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As described in the abstract Margolin
v Funny Face & Novelty Now Inc. covers a large geographic area, before
this case can begin jurisdiction must be decided upon through personal and
subject matter jurisdiction. Personal jurisdiction, “is a court’s power to
render a decision affecting the right of the specific persons before the
court.” (Kubasek, 2017). In simple terms this is
the court’s ability to acquire jurisdiction over the plaintiff, Donald Margolin,
and the defendants, Novelty Now Inc. and Chris, Matt, and Ian (Chris will
represent all three men for the remainder of this paper). The jurisdiction,
however, only extends to the state’s borders. Donald Margolin lives in New
York, yet is filling suit against Novelty Now Inc. based out of Florida as well
as Chris in California. The problem here becomes which, if any, state has
jurisdiction to try a case that encompasses all three.

Subject matter
jurisdiction, “is a court’s power to hear certain kinds of cases.” (Kubasek, 2017).
This system determines which jurisdiction a case may fall under: state
jurisdiction, exclusive federal jurisdiction, and concurrent jurisdiction. The
requirements for this case to be considered exclusive federal jurisdiction are
absent since it usually involves, “admiralty cases, bankruptcy cases, federal
criminal prosecutions, lawsuits in which one state sues another state, claims
against the United States, and cases involving federal copyrights.” (Kubasek, 2017). The decision then falls to state or
concurrent jurisdiction. With all three parties being from different states a
diversity-of-citizenship case may dictate which jurisdiction it will fall under.
To be classified as a diversity-of-citizenship case one more stipulation must
be 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 the
damage to his face and business reputation” (Milestone 1 Rubric). His company’s
legal team will arrive at what they believe to be a fair amount, if this is
valued at, or over $75,000 then this case may fall under concurrent federal
jurisdiction. Conversely, if the monetary amount is less than $75,000
the minimum requirements for diversity-of-citizenship will not be met leaving
state jurisdiction as the remaining option. For state jurisdiction to work via New
York court’s long-arm statues will have to be used to serve the defendants,
these long-arm statutes are permitted if sufficient minimum-contact
requirements are met.

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Long-arm statues
were enacted to allow states to serve defendants that either lived outside
their borders, or fled their borders to evade prosecution. For New York to
serve the defendants they must have sufficient minimum-contact requirements
under New York standards. “Most states statutes hold that acts like committing
a tort or doing business in the state are sufficient to allow that state to serve
a defendant” (Kubasek, 2017). With many transactions occurring over the
internet it is possible for a business transaction to occur without a business representative
ever stepping foot inside that state. Fischbarg
v. Doucet and Parke-Bernet Galleries,
Inc. v Franklyn help set the precedence for such cases. Fischbarg v. Doucet was the first major
case that allowed New York to have jurisdiction over an online transaction by stating,
“First that the defendants had purposefully availed themselves ‘of the privilege
of conducting activities within the forum state, thus invoking the benefits and
protections of its laws.’ The defendants lack of physical presence in New York
was entirely irrelevant” (Carlisle, 2009).
Fischbarg v. Doucet still left
minimum-contact standards of online transactions ambiguous though. Parke-Bernet cleared this up when only a
single transaction from an online auction website between California and New
York 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’s
suit against Chris and Novelty Now Inc. it shows New York’s willingness to
serve defendants of online transactions. Finally, the stipulation in the
contract between Novelty Now Inc. and Chris that states all disputes must be
brought in Florida does not encompass Mr. Margolin as a third party. Since Mr.
Margolin is not required to follow stipulations in a contract between other
parties New York is able to file suit under their state jurisdiction without

The above paragraphs
define where jurisdiction would fall if litigation where pursued. However, there
are other means of dispute resolution known as Alternative Dispute Resolution
(ADR), “refers to the resolution of legal disputes through methods other than
litigation, such as negotiation, mediation, arbitration, summary jury trials, minitrials,
neutral case evaluations, and private trials” (Kubasek, 2017). In a new different
scenario all parties have decided to handle the dispute outside of litigation.
From the choices listed above the two that would be the most appropriate, and
allow the most control on both sides is arbitration and minitrial. To summarize
each of these ADR methods, arbitration is, “The resolution of a dispute by a
neutral third party outside the judicial setting” (Kubasek, 2017). The neutral
third party hears both sides of arguments and then renders an award that is
legally binding. A minitrial is much like an arbitration in that is uses a neutral
third party, unlike arbitration it uses business representatives alongside the
third party to hear arguments from the disputing company’s lawyers. Once
arguments are complete the neutral third party gives a non-binding opinion to
what they believe a verdict would be if litigation were pursued. The business
representatives may then come to a settlement between themselves or elect the
neutral third party to settle the dispute for them.

