Funny Face Case Study

This is the case of Plaintiff Donald Margolin and his company, Donald Margolin Empire, Inc., both of New York, versus Defendants Chris, Matt, and Ian, of California, and Novelty Now, Inc., of Florida — the creators and distributing company, respectfully— of the Funny Face aftershave lotion, brought before the court in the state of New York.
Plaintiff Margolin states that following a single use of Funny Face aftershave lotion, his face turned a permanent shade of blue. It has been brought before the court’s attention that this is due to the use of the chemical emulsifier PYR— which is not FDA approved— within the Funny Face formula. He is seeking damages for his face as well as his business reputation, as he is no longer able to conduct business
in his current disfigured state.
Defendants Chris, Matt, and Ian contend that the website for Funny Face clearly states that anyone who purchases their product waves his or her right to litigation, and ask that the court dismiss the case in favor of arbitration.
The other defendant in this case, Novelty Now, Inc., also asks that the court dismiss this case, on the basis of lack of jurisdiction in the state of New York, citing that its contract with Defendants Chris, Matt, and Ian clearly states that all disputes be brought in its business state of Florida (Southern New Hampshire University, n.d.).
Deciding the appropriate court for this lawsuit depends upon several factors. The matter of jurisdiction can be complicated, and this case is no exception. Three of the more important considerations regarding this are personal jurisdiction, subject matter jurisdiction, and the concept of minimum contacts, each of which must be looked at individually and as a whole for the case in question.
Personal jurisdiction is basically how much power the court may exert over the people before them during a case.
Generally, this power only covers a specific geographic region. For example in the state court system, a court's in personam jurisdiction usually extends to the state's borders, whereas a federal court exerts power over a greater area (Kubasek, Browne, Giampetro-Meyer, Barkacs, Herron, Williamson, & Dhooge, 2011). Because this case involves multiple parties from multiple geographic areas, the statutes regarding in personam jurisdiction must be scrutinized for all three states involved (New York, California, and Florida) before a venue may be decided upon.
A second jurisdictional factor that must be taken into account is that of subject matter. Subject matter jurisdiction is defined as “the power of a court over the type of case presented to it” (Kubasek, et al., 2011, p. 44). It must be decided if any of the above mentioned states even possesses the power to decide this particular case. It is also important to note that the concept of a federal court venue may not be entirely ruled out in this case, as the Funny Face product is marketed and sold nationally on the radio, in print, and through the Internet and social media (Southern New Hampshire University,
n.d.).
However, should the matter of jurisdiction become unclear, the court might look to the long-arm statutes of each state involved in this matter, which may allow a state to decide a case outside its scope of jurisdiction, provided the parties fit the definition of minimum contacts within the state in question. According to Kubasek, et al., while each state does indeed have its own minimum-contact requirements, most have statutes which consider acts such as doing business or committing tort in the state sufficient to allow the state to serve a defendant (2011).
Based on this statute, it could be contended that since Funny Face is sold nationwide over the Internet, the defendants are effectively doing business in all 50 states and the District of Columbia, giving any state jurisdiction over this case. It is also important to note here that the contract between Defendants Chris, Matt, and Ian, and Defendant Novelty Now, Inc., state that all disputes be brought before the court in the state of Florida (Southern New Hampshire University, n.d.). It therefore must be decided not only if Plaintiff Margolin has a case, but in which state said case should be presented, if there is found to be a valid complaint.
There are other ways of handling disputes without the involvement of the court, namely, alternative dispute resolution (ADR). There are several types of ADR available to the parties involved, including mediation, arbitration, mini- and private trials, use of a summary jury, et cetera (Kubasek, et al., 2011), each with its own unique advantages and disadvantages regarding this particular case.
One type of ADR, which is gaining support among courts across the United States as well as internationally (Kubasek, et al., 2011), and which could possibly help in this case is mediation, in which all parties involved come to a mutual arrangement regarding the dispute, and are expected to abide by it (2011). This method of ADR is particularly beneficial in cases where multiple (more than two) parties are involved in a case, since each party has a high level of control over its own side of the case. It can also be beneficial for saving business relationships (2011), which could be helpful to at least both named defendants in this specific case, as they have an existing business relationship, but perhaps not as much to Plaintiff Margolin.
