As concurrent jurisdiction. The requirements for this case to

Topic: BusinessLeadership
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Last updated: January 19, 2020

As described in the abstract Margolinv Funny Face & Novelty Now Inc. covers a large geographic area, beforethis case can begin jurisdiction must be decided upon through personal andsubject matter jurisdiction. Personal jurisdiction, “is a court’s power torender a decision affecting the right of the specific persons before thecourt.” (Kubasek, 2017). In simple terms this isthe court’s ability to acquire jurisdiction over the plaintiff, Donald Margolin,and the defendants, Novelty Now Inc. and Chris, Matt, and Ian (Chris willrepresent all three men for the remainder of this paper). The jurisdiction,however, only extends to the state’s borders.

Donald Margolin lives in NewYork, yet is filling suit against Novelty Now Inc. based out of Florida as wellas Chris in California. The problem here becomes which, if any, state hasjurisdiction to try a case that encompasses all three.Subject matterjurisdiction, “is a court’s power to hear certain kinds of cases.” (Kubasek, 2017).This system determines which jurisdiction a case may fall under: statejurisdiction, exclusive federal jurisdiction, and concurrent jurisdiction. Therequirements for this case to be considered exclusive federal jurisdiction areabsent since it usually involves, “admiralty cases, bankruptcy cases, federalcriminal prosecutions, lawsuits in which one state sues another state, claimsagainst the United States, and cases involving federal copyrights.” (Kubasek, 2017).

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The decision then falls to state orconcurrent jurisdiction. With all three parties being from different states adiversity-of-citizenship case may dictate which jurisdiction it will fall under.To be classified as a diversity-of-citizenship case one more stipulation mustbe met in addition to the parties’ location, monetary amount more than $75,000.Mr. Margolin is filling suit for both “medical costs and compensation for thedamage to his face and business reputation” (Milestone 1 Rubric). His company’slegal team will arrive at what they believe to be a fair amount, if this isvalued at, or over $75,000 then this case may fall under concurrent federaljurisdiction. Conversely, if the monetary amount is less than $75,000the minimum requirements for diversity-of-citizenship will not be met leavingstate jurisdiction as the remaining option. For state jurisdiction to work via NewYork court’s long-arm statues will have to be used to serve the defendants,these long-arm statutes are permitted if sufficient minimum-contactrequirements are met.

Long-arm statueswere enacted to allow states to serve defendants that either lived outsidetheir borders, or fled their borders to evade prosecution. For New York toserve the defendants they must have sufficient minimum-contact requirementsunder New York standards. “Most states statutes hold that acts like committinga tort or doing business in the state are sufficient to allow that state to servea defendant” (Kubasek, 2017). With many transactions occurring over theinternet it is possible for a business transaction to occur without a business representativeever stepping foot inside that state.

Fischbargv. Doucet and Parke-Bernet Galleries,Inc. v Franklyn help set the precedence for such cases. Fischbarg v. Doucet was the first majorcase that allowed New York to have jurisdiction over an online transaction by stating,”First that the defendants had purposefully availed themselves ‘of the privilegeof conducting activities within the forum state, thus invoking the benefits andprotections of its laws.’ The defendants lack of physical presence in New Yorkwas entirely irrelevant” (Carlisle, 2009).

Fischbarg v. Doucet still leftminimum-contact standards of online transactions ambiguous though. Parke-Bernet cleared this up when only asingle transaction from an online auction website between California and NewYork occurred. New York courts affirmed that minimum contact under CPLR 302 (a)(1) was met since the defendant actively sought out the New York auction site. (Carlisle,2009). Though these cases differ to some degree or another from Mr. Margolin’ssuit against Chris and Novelty Now Inc.

it shows New York’s willingness toserve defendants of online transactions. Finally, the stipulation in thecontract between Novelty Now Inc. and Chris that states all disputes must bebrought in Florida does not encompass Mr. Margolin as a third party. Since Mr.Margolin is not required to follow stipulations in a contract between otherparties New York is able to file suit under their state jurisdiction withoutconsequence.

The above paragraphsdefine where jurisdiction would fall if litigation where pursued. However, thereare other means of dispute resolution known as Alternative Dispute Resolution(ADR), “refers to the resolution of legal disputes through methods other thanlitigation, such as negotiation, mediation, arbitration, summary jury trials, minitrials,neutral case evaluations, and private trials” (Kubasek, 2017). In a new differentscenario all parties have decided to handle the dispute outside of litigation.From the choices listed above the two that would be the most appropriate, andallow the most control on both sides is arbitration and minitrial. To summarizeeach of these ADR methods, arbitration is, “The resolution of a dispute by aneutral third party outside the judicial setting” (Kubasek, 2017).

The neutralthird party hears both sides of arguments and then renders an award that islegally binding. A minitrial is much like an arbitration in that is uses a neutralthird party, unlike arbitration it uses business representatives alongside thethird party to hear arguments from the disputing company’s lawyers. Oncearguments are complete the neutral third party gives a non-binding opinion towhat they believe a verdict would be if litigation were pursued.

