scandal. Here, the court reasoned that “a name-clearing hearing with no public component would not address this harm because it would not alert members of the public who read the first report that Gunasekera challenged the allegations. Similarly, if Gunasekera’s name was cleared at an unpublicized hearing, members of the public who had seen only the stories accusing him would not know that this stigma was undeserved.” Thus, the court held that Gunasekera was entitled to a public name-clearing hearing. 2–3. Equal Protection. Abbott Laboratories licensed SmithKline Beecham Corp. to market an Abbott human immunodeficiency virus (HIV) drug in conjunction with one of SmithKline’s drugs. Abbott then increased the price of its drug fourfold, forcing SmithKline to increase its prices and thereby driving business to Abbott’s own combination drug. SmithKline filed a suit in a federal district court against Abbott. During jury selection, Abbott struck the only self-identified gay person among the potential jurors. (The pricing of HIV drugs is of considerable concern in the LGBTQ+ community.) Could the equal protection clause be applied to prohibit discrimination based on sexual orientation in jury selection? Discuss. [SmithKline Beecham Corp. v. Abbott Laboratories, 740 F.3d 471 (9th Cir. 2014)] (See Due Process and Equal Protection.)

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

Solution: Yes, the equal protection clause can be applied to prohibit discrimination based on sexual orientation in jury selection. The appropriate level of scrutiny would be intermediate scrutiny. Under the equal protection clause of the Fourteenth Amendment, the government cannot enact a law or take another action that treats similarly situated individuals differently. If it does, a court examines the basis for the distinction. Intermediate scrutiny applies in cases involving discrimination based on gender. Under this test, a distinction must be substantially related to an important government objective. Gays and lesbians were long excluded from participating in our government and the privileges of citizenship. A juror strike on the basis of sexual orientation tells the individual who has been struck, as well as the trial participants and the general public, that the judicial system still treats gays and lesbians differently. This deprives these individuals of the opportunity to participate in a democratic institution on the basis of a characteristic that has nothing to do with their fitness to serve. In the actual case on which this problem is based, SmithKline challenged the strike. The judge denied the challenge. On SmithKline’s appeal, the U.S. Court of Appeals for the Ninth Circuit held that the equal protection clause prohibits discrimination based on sexual orientation in jury selection and requires that heightened scrutiny be applied to equal protection claims involving sexual orientation. The appellate court remanded the case for a new trial. 2–4. Procedural Due Process. Robert Brown applied for admission to the University of Kansas School of Law. Brown answered “no” to questions on the application asking if he had a criminal history and acknowledged that a false answer constituted “cause for ... dismissal.” In fact, Brown had criminal convictions for domestic battery and driving under the influence. He was accepted for admission to the school. When school officials discovered his history, however, he was notified of their intent to dismiss him and was given an opportunity to respond in writing. He demanded a hearing. The officials refused to grant Brown a hearing and then expelled him. Did the school’s actions deny Brown due process? Discuss. [Brown v. University of Kansas, 599 Fed.Appx. 833 (10th Cir. 2015)] (See Due Process and Equal Protection.) Solution: No, the school’s actions did not deny Brown due process. Procedural due process requires that any government decision to take life, liberty, or property must be made fairly. The government must give a person proper notice and an opportunity to be heard. The government must use fair procedures—the person must have at least an opportunity to object to a proposed action before a fair, neutral decision maker. In this problem, Robert Brown applied for admission to the University of Kansas School of Law. He answered “no” to the questions on the application about criminal history and acknowledged that a false answer constituted cause for dismissal. He was accepted for admission to the school. But Brown had previous criminal convictions for domestic battery and driving under the influence. When school officials discovered this history, Brown was notified of their intent to dismiss him and given an opportunity to respond in writing. He demanded a hearing. The officials refused and expelled him. As for due process, Brown knew he could be dismissed for false answers on his application. The school gave Brown notice of its intent to expel him and gave him an

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

opportunity to be heard (in writing). Due process does not require that any specific set of detailed procedures be followed as long as the procedures are fair. In the actual case on which this problem is based, Brown filed a suit in a federal district court against the school, alleging denial of due process. From a judgment in the school’s favor, Brown appealed. The U.S. Court of Appeals for the Tenth Circuit affirmed, concluding that “the procedures afforded to Mr. Brown were fair.” 2–5. The Commerce Clause. Regency Transportation, Inc., operates a freight business throughout the eastern United States. Regency maintains its corporate headquarters, four warehouses, and a maintenance facility and terminal location for repairing and storing vehicles in Massachusetts. All of the vehicles in Regency’s fleet were bought in other states. Massachusetts imposes a use tax on all taxpayers subject to its jurisdiction, including those that do business in interstate commerce, as Regency does. When Massachusetts imposed the tax on the purchase price of each tractor and trailer in Regency’s fleet, the trucking firm challenged the assessment as discriminatory under the commerce clause. What is the chief consideration under the commerce clause when a state law affects interstate commerce? Is Massachusetts’s use tax valid? Explain. [Regency Transportation, Inc. v. Commissioner of Revenue, 473 Mass. 459, 42 N.E.3d 1133 (2016)] (See The Constitutional Powers of Government.) Solution: Yes, Massachusetts’s use tax is valid under the commerce clause. When a state regulation that affects interstate commerce is challenged under the commerce clause, the court weighs the state’s interest in regulating the matter against the burden that the regulation places on interstate commerce. Because a court balances the interests involved, it is difficult to predict the outcome in a particular case. State laws that alter conditions of competition to favor in-state interests over out-of-state competitors in a market are considered discriminatory and usually invalidated. In this problem, Regency Transportation, Inc., operates a freight business throughout the eastern United States. Regency maintains a headquarters, warehouses, and other facilities in Massachusetts. All of the vehicles in Regency’s fleet were bought in other states. When Massachusetts imposed a use tax on the purchase price of each tractor and trailer in Regency’s fleet, the trucking firm challenged the assessment as discriminatory under the commerce clause. But Massachusetts imposes the tax on all taxpayers subject to its jurisdiction, not only those that, like Regency, do business in interstate commerce. Hence, the tax is not discriminatory. As for the balancing test, Massachusetts presumably imposes the tax based on the benefits derived from a company’s using and storing vehicles in the state. The burden that the regulation places on interstate commerce seems slight weighed against the state’s interest in regulating this matter. 2–6. Business Case Problem with Sample Answer—Freedom of Speech. NutriSearch Corporation publishes a guide to nutritional supplements sold in the direct marketing industry. Written by Lyle MacWilliam, the guide sells itself as an independent source of information based on scientific analysis. According to the guide, Usana Health Science, Inc., produces the best nutritional supplements in the business. According to a lawsuit filed by competitor Ariix, LLC, NutriSearch and MacWilliam are paid by Usana to promote Usana’s products in the supposedly “impartial” guide. Defending its questionable relationship with Usana, NutriSearch claims that biased and inaccurate product reviews are commercial speech protected by the First Amendment, and therefore Ariix’s lawsuit must fail. Is this claim

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

correct? Discuss. [Ariix, LLC v. NutriSearch Corp., 985 F.3d 1107 (2021)] (See Business and the Bill of Rights.) Solution: When hearing a commercial speech case, a court relies on the facts of that case to determine whether the speech in question is, in fact, commercial and therefore protected by the First Amendment. Common sense dictates that a baseline definition of commercial speech would be speech used in commercial transactions. At first glance, then, NutriSearch Corporation’s Nutritional Supplements Guide is not commercial speech, since the company presents the guide as a source of neutral, data-based product reviews. The evidence shows, however, that NutriSearch’s guide is actually a vehicle for advertising on behalf of Usana Health Science, Inc. It therefore qualifies as commercial speech. In its decision, the Ninth Circuit Court of Appeals called NutriSearch’s publication a “sophisticated marketing sham rather than a product review guide.” It added, “Society has little interest in protecting such conduct under the mantle of the First Amendment,” which does not shield the corporate purveyors of false advertising from being punished for their misleading speech. 2–7. Freedom of Speech. Muriel Bowser, the District of Columbia’s mayor, ordered city workers to paint a “Black Lives Matter” mural on a city street, 16th Street NW. Two months later, a trade group called the Small Business in Transportation Coalition requested a permit from the district to paint its motto, “Trucker Lives Matter” on a different city street. The district refused. The coalition filed a lawsuit claiming its free speech rights had been violated. It argued that the district had created a public forum in which Mayor Bowser’s views were allowed while dissenting views were not. Do you agree with the coalition’s argument? What counterargument could the district offer by asserting that the mural was government speech rather than individual speech? [Small Business in Transportation Coalition v. Bowser, 610 F.Supp.3d 149 (D.C. Cir. 2022)] (See Business and the Bill of Rights.) Solution: The Small Business in Transportation Coalition’s entire argument was based on whether the city’s denial of its permit to paint “Trucker Lives Matter” on a street was unconstitutional viewpoint discrimination. For this argument to succeed, the Coalition had to convince a federal district court that the “Black Lives Matter” mural was individual speech by Mayor Bowser. If the mural was government speech, the Coalition’s lawsuit would fail, because the United States Supreme Court has ruled that the government may—putting it bluntly—say whatever it wants. The Coalition based its argument on three points: (1) the government did not usually express itself with paintings on city streets; (2) the public did not believe that “Black Lives Matter” was a government message; and (3) the District did not maintain editorial control over the mural, as opposed to Mayor Bowser as an individual. In ruling against the Coalition, the federal district court rejected these points, noting that the mayor’s announcement concerning the mural was made as part of a press conference during which she was acting in her official capacity. Furthermore, the mural had been painted by government workers, and “the District exercises near-exclusive control over the painting of the city's streets.” Upholding the lower court’s decision, the appeals court added that individual politicians speak on behalf of

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

“the government” all the time. Indeed, that is part of their job. Therefore, the district court’s summary judgment against the Coalition was proper. 2–8. A Question of Ethics—Free Speech. Michael Mayfield, the president of Mendo Mill and Lumber Co., in California, received a “notice of a legal claim” from Edward Starski. The “claim” alleged that a stack of lumber had fallen on a customer as a result of a Mendo employee’s “incompetence.” The “notice” presented a settlement offer on the customer’s behalf in exchange for a release of liability for Mendo. In a follow-up phone conversation with Mayfield, Starski said that he was an attorney—which, in fact, he was not. Starski was arrested and charged with violating a state criminal statute that prohibited the unauthorized practice of law. [People v. Starski, 7 Cal.App.5th 215, 212 Cal.Rptr.3d 622 (1 Dist. Div. 2 2017)] (See Business and the Bill of Rights.) 1.

Starski argued that “creating an illusion” that he was an attorney was protected by the First Amendment. Is Starski correct? Explain. Solution: No. The First Amendment guarantees the freedom of speech for individuals against interference by the government. To protect citizens from those who would abuse the right, speech is subject to reasonable restrictions. Speech that violates criminal laws is not constitutionally protected. In this problem, Michael Mayfield received a “notice of a legal claim” from Edward Starski. The “claim” alleged that a stack of lumber fell on a customer at Mayfield’s company as a result of “incompetence” of one of Mayfield’s employees. The “notice” included a settlement offer on the customer’s behalf in exchange for a release of liability. In a conversation with Mayfield, Starski stated that he was an attorney—when, in fact, he was not. He was arrested and charged with violating a state statute that prohibited the unlawful practice of law. He argued that “creating an illusion” that he was an attorney fell within the protection of the First Amendment. He is wrong. It is within the government’s power to restrict speech to frustrate a false claim made to accomplish a fraud. And the interest of the government in regulating the practice of law is part of its interest in protecting the public. In the actual case on which this problem is based, the court convicted Starski of the charge. On appeal, a state intermediate appellate court affirmed the conviction. Responding to his free speech defense, the court concluded that Starski was wrong.

2. Identify, discuss, and resolve the conflict between the right to free speech and the government’s regulation of the practice of law. Solution: The question concerns the extent to which the government can regulate the practice of law without infringing on certain rights. The rights at issue include the right of a person to exercise free speech and the rights of the public to be protected from misleading or deceptive speech and to have access to competent legal representation. In recognition of a person’s right to exercise free speech, the government might choose not to prohibit the unauthorized practice of law. This would deny the public’s right to be protected from misleading or deceptive speech. The

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

government might choose to prohibit the practice of law entirely, but this would deprive the public of legal representation of all kinds in all circumstances. So, the government must strike a balance that protects the public and individual rights. The government generally prohibits the unauthorized practice of law—the practice of law by those who have not met the state’s competency standards to be licensed as attorneys. The government also sanctions persons who have not met the standards for misrepresenting their status to practice law. The government’s objective is to ensure that those performing legal services do so competently, without infringing on the rights to free speech, to be protected from misleading or deceptive speech, and to have access to competent legal representation. The regulation protects the public and goes no further than necessary, in recognition of the rights at issue.

CRITICAL THINKING AND WRITING ASSIGNMENTS 2–9. Business Law Writing. Puerto Rico enacted a law that required specific labels on cement sold in Puerto Rico and imposed fines for any violations of these requirements. The law prohibited the sale or distribution of cement manufactured outside Puerto Rico that does not carry a required label warning and barred that cement from being used in government-financed construction projects. Antilles Cement Corp., a Puerto Rican firm that imports foreign cement, filed a complaint in federal court. Antilles claimed that this law violated the dormant commerce clause. (The dormant commerce clause doctrine applies not only to commerce among the states and U.S. territories, but also to international commerce.) Write three paragraphs discussing whether the Puerto Rican law violates the dormant commerce clause. Explain your reasons. (See The Constitutional Powers of Government.) Solution: The court ruled that, like a state, Puerto Rico generally may not enact policies that discriminate against out-of-state commerce. The law requiring companies that sell cement in Puerto Rico to place certain labels on their products is clearly an attempt to regulate the cement market. The law imposed labeling regulations that affect transactions between the citizens of Puerto Rico and private companies. State laws that on their face discriminate against foreign commerce are almost always invalid, and this Puerto Rican law is such a law. The discriminatory labeling requirement placed sellers of cement manufactured outside Puerto Rico at a competitive disadvantage. This law therefore contravenes the dormant commerce clause. 2–10. Time-Limited Group Assignment—Free Speech and Equal Protection. For many years, New York City has had to deal with the vandalism and defacement of public property caused by unauthorized graffiti. In an effort to stop the damage, the city banned the sale of aerosol spray-paint cans and broad-tipped indelible markers to persons under twenty-one years of age. The new rules also prohibited people from possessing these items on property other than their own. Within a year, five people under age twenty-one were cited for violations of these regulations, and nearly nine hundred individuals were arrested for actually making graffiti.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

Lindsey Vincenty and other artists wished to create graffiti on legal surfaces, such as canvas, wood, and clothing. Unable to buy supplies in the city or to carry them in the city if they were bought elsewhere, Vincenty and others filed a lawsuit on behalf of themselves and other young artists against Michael Bloomberg, the city’s mayor, and others. The plaintiffs claimed that, among other things, the new rules violated their right to freedom of speech. (See The Constitutional Powers of Government.) 1.

One group will argue in favor of the plaintiffs and provide several reasons why the court should hold that the city’s new rules violate the plaintiffs’ freedom of speech. Solution: The rules in this problem regulate the content of expression. Such rules must serve a compelling governmental interest and must be narrowly written to achieve that interest. In other words, for the rules to be valid, a compelling governmental interest must be furthered only by those rules. To make this determination, the government’s interest is balanced against the individual’s constitutional right to be free of the rules. For example, a city has a legitimate interest in banning the littering of its public areas with paper, but that does not justify a prohibition against the public distribution of handbills, even if the recipients often just toss them into the street. In this problem, the prohibition against young adults' possession of spray paint and markers in public places imposes a substantial burden on innocent expression because it applies even when the individuals have a legitimate purpose for the supplies. The contrast between the numbers of those cited for violating the rules and those arrested for actually making illegal graffiti also undercuts any claim that the interest in eliminating illegal graffiti could not be achieved as effectively by other means.

2. Another group will develop a counterargument that outlines the reasons why the new rules do not violate free speech rights. Solution: The rules in this problem do not regulate the content of expression— they are not aimed at suppressing the expressive conduct of young adults but only of that conduct being fostered on unsuspecting and unwilling audiences. The restrictions are instead aimed at combating the societal problem of criminal graffiti. In other words, the rules are content neutral. Even if they were not entirely content neutral, expression is always subject to reasonable restrictions. Of course, a balance must be struck between the government’s obligation to protect its citizens and those citizens’ exercise of their rights. But the rules at the center of this problem meet that standard. Young adults have other creative outlets and other means of artistic expression available. 3. A third group will argue that the city’s ban violates the equal protection clause because it applies only to persons under age twenty-one. Solution: Under the equal protection clause of the Fourteenth Amendment, a state may not “deny to any person within its jurisdiction the equal protection of the laws.” This clause requires a review of the substance of the rules. If they limit the liberty of some people but not others, they may violate the equal protection clause. Here, the rules apply only to persons under the age of twenty-one. To succeed on an equal protection claim, opponents should argue

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 02: Constitutional Law

that the rules should be subject to strict scrutiny—that the age restriction is similar to restrictions based on race, national origin, or citizenship. Under this standard, the rules must be necessary to promote a compelling governmental interest. The argument would be that they are not necessary—there are other means that could accomplish this objective more effectively. Alternatively, opponents could argue that the rules should be subject to intermediate scrutiny—that the age restriction is similar to restrictions based on gender or legitimacy. Under this level of scrutiny, the restrictions must be substantially related to an important government objective. In this problem, the contrast between the numbers of those cited for violating the rules and those arrested for actually making illegal graffiti undermines any claim that the restrictions are substantially related to the interest in eliminating illegal graffiti. If neither of these arguments is successful, opponents could cite these same numbers to argue that the rules are not valid because there is no rational basis on which their restrictions on certain persons relate to a legitimate government interest.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

Solution and Answer Guide

Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

TABLE OF CONTENTS Critical Thinking Questions in Features .............................................................................1 Business Law in Context—Key Point ..................................................................................... 1 Adapting the Law to the Online Environment—Critical Thinking.................................... 2 Managerial Strategy—Business Questions........................................................................... 2 Building Analytical Skills—Result and Reasoning .............................................................. 3 Critical Thinking Questions in Cases ................................................................................. 3 Case 3.1—Critical Thinking ...................................................................................................... 3 Case 3.2—Critical Thinking ..................................................................................................... 3 Chapter Review ................................................................................................................... 4 Practice and Review................................................................................................................. 4 Practice and Review: Debate This ......................................................................................... 6 Issue Spotters ........................................................................................................................... 6 Business Scenarios and Case Problems .............................................................................. 7 Critical Thinking and Writing Assignments ......................................................................... 15

CRITICAL THINKING QUESTIONS IN FEATURES BUSINESS LAW IN CONTEXT—KEY POINT 1. Unlike traditional forms of wealth, digital currency is not regulated by a central authority or backed by the world’s governments. How does the example of Bankman-Fried’s unethical behavior highlight the pitfalls of investing in cryptocurrency? Solution: Most obviously, Sam Bankman-Fried’s wrongdoing shows that when a cryptocurrency exchange such as FTX fails due to unethical business practices, investors have little or no recourse. This would not be true if they had placed their funds in a traditional bank account, which is insured by the FDIC, or, arguably, if they had invested in the New York Stock Exchange, which is regulated by the Securities and Exchange Commission (SEC).

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

Despite this lack of protection, the growing popularity of cryptocurrency is undeniable. By some measures, about 17 percent of American adults have invested in, used, or traded digital currency. If such levels continue to grow, the federal government will feel pressured to create some sort of regulatory framework for cryptocurrency. Indeed, in 2024, the SEC permitted eleven investment firms to offer cryptocurrency-based funds to their clients for the first time. This move gave investors the ability to participate in the digital currency market without actually purchasing digital currency.

ADAPTING THE LAW TO THE ONLINE ENVIRONMENT—CRITICAL THINKING 1. Should U.S. lawmakers consider providing employees with a “right” to disconnect? What might be some practical and ethical issues with doing so? Solution: About 44 percent of the companies in this country allow remote work, and only about 16 percent of American companies hire remote workers. That being said, employment from home became the norm for millions of employees during the COVID19 pandemic, further blurring the “nine to five, five days a week” standards of the traditional work week. Consequently, the “right to disconnect” when out of the office is a more pressing concern than it has been in the past. What would right-to-disconnect legislation look like? At a minimum, it would include the right not to respond to email, phone, or instant messages outside the agreed-upon work hours, as well as assurances that an employee could not be punished for being unavailable during these disconnected hours. In addition, no meetings could take place outside the confines of the workday. Several potential ethical problems with any such legislation are evident. The right to disconnect is not the same as the duty to disconnect. That is, workers could still “choose” to stay connected, and this “choice” might be unfairly influenced by management. Furthermore, many employees appreciate the flexibility of being able to work at home and during weekends rather than face the pressure and stress of finishing tasks during authorized working hours. Any right to disconnect legislation might reduce this flexibility. On a practical level, the global nature of companies with international partners further confuses the subject. How would a right-to-disconnect law address different time zones and business cultures? Furthermore, many of the same industries that can accommodate a hybrid work schedule also serve clients that expect to be able to get in touch with employees outside normal office hours. In these situations, the right to disconnect might be impossible.

MANAGERIAL STRATEGY—BUSINESS QUESTIONS 1.

After a school shooting, Dick’s Sporting Goods stopped selling certain firearms at its stores. What are the potential benefits and drawbacks of this form of corporate social responsibility? Solution: Anytime a company takes a stance on a political or social issue, it can assume that it will receive support from some customers and criticism from others. In this instance, given the fervor of the gun control debate in the United States today, Dick’s certainly expected to lose customers who are passionate about the right to bear

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

arms. In fact, the company experienced a 3.1 percent decline in sales for the fiscal year following its policy change. Afterwards, however, sales rose at a commensurate rate, showing that the public may have a short attention span even when it comes to the most highly charged political issues. 2. Why might a state law require corporate managers to maximize company profits? Solution: Laws that require corporate managers and directors to focus on maximizing profits are designed to ensure accountability. Without these controls, the theory goes, managers would be tempted to use factors other than profitability in the decisionmaking process. These factors could be ethical, such as a sincere desire to protect the environment, or unethical, such as economic self-interest. By forcing managers to make business judgments, rather than moral or personal ones, such laws provide a measure of stability for shareholders and stakeholders alike. Furthermore, if companies are less profitable and less efficient, not only will investors suffer, but employees and customers will also be worse off.

BUILDING ANALYTICAL SKILLS—RESULT AND REASONING 1.

It seems unlikely that a proposed Trovan test on children, based on the facts described here, would have survived an IDDR analysis under either a duty-based or an outcomebased ethical standard. What factors might have motivated Pfizer to behave in such an unethical manner? Solution: It would appear that Pfizer was rushing to test and market Trovan as soon as possible. This focus on short-run profit maximization took precedence over any ethical considerations. It is often easier to see ethical lapses in retrospect than it is to identify potential ethical problems in advance, however.

CRITICAL THINKING QUESTIONS IN CASES CASE 3.1—CRITICAL THINKING 1.

What If the Facts Were Different? Suppose that Greif had been a young real estate investor who bought and sold commercial property on a regular basis. Would this lawsuit have dragged on for over ten years, as happened here? Why or why not? Solution: Probably not. Typically, even relatively young professionals in the business of buying and selling real estate properties would have a difficult time claiming that they did not understand what the purchase price in the purchase agreement was or that it was less than fair market value. Probably such investors would not have even bothered to sue to rescind a purchase agreement. If, nonetheless, a professional engaged in selling the vacant land had nonetheless sued to rescind the purchase agreement, the trial court would have probably agreed to a motion to dismiss by the buyer.

CASE 3.2—CRITICAL THINKING 1.

Economic. What marketing tool did Watson gain by inflating its AWPs?

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

Solution: The marketing tool that Watson gained by inflating the AWPs of its drugs was “the spread”—the difference between the fabricated numbers and the prices that pharmacies actually paid. Watson knew that Mississippi Medicaid would reimburse the pharmacies at rates based on Watson’s published AWPs. The higher these numbers were, the more the pharmacies would be paid, regardless of the actual costs. Watson could use this fact to make the purchase of their products more profitably attractive to the pharmacies. Of course, the higher the published AWPs were, the higher could be the prices that Watson charged the pharmacies. But Watson could negotiate “discounts” with their customers to further convince the pharmacies they were making a “profitable” deal. 2. What If the Facts Were Different? Watson argued that AWP was a “term of art” in the pharmaceutical industry that meant “suggested price.” Suppose that the court had accepted this argument. What might have been the effect of this decision? Solution: If the court had accepted Watson’s contention that AWP was a “term of art” in the pharmaceutical industry meaning merely “suggested price,” there are a number of possible effects. Any of these results would have had negative reverberations throughout—and beyond—the industry. The court’s acceptance of the argument would have condoned Watson’s pricing policy. This would likely have led to a judgment in the drug maker’s favor in this case, which would have meant a forfeit by Mississippi Medicaid, the state, and the taxpayers of the amounts previously overpaid. As a precedent, this would have allowed Watson to publish any number whatsoever as an AWP. This number could be as inflated as the market would bear, serving as the basis for prices charged to Watson’s customers as well as for reimbursements by the state to those customers. And the numbers could be fabricated with no relation to actual prices or costs. The possibility of this sort of extraordinary fraud would not likely be lost on Watson’s competitors, who could begin to engage in the same conduct. This deceit might maximize each company’s profits, but it would be to the burden of the taxpayers and the public’s trust.

