CASE THREE – Worth 50 Points Total
(25 points Part One/25 points Part Two)

Instructions: Note- Case Three contains two parts with its own corresponding questions and separate point values. Please read the Case Three Background Facts carefully then answer the corresponding multiple choice, short answer and essay questions below.


CASE THREE- BACKGOUND FACTS:


Darren Troll, CEO of Cash Cow Incorporated (CCI) brought CCI’s two Vice Presidents, John Quick and Dirk Driven, into his office to unveil his new plan for a CCI amusement park, called FUN-A-MANIA-USA (FAMUSA). It was to be located outside Washington D.C. and its design was to be based on the design of D.C., itself. He had pitched his idea to the Board of Directors, but it was not approved. However, Troll was confident that the project would be a cash cow. He felt sure that once the Board saw the project succeed, they would approve the 3.7 million dollar expenditure.

In Troll’s mind, the key was to get the project up and running before the next Board meeting some 11 months down the road. He assigns each VP tasks and tells them that this is their number one priority. John Quick, known for his fast work, is first up. He is assigned the task of finding the money to support the project from CCI’s budget and to set up accounts for a new separate corporation named Fun-A-Mania-USA, Inc. Quick is also expected to set up the corporation. Troll tells Quick that he has until the next day, Friday, to get the money and accounts in place. Troll emphasizes to Quick and Driven that everything has to be in the name of the new company because he doesn’t want the Board to get wind of things until they are all in place. “Think of it as a surprise gift for them,” he said. Troll then turned to Quick and said, “Your job is to find the site, buy the land, and construct the amusement park. You have 10 months to get the job done.” Both men roll their eyes as they leave the office. The deadline is impossible.

PART ONE:

Back in his office, John Quick gets to work. John decides that his first priority is to find the funding for the project. After careful review of the CCI budget, John decided that there are two ways he can raise the money for the project quickly. The first way is to sell the 2.8 million dollar corporate apartment in San Francisco. Overlooking the Golden Gate Bridge, this apartment should be very easily sold, even in today’s market. In fact, he thinks he knows the perfect person, Jack Yono. Yono had called Quick only the last week and asked if Yono knew a place in SF for sale, as Yono was being transferred from Japan to the Bay area by his company. Quick feels certain that Yono can afford the apartment and knows that Yono can save real estate broker-fees if the sale is direct to Yono. He picks up the phone and called Yono who was more than delighted to get the apartment for 2.8 million. He would wire him half of the money as a deposit this afternoon, and pay the rest when he got the contract of sale and Deed. It would be a cash transaction. John told him the documents would come via e-mail this afternoon after the deposit wire had been received. He could close the deal by tomorrow. Everyone was pleased when they hung up the phones. Quick called the bank and arranged to set up a new account in the FAMUSA name.

The second part of John’s plan was to fire two upper management people, Joe Jolly and Jill Jackal. Joe was the Director of Sales and Dirk Driven’s gopher. The sales figures were down this year and this would be a perfect excuse to let him go. CCI could save $450,000 dollars by letting him go and promoting his immediate underling with a salary bonus of only $100,000. John wanted to make sure first that CCI wouldn’t have any problems with his employment contract. He pulled Joe’s file and found that he was correct in surmising that he had signed one of the old contracts. He was bound to a six year covenant not to compete even if he was fired. Furthermore, all disputes with the contract were to be handled through arbitration at Jolly’s expense unless Jolly won. John was sure that wouldn’t happen because CCI would get to pick the person. John decided if he let him go with two weeks notice and severance pay that would be enough to prevent any problems. What John forgot to check, because it wasn’t in the new contracts, was the clause on dismissal of the employee. It provided that when the employee was dismissed without thirty days notice and severance pay, any disputes would revert to the Court system for resolution.

Jill Jackal, though, was another matter. She had negotiated her own contract and was sharp and talented. Her, “Cow Time,” cartoon is a real hit. It brings millions to the company each month. Dealing with her would prove a headache for sure. Quick needed her $500,000 salary. Fortunately, for him, Jill entered his office at the moment and informed him that she was resigning her position as Creative Director. She was giving her two weeks notice. She also said that she wanted the $100,000 per month “Cow Time” royalty checks that Troll had promised her last month. The royalty checks were to begin that same month and continue as long as, “Cow Time,” was used by CCI. Quick wanted to laugh. Troll was always making promises like that to people, but he never paid. He said nothing. At least he no longer had to fire her.

John had one last thing to do before he could go home for the day. He had to get the corporation for FAMUSA formed. Normally, he would have gotten legal to handle this, but they had gone home for the evening. He would just take one of the corporate books from the shelf and scan the documents into the computer. He would edit the existing name and put Fun-A-Mania-USA in its place. He names Troll, Driven and himself the shareholders and Board of Directors with the thought that this could be changed later to CII when the Board approves the park plan. He had accomplished the job Troll gave him in one day.

