Chapter 2: Courts and Alternative Dispute Resolution 1
Chapter 2
Courts and Alternative
Dispute Resolution
TRUE/FALSE QUESTIONS
1.The function of the courts is to interpret and apply the law.
ANSWER:TPAGE:29TYPE:N
Objective: AACSB AnalyticSkill Level: AICPA Legal
2.State courts are independent of federal courts.
ANSWER:TPAGE:29 TYPE:=
Objective: AACSB AnalyticSkill Level: AICPA Legal
3.The courts are the final authority concerning the constitutionality of a law.
ANSWER:TPAGE:29TYPE:=
Objective: AACSB AnalyticSkill Level: AICPA Legal
4.A long arm statute is a state law that permits courts to obtain jurisdiction over out-of-state defendants.
ANSWER:tPAGE:30TYPE:=
Objective: AACSB AnalyticSkill Level: AICPA Legal
5.A state court cannot exercise jurisdiction over all of the property located within the boundaries of the state.
ANSWER:FPAGE:30TYPE:=
Objective: AACSB AnalyticSkill Level: AICPA Legal
6.For purposes of diversity of citizenship, a corporation is a citizen only of the state in which it is incorporated.
ANSWER:FPAGE:31TYPE:=
Objective: AACSB AnalyticSkill Level: AICPA Legal
7.The Internet has no effect on a court's assertion of personal jurisdiction.
ANSWER:FPAGE:32TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
8.To have standing to sue, a party must have been injured or have been threatened with injury by the action about which he or she is complaining.
ANSWER:TPAGE:34TYPE:=
Objective: AACSB AnalyticSkill Level: AICPA Legal
9.A state court system is typically made up of trial courts, appellate courts, and federal district courts.
ANSWER:FPAGE:35TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
10.The jurisdiction of state courts of appeals is substantially limited to hearing appeals.
ANSWER:tPAGE:36TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
11.Federal cases typically originate in federal district courts.
ANSWER:TPAGE:36TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
12.The United States Supreme Court can review a decision by a state’s highest court only if a question of federal law is involved.
ANSWER:TPAGE:37TYPE:N
Objective: AACSB AnalyticSkill Level: AICPA Legal
13.Most lawsuits are settled or dismissed before they go to trial.
answer:TPAGE:37TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Risk Analysis
14.Mediation is adversarial in nature.
ANSWER:FPAGE:39TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
15.In mediation, the mediator proposes a solution that includes what compromises are necessary to reach an agreement.
answer:TPAGE:39TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
16.A court’s review of an arbitrator’s award may be restricted.
answer:TPAGE:40TYPE:N
Objective: AACSB AnalyticSkill Level: AICPA Legal
17.Mandatory arbitration clauses in employment contracts are not enforceable.
ANSWER:FPAGE:41TYPE:N
Objective: AACSB AnalyticSkill Level: AICPA Legal
18.A mini-trial is a private proceeding in which each party’s attorney argues the party’s case before the other party.
answer:tPAGE:42TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
19.Unless otherwise agreed, the result of an online dispute resolution proceeding may not be appealed to a court.
ANSWER:FPAGE:43TYPE:=
Objective: AACSB AnalyticSkill Level: AICPA Legal
20.Arbitration clauses are seldom found in contracts governing the international sale of goods.
ANSWER:FPAGE:45TYPE:N
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
multiple choice questions
1.Harry, a resident of Indiana, has an accident with Jane, a resident of Kentucky, while driving through that state. Jane files a suit against Harry in Kentucky. Regarding Harry, Kentucky has
a.diversity jurisdiction.
b.in personam jurisdiction.
c.in rem jurisdiction.
d.no jurisdiction.
answer:BPAGE:29TYPE:+
Objective: AACSB ReflectiveSkill Level: AICPA Legal
2.Paula, a resident of California, owns a farm in Iowa. A dispute arises over the ownership of the farm with Don, a resident of Nevada. Don files a suit against Paula in Iowa. Regarding this suit, Iowa
a.can exercise diversity jurisdiction.
b.can exercise in personam jurisdiction.
c.can exercise in rem jurisdiction.
d.cannot exercise jurisdiction.
answer:CPAGE:29TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Legal
3. The case of Able, Inc. v. Baker is heard in a Connecticut court with original jurisdiction. The case of Charlie v. Delta, Inc. is heard in a Connecticut court with appellate jurisdiction. The primary difference between original and appellate jurisdiction is
a.the subject matter of the cases that the court can decide.
b.whether a case is being heard for the first time.
c.whether a case is brought by a citizen or by a business.
d.whether the court is exercising in personam or inrem jurisdiction.