CHAPTER REVIEW PRACTICE AND REVIEW James Stilton is the chief executive officer (CEO) of RightLiving, Inc., a company that buys life insurance policies at a discount from terminally ill persons and sells the policies to investors. RightLiving pays the terminally ill patients a percentage of the future death benefit (usually 65 percent) and then sells the policies to investors for 85 percent of the value of the future benefit. The patients receive the cash to use for medical and other expenses, and the investors are “guaranteed” a positive return on their investment. The difference between the purchase and sale prices is RightLiving’s profit. Stilton is aware that some sick patients may obtain insurance policies through fraud (by not revealing their illness on the insurance application). An insurance company that discovers such fraud will cancel the policy and refuse to pay. Stilton believes that most of the policies he has purchased are legitimate, but

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

he knows that some probably are not. Using the information presented in this chapter, answer the following questions. 1.

Would a person who adheres to the principle of rights consider it ethical for Stilton not to disclose the potential risk of cancellation to investors? Why or why not? Solution: If one of the fundamental rights is the right to be treated fairly and to be able to invest one’s money with full understanding of the risks, then it would be unethical for Stilton to sell these viaticals without full disclosure that some may be subject to cancellation.

2. Using Immanuel Kant’s categorical imperative, are the actions of RightLiving ethical? Why or why not? Solution: The categorical imperative asks the decision maker to assess the results of the action as if everyone in a similar situation made the same decision. If all insurance companies participated in the viatical industry and did not disclose the risk of cancellation, then investors would become leery of investing in the products, and the market would disappear. The people for whom the sale of these policies is necessary to sustain a respectable life as it ends would not be able to get the cash to help them die with dignity. This would make the world a worse place and therefore the actions are not ethical. 3. Under utilitarianism, are Stilton’s actions ethical? Why or why not? If most of the policies are, in fact, legitimate, does this make a difference in your analysis? Solution: Utilitarianism asks the decision maker to perform a cost/benefit analysis of the alternatives. Stilton should evaluate the risks or chances of an investor buying a void policy compared to the benefits gained from purchasing legitimate policies. The cost/benefit analysis also should include whether he sells individual policies to individual investors or whether he sells a share of a bundle of policies. If he does the former, the risks to the individual investor are greater than if the latter. If the latter, the benefit of the legitimate policies may offset any loss from cancelled policies. 4. Using the IDDR approach, discuss the decision process Stilton should use in deciding whether to disclose the risk of fraudulent policies to potential investors. Solution: The steps in the IDDR approach begin with an Inquiry that identifies the ethical issue, the stakeholders, and relevant ethical theories. Here, then, Stilton must recognize the issue—whether to disclose the potential fraud by those whose policies he buys. He should identify the stakeholders, including his company’s investors and employees, those insured by the policies, the insurance companies that are at risk of being defrauded, and the larger insurance market and investment communities. To fully weigh the consequences, Stilton should be familiar with the laws related to insurance, his personal ethical standards, and his company’s policies. The second step in the IDDR approach Discusses possible actions. Factors include the strengths and weaknesses of each, considering the consequences and the impacts on stakeholders. As part of this step, Stilton should list the alternatives and the likely results of each. This is also when Stilton should apply the mission and goals of his company.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

The IDDR approach’s third step is to make a Decision and provide reasons for it. At this point, using the analysis produced in the previous steps, Stilton must decide what to do and why. The last step is to Review the chosen action to determine its success or failure in terms of the issue and the stakeholders.

PRACTICE AND REVIEW: DEBATE THIS 1.

Executives in large corporations are ultimately rewarded if their companies do well, particularly as evidenced by rising stock prices. Consequently, shouldn’t those who run corporations be able to decide what level of negative side effects is “acceptable” for their companies’ products? Solution: The first problem with this attitude is that executives and managers (and even directors) may be looking at only short-run profits. They therefore might ignore the long-run profitability to their company. If a drug that works well against a potential pandemic causes severe side effects in some people, in the short run, this same drug may save many lives and reduce human suffering. Thus, profits could be great initially, with a consequent rise in the stock price. In the longer run, though, when the news gets around that some of those who took the drug suffered severe side effects, future sales of the drug might fall, thus reducing profits and causing the stock price to drop. One now has to ask the question about who is in the best situation to decide the optimum level of side effects of any drug or good or service sold. (It’s impossible to create drugs with zero negative side effects.) Any government regulator will want to make sure that there are few, if any, people who suffer from negative side effects. After all, the government regulator will look bad if the press reports about those who reacted badly to a drug. Therefore, there is a bias within any government regulatory apparatus against any good or service that has bad side effects. More limits on drugs, though, that help millions just because few suffer side effects will cost those who don’t obtain the drug—perhaps with their lives.

ISSUE SPOTTERS 1.

Acme Corporation decides to respond to what it sees as a moral obligation to correct for past discrimination by adjusting pay differences among its employees. Does this raise an ethical conflict between Acme and its employees? Between Acme and its shareholders? Explain your answers. (See Ethical Principles and Philosophies.) Solution: When a corporation decides to respond to what it sees as a moral obligation to correct for past discrimination by adjusting pay differences among its employees, an ethical conflict is raised between the firm and its employees and between the firm and its shareholders. This dilemma arises directly out of the effect such a decision has on the firm’s profits. If satisfying this obligation increases profitability, then the dilemma is easily resolved in favor of “doing the right thing.”

2. Delta Tools, Inc., markets a product that under some circumstances is capable of seriously injuring consumers. Does Delta have an ethical duty to remove this product from the market, even if the injuries result only from misuse? Why or why not? (See Making Ethical Business Decisions.)

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

Solution: Maybe. On the one hand, it is not the company’s “fault” when a product is misused. Also, keeping the product on the market is not a violation of the law, and stopping sales would hurt profits. On the other hand, suspending sales could reduce suffering and could stop potential negative publicity if sales continued.

BUSINESS SCENARIOS AND CASE PROBLEMS 3–1. Business Ethics. Jason Trevor owns a commercial bakery in Blakely, Georgia, that produces a variety of goods sold in grocery stores. Trevor is required by law to perform internal tests on food produced at his plant to check for contamination. On three occasions, tests of food products containing peanut butter were positive for salmonella contamination. Trevor was not required to report the results to U.S. Food and Drug Administration officials, however, so he did not. Instead, Trevor instructed his employees to simply repeat the tests until the results were negative. Meanwhile, the products that had originally tested positive for salmonella were eventually shipped out to retailers. Five people who ate Trevor’s baked goods that year became seriously ill, and one person died from a salmonella infection. Even though Trevor’s conduct was legal, was it unethical for him to sell goods that had once tested positive for salmonella? Why or why not? (See Ethics and the Role of Business.) Solution: Of course, it was unethical to sell goods that their maker knew were defective and could cause harm. This is the most reasonable and likely conclusion under any set of standards, even if it were possible to eventually obtain a negative result with respect to a defect from testing that repeatedly yielded a positive result. The decision maker must identify the parties involved (the bakery, its employees, and the general public) and collect the relevant facts to understand the problem. Ingesting food tainted with salmonella can cause serious illness and death. Because selling food contaminated with salmonella is a public health risk, the general public is a stakeholder in this problem. The owner of the bakery (Trevor) and its employees are also stakeholders, and although they are interested in making a profit, they also will suffer a loss if the bakery’s conduct results in contamination and customers stop buying the bakery’s products. The bakery may not be legally required to report the initial test results to the Food and Drug Administration (FDA), but it is clearly unethical not to do anything to address the salmonella contamination found in food that will be sold to the public. Instructing employees to retest the food until the results come out differently does not remedy the problem or avoid potentially fatal consequences. Liability can attach through tort and contract law principles to the sale of goods that the seller knows or should know are defective. Thus, the baker’s action in this problem can lead to legal liability if someone is injured by salmonella. The bakery could report the initial results to the FDA, even though it is not required, and ask for the agency’s advice on how to handle the salmonella contamination. The bakery should establish procedures for testing (and retesting) food and discover the source of the contamination. This will show employees that the company is concerned with doing the right thing. The bakery might also refuse to sell and voluntarily dispose of the tainted goods. Clearly, the bakery’s decision should not be to simply retest the food until the results are negative and ship it to retailers because this shows a lack of concern for the buyers and indirectly the company’s other stakeholders. The decision might be to report to the FDA and follow its instructions for retesting or disposing of the food. Or it might be to

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

voluntarily pull the tainted food off the shelves so as not to put public health at risk. In either situation, the bakery needs to decide how to avoid potential salmonella contamination in the future. The decision makers need to document the reasons underlying their decision and course of action. If the decision was to report the results to the FDA and follow its advice on how to handle the contamination, the bakery could justify its actions by articulating that it is concerned with public safety. The same justification applies to a decision to destroy the tainted food. The bakery is justified in taking a course of action showing it is better to be safe (and take a monetary loss) than sorry (when a buyer ingests salmonella and dies). Either of these courses of action avoids potentially costly litigation that could result from injured persons suing the company over defective goods and avoids negative publicity and loss of goodwill from a salmonella outbreak. In addition, taking such preventive measures allows the bakery to avoid having the FDA investigate the salmonella problem and possibly issue regulations that would hamper its operation and profits. Whether the bakery decided to report the results to the FDA or just destroy the contaminated food, it should evaluate the effectiveness of its decision and how to avoid potential salmonella contamination in the future. It should establish internal procedures for testing and retesting for salmonella, and should instruct employees on safe handling of food to avoid contamination. 3–2. Ethical Conduct. Internet giant Zoidle, a U.S. company, generated sales of £2.5 billion in the United Kingdom (UK) in 2013 (roughly $4 billion in U.S. dollars). The U.K. corporate tax rate is usually between 20 percent and 24 percent, but Zoidle paid only 3 percent (£6 million). At a press conference, company officials touted how the company took advantage of tax loopholes and sheltered profits to avoid paying the full corporate income tax. They justified their practices as ethical, declaring that it would be verging on illegal to tell shareholders that the company paid more taxes than it should. Zoidle receives significant benefits for doing business in the UK, including large sales tax exemptions and some property tax breaks. The UK relies on the corporate income tax to provide services to the poor and to help run the agency that regulates corporations. Is it ethical for Zoidle to avoid paying taxes? Why or why not? (See Ethics and the Role of Business.) Solution: Minimizing taxes can increase profits. Some people argue that a corporation’s only goal should be profit maximization, which will be reflected in a higher market value. From an economist’s perspective, when all firms strictly adhere to the goal of profit maximization, resources tend to flow to where they are most highly valued by society. Ultimately, profit maximization, in theory, leads to the most efficient allocation of scarce resources. But a business’s focus on profits in the short run can lead to unethical conduct in the long run. In the short run, a company may increase its profits by taking full advantage of tax laws, even though it knows that the public may perceive this conduct as less than ethical. In the long run, because of bad publicity—exemplified by the executive’s statements in this problem—as well as government audits or investigations and public or private lawsuits, such perception may compound and cause profits to suffer.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

Those who run corporations can and should act ethically. Some business leaders and others believe further that corporations should be accountable to society for their actions. One view of corporate social responsibility stresses that corporations have a duty not just to shareholders, but also to other groups affected by corporate decisions. Under this approach, a corporation would consider the impact of its decision on the firm’s employees, customers, creditors, suppliers, and the community in which the corporation operates. Another theory of social responsibility argues that corporations should behave as good citizens by promoting goals that society deems worthwhile and taking positive steps toward solving social problems—employment discrimination, human rights, environmental concerns, and similar issues. Under either of these views, in this problem, the corporation would consider the government and the poor in determining and executing fiscal and tax policies. Aside from the public’s perception and a corporation’s social responsibility, an overemphasis on short-term profit maximization is the most common reason that ethical problems occur in business. Thus, the conduct of the corporation in this problem—taking full advantage of the letter of the tax laws and touting that choice publicly—may lead to unintended unethical consequences. 3–3. Consumer Rights. Best Buy, a national electronics retailer, offered a credit card that allowed users to earn “reward points” that could be redeemed for discounts on Best Buy goods. After reading a newspaper advertisement for the card, Gary Davis applied for, and was given, a credit card. As part of the application process, he visited a web page containing Frequently Asked Questions as well as terms and conditions for the card. He clicked on a button affirming that he understood the terms and conditions. When Davis received his card, it came with seven brochures about the card and the reward point program. As he read the brochures, he discovered that a $59 annual fee would be charged for the card. Davis went back to the web page he had visited and found a statement that the card “may” have an annual fee. Davis sued, claiming that the company did not adequately disclose the fee. Is it unethical for companies to put terms and conditions, especially terms that may cost the consumer money, in an electronic document that is too long to read on one screen? Why or why not? Assuming that the Best Buy credit-card materials were legally sufficient, discuss the ethical aspects of businesses strictly following the language of the law as opposed to following the intent of the law. [Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152 (9th Cir. 2012)] (See Ethics and the Role of Business.) Solution: In this case, the court found that the company did not violate any laws and that the disclosures were adequate. From an ethical perspective, the question becomes whether the word “may” on the website gave adequate notice to the potential user or borrower that a charge would occur. It is settled legally that it is up to a contract signer to read all the components of a contract. In the online environment, it is hard to ever prove that a web page was not edited or changed from one day to the next. A consumer may read the terms and conditions just before a round of edits and then agree and seem bound by changes that did not exist at the time they read them. From a fairness perspective, that would be unethical. At the same time, presumably the reader could print off a copy of the agreement and keep it filed. Underlying societal questions exist as to whether it is fair to assume that a purchaser in an online environment would print off that form contract language in the same way that a signer of a contract keeps a copy of the written contract. © 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

The law often is considered the minimum ethical standard that society will allow. If a company follows the law, there will be no formal, societally imposed consequences. There are many instances, and this is one, where following the law strictly may not be the most ethical action. If the purpose of the Truth-in-Lending Act is to ensure that consumers have full information before making a decision, there may be more ethical ways (warnings, bigger text announcing continuation of terms, more specific language than “may” in the terms) that a company can help consumers be fully informed. 3–4. Business Ethics. Mark Ramun worked as a manager for Allied Erecting and Dismantling Co., where he had a tense relationship with his father, who was Allied’s president. After more than ten years, Mark left Allied, taking DVDs and CDs containing 15,000 pages of Allied documents that constituted trade secrets. Later, he joined Allied’s competitor, Genesis Equipment & Manufacturing, Inc. Genesis soon developed a piece of equipment that incorporated elements of Allied equipment. How might business ethics have been violated in these circumstances? Discuss. [Allied Erecting and Dismantling Co. v. Genesis Equipment & Manufacturing, Inc., 511 Fed.Appx. 398 (6th Cir. 2013)] (See Making Ethical Business Decisions.) Solution: Business ethics might have been violated in these circumstances by Mark Ramun, Mark’s father, and the employees and managers of Genesis. The “tense relationship” between Mark and his father at Allied may have been caused or exacerbated by either or both of them. And instead of confronting whatever it was that made their relationship “tense,” they may have exacted revenge—the father, by forcing Mark out of the firm, or Mark, by leaving it, after ten years. Of course, this is speculation. What is not speculation, however, is that Mark took 15,000 pages of Allied’s documents on DVDs and CDs (trade secrets) when he left the firm. This act was likely a violation of the law (theft or misappropriation) and clearly a violation of business ethics. Later, Mark joined Allied’s competitor, Genesis Equipment & Manufacturing, Inc. Genesis soon developed a piece of equipment that incorporated elements of Allied equipment. This points to a second violation of the law and ethics (use of stolen property) by both Mark and Genesis. Mark appears to have been competing against his family in the marketplace and trying to sell his products through another company. Assuming that Genesis profited from its sale of the equipment, this would have caused losses to Allied and unjustly enriched Genesis. If Mark was paid a bonus or given a promotion, he too would have gained undeservedly. In the actual case on which this problem is based, Allied filed a suit in a federal district court against Genesis and Mark for misappropriation of trade secrets. A jury awarded Allied more than $3 million in damages, but the court issued a judgment as a matter of law in favor of the defendants. On appeal, the U.S. Court of Appeals for the Sixth Circuit reversed. “It is neither speculative nor conjectural that Genesis unjustly benefitted from its use of Allied's trade secrets.” 3–5. Spotlight on Bed, Bath & Beyond—Ethics and the Role of Business. Bed Bath & Beyond, Inc., sold a ceramic pot, called the “FireBurners” Pot, with a stainless steel fuel reservoir at its center and a bottle of gelled fuel called “FireGel” for use with the fire pot. A red sticker on the fire pot warned, “DON’T REFILL UNTIL FLAME IS OUT & CUP IS COOL.” “CARE AND USE INSTRUCTIONS” with the product cautioned, in a “WARNINGS” section, “Do not add fuel when lit and never pour gel on an open fire or hot surface.” The label on the back of the fuel gel bottle instructed, “NEVER add fuel to a burning fire,” and under a bold “WARNING” stated,

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

“DANGER, FLAMMABLE LIQUID & VAPOR.” M.H., a minor, was injured when a fire pot in one of the products—bought from Bed Bath & Beyond—was refueled with the gel and an explosion occurred. Safer alternatives for the design of the fire pot existed, but its manufacturer chose not to use them. In these circumstances, is Bed, Bath & Beyond ethically responsible for the injury to M.H.? Discuss. [M.H. v. Bed, Bath & Beyond, Inc., 156 A.D.3d 33, 64 N.Y.S.3d 205 (1 Dept. 2017)] (See Ethics and the Role of Business.) Solution: Yes, Bed, Bath & Beyond is ethically responsible for the injury that its “FireBurners” pot caused to M.H. In designing and making a product for consumers, its maker has a duty to make the product reasonably safe so that it does not create an unreasonable risk of harm to the user. This is the standard under the law of product liability. Liability for its breach can be assessed against any seller of the product. As the legal standard, these principles also express the minimal ethical standards. In this problem, a manufacturer made a ceramic pot, called the “FireBurners” Pot, with a stainless steel fuel reservoir at its center and a bottle of gelled fuel for use with the fire pot called “FireGel.” The design was apparently unsafe, prompting the addition of a plethora of warnings about the use of the pot. These warnings generally cautioned against adding fuel to the reservoir when it was hot. Safer alternatives for the design existed, but its maker chose not to use them. M.H., a consumer, was injured when a pot was refueled with the gel and an explosion occurred. Under the law of product liability, the seller—Bed, Bath & Beyond—could be held liable for the injury on the basis of a breach of the applicable legal duty. The sale of the pot in an unsafe condition was likewise a breach of a minimal ethical duty. It could also be contended that the retailer owed a greater ethical obligation to its customers and to anyone who might suffer harm due to the unsafe design of the pot. This obligation could be framed in the same terms as the legal responsibility—the product should be made reasonably safe. This duty could be met by retaining the pot’s decorative quality while disabling its gel burning capacity or adopting any other safer alternative. Doing so effectively could work to the satisfaction of the seller’s customers, as well as its owners, shareholders, and others. In the actual case on which this problem is based, M.H. filed a suit in a New York state court against Bed, Bath & Beyond. The court denied the plaintiff’s motion for summary judgment. A state intermediate appellate court reversed the denial and remanded the case for the entry of a summary judgment in M.H.’s favor. 3–6. Codes of Ethics. All professional organizations have their own codes of ethics. Many of them relate to the unlicensed practice of the relevant profession. Licensed veterinarians must follow the Rules of Professional Conduct for Veterinarians. Maria McElwee was a licensed chiropractor in Pennsylvania who had taken additional courses in animal chiropractic. She was not a licensed veterinarian and had never worked under the guidance of a licensed veterinarian. The Pennsylvania State Board of Veterinary Medicine filed suit against McElwee because, they contended, she was practicing veterinary medicine without having first become a licensed veterinarian. At that time, she was the owner of a practice called Critter Chiropractic, which exclusively treated animals. On her website, she offered care that “promotes healing and function within your animals’ body.”

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

McElwee had completed the Options for Animals College of Animal Chiropractic Program, which does not confer a degree but considers itself a “continuing education of post-graduate education program that certifies a certificate of completion.” The Pennsylvania Department of State issued an order concluding that the procedures performed by McElwee constituted the unlicensed practice of veterinary medicine. McElwee appealed. She argued that the order would deprive Pennsylvania consumers of choice in chiropractic care for their animals and would cause them economic harm. Should McElwee prevail on appeal? Why or why not? [McElwee v. Bureau of Professional and Occupational Affairs, State Board of Veterinary Medicine, 271 A.3d 40, 2022 WL 150852 (2022)] (See Ethics and the Role of Business.) Solution: The Commonwealth Court of Pennsylvania held that McElwee’s practice constituted a practice of veterinary medicine and that the Veterinarians’ Board’s order was not precluded as an impermissible enforcement of the Rules of Professional Conduct for Veterinarians imposed on a non-veterinarian. The appeals court pointed out that the Board had jurisdiction over any practitioner of animal chiropractic and that animal chiropractic was subject to then-current regulatory authority, even if this authority emanates from self-regulation (as opposed to regulation legislated by a state legislature, for example). Some might argue that the appeals court’s ruling simply bolstered the anti-competitive nature of the self-regulation that veterinarians engage in. In other words, currently practicing veterinarians benefit economically when their own professional association, supported by the courts, eliminates competitors. 3–7. Business Case Problem with Sample Answer—Business Ethics. Jason Yearick was employed as a superintendent of Kimball Construction Company, Inc., located in Rossville, Maryland. On August 10, driving a company truck, Yearick was involved in a serious car accident, leaving him with physical injuries and emotional distress. The next day, Jerry Higdon, Yearick’s supervisor, told him to work from home. Yearick did so and logged his regular hours into Kimball’s payroll system. A few days later, Rebecca Pennington, the company’s human resources director, decided that Yearick would not be paid for the hours he worked from home. Yearick called Pennington and, during a heated argument, said, “Who the [expletive] are you to decide about my pay?” or words to that effect. Later that day, Kimball terminated Yearick’s employment. Who behaved unethically in these circumstances? Why? [Yearick v. Kimball Construction Co., Inc., 2023 WL 8829243 (D. Md. 2023)] (See Making Ethical Business Decisions.) Solution: Clearly, the use of profanity in an argument with a co-employee is unacceptable for ethical reasons, among others. Furthermore, the lack of communication between Higdon and Pennington regarding Yearick’s pay created a situation in which the company’s ethics could come into question. After all, Pennington docked an employee’s wages even though that employee was acting on instructions from a supervisor. The main ethical issue here, however, regards Kimball terminating Yearick’s employment as the result of a pay dispute. Employees should not fear that such a step will result in their firing (especially when they have just been badly injured in a work-related accident). Federal law backs up the ethics on this matter. The Fair Labor Standards Act (FLSA) makes it unlawful for employers in many industries to “discharge or in any manner discriminate against any employee because such employee has filed any complaint” about pay. After being fired, Yearick did in fact bring a suit against Kimball for violating his FLSA rights. A Maryland court ruled that this legal action could move forward, holding that such

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

a complaint does not have to be written or formal to trigger the protection of federal law. The complaint could, as in this case, be part of an employee “letting off steam,” as long as it “can be reasonably understood as demands for unpaid wages.” 3–8. A Question of Ethics—Applying the IDDR Framework. Priscilla Dickman worked as a medical technologist at the University of Connecticut Health Center for twenty-eight years. Early in her career at the Health Center, Dickman sustained a back injury while at work. The condition eventually worsened, causing her significant back pain and disability. Her physician ordered restrictions on her work duties for several years. Then Dickman’s supervisor received complaints that Dickman was getting personal phone calls and was frequently absent from her work area. Based on e-mails and other documents found on her work computer, it appeared that she had been running two side businesses (selling jewelry and providing travel agent services) while at work. The state investigated, and she was convicted of a civil ethics violation for engaging in “personal business for financial gain on state time utilizing state resources.” Separate investigations resulted in criminal convictions for forgery and the filing of an unrelated fraudulent insurance claim. Dickman “retired” from her job (after she obtained approval for disability retirement) and filed a claim with the state of Connecticut against the health center. She alleged that her former employer had initiated the investigations to harass her and force her to quit. She claimed that the Health Center was unlawfully retaliating against her for being disabled and being put on workplace restrictions. [Dickman v. University of Connecticut Health Center, 162 Conn.App. 441, 132 A.3d 739 (2016)] (See Making Ethical Business Decisions.) 1.