The Board of Directors, now very much aware of FAMUSA plan, and not too happy, come to you for advice. They want your legal opinion on the following questions.



CASE THREE - MULTIPLE CHOICE (Part 1): 2 pts each (10 pts Total)

Instructions: select the best answer and give a two-to-three sentence explanation as to why you believe it is correct.

1. Can Troll justify his action to start the amusement park project by asserting the best business judgment rule?

a. Yes, because Troll had diligently researched the project and in good faith felt it to be in the best interest of the company.
b. Yes, because he exercised his judgment in believing that other CEO’s like him would also make the same judgment that he did.
c. No, because he failed to use care and diligence in executing his plan.
d. No, because he failed to use care, and failed to do so in a manner that a prudent person would believe to be in the best interest of the company.

2. Will the company be able to rescind John’s sale of the condo to Yono?

a. Yes, because John acted outside the scope of his employment by selling the condo to a friend.
b. Yes, because Yono knew the condo was titled in the name of CCI not FAMUSA and that the proceeds of the sale were to go FAMUSA account.
c. No, because Yono had no reason to believe that the FAMUSA account was not owned by CCI.
d. No, because as Vice President, of CCI John had the implied, apparent authority to act as agent of CCI and bind CCI to the sales contract. Where the money went was irrelevant.

3. Joe Jolly has brought a suit in the state court against CCI to have the employment contract held void because he claims the contract was against public policy. The board wants to know if they can force him into arbitration as is stated in his contract.

a. Yes, because the terms of the contract call for arbitration to settle disputes.
b. Yes, because the courts will not hear contract cases when a contract calls for arbitration.
c. No, because the Federal Arbitration Act will permit court suits in cases where equity or legal grounds exist to revoke them.
d. No, because the terms of the contract, itself, allow him to bring the suit in the Court system as John did not give him thirty days notice.

4. Assuming that Jolly gets to keep the suit in the Court System, under what legal theory is he most likely to win his case.

a. It is an adhesion contract, which, by definition, is a contract whose terms he was unable to negotiate.
b. It is an unconscionable contract because CCI used their dominant position to impose an unfair, “covenant not to compete,” clause and Jolly had no other job alternative at the time.
c. It is against public policy because the covenant not to compete is so long it approaches slavery.
d. It is an adhesion contract, but its terms are so unfair that the court could use its equity power to make it fair.

5. Jill Jackal has also filed suit against CCI as she has not yet received her promised royalty checks. Will Jill win?

a. No, because the oral agreement between Troll and Jackal cannot be heard by the court as it is not an exception to the parole evidence
b. No, because even if the Court heard the evidence, the oral agreement is not supported by any consideration.
c. Yes, because the cartoon was her creation and CCI should have to pay her for her ideas.
d. Yes, because her employment contract was amended by Troll when he verbally agreed to pay the royalty premium.


CASE THREE - SHORT ANSWER (Part 1): 5 points

Instructions: In six to eight sentences explain your answers to the following questions:

Can the Board sue Troll and John for negligence?

If so, why?
If not, why not?

CASE THREE – ESSAY (Part 1) : 10 points

Instructions: Frame a complete definition of the legal question asked and explain how the law applies to the facts. Suggested length is two to three paragraphs.

(1) Is FAMUSA a viable corporate entity in the eyes of the law? Explain. Be sure to include in your answer a discussion of the nature of a corporation.








CASE THREE – BACKGROUND FACTS - Part Two:

Upon leaving Troll’s office, Driven does not bother to go to his office. He knows that to get his job done within 10 months, it would be necessary to get the site picked and the land purchased within the next two days. He leaves the office almost immediately. Dirk also knows that to keep the price down on the land purchase, it is necessary to keep the deals “casual” and away from legal. That meant the rural areas where people let cash speak.

Dirk knew exactly where he wanted to go, Front Royal, Virginia; a perfect spot. Front Royal has a lot of empty land a two to three hour ride from many major cities in the Washington, D.C. corridor. It also has the Manassas Battlefield and Luray Caverns very close by to bring in the tourist trade. With the help of a local realtor, Dirk locates two major farms in the vicinity that would be good sites. One farm belongs to the Jacobs and the other to the Dilly’s. One couple, Jordan and Janet Jacob, was anxious to sell off the 640 acres that the family left them so that they could move into the city where they were employed. An offer already exists from a local developer, Danny Dee, for a thousand dollars an acre. This offer is seen to be low but is receiving their consideration as the economy is so bad. Dee told them that they had to let him know by the end of the week because he could lose his loan with the bank soon without any land to develop.

Driven comes to them, the same day as his meeting with Troll, and two days before their answer is due to Dee. Dirk, explained to the Jacobs that he was a Vice President of CCI and gave them a business card. CCI, he explained, is going to start a new company, FAMUSA, and wishes to buy the land for that business. Dirk goes on to say that FAMUSA would pay them $3,000 dollars an acre and closing would be in sixty days. He gives them a check for $25,000 dollars as earnest money, drawn on a CCI account, because as far as he knows the FAMUSA account is not yet opened by Quick. The Jacobs think this is great. They agree to the deal and in Dirk’s presence call Dee to turn down his offer.

