Description
Complete a draft of your Final Paper regarding Dilemma #3.
The instructions are posted in pdf form, along with the Dilemma #3 at the end. I realize this might be a difficult paper to write, so I would encourage you to review the posted Model Answer as a guide, and review the recorded meeting https://ccuchants.zoom.us/rec/share/t1F0aYsGXKJ_mRTzdA1uklfkqEl1UVbg_bchcA1nhXwyacC5X18QdomWs54HmXvL.ru76A-E3EAj1qGrd?startTime=1698357585000 (Video Passcode: *Te4vsaP) where we discussed the legal analysis of your dilemma. Outside sources are not to be used.
As you will see in the Model Answer, there is a background section. I have already completed this section as it is here below, so you are not required to do so.
Ethical Dilemma in Implementing a Dress Code at Angelus Funeral Home
Angelus Funeral Home has a legacy that goes on for many years. It has been there to bring comfort to countless families in their loss. The inherent problem associated with employee appearance, which has ethical implications and business imperatives, has resurfaced because of the recent passing of its owner, who leaves behind an inheritance. This paper seeks to delve into the situation’s specifics, laying a foundation upon which the ethical dilemma can be critically examined.
Background
Angelus Funeral Home is a beacon of hope and peace for grieving families in the heart of Los Angeles, California. This establishment has been serving the community for many years, founded and headed by my late father. He constructed it with devotion, zeal, and cognizance of the critical function of such an institution in the people’s lives. As a result, Angelus Funeral Home has experienced numerous tales of loss, sadness, and remembrance, leading bereaved families through one of the most difficult periods. However, the recent passing of my father, which brought about not only personal grief but also an unexpected inheritance, was the beginning of a significant chapter in the history of the Angelus Funeral Home. Per the wishes outlined in his will, I became the proud inheritor of a house in the scenic enclave of Malibu and, perhaps more critically, the full ownership of the Angelus Funeral Home. Such a responsibility, while humbling, also came with its fair share of challenges and decisions that needed urgent attention.
Among the many aspects of the funeral home business I had to acquaint myself with, an issue that had grown over the past two decades stood out. At the helm of the daily operations of the funeral home was Rhonda. Rhonda has been the backbone of the funeral home’s managerial duties for twenty years. Rhonda, a female, identifies as female and is cisgender. Descriptions of her dedication and competency echoed throughout the company, with the Human Resources Director heaping praises on her professionalism and contribution to the growth and sustainability of the business. Such accolades, however, were juxtaposed with a recurrent concern that many clients had with Rhonda. It wasn’t about her competence or management skills but rather her chosen style of attire. In a setting as somber and delicate as a funeral home, the expectations of professionalism are not just confined to the quality of service but also extend to the presentation of its employees. Rhonda’s penchant for what many describe as “baggie clothing,” which some clients deemed fit “only for a pajama party,” had become a bone of contention.
Although the intent behind her choice of clothing remains personal and possibly comfort-driven, the impact on the business has been less than favorable. With the dawn of the digital age, the voice of the customer has found a louder platform through social media. Reviews and complaints targeting Rhonda’s appearance began surfacing online, casting a shadow over the impeccable service that Angelus Funeral Home offered. Given the gravity of the situation and the potential impact on the funeral home’s reputation, I contemplated the introduction of a comprehensive employee dress code. This code aimed to standardize the appearance of all employees who interact with the public. For women, the guidelines would include wearing makeup and ensuring that their hair is styled professionally. Conversely, men would be required to don suits and ties, maintaining their hair at a length that does not exceed the top of their shirt collar. Additionally, the code would bar male employees from wearing makeup.
However, an air of caution envelopes such decisions, especially in a country where individual rights and freedoms are highly regarded. The legal landscape has witnessed cases that challenge the fabric of workplace dress codes, including the landmark U.S. Supreme Court case of R.G. & G.R. Harris Funeral Homes, Inc. v. EEOC. My limited understanding of the case stems from media snippets that detailed the story of a male employee of a funeral home who was dismissed after expressing a desire to wear dresses and makeup at work. The ripple effects of such a case on the funeral home industry are profound, and while Rhonda’s situation differs, it’s a cautionary tale of the complexities involved in dictating workplace attire based on gender.