The businessrepresentatives may then come to a settlement between themselves or elect theneutral third party to settle the dispute for them.Arbitration bringsa few distinct advantages and disadvantages to the table. First and foremostis, “Arbitration is more efficient and less expensive than litigation” (Kubasek,2017). For a budding entrepreneur, such as Chris, cost might be a large factorin how he chooses to settle this dispute.

Litigation could severely eat intoprofits and become a drawn-out case that sees his company ruined. Another largeadvantage is the ability for each of these parties to choose how thearbitration will be conducted along with who will arbitrate, whether it be asole arbitrator or a panel. Disadvantages, however, come in the form of confidentialityfrom the public (an advantage only to the offending parties). Since arbitrationis kept confidential Funny Face’s use of a product that is non-FDA approvedwill not be released to the public.

Another disadvantage to arbitration is theinability to appeal any decision awarded by the arbitrator. Even if the partiesinvolved do their due diligence and make sure the arbitrator was thoroughly screenedand informed about the situation the award given could potentially be whollyone-sided. With arbitration awards being legally binding and little chance of acourt reversing them the parties involved may seek a method that allows moreflexibility when settling the disputeA minitrial may bethe best choice for the parties involved.

A minitrial allows all parties to electbusiness representatives to sit on the panel alongside the neutral third-party.Chris and Novelty Now Inc. representatives will have an in-depth understandingof how their businesses run and what settlement outcomes will have the greatestimpact. Mr.

Margolin, while not representing his business in this dispute, canstill send a representative that understands how this product damaged hisprofessional appearance as a public speaker. This ADR method gives thecompanies a great deal of control on the outcome, unlike arbitration. At theend of each company’s legal arguments, the representatives can choose to settleunder their own terms, which could be in favor of all parties involved, or allowthe third-party representative to render a decision if one cannot be reached. Twobig disadvantages include the downside of confidentiality, as in arbitration,and the possibility of Chris representing himself in the panel. Since Chris isan entrepreneur and does not currently own a company there are no “businessrepresentatives” other than himself, Matt, or Ian.

If one is granted the right tosit on the panel alongside the neutral third-party it will lead to the panelbeing bias in some nature. The above section addressedtwo ADR methods that maybe the best choices for resolution, but this does notmean each party involved would completely agree with those choices. Each party hastheir own experience level alongside their idea of what the intended outcome shouldbe.

After reviewing the case as well as the numerous ADR methods I find thefollowing to be the most ideal for each party: Chris and Novelty Now – minitrial,and Mr. Margolin – private trial.Chris and Novelty NowInc. would stay with a minitrial as it is cheaper than arbitration and givesthem the most control over the situation by being on the panel as addressed above.This method also brings the confidentially that Chris and Novelty Now Inc.

willbe wanting. Mr. Margolin, being the wronged party, may hold the largest stake inchoosing the ADR method. With both defendants seeking confidentially they mayagree to Mr. Margolin’s choice of ADR. Being the CEO of a successful company,Mr. Margolin would have enough funds to afford a private trial and will want toavoid the bias of a minitrial. This ADR method gives him the best chances of reachinga verdict in his favor as the judge can be chosen (maybe one that has presidedover cases for his business in the past) and the jury is more experienced, thushaving the ability to see the defendant’s true intentions when choosing to usePYR.

Even with Novelty Fun Inc. and Chris having the ability to appeal any awardsby the private trial Mr. Margolin has his best chance of reaching a fairverdict. It is likely that, within reason, Novelty Fun Inc. and Chris wouldaccept the award given by the private trail to avoid any public trial andlitigation that might hurt their public image.Now thatjurisdiction as well as ADR methods have been covered the topic of criminalacts and liability of Chris and Novelty Fun Inc. must be determined.

Thequestion of if a criminal act was committed comes down to the labelling of FunnyFace ingredients according to FDA regulations set forth in the FairPackaging and Labeling Act (FPLA) (FDA AuthorityOver Cosmetics, 2013). Since chemical emulsifiers are not a restrictedchemical by the FDA (and are used quite frequently in the production oflotions) Chris did not commit a criminal act by choosing to use it, though it mightbe a poor ethical decision which will be covered later. The FDA does, however,require, “A list of ingredients. In most cases, each ingredient must be listedindividually.” (FDA Authority Over Cosmetics, 2013). If this ingredient wasleft off the label than Chris and Novelty Fun Inc.

may be held liable for adverseeffects to customers that use Funny Face (the question of corporate liability willbe addressed later). The next issue then becomes if it was deliberately leftoff the label or done so out of negligence. If done so out of negligence thecourts may not see it as a criminal act, but that does not mean there will notbe consequences for doing so.