Assume that you are Dickman’s supervisor and have been informed that she is frequently away from her desk and often makes personal phone calls. The first step of using the IDDR method is inquiry, so you start asking questions. Several people tell you that Dickman has offered to sell them jewelry. Others say she has offered to make travel arrangements for them. You have not spoken to Dickman directly about the complaints and are not sure if you should. You know that the Health Center would need more evidence of wrongdoing to justify firing Dickman but are uncertain as to whether you can search her computer. Should you report your findings to management? Is there any ethical problem involved in investigating and possibly firing a long-term employee? Is it fair to terminate an employee who is under disability restrictions? How would you frame the ethical dilemma that the Health Center faced in this case, and who are the stakeholders? What ethical theories would you use to guide your decision? Solution: Yes, as Dickman’s supervisor, you should report your findings to management. A supervisor might also want to speak with Dickman before going to management, to explain that others have noticed her away from her desk, and get her side of the story. Given the complaints that the employer received, there is no ethical dilemma in investigating Dickman. The possibility of misconduct would warrant investigation and possibly termination, even in the case of a long-term employee or an employee who has a disability restriction. “Disability restrictions” do not make an otherwise fair termination unfair. The ethical dilemma that the Health Center faced in this case was whether to discharge Dickman. Besides Dickman, the stakeholders include the Health Center and its employees and also the patients served by the health center. Perhaps the most pertinent ethical theory is the categorical imperative—what

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

would happen if Dickman were allowed to stay on staff, and other employees took this as a cue to emulate her conduct? A supervisor should be circumspect and make sure that the complaints against an employee are not based on gossip and innuendo. For instance, if the supervisor knew that the co-workers who complained about Dickman did not like her or were trying to get Dickman fired. But there is no indication of that here. The comments about Dickman are presented as factual and seem to have been offered without hostility. A simple check of her presence at her workstation, a log of the calls from her work phone, and the history of website visits on her work computer could prove or disprove the information. She might be asked about any negative findings. This would give her a reasonable opportunity to explain. The supervisor and employer should have taken into consideration the length of Dickman’s employment and her disability, as well as the credibility of her response and her demeanor. If the findings prove to be true, management’s dilemma is whether to discharge Dickman. It could be believed that her workplace transgressions are not so serious as to warrant a discharge. Her actions have not been secretive, however—other employees are aware of at least some of her misconduct. Permitting her to stay on would likely encourage others to commit similar acts. 2. Now suppose that you are Dickman. You have been a medical technologist for a long time but now experience severe back pain while at your desk at the Health Center. You find that you have less pain if you get up and move around during the day rather than just sitting. That is why you are often away from your desk. You know that you will not be able to do this job much longer, and that is why you recently started a jewelry business and began providing travel services. Sure, you have made a few personal phone calls related to those businesses while at the Health Center, but other employees make personal calls, and they have not been fired. You feel that the Health Center’s investigation was intended to force you to quit because you are disabled and cannot perform the tasks that you used to perform. Using the inquiry portion of the IDDR method, how might you frame the ethical issue you face, and who are the stakeholders? What ethical principles can help you analyze the problem thoroughly? Solution: Dickman’s ethical dilemma is how to continue performing her medical technologist job when she cannot sit at her desk without pain and to what extent she can run side businesses from the health center. Medical technologists work in the lab, analyzing and testing blood, fluid, tissue, and urine samples of patients. Dickman has an ethical duty to the patients and to the health center to competently perform this analysis and testing. Patients could be harmed if she fails to do the lab tests properly or in a timely fashion. Therefore, Dickman needs to decide how she can continue competently performing this work. The stakeholders affected by her decision include herself, her employer, her co-workers, and patients of the health center. As stated in the facts to this question, Dickman experiences pain sitting at her work desk. She finds it less painful to move around—i.e., away from her desk.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

But did she inform her supervisor or tell any of her co-workers or a physician about this pain? She would need to gather any witnesses or evidence she has to support her claim. Also, she needs to decide whether it is acceptable for her to run side businesses while she’s at the health center. Is she merely making a few personal phone calls related to these side businesses, or is it taking time away from the testing and analysis that she was hired to perform? Applicable ethical principles include the categorical imperative—if her co-workers copy her conduct, what might result? If the side jobs are interfering with her medical technologist duties, she most likely cannot justify spending time on them. The amount of time spent could be verified by looking at her work call log and computer history. If it turns out that she spent a great deal of time on these side businesses and neglected her technologist duties, then the employer would clearly have a right to fire her. In the actual case on which this problem is based, Dickman’s discrimination claim was dismissed for lack of “credible evidence or legal support.” She appealed the dismissal. A state intermediate appellate court affirmed it.

CRITICAL THINKING AND WRITING ASSIGNMENTS 3–9. Business Law Writing. Assume that you are a high-level manager for a shoe manufacturer. You know that your firm could increase its profit margin by producing shoes in Indonesia, where you could hire women for $100 a month to assemble them. You also know that human rights advocates recently accused a competing shoe manufacturer of engaging in exploitative labor practices because the manufacturer sold shoes made by Indonesian women for similarly low wages. You personally do not believe that paying $100 a month to Indonesian women is unethical because you know that in their country, $100 a month is a better-thanaverage wage rate. Write one page explaining whether you would have the shoes manufactured in Indonesia and make higher profits for the company or avoid the risk of negative publicity and its potential adverse consequences for the firm’s reputation. Are there other alternatives? Discuss fully. (See Business Ethics on a Global Level.) Solution: It is arguable that ethical behavior generates sufficient goodwill to warrant practicing it out of a desire for increased profits. Corporate activities that receive wide publicity and are perceived as “positive” may benefit shareholders in the long run if the enhanced public image of the corporation entices more consumers to buy its product. But such long-run, possible benefits are difficult to calculate. Under the same reasoning, “negative” choices may have an impact on a company’s business, but that impact may also be difficult to gauge. This is in part because motive is difficult to determine, especially in the complicated world of business ethics, both with respect to a business and to its market and customers. In the debate between motive and conduct as a measure of ethical behavior, conduct may be the most practical option and the measure that will have the greatest impact. Thus, a firm might choose to do business in a more costly manner—here, by opting out of the less expensive production facility or by paying higher wages—and ultimately realize a healthier return. Of course, making that decision might have different consequences.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

3–10. Time-Limited Group Assignment—Corporate Social Responsibility. Methamphetamine (meth) is an addictive drug made chiefly in small toxic labs (STLs) in homes, tents, barns, and hotel rooms. The manufacturing process is dangerous, often resulting in explosions, burns, and toxic fumes. Government entities spend time and resources to find and destroy STLs, imprison meth dealers and users, treat addicts, and provide services for affected families. Meth cannot be made without ingredients that are also used in cold and allergy medications. Arkansas has one of the highest numbers of STLs in the United States. To recoup the costs of fighting the meth epidemic, twenty counties in Arkansas filed a suit against Pfizer, Inc., which makes cold and allergy medications. They argued that it was Pfizer’s ethical responsibility to either stop using ingredients in their cold and allergy medications that can be used to make meth or to compensate the government for the amount it spends closing down meth labs. (See Ethics and the Role of Business, Ethical Principles and Philosophies, and Making Ethical Business Decisions.) 1.

The first group will outline Pfizer’s ethical responsibility under the corporate social responsibility doctrine. To whom does Pfizer owe duties? Solution: It could be argued that the defendants have an ethical responsibility to society to voluntarily take steps to reduce the availability of their products to meth makers. This might have become a more certain obligation once the defendants were aware that their products were used in the manufacture of meth. Retailers might have been asked to place the products behind the counter or lock them in display cases and limit sales or require consumers to sign for purchases. Retailers might have been educated about the suspicious behavior of buyers with illegal intent. (These measures were imposed as federal regulations in 2005.) The defendants might have developed alternative medications that did not contain ephedrine or pseudoephedrine.

2. The second group will formulate an argument on behalf of Pfizer that the company has not breached any of its ethical responsibilities. Solution: It could also be argued that the defendants have an ethical responsibility to their shareholders and other stakeholders in their companies to fight regulatory efforts to limit the availability of their products so they could continue making profits. The central purpose of their businesses is to make money, not to affect social change. And the effects on society of the meth epidemic are not the natural and foreseeable consequences of the sales of the defendants’ products. In other words, the company could effectively argue that it has not breached any of its ethical responsibilities. 3. The third group will assume that they work for Pfizer and that the company is trying to determine the best course of action to prevent its medications from being used to make meth. The group will apply the IDDR approach and explain the steps in the reasoning used. Solution: After applying the IDDR approach to determine the best course of action to prevent its medications from being used to make meth, the

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

conclusion might be that the company should advise and encourage retailers at the point of sale to spot and stop buyers who appear to intend that purpose. The IDDR approach has four steps, which begin with an Inquiry to express the issue, identify the stakeholders, and indicate potential ethical standards. Here, the question is what a manufacturer might do to prevent its products from being put to illegal uses. The stakeholders include the company, its owners, officers, employees, customers, and society. Applicable standards derive from the company’s situation—it makes and markets the product, which would suggest a duty to guard against its illegal use. The second step of the IDDR approach is a Discussion that considers actions to address the issue. Factors include the strengths and weaknesses of the actions and the consequences and the effects on the stakeholders. How might the manufacturer discourage the illicit use of its product? Some answers to this question depend on the nature of the product. Could harmless additives to the product make its misuse impossible? Could some ingredients be substituted for the illegally used components? Should the company stop making the product altogether? Technically, additives or substitutes may not be possible— they may not be available, they could dilute the medicinal effects, or they might be cost prohibitive. Removing the product from the market would benefit none of the stakeholders (except, of course, those suffering the consequences of the product’s illegal use, which might impact only a relatively small part of the community). The third step of the approach is to come to a Decision and state the reasons. In the eyes of the public, the company could benefit by taking some action to prevent its product’s misuse. This action might be to advise and encourage retailers at the point of sale to spot and stop buyers who appear to intend that misuse. This could enhance the value of the company to those who own it and work for it, as well as its image to its customers and society. And this action can actually improve the situation within the community by limiting the ability of those who would misuse the product to do so. The last step of the approach is a Review of the success or failure of the action to resolve the issue and satisfy the stakeholders. No action would be completely successful, but a failure to take any action would guarantee a failure to protect the interests of at least some of the stakeholders. This supports the company’s obligation to do something, such as the choice suggested in this answer. 4. The fourth group will adopt a utilitarian point of view and perform a cost-benefit analysis to determine what the company should do. Specifically, should the company pay compensation to the state, or should it stop using certain ingredients in its medications? Solution: In the actual case on which this problem is based, the court compared the counties’ claims to other plaintiffs’ attempts to recover from gun manufacturers the costs associated with the criminal use of guns. In terms of

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 03: Ethics in Business

legal liability, the circumstances connecting the sales of the medications to the provision of government services were too weak for the counties to recoup their costs from the defendants on a theory of implied contract. Also, the sales of the medications were legal, the operations of the STLs were not, the latter were not likely consequences of the former, and thus, in terms of proximate cause for tort liability, the costs to the counties were not reasonably foreseeable. The suit was dismissed. This result indicates that applying the minimal ethical standard—compliance with the law—and a cost-benefit analysis shows the connection between the actions of the company and the consequences in the community to be too tenuous to mandate either of the steps suggested in the question. That is, it might be said that the benefits of the products outweigh the costs that might be imposed on the company.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

Solution and Answer Guide

Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

TABLE OF CONTENTS Critical Thinking Questions in Features .............................................................................1 Landmark in the Law—Application to Today’s World ........................................................ 1 Adapting the Law to the Online Environment—Critical Thinking.................................... 2 Ethical Issue—Value Judgment ............................................................................................. 2 Business Law in Context—Key Point .................................................................................... 2 Critical Thinking Questions in Cases ................................................................................. 3 Case 4.1—Critical Thinking...................................................................................................... 3 Case 4.2—Critical Thinking ..................................................................................................... 3 Case 4.3—Critical Thinking ..................................................................................................... 4 Chapter Review ................................................................................................................... 5 Practice and Review................................................................................................................. 5 Practice and Review: Debate This ......................................................................................... 6 Issue Spotters ........................................................................................................................... 6 Business Scenarios and Case Problems .............................................................................. 7 Critical Thinking and Writing Assignments ......................................................................... 12

CRITICAL THINKING QUESTIONS IN FEATURES LANDMARK IN THE LAW—APPLICATION TO TODAY’S WORLD 1.

Since the Marbury v. Madison decision, the power of judicial review has remained unchallenged and today is exercised by both federal and state courts. Why is judicial review such an important check on the powers of the legislative branch of the U.S. government? Solution: If the courts did not have the power of judicial review, the constitutionality of Congress’s acts could not be challenged in court—a congressional statute would remain law unless changed by Congress. Such an arrangement is fundamentally at odds with the separation of powers so important to both American law and American government.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

ADAPTING THE LAW TO THE ONLINE ENVIRONMENT—CRITICAL THINKING 1.

In our connected world, is there any way a defendant could avoid service of process via social media? Solution: Yes, there is one way. That defendant could have to have no social media accounts whatsoever. Increasingly, though, fewer and fewer individuals are not connected to others via social media.

ETHICAL ISSUE—VALUE JUDGMENT 1.

What steps should lawyers take to protect their clients from the ethical pitfalls of third-party litigation funding? Solution: A lawyer’s ethical obligation is to act in the best interests of the client at all times (with certain rare exceptions involving a client’s criminal behavior). In situations involving potential third-party litigation funding, this obligation would start when a client tells their lawyer that they will not be able to pay for the proposed litigation without outside help. The lawyer would then have to advise the client on the pros and cons of third-party litigation funding, as discussed in the feature. If the client decides to seek a third-party litigation partner, a lawyer would be obliged to find one with a reputation for ethical behavior. When such a litigation partner is identified, the lawyer would represent the client in negotiating the deal with the third party. If an agreement is reached, the lawyer must ensure that the third party does not improperly influence the lawyer’s independent professional judgment during the legal proceedings. Along these lines, it would be unethical for the lawyer to receive compensation from the third party without written consent from the client. If during the course of the lawsuit the client’s interests and the third party’s interests diverge, the lawyer must continue to act in the best interests of the client, even if this results in the lawyer being removed from the case. (Indeed, some third-party funding litigation contracts give the funders the ability to approve of and/or remove counsel.) It is likely that, at some point, the third-party funder will ask for confidential information about the client. The lawyer cannot share this information without the client’s written consent. Finally, if the lawsuit results in a damage award for the client, the lawyer must ensure that the pretrial contract is adhered to in proportioning these damages.

BUSINESS LAW IN CONTEXT—KEY POINT 1.

It is understandable that companies wish to avoid the high cost of going to court for every customer grievance. Binding arbitration offers businesses numerous advantages over litigation. Taking Samsung’s experience as a guide, what step should a business take to give itself a better chance of successfully compelling arbitration when faced with a class-action lawsuit brought by its customers? Solution: A business in Samsung’s situation must be certain that a binding arbitration requirement is part of an actual contractual agreement between the business and its customers. Inserting an arbitration clause, even in all capital letters, in a multi-page document that customers may never read is usually not sufficient.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

CRITICAL THINKING QUESTIONS IN CASES CASE 4.1—CRITICAL THINKING 1.

Economic. What might be some of the implications of this decision for the nation’s businesses? Solution: Previous to this case, corporations like Norfolk Southern Railway assumed they would be subject to litigation only in the state where they were incorporated or headquartered, or in a state where the legal issue arose out of the corporation’s significant business activities there. In this case, the United States Supreme Court ruled that a company can be sued in any state that has a Pennsylvania-style consent statute, regardless of the amount of business the company does there. This is important because being sued out of state incurs a significant economic burden, requiring the company to, among other costs, hire out-of-state counsel and rent out-of-state office space. American businesses are also worried that the Supreme Court’s decision will spur other states besides Pennsylvania to pass similar consent-requirement laws. If this does happen, businesses will have to decide whether expansion into other states is worth the risk of increased exposure to lawsuits.

2. Ethical. Norfolk Southern argued that the “primary concern” of jurisdiction law is to treat parties to a lawsuit “fairly.” Does the Supreme Court’s decision in this case seem fair to Norfolk Southern? Explain your answer. Solution: At first glance, many aspects of this decision do not seem fair to Norfolk Southern. The company was incorporated in Virginia and has its headquarters there, as well. Mallory lived in Virginia and claimed that he was exposed to carcinogens while working for the railway in Ohio and Virginia. Indeed, Mallory most likely was seeking a “plaintiff-friendly” venue over other, more suitable locales for the trial. Norfolk Southern also contended that Pennsylvania unfairly coerced out-of-state companies to agree to its consent statute by denying them the opportunity to do business in the state otherwise. The facts of the Mallory case suggest, however, that the Supreme Court relied on equitable principles in coming to its decision. At the time of Mallory’s lawsuit, the company employed nearly 5,000 people in Pennsylvania and maintained more than 2,400 miles of railroad tracks in the state. It also operated a 70-acre locomotive shop in Altoona, Pennsylvania. So, Norfolk Southern had significantly more than “minimal contacts” with Pennsylvania, even if none of these contacts directly related to the company’s legal dispute with Mallory. Such facts suggest that, in future cases involving consent-requirement statutes, courts will continue to consider the totality of circumstances when deciding jurisdictional fairness.

CASE 4.2—CRITICAL THINKING 1.

What If the Facts Were Different? Suppose that Gucci had not presented evidence that Huoqing made one actual sale through his website to a resident of the court’s district (the private investigator). Would the court still have found that it had personal jurisdiction over Huoqing? Why or why not?

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

Solution: The single sale to a resident of the district, Gucci’s private investigator, helped the plaintiff establish that the defendant’s website was interactive and that the defendant used the website to sell goods to residents in the court’s district. It is possible that without proof of such a sale, the court would not have found that it had personal jurisdiction over the foreign defendant. The reason is that courts cannot exercise jurisdiction over foreign defendants unless they can show the defendants had minimum contacts with the forum, such as by selling goods within the forum.

CASE 4.3—CRITICAL THINKING 1.

Economic. Should an appellate court’s review of the amount of damages awarded at trial be subject to the principle that limits appellate review of other evidence? Why or why not? Solution: Yes, an appellate court’s review of the amount of damages awarded at trial should be—and is—subject to the same rule that limits the court’s review of other evidence. An appellate court determines whether the factual findings of a trial court are supported by competent evidence. Only if the findings of fact are not supported by competent evidence in the record will there be a reversal. This principle applies to an assessment of damages. Unless it clearly appears that the amount awarded resulted from partiality, caprice, prejudice, corruption, or some other improper influence, an appellate court should not interfere with it. In other words, as long as there is a reasonable relationship between the amount of an award and its proof, it is not the function of a court to substitute its judgment for that of a fact-finder. In the Oxford case, Christophe and Frenchie’s provided documentation in support of their counterclaim at the trial that, in the view of the appellate court, supported the fact-finder’s determination of the amount awarded. Of course, constructive eviction caused by the sewage and water erupting from the pipe, and the landlord’s failure to remedy the problem, was the legal basis for the award.

2. Legal. A judge or a jury can decide a question of fact, but only a judge can rule on a question of law. Why? Solution: A question of fact is decided by a trier of fact. In a jury trial, this is the jury. In a nonjury trial, this is the judge. A ruling on a question of law is made only by a judge, not a jury, which generally consists of laypersons. A question of fact concerns what really happened with respect to a dispute being tried—such as, in the Oxford case, whether a certain act violated a contract. A question of law concerns the application or interpretation of the law—such as, again in the Oxford case, whether an act that violated a contract also violated the law. One of the reasons for the distinction between those who can decide questions of fact and those who can decide questions of law is that judges have special training and expertise to make decisions on questions of law that the typical lay member of a jury lacks.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

CHAPTER REVIEW PRACTICE AND REVIEW Stan Garner resides in Illinois and promotes boxing matches for SuperSports, Inc., an Illinois corporation. Garner created the promotional concept of the “Ages” fights—a series of three boxing matches pitting an older fighter (George Foreman) against a younger fighter, such as John Ruiz or Riddick Bowe. The concept included titles for each of the three fights (“Challenge of the Ages,” “Battle of the Ages,” and “Fight of the Ages”), as well as promotional epithets to characterize the two fighters (“the Foreman Factor”). Garner contacted George Foreman and his manager, who both reside in Texas, to sell the idea, and they arranged a meeting at Caesar’s Palace in Las Vegas, Nevada. At some point in the negotiations, Foreman’s manager signed a nondisclosure agreement prohibiting him from disclosing Garner’s promotional concepts unless they signed a contract. Nevertheless, after negotiations between Garner and Foreman fell through, Foreman used Garner’s “Battle of the Ages” concept to promote a subsequent fight. Garner filed a lawsuit against Foreman and his manager in a federal district court in Illinois, alleging breach of contract. Using the information presented in the chapter, answer the following questions. 1.

On what basis might the federal district court in Illinois exercise jurisdiction in this case? Solution: The federal district court can exercise jurisdiction in this case because the case involves diversity of citizenship. Diversity jurisdiction requires that the plaintiff and defendant be from different states and that the dollar amount of the controversy exceed $75,000. Here, Garner resides in Illinois, and Foreman and his manager live in Texas. Because the dispute involved the promotion of a series of boxing matches with George Foreman, the amount in controversy likely exceeded the required threshold amount.

2. Does the federal district court have original or appellate jurisdiction? Solution: Original jurisdiction, because the case was initiated in that court and that is where the trial will take place. Courts having original jurisdiction are courts of the first instance, or trial courts—that is, courts in which lawsuits begin, trials take place, and evidence is presented. In the federal court system, the district courts are the trial courts, so the federal district court has original jurisdiction. 3. Suppose that Garner had filed his action in an Illinois state court. Could an Illinois state court have exercised personal jurisdiction over Foreman or his manager? Why or why not? Solution: No, because the defendants lacked minimum contacts with the state of Illinois. Because the defendants were located out of the state, the court would have to determine whether they had sufficient contacts with the state for Illinois to exercise jurisdiction based on a long arm statute. Here, the defendants never came to Illinois, and the contract that they are alleged to have breached was not formed in Illinois. Thus, it is unlikely that an Illinois

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

state court would find that sufficient minimum contacts existed to exercise jurisdiction. 4. What if Garner had filed his action in a Nevada state court? Would that court have had personal jurisdiction over Foreman or his manager? Explain. Solution: Yes, because the defendants met with Garner and formed a contract in the state of Nevada. A state can exercise jurisdiction over out-of-state defendants under a long arm statute if the defendants had sufficient contacts with the state. Here, the parties met and negotiated their contract in Nevada, and a court would likely hold that these activities were sufficient to justify a Nevada court’s exercising personal jurisdiction.

PRACTICE AND REVIEW: DEBATE THIS 1.

In this age of the internet, when people communicate via e-mail, tweets, social media, and Skype, is the concept of jurisdiction losing its meaning? Solution: Many believe that yes, the idea of determining jurisdiction based on individuals’ and companies’ physical locations no longer has much meaning. Increasingly, contracts are formed via online communications. Does it matter where one of the parties has a physical presence? Does it matter where the e-mail server or webpage server is located? Probably not. In contrast, in one sense, jurisdiction still has to be decided when conflicts arise. Slowly, but ever so surely, courts are developing rules to determine where jurisdiction lies when one or both parties used online systems to sell or buy goods or services. In the final analysis, a specific court in a specific physical location has to try each case.

ISSUE SPOTTERS 1.

At the trial, after Sue calls witnesses, offers evidence, and so forth, Tom has at least two choices between courses of action. Tom can start by calling witnesses. What might Tom do instead? (See Following a State Court Case.) Solution: Tom could file a motion for a directed verdict. This motion asks the judge to direct a verdict for Tom on the ground that Sue presented no evidence that would justify granting her relief. The judge grants the motion if there is insufficient evidence to raise an issue of fact.