Arbitration brings
a few distinct advantages and disadvantages to the table. First and foremost
is, “Arbitration is more efficient and less expensive than litigation” (Kubasek,
2017). For a budding entrepreneur, such as Chris, cost might be a large factor
in how he chooses to settle this dispute. Litigation could severely eat into
profits and become a drawn-out case that sees his company ruined. Another large
advantage is the ability for each of these parties to choose how the
arbitration will be conducted along with who will arbitrate, whether it be a
sole arbitrator or a panel. Disadvantages, however, come in the form of confidentiality
from the public (an advantage only to the offending parties). Since arbitration
is kept confidential Funny Face’s use of a product that is non-FDA approved
will not be released to the public. Another disadvantage to arbitration is the
inability to appeal any decision awarded by the arbitrator. Even if the parties
involved do their due diligence and make sure the arbitrator was thoroughly screened
and informed about the situation the award given could potentially be wholly
one-sided. With arbitration awards being legally binding and little chance of a
court reversing them the parties involved may seek a method that allows more
flexibility when settling the dispute

A minitrial may be
the best choice for the parties involved. A minitrial allows all parties to elect
business representatives to sit on the panel alongside the neutral third-party.
Chris and Novelty Now Inc. representatives will have an in-depth understanding
of how their businesses run and what settlement outcomes will have the greatest
impact. Mr. Margolin, while not representing his business in this dispute, can
still send a representative that understands how this product damaged his
professional appearance as a public speaker. This ADR method gives the
companies a great deal of control on the outcome, unlike arbitration. At the
end of each company’s legal arguments, the representatives can choose to settle
under their own terms, which could be in favor of all parties involved, or allow
the third-party representative to render a decision if one cannot be reached. Two
big disadvantages include the downside of confidentiality, as in arbitration,
and the possibility of Chris representing himself in the panel. Since Chris is
an entrepreneur and does not currently own a company there are no “business
representatives” other than himself, Matt, or Ian. If one is granted the right to
sit on the panel alongside the neutral third-party it will lead to the panel
being bias in some nature.

The above section addressed
two ADR methods that maybe the best choices for resolution, but this does not
mean each party involved would completely agree with those choices. Each party has
their own experience level alongside their idea of what the intended outcome should
be. After reviewing the case as well as the numerous ADR methods I find the
following to be the most ideal for each party: Chris and Novelty Now – minitrial,
and Mr. Margolin – private trial.

Chris and Novelty Now
Inc. would stay with a minitrial as it is cheaper than arbitration and gives
them 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. will
be wanting. Mr. Margolin, being the wronged party, may hold the largest stake in
choosing the ADR method. With both defendants seeking confidentially they may
agree 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 to
avoid the bias of a minitrial. This ADR method gives him the best chances of reaching
a verdict in his favor as the judge can be chosen (maybe one that has presided
over cases for his business in the past) and the jury is more experienced, thus
having the ability to see the defendant’s true intentions when choosing to use
PYR. Even with Novelty Fun Inc. and Chris having the ability to appeal any awards
by the private trial Mr. Margolin has his best chance of reaching a fair
verdict. It is likely that, within reason, Novelty Fun Inc. and Chris would
accept the award given by the private trail to avoid any public trial and
litigation that might hurt their public image.

Now that
jurisdiction as well as ADR methods have been covered the topic of criminal
acts and liability of Chris and Novelty Fun Inc. must be determined. The
question of if a criminal act was committed comes down to the labelling of Funny
Face ingredients according to FDA regulations set forth in the Fair
Packaging and Labeling Act (FPLA) (FDA Authority
Over Cosmetics, 2013). Since chemical emulsifiers are not a restricted
chemical by the FDA (and are used quite frequently in the production of
lotions) Chris did not commit a criminal act by choosing to use it, though it might
be 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 listed
individually.” (FDA Authority Over Cosmetics, 2013). If this ingredient was
left off the label than Chris and Novelty Fun Inc. may be held liable for adverse
effects to customers that use Funny Face (the question of corporate liability will
be addressed later). The next issue then becomes if it was deliberately left
off the label or done so out of negligence. If done so out of negligence the
courts may not see it as a criminal act, but that does not mean there will not
be consequences for doing so. Deliberately leaving the ingredient off the label
can be considered a criminal act however, “Misbranding, refers to violations
involving improperly labeled or deceptively packaged products” (FDA Authority
Over Cosmetics, 2013). By making the conscious decision to mislabel their
product Chris and Novelty Now Inc. have committed fraud. Fraud is defined as,
“an individual intentionally uses misrepresentation to gain an advantage over
another.” (Kubasek, 2017). By intentionally misbranding the label Chris and
Novelty Now Inc. sought to intentionally misrepresent their product to increase
sales volume, thus gaining an advantage over their customers as well as other
aftershave lotion distributors. If misbranding can be proven on the part of
either Chris and/or Novelty Now Inc., then corporate criminal liability will
have to be addressed.

