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,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 2: Business Ethics
Solution and Answer Guide
Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650;
Chapter 2: Business Ethics
TABLE OF CONTENTS
Answers to Questions and Case Problems..............................................................................1
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. You have an employee who has a chemical imbalance in the brain that causes him to be severely
unstable. The medication that is available to deal with this schizophrenic condition is extremely powerful
and decreases the taker's life span by one to two years for every year that the user takes it. You know
that his doctors and family believe that it is in his best interest to take the medication. What course of
action should you follow?
Answer: This question illustrates one scenario where arguments against corporate social
responsibility could come into play. If you take the “anti-social responsibility” position that a
corporation has—as its primary objective—a fundamental responsibility to maximize profits,
the employer could make the medication a requirement for the employee to remain in the
workforce. It could be argued that this decision may also decrease the possibility of injury or
deterioration in working conditions for other employees. The other side of the argument,
however, is that this type of decision is too personal for a corporation to make. The ultimate
determination should reside with the employee, and it should be his free decision to take or
not take the medication. This puts the responsibility back where it belongs: on the employee
and his family.
2. You have a very shy employee from another country. After a time, you notice that the quality of her
performance is deteriorating. You find an appropriate time to speak with her and determine that she is
extremely distraught. She tells you that her family has arranged a marriage for her and that she refuses
to obey their contract. She further states to you that she is thinking about committing suicide. Two
weeks later, after her poor performance continues, you determine that she is on the verge of a nervous
breakdown; and once again she informs you that she is going to commit suicide. What should you do?
Consider further that you can petition a court to have her involuntarily committed to a mental hospital.
You know, however, that her family would consider such a commitment an extreme insult and that they
might seek retribution. Does this prospect alter your decision? Explain.
Answer: A good, responsible manager would be hard-pressed to demand that the employee
either improve her on-the-job performance or face dismissal. However, initiating an
involuntary committal to a mental hospital could constitute an improper invasion of rights with
many legal repercussions. An interim step of providing appropriate psychological social
counseling (perhaps at company expense) would seem to best fit into the concept of good
corporate management. This would benefit not only the individual but the corporation, as it
may be able to keep a valued employee. The cost of counseling is likely to be less expensive
than hiring and training a new employee.
3. You receive a telephone call from a company that you never do business with requesting a reference
on one of your employees, Mary Sunshine. You believe Mary performs in a generally incompetent
manner, and you would be delighted to see her take another job. You give her a glowing reference. Is
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,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 2: Business Ethics
this right? Explain.
Answer: Pawning off an incompetent employee would certainly help the profitability of an
employer. However, relatively accurate referrals are expected, and good corporate
citizenship would impose a moral responsibility to act properly. The employer would be better
advised to give a more accurate, but not overly negative, description of Mary’s job
performance (while staying within the conditional privilege of avoiding a defamation action),
rather than generate animosity and gain a reputation as a liar among other businesses in the
area.
4. You have just received a report suggesting that a chemical your company uses in its manufacturing
process is very dangerous. You have not read the report, but you are generally aware of its contents.
You believe that the chemical can be replaced fairly easily, but that if word gets out, panic may set in
among employees and community members. A reporter asks if you have seen the report, and you
say no. Is your behavior right or wrong? Explain.
Answer: Weighing the arguments for profitability to shareholders and fairness to
shareholders and employees against the arguments for good corporate citizenship and long-
run profits, an appropriate response might be that you are aware of the report but haven’t
thoroughly read or studied it. Proceeding with a course that acknowledges (at least internally)
past dangerous practices, while immediately correcting the current problems, and correcting
future problems in a timely manner, may be an appropriate legal as well as moral response to
this problem. This is one of the reasons many corporations have a corporate spokesperson to
give appropriate and consistent responses.
5. You and Joe Jones, your neighbor and friend, bought lottery tickets at the corner drugstore. While
watching the lottery drawing on television with you that night, Joe leaped from the couch, waved his
lottery ticket, and shouted, “I've got the winning number!” Suddenly, he clutched his chest, keeled
over, and died on the spot. You are the only living person who knows that Joe, not you, bought the
winning ticket. If you substitute his ticket for yours, no one will know of the switch, and you will be $10
million richer. Joe's only living relative is a rich aunt whom he despised. Will you switch his ticket for
yours? Explain.
Answer: Perhaps an advocate of utilitarianism or social egalitarianism might feel that
switching the ticket would be morally appropriate on the premise that it maximized pleasure
and was an appropriate distribution of wealth. However, such a moral rationalization would
demonstrate the flaws in both theories. There is no escaping the fact that switching the
tickets would be improper under the law and most moral theories.
6. Omega, Inc., a publicly held corporation, has assets of $100 million and annual earnings in the range
of $13 to $15 million. Omega owns three aluminum plants, which are profitable, and one plastics
plant, which is losing $4 million a year. Because of its very high operating costs, the plastics plant
shows no sign of ever becoming profitable, and there is no evidence that the plant and the underlying
real estate will increase in value. Omega decides to sell the plastics plant. The only bidder for the
plant is Gold, who intends to use the plant for a new purpose: to introduce automation, and to replace
all existing employees. Would it be ethical for Omega to turn down Gold's bid and keep the plastics
plant operating indefinitely for the purpose of preserving the employees' jobs? Explain.
Answer: Indefinite maintenance of the plastics plant may strike one as being the morally
correct thing to do. The moral basis for such a decision would be essentially egalitarianism
where the wealth generated by many is redistributed to benefit others. However, as the basis
for an economic system, such an approach may be doomed to ultimate failure in that it does
not rectify anything and only prolongs a perhaps snowballing problem that could taint and
impair the job security of everyone employed by Omega. If managerial and operational
changes truly cannot rectify the net loss situation suffered by the plastics plant, sale of the
plant to Gold may, in a broader context, be the morally correct thing to do.
