Foundations of American Law 1 Foundations of American Law The Nature of Law The Resolution of Private Disputes Business and The Constitution Business Ethics, Corporate Social Responsibility, Corporate Governance, and Critical Thinking McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

The Resolution of Private Disputes 2 C H A P T E R The Resolution of Private Disputes “In case of dissension, never dare to judge till you have heard the other side.” Euripides

Learning Objectives State courts and their jurisdiction Federal courts and their jurisdiction Civil Procedure Alternative Dispute Resolution The hyperlink to the U.S. Constitution is to the 21st edition (2003). The hyperlink to the Clean Air Act is to the version posted on the EPA website. The tribal level often is ignored in references to sources of law. However, Indian nations are sovereign entities with the authority to establish a Constitution and enact supporting laws. 2 - 4

The U.S. Judicial System The United States has a federal court system and each state has a court system A Court is established by a government to hear and decide matters before it and redress past or prevent future wrongs Jurisdiction (the power to hear and speak) may be original (trial) or appellate (reviews trial court) 2 - 5

Federal Court Hierarchy U.S. Supreme Court (appellate jurisdiction; final review and final decision)  Courts of Appeals (appellate jurisdiction)  District Courts (trial courts; original jurisdiction) or Statutory Courts (original limited jurisdiction), such as Tax Court, Court of Int’l Trade, Court of Federal Claims, etc. 2 - 6

State Court Hierarchy State Supreme Court (final appellate)  State Civil Court of Appeals and State Criminal Court of Appeals  District Courts (trial courts for civil matters over certain $ amount) and Criminal Courts  County Courts (trial courts for civil matters under certain $ amount)  Justice of the Peace Courts (small claims and misdemeanor courts) Limited Jurisdiction Courts (i.e., family, probate, traffic, zoning) 2 - 7

General vs. Limited Jurisdiction General jurisdiction courts (i.e., trial courts) hear most types of cases Levels generally classified according to dollar amount of damages or location Examples: county courts, district courts Limited jurisdiction courts hear specialized types of cases and appeals from these decisions often require a new trial in a court of general jurisdiction Examples: traffic court, tax court, family court 2 - 8

Subject-Matter Jurisdiction Subject-matter jurisdiction refers to a court’s authority to hear a particular type of dispute. Courts of criminal jurisdiction hear trials of crimes and misdemeanors, which are offenses against the public at large Courts of civil jurisdiction hear and decide issues concerning private rights and duties (e.g., contracts, torts), as well as non-criminal public matters (e.g., zoning, probate) 2 - 9

In Personam or In Rem Jurisdiction In addition to subject-matter jurisdiction, a court must have either in personam or in rem jurisdiction In personam jurisdiction requires that the defendant be a resident of, located within, or have committed acts within the physical boundaries of the court’s authority 2 - 10

In Personam or In Rem Jurisdiction In rem jurisdiction applies when property that is the subject of the dispute is located within physical boundaries of the court’s authority Example: a dispute over a house sale 2 - 11

Bombliss v. Cornelsen Facts & Procedural History: Illinois residents sued Oklahoma residents in Illinois court and the Oklahoma defendants moved to dismiss for lack of in personam jurisdiction Trial court dismissed complaint and Plaintiffs appealed Issue: Does the Illinois long-arm statute permit state courts to exercise jurisdiction over Oklahoma defendants? This is the dog breeder case. In Bombliss v. Cornelsen, the Oklahoma defendants’ Internet use helped lead to a conclusion that the courts of Illinois could properly exert in personam jurisdiction over the defendants. As Bombliss illustrates, Internet activities of a nonresident defendant frequently play a key role in the determination of whether a state or federal court’s exertion of in personam jurisdiction over that defendant is legally permissible. 2 - 12

Bombliss v. Cornelsen Analysis and Application to Facts: Defendant must purposefully avail himself of the privilege of conducting activities within the state such that he would reasonably anticipate being haled into the state’s court Where a contract exists, minimum contacts shown by negotiations between parties, the course of dealing between parties, and foreseeable future consequences Existence of a contract, defendants’ interactive website, and contact with potential customers of plaintiffs equate to minimum contacts Holding: In personam jurisdiction exists. Trial court decision reversed and case remanded. 2 - 13

Federal Court Jurisdiction Federal courts must have jurisdiction based on diversity or federal question Diversity jurisdiction exists when the dispute is between citizens of different states and amount in controversy exceeds $75,000 Federal question jurisdiction exists when the dispute arises under the Constitution, laws, or treaties of the United States 2 - 14

Civil Procedure A set of rules establishing how a lawsuit proceeds from beginning to end In an adversarial system, the plaintiff bears the burden of proof to prove his/her case by a preponderance of the evidence Once the plaintiff has made a “prima facie” case (i.e., proved the basic case), the burden of proof may shift to the defendant 2 - 15