Deliberately leaving the ingredient off the labelcan be considered a criminal act however, “Misbranding, refers to violationsinvolving improperly labeled or deceptively packaged products” (FDA AuthorityOver Cosmetics, 2013). By making the conscious decision to mislabel theirproduct Chris and Novelty Now Inc. have committed fraud. Fraud is defined as,”an individual intentionally uses misrepresentation to gain an advantage overanother.” (Kubasek, 2017). By intentionally misbranding the label Chris andNovelty Now Inc.

sought to intentionally misrepresent their product to increasesales volume, thus gaining an advantage over their customers as well as otheraftershave lotion distributors. If misbranding can be proven on the part ofeither Chris and/or Novelty Now Inc., then corporate criminal liability willhave to be addressed.

In the abovescenario fraud was the criminal act being established, but what if PYR were alsoillegal to use? Corporate criminal liability brings into question if any of theoffending parties may be held liable for both scenarios addressed. Precedencehas made it quite clear that corporate executives, “May be held accountable forcrimes arising from their failure to meet their responsibility” (Carlisle, 2009).Chris, acting as the executor failed to either ensure proper labelling of theproduct and blatantly chose to use an illegal chemical. For a corporation to befound liable it must be proven that, “(1) the individual was acting within thescope of her or his employment; (2) the individual was acting with the purposeof benefitting the corporation; and (3) the act was imputed to the corporation”(Kubasek, 2017). Chris was acting as an executive when he made the decision touse PYR to increase the profits of Funny Face, thus directly benefitting thebusiness. By changing the chemical make up of his aftershave lotion he directlyimputed a change into how his product was made, thus his business, andtherefore met all three criteria for a court to find Chris liable for theactions of his business. However, Matt, Ian, and Novelty Now Inc. did not makethis decision, so how can they be held criminally liable for another’s choiceor negligence? Dotterweich has set precedence for this situation.

Dotterweichmade it clear that those in the positions of authority that fail to exercisesuch authority will be held just as liable as the individual who made thedecision (Kubasek, 2017). If the courts can prove that Matt and Ian knew aboutthe use of PYR and did not use their authority to verify correct labelling andstop the use of an illegal substance they can be held just as accountable asChris. Novelty Now Inc., though not a part of Chris’ business, still massproduced and distributed a product knowing it was improperly labelled andillegal which holds the executives of this company just as liable as the others.All parties can be found liable and, “Prosecuted under the Federal Food, Drug,and Cosmetic Act of 1938 for introduction of misbranded and adulterer articlesinto interstate commerce.” (FDA Authority Over Cosmetics, 2013). In either ofthe scenarios detailed above (improper labelling or the use of an illegalchemical) Chris and Novelty Now Inc.

may be held liable for their directactions while Matt and Ian for the inaction that lead to Funny Face causing Mr.Margolin’s side effects.Laws, for the mostpart, are easily defined and clear if broken or bent by a person or company.Ethical-decision making is a topic that is not so easily defined in terms of rightand wrong. A corporation can choose a course of action, and while this coursemight be well within the confines of the law it can infringe upon, or evenbreak the boundaries of business ethics. One company might see this course as”a necessity for doing business” with no ethical implications while anothercompany would see this course as ethically wrong. This case is a perfectexample to address a decision made by a company that fails the ethicaldecision-making test. For the sake of keeping everything legal in this case letus say that PYR, while not FDA regulated, can be used in the production of FunnyFace.

Chris and Novelty Now Inc. follow all FDA regulations to make sure theirproduct will pass any inspection and PYR is listed as an ingredient, yet noside effects or adverse reactions are listed as warnings to consumers. Thesetwo parties are now completely within the confines of the law, but have brokenthe ethical decision-making guidelines of the golden rule, the publicdisclosure test, and the universalization test.The golden rule,simply put, is the treatment of others as you would want to be treated. It isthe most simple and easiest ethical guideline to follow. The public disclosuretest allows a company to be transparent in everything that they do to receivethe true reaction of the public, and the universalization test asks everyone tothink of how the world would be if others copied the same decisions we make. Bychoosing to substitute a chemical additive and not inform the public Chris andNovelty Now Inc. broke all three of these ethical decision-making guidelines.

They treated their customer base as an expendable item, so their profit marginscould be greater instead of viewing their customers as equals. They also keptit hidden which never allowed the public to voice their concerns or oppositionto the change. This decision also set a negative precedence for all othercompanies in the cosmetic sector, if all companies decided to follow Chris’ andNovelty Now Inc.’s decision and substitute chemicals to see higher profits themarket place would have a massive influx of cheap, hazardous cosmetic products.One simple decision can lead to a complete break down of the company’s ethicaltrust from the public and this case is a shinning example of how a company canmake a decision that may stay within the margins of the law, but go againstethical business dealings. By following the three guidelines to ethicaldecision-making Chris and Novelty Now Inc.

may have seen lower profits, buthigher sale numbers which could offset the higher cost of manufacturing in thelong run.        

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