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,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 2: Business Ethics
7. You are the sales manager of a two-year-old electronics firm. At times, the firm has seemed to be on
the brink of failure, but recently it has begun to be profitable. In large part, the profitability is due to the
aggressive and talented sales force you recruited. Two months ago, you hired Alice North, an honors
graduate from the State University, who decided that she was tired of the Research Department and
wanted to try sales.
Almost immediately after you sent Alice out for training with Brad West, your best salesperson, he
began reporting to you an unexpected turn of events. According to Brad, “Alice is terrific: she's
confident, smooth, and persistent. Unfortunately, a lot of our buyers are good old boys who just aren't
comfortable around young, bright women. Just last week, Hiram Jones, one of our biggest customers,
told me that he simply won't continue to do business with ‘young chicks’ who think they invented the
world. It's not that Alice is a know-it-all. She's not. It's just that these guys like to booze it up a bit, tell
some off-color jokes, and then get down to business. Alice doesn't drink, and although she never
objects to the jokes, it's clear she thinks they're offensive.” Brad felt that several potential deals had
fallen through “because the mood just wasn't right with Alice there.” Brad added, “I don't like a lot of
these guys' styles myself, but I go along to make the sales. I just do not think Alice is going to make
it.”
When you call Alice in to discuss the situation, she concedes the accuracy of Brad's report but
indicates that she's not to blame and insists that she be kept on the job. You feel committed to equal
opportunity but don't want to jeopardize your company's ability to survive. Explain what you should
do.
Answer: This is a common problem with a myriad of legal and moral implications. From a
profitability standpoint, especially in the case of a company on the brink of economic failure,
ignoring the requirements and whims of customers can amount to economic death. From a
legal standpoint, the Equal Opportunity laws operate harshly against an employer that
discriminates on the basis of sex or race in hiring and promotional activities. Employees are
frequently aware of their rights, yet wish to help the business of an employer and otherwise
act as a good “team player.” A possible response might be (with the consent of Alice)
attempting to divide sales accounts to give to Alice those accounts where her sex would be a
neutral or perhaps positive factor, while retaining for Brad oversight of the “good old boy”
accounts. Such an approach would acknowledge both her legal rights and her justifiable
expectations while not undermining the profitability of a company whose very existence is at
issue. Best utilization of employees is critical to any corporation, and this includes sensitivity
to both the employees’ needs and the customers’ needs.
8. Major Company subcontracted the development of part of a large technology system to Start-up
Company, a small corporation specializing in custom computer systems. The contract, which was a
major breakthrough for Start-up Company and crucial to its future, provided for an initial development
fee and subsequent progress payments, as well as a final date for completion.
Start-up Company provided Major Company with periodic reports indicating that everything was on
schedule. After several months, however, the status reports stopped coming, and the company
missed delivery of the schematics, the second major milestone. As an in-house technical consultant
for Major Company, you visited Start-up Company and found not only that it was far behind schedule
but also that they it lied about its previous progress. Moreover, you determined that this slippage put
the schedule for the entire project in severe jeopardy. The cause of Start-up's slippage was the
removal of personnel from your project to work on short-term contracts to obtain money to meet the
weekly payroll.
Your company decided that you should stay at Start-up Company to monitor its work and to assist in
the design of the project. After six weeks and some progress, Start-up is still way behind its delivery
dates. Nonetheless, you are now familiar enough with the project to complete it in-house with Major's
personnel.
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,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 2: Business Ethics
Start-up is still experiencing severe cash flow problems and repeatedly requests payment from Major.
But your CEO, furious with Start-up's lies and deceptions, wishes to “bury” Start-up and finish the
project using Major Company's internal resources. She knows that withholding payment to Start-up
will put it out of business. What do you do? Explain.
Answer: We don't know if the development fee was ever paid to Start-up Company. Major
had an obligation to pay the initial development fee. If it was paid and Start-up did not
produce the required progress reports, then Major is correct to withhold payment. Situational
ethics will come into play when you decide whether or not to give Start-up more time to
complete the work. If the start-up fee was not paid and it was Major’s failure to pay on
schedule that caused Start-up to divert their personnel, then Major needs to take some share
of the blame.
9. A customer requested certain sophisticated tests on equipment he purchased from your factory. Such
tests are very expensive and must be performed by a third party. The equipment was tested as
requested and met all of the industry standards but showed anomalies that could not be explained.
Though the problem appeared to be very minor, you decided to inspect the unit to try to understand
the test data—a very expensive and time-consuming process. You informed the customer of this
decision. A problem was found, but it was minor and was highly unlikely ever to cause the unit to fail.
In addition to the time and expense required to rebuild the equipment, notifying the customer that you
were planning to rebuild the unit would also put your overall manufacturing procedures in question.
Should you fix the problem, ship the equipment as is, or inform the customer? Explain.
Answer: You must inform the customer. The customer apparently has the right to request
such testing, and as such you have ethical responsibility to inform the customer of all factors.
The ultimate decision should be made by the customer. However, you have the obligation to
comply with the legal and governmental responsibilities within your industry.
10. You are a project manager for a company making a major proposal to a Middle Eastern country. Your
major competition is from Japan.
a. Your local agent, who is closely tied to a very influential sheikh, would receive a 5 percent
commission if the proposal were accepted. Near the date for decision, the agent asks you for
$150,000 to “grease the skids” so that your proposal is accepted. What do you do?
b. What do you do if, after you say no, the agent goes to your vice president, who provides the
money?
c. Your overseas operation learns that most other foreign companies in this Middle Eastern location
bolster their business by exchanging currency on the gray market. You discover that your division
is twice as profitable as budgeted due to the amount of domestic currency you have received on
the gray market. What do you do?