This decision isn’t just about addressing customer complaints or upholding the reputation of the Angelus Funeral Home. It’s a matter that touches on ethics, individual rights, business sustainability, and the evolving landscape of workplace norms in the 21st century. The journey ahead promises to be one of introspection, legal prudence, and a deep dive into the ethos that my father envisioned for the Angelus Funeral Home. This paper will analyze the legal and ethical issues surrounding this proposed dress code, as well as its potential effect on the funeral home’s business.
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MBA 650: Fall 2023, Assistant Professor Marc McAllister
100 out of the 400 points in this course are allocated to a final paper assignment
requiring students to analyze a complex Business Ethics scenario using The Ethical
Business Leader’s Decision Tree from Exhibit 2.1 on page 20 of the Bagley text. This
document contains the instructions for this assignment.
In today’s world of business, legally astute executives should be equipped with an ethical
framework for evaluating complex business decisions. The final project in this course will
help you to become such legally astute managers.
The final paper in this course will require you to apply The Ethical Business Leader’s
Decision Tree, reproduced below:
1
Part 1: Assignment Summary
As noted, this writing assignment requires students to analyze a complex Business Ethics
scenario using the 3-step Ethical Business Leader’s Decision Tree. In this 3-step decisionmaking framework, the “proposed action” is the initial, tentative proposal for resolving this
dilemma, which will be provided to you by the Professor. In essence, this 3-step approach
requires analysis of the following:
1) Is the proposed action legal?
2) Would the proposed action maximize shareholder value?
3) Would taking the proposed action, or refraining from taking the proposed action,
be ethical?
The remainder of this document summarizes each of these three steps.
I.
Step 1 – Lawfulness of Proposed Action
The first step in determining whether to take this proposed action is to analyze whether
taking the proposed action would be lawful.
Legal compliance is the baseline standard for business executives, so the first question
should always be whether the proposed action is legal. If an action is illegal, it should not
be taken, regardless of its likely effect on shareholder value.
For the final paper assignment, you will be provided legal authorities, including judicial
opinions in cases similar to yours, so you can evaluate whether the proposed action is
lawful or unlawful. You should read these sources carefully to determine the lawfulness of
your proposed action. Thereafter, you will be expected to discuss your preliminary analysis
with the Professor and the other students in your section who are assigned the same
Ethical Dilemma.1
After that discussion, the Professor will switch roles and serve as your outside counsel or
attorney. In that role, the Professor will provide his expert written opinion on the
lawfulness of your proposed action. Once the Professor has provided his written expert
opinion on the lawfulness of your proposed action, you will then summarize his opinion in
your Final Paper and will use that expert opinion to help develop further arguments on
Steps 2 and 3. For example, if the Professor indicates that taking the proposed action is
1
For the on campus class, these discussions will take place in class during Week 8. For online students, these
discussions will take place via Zoom.
2
likely lawful, then that information might be used to contrast the lawfulness of the
proposed action to its ethical implications.
This process mirrors the real world of business. An example of this is with a large church
that Professor McAllister represented when he practiced law in Indiana. The church spent
$1 million to have a new roof installed on their building, but over time that roof developed
numerous leaks, leading to mold and other issues in the building. The church hired
Professor McAllister’s law firm to determine what, if anything, could be done about the
defective roof. After researching the issue, Professor McAllister and the partner for whom
he worked determined that the church could sue the contractor for breach of contract
under a theory of material breach. However, they also determined that it might be
difficult to overcome an initial challenge to that lawsuit under the applicable Statute of
Limitations (depending on whether or not the judge ruled that the limitations period had
been tolled or paused). They then presented these findings to the church. They also
estimated that it would cost the church about $200,000 in legal fees to take the lawsuit all
the way to trial, and that the likelihood of winning at trial would be around 50-60%. After
weighing all of that information, the church determined that they would not sue, mostly
for ethical reasons, and would instead just pay for a new roof. In the end, the law firm’s
role was to provide their expert legal opinion on the matter, but only the client could
determine what was the best course of action for them based on the legal, financial, and
ethical factors at play in the case. This is the same type of decision-making approach you
will employ for the final paper in this course.
