INSTRUCTIONS: 1. You have two exams: a Solo Final ... - UNO CBA

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social EnvironmentFACTS: AA phoned BB seeking a shareholders’ agreement whereby FF would beadded to the XYZ Corporation’s Board of Directors (BoD) and made Chief FinancialOfficer (CFO) at the annual meeting next month. BB liked the ideas for FF, but alsowanted to return their father, DD, to the BoD and make DD the corporate Secretary. BBwanted DD to act as a neutral and help settle some of the disputes that had been plaguingXYZ since DD left the BoD. AA suggested to BB that they continue this discussionbetween courses of the holiday dinner that evening at their mother’s (MM) house.Upon entering MM’s house that evening, AA found CC (BB’s wife) and DD in aheated argument over EE’s suitability as XYZ’s Chief Executive Officer (CEO). CCpunctuated her point with a glass of red wine that splattered over DD, AA, and theentryway to the living room. GG (MM’s father) did not help matters any by siding onceagain with EE, and then insulting both CC and DD. AA and MM were able to separatethe combatants and restore sufficient order for dinner to be served.That evening AA and BB drafted a shareholder agreement between AA, BB, CC,and DD whereby AA, BB, DD, and FF would be on XYZ’s BoD and DD would becomethe corporate Secretary and FF (XYZ's non-stock owning CPA) the CFO. GG caughtwind of this and agreed with EE and MM that DD should not be returned to the BoD.After the annual meeting, the XYZ BoD consisted of AA, BB, EE, FF, GG, and MM; andan Executive Committee of EE as CEO, FF as CFO, and GG as corporate Secretary. CCnever voted as she had agreed in the shareholder agreement drafted by AA and BB.XYZ runs an independent bookstore in a just annexed suburban strip mall in ametropolitan city. After the annual meeting, EE, after only consulting FF, redirected40% of the floor space and converted it to the sale of CDs and specialty gift cards. Tospur sales of the CDs EE played featured CDs on a stereo system that was clearly audiblethroughout the store. When CC arrived at the store, for the next BoD quarterly meeting,she was shocked, immediately approached EE and GG at the cash register, and excoriatedthem both in front of customers. EE reported to the BoD a 10% increase in total revenuesfor the quarter, with all of the growth in revenue on a square foot basis coming from theredirected floor space. The next day the Amaho Police Department (APD) and theAmaho City Attorney (ACA) visited XYZ because of consumer complaints about manyof the specialty gift cards and some of the CDs. Many cards are of an "adult" and/orcrude nature and are prominently displayed. Some CDs have "adult" language andthemes, but none contain warning labels. CC's behavior towards EE and GG, as well asthe APD and ACA visit appeared on the front page of the neighborhood newspaper.Just prior to the second quarterly BoD meeting, ACA filed two suits against XYZand its management and staff. The criminal suit alleged XYZ was corrupting minors bydisplaying and selling indecent material in a store within 500 feet of a high school. Thecivil suit sought damages for creating a public nuisance and violation of zoning forproviding "amusement services" instead of the zoning authorization for a "book store".DD and GG are XYZ's only employees. CC is employed by Amaho as the ACA.To raise $250,000 of working capital, at the annual meeting XYZ issued bondspurchased by each of its shareholders. GG immediately obtained a signed agreementfrom EE collateralizing the store and all of its current and future contents for bondspurchased by GG. At the third quarter BoD meeting XYZ directed FF to file bankruptcyciting the expenses, adverse publicity, and lost sales following the lawsuits.© O’Hara Fall 2001 A = true Page 2 of 11

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social EnvironmentTRUE - FALSE QUESTIONS, use "A" for "true".1. Annexationis an expression of one of themajor forces of change.2. Becausethe bankruptcy preferential transfer is a statute of repose,GG will make a successful motion to dismiss if sued by AA.3. DD committed a crime.4. Ifthe XYZ bond MM bought is exempt,thenit is not a security.5. ACA owes EE a fiduciary's duty of good faith.6. MM violated the business judgment rule.7. EE is an agent of XYZ.8. IfXYZ sues ACA for being a public nuisance,thenXYZ suit will survive a motion to dismiss by ACA.9. The legislatureanticipated and criminalizedthe type of fraud defined as security law fraud.10. EE will be personally liable to AAifAA successfully sues to pierce the XYZ corporate veilover the collateralization.11. IfXYZ files a Chapter 11 bankruptcy,thenXYZ can not make any additional paymentsto MM on the bonds.© O’Hara Fall 2001 A = true Page 3 of 11