Answer:
(a) This may cross the line from ethical to legal requirements. If this is not illegal, then in
applying the doctrine of ethical relativism, you must decide what is subjectively right for you.
You also need to check the company code of conduct and any other applicable policy.
(b) Again when applying the doctrine of ethical relativism, if you feel strongly enough, you
may have to quit your job or request a transfer to another division. If this activity is not legal,
you have the obligation to report it to your company's superiors.
(c) The Utilitarianism cost–benefit analysis will allow you to first quantify this in monetary
terms and then compare the direct and indirect costs and benefits. This process may achieve
the most profit but may ignore justice in the process.
11. Explain what relevance ethics has to business.
Answer: Business ethics is the study and determination of what is right and good in business
settings. Business ethics seeks to understand the moral issues that arise from business
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,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 2: Business Ethics
practices, institutions, and decision making, and their relationship to generalized human
values. Unlike legal analyses, analyses of ethics have no central authority, such as courts or
legislatures, upon which to rely; nor do they follow clear-cut universal standards.
Nonetheless, despite these inherent limitations, it still may be possible to make meaningful
ethical judgments.
12. How should the financial interests of stockholders be balanced with the varied interests of
stakeholders? If you were writing a code of conduct for your company, how would you address this
issue?
Answer: Finding this balance has been the struggle for most, if not all, businesses
throughout time. Historically, the stockholder model for the role of business has been the
norm. Under this theory, a corporation is viewed as private property owned by and for the
benefit of its owners—the stockholders of the corporation. The stakeholder model, on the
other hand, holds that corporations are responsible to society at large and more directly to all
those constituencies on which they depend for their survival. Thus, it is argued that a
corporation should be managed for the benefit of all of its stakeholders—stockholders,
employees, customers, suppliers, and managers, as well as the local communities in which it
operates. (Student answers will vary but should address these two models.)
13. A company adopts a policy that (a) prohibits romantic relationships between employees of different
rank and (b) permits romantic relationships between employees of the same rank only if both
employees waive in writing their rights to sue the company should the relationship end. Violation of
this rule is grounds for dismissal. Is this rule ethical? If not, how should it be revised? Explain.
Answer: Student answers will vary but should address ways to find a balance between
individual freedoms or rights and the good of the company. Presumably, this policy was made
for a purpose that serves to protect the company (which in turn protects the employee’s job
and other stakeholders’ interests.) A discussion of the theory of utilitarianism would be
appropriate in answering this question.
14. A company prohibits any employee from making disparaging comments about the company through
any social media, including online blogs, email, posts, and other electronic media. Violation of this
rule is grounds for dismissal. Explain whether this rule is ethical. If not, how should it be revised?
Explain.
Answer: Student answers will vary but should address ways to find a balance between
individual freedoms or rights and the good of the company. An argument against this policy
would probably be grounded in the Constitutional protection of free speech, which an
argument in favor of the policy would center on the good that comes from protecting the
company. A discussion of the theory of utilitarianism would be appropriate in answering this
question.
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accessible website, in whole or in part.
,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 3: Civil Dispute
Resolution
Solution and Answer Guide
Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650;
Chapter 3: Civil Dispute Resolution
TABLE OF CONTENTS
Answers to Questions and Case Problems..............................................................................1
Answers to “Taking Sides” Problems.....................................................................................10
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. On June 15 a newspaper columnist predicted that the coast of State X would be flooded on the
following September 1. Relying on this pronouncement, Gullible quit his job and sold his property at a
loss so as not to be financially ruined. When the flooding did not occur, Gullible sued the columnist in
a State X court for damages. The court dismissed the case for failure to state a cause of action under
applicable state law. On appeal, the State X Supreme Court upheld the lower court. Three months
after this ruling, the State Y Supreme Court heard an appeal in which a lower court had ruled that a
reader could sue a columnist for falsely predicting flooding.
a. Must the State Y Supreme Court follow the ruling of the State X Supreme Court as a matter of
stare decisis?
b. Should the State Y lower court have followed the ruling of the State X Supreme Court until the
State Y Supreme Court issued a ruling on the issue?
c. Once the State X Supreme Court issued its ruling, could the U.S. Supreme Court overrule the
State X Supreme Court?
d. If the State Y Supreme Court and the State X Supreme Court rule in exactly opposite ways, must
the U.S. Supreme Court resolve the conflict between the two courts?
Answer:
(a) No. A decision of one state’s supreme court is not binding on another state’s supreme
court. It may be persuasive, but it’s not binding.
(b) Not necessarily. The decision of one state’s supreme court is not binding on the lower
courts of another state. Again, it may be persuasive, but it’s not binding.
(c) If the issue is one strictly of state—as opposed to federal—law, which this seems to be,
then the United States Supreme Court could not overrule the State X Supreme Court.
However, a decision of the U.S. Supreme Court on federal questions is binding on all other
courts, federal and state.
(d) No. If the conflict in rulings relates exclusively to state law, the U.S. Supreme Court
cannot exercise jurisdiction. Even if the conflict between states related to federal law, there is
no mandatory requirement that the Supreme Court intervene. The Supreme Court may
intervene when two Circuit Courts of Appeals adopt inconsistent positions, but there is no
mandatory requirement that it do so.
2. State Senator Bowdler convinced the legislature of State Z to pass a law requiring all professors to
submit their class notes and transparencies to a board of censors to be sure that no “lewd” materials
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,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 3: Civil Dispute
Resolution
were presented to students at state universities. Professor Rabelais would like to challenge this law
as being violative of his First Amendment rights under the U.S. Constitution.
a. May Professor Rabelais challenge this law in the State Z courts?
b. May Professor Rabelais challenge this law in a federal district court?