2. Lexi contracts with Theo to deliver a quantity of computers to Lexi’s Computer Store. They disagree over the amount, the delivery date, the price, and the quality. Lexi files a suit against Theo in a state court. Their state requires that their dispute be submitted to mediation or nonbinding arbitration. If the dispute is not resolved, or if either party disagrees with the decision of the mediator or arbitrator, will a court hear the case? Explain. (See Alternative Dispute Resolution.) Solution: Yes. Submission of the dispute to mediation or nonbinding arbitration is mandatory, but compliance with the decision of the mediator or arbitrator is voluntary.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

BUSINESS SCENARIOS AND CASE PROBLEMS 4–1. Standing to Sue. Jack and Maggie Turton bought a house in Jefferson County, Idaho, located directly across the street from a gravel pit. A few years later, the county converted the pit to a landfill. The landfill accepted many kinds of trash that cause harm to the environment, including major appliances, animal carcasses, containers with hazardous content warnings, leaking car batteries, and waste oil. The Turtons complained to the county, but the county did nothing. The Turtons then filed a lawsuit against the county alleging violations of federal environmental laws pertaining to groundwater contamination and other pollution. Do the Turtons have standing to sue? Why or why not? (See Basic Judicial Requirements.) Solution: This problem concerns standing to sue. As you read in the chapter, to have standing to sue, a party must have a legally protected, tangible interest at stake. Parties must show that they have been injured, or are likely to be injured, by the actions of the parties that they seek to sue. In this problem, the issue is whether the Turtons had been injured, or were likely to be injured, by the county’s landfill operations. Clearly, one could argue that the injuries that the Turtons complained of directly resulted from the county’s violations of environmental laws while operating the landfill. The Turtons lived directly across from the landfill, and they were experiencing the specific types of harms (fires, scavenger problems, groundwater contamination) that those laws were enacted to address. Thus, the Turtons would have standing to bring their suit. 4–2. Discovery. Advance Technology Consultants, Inc. (ATC) contracted with RoadTrac, LLC, to provide software and client software systems for products using global positioning satellite (GPS) technology being developed by RoadTrac. RoadTrac agreed to provide ATC with hardware with which ATC’s software would interface. Problems soon arose, however, and RoadTrac filed a lawsuit against ATC alleging breach of contract. During discovery, RoadTrac requested ATC’s customer lists and marketing procedures. ATC objected to providing this information because RoadTrac and ATC had become competitors in the GPS industry. Should a party to a lawsuit have to hand over its confidential business secrets as part of a discovery request? Why or why not? What limitations might a court consider imposing before requiring ATC to produce this material? (See Following a State Court Case.) Solution: Under the work-product rule, attorneys are allowed to protect information that they have gathered as a result of their own skill and diligence. For example, an attorney for a party involved in an auto accident can go out to the scene of the accident and observe the fact that there is a stop sign missing without being under any obligation to divulge such information to his opponent in the lawsuit. Similarly, attorneys who discover recently decided case decisions supporting their theories are under no obligation to share these discoveries with opposing attorneys. If attorneys had to share everything, they would be less inclined to expend efforts on behalf of their clients because, in essence, they would be working for both sides at once. 4–3. Discovery. Jessica Lester died from injuries suffered in an auto accident caused by the driver of a truck owned by Allied Concrete Co. Jessica’s widower, Isaiah, filed a suit against Allied for damages. The defendant requested copies of all of Isaiah’s Facebook photos and other postings. Before responding, Isaiah “cleaned up” the Facebook page. Allied suspected that some of the items had been deleted, including a photo of Isaiah holding a beer can while wearing a T-shirt that declared “I [heart] hotmoms.” Can this material be recovered? If so,

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

how? What effect might Isaiah’s “misconduct” have on the result in this case? Discuss. [Allied Concrete Co. v. Lester, 736 S.E.2d 699 (Va. 2013)] (See Following a State Court Case.) Solution: Yes, the items that were deleted from a Facebook page can be recovered. Normally, a party must hire an expert to recover material in an electronic format, and this can be time consuming and expensive. Electronic evidence, or e-evidence, consists of all computer-generated or electronically recorded information, such as posts on Facebook and other social media sites. The effect that e-evidence can have in a case depends on its relevance and what it reveals. In the facts presented in this problem, Isaiah should be sanctioned—he should be required to cover Allied’s cost to hire the recovery expert and attorney’s fees to confront the misconduct. In a jury trial, the court might also instruct the jury to presume that any missing items are harmful to Isaiah’s case. If all of the material is retrieved and presented at the trial, any prejudice to Allied’s case might thereby be mitigated. If not, of course, the court might go so far as to order a new trial. In the actual case on which this problem is based, Allied hired an expert, who determined that Isaiah had in fact removed some photos and other items from his Facebook page. After the expert testified about the missing material, Isaiah provided Allied with all of it, including the photos that he had deleted. Allied sought a retrial, but the court instead reduced the amount of Isaiah’s damages by the amount that it cost Allied to address his “misconduct.” 4–4. Electronic Filing. Betsy Faden worked for the U.S. Department of Veterans Affairs. Faden was removed from her position in April 2012 and was given until May 29 to appeal the removal decision. She submitted an appeal through the Merit Systems Protection Board’s e-filing system seven days after the deadline. Ordered to show good cause for the delay, Faden testified that she had attempted to e-file the appeal while the board’s system was down. The board acknowledged that its system had not been functioning on May 27, 28, and 29. Was Faden sufficiently diligent in ensuring a timely filing? Discuss. [Faden v. Merit Systems Protection Board, 553 Fed.Appx. 991 (Fed. Cir. 2014)] (See Courts Online.) Solution: No, Faden was not sufficiently diligent in ensuring a timely filing. Diligence in this context requires carefulness and persistence. Excusable delay might be evidenced by proof of circumstances beyond a party’s control that prevent a timely filing. From the facts as stated, it appears that Faden attempted to file her appeal only at the end of the relevant period when the Board’s e-filing system was down. But there is no indication that anything prevented her from e-filing at a time when the Board’s system was not down, or from mailing or faxing her appeal at any time, before the deadline. Thus, Faden appears to have been neither timely nor diligent in filing her appeal before the deadline. In the actual case on which this problem is based, the Merit Systems Protection Board dismissed Faden’s appeal. The Board found that she was not reasonably diligent in ensuring timely filing. On her further appeal, the U.S. Court of Appeals for the Federal Circuit affirmed. 4–5. Business Case Problem with Sample Answer—Corporate Contacts. LG Electronics, Inc., a South Korean company, and nineteen other foreign companies participated in the global market for cathode ray tube (CRT) products. CRTs were components in consumer goods,

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

including television sets, and sold for many years in high volume in the United States, including the state of Washington. The state filed a suit against LG and the others, alleging a conspiracy to raise prices and set production levels in the market for CRTs in violation of a state consumer protection statute. The defendants filed a motion to dismiss the suit for lack of personal jurisdiction. Should this motion be granted? Explain your answer. [State of Washington v. LG Electronics, Inc., 185 Wash.App. 394, 341 P.3d 346 (2015)] (See Basic Judicial Requirements.) Solution: No, the defendants’ motion to dismiss the suit for lack of personal jurisdiction should not be granted. A corporation normally is subject to jurisdiction in a state in which it is doing business. A court applies the minimum-contacts test to determine whether it can exercise jurisdiction over an out-of-state corporation. This requirement is met if the corporation sells its products within the state or places its goods in the “stream of commerce” with the intent that the goods be sold in the state. In this problem, the state of Washington filed a suit in a Washington state court against LG Electronics, Inc., and nineteen other foreign companies that participated in the global market for cathode ray tube (CRT) products. The state alleged a conspiracy to raise prices and set production levels in the market for CRTs in violation of a state consumer protection statute. The defendants filed a motion to dismiss the suit for lack of personal jurisdiction. These goods were sold for many years in high volume in the United States, including the state of Washington. In other words, the corporations purposefully established minimum contacts in the state of Washington. This is a sufficient basis for a Washington state court to assert personal jurisdiction over the defendants. In the actual case on which this problem is based, the court dismissed the suit for lack of personal jurisdiction. On appeal, a state intermediate appellate court reversed on the reasoning stated above. 4–6. Appellate, or Reviewing, Courts. Angelica Westbrook was employed as a collector for Franklin Collection Service, Inc. During a collection call, Westbrook told a debtor that a $15 processing fee was an “interest” charge. This violated company policy, and Westbrook was fired. She filed a claim for unemployment benefits, which the Mississippi Department of Employment Security (MDES) approved. Franklin objected. At an MDES hearing, a Franklin supervisor testified that she had heard Westbrook make the false statement, although she admitted that there had been no similar incidents with Westbrook. Westbrook denied making the statement but added that, if she had said it, she did not remember it. The agency found that Franklin’s reason for terminating Westbrook did not amount to the misconduct required to disqualify her for benefits and upheld the approval. Franklin appealed to a state intermediate appellate court. Is the court likely to uphold the agency’s findings of fact? Explain. [Franklin Collection Service, Inc. v. Mississippi Department of Employment Security, 184 So.3d 330 (Miss.App. 2016)] (See The State and Federal Court Systems.) Solution: Yes, the state intermediate appellate court is likely to uphold the agency’s findings of fact. Appellate courts normally defer to lower tribunals’ findings on questions of fact because those forums’ decision makers are in a better position to evaluate testimony. A trial court judge or jury, for example, can directly observe witnesses’ gestures, demeanor, and other nonverbal conduct during a trial. A judge or justice sitting on an appellate court cannot.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

In this problem, Angelica Westbrook, an employee of Franklin Collection Service, Inc., allegedly made a statement during a call to a debtor that violated company policy. Westbrook was fired and applied for unemployment benefits. Benefits were approved, but Franklin objected. Witnesses at an administrative hearing on the dispute included a Franklin supervisor who testified that she heard Westbrook make the false statement, although she admitted that Westbrook had not been involved in any similar incidents. Westbrook denied making the statement but added that if she had said it, she did not remember it. The agency found that Franklin’s reason for terminating Westbrook did not amount to the misconduct required to disqualify her for benefits and upheld the approval. Franklin appealed. Under the standard for appellate review of findings of fact, the appellate court will likely affirm the agency’s findings. In the actual case on which this problem is based, the state intermediate appellate court to which Franklin appealed the MDES’s approval of Johnson’s claim upheld the agency’s decision. 4–7. Standing to Sue. Debra Laufer is disabled within the meaning of the Americans with Disabilities Act (ADA). Laufer is an advocate for disabled people’s rights and a self-proclaimed “tester” who monitors whether places of public accommodation and their websites comply with the ADA. In a lawsuit against a hotel, Laufer claimed to have suffered a “concrete” injury because the hotel’s website did not include accessibility-related information required by federal regulations. The inability to obtain the information on the website caused Laufer to experience “frustration and humiliation.” The defendant owner of the hotel, Arpan LLC, argued that Laufer lacked standing to sue. The district court agreed, holding that Laufer had not suffered a “concrete” injury. On appeal, should the reviewing court accept the trial court’s ruling? Why or why not? [Laufer v. Arpan, LLC, 29 F.4th 1268 (11th Cir. 2022)] (See Basic Judicial Requirements.) Solution: The United States Court of Appeals for the 11th Circuit decided that precedent compelled it to vacate the district court’s decision and remand the case for further proceedings. “The plaintiff has Article 3 standing if she can establish (1) an injury in fact, (2) that is fairly traceable to the defendant’s conduct, and (3) that is redressable by a favorable decision.” The court looked at whether Laufer had suffered a concrete “intangible” injury that suffices for her to have standing to sue. The plaintiff’s allegations of frustration and humiliation are facially sufficient to demonstrate stigmatic injury standing. 4–8. Service of Process. Cincinnati Insurance Company (CIC) was involved in a lawsuit with Eric Hall. CIC twice requested certified-mail service on Hall at a residential address. On both occasions, electronic return receipts indicated that the summons and complaint were successfully “delivered” on specified dates and “left with individual.” Someone signed for service of process. CIC moved for default judgment against Hall, citing Hall’s failure to appear or otherwise defend. A trial court dismissed the lawsuit against Hall for lack of service of process. Should the Court of Appeals of Ohio affirm the trial court’s order? Why or why not? [Cincinnati Insurance Co. v. Eric Hall, et al., 2022-Ohio-1112, 2022 WL 985977 (Ct. App. Ohio, 2nd Dist. 2022)] (See The State and Federal Court Systems.) Solution: No. The Court of Appeals of Ohio, 2nd District, Montgomery County, concluded that the trial court erred in finding invalid service of process. The appeals court found both a rebuttable presumption of valid service and no evidence to rebut the presumption. The trial court’s judgment was reversed, and the case was remanded

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

for further proceedings. The laws of civil procedure in the state of Ohio authorize certified-mail service with a return receipt “signed by any person.” Because the certified-mail return receipt was signed by “someone,” there was a rebuttable presumption of proper service. 4–9. A Question of Ethics—The IDDR Approach and Jury Trials. Adam Orduna accepted a position at Kansas City, Missouri, news station KCTV5 as a sports journalist. The employment contract Orduna signed contained a provision that both parties “voluntarily waive their right to a jury trial and agree to submit any claims to a court for a bench trial.” (A bench trial is one in which a judge rather than a jury decides the outcome.) Three years later, Gray Media Group, Inc., which owned KCTV5, terminated Orduna’s employment. Orduna, who is African American, filed a lawsuit alleging racial discrimination under the Civil Rights Act of 1964. The plaintiff demanded a jury trial, arguing that the contract waiver was ineffectual because he did not make it knowingly and voluntarily. [Orduna v. Gray Media Group, Inc., 2024 WL 21506 (D. Kan. 2024)] (See Following a State Court Case.) 1.

The right to a jury trial in a civil lawsuit is a fundamental right for defendants. Should corporations be allowed to waive this right in employment contracts? Explain. Solution: The requirement is that both parties to the contract must waive the right to a jury trial. If one of the parties does not want to give up this right, they do not have to. Of course, Orduna claimed that he did not realize he had waived his right to a jury trial, which was the crux of his lawsuit against Gray Media. It is not a given, however, that a jury trial is always “better” than a bench trial for defendants. In some respects, bench trials might be preferable. With no need for jury selection or jury instructions, bench trials are often shorter and less expensive than jury trials. A judge is—one would hope—more knowledgeable concerning the law than is the average juror, which might benefit the defendant. At the same time, there is definitely a widespread belief in the business community that jurors, many of whom are employees themselves, are more sympathetic to defendants such as Orduna than are judges. This belief explains why many companies include jury waiver clauses in their employment contracts.

2. Did the employment contract in this case unethically obscure the waiver of a jury trial provision so as to deceive an employee like Orduna? Use the IDDR approach to express your answer. Solution: The ethical aspect of this case is not straightforward. Generally speaking, contractual agreements waiving the right to trial by jury are neither contrary to public policy nor unlawful. Of course, the waiver of this right must be “knowing and voluntary.” In claiming that his waiver was unknowing and involuntary, Orduna relied more on ethical arguments than legal ones— always a risky courtroom strategy. The steps in the IDDR approach begin with an Inquiry that identifies the ethical issue, the stakeholders, and relative ethical theories. The ethical issue in the Orduna case was whether Meredith (the company with which Orduna negotiated his contract before it was purchased by Gray Media) had such a

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

significant negotiating advantage over Orduna as to make the jury trial waiver unfair. Orduna argued that he was merely an individual while Meredith was a large corporation, implying an inherent inequality in bargaining power. He also noted that he was afraid that Meredith would pull its offer for employment if he attempted to negotiate the terms of a standard contract. The applicable ethical concepts here encompass basic fairness in the bargaining process, positing that the process cannot be fair if one side holds so much power over the other side that the agreement is the result of coercion rather than free will. The Discussion will center on Meredith’s standard contract. Was it designed to take advantage of individuals such as Orduna by “tricking” them into waiving their right to a jury trial? The district court presiding over this case did not think so. First, the court pointed out that the waiver clause was “conspicuous” because it (1) was clearly labeled, boldfaced, and underlined; (2) used font the same size as was used in the rest of the contract; and (3) was clearly separated from the rest of the text. In addition, the waiver provision explicitly suggested that the potential employee consult a lawyer before agreeing to the contract’s terms, and the contract’s signature page contained a warning that, before signing, the employee should “CONSULT AN ATTORNEY OF HIS/HER OWN CHOOSING AT HIS/HER OWN EXPENSE TO REVIEW THIS AGREEMENT.” The IDDR’s third step is to make a Decision and provide reasons for it. Using the court’s reasoning, it does not seem like Meredith’s standard contract was designed to fool employees into waiving the right to a jury trial without their knowledge. This conclusion is backed up by additional information about Orduna provided by the court (with the help of Meredith’s lawyers, no doubt). At the time he signed the contract, Orduna was thirty-one years old, had a college degree, and had been working in the television broadcast industry for more than five years. The contract with KCTV5 was his second. Even though Orduna was not, as he pointed out, trained in the legalities of contracts, the court found that his experience was sufficient to understand the basics of Meredith’s standard contract. To Review, as the court put it, “there is inevitably disparity in bargaining power between an employer and an employee.” Businesses are ethically obligated to lessen this imbalance by creating standard employment contracts that a reasonable potential employee will understand. In this case, the court felt that Meredith had done so, and therefore it dismissed Orduna’s claim that his waiver of jury trial was not made “knowingly and voluntarily.” In the end, this does not mean that Gray Media did not discriminate against Orduna. It means that the question will be decided by a judge rather than a jury of the plaintiff’s peers.

CRITICAL THINKING AND WRITING ASSIGNMENTS 4–10. Time-Limited Group Assignment—Access to Courts. Assume that a statute in your state requires that all civil lawsuits involving damages of less than $50,000 be arbitrated. Such a case can be tried in court only if a party is dissatisfied with the arbitrator’s decision. The statute also provides that if a trial does not result in an improvement of more than 10 percent in the position of the party who demanded the trial, that party must pay the entire cost of the arbitration proceeding. (See Alternative Dispute Resolution.)

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 04: Courts and Alternative Dispute Resolution

One group will argue that the state statute violates litigants’ rights of access to the courts and trial by jury. Solution: The statute violates litigants’ rights of access to the courts and to a jury trial because the imposition of arbitration costs on those who improve their positions by less than 10 percent on an appeal is an unreasonable burden. And the statute forces parties to arbitrate before they litigate—an added step in the process of dispute resolution. The limits on the rights of the parties to appeal the results of their arbitration to a court further impede their rights of access. The arbitration procedures mandated by the statute are not reasonably related to the legitimate governmental interest of attaining less costly resolutions of disputes.

2. Another group will argue that the statute does not violate litigants’ right of access to the courts. Solution: The statute does not violate litigants’ constitutional right of access to the courts because it provides the parties with an opportunity for a court trial in the event either party is dissatisfied with an arbitrator’s decision. The burdens on a person’s access to the courts are reasonable. The state judicial system can avoid the expense of a trial in many cases. And parties who cannot improve their positions by more than 10 percent on appeal are arguably wasting everyone’s time. The assessment of the costs of the arbitration on such parties may discourage appeals in some cases, which allows the courts to further avoid the expense of a trial. The arbitration procedures mandated by the statute are reasonably related to the legitimate governmental interest of attaining speedier and less costly resolution of disputes. 3. A third group will evaluate how the determination on right of access would be changed if the statute was part of a pilot program that affected only a few judicial districts in the state. Solution: The determination on rights of access could be different if the statute was part of a pilot program and affected only a few judicial districts in the state because only parties who fell under the jurisdiction of those districts would be subject to the limits. Opponents might argue that the program violates the due process of the Fifth Amendment because it is not applied fairly throughout the state. Proponents might counter that parties who object to an arbitrator’s decision have an opportunity to appeal it to a court. Opponents might argue that the program exceeds what the state legislature can impose because it does not reasonably relate to a legitimate governmental objective—it arbitrarily requires only litigants who reside in a few jurisdictions to submit to arbitration. Proponents might counter that this is aimed at the reduction of court costs—that the statute rationally relates to a legitimate governmental end. An equal protection challenge would most likely be subject to a similar rational basis test. Under these and other arguments, the reduction of court costs would be a difficult objective to successfully argue against.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

Solution and Answer Guide

Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

TABLE OF CONTENTS Critical Thinking Questions in Features .............................................................................1 Ethical Issue—Value Judgment .............................................................................................. 1 Adapting the Law to the Online Environment—Critical Thinking.................................... 2 Building Analytical Skills—Result and Reasoning .............................................................. 2 Landmark in the Law—Application to Today’s World ....................................................... 2 Critical Thinking Questions in Cases ................................................................................. 3 Case 5.1—Critical Thinking ...................................................................................................... 3 Case 5.2—Critical Thinking ..................................................................................................... 4 Case 5.3—Critical Thinking ..................................................................................................... 5 Chapter Review ................................................................................................................... 5 Practice and Review................................................................................................................. 5 Practice and Review: Debate This ......................................................................................... 6 Issue Spotters ........................................................................................................................... 6 Business Scenarios and Case Problems .............................................................................. 7 Critical Thinking and Writing Assignments ......................................................................... 13

CRITICAL THINKING QUESTIONS IN FEATURES ETHICAL ISSUE—VALUE JUDGMENT 1.

Given the circumstances, was it fair to hold NCL liable for Kaskie’s actions? Why or why not? Solution: This outcome may not seem fair, but it is arguably ethical. Yusko deserved to be compensated for her harm, and NCL—with a net worth of over $7 billion—was in a better position than its employee to do so. Furthermore, it is likely that NCL had insurance to cover accidents of this sort. In general, the doctrine of vicarious liability exists to protect victims of injury like Yusko. The doctrine only goes so far, however. Employers have a valid defense if the allegedly tortious employee is acting outside the scope of employment. For example, suppose that the cruise ship docked at a tropical island and Kaskie and Yusko disembarked to find a nightclub. While dancing at the

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

nightclub, Kaskie injured Yusko in exactly the same way as happened on the cruise ship. NCL would almost certainly not have been liable because Kaskie was off the job when the accident occurred.

ADAPTING THE LAW TO THE ONLINE ENVIRONMENT—CRITICAL THINKING 1.

Several people arrested for engaging in “revenge porn” have claimed that such an activity is free speech protected by the First Amendment. Should this legal tactic succeed? Why or why not? Solution: The argument that disseminating intimate images of a romantic partner is protected speech usually relies on the principle that, under the First Amendment, the government cannot restrict expression based on its content. The United States Supreme Court has consistently held, however, that First Amendment does not protect all content. Some examples of unprotected content include obscenity, defamation, child pornography, fraud, and fighting words. American courts have consistently placed “revenge porn” in this category of unprotected speech, citing society’s interest in order and morality. The courts also take into the consideration the privacy rights of someone who does not want sexual images of themselves spread across the internet without their consent. All these factors combine to create a well-established government interest in banning revenge porn, although the United States Supreme Court has yet to directly address the subject.

BUILDING ANALYTICAL SKILLS—RESULT AND REASONING 1.

Steamfitters did nothing to prevent the apprentices from creating a foreseeable fire hazard. Therefore, the company failed to uphold its duty of care to Gordon and was liable for negligence. During the trial, Steamfitters argued that—in determining foreseeability— the court did not pay enough attention to the high winds and Gordon’s improperly stored foam insulation. Is this argument valid? Why or why not? Solution: The high winds and foam insulation both played crucial roles in the spread of the fire started by the apprentice’s discarded cigarette butt. Expert testimony at trial established that the wind was blowing “20 or 22 knots,” causing the fire to extend very quickly onto Gordon’s property, igniting the highly combustible foam, whose location near the property line violated local code provisions. Neither factor, however, impacted the court’s conclusion that the harm caused by the defendant was reasonably foreseeable. Indeed, the high winds made the unidentified apprentice’s actions more foreseeable—a reasonable person would not toss a lit cigarette butt onto dry mulch under such conditions. Furthermore, one expert testified that, because of the strong winds, the foam would have ignited wherever it was located on Gordon’s property.

LANDMARK IN THE LAW—APPLICATION TO TODAY’S WORLD 1.

The Palsgraf case established foreseeability as the test for proximate cause. Today, the courts continue to apply this test in determining proximate cause—and thus tort liability for injuries. Generally, if the victim of a harm or the consequences of a harm done are unforeseeable, there is no proximate cause. Can you think of any reason why these legal principles should not apply to allegedly tortious behavior that takes place online? Explain your answer.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

Solution: Clearly, distinctions based on physical proximity, such as the “zone of danger” cited by the court in this case, are largely inapplicable online. Otherwise, however, proximate causation is as relevant in disputes that arise via the internet as those that take place offline. Suppose, for example, that Airline X makes a number of statements on social media about the online booking site EasyRes.com, including that it will not refund any tickets purchased on EasyRes.com and warning about the booking site’s “bogus discount” schemes. Suppose Airline X also emails people who purchased tickets on its flights through EasyRes.com and asks for additional information to confirm the flights. EasyRes.com sues Airline X for tortious interference with prospective business relations. To succeed in this suit, the booking site would have to prove that Airline X’s actions were the proximate cause of its alleged loss of repeat business. As a defense, Airline X could point out that there are a number of reasons why a customer might not rebook with EasyRes.com, including that the customer found a better deal elsewhere or that the customer simply hasn’t traveled since their last flight. These reasons would break the chain of foreseeability that links Airline X’s admittedly dubious online behavior and EasyRes.com’s alleged loss of revenue.

CRITICAL THINKING QUESTIONS IN CASES CASE 5.1—CRITICAL THINKING 1.

Legal Environment. Punitive damages may be awarded in a tort action when a defendant’s actions show malice—that is, when a person’s conduct is characterized by hatred, ill will, or a spirit of revenge. Would an award of punitive damages be appropriate in this case? Explain. Solution: Yes, an award of punitive damages would be appropriate in the Sky case. The purpose of punitive damages is not to compensate a plaintiff, but to punish and deter a defendant’s conduct. As noted in the lead-up to the question, however, an award of punitive damages is available only on a finding of malice. For an award of punitive damages, malice is the state of mind under which a person’s conduct is characterized by hatred, ill will, or a spirit of revenge (or, in some cases, a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm). Because punitive damages are assessed for punishment and not compensation, a positive element of conscious wrongdoing is required. In the Sky case, the court heard testimony and viewed other evidence that, from the court’s perspective, established that Van Der Westhuizen acted with malice. The nature of the defamatory statements in the e-mail and online reviews, the recipient to whom the e-mail was directed, and the fact that Sky and Van Der Westhuizen were competing breeders support a finding of malice and thus an award of punitive damages.

2. Ethical. Should Van Der Westhuizen make an effort to remove all of the false online statements and reviews of Sky that she posted? Why or why not?

