Acme Electronics.

Docan, Carol ; Gunther, Richard ; Rymsza, Leonard 等

CASE DESCRIPTION

The primary subject matter of this case concerns business law and statistical analysis. Secondary issues examine negligence vs. negligence per se; cause in fact; contributory vs. comparative negligence; statute of limitations; and statistical analysis involving proportions and expected value. The case also presents strategic thinking and ethical issues related to business conduct and their affects on consumers.

The case has a difficulty of level three, appropriate for junior level courses. The case is intended to be taught in three class hours, including a class presentation by student teams. The case is expected to require a minimum of three hours of outside preparation by student teams that present a report.

This case is designed for use in an upper division inter-disciplinary business course. The purpose of the course is to enable students to utilize knowledge they have gained in their lower division core business courses that include one business law course and one statistics course. However, the case can be easily modified for use as an in class or take-home assignment in an introductory business law course by eliminating the Case B Questions on statistics.

CASE SYNOPSIS

Students are presented with a factual setting that they can identify with quickly. A consumer's computer hard drive "crashes" presenting immediate concerns. Can the computer be repaired and the hard drive replaced? Will the repairs be covered under warranty? Can the data be retrieved? If so, at what cost?

The consumer takes his computer to the repair department of the retailer where he originally purchased the computer. He learns that the "crashed" hard drive (defective drive) can be easily replaced with a new hard drive. However, the repair department is not equipped to retrieve data

from the defective drive. The consumer is assured that the defective drive will be returned to him and he is given the name and telephone number of an individual who specializes in the retrieval of data from crashed hard drives.

After the repairs have been completed, the consumer picks up his computer and what he believes to be the defective drive from his computer. The consumer takes the defective drive to the data retrieval specialist who is able to retrieve about 90% of the data from the defective drive. The consumer is excited. He pays the specialist for his services and returns home to view the retrieved data. The excitement of retrieval quickly turns to disappointment when the consumer discovers that the data retrieved from the defective drive is not his data.

The consumer is able to trace the problem to a mix-up at the computer repair department. Apparently the hard drive the consumer received was not from his computer. By the time the mixup was discovered it was impossible to trace the whereabouts of the consumer's drive and he is resigned to the fact that the data is lost.

The consumer has spent $800 to recover data from a defective drive that was not his. In addition, he is faced with the cost of reconstructing the data that is lost. Following an exchange of letters with the consumer, Acme Electronics contemplates settling the case. However, before this step is taken, several questions must be answered. The case can be divided into three major parts. The first part requires students to analyze a possible negligence claim against Acme with respect to its failure to return the appropriate defective drive to the consumer. Students are required to address the following negligence concepts--negligence per se; actual (cause in fact) causation; damages; and defenses to negligence (i.e., contributory vs. comparative negligence).

The second part of the case requires students to utilize their understanding of several statistical issues. They are required to recognize a proportion, calculate the appropriate sample size for estimating it, and calculate a confidence interval for the estimate. Students will also be asked to apply the concept of expected value as it relates to a statistical variable in the damage estimate.

The last part of the case enables the students to propose strategies regarding settlement and ethical issues raised by Acme's refusal to assume responsibility for its actions.

It is interesting to note that the principal facts in this case are based upon a real life experience of one of the authors.

ACME ELECTRONICS

Leonard J. Fontz, Service Department Manager for the Hometown, Gould store of Acme Electronics (Acme), sat at his desk contemplating his next move. Acme Electronics is a subsidiary of Gooney Tunes Enterprises, Inc., a large media conglomerate. Acme owns more than 200 stores throughout the world. Fontz has been assigned to handle a negligence matter involving Otto Gunter, a customer at the local store. Fontz looked over several letters from Gunter that told his story.

In January of 2005, Gunter purchased a Gatekeeper Computer (Nimbus 2005) system from Acme. The computer performed extremely well until October of 2007 when the hard drive "crashed." Gunter took the unit to the repair department at the Acme store in Hometown. Gunter explained that he thought the hard drive in the computer was defective and sought to have it repaired. In addition, Gunter asked the service technician if he could have his old hard drive back after the repairs were made on the computer. The technician assured Gunter that the service department would return to Gunter any computer parts that would be replaced.