Another, and slightly different approach to ADR that might work in this case is that of arbitration, which is where a neutral third party looks at the facts presented by both (or in this particular case, all) parties involved, and then makes a legally binding decision based on the case(s) presented (Kubasek, et al., 2011). Arbitration may work in this case, particularly since it would appear that the wording on the Funny Face website appears to limit any claim filed to arbitration as a means of resolving the dispute (Southern New Hampshire University, n.d.).
Arbitration may prove highly beneficial to all parties in this case, since it is relatively faster and less expensive than litigation (Kubasek, et al., 2011). This may prove beneficial to Defendants Chris, Matt, and Ian, as the founders of a small business, since it will not only be less expensive, but they may already have an arbitrator in mind, as they were the ones who brought the concept of arbitration to light in this case, which puts them at a distinct advantage. Likewise, Novelty Now, Inc. would benefit from this, as it is presently working with the other defendants in the production and distribution of Funny Face.
However, because of the impartiality of a chosen arbitrator, the defendants will be at a disadvantage due to the idea of a “level playing field” with the plaintiff. In using arbitration, they could lose any two-on-one advantage (since they are already business partners) they may have had against the plaintiff in mediation, which would be a boon to the plaintiff.
There also exists the issue of corporate criminal liability within this case, with the primary crime existing in this case being that of fraud. Criminal fraud is defined by Kubasek, et al., as “an intentional deception that causes harm to another… and generally requires the following three elements: (1) a material false representation made with intent to deceive, (2) a victim's reasonable reliance on the false representation, and (3) damages” (2011, p. 153). In this case, the deception in question is the hidden use of an unauthorized emulsifier (PYR) in place of the original formula in order to save costs (Southern New Hampshire University, n.d.), which is the factor that caused the damage to the plaintiff’s skin, and had the plaintiff known about the possible side effects of PYR on skin, it is reasonable to assume that he would not have purchased nor used the product in question, thus meeting each of the necessary requirements for the courts to determine fraud in this case.
While the claim is that only Defendant Chris was involved in this substitution decision, both Defendants Matt and Ian were in a position of authority enough both to know about the decision, and/or stop PYR from use within the formula, thereby saving the public from any damages incurred, and yet did nothing.
As Chief Justice Berger states in Dynamic Law, regarding the precedent of the United States v. Dotterweich, in which the CEOs of a corporation put the public at risk with his decisions to ‘cut corners’ in production of pharmaceuticals “the accused, if he does not will the violation, usually is in a position to prevent it” (Berger, as cited in Kubasek et al., 2011, p. 161), and the same can be said both for Defendant Matt as well as Defendant Ian in this
case.
Furthermore, and following the same precedent, Novelty Now, Inc. may also be held criminally liable in this case, as they were also aware of the substitution of PYR and had the authority to stop it from being used. In essence, just because one turns a blind eye to an unethical business decision, does not make him or her unaccountable for the decisions made by others, corporations (including Novelty Now, Inc.) included.
The WPH framework of ethical decision making gives general guidelines for corporations to assist them in making business and managerial decisions, and are put in place to ensure ethical and safe business practices are employed by a corporation. There are three general guidelines to the WPH framework:
• Who: Who, specifically, will a decision affect (stakeholders, consumers, owners, etc.)?
• Purpose: What is the purpose of a decision? Is it reaching toward a business goal?
• How: How can a decision be made in an ethical way, while still reaching toward the goal(s) decided upon? (Kubasek, et al., 2011).
Should Defendants Chris, Matt, and Ian have abided by the WPH model, they might have considered the “who” in this case, and the potential harm a substance like PYR could cause to the public (as it is not FDA approved) its stakeholders included, and perhaps they would not have made the substitution, which in turn, would have saved Plaintiff Margolin the damages to both his skin and his reputation as a business person in his own right. It would appear that the “purpose” in this case may have only been the bottom line, leading to the infractions within this dispute, and in regards to the “how,” it would appear that, from an ethical business standpoint, the consideration remained on financial security, instead of the well-being of the public. It is a reasonable assumption that had the creators and distributor of Funny Face employed these guidelines within their business framework, this case might not be in existence today