Civil Pre-Trial Procedure Action or event occurs allegedly causes harm  Injured party, known as Plaintiff, files a Petition or Complaint  Sheriff serves “process” (writ, notice, summons) on Defendant  Defendant Answers Complaint  Case proceeds to trial or settlement 2 - 16

Civil Pre-Trial Procedure Plaintiff’s complaint or petition plus the defendant’s answer or response are known as the pleadings Defendant may enter a counterclaim against the plaintiff or a cross-complaint against a third party Other parties may enter the case 2 - 17

Civil Pre-Trial Procedure Motion Practice: some motions ask the judge to decide the result before trial Motion to dismiss (or demurrer) Motion for judgment on the pleadings Motion for summary judgment Motions should NOT be taken lightly! 2 - 18

Civil Pre-Trial Procedure Discovery: Obtaining evidence from the other party through interrogatories, requests for admissions, requests for documents, and depositions The discovery process can be a battleground See Allstate Indemnity Co. v. Ruiz Pretrial Conference: where the judge will hear and rule on many evidentiary issues, discovery disputes, and other concerns One month after securing insurance coverage from Allstate Indemnity Co. for their Chevrolet Blazer, Joaquin and Paulina Ruiz purchased an Oldsmobile Cutlass. They instructed Allstate agent Paul Cobb to add that vehicle to the policy. Cobb added the Cutlass to the policy but mistakenly deleted the Blazer. The Ruizes were not notified that the Blazer was no longer covered under their insurance policy. Joaquin Ruiz was later involved in an accident while driving the Blazer. When the Ruizes submitted a claim for collision coverage, Allstate denied payment, asserting that the Blazer was not covered under the policy. The Ruizes filed suit, alleging that Cobb and Allstate had been negligent in deleting the Blazer from the insurance policy, and that Allstate had engaged in bad faith and unfair claim settlement practices in violation of a Florida statute. After the filing of the lawsuit, Allstate admitted its obligation to provide collision coverage. Even though the basic coverage issue was resolved, the bad faith claim remained pending. In connection with the bad faith claim, the Ruizes sought discovery of certain documents, including Allstate’s claim and investigative file and materials, Allstate internal manuals, and Cobb’s file regarding the bad faith claim. Allstate refused to supply the requested documents, so the Ruizes asked the trial court to compel production of them. After reviewing the documents sought by the Ruizes, the trial judge ordered that the documents be provided to them because the documents contained relevant information regarding Allstate’s handling of the underlying insurance claim. The judge also determined that the requested documents did not constitute work product or attorney-client communications and thus were not exempt from disclosure during the discovery process. (Because communications between an attorney and his or her client are privileged, they are not subject to discovery. Work product is a term used to describe documents and materials prepared by an attorney and his or her client in anticipation of litigation. In general, work product is not subject to discovery.) Allstate appealed to Florida’s intermediate court of appeals, arguing that the dispute over the Ruizes’ insurance coverage was immediately apparent when Allstate refused to make payment, that litigation was anticipated at all pertinent times, and that all of the material sought by the Ruizes was nondiscoverable work product. The appellate court concluded that several requested items were not protected work product and therefore were properly discoverable, including: Cobb’s statement of January 7, 1997; computer diaries and entries from the date Joaquin Ruiz reported the accident on December 28, 1996, through January 10, 1997; and a January 7, 1997, memorandum from an Allstate insurance adjustor to her boss. However, the appellate court determined that the balance of the documents sought by the Ruizes were prepared by Allstate in anticipation of litigation and were thus nondiscoverable work product. Both parties were dissatisfied with the appellate court’s decision, the Ruizes because some of what they sought was held nondiscoverable and Allstate because some of what it sought to withhold was held discoverable. The Supreme Court of Florida granted Allstate’s request for review. 2 - 19

Civil Trial Procedure Jury Selection (Voir Dire) Opening Statement from each party 2 - 20

Civil Trial Procedure Plaintiff’s case through direct examination of witnesses (defendant performs cross-examination) and defendant’s case through direct examination (and plaintiff’s cross-examination) 2 - 21

Civil Trial Procedure Closing Argument or Summation from each party Jury verdict 2 - 22

Civil Trial Procedure Trial motions include: motions in limine (motion to limit evidence), voluntary non-suit or dismissal (drop the case), motion for compulsory non-suit or summary judgment After summation or closing argument, a party may move for a mistrial (overwhelming prejudice or injustice) or directed verdict (weight of evidence leads to only one conclusion) 2 - 23