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

Solution: Yes, Van Der Westhuizen should make an effort to remove all of the false online statements and reviews of Sky that she posted. Damage to a person’s reputation cannot be adequately compensated for monetarily, nor can an award of compensatory damages put the person in the same position as before the defamation. Removing the defamatory statements is, however, a step in that direction and will help to prevent further harm. For those reasons, removal is an ethically necessary act. Here, the issue is framed as an ethical question, but it is also a legal one. In both contexts, the removal of the posts can be needed to return the defamed party to the position before the defamatory statements. In the Sky case, the trial court issued a permanent injunction to require Van Der Westhuizen to remove any online posts, reviews, and other defamatory statements concerning Sky, including statements on social media and other websites, and to prevent any such later acts by the defendant. The court’s reasons were as stated above.

CASE 5.2—CRITICAL THINKING 1.

Legal. Why would the Oregon legislature require plaintiffs to show some sort of physical impact before allowing them to recover damages for negligent infliction of emotional distress? Solution: To answer this question, we must first highlight the difference between “intentional” and “negligent” infliction of emotional distress. In general, the law treats intentional wrongdoing more harshly than negligent wrongdoing because a tortfeasor who acts with intent is considered more blameworthy than one who acts negligently. Therefore, lawmakers might see a societal benefit in making it more difficult to successfully bring a lawsuit for a tort based on negligence as compared to that same tort done intentionally. At the same time, Oregon courts did find it necessary to create the three-pronged exception for situations in which the defendant’s negligent behavior is particularly harmful. Examples of successful negligent infliction of emotional distress claims cited in the I.K. ruling included plaintiffs that (1) were repeatedly awakened at night due to an erroneously listed phone number; (2) learned that a spouse’s corpse had been mistakenly disinterred; and (3) had their property flooded by a neighbor’s faulty irrigation system. In all these cases, the court acted with an eye toward deterring similarly negligent behavior. Similarly, Banana Republic’s mistakes should certainly motivate other Oregon businesses to conduct more thorough background checks on potential hires.

2. What If the Facts Were Different? Suppose that, fearing negative publicity, Kaiser Permanente had covered up Chan’s behavior, so that he had not been under police investigation when hired by Banana Republic. Would the result in this case have been different? Solution: The third prong of the exception to the physical contact requirement for negligent infliction of emotional distress cases is “foreseeability.” In other words, plaintiffs must establish that defendants should reasonably have anticipated that, if they behaved negligently, the harm in question or a harm like it could occur.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

Here, if there was no way for Banana Republic to have known that Chan had previously placed recording equipment in an employee bathroom, the company could have plausibly argued that it was not liable when he did so again. So, on the one hand, there is a good chance the appeals court would have agreed with the trial court and upheld Banana Republic’s motion to dismiss. On the other hand, Chan’s behavior was so egregious that the appeals court might have found another way to hold Banana Republic liable, in the interests of fairness and public policy.

CASE 5.3—CRITICAL THINKING 1.

What If the Facts Were Different? Would the result in this case have been different if Taylor’s minor son, rather than Taylor herself, had been struck by the ball? Should courts apply the doctrine of assumption of risk to children? Discuss. Solution: There is no legal bar to applying assumption of risk to children. Children are expected to use the degree of caution required of a child of like age and intelligence under similar circumstances. The courts have therefore applied the doctrine of assumption of the risk in numerous cases, such as when a child was injured while playing on a trampoline, swinging from a rope swing, or diving into a swimming pool. The key is whether the child knew of the danger, was able to appreciate the risks associated with it, and voluntarily chose to run the risk. Normally, it is up to a jury (or a judge in a bench trial) to decide if the facts indicate that the child voluntarily undertook the risk.

CHAPTER REVIEW PRACTICE AND REVIEW Elaine Sweeney went to Ragged Mountain Ski Resort in New Hampshire with a friend. Elaine went snow tubing down a run designed exclusively for snow tubers. No Ragged Mountain employees were present in the snow-tube area to instruct Elaine on the proper use of a snow tube. On her fourth run down the trail, Elaine crossed over the center line between snow-tube lanes, collided with another snow tuber, and was injured. Elaine filed a negligence action against Ragged Mountain seeking compensation for the injuries that she sustained. Two years earlier, the New Hampshire state legislature had enacted a statute that prohibited a person who participates in the sport of skiing from suing a ski-area operator for injuries caused by the risks inherent in skiing. Using the information presented in the chapter, answer the following questions. 1.

What defense will Ragged Mountain probably assert? Solution: The strongest defense will be assumption of the risk, which is common in sports. That defense is strengthened by the state statute that formalizes the defense.

2. The central question in this case is whether the state statute establishing that skiers assume the risks inherent in the sport applies to Elaine’s suit. What would your decision be on this issue? Why?

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

Solution: Yes, because the statute strengthened the traditional common law rule. The legislature can change or limit common law rules, such as those for liability. Here the legislature strengthened the rule of assumption of the risk, which makes it very difficult for a plaintiff to overcome. 3. Suppose that the court concludes that the statute applies only to skiing and not to snow tubing. Will Elaine’s lawsuit be successful? Explain. Solution: No, because of assumption of the risk. The defense of assumption of the risk would still likely be a successful defense for the ski resort. That rule generally applies to participants in sporting events unless the host creates unreasonably dangerous conditions and does not warn clients. 4. Now suppose that the jury concludes that Elaine was partly at fault for the accident. Under what theory might her damages be reduced in proportion to how much her actions contributed to the accident and her resulting injuries? Solution: Comparative negligence allows the jury to compute the contributions of both parties to the situation. This results in the reduction or elimination of the plaintiff’s recovery, depending on the state rule and the percent of negligence contributed.

PRACTICE AND REVIEW: DEBATE THIS 1.

Each time a state legislature enacts a law that applies the assumption of risk doctrine to a particular sport, participants in that sport suffer. Solution: The argument is that the less liability imposed on a sports-activity operator, the less that operator will take care to maintain the sports terrain and equipment. In other words, using the example of a ski area, a law that exempts the ski area from liability for skiing accidents will result in the ski area owner investing less in maintaining the trail system as well as in the signage indicating hidden hazards. Additionally, the ski area owner will pay for fewer ski patrollers who force fast skiers to slow down in congested areas or areas reserved for beginners. In contrast, there may be an upside to applying the assumption of risk doctrine to sports that are obviously not always safe. The benefit to all of those who participate is that tickets for such sports as Alpine skiing will be cheaper. There is competition among ski resorts. Therefore, if the ski resort owner pays less in liability insurance because of the state law under study in this debate topic, at least part of the savings will be passed on to ticket buyers. Also, when participants know that they can’t sue for accidents, some may ski less recklessly.

ISSUE SPOTTERS 1.

Jana leaves her truck’s motor running while she enters a Kwik-Pik Store. The truck’s transmission engages, and the vehicle crashes into a gas pump, starting a fire that spreads to a warehouse on the next block. The warehouse collapses, causing a billboard to fall and injure Lou, a bystander. Can Lou recover from Jana? Why or why not? (See Negligence.) Solution: Probably. To recover on the basis of negligence, the injured party as a plaintiff must show that the truck’s owner owed the plaintiff a duty of care, that the

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

owner breached that duty, that the plaintiff was injured, and that the breach caused the injury. In this problem, the owner’s actions breached the duty of reasonable care. The billboard falling on the plaintiff was the direct cause of the injury, not the plaintiff’s own negligence. Thus, liability turns on whether the plaintiff can connect the breach of duty to the injury. This involves the test of proximate cause—the question of foreseeability. The consequences to the injured party must have been a foreseeable result of the owner’s carelessness. 2. A water pipe bursts, flooding a Metal Fabrication Company utility room and tripping the circuit breakers on a panel in the room. Metal Fabrication contacts Nouri, a licensed electrician with five years’ experience, to check the damage and turn the breakers back on. Without testing for short circuits, which Nouri knows that he should do, he tries to switch on a breaker. He is electrocuted, and his wife sues Metal Fabrication for damages, alleging negligence. What might the firm successfully claim in defense? (See Negligence.) Solution: The company might defend against this electrician’s claim by asserting that the electrician should have known of the risk and, therefore, the company had no duty to warn. According to the problem, the danger is common knowledge in the electrician’s field and should have been apparent to this electrician, given his years of training and experience. In other words, the company most likely had no need to warn the electrician of the risk. The firm could also raise comparative negligence. Both parties’ negligence, if any, could be weighed and the liability distributed proportionately. The defendant could also assert assumption of risk, claiming that the electrician voluntarily entered into a dangerous situation, knowing the risk involved.

BUSINESS SCENARIOS AND CASE PROBLEMS 5–1. Defamation. Richard is an employee of the Dun Construction Corp. While delivering materials to a construction site, he carelessly backs Dun’s truck into a passenger vehicle driven by Green. This is Richard’s second accident in six months. When the company owner, Dun, learns of this latest accident, a heated discussion ensues, and Dun fires Richard. Dun is so angry that he immediately writes a letter to the union of which Richard is a member and to all other construction companies in the community. In it, Dun states that Richard is the “worst driver in the city” and that “anyone who hires him is asking for legal liability.” Richard files a suit against Dun, alleging libel on the basis of the statements made in the letters. Discuss. (See Intentional Torts against Persons.) Solution: The legal issue is whether Dun has libeled Richard’s character. For Richard to recover in a legal action, he must prove the following elements: (a) that the defendant’s writing contained a false statement, not privileged, presented as fact (called a false statement of fact), or a statement of opinion that was overpublicized, or even a true statement of fact that was overpublicized; (b) that the writing was made known to others besides the plaintiff (called publication); and (c) that damage occurred, if damages are sought by plaintiff. In this case, the writing of the letter and its distribution could not be considered privileged. One could argue that privilege may be extended to Dun if a union contract required that specific notice and reasons for firing union members be given to union officials. Such privilege, however, would not extend to the other construction businesses.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

Dun could also argue that the statements were true. Truth is a defense against a defamation suit. Richard would then argue that the statements were presented as facts, not merely opinion, and were false, or that even if they were true, they were overpublicized. Proof of publication is already established. Finally, if Richard cannot secure comparable work because of the letters, he might be able to recover lost wages. (Note here that if compensatory damages are proved, Richard will probably also be awarded punitive damages.) 5–2. Liability to Business Invitees. Kim went to Ling’s Market to pick up a few items for dinner. It was a stormy day, and the wind had blown water through the market’s door each time it opened. As Kim entered through the door, she slipped and fell in the rainwater that had accumulated on the floor. The manager knew of the weather conditions but had not posted any sign to warn customers of the water hazard. Kim injured her back as a result of the fall and sued Ling’s for damages. Can Ling’s be held liable for negligence? Discuss. (See Negligence.) Solution: Yes. An occupier of the premises has a duty to use ordinary care to keep its premises in a reasonably safe condition and to warn customers of any foreseeable hazards. What constitutes a foreseeable hazard depends on whether a reasonably prudent person would conclude that harm could likely result from the conditions. Here, the manager knew of the storm conditions, knew that water accumulated rapidly on the floor, and knew or should have known that the water created a hazard. A court could find that the manager’s failure to remove the water constituted negligence, and the manager could be held liable for Kim’s injuries. 5–3. Spotlight on Intentional Torts—Defamation. Sharon Yeagle was an assistant to the vice president of student affairs at Virginia Polytechnic Institute and State University (Virginia Tech). As part of her duties, Yeagle helped students participate in the Governor’s Fellows Program. The Collegiate Times, Virginia Tech’s student newspaper, published an article about the university’s success in placing students in the program. The article’s text surrounded a block quotation attributed to Yeagle with the phrase “Director of Butt Licking” under her name. Yeagle sued the Collegiate Times for defamation. She argued that the phrase implied the commission of sodomy and was therefore actionable. What is Collegiate Times’s defense to this claim? [Yeagle v. Collegiate Times, 497 S.E.2d 136 (Va. 1998)] (See Intentional Torts against Persons.) Solution: The newspaper’s defense was that the statement was not actionable defamation because it did not convey any factual information about Sharon Yeagle. The court noted that the phrase was disgusting and in extremely bad taste, but agreed with the newspaper. The phrase was no more than “rhetorical hyperbole” and could not be understood as stating an actual fact about Yeagle. Considering the article as a whole, which generally presented a positive view of Yeagle’s efforts, the phrase did not denigrate her job title, her morals, or her conduct in the workplace. 5–4. Business Case Problem with Sample Answer—Negligence. At the Weatherford Hotel in Flagstaff, Arizona, in Room 59, a balcony extends across thirty inches of the room’s only window, leaving a twelve-inch gap with a three-story drop to the concrete below. A sign prohibits smoking in the room but invites guests to “step out onto the balcony” to smoke. Toni Lucario was a guest in Room 59 when she climbed out of the window and fell to her death. Patrick McMurtry, her estate’s personal representative, filed a suit against the Weatherford. Did the hotel breach a duty of care to Lucario? What might the Weatherford

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

assert in its defense? Explain. [McMurtry v. Weatherford Hotel, Inc., 293 P.3d 520 (Ariz. App. 2013)] (See Negligence.) Solution: Negligence requires proof that (1) the defendant owed a duty of care to the plaintiff; (2) the defendant breached that duty; (3) the defendant's breach caused the plaintiff’s injury; and (4) the plaintiff suffered a legally recognizable injury. With respect to the duty of care, a business owner has a duty to use reasonable care to protect business invitees. This duty includes an obligation to discover and correct or warn of unreasonably dangerous conditions that the owner of the premises should reasonably foresee might endanger an invitee. Some risks are so obvious that an owner need not warn of them. But even if a risk is obvious, a business owner may not be excused from the duty to protect its customers from foreseeable harm. Because Lucario was the Weatherford’s business invitee, the hotel owed her a duty of reasonable care to make its premises safe for her use. The balcony ran nearly the entire width of the window in Lucario’s room. She could have reasonably believed that the window was a means of access to the balcony. The window/balcony configuration was dangerous, however, because the window opened wide enough for an adult to climb out, but the twelve-inch gap between one side of the window and the balcony was unprotected, and this unprotected gap opened to a drop of more than three stories to a concrete surface below. Should the hotel have anticipated the potential harm to a guest opening the window in Room 59 and attempting to access the balcony? The hotel encouraged guests to “step out onto the balcony” to smoke. The dangerous condition of the window/balcony configuration could have been remedied at a minimal cost. These circumstances could be perceived as creating an “unreasonably dangerous” condition. And it could be concluded that the hotel created or knew of the condition and failed to take reasonable steps to warn of it or correct it. Of course, the Weatherford might argue that the window/balcony configuration was so obvious that the hotel was not liable for Lucario’s fall. In the actual case on which this problem is based, the court concluded that the Weatherford did not breach its duty of care to Lucario. On McMurtry’s appeal, a state intermediate appellate court held that this conclusion was in error, vacated the lower court’s judgment in favor of the hotel on this issue, and remanded the case. 5–5. Negligence. Charles Robison, an employee of West Star Transportation, Inc., was ordered to cover an unevenly loaded flatbed trailer with a 150-pound tarpaulin. The load included uncrated equipment and pallet crates of different heights, about thirteen feet off the ground at its highest point. While standing on the load, manipulating the tarpaulin without safety equipment or assistance, Robison fell headfirst and sustained a traumatic head injury. He filed a suit against West Star to recover for his injury. Was West Star “negligent in failing to provide a reasonably safe place to work,” as Robison claimed? Explain. [West Star Transportation, Inc. v. Robison, 457 S.W.3d 178 (Tex.App.—Amarillo 2015)] (See Negligence.) Solution: Yes, West Star was negligent in failing to provide a reasonably safe place to work. Central to the tort of negligence is the concept of duty of care. Tort law measures duty by the reasonable person standard—how a reasonable person would have acted in the same circumstances. But the degree of care to be exercised varies, depending on the person’s profession, the person’s relationship with the injured party,

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

and other factors—in other words, it is what a reasonable person in the position of the defendant in a negligence case would have done in the particular circumstances. In this problem, West Star Transportation, Inc., ordered its employee Charles Robison to cover an unevenly loaded flatbed trailer with a heavy tarpaulin. The load was ungainly, uneven, and about thirteen feet above the ground at its highest point. Manipulating the tarpaulin without safety equipment or assistance, Charles fell from the load and sustained a head injury. West Star owed a duty to its employee to exercise reasonable care, but West Star did not do what a shipper of ordinary prudence would have done under the same or similar circumstances. West Star should have refused to handle a load requiring unreasonably dangerous tarping, or the company should have taken appropriate safety precautions. In the actual case on which this problem is based, a jury found that West Star's negligence proximately caused the incident. On West Star’s appeal, a state intermediate appellate court affirmed. 5–6. Negligence. DSC Industrial Supply and Road Rider Supply are located in North Kitsap Business Park in Seattle, Washington. Both firms are owned by Paul and Suzanne Marshall. The Marshalls had outstanding commercial loans from Frontier Bank. The bank dispatched one of its employees, Suzette Gould, to North Kitsap to “spread Christmas cheer” to the Marshalls as an expression of appreciation for their business. Approaching the entry to Road Rider, Gould tripped over a concrete “wheel stop” and fell, suffering a broken arm and a dislocated elbow. The stop was not clearly visible, it had not been painted a contrasting color, and it was not marked with a sign. Gould had not been aware of the stop before she tripped over it. Is North Kitsap liable to Gould for negligence? Explain. [Gould v. North Kitsap Business Park Management, LLC, 192 Wash.App. 1021 (2016)] (See Negligence.) Solution: Yes, North Kitsap is liable to Gould in the circumstances of this problem for negligence. To succeed in an action for negligence, a plaintiff must prove that the defendant owed a duty of care to the plaintiff, the defendant breached the duty, the breach caused an injury to the plaintiff, and the plaintiff thereby suffered a legally recognizable injury. In this problem, Frontier Bank sent one of its employees, Suzette Gould, to North Kitsap Business Park in Seattle, Washington, to “spread Christmas cheer” to a couple of the bank’s customers, Paul and Suzanne Marshall, as an expression of appreciation for their business. The Marshalls owned DSC Industrial Supply and Road Rider Supply, which were located in North Kitsap. Approaching the entry to Road Rider, Gould tripped over a concrete “wheel stop” and fell, suffering a broken arm and a dislocated elbow. Applying the principles of negligence theory to these facts, North Kitsap owed Gould a duty as a business invitee of the Marshalls (and thus of North Kitsap) to protect her from dangerous conditions on the premises. Gould was not aware of the wheel stop, which was a dangerous condition because it was not clearly visible and not painted a contrasting color or marked with a sign. North Kitsap breached its duty by not making the stop safer. This breach was the proximate cause of Gould’s injuries. In the actual case on which this problem is based, Gould filed a suit in a Washington state court against North Kitsap, alleging negligence. The court issued a judgment in

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

her favor. A state intermediate appellate court affirmed the judgment on the reasoning stated here. 5–7. Proximate Cause. Steve Pritchard boasted to his wife and perhaps to others that he had set fires in the past to collect insurance payments. Pritchard arranged for his wife and children to be out of their residence on a certain morning. He set fire to the house, which he admitted. Both he and his wife were charged with malicious destruction of property by fire. Under federal law, that act allows punishment for arson causing death. The death occurred when firefighter Charles Sparks suffered a heart attack while putting out the fire. Could a jury find Pritchard guilty of causing Sparks’s death? [U.S. v. Pritchard, 964 F.3d 513 (2020)] (See Negligence.) Solution: Yes. At trial, a jury decided that there was sufficient evidence that Sparks’s death was “a direct proximate result of [Pritchard’s] conduct” to convict him. Pritchard clearly had to suppose that firefighters would appear in response to the blaze. Even though he had no reason to suspect that Charles Sparks specifically would arrive on the scene, bringing with him a history of coronary disease, Sparks’s death came within the meaning of the federal arson statute, 18 U.S.C. Section 844(i). 5–8. Intentional Infliction of Emotional Distress. Joshua Amin was a package sorter for United Parcel Service, Inc. (UPS), in Dallas, Texas. On his way to use the bathroom, Amin was stopped by UPS division manager Sergio Castro. Claiming that Amin had already used his bathroom break for the day, Castro ordered Amin back to his workstation and told him, “You can use [the toilet] right where you are.” That is exactly what happened, and, according to Amin, he was forced to work in soiled pants for twenty minutes. Based on the humiliating nature of the incident and his consequent depression, Amin brought suit against UPS for intentional infliction of emotional distress. Should the court rule in Amin’s favor? Explain. [Amin v. United Parcel Service, Inc., 66 F.4th 568 (5th Cir. 2023)] (See Intentional Torts against Persons.) Solution: No. This answer relies on the legal, rather than the popular, definition of emotional distress. One of the elements of the tort of intentional infliction of distress (IIED) is that the emotional distress suffered must be “severe.” After a federal district court granted UPS’s motion to dismiss his IIED claim, Amin asked the U.S. Court of Appeals for the Fifth Circuit to reverse. Amin based his amended IIED claim on “the humiliating nature” of the incident itself as well as testimony to establish the severity of his distress. The appeals court was unimpressed with the evidence of “severity” presented by the plaintiff. Two friends testified that Amin was “depressed” and “withdrawn” after the incident. Amin told the appeals court that he was hesitant about going out in public with his son, for fear of running into someone who knew about the incident and might mention it to the boy. In the appeals court’s judgment, this behavior did not show Amin to have been “extraordinarily damaged” by his humiliating experience. Previously successful IIED claims in Texas involved plaintiffs who suffered intense psychosomatic symptoms, suicidal thoughts, and post-traumatic stress disorder. As Amin’s distress did not rise to these levels, the appeals court affirmed the district court’s ruling that his IIED claim must fail. 5–9. A Question of Ethics—The IDDR Approach and Wrongful Interference. Julie Whitchurch was an employee of Vizant Technologies, LLC. After she was fired, she created a website falsely accusing Vizant of fraud and mismanagement to discourage others from doing business with the company. Vizant filed a suit in a federal district court against her, alleging

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

wrongful interference with a business relationship. The court concluded that Whitchurch’s online criticism of Vizant adversely affected its employees and operations, forced it to accept reduced compensation to obtain business, and deterred outside investment. The court ordered Whitchurch to stop her online efforts to discourage others from doing business with Vizant. [Vizant Technologies, LLC v. Whitchurch, 675 Fed.Appx. 201 (3d Cir. 2017)] (See Intentional Torts against Persons.) 1.

How does the motivation for Whitchurch’s conduct differ from that in other cases involving wrongful interference? What does this suggest about the ethics in this situation? Discuss. Solution: Wrongful interference with another’s business rights can be divided into two categories—wrongful interference with a contractual relationship and wrongful interference with a business relationship. The typical case of wrongful interference involves a scheme to attract another’s employee or customer to work for or do business with the party who commits the tort. In either circumstance, the motivation is normally to gain or increase a share of a market. In this problem, Julie Whitchurch worked for Vizant Technologies. After she was terminated, she created a website falsely accusing Vizant of fraud and mismanagement. Her purpose was to discourage others from doing business with her ex-employer. Vizant sued Whitchurch, alleging wrongful interference with a business relationship. The court concluded that Whitchurch’s disparagement of Vizant adversely affected its employees and operations, forced it to accept lower compensation to attract business, and deterred outside investment in the company. The results of Whitchurch’s action may be similar to the results in other cases of wrongful interference. But her motivation was not to gain or increase a share of a market. Her motive appears to have been revenge. This suggests that Whitchurch suffered from a greater lack of ethics than the typical defendant accused of wrongful interference. From a utilitarian perspective, an attempt to gain or increase a market share can have arguably positive results. A desire to exact revenge, however, is almost wholly gratuitous, especially in the circumstances of this case. In the actual case on which this problem is based, the court issued a judgment in Vizant’s favor and enjoined Whitchurch from discouraging others from doing business with Vizant. The U.S. Court of Appeals for the Third Circuit affirmed the judgment and injunction.

2. Using the IDDR approach, analyze and evaluate Vizant’s decision to file a suit against Whitchurch. Solution: Vizant’s decision to file a suit was probably motivated by a desire to end the impact of Whitchurch’s criticism of the company. The decision will most likely prove to be a success. Whitchurch created a website to falsely accuse Vizant of fraud and mismanagement. She intended to discourage others from doing business with the company. The disparagement had its intended effect, adversely affecting

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

the firm’s employees and operations. Vizant was forced to lower its prices to obtain business. Outside investors were deterred from investing in the firm. The IDDR approach has four steps—Inquiry, Discussion, Decision, and Review. The purpose of the first step, Inquiry, is to identify the issue, the stakeholders, and applicable ethical theories. In this problem, the impact of Whitchurch’s accusations likely prompted Vizant to consider actions to curtail them. The company might have chosen to do nothing, or it might have attempted to negotiate with Whitchurch. A third option would be to file a suit against her. Aside from the principal parties, the stakeholders include the company’s owners, directors, officers, employees, and customers, as well as other members of the firm’s community. These are the persons who suffer when business is bad. Ethics standards may derive from religious or philosophical principles, the principle-of-rights theory, the categorical imperative, or utilitarianism. The second step, Discussion, involves analyzing possible actions to address the issue. Factors include the strengths and weaknesses of those actions, considering their consequences and their effects on stakeholders. Choosing to do nothing could effectively rob Whitchurch’s accusations of credibility. Negotiations might lead to a retraction of, and an end to, her comments. Either course would save the cost and publicity of litigation. If these actions were tried and failed, a suit could become the only viable option to stop the criticism. Utilitarianism would seem to be the ethical theory to apply here—a suit would be the proper action if it would produce the greatest good for the most people. Considering the number of stakeholders, there is little doubt that a successful suit against Whitchurch would have the optimal result. The third step is to make a Decision and state the reasons. Clearly, in this case, Vizant decided to proceed with its suit. The reasons include those stated above. After the filing of the complaint and before the trial, there would have been time for the parties to negotiate a quicker, less expensive end to the matter. Of course, this did not happen—Whitchurch continued, even after a loss at trial, up to or perhaps through an appeal. The final step, Review, determines the success or failure of the action to resolve the issue and satisfy the stakeholders. In the actual case on which this problem is based, the court issued a judgment in Vizant’s favor and enjoined Whitchurch from discouraging others from doing business with Vizant. The U.S. Court of Appeals for the Third Circuit affirmed the judgment and the injunction. This indicates the success of Vizant’s action to at least temporarily resolve the issue and, assuming a decline in negative effects coincident with the imposition of the injunction, satisfy the stakeholders.