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social Environment12. CC violated the separation of powers.13. AssumeMM owns 11% of XYZ,ifMM asks EE and FF for guidance, receives it, and follows it,thenMM establishes her due diligence defense on the bond issue.14. CC is liable to MM for CC's breach of a bailment from MM.15. XYZ will successfully sue Amahofor violating XYZ's Equal Protection Clause rightswith respect to Amaho's zoning rules.16. EE has an implied duty like a covenant not to competeas an agent,but not as a director.17. Amaho's zoning rulesare preemptedby the USA's security laws.18. Aksarben's criminal lawthat Amaho charges XYZ with violatingmight be constitutional andmight be unconstitutional.19. The shareholder agreementdrafted by AA and BBviolates the equal dignity rule.20. With respect to the rent XYZ owes to its landlordBB has personal liability.21. MM committed security law fraud.22. FF violated FF's scope of authorityas XYZ's CFOby consulting with EE on redirecting XYZ's floor space.© O’Hara Fall 2001 A = true Page 4 of 11

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social Environment23. The Amaho Municipal Court has jurisdictionto hear a complaintfilled by AA against GG for security law fraud.24. FF's conflicts of interest are authorized.25. DD satisfies the requirements for a neutral mediator.26. MM did not bail wine to CCbecausethey did not exchange consideration.27. EE had capacity to sign the collateralization agreement.28. Ifyou assume both AA and BB are attorneys,then,as between AA and BB,their shareholder agreement was void for lack of reality of assent.29. The shareholder agreementdrafted by AA and BBdid not need to satisfy the Statute of Frauds,but probably did.30. Given the requirements for proving "sexual harassment",it is not feasible for CC to "sexually harass" MM,butit is feasible for GG to "sexually harass" DD.31. The shareholder agreementdrafted by AA and BBwas enforceable in a court of law.32. AssumeAksarben law is the same as Nebraska law;ifMM sues CC for the tort of emotional distress,because of the wine incident,thenCC's motion to dismiss will fail.© O’Hara Fall 2001 A = true Page 5 of 11

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social Environment33. ACA's visit with police officersdid not deny XYZ due processbutdid deny EE due process.34. GG has a security interest.35. XYZ can obtain,without ACA's agreement,a summary judgment in the civil suit.36. CC's behavior as CCis the proximate cause of BB's bankruptcy injury.37. GG may assign and delegate his XYZ employment to MM.38. AA's behavior at the entryway amounted to contributor negligence,andthus is an offset should AA sue CC.39. XYZ violated copyrights,but DD, EE, and GG do not have personal liability.40. EE's duty of loyalty owed to XYZ is greater than FF's.41. IfAA sues CCfor her failure to vote per their shareholder agreement,thenCC can successfully raise the defense of unilateral mistake.42. Ifthe BoD approved the issue of the XYZ bondsby less than a super majority vote,thenthe bonds are voidablein a derivative suit by a member of the BoD that voted "no".43. Ifyou assume the XYZ bonds are well-crafted exempt securities,thenit is likely the XYZ bonds are not negotiable instruments.© O’Hara Fall 2001 A = true Page 6 of 11

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social Environment44. The neighborhood surrounding the XYZ storewill reasonably expect thatmarket forces will not preventunethical behavior by XYZ.45. Amaho's zoning regulation violates the Commerce Clause.46. Prior to the annual meeting vote,ifMM had sued AA, BB, CC, and/or DDto bar enforcement of their shareholder agreement,thenMM could have obtained at least a preliminary injunction.47. AssumeGG is perfected,thenthe automatic stay can not stop GG's priority recovery.48. The court would reject a Chapter 11 bankruptcy filing by XYZ.49. Bonds can be exempt issues.50. For the purposes of their shareholder agreement,AA, BB, CC, and DD are partners.51. Ifyou assume Amaho has no zoning jurisdiction outside its boundaries,thenonce Amaho annexed the mall where XYZ had its storeCC had an agent's conflict of interest,and she needed to obtain approvalfrom both Amaho and XYZbefore continuing her service as ACA.52. Ifa court must determine if MM voted her shares in "good faith",thenthe court will evaluate MM acts using theconsumer's good faith standard.© O’Hara Fall 2001 A = true Page 7 of 11