The hard drive was defective and was replaced at no charge to Gunter. When Gunter picked up the repaired computer he was also given what was presumed to be the original hard drive that was removed from the unit. Gunter told the repair manager that he was interested in attempting to retrieve the contents of the old hard drive. Gunter asked if Acme could provide this service. The manager indicated that Acme did not provide such a service. However, he provided Gunter with the telephone number of Ron Retriever. The manager indicated that Retriever might be able to help Gunter. Gunter left the store with his repaired computer and the old hard drive and went directly home because he was anxious to contact Retriever.

Gunter contacted Retriever and was told that it would cost $800 to attempt to recover the contents of the hard drive and that there were no guarantees as to the extent of the recovery, if any.

After several days of deliberation, Gunter decided to spend the $800 and hope for the best. Retriever went to work on the hard drive and was very successful. Retriever was able to recover about 90% of the contents of the hard drive. Retriever phoned Gunter with the good news. Gunter immediately drove to Retriever's shop, reclaimed the hard drive and the recovered contents, and paid the $800. Gunter then rushed home and viewed the recovered materials. To Gunter's amazement the recovered materials were not his.

What had happened? Gunter concluded that Acme's repair department had not returned to him his "crashed" hard drive. Instead, he surmised, he was given someone else's hard drive. In reviewing the recovered materials, Gunter was able to discover the name and telephone number of the true owner of the hard drive he had been mistakenly given. Gunter called the owner, Aaron Gottmilk, and related what he thought had happened. As a result of the conversation, Gunter discovered that he and Gottmilk both had the same computer, that each had experienced a crash of the hard drive, that both had purchased their computers from Acme and had, on the same day, returned the computers to Acme for repair. Gunter also learned that Gottmilk had asked for and received from Acme what he, Gottmilk, thought was his original hard drive. Lastly, Gunter, hoping that their respective hard drives had merely been switched between the two of them, asked Gottmilk if he still had the hard drive. Gottmilk indicated that he had discarded the hard drive.

What could Gunter do? He had spent $800 to retrieve materials from a hard drive that was not his. The owner did not need the materials and was not interested in paying Gunter $800 for the retrieved information. In addition, Gottmilk had discarded the "crashed" hard drive he had been given by the repair department at Acme. Thus, even if Gottmilk had received Gunter's hard drive, that hard drive was no longer available to Gunter because it had been thrown out by Gottmilk. What a mess. Gunter had been through the rollercoaster of emotions. Down when his hard drive had crashed, up when he learned that Retriever had been successful in recovering information, and back down upon discovering the information was not his and that Gottmilk had discarded the hard drive that was, presumably, from Gunter's unit.

On December 1, 2007 Otto Gunter wrote a letter to Acme describing his situation and requesting reimbursement of the $800 that was wasted on the recovery of information from a hard drive that was not his. Fontz, the service manager, wrote the reply shown in Exhibit 1.

After reading the letter from Fontz , Gunter responded by sending the letter shown in Exhibit 2 below.

After receiving the second letter from Gunter, Fontz contacted Jipsy Jetson, the director of the risk management department at corporate headquarters. Following their short conversation, she said that she would look into the matter. Jetson was aware of the results of a recent survey of 600 past negligence cases in the State of Gould. In 80% of these cases the plaintiff was awarded damages. On average the amount awarded was approximately 50% of the amount requested by the plaintiff, excluding punitive damages, which were not included in the study.

Jetson, on behalf of Acme, is contemplating settling this case out of court and has asked your legal team to write a report. She is seeking your legal and statistical evaluation of the problems facing Acme.

EXHIBIT 1

(Exhibit 1 is a copy of a letter from Leonard J. Fontz to Otto Gunter
denying responsibility for Gunter's expenses but proposing an offer
to settle the dispute.)