ANSWER:BPAGE:31TYPE:+
Objective: AACSB ReflectiveSkill Level: AICPA Legal
4.Ira files a suit against Joy in a Kansas state court. Joy’s only connection to Kansas is an ad on the Web originating in Louisiana. For Kansas to exercise jurisdiction, the issue is whether Joy’s ad represents
a.commercial cyber presence in Kansas.
b.general maximum conduct in Kansas.
c.sufficient minimum contacts with Kansas.
d.virtual business solicitations in Kansas.
ANSWER:CPAGE:32TYPE:+
Objective: AACSB ReflectiveSkill Level: AICPA Legal
5.Lora files a suit in Michigan against Ned over the ownership of a boat docked in a Michigan harbor. Lora and Ned are residents of Ohio. Ned could ask for a change of venue on the ground that Ohio
a.has a sufficient stake in the matter.
b.has jurisdiction.
c.has sufficient minimum contacts with the parties.
d.is a more convenient location to hold the trial.
answer:DPAGE:33TYPE:+
Objective: AACSB ReflectiveSkill Level: AICPA Legal
6.Child’s Play, Inc., sells a toy with a dangerous defect. Drew buys the toy for his son but discovers the defect before the child is injured. Drew files a suit against Child’s Play. The firm’s best ground for dismissal of the suit is that Drew does not have
a.certiorari.
b.jurisdiction.
c.standing to sue.
d.sufficient minimum contacts.
answer:CPAGE:34TYPE:+
Objective: AACSB ReflectiveSkill Level: AICPA Decision
Modeling
7. Brad files a suit against Corporate Industries, Inc., in a Delaware state court. A state court system typically includes
a.a state supreme court and trial courts only.
b.a state supreme court, intermediate appellate courts, and trial courts.
c.intermediate appellate courts and trial courts only.
d.trial courts only.
ANSWER:BPAGE:35TYPE:N
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
8.The Oklahoma Supreme Court rules against Pat in a case against Quik Mart Corporation. Pat files an appeal with the United States Supreme Court. The Court does not hear the case. This
a.is a decision on the merits with value as a precedent.
b.indicates agreement with the Oklahoma court’s decision.
c.means that the Oklahoma court’s decision is the law in all states.
d.means that the Oklahoma court’s decision is the law in Oklahoma.
answer:DPAGE:37TYPE:+
Objective: AACSB ReflectiveSkill Level: AICPA Legal
9.Miles files a suit against Nina. At the trial, each party’s attorney presents the party’s case before a judge who hears the dispute and renders a legally binding decision. This is
a.arbitration.
b.litigation.
c.mediation.
d.negotiation.
answer:BPAGE:37TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
10.Sid files a suit against Tina. Before going to trial, the parties, with their attorneys, meet to try to resolve their dispute. A third party helps them to reach an agreement. This is
a.arbitration.
b.litigation.
c.mediation.
d.negotiation.
answer:CPAGE:39TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
11.Jim files a suit against Kay. Before going to trial, the parties meet, with their attorneys to represent them, to present their dispute to a third party who is not a judge but who renders a legally binding decision. This is
a.arbitration.
b.litigation.
c.mediation.
d.negotiation.
answer:APAGE:40TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Critical
Thinking
12.World Tech Corporation and Global Supplies, Inc., have their dispute resolved in arbitration. The arbitrator meets several times with World Tech’s representatives to discuss the dispute outside the presence of Global’s representatives. If these meetings substantially prejudiced Global’s rights, this is a ground for a court to
a.review the merits of the dispute.
b.review the sufficiency of the evidence.
c.set aside the award.
d.none of the above.
answer:CPAGE:40TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Legal
13.AutoMaker, Inc., in California, and All-Cars Dealership in Washington, D.C., agree to have their dispute resolved in arbitration. They choose to have the law of New York govern their agreement. This is a ground for a court to
a.review the merits of the dispute.
b.review the sufficiency of the evidence.
c.set aside the award.
d.none of the above.
answer:DPAGE:40TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Legal
14.ABC Personnel Corporation and Data Assembly, Inc., have their dispute resolved in arbitration. The arbitrator makes a mistake in a conclusion of law. This is a ground for a court to
a.review the merits of the dispute.
b.review the sufficiency of the evidence.
c.set aside the award.
d.none of the above.
answer:DPAGE:40TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Legal
15.Jan and Kyle sign a contract that provides that if a dispute arises, they will submit to arbitration. A dispute arises, but before it goes to arbitration, Jan files a suit against Kyle. The court will likely
a.hear the suit and then order the parties to arbitrate.
b.hear the suit without ordering the parties to arbitrate.
c.order relief without hearing the suit or compelling the parties to arbitrate.
d.order the parties to arbitrate.