In the above
scenario fraud was the criminal act being established, but what if PYR were also
illegal to use? Corporate criminal liability brings into question if any of the
offending parties may be held liable for both scenarios addressed. Precedence
has made it quite clear that corporate executives, “May be held accountable for
crimes arising from their failure to meet their responsibility” (Carlisle, 2009).
Chris, acting as the executor failed to either ensure proper labelling of the
product and blatantly chose to use an illegal chemical. For a corporation to be
found liable it must be proven that, “(1) the individual was acting within the
scope of her or his employment; (2) the individual was acting with the purpose
of 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 to
use PYR to increase the profits of Funny Face, thus directly benefitting the
business. By changing the chemical make up of his aftershave lotion he directly
imputed a change into how his product was made, thus his business, and
therefore met all three criteria for a court to find Chris liable for the
actions of his business. However, Matt, Ian, and Novelty Now Inc. did not make
this decision, so how can they be held criminally liable for another’s choice
or negligence? Dotterweich has set precedence for this situation. Dotterweich
made it clear that those in the positions of authority that fail to exercise
such authority will be held just as liable as the individual who made the
decision (Kubasek, 2017). If the courts can prove that Matt and Ian knew about
the use of PYR and did not use their authority to verify correct labelling and
stop the use of an illegal substance they can be held just as accountable as
Chris. Novelty Now Inc., though not a part of Chris’ business, still mass
produced and distributed a product knowing it was improperly labelled and
illegal 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 articles
into interstate commerce.” (FDA Authority Over Cosmetics, 2013). In either of
the scenarios detailed above (improper labelling or the use of an illegal
chemical) Chris and Novelty Now Inc. may be held liable for their direct
actions while Matt and Ian for the inaction that lead to Funny Face causing Mr.
Margolin’s side effects.

Laws, for the most
part, 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 right
and wrong. A corporation can choose a course of action, and while this course
might be well within the confines of the law it can infringe upon, or even
break the boundaries of business ethics. One company might see this course as
“a necessity for doing business” with no ethical implications while another
company would see this course as ethically wrong. This case is a perfect
example to address a decision made by a company that fails the ethical
decision-making test. For the sake of keeping everything legal in this case let
us say that PYR, while not FDA regulated, can be used in the production of Funny
Face. Chris and Novelty Now Inc. follow all FDA regulations to make sure their
product will pass any inspection and PYR is listed as an ingredient, yet no
side effects or adverse reactions are listed as warnings to consumers. These
two parties are now completely within the confines of the law, but have broken
the ethical decision-making guidelines of the golden rule, the public
disclosure test, and the universalization test.

The golden rule,
simply put, is the treatment of others as you would want to be treated. It is
the most simple and easiest ethical guideline to follow. The public disclosure
test allows a company to be transparent in everything that they do to receive
the true reaction of the public, and the universalization test asks everyone to
think of how the world would be if others copied the same decisions we make. By
choosing to substitute a chemical additive and not inform the public Chris and
Novelty Now Inc. broke all three of these ethical decision-making guidelines.
They treated their customer base as an expendable item, so their profit margins
could be greater instead of viewing their customers as equals. They also kept
it hidden which never allowed the public to voice their concerns or opposition
to the change. This decision also set a negative precedence for all other
companies in the cosmetic sector, if all companies decided to follow Chris’ and
Novelty Now Inc.’s decision and substitute chemicals to see higher profits the
market 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 ethical
trust from the public and this case is a shinning example of how a company can
make a decision that may stay within the margins of the law, but go against
ethical business dealings. By following the three guidelines to ethical
decision-making Chris and Novelty Now Inc. may have seen lower profits, but
higher sale numbers which could offset the higher cost of manufacturing in the
long run.









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