CRITICAL THINKING AND WRITING ASSIGNMENTS 5–10. Time-Limited Group Assignment—Negligence. Donald and Gloria Bowden hosted a cookout at their home in South Carolina, inviting mostly business acquaintances. Justin Parks, who was nineteen years old, attended the party. Alcoholic beverages were available to all of the guests, even those who, like Parks, were between the ages of eighteen and twenty-one. Parks consumed alcohol at the party and left with other guests. One of these guests detained Parks at the guest’s home to give Parks time to “sober up.” Parks then drove himself from this

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

guest’s home and was killed in a one-car accident. At the time of death, he had a blood alcohol content of 0.291 percent, which exceeded the state’s limit for driving a motor vehicle. Linda Marcum, Parks’s mother, filed a suit in a South Carolina state court against the Bowdens and others, alleging negligence. (See Negligence.) 1.

The first group will present arguments in favor of holding the social hosts (Donald and Gloria Bowden) liable in this situation. Solution: If there were a statute in South Carolina that could be applied to this set of facts, as there are in some states, it would present a nearly unassailable argument in favor of imposing liability. In the absence of such a specific law, an alcoholic beverage control statute might provide a basis for imposing liability, under limited circumstances, on commercial hosts (the owners of bars, for example). For policy reasons, those circumstances might be limited to the service of alcoholic beverages to an intoxicated adult to whom recovery might be denied. Commercial entities might also be statutorily liable for knowingly selling alcoholic beverages to minors, who may be allowed to recover. It could be argued that liability might extend, under at least the latter statutes, to social hosts. But these statutes would likely not support imposing a common-law negligence duty on a social host with recovery by an underage individual who consumed the alcoholic beverages. Why? Because this would impose a higher standard on the social host than that to which the commercial provider was subject. Or public policy might warrant treating underage individuals as lacking full adult capacity to make informed decisions concerning the ingestion of alcoholic beverages and holding liable adult social hosts who knowingly and intentionally serve, or cause to be served, alcoholic beverages to persons they know or should know to be between the ages of eighteen and twenty.

2. The second group will formulate arguments against holding the social hosts liable. Solution: In any situation, it might be argued that underage drinkers who are not minors should be considered the same as other adults, with no liability imposed on their social hosts for torts committed by intoxicated guests. 3. The states vary widely in assessing liability and imposing sanctions in the circumstances described in this problem. The third group will analyze the possible reasons why some courts treat social hosts who serve alcohol differently than parents who serve alcohol to their underage children. Solution: The contrast in liability and punishments among the states is a consequence of conflicting public attitudes about underage drinking. Parents who would not approve of their underage children consuming alcoholic beverages outside their homes, for example, might condone such drinking in their homes. In that situation, the rationalization might be to keep teenagers off the road and out of other kinds of trouble. Some might view this attitude and its supporting “reasoning” as what is sometimes referred to as “situation ethics.” The legal environment might unintentionally lend support to these parents by rarely holding them responsible for allowing teenagers to consume alcohol in their homes. This is in part because it is difficult to prove in such circumstances which adults provided the alcohol or condoned its use. In some states, it is legal for minors to consume alcohol in their parents’ presence and © 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 05: Tort Law

in other limited circumstances—in conjunction with a religious ceremony, for example. Even parents who might allow their children to drink in their presence might object strongly to other adults making that choice for them. 4. The fourth group will decide whether the guest who detained Parks at his home to give Parks time to sober up could be held liable for negligence. What defense might this guest raise? Solution: The guest who detained Parks at his home to give Parks time to sober up could be held liable for negligence on the basis that he assumed a duty to Parks by taking this action and breached the duty by letting him drive home. The breach might be construed as the proximate cause of the accident that resulted in Parks’s death, with his parents suffering emotional injuries for their loss. The defenses to the charge in this scenario that the guest might assert include that he owed no duty, that if he did, it was not breached, that if there was a breach of duty, it was not the direct or proximate cause of Parks’s accident, and that even if those elements of negligence might be proved, his parents suffered no compensable injury. All of these defenses would be predicated on the fact of Parks’s underage over-consumption of alcohol at the Bowdens’s party, for which the guest was not responsible. Alternatively, the guest might claim that by temporarily detaining Parks to sober up, the guest was acting as a Good Samaritan, and under such a statute one who voluntarily aids another is protected from being held liable for negligence. Or the guest might argue that a state dram shop act designates those who might be liable for injuries caused by intoxicated persons as the sellers or servers who contributed to it—the guest was neither a seller nor a server of alcohol to Parks. The guest might also argue that Parks assumed the risk of his own death by drinking to excess and then driving, or that under either a contributory or comparative negligence theory, the guest was entitled to avoid liability for the greater negligence of the hosts or Park himself.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

Solution and Answer Guide

Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

TABLE OF CONTENTS Critical Thinking Questions in Features .............................................................................1 Business Law in Context—Key Point ..................................................................................... 1 Landmark in the Law—Application to Today’s World ....................................................... 2 Cybersecurity and the Law—Critical Thinking .................................................................... 2 Building Analytical Skills—Result and Reasoning .............................................................. 2 Managerial Strategy—Business Questions........................................................................... 3 Critical Thinking Questions in Cases ................................................................................. 3 Case 6.1—Critical Thinking...................................................................................................... 3 Case 6.2—Critical Thinking ..................................................................................................... 5 Case 6.3—Critical Thinking ..................................................................................................... 5 Chapter Review ................................................................................................................... 6 Practice and Review................................................................................................................. 6 Practice and Review: Debate This ......................................................................................... 7 Issue Spotters ........................................................................................................................... 7 Business Scenarios and Case Problems .............................................................................. 8 Critical Thinking and Writing Assignments ......................................................................... 13

CRITICAL THINKING QUESTIONS IN FEATURES BUSINESS LAW IN CONTEXT—KEY POINT 1.

Product liability lawsuits are common for large corporations. Note that in the talcum powder cases, 90 percent or more of the jury awards were for “failure to warn.” J&J could have warned consumers of a potential link between genital use of talcum powder and ovarian cancer, but it did not. Why would the company fail to take such a simple step? Solution: Johnson & Johnson undoubtably failed to place labels warning of a link between use of talcum powder and cancer for economic reasons. Sales of talc-based products would have been severely dampened had such a warning been evident on each Johnson & Johnson Baby Powder container. Such is the double-edged sword for

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

manufacturers: risk reduced sales for warning consumers of health risks associated with your products or risk lawsuits for failing to do so.

LANDMARK IN THE LAW—APPLICATION TO TODAY’S WORLD 1.

This landmark decision was a significant step in creating the legal environment of the modern world. As often happens, technological developments necessitated changes in the law. Suppose the autodrive system malfunctioned in a Tesla, allegedly causing injury. How might a lawsuit involving this accident be resolved using legal principles similar to those applied in the MacPherson case? Solution: In a real-life case, Tesla, Inc., was sued after one of its Model 3 vehicles suddenly veered off a California highway, struck a palm tree, and burst into flames, killing the driver and seriously injuring two passengers. The driver’s heirs sued Tesla, alleging that a defect in the car’s Autopilot system caused the accident. Just as with Buick Motor in the MacPherson case, Tesla had to prove it had upheld its duty to manufacture a safe product and show that its Autopilot system was so “sound and strong” as not to unreasonably put a driver or passengers at risk. Despite the gruesome nature of the accident, Tesla prevailed. At trial, the company produced data showing that, in general, crashes were less likely when drivers were using Autopilot. It also raised the possibility that the driver had been drinking alcohol before getting behind the wheel, thus breaking the chain of causation between Autopilot and the crash. The same year as the trial, however, Tesla did recall more than two million vehicles for a software remedy that added more control features and alerts encouraging drivers to remain vigilant when using Autopilot.

CYBERSECURITY AND THE LAW—CRITICAL THINKING 1.

Security engineers discovered that faulty coding in the Chrysler Jeep’s entertainment software made the car vulnerable to cyber attacks, conceivably enabling hackers to gain control of the vehicles. The United States Supreme Court has allowed a breach of warranty lawsuit against Chrysler by Jeep owners who contend that they would not have purchased the cars had they known about the security defect. Why might the outcome of this case be important for strict product liability law? Solution: An important question in the developing field of IoT strict product liability law is: Who is liable for product malfunction that results from hacking and causes harm? The hacker, certainly. The manufacturer, perhaps, but only if a failed security system qualifies as a defective condition that makes the IoT product “unreasonably dangerous” to consumers or users. Even though it is not a strict product liability case, the Chrysler lawsuit does involve plaintiffs who have been harmed, albeit economically, by a manufacturer’s failure to protect its product against cyber attacks. Whether or not the plaintiffs prevail, their case will establish a precedent for the extent to which civil law is willing to hold manufacturers responsible for lapses in the cybersecurity embedded in their products.

BUILDING ANALYTICAL SKILLS—RESULT AND REASONING 1.

Because Nebraska limits strict product liability suits to situations involving personal injury, a court will most likely dismiss Dobrovolny’s design defect claim. (As an alternative to tort

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

remedies, he may attempt to recover for the loss of his truck under contract theories for breach of warranty). Identify one reason that a state such as Nebraska would limit strict product liability in this manner. Solution: When a product “injures” only itself, the reasons for imposing strict product liability lose their significance. The consumer has not been injured, and the loss concerns only the consumer’s benefit of the bargain from the contract with the seller of the product. In many ways, strict liability contradicts the basic principle of law that a person or business should only be punished for acts that are committed with intent or some level of negligence. Therefore, most jurisdictions limit strict liability’s applicability to those instances where society’s well-being is at interest. Society is seen to benefit when manufacturers are held strictly liable for malfunctions that cause personal injuries. Such a benefit is not so evident when only the product is damaged or destroyed. Put another way, public policy is more concerned with protecting Dobrovolny than it is with protecting his truck.

MANAGERIAL STRATEGY—BUSINESS QUESTIONS 1.

To protect themselves, manufacturers have been forced to include lengthy safety warnings for their products. What might be the downside of such warnings? Solution: A lengthy warning is less likely to be read by a product’s user. And an injured user who failed to read and heed a warning might not be able to successfully argue as a plaintiff that a defect in the warning caused the injury.

2. Does a manufacturer have to create safety warnings for every product? Why or why not? Solution: No. All manufacturers do not have to provide safety warnings for all products. As noted in the text, people know that knives are sharp and can cut fingers, for example, so a warning label on each knife warning consumers of the danger is arguably unnecessary. In fact, most household products are safe when used as intended. This is particularly true when the danger is open and obvious. Warning about such risks would not increase the safety of the product and might detract from it by undercutting the significance of other, less clear risks.

CRITICAL THINKING QUESTIONS IN CASES CASE 6.1—CRITICAL THINKING 1.

Legal Environment. In the initial trial, should the jury have found that O’Bryan was also at fault? How might this finding have affected the award of damages? Explain. Solution: Yes, the jury should have found that O’Bryan was also at fault for the injuries that he received in the collapse of a ladderstand made by Primal Vantage Co. This finding would have reduced the maker’s responsibility for the amount of the award of damages to the percentage of the company’s fault. O’Byran was injured—paralyzed from the waist down and suffering unremitting pain— when he climbed the ladder of the stand to a platform fifteen feet above the ground and the platform collapsed. Attached to a tree for five years without inspection or

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

maintenance, exposed to the elements and the growth of the tree, the deteriorated straps securing the stand to the tree had broken. In O’Bryan’s suit against Primal Vantage, alleging product liability, the plaintiff argued that the warnings and instructions accompanying the stand were inadequate. The jury agreed and awarded damages to the plaintiff. Primal Vantage appealed, contending that any inadequacy in this regard was not the proximate cause of the accident—the cause was the failure of the owner of the stand to maintain it in accord with the instructions. A state intermediate appellate court affirmed the judgment of the lower court. “The negligence of an intervening party does not relieve the manufacturer of the duty to warn adequately.” In the actual Primal Vantage case, the jury found that O’Bryan also failed to comply with his duty of ordinary care and that this failure was a substantial factor in causing the accident. The jury calculated the total damages and assigned fifty percent of the fault to each party, reducing Primal Vantage’s obligation by half. 2. Legal. The Supreme Court of Kentucky, while finding no fault with the lower courts’ proximate cause reasoning, ordered a retrial of this case. The problem was that the trial jury heard testimony about almost eighty other accidents involving ladderstands with circumstances that were different from O’Bryan’s. Why would this necessitate a retrial? Solution: The issue here was fairness to Primal Vantage Company, Inc. The only facts that a jury should hear during a trial are those facts relevant to the case. If irrelevant evidence is presented, grounds often exist for a mistrial, especially if that irrelevant evidence would tend to prejudice the jury against one of the parties. In reversing the lower court’s decision, the Supreme Court of Kentucky seemed genuinely dismayed that the jury was allowed to hear testimony about eighty other accidents involving ladderstands, none of which involved polypropylene straps and inadequate warnings. This avalanche of irrelevant evidence concerning the dangerousness of ladderstands, the appeals court concluded, could easily have prejudiced the jury against Primal Vantage. In fact, the trial court itself decided that this evidence was “incredibly prejudicial,” but only after the jury heard it. The trial court then ordered the jurors to disregard the evidence in reaching their verdict. The appeals court, skeptical that a jury would be able to do so, felt it had no choice but to order a retrial. The Primal Vantage case highlights a harsh truth about civil court procedure and the American court system. A victory can be negated if the defense attorney, the prosecutor, or the judge makes a mistake, even if the mistake has no impact on the relevant facts of the case. O’Bryan argued that the intermediate court’s ruling in his favor should stand because the jury would have come to the same conclusion even if it hadn’t heard the testimony about nearly eighty dissimilar ladderstand accidents. This very well may have been true. The Supreme Court of Kentucky ruled, however, that the trial court’s error was so egregious as to necessitate a new trial. Often, the demands of justice are expensive, time-consuming, and altogether frustrating for all parties involved.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

CASE 6.2—CRITICAL THINKING 1.

Economic. Why did Janssen downplay the risks of Risperdal in the warnings to physicians? Discuss. Solution: Most likely, Janssen downplayed the risks of Risperdal in its warnings to physicians in order not to discourage its use, which thereby increased the maker’s return on its investment in the drug. Developing and testing drugs that may ultimately be approved for use by patients is an extraordinarily expensive endeavor. Taking any step late in this process that would discourage the use of a drug in which its developer has invested so much time, money, and effort could result in a significant economic loss. Of course, the business strategy to understate the risks of the use of a prescription drug can cause negative results. Some patients who might not otherwise have been prescribed the drug may suffer harm from its use, leading to the imposition of liability on its manufacturer, as in the Stange case. And this could further lead to greater losses in human and economic terms than would have occurred if the maker had been upfront about the risks in the first place.

2. What If the Facts Were Different? Suppose that instead of suffering harm through a prescription drug’s legitimate use, the plaintiff had been injured by a drug’s illegal abuse. Would the result have been different? Explain. Solution: Yes, if instead of suffering harm through a prescription drug’s legitimate use, the plaintiff had been injured by a drug’s illegal abuse, the result would have been different. When an injury is caused to a patient by the use of a prescribed drug, it must be proved that its maker failed to exercise reasonable care to inform the prescribing physician of facts that make the drug likely to be dangerous. And sometimes, liability may arise through a product’s foreseeable misuse. But if a person is harmed by a drug through its illegal abuse, there is no legal, or even logical, basis on which to impose liability on its maker.

CASE 6.3—CRITICAL THINKING 1.

Economic. Why were product manufacturers based in Georgia unhappy with the Georgia Supreme Court’s ruling in this case? Solution: Manufacturers in Georgia worried that the outcome of this case would subject them to a landslide of product liability lawsuits from consumers who intentionally misused their products. The Georgia Supreme Court specifically addressed these concerns in its opinion, stating that a manufacturer would be held liable for intentional product misuse only when, as happened here, such misuse was reasonably foreseeable. Additionally, product liability plaintiffs must also prove that the manufacturer’s negligent design was the proximate cause of the alleged injury. So, the state was not trying to punish manufacturers by leaving them open to frivolous lawsuits. Rather, it aimed to disincentivize them from making and selling obviously dangerous products. Note that, in part because of lawsuits such as the one brought by the Maynards, Snap eventually eliminated the “Speed Filter” option on the Snapchat app.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

2. Legal Environment. In the context of product liability law, should social media platforms be treated the same as tangible products such as chainsaws or trampolines? Solution: Probably. In several lawsuits involving the Speed Filter feature, Snap argued that it was not a “product” in the traditional sense. Instead, Snap contended, it is only a tool that allows users to post their own content. Therefore, civil lawsuits involving social media should be treated as free speech protected (or not) by the First Amendment. Many courts, including the Georgia Supreme Court in the Maynard case, have rejected this premise. A social media platform, like other items produced by software companies, can be owned and distributed, just like a chainsaw or trampoline. Furthermore, defects in software can be corrected, just as in other products. One court did, however, dismiss a case against Snap involving Speed Filter after determining that the feature was no more than a “speedometer tool.” The court reasoned that the app does not publish content itself. It only allows users to add their own content. This led the court to rule that, under the First Amendment, Snap could not be held liable for user content.

CHAPTER REVIEW PRACTICE AND REVIEW Shalene Kolchek bought a Great Lakes Spa from Val Porter, a dealer who was selling spas at the state fair. After Kolchek signed the contract, Porter handed her the manufacturer’s paperwork and arranged for the spa to be delivered and installed for her. Three months later, Kolchek left her six-year-old daughter, Litisha, alone in the spa. While exploring the spa’s hydromassage jets, Litisha got her index finger stuck in one of the jet holes. Litisha yanked hard, injuring her finger, and then panicked and screamed for help. Kolchek was unable to remove Litisha’s finger, and the local police and rescue team were called to assist. After a three-hour operation that included draining the spa, sawing out a section of the spa’s plastic molding, and slicing the jet casing, Litisha’s finger was freed. Following this procedure, the spa was no longer functional. Litisha was taken to the local emergency room, where she was told that a bone in her finger was broken in two places. Using the information presented in the chapter, answer the following questions. 1.

Under which theories of product liability can Kolchek sue Porter to recover for Litisha’s injuries? Solution: Kolchek may sue the manufacturer, Great Lakes, for product liability based upon negligence. Furthermore, she may assert claims against Great Lakes and Porter, as a member of the distributive chain, for strict product liability based upon design defects associated with the spa and inadequate warnings with respect to its use.

2. Would privity of contract be required for Kolchek to succeed in a product liability action against Great Lakes? Explain.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

Solution: Injured consumers may bring claims sounding in product liability or strict liability against manufacturers despite the absence of a direct contractual relationship. Potential defendants to such actions include manufacturers, sellers, and lessors. 3. For an action in strict product liability against Great Lakes, what six requirements must Kolchek meet? Solution: Plaintiffs in strict product liability cases must show the product was in a defective condition when it was sold, the defendant sells or distributes such products in the ordinary course of business, the product was unreasonably dangerous, the plaintiff suffered physical harm or injury to property as a result of use of the product, the injury was proximately caused by the defect, and the product was not substantially changed from the time it was sold to the time the injury occurred. 4. What defenses to product liability might Porter or Great Lakes be able to assert? Solution: Comparative negligence allows the jury to compute the contributions of both parties to the situation. This results in the reduction or elimination of the plaintiff’s recovery, depending on the state rule and the percent of negligence contributed. Leaving a six-year-old unattended in the spa may be deemed negligent and thereby reduce the plaintiff’s ultimate recovery.

PRACTICE AND REVIEW: DEBATE THIS 1.

All liability suits against tobacco companies for causing lung cancer should be thrown out of court now and forever. Solution: It is difficult to believe that those who smoked in the past and those who smoke tobacco products today didn’t or don’t know about the health dangers of smoking. After all, even 75 years ago, before any research was carried out, kids called cigarettes “coffin nails.” Common sense tells anyone that inhaling smoke into one’s lungs cannot have a positive effect on one’s health. Cigarettes are just another product that individuals have the choice to buy or not to buy. There should be no liability issues here. Cigarette companies for years promoted the glamour and even the safety of smoking, so tobacco manufacturers should be liable for the deaths caused by cigarette smoking, at least those that occurred in the past. There is uncontroverted proof that the ads for cigarette smoking were misleading because they played down the negative health effects of this activity. Any time false advertising is an issue, companies that engage in it should be held liable for the results of such advertising.

ISSUE SPOTTERS 1.

Rim Corporation makes tire rims and sells them to Superior Vehicles, Inc., which installs them on cars. One set of rims is defective, which an inspection would reveal. Superior does not inspect the rims. The car with the defective rims is sold to Town Auto Sales, which sells the car to Uri. Soon, the car is in an accident caused by the defective rims, and Uri is injured. Is Superior Vehicles liable? Explain your answer. (See Product Liability Claims.)

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

Solution: Yes. Those who make, sell, or lease goods are liable for the harm or damages caused by those goods to a consumer, user, or bystander. The maker of component parts may also be liable. In this situation, Rim Corporation makes tires that Superior installs on its vehicles before selling them to dealers. Thus, Superior is the manufacturer, and Rim is the maker of component parts. A manufacturer is liable for its failure to exercise due care to any person who sustains an injury proximately caused by a negligently made (defective) product. Superior’s failure to inspect and test the tires it installs is a failure to use due care. Thus, Superior is liable to the injured buyer, Uri. Rim Corporation may also be liable. 2. Bensing Company manufactures generic drugs for the treatment of heart disease. A federal law requires generic drug makers to use labels that are identical to the labels on brand-name versions of the drugs. Hunter Rothfus purchased Bensing’s generic drugs in Ohio and wants to sue Bensing for defective labeling based on its failure to comply with Ohio state common law (rather than the federal labeling requirements). What defense might Bensing assert to avoid liability under state law? (See Defenses to Product Liability.) Solution: Bensing can assert the defense of preemption. An injured party may not be able to sue the manufacturer of defective products that are subject to comprehensive federal regulatory schemes (such as medical devices and vaccinations). In this situation, it is likely that a court would conclude that the federal regulations pertaining to drug labeling preempt Ohio’s common law rules. Therefore, Bensing would not be liable to Rothfus for defective labeling if it complied with federal law.