By following this approach, this project will mimic the real world of business, where
business executives often seek legal counsel on complex matters that those executives
must resolve. After that advice is dispensed by legal counsel, those executives will
consider the legalities of their proposed action as conveyed to them by their attorney.
From there, they will factor in the effect on the company’s bottom line and its
stakeholders. Finally, they will consider the ethical dimension of their contemplated or
proposed course of action. Simply put, they will apply the three steps of The Ethical
Business Leader’s Decision Tree outlined on page 1 of these instructions. Steps 2 and 3 of
that framework are summarized more fully below.
II.
Step 2 – Effect on Shareholder Value
Step 2 is whether the proposed action would maximize shareholder value. The filter for
shareholder value is intended to require managers to consider early on whether the
interests of shareholders would be served by the proposed action. Note, however, that
shareholder primacy – or maximization of shareholder value – is not legally mandated in
most instances. Shareholder primacy is a choice, not a legal requirement. Moreover, good
managers consider the interests of other stakeholders, including employees, the
community, and the environment.
3
For each ethical dilemma assigned in this project, it will generally be the case that the
proposed action, if taken, would be best for the company’s bottom line, at least in the
short term. However, the longer-term effects of the proposed action might be different,
and students are expected to explore both the short-term and long-term effects of the
proposed action on their assigned Ethical Dilemma in this second step of their Final Paper.
In this step, students should also address the impact the proposed action might have on
other stakeholders, such as the environment, customers or clients, and employees.
III.
Step 3 – Ethical Implications of Proposed Action
After completing steps 1 and 2 above, in the Final Paper students should examine whether
the proposed action is, or is not, ethically sound.
To prepare to write this portion of the paper, students should review the Week 5 lecture
and pay close attention to the decision-making tools for resolving tough ethical dilemmas
discussed in that lecture.
In Step 3 of the Final Paper itself, students are required to do the following:
• Apply Tool #1 from the Week 5 lecture by applying both of the following ethical
decision-making tools: categorical moral reasoning and utilitarianism; and
• Apply one additional tool or decision-making framework for resolving difficult
ethical dilemmas presented in the Week 5 lecture (i.e., select and apply Tool #2, #3,
or #4 from the Week 5 lecture); and
• Apply one additional tool or decision-making framework for resolving difficult
ethical dilemmas that you discovered through your own independent research,
which could include one of the articles you discovered and submitted in the Week 5
Homework Assignment or an alternative article provided by the Professor.
IV.
Final Proposed Action
In each Ethical Dilemma set forth below, the Professor has provided a proposed course of
action for resolving your Ethical Dilemma. Your Final Paper should evaluate this proposed
action using the three steps outlined above. Although you should fully evaluate the
Professor’s proposed action in your Final Paper, the Professor’s proposed action need not
be your final recommendation for resolving your assigned Ethical Dilemma. For example, if
your paper determines that the proposed course of action is unethical, you might then
propose an alternative solution to your Ethical Dilemma in this final section of your paper.
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In this section of your Final Paper, your objective is to convince the reader of your paper
that your chosen course of action is the best solution to your Ethical Dilemma. Thus, it
may be helpful to explain why your chosen course of action is better than any alternative
course of action for resolving your Ethical Dilemma, including the proposed action. Often
the most persuasive argument is one that not only highlights the strengths of your
position, but also counters the alternative position by exposing its weaknesses. This is
especially true for this assignment, where there is often not one clear “right” answer or
solution to your assigned dilemma. In the end, the more thoroughly you analyze your
Ethical Dilemma with reasoned arguments, the more persuasive your analysis will be.
