Sample Response to Business Law Questions

QUESTION: On a trip to Arizona Roy suffered injuries in an auto accident in California caused by a defect in the automobile he was driving, a Dual-Ghia, special edition. He had purchased the car in New York. Roy sued in the California Superior Court the manufacturer, Dual-Ghia Motors, Inc, located in Detroit, Michigan and the New York dealer, who sold him the car, for the injuries and damage that he experience as a result of the accident. He effected service on both of the defendants under the provisions of the California "long-arm" statute. Assuming neither defendant appears in the action, will a judgment rendered by the California Court be enforceable against either of them?

RESPONSE: The issue here is: Does California have in-personam jurisdiction over the out-of-state, non resident defendants?

In order for the judgment rendered by California to be binding on the Michigan manufacturer and the New York dealer, it must not offend the limitations on the State's jurisdiction imposed by the Due Process clause of the Fourteenth Amendment of the US Constitution. Although States must give full faith and credit to their sister States, a judgment rendered in violation of due process is void in the rendering State and is not entitled to full faith and credit elsewhere. Due process requires that the defendant be given adequate notice of the suit (which was done according to the data), and be subject to the personal jurisdiction of the court (which needs to be determined).

Since the defendants did not appear, they have not placed themselves voluntarily under the jurisdiction of the California Court. Nonetheless, the California Court may hold that personal jurisdiction over the non resident defendants is acquired by its provisions of its ‘long-arm' statute. California's long-arm statute stipulates that a California court "may exercise jurisdiction on any basis not inconsistent with the Constitution of [California] or of the United States." The Supreme Court of the United States has affirmed that a state court may exercise personal jurisdiction over a non-resident defendant as long as it meets the Due process requirement and the courts have establish that were there are sufficient ‘minimum contacts' between the defendant and the forum state that constitutional requirement for due process will be deem to have been met. The relationship between the defendant and the forum must be such that it would be ‘reasonable' to require the defendant to defend there. Typically, this is satisfied where the non resident has, by their voluntional conduct created a commercial "foot-print" in the forum state.

From the information given, it does not seem that the defendants carried out any commercial activity in the State of California. The nonresident defendants have not availed themselves of any of the privileges and benefits of doing business in California or have, in anyway, benefited by California law. They have not solicited business, either through salespersons or through advertising reasonably calculated to reach the State. The facts given do not show either that they regularly manufacture or sell cars to California customers or residents, or that they indirectly, through others, serve or seek to serve the California market. It seems therefore that Roy seeks to base jurisdiction on one, isolated occurrence. The fortuitous circumstances that a single Dual Ghia automobile, sold in New York, and made in Detroit happened to suffer an accident while passing through California does not to my opinion create sufficient ‘minimum contacts', to satisfy the constitutional requirement of Due Process. Because the defendants have no contacts, ties, or relations with the State of California, I think it would be unreasonable to ask them to defend there. I believe, therefore, that any judgment rendered by the California court would be void because the court would not have personal jurisdiction over either of the defendants and therefore, unenforceable.

QUESTIION: Congress, in 1997, enacted the Food and Drug Administration Modernization Act in which certain exemptions were granted, however, a provision of the Act prohibited pharmacies, selling the compounds for which exemptions were granted, from advertising to the general public. Following an extensive media blitz, in which you extolled the benefits of the new compounds, you were cited for a violation of the Act. You now face civil fines in the range of $50,000 and loss of your pharmaceutical license. How would you defend this charge?

RESPONSE: The general issue is the following: Under which conditions is it constitutional for Government/Congress to restrict ones commercial free speech? Congress prohibited pharmacies to advertise the compounds, yet our pharmacy did, through an extensive media blitz. There is no doubt that the pharmacy violated the law enacted by Congress. The real question is: the law itself ‘legal', meaning is it constitutional?

The First amendment of the US constitution protects the right to freedom of expression from federal government interference. It can be noted that the US Supreme Court has interpreted the due process clause of the Fourteenth amendment as protecting the rights in the First amendment from interference by state governments as well; however, since this is a federal issue, we only need the protection granted by the First amendment. Whereas the First amendment specifically protects individual free speech, it does not explicitly protect commercial speech. The US Supreme Court has therefore interpreted the law and created a four-prong test to measure the validity of restraints upon commercial expression.

Under the first prong of the test, certain commercial speech is not entitled to protection. If the advertising does not accurately inform the public about lawful activity, it can be suppressed. This means that false, deceptive or misleading advertisements need not be permitted. However, even truthful, non-misleading commercial speech may be regulated, depending on the result of the application of the remaining prongs of the test.

Under the second prong, the interest of the government in regulating and limiting the protected speech must be assessed. The State must assert a substantial interest to be achieved by restrictions on commercial speech.

Under the third prong, the restriction cannot be sustained if it provides only ineffective or remote support for the asserted purpose. The regulation must ‘directly advance' the governmental interest.

Under the last prong, if the governmental interest could be served as well by a more limited restriction on commercial speech, the excessive restriction cannot survive. The Court requires a ‘reasonable fit' between means and ends, with the means ‘narrowly tailored to achieve the desired objective.'

In our particular case, if I were in charge of the pharmacy's defense, I would try to attack the constitutionality of the law by attacking each prong. I would first argue that the advertisement was not false, deceptive or misleading. If I fail at this step, then I basically lost the case. There is nothing in the data that tells us whether or not the advertising was false, deceptive or misleading. Even if I pass this step successfully, I also need to demonstrate that the law does not pass either one of the next 3 prongs. Therefore, I would also argue that the government had no substantial interest in preventing pharmacies from advertising the compound. There is nothing in the data that informs us on the Congress's motives. If I fail to convince the court, I would argue that restricting advertising does not ‘directly advance' the governmental interest, whatever it may be. If this also fails, I would then argue that the governmental interest could be served by a more restricted limitation on commercial speech. After all, tobacco and alcohol are known to be detrimental to the consumers' health, but they have not been banned from advertising altogether. Instead the products come with warning labels on their packaging. There may be a way for the government to reach its public service objective without restricting advertising altogether. This systematic attack on each prong would constitute my defense strategy

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