BUSINESS SCENARIOS AND CASE PROBLEMS 6–1. Product Liability. Carmen buys a television set manufactured by AKI Electronics. She is going on vacation, so she takes the set to her mother’s house for her mother to use. Because the set is defective, it explodes, causing considerable damage to her mother’s house. Carmen’s mother sues AKI for the damage to her house. Discuss the theories under which Carmen’s mother can recover from AKI. (See Product Liability Claims.) Solution: Carmen’s mother can bring a suit against AKI under a theory of negligence or strict liability. Under negligence theory, Carmen’s mother would have to show that AKI failed to exercise due care to make the product safe and that this breach of duty was the proximate cause of the damages. If Carmen’s mother brings a suit under a theory of strict liability, according to the Restatement (Second) of Torts, she needs to establish six basic requirements of strict product liability, which are as follows: (1) the defendant must sell the product in a defective condition; (2) the defendant must normally be engaged in the business of selling the product; (3) the product must be unreasonably dangerous to the user or consumer because of its defective condition; (4) the plaintiff must incur physical harm to self or property by use or consumption of the product; (5) the defective condition must be the proximate cause of the injury or damage; and (6) the goods must not have been substantially changed from the time the product was sold to the time the injury was sustained. Under either theory (negligence or strict liability), privity of contract is not required. Some courts may not allow recovery for property damage unless personal injury also occurs.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

6–2. Product Liability. Jason Clark, an experienced hunter, bought a paintball gun. Clark practiced with the gun and knew how to screw in the carbon dioxide cartridge, pump the gun, and use its safety and trigger. Although Clark was aware that he could purchase protective eyewear, he chose not to do so. Clark had taken gun safety courses and understood that it was “common sense” not to shoot anyone in the face. Clark’s friend, Chris Wright, also owned a paintball gun and was similarly familiar with the gun’s use and its risks. Clark, Wright, and their friends played a game that involved shooting paintballs at cars whose occupants also had the guns. One night, while Clark and Wright were cruising with their guns, Wright shot at Clark’s car but hit Clark in the eye. Clark filed a product liability lawsuit against the manufacturer of Wright’s paintball gun to recover for the injury. Clark claimed that the gun was defectively designed. During the trial, Wright testified that his gun “never malfunctioned.” In whose favor should the court rule? Why? (See Product Liability Claims.) Solution: The court should rule in favor of the manufacturer, finding that the gun did not malfunction but performed exactly as Clark and Wright expected. The court should also point out that Clark and Wright appreciated the danger of using the guns without protective eyewear. Clark offered no proof that the paintball gun used in the incident failed to function as expected. He was aware that there was protective eyewear available, but he chose not to buy it. He was an active participant in shooting paintballs at other vehicles. The evening of the incident, Clark carried his paintball gun with him for that purpose. Wright also knew it was dangerous to shoot someone in the eye with a paintball gun. But the most crucial testimony was Wright’s statement that his paintball gun did not malfunction. 6–3. Product Misuse. Five-year-old Cheyenne Stark was riding in the back seat of her parents’ Ford Taurus. Cheyenne was not sitting in a booster seat. Instead, she was using a seatbelt designed by Ford but was wearing the shoulder belt behind her back. The car was involved in a collision. As a result, Cheyenne suffered a spinal cord injury and was paralyzed from the waist down. The family filed a suit against Ford Motor Co., alleging that the seatbelt was defectively designed. Could Ford successfully claim that Cheyenne had misused the seatbelt? Why or why not? [Stark v. Ford Motor Co., 365 N.C. 468, 723 S.E.2d 753 (2012)] (See Defenses to Product Liability.) Solution: No, Ford could not succeed on a claim that Cheyenne had misused the seatbelt. Product misuse occurs when a product is used for a purpose that was not intended. This defense has been severely limited by the courts. It is recognized as a defense only when the particular use was not reasonably foreseeable. Manufacturers and suppliers are required to expect reasonably foreseeable misuses and to design products that are safe when misused or marketed with a protective device, such as a childproof cap. In the facts of this problem, Cheyenne was too young to be negligent, and it is reasonably foreseeable that a child would wear a seatbelt incorrectly without understanding the risks. In the actual case on which this problem is based, the court issued a judgment in Cheyenne’s favor. 6–4. Strict Product Liability. Medicis Pharmaceutical Corp. makes Solodyn, a prescription oral antibiotic. Medicis warns physicians that “autoimmune syndromes, including drug-induced lupus-like syndrome,” may be associated with use of the drug. Amanda Watts had chronic

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

acne. Her physician prescribed Solodyn. Information included with the drug did not mention the risk of autoimmune disorders, and Watts was not otherwise advised of it. She was prescribed the drug twice, each time for twenty weeks. Later, she experienced debilitating joint pain and, after being hospitalized, was diagnosed with lupus. On what basis could Watts recover from Medicis in an action grounded in product liability? Explain. [Watts v. Medicis Pharmaceutical Corp., 236 Ariz. 19, 365 P.3d 944 (2016)] (See Strict Product Liability.) Solution: Watts might recover from Medicis in an action grounded in product liability on proven allegations that the drug was unreasonably dangerous because Medicis failed to provide adequate warnings of its known dangers. A product’s maker or seller is liable for products that are so defective as to be unreasonably dangerous. This exists when a product is dangerous beyond the expectation of the ordinary consumer or a less dangerous alternative was economically feasible, but the maker or seller failed to use it. A product may be deemed unreasonably dangerous because of inadequate instructions or warnings. In the fact of this problem, Medicis Pharmaceutical Corp. made Solodyn, a prescription drug. Medicis warned prescribing physicians that “autoimmune syndromes, including drug-induced lupus-like syndrome,” are possible from the use of the drug. Amanda Watts’s physician prescribed Solodyn for her acne. An insert included with the drug did not mention the risk of autoimmune disorders, and Watts was not otherwise advised of it. Later, she was diagnosed with lupus. In other words, Medicis did not adequately warn Watts about the risks of Solodyn, and the inadequacy of the warning contributed to Watts's injuries. In the actual case on which this problem is based, Watts filed a suit in an Arizona state court against Medicis to recover for her injuries. The court dismissed her complaint. A state intermediate appellate court vacated the dismissal and remanded the case, based in part on the reasoning stated above. 6–5. Spotlight on Pfizer, Inc.—Defenses to Product Liability. Prescription drugs in the United States must be approved by the Food and Drug Administration (FDA) before they can be sold. A drug maker whose product is approved through the FDA’s “abbreviated new drug application” (ANDA) process cannot later change the label without FDA approval. Pfizer Inc. makes and sells by prescription Depo-T, a testosterone replacement drug classified as an ANDA-approved drug. Rodney Guilbeau filed a claim in a federal district court against Pfizer, alleging that he had experienced a “cardiovascular event” after taking Depo-T. He sought recovery on a state-law product liability theory, arguing that Pfizer had failed to warn patients adequately about the risks. He claimed that after the drug’s approval its maker had become aware of a higher incidence of heart attacks, strokes, and other cardiovascular events among those who took it but had not added a warning to its label. What is Pfizer’s best defense to this claim? Explain. [Guilbeau v. Pfizer, Inc., 80 F.3d 304 (7th Cir. 2018)] (See Defenses to Product Liability.) Solution: Pfizer’s best defense to the claim that it failed to add warnings about certain risks to the label of Depo-T is preemption. Federal law can preempt state-law product liability claims, preventing an injured party from suing the maker of a defective product on the basis of a circumstance that is subject to a comprehensive federal regulatory scheme. Here, Pfizer makes and sells Depo-T, a testosterone replacement drug classified as an ANDA-approved drug. In this case, Guilbeau had been prescribed the drug and

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 06: Product Liability

allegedly suffered a cardiovascular event from its use. He claimed that after the drug’s approval, Pfizer had learned of a higher incidence of such occurrences among those who took it but had not added a warning to the label. But the maker of a drug approved through the Food and Drug Administration’s ANDA (abbreviated new drug application) process cannot later change the label without the agency’s approval. Thus, federal law acted to preempt Guilbeau’s state law claim. In the actual case on which this problem is based, Pfizer asserted that federal law preempted Guilbeau’s claim. The court dismissed the suit. The U.S. Court of Appeals for the Seventh Circuit affirmed, stating, “ANDA holders have an ongoing federal duty of sameness. At all times their drugs’ labeling must be the same as the ... labeling that was the basis of the ANDA approval.” 6–6. Business Case Problem with Sample Answer—Strict Product Liability. A year after Lee and Victoria Johnson purchased a home in Chester Springs, Pennsylvania, they discovered that many of the windows in the structure were defective. The Johnsons sued Anderson Windows, Inc., which had manufactured and sold the items, on the theory of strict product liability. The plaintiffs sought damages to cover the cost of repairs needed to fix water damage and rotting wood around the window frames, and for the diminution of the home’s resale value. What defense will Anderson probably raise at trial? Will this strategy be successful? Explain. [Johnson v. Toll Brothers, Inc., 303 A.3d 471 (Pa. Super. Ct. 2023)] (See Strict Product Liability.) Solution: Many states, including Pennsylvania, limit the application of strict product liability to situations involving personal injuries or harm to other property. In Pennsylvania, this is known as the “economic loss doctrine.” Here, Anderson Windows, Inc., would probably ask for the case to be dismissed because nobody was injured, and the windows’ alleged defects did not damage anything but the windows themselves. The Johnsons would probably counter that the allegedly defective windows did cause further property damage—from water intrusion and rotting wood—to the home’s “internal structure.” The question before the court would be: Is the house a single unit, or is it made up of many different components? If the house is a single unit, then Anderson would prevail, because the allegedly defective windows and the home are the same property. If the windows are separate from the rest of the house, then the Johnsons would have a better chance of succeeding in their strict product liability legal action. 6–7. Assumption of Risk. Konrad Sinu was a student at Concordia University, a private institution in Seward, Nebraska. He was a member of the school’s men’s soccer team. Before arriving at Concordia, Sinu signed an “Assumption of Risk and Waiver of Liability Release.” (Because Sinu was a minor, his mother also signed the release.) Working out in the university gym with his teammates, Sinu injured himself while taking part in an exercise that involved pulling an elastic resistance band towards his face. Sinu and his mother sued Concordia, alleging negligence on the part of the university for not ensuring that the band was being used correctly. Concordia countered with a motion to dismiss, pointing to language in the waiver stating that Sinu’s “presence and participation” in “intercollegiate athletics” were taken “solely at [his] own risk.” Will Sinu get the chance to argue his case before a jury? Should he get that chance? Why or why not? [Sinu v. Concordia University, 983 N.W.2d 511, 313 Neb. 218 (2023)] (See Defenses to Product Liability.)

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 26: Sole Proprietorships and Franchises

3. The third group will assess whether Dunkin’ Donuts acted in good faith in its relationship with Elkhatib. It will also consider whether Dunkin’ Donuts should be required to accommodate Elkhatib’s religious beliefs and allow him to not serve pork in these three locations. Solution: Elkhatib’s obligations under his current franchise agreement presumably require all franchisees to carry the full food product line of Dunkin’ Donuts. Because Elkhatib failed to carry the full line of food products, the franchisor would not extend his current franchise agreement or allow the relocation of his store. In determining whether a franchisor has acted in good faith when terminating a franchise agreement, the courts generally try to balance the rights of both parties. If the court perceives that the franchisor acted arbitrarily or unfairly, the court will grant the franchisee a remedy. In this situation, the court would consider the fact that the franchisee’s refusal to offer breakfast sandwiches containing pork was based on his religious beliefs. Nonetheless, the court would balance this against the fact that Dunkin’ Doughnuts has a right to require its franchisees to offer a uniform menu to protect its name and reputation. Dunkin’ Doughnuts acted in good faith. As for the franchisor’s refusal to allow its franchisee’s relocation, it is within a franchisor’s rights to determine the location of a franchise.

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

Solution and Answer Guide

Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

TABLE OF CONTENTS Critical Thinking Question in Feature.................................................................................1 Ethical Issue—Value Judgment .............................................................................................. 1 Critical Thinking Questions in Cases ................................................................................. 2 Case 27.1—Critical Thinking.................................................................................................... 2 Case 27.2—Critical Thinking ................................................................................................... 3 Case 27.3—Critical Thinking ................................................................................................... 3 Chapter Review ................................................................................................................... 4 Practice and Review................................................................................................................. 4 Practice and Review: Debate This ......................................................................................... 6 Issue Spotters ........................................................................................................................... 6 Business Scenarios and Case Problems .............................................................................. 7 Critical Thinking and Writing Assignments ......................................................................... 14

CRITICAL THINKING QUESTION IN FEATURE ETHICAL ISSUE—VALUE JUDGMENT 1.

What policy goals would justify an outcome in which a blameless and bankrupt Kate remained “on the hook” for her debts to Buckley? Solution: Section 523(a)(2)(A) of the Bankruptcy Code states that “any debt ... for money ... to the extent obtained by ... false pretenses, a false representation, or actual fraud” is non-dischargeable. United States Supreme Court precent holds that the fraud of one joint partner should be imputed to the other joint partners. This legislative/precedential combination proved fatal for Kate’s claim that she should be spared the financial consequences of her husband’s fraudulent behavior. Explaining the reasons for Kate’s seemingly unfair fate, the United States Supreme Court carried out a textual analysis of the Bankruptcy Code. It found other provisions in which individual debtors were specifically liable for their wrongdoing. The language of Section 523(a)(2)(A), by contrast, is passive. In other words, the provision does not identify a wrongdoer, leading the Court to conclude that Congress intended for the

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

damage caused by one partner’s fraud to be spread to other partners of the joint partnership. The Court speculated about several reasons for this. Common law has “long maintained that fraud liability is not limited to the wrongdoer.” One example of this that we saw earlier in the textbook is the rule that principals can be held liable for the frauds of their agents. Also, the Court noted, under such circumstances, “the partners, who were not themselves guilty of wrong, received and appropriated the fruits of the fraudulent conduct of their associate in business.” That is, if David had been successful in his fraudulent scheme, Kate—as his joint partner—would have reaped the financial benefits. These general principles discourage partners with seemingly clean hands from avoiding responsibility under the partnership by claiming ignorance of their partners’ dirty hands. Furthermore, the Bankruptcy Code balances competing interests between debtors and creditors. When creating Section 523(a)(2)(A) of the Bankruptcy Code, Congress had apparently decided that a creditor’s interest in recovering full payment of debts obtained by fraud outweighs the debtor’s interest in a “fresh start,” even if that debtor had not committed the fraud in question. Finally, as the Court pointed out, partners in Kate’s position can protect themselves by forming limited liability partnerships (LLCs). We will explain later in the chapter how, in an LLC, a limited partner is insulated from personal exposure to the LLC’s debts.

CRITICAL THINKING QUESTIONS IN CASES CASE 27.1—CRITICAL THINKING 1.

What If the Facts Were Different? Suppose Ahmed could prove that he and Mehta had agreed to the “65/35” split of the proposed business venture’s profits, with Mehta promising to manage the mall for his larger share. Would a partnership have been formed? Explain. Solution: Maybe. In the actual Mehta case, the appeals court said that the discussion in which Mehta verbally agreed to give Ahmed “35 percent on the mall” once the deal was done did no more than “create a mere surmise or suspicion of Ahmed’s right to receive a share of the profits” of the venture. Arguing against this reasoning, Ahmed relied on a ruling by a different Texas court in which a renovator and an investor verbally agreed to purchase a run-down apartment complex. In that case, the parties agreed that the investor would provide financing and the renovator would provide expertise for the project. Thereafter, once the investor was reimbursed for his initial investment, the parties would split the profits equally. Once the project fell apart, the renovator sued the investor based on the alleged partnership they had formed by orally agreeing to purchase and renovate the property. The court found that a partnership did exist, based on direct evidence of an “intention to share equally in profits after renovations were completed and [the investor] was reimbursed for his investment.”

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

The Mehta court rejected the comparison between the two cases, pointing out that Ahmed had provided no direct evidence of an agreement to split profits between himself and Mehta. Had Ahmed provided direct evidence of “this missing detail,” he would have been in a much stronger legal position to argue that a partnership existed. 2. Ethical. Given the lack of evidence showing that a partnership had been formed, why do you think the jury voted in Mehta’s favor? Solution: While being cross-examined at trial, Ahmed admitted that he “never actually formed a partnership” with Mehta and further conceded that he was primarily motivated to “teach [Mehta] a lesson by putting him” through the litigation. Still, the jury found in Ahmed’s favor, based on its belief that a partnership had been formed. It seems as though jury was punishing Mehta for his clearly unethical behavior. After all, Mehta dishonestly gave Ahmed the impression that a partnership was possible even though Mehta never truly intended to enter into such an agreement. Furthermore, Mehta unethically relied on Ahmed’s $10,000,000 potential stake to obtain the “proof of funds” letter from the bank. Without this document, Mehta probably would not have been able to complete the deal to purchase the West Oaks Mall or the Macy’s department store. Finally, Mehta did not inform Ahmed of these machinations, leading the other man to think that the joint venture was a possibility when, in fact, it was not. The jury’s verdict was likely an example of a phenomenon known as “jury nullification,” which occurs when jurors “nullify” by using their own judgment to reach a decision rather than following judicial instructions or the letter of the law. Like Ahmed, then, the jury seemed to want to teach Mehta “a lesson” as punishment for his unethical behavior.

CASE 27.2—CRITICAL THINKING 1.

What If the Facts Were Different? Suppose that Salmon had disclosed the proposed deal to Meinhard, who had said that he was not interested. Would the result in this case have been different? Explain. Solution: Yes, because telling Meinhard about the offer would have met Salmon’s fiduciary duty of loyalty to his partner. Without a breach of the duty, there would not have been the same ground on which to award Meinhard “the value of half of the entire lease.”

CASE 27.3—CRITICAL THINKING 1.

Legal Environment. Could the partnership in this case have avoided the liquidation of its assets during the winding up process? Explain. Solution: Yes, the partnership in this case could have avoided the liquidation of its assets during the winding up process if the partners had agreed on a different method for the distribution. Under Idaho partnership statutes, during the judicial dissolution and winding up of a partnership’s business, the entity’s assets must be sold and the cash realized on their sale distributed to the firm’s creditors and partners—unless the partners agree to an

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

alternate method for the distribution. In other words, the statutory requirements are default provisions. A partnership agreement cannot change the requirements that a dissolved partnership must be wound up, its liabilities discharged, and its assets marshaled and distributed. But an agreement can alter the default provisions of the Idaho statutes for the distribution of the assets. Partners who agree not to liquidate the assets can take a different course. One partner might buy out another’s interest, for example, and continue the business. Guenther and Ryerson formed a partnership to buy land on Lost Sage Lane in Boise, Idaho, and develop a vineyard and build a house on the property. After expending considerable funds and effort in pursuit of the project, they agreed to dissolve the partnership. Guenther filed a suit in an Idaho state court for a judicial dissolution. In the Guenther case, of course, the parties initially did not, and later could not, agree on the method of distribution. This triggered the application of the Idaho default provisions. 2. Economic. How should the lower court, on remand, structure the sale of the partnership’s Lost Sage Lane property? Discuss. Solution: In winding up the business of a partnership, in a judicial dissolution under Idaho’s partnership statutes, a court should seek to sell the entity’s assets at their fair market value. Fair market value is the amount that a willing buyer, who desires to buy but is under no obligation to buy, would pay a willing seller, who desires to sell but is under no obligation to sell. To obtain fair market value, property should be sold at the highest price the market will bear. Thus, in the Guenther case, on remand, the court should order the Lost Sage Lane property to be sold on the open market at its fair market value. After all the partnership’s assets have been sold, the costs of the sale have been paid from its proceeds, and the firm’s obligations to its creditors have been satisfied, the court can determine the amount of each partner’s capital contribution. If the remaining proceeds are not enough to reimburse the partners for their uncompensated contributions, each partner should be paid a pro rata share based on their contributions. If the proceeds are sufficient to compensate the partners for their contributions, on the payment of those contributions, any remaining amount should be distributed based on each partner’s right to share in the partnership’s profits. In this case, because there was no partnership agreement, under Idaho partnership law, Guenther and Ryerson have a right to share equally in the partnership’s profits.

CHAPTER REVIEW PRACTICE AND REVIEW Grace Tarnavsky and her sons, Manny and Jason, bought a ranch known as the Cowboy Palace in March 2019. The three orally agreed to share the business for five years. Grace contributed 50 percent of the investment, and each son contributed 25 percent. Manny agreed to handle the livestock, and Jason agreed to do the bookkeeping. The Tarnavskys took out joint loans © 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

and opened a joint bank account into which they deposited the ranch’s proceeds and from which they made payments for property, cattle, equipment, and supplies. In September 2021, Manny severely injured his back while baling hay and became permanently unable to handle livestock. Manny therefore hired additional laborers to tend the livestock, causing the Cowboy Palace to incur significant debt. In September 2022, Al’s Feed Barn filed a lawsuit against Jason to collect $32,400 in unpaid debts. Using the information presented in the chapter, answer the following questions. 1.

Was this relationship a partnership for a term or a partnership at will? Solution: This is a general partnership, and the facts in the scenario indicate that it is a partnership at will. A partnership agreement can limit the duration of a partnership to a certain date or a particular project. This would be a partnership for a term. If no fixed duration is specified, as in this scenario, a partnership is a partnership at will.

2. Did Manny have the authority to hire additional laborers to work at the ranch after his injury? Why or why not? Solution: Yes. The principles of agency law apply to partnerships to give each partner all powers necessary to the carrying on of the ordinary business of the firm. In a general partnership, all partners have equal rights in managing the partnership. Often, in a large partnership, partners will delegate daily responsibilities to a management committee made up of one or more of the partners. Here, the partnership is not large, although the management did appear to be split among the partners. In that division of labor, it was Manny’s responsibility to handle the livestock. After his injury, the responsibility was apparently still his, and he acted on it. Unanimous consent of all the partners is required in some circumstances, but none of those circumstances appear to exist here. 3. Under the UPA, can Al’s Feed Barn bring an action against Jason individually for the Cowboy Palace’s debt? Why or why not? Solution: Yes. A partner is jointly and severally (separately, or individually) liable for all partnership obligations, including such debts as the one in this question, even if the partner did not participate in, ratify, or know about whatever it was that gave rise to the obligation. There was a step or two that the creditor in this question would have to take before succeeding in the suit against this partner, however. Generally, a creditor cannot collect a partnership debt from a partner of a non-bankrupt partnership without first attempting to collect from the partnership or convincing a court that the attempt would not succeed. 4. Suppose that after his back injury in 2021, Manny sent his mother and brother notice indicating his intent to withdraw from the partnership. Can he still be held liable for the debt to Al’s Feed Barn? Why or why not? Solution: For two years after a partner dissociates from a continuing partnership, the partners may be liable for partnership obligations entered into during a two-year period following dissociation. In other words, the partner may be liable to a third party with whom the firm enters into a transaction if the third party

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

reasonably believed that the dissociated partner was still a partner. This same principle applies to the liability of the firm for transactions entered into by dissociated partners within two years after their withdrawal. To avoid this possible liability, a partnership can notify its creditors, customers, and clients of a partner’s dissociation and file a statement of dissociation in a certain state office to limit the dissociated partner’s authority. Presumably, the partner could take a similar action to reduce any potential liability.

PRACTICE AND REVIEW: DEBATE THIS 1.

A partnership should automatically end when one partner dissociates from the firm. Solution: Prior to a change in the UPA, when a partner left the partnership, it had to be dissolved. That makes sense, given that any partnership is an association of named partners. A new partnership can be created without the partner who left. After all, one of the major distinctions between a corporation and a partnership used to be that the corporation was not dependent on people who owe shares in it. Now, it seems as if a partnership can live forever, too, even if partners come and go. It was an inefficient legal requirement before when the departure of a partner required the dissolution of the partnership. If we returned to the former law, we would again see partners wasting partnership assets, including the remaining partners’ time, to dissolve the partnership and create a new one every time a partner left the firm. In any event, partnerships now survive for decades after one or more partners leave the firm, which shows that they are viable with a different set of partners.

ISSUE SPOTTERS 1.

Darnell and Eliana are partners in D&E Designs, an architectural firm. When Darnell dies, his widow claims that as Darnell’s heir, she is entitled to take his place as Eliana’s partner or to receive a share of the firm’s assets. Is she right? Why or why not? (See Dissociation and Termination.) Solution: No. A widow (or widower) has no right to take a dead partner’s place. A partner’s death causes dissociation after which the partnership must purchase the dissociated partner’s partnership interest. Therefore, the surviving partners must pay the decedent’s estate (for his widow) the value of the deceased partner’s interest in the partnership.

2. Finian and Gloria are partners in F&G Delivery Service. When business is slow, without Gloria’s knowledge, Finian leases the delivery vehicles as moving vans. Because the delivery vehicles would otherwise be sitting idle in a parking lot, can Finian keep the income that results from leasing the vehicles? Explain your answer. (See Formation and Operation.) Solution: No. Under the partners’ fiduciary duty, a partner must account to the partnership for any personal profits or benefits derived without the consent of all the partners in connection with the use of any partnership property. Here, the leasing partner may not keep the funds.

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

BUSINESS SCENARIOS AND CASE PROBLEMS 27–1. Partnership Formation. Daniel is the owner of a chain of shoe stores. He hires Rubya to be the manager of a new store, which is to open in Grand Rapids, Michigan. Daniel, by written contract, agrees to pay Rubya a monthly salary and 20 percent of the profits. Without Daniel’s knowledge, Rubya represents himself to Classen as Daniel’s partner, showing Classen the agreement to share profits. Classen extends credit to Rubya. Rubya defaults. Discuss whether Classen can hold Daniel liable as a partner. (See Formation and Operation.) Solution: Classen cannot hold Daniel liable as a partner, because a true partnership never existed nor is Daniel liable under a theory of partnership by estoppel. A partnership is defined as an association of two or more persons to conduct, as co-owners, a business for profit [UPA 101(6)]. To determine that a partnership was created, the court must look for a sharing of profits and a joint ownership of the business, with each party having an equal right to manage the business. When specific evidence that this situation existed is lacking, some guidelines are applied. First, the sharing of profits from a business is prima facie evidence of the existence of a partnership, unless such sharing is by means of one party receiving wages as an employee [UPA 202(c)(3)]. Rubya is not a co-owner of the business and his share of profits is partially the means of paying his salary. Therefore, a partnership is not created, and Daniel is not liable as a partner. To be liable as a partner by estoppel, Daniel must either have represented himself to Classen as Rubya’s partner or have impliedly (or expressly) consented to Rubya’s representing himself as a partner. Because Daniel did not even know of Rubya’s assertions and did nothing to lead Classen to believe he was Rubya’s partner, Classen can look only to Rubya for payment of the debt. No partnership by estoppel was created. 27–2. Limited Partnership. Dorinda, Luis, and Elizabeth form a limited partnership. Dorinda is a general partner, and Luis and Elizabeth are limited partners. Discuss fully whether each of the separate events below constitutes a dissolution of the limited partnership. (See Limited Partnerships.) 1.