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Ethical Dilemma #3
Your father, the owner of the Angelus Funeral Home in Los Angeles, California, recently
passed away. In his will, your father left you a house in Malibu and his entire interest in
the Angelus Funeral Home. For the past twenty years, the funeral home has been
managed by a female employee named Rhonda. After speaking with the Human Resources
Director of your funeral home, you have discovered that Rhonda has been an excellent
employee, but that customers have often complained of Rhonda’s unprofessional
appearance. Specifically, numerous complaints have been lodged against Rhonda for being
“too casual” in her clothing selection, given that she often presents herself wearing “baggie
clothing” that customers find appropriate “only for a pajama party.” These complaints,
which have now been showing up on social media with greater frequency, are negatively
impacting your funeral home’s business.
To address this issue, you are considering implementing an employee dress code that
would require all public-facing funeral home employees to wear professional attire. The
dress code you are contemplating would require women, including Rhonda, to wear
makeup and to style their hair in a professional manner. The dress code would further
require men to wear suits and ties and to keep their hair cut short, specifically, no longer
than the top of their shirt collar. It would also prohibit all male employees from wearing
makeup.
You are aware that the United States Supreme Court recently weighed in on the issue of
dress codes for funeral homes in the case of R.G. & G.R. Harris Funeral Homes, Inc. v. EEOC
(decided as part of the Supreme Court’s opinion in Bostock v. Clayton County, Georgia).
Although you don’t know much about the Harris case, you read in the news that a male
employee of the funeral home involved in that case successfully sued the funeral home for
being fired after expressing his desire to wear dresses and makeup at work. Accordingly,
you are concerned that your dress code, while innocent enough, could potentially lead to a
costly discrimination lawsuit. Nevertheless, since Rhonda identifies as female, her
biological sex, you are not truly concerned about her suing you for discrimination in the
event you implement a sex-differentiated dress code for funeral home employees.
Apply The Ethical Business Leader’s Decision Tree to determine whether you will
implement an employee appearance policy that contains distinctions between males and
females, including differing requirements for males and females in regards to makeup.
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Ethical Dilemma #1
You are the CEO of Bluestone Coal Corporation located in Beckley, West Virginia. In June
2020, you entered into a three-year lease agreement with Nolan Land Holdings (Nolan) allowing
your company to conduct coal mining operations on a tract of land owned by Nolan in eastern
Indiana. The lease with Nolan contains a Reclamation Clause that states:
“Upon the abandonment or completion of any mining operation, including any
strip operation, the surface shall be restored as nearly as possible to its condition
prior to said mining operation.”
From fall 2020 to summer 2023, your company used strip-mining techniques to remove
substantial amounts of coal from the Nolan property. When the lease period ended, your
company left four large “strip pits” on the Nolan property and did not otherwise restore the
surface as promised under the lease.
You recently received a demand letter from an attorney, David Cassidy, who represents Nolan.
The letter claims that you have breached the lease’s reclamation provision, and seeks damages
equal to the amount necessary to restore the land as promised under your lease with Nolan.
Attached to the Cassidy letter is the report of an expert named Paul Berry, who has testified as an
expert witness in cases like this, that the cost to restore the land in accordance with the
Reclamation Clause would be between $670,000 and $700,000.
Although your attorney believes that the true cost to restore the land is likely closer to $400,000,
your attorney has advised you that the diminution in value of the land, if left unrestored in its
present condition, is merely $20,000. Your attorney has also advised that there is case law in
your favor on this issue, including Peevyhouse v. Garland Coal Mining Co., 382 P.2d 109 (Okla.
