BUS 206 Final Project

MOORE 2

MARGOLIN V. FUNNY FACE & NOVELTY INC.

Case Study One:

A Study of Margolin V. Funny Face & Novelty Inc.

Jennifer Moore

Southern New Hampshire University

Business 206: Business Law I

Case Study One: Margolin V. Funny Face & Novelty Inc.

In the case of Donald Margolin versus Funny Face and Novelty Inc., Margolin is suing for damages after his face became discolored permanently after using an aftershave that was created by Chris, Matt, and Ian through the company Novelty Now Inc. Mr. Margolin filed a suit in New York against the creators of the product as well as the manufacturing company. Even though a contract existed barring suit be brought against the creators, and any suits be filled in the state of Florida, the authenticity of the case was questioned.

To determine the appropriate court, several factors must be taken into consideration. Three key factors to consider are personal jurisdiction, subject matter jurisdiction, and minimum contacts. Personal jurisdiction refers to the court’s ability to “render a decision affecting the rights of the specific persons before the court” (Kubasek, 2012). Since Mr. Margolin resides in the state of New York, there is adequate evidence to hold up that the state of New York has jurisdiction over Mr. Margolin. “Subject-matter jurisdiction is a court’s power to hear certain kinds of cases” (Kubasek, 2012). This determines which courts, state or federal, can hear specific types of cases or those relating to a specific subject matter. The case at hand does not associate a claim that would disobey exclusive federal jurisdiction but could fall under concurrent federal jurisdiction. Concurrent federal jurisdiction hears cases that are federal-question and those that are diversity of citizenship cases. Two conditions must be met for diversity of citizenship: (1) the plaintiff and defendant do not reside in the same state, and (2) the claim concerns monies more than $75,000 (Freer, 1998). What Mr. Margolin is seeking in damages will depend on the possibility of concurrent federal jurisdiction. Since the case is still filed in New York, but Novelty Inc. has the right to transfer the case to the federal court system. Minimum contacts must also be addressed. A minimum contact is a term used to determine whether a court in one state can declare personal jurisdiction over a defendant (Gordon, 2020). If a company is based in another state, a lawsuit can be brought in a different state if the company is “regularly soliciting business in that state, deriving substantial revenue from goods or services sold in that state, or engaging in some other persistent and continuous course of business conduct in the state are all examples of activities that would establish minimum contacts with that state” (Nicolosi, 2014). The creators of Funny Face were marketing on the radio and in newspapers, as well as on the web and Facebook, and have satisfied the minimum contacts requirements. In this case it would be appropriate to file a case in New York or pursue the transfer to a federal court at the defendant’s request.

If both parties agree the dispute can be cleared up through alternative dispute resolution (ADR). ADR refers to “any means of settling disputes outside of the courtroom” that does not involve litigation (Carson, 2018). Using ADR is a way to keep the cases confidential while also trying to maintain friendly terms to continue doing business. Some ways to do this are by using negotiation, mediation, or arbitration. If both parties can agree, using a method of ADR, it can save time and money. Taking this case into consideration and considering these two parties are in different states, it would be beneficial for these parties to have a shortened timeline for the case.

Mediation or arbitration would be the best ADR. These would allow the rules of jurisdiction which would allow him to try and move the ADR to a closer location. In return arbitration would allow all parties more control over the process but keeping formal litigation. Mediation will also allow Mr. Margolin an opportunity to voice his concerns with both defendants and possibly reach a resolution. At this time if an agreement is not met, they can then try to pursue arbitration or litigation. There are some disadvantages of ADR. If agreed upon, both defendants will continue to do business as normal and the public may never learn of the case. Choosing mediation would possibly lead into the defendants harassing Mr. Margolin into reaching an agreement that may not have all benefits he deserves. If Mr. Margolin does not agree with the award of the arbitrator, it would be more difficult for him to have a decision overturned. Also, no jury is present and having a jury can sometime be an important right not easily to give up. Arbitration does away with juries, and this leaves everything in the hands of the arbitrator.

The defendants, Chris, Matt, and Ian could be subject to corporate criminal liability. Fraud is the primary crime that exists in this case. To define fraud there are three classifications “(1) a materially false representation made with intent to deceive, (2) a victim’s reasonable reliance on the false representation, and (3) damages (Kubasek, 2012). Chris, a creator for Funny Face, requested the change to add PYR to the formula because the first formula did not have PYR in it. This was requested prior to Novelty Now Inc. manufacturing the product. As they failed to disclose the use of an ingredient without FDA approval, this is considered “fraudulent concealment.” When Funny Face did not include the possibility of permanent skin discoloration in their marketing, so therefore Mr. Margolin figured there where no side effects to using the product. After looing his reputation and his face turned a color of blue, these are considered damages made by the product. Novelty Now Inc. should have been more responsible by making sure the company was producing a safe product, and by failing to do so, they should be held accountable for the damages done to Mr. Margolin just as much as Funny Face. Charging Funny Face and Novelty Now Inc. with conspiracy is also possible. In the case of the US v. Karauzum, a business owner, was sentenced to five years prison for manufacturing, marketing, and distributing for human consumption, Potion 9, a product containing butanediol, and industrial solvent that rapidly metabolizes into GHB – commonly referred to as “club drug” or date rape drug” (US Dept of Justice, 2015). These two cases seem to have some same actions of the creators of Funny Face.

Three key elements for the ethical process of decision making under the WPH framework are (1) first consideration is, “Whom would this decision affect” (Kubasek, 2012). In this case the decision made by Chris to add PYR affected consumers. Consumers deserve the right to know each ingredient in the products they are purchasing. (2) An ultimate purpose of the decision evaluated and what is being valued. By Funny face adding PYR, they were only thinking of the shot term gain and not for the consumers. (3) Ethical decision making comes into place. Funny Face should have considered how the consumers would view their actions. Since the product was not safe it would have with held profits coming in from the sale of the product.

In conclusion, this case has several different options. Litigation seems to be the direction this case needs to go. There are crimes that need to be investigated and Mr. Margolin, needs to think about that before he thinks about the advantages offered by ADR.

References

Carson, Hart. 2018. What Does ADR Mean? Retrieved from https://www.hartdavidcarson.com/

Freer, Richard D. 1998. "Toward a Principled Statutory Approach to Supplemental Jurisdiction in Diversity of Citizenship Cases." Indiana Law Journal 74 (winter): 5–23.

Gordon, Jason. (2020). Personal Jurisdiction: Minimum Contacts Standard. Retrieved from Personal Jurisdiction: Minimum Contacts Standard - The Business Professor, LLC

Kubasek, Nancy. (2012). Dynamic Business Law, 2nd Edition. [VitalSource Bookshelf Online]. Retrieved from https://bookshelf.vitalsource.com/#/books/1259193470/

Nicolosi, Phil. (2014). Where Internet Jurisdiction Can Get Your Business Sued! Retrieved from: https://www.internetlegalattorney.com/business-internet-jurisdiction-laws/

The United States Department of Justice. 2015. Businessman Sentenced to Five Years in Federal Prison for Conspiracy to Misbrand a Product for Human Consumption, Money Laundering. Retrieved from https://www.justice.gov/opa/pr/businessman-sentenced-five-years-federal-prison-conspiracy-misbrand-product-human-consumpti-0