Civil Trial Procedure Trier of Fact sees material evidence (physical objects, documents), hears testimony of witnesses (who provide factual evidence), and decides outcome of the case based on facts; trier of fact may be judge or jury Matters of law are issues not of fact, but of law; matters of law decided only by a judge E.g., whether a statute means X or Y, or one law or another applies to the facts 2 - 24

Civil Trial Post-Trial Procedure After the jury verdict, a party may make a motion for new trial, judgment non obstanto verdicto (notwithstanding the verdict) or J.N.O.V., or remittitur (defendant’s request for the judge to reduce the amount of damages the jury recommended; very common) 2 - 25

Civil Trial Post-Trial Procedure After a judgment has been entered, losing party may appeal decision to a higher court After a judgment, winning party must have the judgment executed (carried out) to obtain money, property, or action ordered by the court Bottom line: a judgment is issued and enforcement of the judgment begins 2 - 26

Point of Procedure Not all dispute resolution mechanisms in the legal system are heard by a judge Disputes with government often resolved by the relevant administrative agency Administrative agencies generally have a unique dispute resolution process (hearings and appeals) Also, disputants may choose alternative dispute resolution 2 - 27

Alternate Dispute Resolution Arbitration: dispute settled by one or more arbitrators selected by the parties to a dispute; relatively formal; Uniform or Federal Arbitration acts typically used Mediation: parties choose neutral party to aid resolution of dispute Reference to Third Party: dispute resolution by rent-a-judge, minitrial, summary jury trial, or association tribunal Adams, a worker hired at a Circuit City electronics retail store in California, signed an application that included an agreement to resolve all future employment disputes exclusively by binding arbitration. Later, Adams filed a state-law-based employment discrimination suit against Circuit City in a California state court. Circuit City then filed suit in a federal district court, asking the court to enjoin the state-court action and compel arbitration under the Federal Arbitration Act (FAA). The district court granted the order, and Adams appealed. The Court of Appeals for the Ninth Circuit reversed and remanded, reasoning that the FAA did not cover employment contracts. Circuit City sought review by the United States Supreme Court, which granted certiorari. Judgment of the Court of Appeals reversed, and case remanded. Holding: Arbitration agreements can be enforced under the FAA without contravening the policies of congressional enactments giving employees specific protection against discrimination prohibited by federal law. 2 - 28

Why Choose ADR? Less costly, in general May be more appropriate method of resolution for certain types of cases (e.g., family law disputes, real estate disputes between neighbors, high-tech or trade-secret disputes) May be required by clause in contract 2 - 29

Test Your Knowledge True=A, False = B A trial court has original jurisdiction and an appellate court has appellate jurisdiction The difference between general jurisdiction and limited jurisdiction is based on the amount in controversy (the damages amount) Subject-matter jurisdiction refers to a court’s authority to hear a particular type of dispute True False. General jurisdiction refers to a court that may hear a wide variety of cases, but limited jurisdiction refers to a court that may only hear specific types of cases, such as tax, traffic, probate, or family disputes. True. 2 - 30

Test Your Knowledge True=A, False = B In personam jurisdiction refers to the court’s jurisdiction over the defendant, but in rem jurisdiction refers to the court’s jurisdiction over the property in dispute The burden of proof solely rests on the plaintiff Matters of law are determined by either the jury or the judge. True. False. The burden of proof begins with the plaintiff, but once a plaintiff proves a prima facie (on its face) case, the burden may shift to the defendant. For example, in an auto accident case, the plaintiff may prove the prima facie case by showing a police report that places the fault of the accident on the defendant and showing that the accident caused plaintiff’s injuries (property damage, physical injury). The burden then shifts to the defendant, who may raise a defense, such as contributory negligence. False. Only a judge may determine a matter of law. A judge OR jury may act as the trier of fact. 2 - 31

Test Your Knowledge Multiple Choice Diversity jurisdiction refers to: (a) a jury pool that reflects the ethnic makeup of the city (b) a citizen’s lawsuit against the government (c) a lawsuit by a citizen of one state against a citizen of a different state Methods of alternative dispute resolution include: (a) Mediation (b) Arbitration (c) Summary jury trial (d) All of the above The correct answer is (c) The correct answer is (d) 2 - 32

Test Your Knowledge Multiple Choice Discovery refers to: (a) the discovery that a dispute exists (b) the pre-trial process involving interrogatories, requests for admissions, and requests for documents (c) the analysis of fault in a dispute After the verdict: (a) Either party may make post-verdict motions (b) The trial must end (c) The trial begins The correct answer is (b) The correct answer is (a). Post-verdict motions include remittitur, motion for new trial, motion for judgment notwithstanding the verdict. 2 - 33

Thought Question If you were served with a lawsuit, what would you do about it? Class discussion 2 - 34