1962), and Youngs v. Old Ben Coal Co., 243 F.3d 387 (7th Cir. 2001) (controlling precedent in
Indiana). Accordingly, you are considering offering Nolan $20,000, plus reasonable attorney’s
fees of $10,000, in exchange for Nolan’s agreement not to sue you for breach of contract and
related claims. If you choose to go this route, you will, of course, not restore the land as
promised. As such, you would be leaving behind a large amount of acid-forming materials near
the strip pits that will result in poor water quality in those pits (with likely water pH levels below
5.0), as well as the potential for contaminated water in the surrounding watershed. Nevertheless,
your proposed course of action for this dilemma is to offer Nolan $20,000, plus attorney’s
fees of $10,000, in exchange for Nolan’s agreement not to sue you for breach of contract
and related claims.1
Apply The Ethical Business Leader’s Decision Tree to determine your next course of action
on this matter.
1
Note: This bolded language is the Proposed Action that students should analyze in their paper.
1
Model Answer
Portions of this Model Answer were written by Professor McAllister and other portions
were written by a student from a previous semester.
This paper examines the legal and ethical implications of failing to restore certain land
after engaging in coal mining operations, despite a contractual obligation to do so. Before
engaging in that analysis, the background facts will be provided.
I.
Background
In June 2020, our company, Bluestone Coal Corporation (Bluestone), signed a lease
agreement with Nolan Land Holdings (Nolan) permitting Bluestone to conduct coal mining
operations on land owned by Nolan in Indiana. This lease contains a Reclamation Clause that
states:
Upon the abandonment or completion of any mining operation, including any
strip operation, the surface shall be restored as nearly as possible to its condition
prior to said mining operation.
From 2020 to summer 2023, Bluestone used stripmining techniques to remove coal from
the Nolan property. When the lease period ended, Bluestone left four large strip pits on the
Nolan property and did not restore the surface as promised under the lease. Evidence suggests it
would cost as much as $700,000 to restore the land. Nevertheless, evidence further shows that
the diminution in value of the land, if left unrestored in its present condition, is merely $20,000.
Based on favorable case law adopting the diminution in value measure of damages in a case such
as this, Bluestone is considering offering Nolan $20,000 (plus attorney’s fees) in exchange for
Nolan’s agreement not to sue over the matter. If this route is selected, Bluestone would not
restore the land as promised. As such, the company would be leaving behind acid-forming
materials near the strip pits that will result in poor water quality in those pits, creating the
potential for contaminated water in the surrounding watershed.
2
The question, therefore, is whether Bluestone will spend hundreds of thousands of dollars
to restore the land as contractually promised, or rather whether the company will make the
seemingly economically prudent decision not to spend the large amount of money necessary to
improve a property that is currently only worth $20,000 less than it would be after restoration.
II.
Analyzing the Proposed Action Using the Ethical Business Leader’s Decision Tree
This paper applies The Ethical Business Leader’s Decision Tree to analyze the dilemma
at hand. The Ethical Business Leader’s Decision Tree breaks into the following three steps:
1) Is the proposed action legal?
2) Would the proposed action maximize shareholder value?
3) Would taking the proposed action, or refraining from taking the proposed action, be
ethical?
Each of these steps will be addressed in turn.
1) Step 1: Is it lawful to not restore the Nolan property as promised?
The proposed action is not to restore the Nolan property as promised under the contract
between Bluestone and Nolan. The initial question in this case is whether it is a breach of
contract to fail to restore the Nolan property as promised under the lease. From there, the focus
turns to the proper remedy for such breach.
a) Bluestone’s Breach of Contract
The Nolan lease contains a Reclamation Clause stating that “[u]pon the abandonment or
completion of any mining operation, including any strip operation, the surface shall be restored
as nearly as possible to its condition prior to said mining operation.” This clause could not be
any clearer. In essence, this clause states that Bluestone, having completed its strip-mining
operation on the Nolan property, is contractually bound to restore the Nolan land “as nearly as
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possible to its condition prior to said mining operation.” Failure to do so would clearly
constitute a breach of contract.
b) Proper Remedy for Bluestone’s Breach of Contract
When a contract is breached, courts stand ready and willing to provide a proper remedy
to the non-breaching party. However, even in the event of a clear breach of contract, there may
be a valid legal excuse for non-performance. Based on the case law discussed below, the key
issue here is whether a court would require restoration or payment of restoration costs in a
situation, such as this, where it would be economically unfeasible or wasteful to do so, or rather
whether a court would excuse non-performance of this contractual obligation.