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social Environment53. Once DD and GG became shareholders of XYZ,presumptively,no longer were they at will employees.54. BecauseFF is a CPA,EE's consultation with FF is confidential,and FF may tell AAabout neither the existence of nor the content of that consultation.55. AssumeXYZ switched from being a corporation to a limited partnership,thenEE's personal liability as a limited partnercould be about the same as when EE was a corporate shareholder,butEE's personal liability as the general partner of the limited partnershipmay be much more.56. GG's collateralization agreement with XYZviolates MM's shareholder right to XYZ's income,even ifMM is GG's sole heir in GG's irrevocable will.57. Ifprior to the annual meeting,EE had XYZ pay a retail consultant toprepare and deliver solely to EE adetailed set of written plans for the redirection of floor spacethenEE committed security law fraud, but not common law fraud.58. BecauseCC is an attorneyher excoriation of EE and GG is privileged.59. Once GG obtained the collateralization agreement from EE,GG took on the liability of a corporate promoter.60. A shareholder agreementis equivalent to a proxy voting agreement.© O’Hara Fall 2001 A = true Page 8 of 11

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social Environment61. When XYZ sold indecent gift cards and CDs to minorsXYZ did not do so via contract.62. BecauseFF is not a shareholder,FF lacks standing to bring a derivative lawsuit.63. GG is guilty of criminal insider trading.64. BecauseXYZ is charged with violating Amaho's zoning regulations,the gift cards and CDs sold by XYZdo not satisfy XYZ's duty of merchantability.65. AssumeCC obtained the wine from MM,thenCC did so via contract.66. Assumethat when EE plays featured CDs EE plays the whole CD:EE's playing of featured CDs violates copyrightsbecauseit is a derivative work.67. An election to a close corporation's BoDis a transaction that isprimarily creation of valuerather than a transaction that isprimarily distributive.68. Ifyou assume CC's aspiration as ACAis maintaining harmonious family relations,thenXYZ has a principal-agent problem.© O’Hara Fall 2001 A = true Page 9 of 11

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social Environment69. Looking solely at the relative magnitudes of the burdens of proof,ifACA has enough evidenceto defeat XYZ's motion to dismiss the criminal charges against XYZthenACA has enough evidence to win the civil lawsuit.70. With respect to litigation expenses,Amaho is likely to have a lower risk preference than XYZ.71. CC's reservation value appears to be the bankruptcy of XYZ.72. GG presents a greater moral hazard to XYZ than DD.73. AssumingXYZ's sole basis for choosingis the probability of ultimate litigation victory,thenXYZ would chose to lose the civil trialrather than lose the criminal trial.74. BecauseBB and CC are husband and wife,BB and CC are co-conspirators.75. BB's BATNA was DD as XYZ's corporate Secretary.76. GG's collateralization was an adhesion contract.77. CC did not commit fraudon AA, BB, and DDifCC actually knew at the time CC signed the shareholder agreementthat CC would not vote according to the shareholder agreement.78. With respect to the actions of the ACA,MM, personally,has standing to sueCC, personally.79. Amaho's zoning violates the federal Police Power.© O’Hara Fall 2001 A = true Page 10 of 11

SOLO Final ExamBSAD 8010: Legal, Ethical, and Social Environment80. With respect to the BoD election,the ZOPA for all parties did include FF as CFO.81. AssumeXYZ's bankruptcy filling is a Chapter 11 andis accepted by the court,thenXYZ's cash-flow-problem induced bankruptcyresulting from the law suitsis more like a violation of a dynamic limitthan a static limit.82. An express authorizationof an agentsatisfies the Statute of Frauds.83. AssumeFF knew that EE had not and would not promptly report,as well as assumeFF did not promptly report the consultation between EE and FF,thenFF as CFO,but not as CPA nor as a BoD member,committed a tort against MM.84. Ifyou assume XYZ did not issue any bonds,thenEE's redirecting 40% of the retail floor spacetowards what both EE and FF reasonably believed weremore profitable sales of CDs and specialty gift cardswas a fraud against CC.85. true 86. true 87. true 88. true 89. true 90. true91. true 92. true 93. true 94. true 95. true96. true 97. true 98. true 99. true 100. true© O’Hara Fall 2001 A = true Page 11 of 11