Answer:
(a) Yes. Adjudicating First Amendment disputes can occur either in the state courts or the
federal courts because they have concurrent jurisdiction over federal questions.
(b) Yes, even if he cannot show a monetary loss, because a federal question exists and there
is no minimum dollar requirement for federal question cases.
3. While driving his car in Virginia, Carpe Diem, a resident of North Carolina, struck Butt, a resident of
Alaska. As a result of the accident, Butt suffered more than $80,000 in medical expenses. Butt would
like to know if he personally serves the proper papers to Diem whether he can obtain jurisdiction
against Diem for damages in the following courts:
a. Alaska state trial court
b. U.S. Circuit Court of Appeals for the Ninth Circuit (includes Alaska)
c. Virginia state trial court
d. Virginia federal district court
e. U.S. Circuit Court of Appeals for the Fourth Circuit (includes Virginia and North Carolina)
f. Virginia equity court
g. North Carolina state trial court
Answer:
(a) The only way that Butt could get proper service on Diem for purposes of suing Diem in an
Alaska state court would be if Diem somehow came into the state borders and Butt served
him while he was inside the state. Butt could not use a long-arm statute to get service since
there would have been no real connection between the events leading up to the lawsuit and
the State of Alaska. If the case could be tried in Alaska, under the conflict of laws rules the
court would apply Virginia law.
(b) No. A Circuit Court of Appeals is an appellate court. It never tries cases.
(c) Yes. The accident occurred in Virginia. This is the most logical place to try the case.
(d) Yes. There is diversity of citizenship jurisdiction and the amount in controversy exceeds
$75,000.
(e) No. A Circuit Court of Appeals is an appellate court. It never tries cases.
(f) No. A court of equity—assuming one exists in Virginia—does not hear cases in which
money damages would provide adequate relief. In this case, money damages would suffice.
(g) Yes, assuming proper services were obtained in North Carolina. Why Butt would want to
sue in North Carolina is a mystery since, under the conflict of laws rules the North Carolina
court would apply Virginia law.
4. Sam Simpleton, a resident of Kansas, and Nellie Naive, a resident of Missouri, each bought $85,000
in stock at local offices in their home states from Evil Stockbrokers, Inc. (Evil), a business
incorporated in Delaware with its principal place of business in Kansas. Both Simpleton and Naive
believe that they were cheated by Evil and would like to sue it for fraud. Assuming that no federal
question is at issue, assess the accuracy of the following statements:
a. Simpleton can sue Evil in a Kansas state trial court.
b. Simpleton can sue Evil in a federal district court in Kansas.
© 2025 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly 2
accessible website, in whole or in part.
, Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 3: Civil Dispute
Resolution
c. Naive can sue Evil in a Missouri state trial court.
d. Naive can sue Evil in a federal district court in Missouri.
Answer:
(a) Yes, you can always sue for fraud in state court. There are sufficient minimum contacts
with that state, since Evil’s principal place of business is located there.
(b) Simpleton cannot successfully sue Evil for fraud in federal district court because the only
possible basis would be diversity of citizenship since no federal question is involved. There is
no diversity in this case because Simpleton and Evil are both citizens of Kansas. A
corporation is a citizen both of the state of incorporation and of its principal place of business.
(c) Yes, you can always sue for fraud in state court. By using a long-arm statute, Evil can be
reached because it is transacting business within Missouri.
(d) In this case, Naive can claim diversity of citizenship because Evil is not a citizen of
Missouri. The mere fact that a corporation does business in a state does not make it a citizen
of that state. So, if Naive has suffered more than $75,000 in damages, this loss—coupled
with diversity of citizenship—would make her eligible to sue Evil in a federal district court. The
case does not tell us how much her loss is, however, so the facts are insufficient to make a
proper determination.
5. The Supreme Court of State A ruled that, under the law of State A, pit bull owners must either keep
their dogs fenced or pay damages to anyone bitten by the dogs. Assess the accuracy of the following
statements:
a. It is likely that the United States Supreme Court would issue a writ of certiorari in the “pit bull”
case.
b. If a case similar to the “pit bull” case were to come before the Supreme Court of State B in the
future, the doctrine of stare decisis would leave the court no choice but to rule the same way as
the Supreme Court of State A ruled in the “pit bull” case.
Answer:
(a) This statement is false. The United States Supreme Court would not issue a writ of
certiorari in a case involving only state tort law and not presenting a federal question.
(b) False. Again, this is an issue of state law, specifically the law of State A. The decision of
one state’s supreme court is not binding on the courts of another state. Such a decision in
State A may be persuasive on the courts in State B, but it is not binding.
6. The Supreme Court of State G decided that the U.S. Constitution requires professors to warn
students of their right to remain silent before questioning the students about cheating. This ruling
directly conflicts with a decision of the U.S. Court of Appeals for the circuit that includes State G.
a. Must the U.S. Circuit Court of Appeals withdraw its ruling?
b. Must the Supreme Court of State G withdraw its ruling?
Answer:
(a) No. Decisions of a state supreme court are only binding on the federal courts as to
questions of that state’s law. Here a federal question is at issue.
(b) Although a decision of a federal court, other than the U.S. Supreme Court, may be
persuasive in a state court on a federal question, it is still not binding on that state court.
7. Thomas Clements brought an action in a court in Illinois to recover damages for breach of warranty
against defendant Signa Corporation. (A warranty is an obligation that the seller of goods assumes
with respect to the quality of the goods sold.) Clements had purchased a motorboat from Barney's
Sporting Goods, an Illinois corporation. The boat was manufactured by Signa Corporation, an Indiana
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Regulation of Business 14th Edition by Richard A.