In breach of contract cases, the normal measure of damages is the amount of money
required to place the non-breaching party (here, Nolan) in the same financial position they would
have been in had the contract been fully performed. Bagley, Chapter 7-17a. Clearly, the money
required to place Nolan in this financial position would be the cost to restore the land – estimated
to be between $400,000 and $700,000. This is known as the “cost of performance” measure of
damages.
While cost of performance is one measure of damages in a case like this, an alternative
measure of damages is known as the “diminution of value” measure, under which damages are
calculated based on the difference in the present value of the land and what the value would be if
the restoration work had been completed. One case adopting this approach is Peevyhouse v.
Garland Coal Mining Co., 382 P.2d 109 (Okla. 1962), a highly influential Oklahoma Supreme
Court case from the 1960s.
In Peevyhouse, after Garland Coal Mining Company completed a strip-mining operation
on the Peevyhouse property, Garland Coal refused to honor its contractual promise to restore the
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land to its original condition. In a breach of contract lawsuit between Peevyhouse and Garland
Coal, the Peevyhouse plaintiffs argued that the cost of performance represented the true measure
of damages in a case like this, and they presented evidence that the cost to restore the property
was $29,000. In response, Garland Coal argued that the plaintiffs’ damages should be limited to
the difference in the market value of the land before and after the restoration work is performed –
i.e., the “diminution of value” of the land. On this issue, Garland Coal presented expert
testimony that completing the promised remedial work would add only $300 to the value of the
plaintiffs’ property, and argued that the plaintiffs’ damages should be limited to that amount
because that is all the plaintiffs have lost. Siding with Garland Coal and awarding damages of
just $300, the Oklahoma Supreme Court concluded that Garland Coal could not be held
financially liable for the full cost of restoration when such restoration would not be costeffective.
At first blush, Peevyhouse is truly an incredible ruling. As one scholar has noted, “[w]e
live in a society where Garland Coal normally would have to honor its contract with
Peev[]yhouse.” David Schmidtz, A Place for Cost-Benefit Analysis, at 154, Philosophical Issues,
Social, Political, and Legal Philosophy (2001).2 Because courts in breach of contracts cases
normally seek to determine the intent of the contracting parties and will typically hold them to
the benefit of their bargain, not every court agrees with the Peevyhouse approach. Rather than
apply the Peevyhouse diminution of value rule, some courts instead hold the defendant to their
contractual obligations by applying the cost of performance rule. One such case is Groves v.
John Wunder Co., 286 N.W. 235 (Minn. 1939).
2
Note: For the Final Paper assignment, students are permitted to conduct their own research and to cite additional
authorities, beyond those provided, in their Final Paper. This will typically take the form of a scholarly article or
news article, rather than additional case law. This citation is one example of how a student might incorporate a
scholarly article into their Final Paper.
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In Groves, the Minnesota Supreme Court considered a case similar to Peevyhouse.
There, the court adopted the cost of performance rule and awarded the plaintiff damages of
$60,000, even though the property at issue would have been worth only $12,160 after the
restoration work was performed.
In a similar case, Miller v. C.K.L., Inc., 1988 WL 106637 (Ohio Ct. App. Oct. 6, 1988), a
court in Ohio refused to follow Peevyhouse and ruled that, under Ohio law, “the proper measure
of damages must [] be the amount necessary to reclaim the entire affected area.” In Miller, the
court applied an Ohio statute governing strip mining within that state, one that is written to
ensure that strip mining and reclamation “go hand in hand.” The Ohio statute specifically
defines strip mining as follows:
“‘Strip mining’ means those coal mining and reclamation operations incident to
the extraction of coal from the earth by removing the materials over a coal seam,
before recovering the coal, by auger coal mining, or by recovery of coal from a
deposit that is not in its original geologic location.”