ANSWER:DPAGE:40TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Risk Analysis
16.Ace Manufacturing Company and Eagle Supply Corporation agree in writing to submit a dispute to arbitration. The Uniform Arbitration Act
a.dictates the terms of the agreement.
b.provides the means for enforcing the agreement.
c.sets out the proper subject matter of the agreement.
d.voids the agreement as a violation of public policy.
answer:BPAGE:40TYPE:=
Objective: AACSB ReflectiveSkill Level: AICPA Legal
17.Molly files a suit against Nick. They meet, and each party’s attorney argues the party’s case before a judge and jury. The jury presents an advisory verdict, after which the judge meets with the parties to encourage them to settle their dispute. This is
a.a mini-trial.
b.a summary jury trial.
c.court-ordered arbitration.
d.early neutral case evaluation.
answer:BPAGE:42TYPE:N
Objective: AACSB ReflectiveSkill Level: AICPA Legal
18.To resolve a dispute between Amy in Boston and Chris in Denver, E-Solution, like most online dispute resolution services, would apply the law of
a.the jurisdiction in which the complainant is located.
b.the jurisdiction in which the respondent is located.
c.the state of California.
d.none of the above.
answer:DPAGE:43TYPE:N
Objective: AACSB ReflectiveSkill Level: AICPA Legal
19.Omega, Inc., a U.S. firm, and Wallaby, Ltd., an Australian firm, enter into a contract that does not have forum-selection or choice-of-law clauses. Litigation between Omega and Wallaby over a dispute involving this contract may occur in
a.Australia only.
b.Australia or the United States, but not both.
c.Australia, the United States, or both.
d.the United States only.
ANSWER:CPAGE:44TYPE:N
Objective: AACSB ReflectiveSkill Level: AICPA Legal
20.A clause in a contract between United Timber Corporation, a U.S. firm, and Wang, Ltd., a Japanese firm, specifies that disputes over the contract will be adjudicated in the United States. This is
a.a domestic-dispute clause.
b.a forum-selection clause.
c.an adjudication clause.
d.an arbitration clause.
ANSWER:BPAGE:44TYPE:N
Objective: AACSB ReflectiveSkill Level: AICPA Legal
Essay Questions
1.MicroWare hosts a Web site that advertises its software products, features upgrades and “patches” for its existing software products, and accepts orders for the products from consumers throughout the world. Mary, who owns and operates Business Records, Inc,, a small bookkeeping and payroll business in Colorado, orders from the Web site a copy of MicroWare’s Office Books software. Office Books is designed to help accountants and bookkeepers keep accurate business records. When Office Books is found to have a defect in its calculating program, MicroWare offers a patch on its Web site to fix the problem. Mary has already lost several customers because of the miscalculating defect, however, and files a suit against MicroWare in a Colorado state court. Can the court exercise jurisdiction over MicroWare? Why or why not?
ANSWER:Some courts have upheld exercises of jurisdiction on the basis of the accessibility of a Web page. Other courts have concluded that without more, a presence on the Web is not enough to support jurisdiction over a nonresident. The standard that is generally accepted for evaluating the exercise of jurisdiction based on contacts over the Internet is a “sliding scale.” On the scale, a court’s exercise of personal jurisdiction depends on the amount of business that an individual or firm transacts over the Internet. A Web site that provides upgrades and “patches,” and accepts orders from customers has a high degree of interactivity. There may be a question as to the amount of business that MicroWare transacts with residents of Colorado. If that business is substantial, MicroWare would likely be subject to the court’s jurisdiction.
PAGES:32–33type:=
Objective: AACSB ReflectiveSkill Level: AICPA Decision Modeling
2.Ace Trucking Corporation files a suit in a state court against Bob’s Service Company (BSC), and wins. BSC appeals the court’s decision, asserting that the evidence presented at trial to support Ace’s claim was so scanty that no reasonable jury could have found for the plaintiff. Therefore, argues BSC, the appellate court should reverse the trial court’s decision. May an appellate court ever reverse a trial court’s findings with respect to questions of fact?
ANSWER:An appellate court will reverse a lower court’s decision on the basis of the facts only when the finding is clearly erroneous (that is, when it is contrary to the evidence presented at trial) or when there is no evidence to support the finding. Appellate courts normally defer to a judge’s decision with regard to the facts of a case, however, for a number of reasons. First, trial judges routinely sit as fact finders. As a result, they develop a particular expertise in determining what kind of evidence and testimony is reliable and what kind is not. Second, trial judges and juries have the opportunity to observe witnesses and tangible evidence first hand. The appellate court sees only a cold record of the trial court proceedings and therefore cannot make the kind of judgments about the credibility of witnesses and the persuasiveness of evidence that can be gleaned only from firsthand experience.
PAGE:36type:N
Objective: AACSB ReflectiveSkill Level: AICPA Critical Thinking