Mann
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,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 2: Business Ethics
Solution and Answer Guide
Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650;
Chapter 2: Business Ethics
TABLE OF CONTENTS
Answers to Questions and Case Problems..............................................................................1
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. You have an employee who has a chemical imbalance in the brain that causes him to be severely
unstable. The medication that is available to deal with this schizophrenic condition is extremely powerful
and decreases the taker's life span by one to two years for every year that the user takes it. You know
that his doctors and family believe that it is in his best interest to take the medication. What course of
action should you follow?
Answer: This question illustrates one scenario where arguments against corporate social
responsibility could come into play. If you take the “anti-social responsibility” position that a
corporation has—as its primary objective—a fundamental responsibility to maximize profits,
the employer could make the medication a requirement for the employee to remain in the
workforce. It could be argued that this decision may also decrease the possibility of injury or
deterioration in working conditions for other employees. The other side of the argument,
however, is that this type of decision is too personal for a corporation to make. The ultimate
determination should reside with the employee, and it should be his free decision to take or
not take the medication. This puts the responsibility back where it belongs: on the employee
and his family.
2. You have a very shy employee from another country. After a time, you notice that the quality of her
performance is deteriorating. You find an appropriate time to speak with her and determine that she is
extremely distraught. She tells you that her family has arranged a marriage for her and that she refuses
to obey their contract. She further states to you that she is thinking about committing suicide. Two
weeks later, after her poor performance continues, you determine that she is on the verge of a nervous
breakdown; and once again she informs you that she is going to commit suicide. What should you do?
Consider further that you can petition a court to have her involuntarily committed to a mental hospital.
You know, however, that her family would consider such a commitment an extreme insult and that they
might seek retribution. Does this prospect alter your decision? Explain.
Answer: A good, responsible manager would be hard-pressed to demand that the employee
either improve her on-the-job performance or face dismissal. However, initiating an
involuntary committal to a mental hospital could constitute an improper invasion of rights with
many legal repercussions. An interim step of providing appropriate psychological social
counseling (perhaps at company expense) would seem to best fit into the concept of good
corporate management. This would benefit not only the individual but the corporation, as it
may be able to keep a valued employee. The cost of counseling is likely to be less expensive
than hiring and training a new employee.
3. You receive a telephone call from a company that you never do business with requesting a reference
on one of your employees, Mary Sunshine. You believe Mary performs in a generally incompetent
manner, and you would be delighted to see her take another job. You give her a glowing reference. Is
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this right? Explain.
Answer: Pawning off an incompetent employee would certainly help the profitability of an
employer. However, relatively accurate referrals are expected, and good corporate
citizenship would impose a moral responsibility to act properly. The employer would be better
advised to give a more accurate, but not overly negative, description of Mary’s job
performance (while staying within the conditional privilege of avoiding a defamation action),
rather than generate animosity and gain a reputation as a liar among other businesses in the
area.
4. You have just received a report suggesting that a chemical your company uses in its manufacturing
process is very dangerous. You have not read the report, but you are generally aware of its contents.
You believe that the chemical can be replaced fairly easily, but that if word gets out, panic may set in
among employees and community members. A reporter asks if you have seen the report, and you
say no. Is your behavior right or wrong? Explain.
Answer: Weighing the arguments for profitability to shareholders and fairness to
shareholders and employees against the arguments for good corporate citizenship and long-
run profits, an appropriate response might be that you are aware of the report but haven’t
thoroughly read or studied it. Proceeding with a course that acknowledges (at least internally)
past dangerous practices, while immediately correcting the current problems, and correcting
future problems in a timely manner, may be an appropriate legal as well as moral response to
this problem. This is one of the reasons many corporations have a corporate spokesperson to
give appropriate and consistent responses.
5. You and Joe Jones, your neighbor and friend, bought lottery tickets at the corner drugstore. While
watching the lottery drawing on television with you that night, Joe leaped from the couch, waved his
lottery ticket, and shouted, “I've got the winning number!” Suddenly, he clutched his chest, keeled
over, and died on the spot. You are the only living person who knows that Joe, not you, bought the
winning ticket. If you substitute his ticket for yours, no one will know of the switch, and you will be $10
million richer. Joe's only living relative is a rich aunt whom he despised. Will you switch his ticket for
yours? Explain.
Answer: Perhaps an advocate of utilitarianism or social egalitarianism might feel that
switching the ticket would be morally appropriate on the premise that it maximized pleasure
and was an appropriate distribution of wealth. However, such a moral rationalization would
demonstrate the flaws in both theories. There is no escaping the fact that switching the
tickets would be improper under the law and most moral theories.
6. Omega, Inc., a publicly held corporation, has assets of $100 million and annual earnings in the range
of $13 to $15 million. Omega owns three aluminum plants, which are profitable, and one plastics
plant, which is losing $4 million a year. Because of its very high operating costs, the plastics plant
shows no sign of ever becoming profitable, and there is no evidence that the plant and the underlying
real estate will increase in value. Omega decides to sell the plastics plant. The only bidder for the
plant is Gold, who intends to use the plant for a new purpose: to introduce automation, and to replace
all existing employees. Would it be ethical for Omega to turn down Gold's bid and keep the plastics
plant operating indefinitely for the purpose of preserving the employees' jobs? Explain.
Answer: Indefinite maintenance of the plastics plant may strike one as being the morally
correct thing to do. The moral basis for such a decision would be essentially egalitarianism
where the wealth generated by many is redistributed to benefit others. However, as the basis
for an economic system, such an approach may be doomed to ultimate failure in that it does
not rectify anything and only prolongs a perhaps snowballing problem that could taint and
impair the job security of everyone employed by Omega. If managerial and operational
changes truly cannot rectify the net loss situation suffered by the plastics plant, sale of the
plant to Gold may, in a broader context, be the morally correct thing to do.