This statute, according to the Miller court, reflects the Ohio legislature’s intent that
“mining and reclamation are co-equal parts of the same operation.” Applying this policy in the
Miller case itself, the court declared that since the lease at issue contained a restoration
obligation, that obligation could not be extinguished based on mere convenience or cost-benefit
analysis.
Comparing Peevyhouse, on the one hand, with Groves and Miller, on the other hand,
shows that there are alternative judicial approaches to the issue at hand: diminution of value or
cost of performance. The Nolan coal-mining operation occurred in Indiana. Accordingly, the
resolution of our case will depend on which approach – diminution of value or cost of
performance – applies under Indiana law. The answer to this question is found in a recent
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Seventh Circuit Court of Appeals case applying Indiana law, Youngs v. Old Ben Coal Co., 243
F.3d 387 (7th Cir. 2001).
The facts of the Youngs case are complex, but the upshot of the case is simple. Youngs
involved a 400-acre tract of land. In 1975, defendant Old Ben Coal Company owned the 400acre tract of land; however, Old Ben did not own the oil and gas rights under that land. The oil
and gas estate was instead owned by plaintiff James Youngs. After four oil wells on the property
ran dry in 1989, Old Ben wanted to strip mine the area occupied by the four oil wells.
Accordingly, in 1992, Old Ben had the oil wells plugged. Old Ben then strip mined the land.
After the strip mining was completed, Youngs demanded that Old Ben restore the old oil wells,
but Old Ben refused. In response, Youngs sued Old Ben for breach of contract under Indiana
law. After Youngs lost at trial, Youngs appealed that decision to the United States Court of
Appeals for the Seventh Circuit.
After examining the complex chain of title in this case, the court addressed the proper
measure of damages under Indiana law in a case such as this. Most significantly, the court
rejected the cost of performance approach of Groves v. John Wunder Co., 286 N.W. 235 (Minn.
1939), and declared that “Groves is not the law in Indiana.” As to the 400-acre tract of land in
this particular case, the court further noted that “[b]reach of a duty to restore the wells to their
mint operating condition would impose no loss on the owner of the oil and gas estate in the land
(Youngs), because there is no oil left in the ground and so no value to be obtained from oil
wells.” Accordingly, the court refused to order Old Ben to restore the wells and declared that
“the only proper remedy for a harmless breach is nominal damages” (i.e., one dollar).
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To recap, at first blush, there are many sound legal arguments for paying the money
necessary to restore the Nolan land.3 As stated by dissenting Judge Irwin in Peevyhouse, the
consideration a landowner receives in a lease like this is a certain royalty from the minerals
retrieved from their land along with the promise to restore their land as provided in the contract.
And courts usually do not second guess the adequacy of a contracting party’s consideration;
rather, “the judicial function of a court of law is to enforce a contract as it is written.” As stated
in another similar case, Rock Island Imp. Co. v. Helmerich & Payne, Inc., 698 F.2d 1075 (10th
Cir. 1983):
When the parties negotiated the contract in question, they expressly included a
reclamation clause and required the lessee to bear the cost of reclamation. Given
the [obvious] importance of reclaiming stripmined lands, it is more logical to
assume that the parties meant what they said, calculated their costs and benefits
under the contract accordingly, and intended the provision to insure proper
reclamation of the land, than it is to assume that they expected the reclamation
clause to have no force.
Finally, when entering into a contract, the parties expect the other to execute their duties
in good faith. Every contract contains an implied covenant of good faith and fair dealing that
imposes on each party a duty not to deprive the other party of the benefit of the agreement, and
courts stand ready to enforce this obligation. Bagley, Chapter 7-15.