A week later, Driven, after much consideration, decides that he is not interested in buying the Jacobs land after all. He thinks that it will cost too much money to develop. That day he makes a proposal to the Dilly’s and buys 640 acres from them for $2,500 per acre. The Dilly’s said that they wanted to reserve the mineral rights to the property and asked him to write on the check in the memo slot “sale of land does not include mineral rights.” As he knows the sale isn’t in writing, Driven agrees to this. Remembering the phone call and the Jacobs’ delight he thinks he will just forget the Jacobs’ offer and let the earnest check go as payment for their time. After all, nothing is in writing. Besides he thinks, it is the easiest $25,000 dollars they will ever make.

Immediately after closing on the Dilly’s land, Dirk began construction on Fun-A-Mania-USA amusement park. Within months it became apparent to Driven that things were not going to get done within the ten month deadline. He has trouble with the county inspectors; the suppliers are not getting paid; and Quick is requiring several bids on everything to save money. Furthermore, The Jacobs’ write the Board of Directors demanding to be paid for the contract they lost. The Board of CCI, now aware of the project, tells Dirk that they could continue with the project but he could not exceed the 3.7 million dollar budget.

Dirk is just about at that point and stressed out beyond belief. He writes a check for $750,000 on the FAMUSA account and sneaks away to his secret cabin in New Mexico. The check is labeled as severance pay. Upon learning of Dirk’s departure, the Board halts the project. The suppliers and contractors are furious at being treated so badly and decide to picket the project. The picketing draws the attention of the media. One contractor, Jim Jacob, Jordon’s brother, decides to blog a long diatribe against CCI. Among many other things, he calls the Company a fraud. This blog was picked up by the media.

The Board of Directors is now very much aware of the whole fiasco and comes to you for advice. They want your legal opinion on the following questions:


CASE THREE - MULTIPLE CHOICE (Part 2): 3 pts. Each (9 pts Total)

Instructions: Select the best answer from the choices given and give a two-to-three sentence explanation as to why you believe it is correct.

1. The board wants to know if they should try to negotiate an agreement with the Jacobs rather than be forced to pay for specific performance of Dirk’s Deal. You suggest the best answer is:

a. Yes, because courts like to use specific performance in land cases and they would get 1.92 million minus the $25,000 earnest money if they won.
b. Yes, because it is assured that under the doctrine of promissory estoppel they would be entitled to the money they would have gotten from the developer.
c. No, because specific performance is an equitable remedy and will not be applied in this case because there is a legal remedy available.
d. No, specific performance is only granted when the solution to the case involves something unique. The Jacobs want money not land.

2. CCI wants to avoid the Jacobs claim by disclaiming Dirk as an agent for CCI. Can this succeed?

a. Yes, they will succeed because Dirk clearly stated that he was buying the land for the new company, FAMUSA and therefore Dirk was FAMUSA’s agent.
b. Yes, they will succeed because CCI did nothing to create the appearance that Dirk was their agent.
c. No, they will not succeed because Dirk represented himself as a VP of CCI and issued a check on the CCI account creating an implied agency.
d. No, they will not succeed because FAMUSA was a project created for CCI’s benefit.

3. The Board members are furious with Dirk and want to press charges against him criminally for stealing the $750,000 from the FAMUSA account. If they file charges, do you think the prosecuting attorney will win the case?

a. No, because Dirk did not intend to steal the money as indicated by the notation on the check. It would create doubt in a jury’s mind.
b. No, because as a director of the company, he is authorized to sign and issue payroll checks, therefore the act was not a criminal one. It would create doubt in a jury’s mind.
c. Yes, because his doing all this in a secretive way would imply that he knew the money did not belong to him. This would be enough evidence to show general intent to steal beyond a shadow of a doubt.
d. Yes, because the secretive circumstance surrounding the issuance of the check, as well as the fact that no payroll checks of any kind were issued (either in the name of CCI or FAMUSA) will be enough evidence to prove a criminal act and intent to steal beyond a shadow of a doubt.


CASE THREE - SHORT ANSWER (Part 2): 6 points

Instructions: In six to eight sentences explain your answers to the following question.

1. The Board of Directors would like to sue Quick, Driven and Troll for breach of their fiduciary duty as directors of CCI. Will they be successful? Explain.



CASE THREE – ESSAY (Part 2): 10 points

Instructions: Frame a complete definition of the legal question asked and explain how the law applies to the facts. Suggested length is two to three paragraphs.

The CCI Board wants Jacob to stop the blog and get damages. What legal theory or theories can they use to bring suit against Jim Jacob? Include in your discussion the remedies that would be best suit the case as well. Does Jacob have any defense? Explain.

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    Darren Troll case
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