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7. You are the sales manager of a two-year-old electronics firm. At times, the firm has seemed to be on
the brink of failure, but recently it has begun to be profitable. In large part, the profitability is due to the
aggressive and talented sales force you recruited. Two months ago, you hired Alice North, an honors
graduate from the State University, who decided that she was tired of the Research Department and
wanted to try sales.
Almost immediately after you sent Alice out for training with Brad West, your best salesperson, he
began reporting to you an unexpected turn of events. According to Brad, “Alice is terrific: she's
confident, smooth, and persistent. Unfortunately, a lot of our buyers are good old boys who just aren't
comfortable around young, bright women. Just last week, Hiram Jones, one of our biggest customers,
told me that he simply won't continue to do business with ‘young chicks’ who think they invented the
world. It's not that Alice is a know-it-all. She's not. It's just that these guys like to booze it up a bit, tell
some off-color jokes, and then get down to business. Alice doesn't drink, and although she never
objects to the jokes, it's clear she thinks they're offensive.” Brad felt that several potential deals had
fallen through “because the mood just wasn't right with Alice there.” Brad added, “I don't like a lot of
these guys' styles myself, but I go along to make the sales. I just do not think Alice is going to make
it.”
When you call Alice in to discuss the situation, she concedes the accuracy of Brad's report but
indicates that she's not to blame and insists that she be kept on the job. You feel committed to equal
opportunity but don't want to jeopardize your company's ability to survive. Explain what you should
do.
Answer: This is a common problem with a myriad of legal and moral implications. From a
profitability standpoint, especially in the case of a company on the brink of economic failure,
ignoring the requirements and whims of customers can amount to economic death. From a
legal standpoint, the Equal Opportunity laws operate harshly against an employer that
discriminates on the basis of sex or race in hiring and promotional activities. Employees are
frequently aware of their rights, yet wish to help the business of an employer and otherwise
act as a good “team player.” A possible response might be (with the consent of Alice)
attempting to divide sales accounts to give to Alice those accounts where her sex would be a
neutral or perhaps positive factor, while retaining for Brad oversight of the “good old boy”
accounts. Such an approach would acknowledge both her legal rights and her justifiable
expectations while not undermining the profitability of a company whose very existence is at
issue. Best utilization of employees is critical to any corporation, and this includes sensitivity
to both the employees’ needs and the customers’ needs.
8. Major Company subcontracted the development of part of a large technology system to Start-up
Company, a small corporation specializing in custom computer systems. The contract, which was a
major breakthrough for Start-up Company and crucial to its future, provided for an initial development
fee and subsequent progress payments, as well as a final date for completion.
Start-up Company provided Major Company with periodic reports indicating that everything was on
schedule. After several months, however, the status reports stopped coming, and the company
missed delivery of the schematics, the second major milestone. As an in-house technical consultant
for Major Company, you visited Start-up Company and found not only that it was far behind schedule
but also that they it lied about its previous progress. Moreover, you determined that this slippage put
the schedule for the entire project in severe jeopardy. The cause of Start-up's slippage was the
removal of personnel from your project to work on short-term contracts to obtain money to meet the
weekly payroll.
Your company decided that you should stay at Start-up Company to monitor its work and to assist in
the design of the project. After six weeks and some progress, Start-up is still way behind its delivery
dates. Nonetheless, you are now familiar enough with the project to complete it in-house with Major's
personnel.
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Start-up is still experiencing severe cash flow problems and repeatedly requests payment from Major.
But your CEO, furious with Start-up's lies and deceptions, wishes to “bury” Start-up and finish the
project using Major Company's internal resources. She knows that withholding payment to Start-up
will put it out of business. What do you do? Explain.
Answer: We don't know if the development fee was ever paid to Start-up Company. Major
had an obligation to pay the initial development fee. If it was paid and Start-up did not
produce the required progress reports, then Major is correct to withhold payment. Situational
ethics will come into play when you decide whether or not to give Start-up more time to
complete the work. If the start-up fee was not paid and it was Major’s failure to pay on
schedule that caused Start-up to divert their personnel, then Major needs to take some share
of the blame.
9. A customer requested certain sophisticated tests on equipment he purchased from your factory. Such
tests are very expensive and must be performed by a third party. The equipment was tested as
requested and met all of the industry standards but showed anomalies that could not be explained.
Though the problem appeared to be very minor, you decided to inspect the unit to try to understand
the test data—a very expensive and time-consuming process. You informed the customer of this
decision. A problem was found, but it was minor and was highly unlikely ever to cause the unit to fail.
In addition to the time and expense required to rebuild the equipment, notifying the customer that you
were planning to rebuild the unit would also put your overall manufacturing procedures in question.
Should you fix the problem, ship the equipment as is, or inform the customer? Explain.
Answer: You must inform the customer. The customer apparently has the right to request
such testing, and as such you have ethical responsibility to inform the customer of all factors.
The ultimate decision should be made by the customer. However, you have the obligation to
comply with the legal and governmental responsibilities within your industry.
10. You are a project manager for a company making a major proposal to a Middle Eastern country. Your
major competition is from Japan.
a. Your local agent, who is closely tied to a very influential sheikh, would receive a 5 percent
commission if the proposal were accepted. Near the date for decision, the agent asks you for
$150,000 to “grease the skids” so that your proposal is accepted. What do you do?
b. What do you do if, after you say no, the agent goes to your vice president, who provides the
money?
c. Your overseas operation learns that most other foreign companies in this Middle Eastern location
bolster their business by exchanging currency on the gray market. You discover that your division
is twice as profitable as budgeted due to the amount of domestic currency you have received on
the gray market. What do you do?