Despite these bedrock principles of contracts law, the bottom line in our case is that
Indiana law applies, and Indiana law is determined by Youngs v. Old Ben Coal Co., 243 F.3d 387
(7th Cir. 2001). Moreover, in Youngs, the court rejected the cost of performance rule and refused
to order the defendant to restore the land since doing so would bring no real economic benefit to
the landowner. Thus, because the diminution in value of the Nolan land, if left unrestored, is
merely $20,000, offering Nolan that amount in exchange for Nolan’s agreement not to sue for
3
Note: In objective legal analysis, students should do their best to provide arguments on both sides of the issue,
rather than simply jumping to a conclusion on the legal issue.
8
breach of contract is a legally defensible approach under Indiana law and would likely withstand
any judicial challenge. As noted in Bagley, “the U.S. legal system recognizes that sometimes it
is economically efficient to breach a contract.” Bagley, Chapter 7-17a. This appears to be one
of those situations.
2) Step 2: Would refusing to restore the Nolan property maximize shareholder value?
The proposed action of refusing to restore the Nolan property has passed the first step of
The Ethical Business Leader’s Decision Tree and has been deemed lawful due to binding case
precedent in Indiana.
The second step of The Ethical Business Leader’s Decision Tree is to consider whether
the proposed action would maximize shareholder value. The filter for shareholder value is
intended to require managers to consider early on whether the interests of shareholders would be
served by the proposed action. Shareholders have a stake in the company and want to see that
the company is maximizing their value by making the right decisions.
If Nolan accepts Bluestone’s offer of $20,000 plus attorney’s fees of $10,000 in exchange
for Nolan’s agreement not to sue, this would save Bluestone a great deal of time and money.
After all, the alternatives here are to spend up to $700,000 to restore the land, or to do nothing
and risk a breach of contract lawsuit from Nolan. If Bluestone ends up embroiled in a breach of
contract suit, which is likely in the event no settlement offer is made, defending the lawsuit
would be expensive and time-consuming. A lawsuit might also result in Bluestone being ordered
to pay a large amount of money in damages, as in the event the court finds the Youngs case
distinguishable or decides to overrule it. This could waste a significant amount of time and
money for Bluestone and would not maximize shareholder value. Therefore, the proposed action
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of refusing to restore the Nolan land and offering Nolan a reasonable settlement amount would
indeed maximize shareholder value, at least in the short term.
From a more long-term perspective, it is generally bad business practice to essentially
breach one’s contractual promises, and if Bluestone’s actions were made public, the company
might lose future business opportunities in strip-mining. Moreover, other stakeholders –
including most notably the local community in eastern Indiana where this strip-mining operation
occurred – could be harmed by Bluestone’s failure to fulfill their contractual restoration
obligations. Thus, despite the short-term financial benefits and the favorable case law outlined
under Step 1 above, Bluestone should carefully consider whether failing to restore the Nolan
land as promised is truly the best course of action in the long run. The next section examines this
issue through an ethical lens.
3) Step 3: Is refusing to restore the Nolan property ethical?
The final step of the analysis is to consider whether the proposed action is ethical. Once
again, it bears repeating that the proposed action here is to refuse to restore the Nolan property as
promised and to instead offer Nolan $20,000, plus attorney’s fees of $10,000, in exchange for
Nolan’s agreement not to sue Bluestone over the matter. As instructed, a variety of ethical
decision-making tools will be employed to determine if the proposed action is ethical.4
a) Categorical Moral Reasoning
4
Note: As stated on page 4 of the Final Paper Assignment Instructions, in this step of the Final Paper students
should examine whether the proposed action is ethically sound. For this portion of the paper, students are required
to do the following:
•
Apply Tool #1 from the Week 5 lecture by applying both categorical moral reasoning and
utilitarianism; and
•
Apply one additional tool or decision-making framework for resolving difficult ethical dilemmas
presented in the Week 5 lecture (i.e., select and apply Tool #2, #3, or #4 from the Week 5 lecture); and
•
Apply one additional tool or decision-making framework for resolving difficult ethical dilemmas that
you discovered through your own independent research, which could include one of the articles you
discovered and submitted in the Week 5 Homework Assignment or an alternative article provided by
the Professor.
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Categorical moral reasoning is a d
