Chapter

Key Points• Necessity of a functional legal system for a strong

economy• Preparing case briefs• Understanding the judicial process• Criticisms of our legal system• Alternative dispute resolution mechanisms

4

The American Legal System

What Can Curb Unfavorable Business Consequences?

The market can “regulate” the behavior Ethical dictates of individual decision makers Legislation Some combination of the above

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Reading: The Importance of Law to the Private Enterprise System

According to noble economist Frederich von Hayek, “law that secures property rights in modern society is prerequisite to private enterprise. Without the order of law enforcing private property ownership and facilitating the transfer of property rights, business enterprise in a complex, heterogeneous culture is simply infeasible.”

“The importance of law to the conduct of private enterprise is evident in the economic developments in the former Soviet Union and the Republic of China.”

Source: Deb Ballam, quoting from “The Importance of Law to the Private Enterprise System,” The American Legal Studies in Business Task Force Report by O. Lee Reed. American Business Law Journal 36, no. 1 (Fall 1998), p. ix.

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Objectives of the Law

Some broad goals of the American legal system can be identified: Maintain Order Resolve Conflict Preserve Dominant Values Guarantee Freedom Preserve Justice

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Briefing Cases

Preparing case briefs by identifying the following information is one method for understanding case law:

1. Identify the plaintiff and the defendant.

2. Summarize only those facts critical to the outcome of the case.

3. Review the procedural history.

4. Note the central legal question or questions on which the case turns.

5. Identify the court’s holding.

6. Explain the logic that supported the court’s decision.

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Classifications of Law

Substantive and Procedural Law: Substantive laws create, define and regulate legal rights and obligations. Procedural law defines the methods available to enforce the rights specified in the substantive law.

Case Law: Judicial decisions, often referred to as the common law.Statutes: Laws that have been adopted by legislative bodies—Congress,

state legislatures, city councils and the like.Public Law and Private Law: Public law deals with the relationship

between government and the citizens, such as constitutional and criminal law. Private law regulates the legal relationship between individuals, such as the areas of contracts, agency and commercial paper.

Civil Law and Criminal Law: Civil law addresses the legal rights and duties arising among individuals, organizations such as corporations, and governments. Criminal law involves wrongs against the general welfare as formulated in specific criminal statutes.

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State and Federal Court Systems

U.S. Supreme

Court

State Supreme

Court

State Court of Appeals U.S. Court of Appeals

State Trial Courts

U.S. District U.S. Specialized U.S.

Courts Courts Administrative

Agencies

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Wells’ Dairy, Inc. v. The Estate of J.P. Richardson, Jr. (N.D. Iowa 2000)

Subject Matter Jurisdiction: There is diversity jurisdiction because “if Wells is required to

stop using the trademark, the cost to develop and promote a new trademark would exceed $75,000.00.”

There is federal question jurisdiction because Wells’ claim is based on the Federal Lanham Act.

Personal Jurisdiction: Iowa’s long-arm statute confers jurisdiction to the fullest

extent permitted by the due process clause. The Richardson estate has established sufficient minimum

contacts with Iowa that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice.

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Republic of Bolivia v. Philip Morris (S.D. Tex. Galveston Div. 1999)

“[G]iven the tremendous number of United States jurisdictions encompassing fascinating and exotic places, the Court can hardly imagine why the Republic of Bolivia elected to file suit in the veritable hinterlands of Brazoria County, Texas. The Court seriously doubts whether Brazoria County has ever seen a live Bolivian … even on the Discovery Channel.”

“[I]t is the Court’s opinion that the District of Columbia, located in this Nation’s capital, is a much more logical venue for the parties and witnesses in this action because, among other things, Plaintiff has an embassy in Washington, D.C., and thus a physical presence and governmental representatives there, whereas there isn’t even a Bolivian restaurant anywhere near here!”

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Stages of A Lawsuit

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Pleading StageDiscovery

StageTrial Stage Appellate Stage

Complaint Depositions Voir dire Filing the appeal

AnswerWritten

interrogatories

Opening

Statements

Submission

of briefs

ReplyRequest for

admissionsCases in chief Arguing the case

Production of

DocumentsArguments

Decision of the

court

Request for physi-

cal examination

Instructions to

Jury

Request for men-

tal examination

Verdict

Judgment

Class Actions

Pro Con

“Efficiently offer relief to a Innocent defendants pay

large group of people whounjust settlements because

have suffered real injury.” the potential loss at trial &

cost to litigate are so large.

Real “winners” are only

plaintiffs’ lawyers, who

“treat class actions as

investment ventures.”Source: Mike France, “On The Prowl For Victims,” Business Week, January 29, 2001, p. 122

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Alternative Dispute Resolution (ADR)

Mediation: Mediation introduces a neutral third party mediator as a facilitator, not a decision maker, resulting in a solution, in the nature of a compromise, not a determination of right and wrong.

Arbitration: A neutral third party is given the power to determine a binding resolution of the dispute, with the resolution either a compromise solution or a

determination of the rights of parties and a win/lose solution. Private Trials: Also known as “rent-a-judge,” the litigants hire a retired judge

as well as jurors to hear the case and the proceedings are conducted much as in a courtroom. Normally, parties agree in advance that the decision will be binding.

Mini-Trials: Informal hearings that clarify the facts and the issues that would emerge if the dispute were litigated. Each party presents its version of the case to a panel of senior executives from each organization who then meet to attempt to negotiate a settlement.

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ADR Assessed

A 1996 study put the median cost of mediation at $2,750, and of arbitration at $11,800 with the median duration of mediation at 1 day, compared to 60 days for arbitration –considerably less money and time then litigation typically is.

But where the arbitration or other ADR method is paid for by one of the parties, can we feel confident the process will be fair to all?

When ARR is mandatory, does it deprive plaintiffs of their Seventh Amendment right to a jury trial?

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Kathryn Brennan v. Bally Total Fitness (S.D.N.Y. 2002)—Part I

A party will not be bound by an arbitration agreement that is unconscionable: “[A] contract is unconscionable where there is ‘an absence of

meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party.’” Evidence of high pressure or deceptive tactics, the use of fine

print and any disparity in experience and education between the parties.

Terms unreasonably favorable to the party against whom unconscionably is claimed.

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Kathryn Brennan v. Bally Total Fitness (S.D.N.Y., 2002)—Part II

This agreement to arbitrate was unconscionable and is therefore unenforceable. Bally gave employees no more then fifteen minutes to review a

sixteen-page single-spaced document, never mentioned that the employees could review the agreement at home or with an attorney and threatened that those who did not sign the document would not be promoted.

The agreement was unreasonably favorable to Bally because its terms allow Bally to unilaterally modify the contract at any time and it denied Brennan the right to proceed in court on her pending sexual harassment claim.

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