Answer:
(a) This may cross the line from ethical to legal requirements. If this is not illegal, then in
applying the doctrine of ethical relativism, you must decide what is subjectively right for you.
You also need to check the company code of conduct and any other applicable policy.
(b) Again when applying the doctrine of ethical relativism, if you feel strongly enough, you
may have to quit your job or request a transfer to another division. If this activity is not legal,
you have the obligation to report it to your company's superiors.
(c) The Utilitarianism cost–benefit analysis will allow you to first quantify this in monetary
terms and then compare the direct and indirect costs and benefits. This process may achieve
the most profit but may ignore justice in the process.
11. Explain what relevance ethics has to business.
Answer: Business ethics is the study and determination of what is right and good in business
settings. Business ethics seeks to understand the moral issues that arise from business
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practices, institutions, and decision making, and their relationship to generalized human
values. Unlike legal analyses, analyses of ethics have no central authority, such as courts or
legislatures, upon which to rely; nor do they follow clear-cut universal standards.
Nonetheless, despite these inherent limitations, it still may be possible to make meaningful
ethical judgments.
12. How should the financial interests of stockholders be balanced with the varied interests of
stakeholders? If you were writing a code of conduct for your company, how would you address this
issue?
Answer: Finding this balance has been the struggle for most, if not all, businesses
throughout time. Historically, the stockholder model for the role of business has been the
norm. Under this theory, a corporation is viewed as private property owned by and for the
benefit of its owners—the stockholders of the corporation. The stakeholder model, on the
other hand, holds that corporations are responsible to society at large and more directly to all
those constituencies on which they depend for their survival. Thus, it is argued that a
corporation should be managed for the benefit of all of its stakeholders—stockholders,
employees, customers, suppliers, and managers, as well as the local communities in which it
operates. (Student answers will vary but should address these two models.)
13. A company adopts a policy that (a) prohibits romantic relationships between employees of different
rank and (b) permits romantic relationships between employees of the same rank only if both
employees waive in writing their rights to sue the company should the relationship end. Violation of
this rule is grounds for dismissal. Is this rule ethical? If not, how should it be revised? Explain.
Answer: Student answers will vary but should address ways to find a balance between
individual freedoms or rights and the good of the company. Presumably, this policy was made
for a purpose that serves to protect the company (which in turn protects the employee’s job
and other stakeholders’ interests.) A discussion of the theory of utilitarianism would be
appropriate in answering this question.
14. A company prohibits any employee from making disparaging comments about the company through
any social media, including online blogs, email, posts, and other electronic media. Violation of this
rule is grounds for dismissal. Explain whether this rule is ethical. If not, how should it be revised?
Explain.
Answer: Student answers will vary but should address ways to find a balance between
individual freedoms or rights and the good of the company. An argument against this policy
would probably be grounded in the Constitutional protection of free speech, which an
argument in favor of the policy would center on the good that comes from protecting the
company. A discussion of the theory of utilitarianism would be appropriate in answering this
question.
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,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 3: Civil Dispute
Resolution
Solution and Answer Guide
Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650;
Chapter 3: Civil Dispute Resolution
TABLE OF CONTENTS
Answers to Questions and Case Problems..............................................................................1
Answers to “Taking Sides” Problems.....................................................................................10
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. On June 15 a newspaper columnist predicted that the coast of State X would be flooded on the
following September 1. Relying on this pronouncement, Gullible quit his job and sold his property at a
loss so as not to be financially ruined. When the flooding did not occur, Gullible sued the columnist in
a State X court for damages. The court dismissed the case for failure to state a cause of action under
applicable state law. On appeal, the State X Supreme Court upheld the lower court. Three months
after this ruling, the State Y Supreme Court heard an appeal in which a lower court had ruled that a
reader could sue a columnist for falsely predicting flooding.
a. Must the State Y Supreme Court follow the ruling of the State X Supreme Court as a matter of
stare decisis?
b. Should the State Y lower court have followed the ruling of the State X Supreme Court until the
State Y Supreme Court issued a ruling on the issue?
c. Once the State X Supreme Court issued its ruling, could the U.S. Supreme Court overrule the
State X Supreme Court?
d. If the State Y Supreme Court and the State X Supreme Court rule in exactly opposite ways, must
the U.S. Supreme Court resolve the conflict between the two courts?
Answer:
(a) No. A decision of one state’s supreme court is not binding on another state’s supreme
court. It may be persuasive, but it’s not binding.
(b) Not necessarily. The decision of one state’s supreme court is not binding on the lower
courts of another state. Again, it may be persuasive, but it’s not binding.
(c) If the issue is one strictly of state—as opposed to federal—law, which this seems to be,
then the United States Supreme Court could not overrule the State X Supreme Court.
However, a decision of the U.S. Supreme Court on federal questions is binding on all other
courts, federal and state.
(d) No. If the conflict in rulings relates exclusively to state law, the U.S. Supreme Court
cannot exercise jurisdiction. Even if the conflict between states related to federal law, there is
no mandatory requirement that the Supreme Court intervene. The Supreme Court may
intervene when two Circuit Courts of Appeals adopt inconsistent positions, but there is no
mandatory requirement that it do so.
2. State Senator Bowdler convinced the legislature of State Z to pass a law requiring all professors to
submit their class notes and transparencies to a board of censors to be sure that no “lewd” materials
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,Solution and Answer Guide: Mann/Roberts, Business Law and the Regulation of Business, 14e, (c) 2025, 9780357987650; Chapter 3: Civil Dispute
Resolution
were presented to students at state universities. Professor Rabelais would like to challenge this law
as being violative of his First Amendment rights under the U.S. Constitution.
a. May Professor Rabelais challenge this law in the State Z courts?
b. May Professor Rabelais challenge this law in a federal district court?
