Corporate Compliance Plan - Riordan Manufacturing

Corporate Compliance Plan

Anna M. Higgins

LAW 531

August 14, 2011

Mark Reed

Corporate Compliance Plan - Riordan Manufacturing

Riordan Manufacturing is a global plastics producing/manufacturing organization with projected annual earnings of $46 million. Owned by Riordan Industries, a Fortune 1000 company with more than $1 billion in revenues, Riordan Manufacturing employs more than 500 individuals and produces goods for the automotive parts industry, the Department of Defense, appliance manufacturers, and the beverage bottling industry among others. From the outside, this organization seems to be very solid; however, when analyzing the organization from a legal standpoint, it becomes apparent that Riordan Manufacturing is bound by a great deal of compliance related issues. For this reason, it is recommended that Riordan Manufacturing revisit its corporate compliance policies in an effort to create a new compliance plan that will ensure legal compliance in all areas of the business. This report will serve as a guideline for the creation and implementation of a new corporate compliance plan within Riordan Manufacturing. This corporate compliance program is designed and intended to provide, for Riordan Manufacturing, reasonable assurances that the organization remains in compliance with all applicable state, federal, and international laws applying to its manufacturing operations. As well, this plan will serve to help Riordan detect possible criminal activity and ethical misconduct as committed by all Riordan Manufacturing officers and directors.

Alternative Dispute Resolution

Disputes are increasingly being resolved out of court. Medication is a popular form of alternative dispute resolution (ADR), available through individuals and organizations like the American Arbitration Association (AAA) and some court systems. ADR is attractive as a means to resolve disputes because of its speed and the empowerment of the parties to fashion their own creative settlement terms. Litigation in the courts tends to be slower, more expensive, and leads to an uncertain result, especially where a jury is involved. Riordan Manufacturing should institute an arbitration clause into all contracts and agreements to require the parties to resolve their disputes through an arbitration process. Additionally, it is suggested that they specify that arbitration occur within a specific jurisdiction. In the United States, the federal government has expressed a policy of support of arbitration clauses, because they reduce the burden on court systems to resolve disputes. This support is found in the Federal Arbitration Act, which permits compulsory and binding arbitration, under which parties give up the right to appeal an arbitrator's decision to a court. In Prima Paint Corp. v. Flood & Conklin Mfg. Co., the U.S. Supreme Court established the "separability principle," under which enforceability of a contract must be challenged in arbitration before any court action, unless the arbitration clause itself has been challenged. Furthermore, arbitration clauses are often combined with geographic forum selection clauses, and choice-of-law clauses, both of which are fully enforceable. The result is that a plaintiff may find himself or herself compelled to arbitrate in a strange private forum thousands of miles from home, and the arbitrators may decide the case based on the law of a state or a nation, which the plaintiff has never visited.

Enterprise and Product Liability

Riordan Manufacturing should be aware of product liability claims that may be filed against them and the defenses that are available to the company. All parties in the chain of distribution of a defective product are strictly liable for the injuries caused by that product. Thus, all manufacturers, distributors, wholesalers, retailers, lessors, and subcomponent manufacturers may be sued under the doctrine of strict liability in tort. Lawmakers presume that sellers and lessors will insure against the risk of a strict liability lawsuit and spread the cost to their consumers by raising the price of products. If any employee or management official should notice any defects in the manufacturing process, they should report it to the Enterprise Risk Management Risk Committee for immediate evaluation. After the committee is able to effectively review the situation the appropriate action will be taken to resolve the problem, either by issuing a recall, correcting the defective process, and/or issuing a warning to consumers and end users. For example, a manufacturer that produces a defective product and later discovers said defect must (1) notify purchasers and users of the defect and (2) correct the defect. Most manufacturers faced with this situation recall the defective product and either repair the defect or replace the product. The seller must make reasonable efforts to notify purchasers and users of the defect and the procedure to correct it. Reasonable efforts normally consist of sending letters to known purchasers and users and placing notices in newspapers and magazines of general circulation. If a user ignores such notice and fails to have the defect corrected, the seller may raise this as a defense against further liability with respect to the defect. Many courts have held that reasonable notice is effective even against users who did not see the notice.

Additionally, there are several liability laws that Riordan should be aware of in its line of business. Because Riordan does work for the federal government and the Department of Defense, they should understand that defense and other contractors manufacture products (e.g., rockets, airplanes) to government specification. Most jurisdictions recognize a government contractor defense to product liability actions. Additionally, the traditional doctrine of assumption of the risk is a defense to a product liability action. For this defense to apply, the defendant must prove that (1) the plaintiff knew and appreciated the risk and (2) the plaintiff voluntarily assumed the risk. In practice, the defense assumption of the risk is narrowly applied by the courts. Sometimes users are injured when they misuse a product. If a user brings a product liability action, the defendant-seller may be able to assert misuse as a defense. Whether the defense is effective depends on whether the misuse was foreseeable. The seller is relieved of product liability if the plaintiff has abnormally misused the product--that is, if there has been an unforeseeable