December 21, 2007

Mr. Otto Gunter
987 Spring Road
Hometown, Gould 00086

Dear Mr. Gunter:

Your letter of December 1, 2007 has been received. After careful
consideration, it has been determined that Acme Electronics has no
responsibility for any expenses that you may have incurred as a result
of this unfortunate situation.

Normally, every effort is made to keep track of parts that are replaced
on computers that are being repaired. However, during the first two
weeks of October 2007, our service department experienced a large
volume of hard drive replacements to the Nimbus 2005. Due to the large
number of hard drive replacements, the service department was unable to
maintain its procedure for keeping track of replaced computer parts.

It is also noted that computer owners are continually reminded of the
necessity to "back up" a copy of the hard drive on their computers.
Your failure to take this easy and painless precaution has been the
primary contributor to your loss. However, Acme Electronics is happy to
offer you a $100 gift certificate towards the purchase of any
merchandise in the store.

Sincerely,

Leonard J. Fontz

Leonard J. Fontz
Manager, Service Department
Acme Electronics

EXHIBIT 2

(Exhibit 2 is a letter from Otto Gunter to Leonard J. Fontz declining
Fontz's previous offer of settlement and making a counter settlement
proposal.)

December 26, 2007

Acme Electronics, Inc.
c/o Mr. Leonard J. Fontz
Electronic Repair Department
2345 Elm Avenue
Hometown, Gould 00048

Dear Mr. Fontz:

I understand your position regarding backing up my computer hard drive.
I had instructed my son numerous times to do this for me and he would
tell me "sure Dad, no problem, I will do that first thing tomorrow."
Unfortunately, first thing tomorrow never came for my son or me.
Nevertheless, I am confident that, if you had returned my "crashed"
hard drive to me, Mr. Retriever would have been able to recover the
materials from my hard drive.

Your offer of a $100 gift certificate is appreciated but is wholly
inadequate as a settlement in this case. I would make
the following proposal to Acme Electronics:

* A payment of $800 as reimbursement for the unnecessary expenditure
to Mr. Retriever;

* A payment of $5,000 to cover the cost of my time to reconstruct lost
materials used in my consulting job;

* A payment of $10,000 in the form of punitive damages for your
behavior in the handling of this matter.

Sincerely,

Otto Gunter

Otto Gunter

Case A Questions--Legal Issues--Negligence

1. Has Acme been negligent in its actions regarding keeping track of
replaced computer components and failing to return the parts to Gunter?

2. Assuming Acme has been negligent, what defense(s) may be available
to Acme to lessen or eliminate any liability on its part?

Case B Questions--Statistical

3. Consider the sample of 600 past negligence cases. Suppose you are
willing to let the 80% estimate be within .03 (3%) of the true
proportion. You are willing to assume a 90% confidence.. (Hint: You may
wish to review the concept of confidence intervals. Check any business
statistics textbook, or go to http://www.davidmlane.com/hyperstat and
check topics 8 and 10.)

a) Is 600 an adequate sample size for the estimate of 80%? Show why or
why not.

b) Construct a 90% confidence interval on the estimate of 80%. How
would you interpret it?

4. Determine the expected value of the amount that could be paid to
Gunter in a settlement. Use the 80% probability figure. Also determine
a maximum and minimum expected value for the settlement figure based on
the confidence interval above. Be sure to include all of the damages
Gunter will be able to recover. How would you interpret your expected
values? (Hint: You may wish to review the concept of expected value in
a business statistics text. In this case the expected value is found by
multiplying the probability of each possible event by the monetary
consequence of that event. Then the results for all events that can
occur are summed.)

Case C Question--Ethical & Strategic Issues

5. Should Jetson attempt to settle the matter with Gunter before he
files a lawsuit? If so, what would be the recommended monetary amount
of the settlement? Be sure to include all of the statistical and legal
issues involved as well as any ethical and strategic issues.