Answer:
(a) Yes. Adjudicating First Amendment disputes can occur either in the state courts or the
federal courts because they have concurrent jurisdiction over federal questions.
(b) Yes, even if he cannot show a monetary loss, because a federal question exists and there
is no minimum dollar requirement for federal question cases.
3. While driving his car in Virginia, Carpe Diem, a resident of North Carolina, struck Butt, a resident of
Alaska. As a result of the accident, Butt suffered more than $80,000 in medical expenses. Butt would
like to know if he personally serves the proper papers to Diem whether he can obtain jurisdiction
against Diem for damages in the following courts:
a. Alaska state trial court
b. U.S. Circuit Court of Appeals for the Ninth Circuit (includes Alaska)
c. Virginia state trial court
d. Virginia federal district court
e. U.S. Circuit Court of Appeals for the Fourth Circuit (includes Virginia and North Carolina)
f. Virginia equity court
g. North Carolina state trial court
Answer:
(a) The only way that Butt could get proper service on Diem for purposes of suing Diem in an
Alaska state court would be if Diem somehow came into the state borders and Butt served
him while he was inside the state. Butt could not use a long-arm statute to get service since
there would have been no real connection between the events leading up to the lawsuit and
the State of Alaska. If the case could be tried in Alaska, under the conflict of laws rules the
court would apply Virginia law.
(b) No. A Circuit Court of Appeals is an appellate court. It never tries cases.
(c) Yes. The accident occurred in Virginia. This is the most logical place to try the case.
(d) Yes. There is diversity of citizenship jurisdiction and the amount in controversy exceeds
$75,000.
(e) No. A Circuit Court of Appeals is an appellate court. It never tries cases.
(f) No. A court of equity—assuming one exists in Virginia—does not hear cases in which
money damages would provide adequate relief. In this case, money damages would suffice.
(g) Yes, assuming proper services were obtained in North Carolina. Why Butt would want to
sue in North Carolina is a mystery since, under the conflict of laws rules the North Carolina
court would apply Virginia law.
4. Sam Simpleton, a resident of Kansas, and Nellie Naive, a resident of Missouri, each bought $85,000
in stock at local offices in their home states from Evil Stockbrokers, Inc. (Evil), a business
incorporated in Delaware with its principal place of business in Kansas. Both Simpleton and Naive
believe that they were cheated by Evil and would like to sue it for fraud. Assuming that no federal
question is at issue, assess the accuracy of the following statements:
a. Simpleton can sue Evil in a Kansas state trial court.
b. Simpleton can sue Evil in a federal district court in Kansas.
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Resolution
c. Naive can sue Evil in a Missouri state trial court.
d. Naive can sue Evil in a federal district court in Missouri.
Answer:
(a) Yes, you can always sue for fraud in state court. There are sufficient minimum contacts
with that state, since Evil’s principal place of business is located there.
(b) Simpleton cannot successfully sue Evil for fraud in federal district court because the only
possible basis would be diversity of citizenship since no federal question is involved. There is
no diversity in this case because Simpleton and Evil are both citizens of Kansas. A
corporation is a citizen both of the state of incorporation and of its principal place of business.
(c) Yes, you can always sue for fraud in state court. By using a long-arm statute, Evil can be
reached because it is transacting business within Missouri.
(d) In this case, Naive can claim diversity of citizenship because Evil is not a citizen of
Missouri. The mere fact that a corporation does business in a state does not make it a citizen
of that state. So, if Naive has suffered more than $75,000 in damages, this loss—coupled
with diversity of citizenship—would make her eligible to sue Evil in a federal district court. The
case does not tell us how much her loss is, however, so the facts are insufficient to make a
proper determination.
5. The Supreme Court of State A ruled that, under the law of State A, pit bull owners must either keep
their dogs fenced or pay damages to anyone bitten by the dogs. Assess the accuracy of the following
statements:
a. It is likely that the United States Supreme Court would issue a writ of certiorari in the “pit bull”
case.
b. If a case similar to the “pit bull” case were to come before the Supreme Court of State B in the
future, the doctrine of stare decisis would leave the court no choice but to rule the same way as
the Supreme Court of State A ruled in the “pit bull” case.
Answer:
(a) This statement is false. The United States Supreme Court would not issue a writ of
certiorari in a case involving only state tort law and not presenting a federal question.
(b) False. Again, this is an issue of state law, specifically the law of State A. The decision of
one state’s supreme court is not binding on the courts of another state. Such a decision in
State A may be persuasive on the courts in State B, but it is not binding.
6. The Supreme Court of State G decided that the U.S. Constitution requires professors to warn
students of their right to remain silent before questioning the students about cheating. This ruling
directly conflicts with a decision of the U.S. Court of Appeals for the circuit that includes State G.
a. Must the U.S. Circuit Court of Appeals withdraw its ruling?
b. Must the Supreme Court of State G withdraw its ruling?
Answer:
(a) No. Decisions of a state supreme court are only binding on the federal courts as to
questions of that state’s law. Here a federal question is at issue.
(b) Although a decision of a federal court, other than the U.S. Supreme Court, may be
persuasive in a state court on a federal question, it is still not binding on that state court.
7. Thomas Clements brought an action in a court in Illinois to recover damages for breach of warranty
against defendant Signa Corporation. (A warranty is an obligation that the seller of goods assumes
with respect to the quality of the goods sold.) Clements had purchased a motorboat from Barney's
Sporting Goods, an Illinois corporation. The boat was manufactured by Signa Corporation, an Indiana
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