Luis assigns his partnership interest to Ashley. Solution: A limited partner’s interest is assignable. In fact, assignment allows the assignee to become a substituted limited partner with the consent of the remaining partners. The assignment does not dissolve the limited partnership.

2. Elizabeth is petitioned into involuntary bankruptcy. Solution: Bankruptcy of the limited partnership itself causes dissolution, but bankruptcy of one of the limited partners does not dissolve the partnership unless it causes the bankruptcy of the firm. 3. Dorinda dies. Solution: The retirement, death, or insanity of a general partner dissolves the partnership unless the business can be continued by the remaining general partners. Because Dorinda was the only general partner, her death dissolves the limited partnership.

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

27–3. Winding Up. Dan and Lori Cole operated a Curves franchise exercise facility in Angola, Indiana, as a partnership. The firm leased commercial space from Flying Cat, LLC, for a renewable three-year term. The Coles renewed the lease for a second three-year term. Two years later, however, the Coles divorced. By the end of the second term, the Coles owed Flying Cat more than $21,000 on the lease. Without telling the landlord about the divorce, Lori signed another extension. More rent went unpaid. Flying Cat obtained a judgment in an Indiana state court against the partnership for almost $50,000. Can Dan be held liable? Why or why not? [Curves for Women Angola v. Flying Cat, LLC, 983 N.E.2d 629 (Ind.App. 2013)] (See Dissociation and Termination.) Solution: Yes. Dan can be held liable for the amount of the debt owed to Flying Cat. Even after a partnership has been dissolved, a partner may still bind the firm by engaging in a transaction that would have bound the partnership if it had not been dissolved, provided the other party to the transaction had known of the partnership before dissolution and had no knowledge or notice of the dissolution. In this problem, the Coles operated their business as a partnership during their marriage. The partnership was dissolved by the parties’ divorce, but Dan could be held liable under the extension of the lease entered into by Lori alone after the divorce. The lease fell within the scope of the former partnership’s business. The lease was executed with the authority that would have bound the firm if it had not been dissolved. And the landlord did not have notice that the Coles, who had held themselves out as partners during the previous lease terms, had dissolved their partnership. In the actual case on which this problem is based, in the landlord’s suit to collect on the judgment, the court ruled in Flying Cat’s favor. Dan appealed, claiming that he was not liable. A state intermediate appellate court held that he was—although the partnership was dissolved when the couple divorced, the landlord had no notice of the dissolution. 27–4. Business Case Problem with Sample Answer—Partnerships. Karyl Paxton asked Christopher Sacco to work with her interior design business, Pierce Paxton Collections, in New Orleans. At the time, they were in a romantic relationship. Sacco was involved in every aspect of the business—bookkeeping, marketing, and design—but was not paid a salary. He was reimbursed, however, for expenses charged to his personal credit card, which Paxton also used. Sacco took no profits from the firm, saying that he wanted to “grow the business” and “build sweat equity.” When Paxton and Sacco’s personal relationship soured, she fired him. Sacco objected, claiming that they were partners. Is Sacco entitled to 50 percent of the profits of Pierce Paxton Collections? Explain. [Sacco v. Paxton, 133 So.3d 213 (La.App. 2014)] (See Formation and Operation.) Solution: Yes. Sacco is entitled to 50 percent of the profits of Pierce Paxton Collections, PPDS, and KPD. The requirements for establishing a partnership are (1) a sharing of profits and losses, (2) a joint ownership of the business, and (3) an equal right to be involved in the management of the business. The effort and time that Sacco expended in the business constituted a sharing of losses, and his proprietary interest in the assets of the partnership consisted of his share of the profits, which he had expressly left in the business to “grow the

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

company” and “build sweat equity” for the future. He was involved in every aspect of the business. Although he was not paid a salary, he was reimbursed for business expenses charged to his personal credit card, which Paxton also used. These facts arguably meet the requirements for establishing a partnership. In the actual case on which this problem is based, Sacco filed a suit in a Louisiana state court against Paxton, and the court awarded Sacco 50 percent of the profits. A state intermediate appellate court affirmed, based generally on the reasoning stated above. 27–5. Formation. Leisa Reed and Randell Thurman lived together in Spring City, Tennessee. Randell and his father, Leroy, formed a cattle-raising operation and opened a bank account in the name of L&R Farm. Within a few years, Leroy quit the operation. Leisa and Randell each wrote a personal check for $5,000 to buy his cattle. Leisa picked up supplies, fed and administered medicine to cattle, collected hay, and participated in the bookkeeping for L&R. Later, checks drawn on her personal account for $12,000 to buy equipment and $35,000 to buy cattle were deposited into the L&R account. After several years, Leisa decided that she no longer wanted to associate with Randell, but they could not agree on a financial settlement. Was Leisa a partner in L&R? Is she entitled to half of the value of L&R’s assets? Explain. [Reed v. Thurman, 2015 WL 1119449 (Tenn.App. 2015)] (See Formation and Operation.) Solution: Yes. Leisa was a partner in L&R. In the circumstances of this problem, she is entitled to half of the value of the partnership’s assets. Under the UPA, a partnership is “an association of two or more persons to carry on as co-owners a business for profit.” When there is no formal, written partnership agreement, an agreement to form a partnership can be implied by conduct. If an agreement does not apportion profits and losses, the UPA provides that they will be shared equally. On a partner’s dissociation, partners are entitled to have their interest in the partnership bought by the firm. Here, Randell and Leroy formed a cattle-raising operation and opened a bank account in the name of L&R Farm. When Leroy quit the operation, Leisa and Randell each wrote a personal check for $5,000 to buy his cattle. Meanwhile, Leisa picked up supplies, fed and administered medicine to cattle, collected hay, and participated in L&R’s bookkeeping. Later, checks drawn on her personal account for $12,000 to buy equipment and $35,000 to buy cattle were deposited into the L&R account. An implied partnership arose between Randall and Leisa when she wrote a personal check to buy the cattle from Leroy for L&R. On her quitting the firm, she was entitled to half of the value of the remaining L&R cattle, the funds in the L&R account, and the equipment bought during her time as a partner. In the actual case on which this problem is based, Leisa filed a suit in a Tennessee state court against Randell, seeking a declaration that she was a partner in the cattle operation. Randell denied that they were partners. The court issued a judgment in Leisa’s favor. A state intermediate appellate court affirmed this judgment in accord with the reasoning stated above. 27–6. Formation and Operation. FS Partners is a general partnership whose partners are Jerry Stahlman, a professional engineer, and Fitz & Smith, Inc., a corporation in the business of excavating and paving. Timothy Smith signed the partnership agreement on Fitz & Smith’s

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

behalf and deals with FS matters on Fitz & Smith’s behalf. Stahlman handles the payment of FS’s bills, including its tax bills, and is the designated partner on FS’s federal tax return. FS was formed to buy and develop twenty acres of unoccupied, wooded land in York County, Pennsylvania. The deed to the property lists the owner as “FS Partners, a general partnership.” When the taxes on the real estate were not paid, the York County Tax Claim Bureau published notice that the property would be sold at a tax sale. The bureau also mailed a notice to FS’s address of record and posted a notice on the land. Is this sufficient notice of the tax sale? Discuss. [FS Partners v. York County Tax Claim Bureau, 132 A.3d 577 (Pa. 2016)] (See Formation and Operation.) Solution: Yes. The notice published by the York County Tax Bureau, mailed to FS’s address of record, and posted on the partnership’s land, declaring that it would be sold at a sale for unpaid taxes, was sufficient. Property acquired by a partnership is the property of the partnership and not of the partners individually. This includes property that was acquired by the partnership or in the partnership’s name after its formation. A partner is not a co-owner of partnership property and has no right to sell, mortgage, or transfer it to another. Here, FS Partners is a general partnership. The partners are Stahlman and Fitz & Smith, Inc. Timothy Smith represents Fitz & Smith in FS matters. Stahlman handles the payment of FS’s bills, including its tax bills, and is the designated partner on FS’s federal tax return. FS was formed to buy and develop certain land in York County, Pennsylvania. The deed lists the owner as “FS Partners, a general partnership.” When the taxes on the land were not paid, the York County Tax Claim Bureau published, mailed, and posted notice that the property would be sold at a tax sale. This is sufficient notice—the individual partners do not need to be notified separately. A general partnership can hold title to property in its own name. Although one partner in a general partnership does not have the authority to bind the partnership to a sale of the partnership’s property, a notice with respect to that property does not need to be sent to all the partners. In fact, notice to the partnership, or to any partner in the partnership, concerning partnership affairs, is sufficient. In the actual case on which this problem is based, the land was sold at a tax sale. Later, FS filed a petition to set aside the sale, challenging the sufficiency of the notice. The court confirmed the sale. On the reasoning stated here, a state intermediate appellate court affirmed. 27–7. Dissociation and Termination. Marc Malfitano and seven others formed Poughkeepsie Galleria as a partnership to own and manage a shopping mall in New York. The partnership agreement stated that “all decisions to be made by the Partners shall be made by the casting of votes” with “no less than fifty-one percent” of the partners “required to approve any matter.” The agreement also provided that the partnership would dissolve on “the election of the Partners” or “the happening of any event which makes it unlawful for the business ... to be carried on.” Later, Malfitano decided to dissociate from the firm and wrote to the other partners, “I hereby elect to dissolve the Partnership.” Did Malfitano have the power and the right to dissociate from Poughkeepsie Galleria? Could he unilaterally dissolve the partnership? Can the other partners continue the business? Which, if any, of these actions violate the partnership agreement? Discuss. [Congel v. Malfitano, 101 N.E.3d 341, 2018 WL 1473551 (N.Y.S.2d 2018)] (See Dissociation and Termination.)

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

Solution: Malfitano had the power and the right to dissociate from Poughkeepsie Galleria, and his notice to the other partners effectively dissolved the partnership. But the dissolution violated the partnership agreement. Therefore, the others could lawfully continue the business. A partner always has the power to dissociate from a partnership but may rightfully do so only if the withdrawal does not breach the partnership agreement. A partner can dissociate by voluntarily giving notice of intent to withdraw. The remaining partners can decide whether to continue the business. If the decision is to cease, the partner’s dissociation dissolves the firm. A partnership may also be dissolved by an agreement of the partners or by the occurrence of an event identified in the partnership agreement. In this problem, the agreement provided that the partnership would dissolve on “the election of the Partners” or “the happening of any event which makes it unlawful for the business” to continue. The agreement also stated that “all decisions” were “to be made by the Partners ... by ... votes” with “no less than fifty-one percent” of the partners “required to approve any matter.” When Marc Malfitano, one of the partners, decided to dissociate from the firm, he wrote to the others, “I hereby elect to dissolve the Partnership.” Malfitano’s dissociation does not appear to have violated the partnership agreement. His unilateral dissolution of the firm, however, was wrongful—the conditions stated in the agreement for dissolution had not occurred. In the actual case on which this problem is based, the remaining partners filed a suit in a New York state court against Malfitano, alleging that his action breached the partnership agreement. The court issued a judgment in the plaintiffs’ favor, which a state intermediate appellate court upheld. The New York Court of Appeals affirmed. 27–8. Liabilities of Partners in an LP. Bert Dohmen formed the Croesus Fund as a Delaware limited partnership. Investors in the fund were limited partners. Albert Goodman invested $500,000 in the fund. Dohmen later made several knowingly false statements to Goodman about other potential investors on which Goodman relied in making a second $500,000 investment. The net asset value of the fund plummeted fairly soon thereafter, and Goodman lost his entire investment. Should Goodman, as a limited partner, prevail on a breach of fiduciary duty claim against general partner Dohmen as a result of Dohmen’s knowingly false statements? [Dohmen v. Goodman, 234 A.3d 1161 (Del. 2020)] (See Limited Partnerships.) Solution: Delaware’s Supreme Court framed the question thusly: If the general partner in a limited partnership fails to disclose material information in connection with a request to a limited partner for investment, may the limited partner prevail on a breach of fiduciary duty claim and recover compensatory damages without proving reliance and causation? In other words, was Dohmen’s false statement to Goodman about having other investors sufficient, by itself, to show that Dohmen had breached his fiduciary duty to Goodman? The court ruled that Dohmen had breached his fiduciary duty of loyalty, which requires the general partner to place the success and interests of the partnership above their own personal or business interests. This is not the same,

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

however, as a duty to disclose every aspect of a proposed transaction. Even though it might seem reasonable to impose a duty of disclosure on Dohmen in this single transaction, to require all general partners to specifically answer all question by limited partners would place too great of burden on general partners, especially in limited partnerships with many partners. So, the court found that Dohmen had not breached his duty to disclose. Even if Dohman had breached this duty, the court continued, this action would not be sufficient to allow Goodman to recover compensatory damages. The Fund’s decline in value was the result of market forces and/or Dohmen’s trading decisions, not Dohmen’s alleged breach of fiduciary duty. Regardless of whether there had been other outside investors, Goodman’s investment would have declined by the same amount. So, Goodman was unable to prove proximate cause between Dohmen’s false statement and the loss of Goodman’s investment. The court was unwilling to allow Goodman to—in essence—recoup his investment losses because of Dohmen’s falsehoods. 27–9. A Question of Ethics—The IDDR Approach and a Partner’s Fiduciary Duty. Floyd Finch and Bruce Campbell were partners in a law firm. They did not have a written partnership agreement, but they shared the firm’s expenses and profits equally. The partnership operated on a cash basis, using billing software to track time spent on client matters. Instead of using the software, however, Finch would review e-mails and other work product to create and generate bills months or years after the work had been performed. As a result, large amounts of the firm’s accounts receivable were uncollectible. Upset over the lost revenue, Campbell filed a claim in a Missouri state court against Finch. Campbell argued that failing to bill clients in a timely manner was a breach of a partner’s fiduciary duty. He alleged that Finch was trying to lower his income because he was involved in divorce proceedings. Finch responded that billing clients was a matter of partnership management and operation reserved to the judgment of each partner. [Finch v. Campbell, 541 S.W.3d 616 (Mo. App.W.D. 2017)] (See Formation and Operation.) 1.

Is Finch’s billing practice a breach of ethics? Explain, using the IDDR approach. Solution: Yes. Finch’s billing method is a breach of ethics. The first step of the IDDR approach is an Inquiry, which involves a statement of the ethical issue, its stakeholders, and the relevant standards. In this problem, the issue concerns how a partner bills the firm’s clients. The stakeholders include the Campbell and Finch partnership, the partners, and their employees, creditors, and clients. The relevant standards include the applicable professional code, state accounting and business laws, and the ethical principle of honesty. The next steps of the IDDR approach are a Discussion and a Decision. The former considers actions to resolve the issue, with their strengths and weaknesses. The latter involves a choice of action, and its consequences and effects. In terms of the billing issue, a partner might use the partnership’s generally accepted accounting practice. Or the partner might elect to follow a different procedure. The strongest choice would be accurate and fair, and result in the quickest payment of the entire amounts owed.

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

In this case, the firm used billing software to keep track of the time spent on a client matter. Finch chose not to use the software. Instead, he reviewed his work months or years after its completion to create and generate a bill. This led to large amounts of the firm’s accounts receivable being uncollectable. This effect indicates the weakness of Finch’s method. The last step of the IDDR approach is a Review of the success or failure of the action to resolve the issue and satisfy the stakeholders. Finch’s choice to substitute the partnership’s billing software with his own ad hoc method was an ethical failure. It was probably inaccurate, due to the passage of time and the nature of the records used to create the bills. It was unfair to the partnership and its clients, who would benefit from a more timely assessment. It was unsatisfactory to the partners, as shown by Campbell’s suit, because of the loss of revenue to the firm. For the same reason, there might have been a negative impact on the income of the firm’s employees and the payments to its creditors. Finally, if Campbell’s allegation is true—that Finch was only trying to lower his income for his divorce proceedings—then Finch was acting in his personal interest, not in the best interest of the partnership. That Finch did not admit this would indicate a lack of honesty on his part towards his firm (and his spouse) and point further to a breach of ethics. 2. Finch asserted that there must be self-dealing for a partner’s act to be a breach of fiduciary duty. Is he correct? Discuss. Solution: No. Finch is not correct. Self-dealing is not necessary for a partner’s act to be a breach of fiduciary duty. A partner owes a fiduciary duty to the partnership and its partners. This duty can be breached in a variety of ways. There is no requirement of a profit or an attempt to profit for an act to constitute a breach. Harm to the firm or a partner is sufficient. In this case, Finch was a partner in the Campbell and Finch law firm. As a partner, he owed a fiduciary duty to the firm and its partners. This included a duty to record and facilitate the firm’s collection of fees for work performed. But Finch did not bill his clients in a timely manner. As a consequence, not all amounts billed were paid. This harmed the partnership and its partners in the form of decreased revenue. The late billing also likely led to client dissatisfaction, which would have further harmed the firm. Campbell was upset. As part of his claim against Finch charging a breach of fiduciary duty, Campbell argued that Finch intentionally failed to bill clients appropriately because he wanted to lower his income for his divorce proceedings. A partner’s fiduciary duty to a partnership includes putting the interest of the firm before the partner’s self-interest. If Campbell’s argument were true, it would indicate that Finch put his own interest ahead of those of the partnership. This would be a violation of his fiduciary duty to the partnership.

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

In the actual case on which this problem is based, Finch and Campbell filed claims against each other, alleging breaches of fiduciary duty. The state trial court awarded Campbell a judgment against Finch. A state intermediate appellate court affirmed the award. “Finch failed to timely bill his clients, possibly to lower his income for his divorce proceedings. This was a violation of Finch’s fiduciary duty to the partnership.”

CRITICAL THINKING AND WRITING ASSIGNMENTS 27–10. Business Law Writing. Sandra Lerner and Patricia Holmes were friends. One evening, while applying nail polish to Lerner, Holmes layered a raspberry color over black to produce a new color, which Lerner liked. Later, the two created other colors with names like “Bruise,” “Smog,” and “Oil Slick,” and titled their concept “Urban Decay.” Lerner and Holmes started a firm to produce and market the polishes but never discussed the sharing of profits and losses. They agreed to build the business and then sell it. Together, they did market research, worked on a logo and advertising, obtained capital, and hired employees. Then Lerner began scheming to edge Holmes out of the firm. (See Formation and Operation.) 1.

Lerner claimed that there was no partnership agreement because there was no agreement on how to divide profits. Was Lerner right? Why or why not? Solution: A court would likely rule in favor of Holmes on this issue. An express agreement to divide profits is not a prerequisite to the existence of a partnership. Under the UPA, association with the intent to carry on a business for profit is the essential requirement for a partnership. In other words, profit sharing is evidence of a partnership, but not a required element of the definition of a partnership. The important factor is the intent of the parties as expressed in their agreement, through their conduct, and by the surrounding circumstances. Implicit in the Holmes-Lerner agreement, as in any other partnership’s agreement, would be an understanding to share in profits and losses as any business owners would.

2. Suppose that Lerner, but not Holmes, had contributed a significant amount of personal funds to developing and marketing the new nail polish. Would this entitle Lerner to receive more of the profit? Explain. Solution: The amount of a partner’s financial contribution to a partnership does not determine the partner’s share of the firm’s profits (or the partner’s share of the firm’s losses). Profits (and losses) are divided equally, unless an agreement among or between the partners provides otherwise. 3. Did Lerner violate her fiduciary duty? Why or why not? Solution: Lerner’s attempt to freeze Holmes out of the partnership could be seen as a breach of the partners’ fiduciary duties to one another. Such a breach could also be described as unethical. The agreement between Holmes and Lerner was to take Holmes’ idea and reduce it to concrete form. They engaged in the entire process together. Then, Holmes began to be frozen out of the business, in apparent violation of her agreement with Lerner. The parties’ agreement and their subsequent acts determine the existence of a breach and a remedy. © 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

27–11. Time-Limited Group Assignment—Partnership Formation and Operation. At least six months before the Summer Olympic Games in Atlanta, Georgia, a group made up of Stafford Fontenot, Steve Turner, Mike Montelaro, Joe Sokol, and Doug Brinsmade agreed to sell Cajun food at the games and began making preparations. On May 19, the group (calling themselves Prairie Cajun Seafood Catering of Louisiana) applied for a business license with the county health department. Ted Norris sold members of the group a mobile kitchen in return for an $8,000 check drawn on the “Prairie Cajun Seafood Catering of Louisiana” account and two promissory notes, one for $12,000 and the other for $20,000. The notes, which were dated June 12, listed only Fontenot “d/b/a Prairie Cajun Seafood” as the maker (d/b/a is an abbreviation for “doing business as”). On July 31, Fontenot and his friends signed a partnership agreement, which listed specific percentages of profits and losses. They drove the mobile kitchen to Atlanta, but business was disastrous. When the notes were not paid, Norris filed a suit in a Louisiana state court against Fontenot, seeking payment. (See Formation and Operation.) 1.

The first group will discuss the elements of a partnership and determine whether there was a partnership among Fontenot and the others. Solution: Partnership agreements can be oral, written, or implied by contract. The elements of a partnership are (1) a sharing of profits and losses, (2) a joint ownership of the business, and (3) an equal right to be involved in the management of the business. Several months before the Olympics, Fontenot and his friends agreed to sell Cajun food in Atlanta and on May 19 applied for a license as a group. Although the partnership agreement was not signed until July 31, Fontenot and his friends had an oral agreement to form an association and to work together toward a common goal before they purchased the mobile kitchen on June 12. At that point, a partnership existed between Fontenot and his friends. In other words, in signing the notes, Fontenot entered into the act of sale on behalf of the partnership.

2. The second group will determine who can be held liable on the notes and why. Solution: The partnership and all the partners jointly or severally are liable on the notes. In other words, each partner can be held individually and personally liable on the notes, but could obtain reimbursement for the liability from the partnership and the other partners. Of course, the partnership assets must be exhausted before a judgment could be enforced against the personal assets of individual partners. Fontenot and his friends agreed to sell Cajun food in Atlanta and on May 19 applied for a license as a group. Although the partnership agreement was not signed until July 31, Fontenot and his friends had an oral agreement to form an association and to work together toward a common goal before they bought the mobile kitchen on June 12. Thus, in signing the notes, Fontenot entered into the act of sale on behalf of the partnership. 3. The third group will discuss the concept of “d/b/a,” or “doing business as.” Does a person who uses this designation when signing checks or promissory notes avoid liability on the checks or notes?

Solution and Answer Guide: Miller, Business Law Today- Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 27: All Forms of Partnership

Solution: No. A person who signs “d/b/a,” or “doing business as,” as part of the signature on a check or a note does not thereby generally avoid liability for payment of the item. A partner is a general agent of the partnership in carrying out the usual business of the firm. A partner has the authority to bind the partnership to a contract. And a partner is generally liable for the firm’s obligations. Every contract, including checks and notes, signed in the partnership’s name binds the firm and its partners. Of course, this assessment of liability assumes that the partner acted within the scope of the partnership’s business and had the authority to do so. If not, and the payee of the note or check knew it, then the person who signed the item is liable on it, but neither the partnership nor the other partners are not. To apply these principles to the facts in this problem, Prairie Cajun Seafood, and Fontenot and all the other partners are jointly or severally liable on the notes that Fontenot signed “d/b/a.” These same parties are likewise liable for payment of the check drawn on the Prairie Cajun account. That is, each partner, including Fontenot, could be held individually and personally liable on all the items.

Solution and Answer Guide: Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 28: Limited Liability Companies and Special Business Forms

Solution and Answer Guide

Miller, Business Law Today - Standard Edition: Text & Summarized Cases 14e, 9798214045849; Chapter 28: Limited Liability Companies and Special Business Forms

TABLE OF CONTENTS Critical Thinking Questions in Features .............................................................................1 Landmark in the Law—Application to Today’s World ........................................................ 1 Managerial Strategy—Business Questions........................................................................... 2 Building Analytical Skills—Result and Reasoning .............................................................. 2 Critical Thinking Questions in Cases ................................................................................. 3 Case 28.1—Critical Thinking ................................................................................................... 3 Case 28.2—Critical Thinking ................................................................................................... 4 Case 28.3—Critical Thinking ................................................................................................... 5 Chapter Review ................................................................................................................... 5 Practice and Review................................................................................................................. 5 Practice and Review: Debate This ......................................................................................... 7 Issue Spotters ........................................................................................................................... 7 Business Scenarios and Case Problems .............................................................................. 8 Critical Thinking and Writing Assignments ......................................................................... 15

CRITICAL THINKING QUESTIONS IN FEATURES LANDMARK IN THE LAW—APPLICATION TO TODAY’S WORLD 1.

Today, LLCs are a common form of business organization. Members can avoid the personal liability associated with the partnership form of business as well as the double taxation of the corporate form of business. What types of businesses might be best suited for this corporate structure? Solution: LLCs can buy, own, and operate real property and personal property. The LLC can make its own contracts, lend or borrow funds, and make investments. Indeed, the main reason for the popularity of the LLC is that almost any type of business can benefit from these and many other advantages, including those described in the feature. That being said, LLCs are particularly useful for business owners involved in fields that have a higher-than-average risk of generating litigation. LLCs are also attractive to