ACME ELECTRONICS LIBRARY

Article appearing in local Hometown newspaper:

DAILY TRIBUNE / FRIDAY, January 7, 2008

Court to Consider Changing Contributory Negligence Doctrine

Today the state Supreme Court heard oral arguments regarding a change in the long-standing common law rule regarding contributory negligence. Contributory negligence is the plaintiff's failure to exercise reasonable care in attending to his or her own safety. Under a contributory negligence standard, presently followed by the courts in the state, a plaintiff is unable to recover any damages he or she may have sustained as a result of a defendant's malfeasance if the plaintiff has contributed in any way to the damages he or she has sustained. Consequently, despite a finding that the defendant was negligent and caused the plaintiff to suffer damages as a result of that negligence, the doctrine of contributory negligence results in a complete bar to recovery by the plaintiff. In any case, if the defendant can establish that the plaintiff is to blame, in the slightest degree, for contributing to his or her damages, then the plaintiff recovers nothing from the defendant. For example, suppose the evidence shows that a defendant was speeding and ran through a red traffic light and that the plaintiff was only two percent at fault for failing to swerve or brake quickly enough to avoid the collision. Under the doctrine of contributory negligence, even though the defendant is 98% at fault, the plaintiff will recover nothing.

This rule has been criticized as oppressive and unfair. In response many states have adopted comparative negligence systems either by statute or judicial decision. These comparative negligence systems vary among the states, however, there are basically two different applications. One form is described as "pure" and the other as "mixed" or "limited."

Under the "pure" version of comparative negligence, the award of damages to the plaintiff will be reduced in direct proportion to the plaintiff's percentage of fault, regardless of the ratio. For instance, in the above example, the plaintiff was found to be two percent at fault. Thus the plaintiff could recover 98% of his or her damages. Further, even if the plaintiff was found to be 51% at fault, he or she would still be able to recover at least 49% of his or her damages. Finally, even if the plaintiff was found to be 99% at fault, the plaintiff would be entitled to recover, from the defendant, 1% of the damages suffered. Under the "pure" comparative system it is evident that the harshness of the contributory negligence doctrine is significantly softened.

Under the "mixed" or "limited" version of comparative negligence, in order for the plaintiff to receive any damage recovery, the plaintiff must be no more than 50% at fault for the injury. Thus in the above examples the plaintiff would not recover any damages if the plaintiff was found to be at fault 51% in the one instance and 99% in the other instance.

A secondary issue facing the court will be whether any change in the contributory negligence doctrine will be retroactive and, if so, what cases will be affected.

In light of the questions asked by the Supreme Court justices, it is not possible to predict what decision the Court will make in this matter. A decision is expected by early August.

Recently, the Supreme Courts of the neighboring states of Confusion and Grace adopted comparative negligence systems for their respective jurisdictions. These courts also considered questions regarding retroactivity.

Gould Codes AnnotatedBusiness and Professions Code Division 18. Professions and Vocations Generally Chapter 16.6 Computer Repair

[section] 8984.10 Return of replaced parts to customer

Upon request of the customer at the time the work order is taken, the computer repair dealer shall return replaced computer parts to the customer at the time of the completion of the work excepting such parts as the computer repair dealer is required to return to the manufacturer or distributor under a warranty arrangement. If such parts must be returned to the manufacturer or distributor, the dealer at the time the work order is taken shall inform the customer of this requirement. In such instance, the dealer shall offer to show, and upon acceptance of such offer or request shall show, such parts to the customer upon completion of the work.

Gould Codes Annotated Code of Civil Procedure Part 3 Of Civil Actions Title 4 Of The Time Of Commencing Civil actions Chapter 2, [section][section] 212--245

[section]212. Civil actions, without exception, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued, unless where, in special cases, a different limitation is prescribed by statute.

[section]235. The periods prescribed for the commencement of actions other than for the recovery of real property, are as follows:

[section]235.1 Within one year: An action for assault, battery, or negligence.

Carol Docan, California State University, Northridge

Richard Gunther, California State University Northridge

Leonard Rymsza, California State University Northridge