FINAL EXAMINATION

BUSINESS ORGANIZATIONS

SPRING, 2002

PROFESSOR KLEINBERGER

 

General Instructions

 

This is an open book examination.  You may use the agency and partnership book, the assigned photocopied materials and photocopied problems, any additional photocopied materials distributed by the professor during the semester, and any notes you have made or developed in studying for the course or the exam.  You may use outlines or other notes developed by a group of students enrolled in this course this semester if you played a substantial role in the development of the group outline or notes.  Except as stated in the second and third sentences of this paragraph, you may not use treatises, hornbooks, commercial outlines, other commercial works or any other materials prepared by others.

 

This examination lasts three hours and has two parts.  Part One consists of four separate scenarios, each based on a separate fact pattern and each requiring a relatively short answer or answers.  Each scenario in Part One is worth the same as each other scenario in Part One.

 

Part Two consists of a more elaborate fact pattern and has several questions pertaining to that pattern.

 

Part One is worth 40% of the exam grade.  Part Two is worth 60% of the exam grade.

 

Please keep in mind that Aspotting issues@ is only the first step in doing a legal analysis.  You must also take the issues you identify and organize them into a coherent structure.  Then, within that structure, you must examine those issues (by applying the law you see as relevant to the facts you see as relevant) and argue for some conclusion.

 

Please do not write about subjects that are not germane to your analysis.  Writing a Atreatise@ on some area of law which the question does not put in issue wastes your time and conveys the unfortunate impression that you do not understand which issues are relevant.

 

To the extent that your analysis involves a particular statutory provision, you MUST cite that provision.  Do not, however, use citations as a substitute for stating the law.

 

If your analysis involves the construction (as distinguished from mere application) of a particular word, phrase or provision, it may make sense to quote that word, phrase or provision.  Otherwise, do not waste your time quoting a statute at length.  (On the other hand, if you can quote a piece of a statute faster than you can paraphrase it, feel free to do so.)

 

There is no need to cite case names.  If citing case names helps you, feel free to do so.  Do not, however, use case names as a substitute for stating the law.

The grading rewards coherence.  It will probably be worth your while to take some time to think about the organization of your answer before you begin writing.  Ask yourself:

 

$          whether you have identified all the necessary parts to your analysis;

 

$          whether all the issues you have identified are actually necessary; and

 

$          whether you have organized your issues in a way that is likely to make sense to your reader.

 

 

 

Please write legibly.  Please write on only one side of each page.  If legibility is not your strong point, please skip every other line as you write.

 

 

 

Budget your time.

 

BUDGET YOUR TIME.

 

BUDGET YOUR TIME.

 

BUDGET YOUR  TIME.

Applicable Law

 

Unless a problem specifically indicates to the contrary:

 

1.         Any reference to a partnership means an ordinary general partnership B i.e., not a limited liability partnership.

 

2.         General partnerships are governed by the Revised Uniform Partnership Act (ARUPA@).

 

3.         Corporations are organized under the law of a state (AState@) that has adopted the Revised Model Business Corporation Act, except as to derivative lawsuits,  the special law applicable within close corporations, and the duties of directors.

 

a.         As to derivative lawsuits, State slavishly follows Delaware law.

 

b.                  As to the special law applicable within close corporations:

 

i. the following sections of Minnesota Statutes apply:  302A.455, 302A.457 and those portions of 302A.751 contained in the photocopied materials;

 

ii. the courts of State apply ' 302A.751 in light of the case law assigned in this course.

 

c.         As to the duties of directors, 302A.255 (1992 version; Photocopied Materials, at 97) applies; otherwise, except as to close corporations, State slavishly follows Delaware law.

 

Mention here of these particular statutes does not necessarily mean that they will be relevant to any of your answers.

Part One

 

A.  A corporation has a board of directors with seven members.  At a recent special meeting of the board, six directors participated and unanimously approved a particular resolution (Athe resolution@).  The corporation subsequently discovered that the seventh director had not received notice of the meeting.  That director has no problems with the resolution, but a shareholder is asserting that the meeting was invalid and therefore the resolution is invalid.  The board could of course re-convene and re-adopt the resolution, but for reasons irrelevant to this question it is essential that the resolution be effective as of the date of the meeting.

 

1.  Does the failure to give notice to the seventh director call into question the validity of the board meeting?

 

2.  Assuming the answer to Question A-1 is yes,[1] how, if at all, can the corporation solve the problem?

 

 

B. A customer drives into a bank=s parking lot and notices broken glass in one of the parking spaces.  The customer avoids that space, parks her car and enters the bank.  As she conducts her business with one of the bank=s tellers, she mentions to the teller the glass problem.  The teller responds, AOkay, sure.  Thanks, we=ll take care of it.@  (There are several bank officers seated at their respective desks in the lobby of the bank, and the customer knows each of them at least by sight from previous dealings in the bank.  However, she sees no need to mention the glass to any of the officers.)

 

The customer finishes her business with the bank and leaves the building.  The teller promptly forgets about the glass and neglects to tell anyone.  A few hours later, another customer drives into the bank=s parking lot, does not see the glass and ruins two new tires.

 

Assume that under applicable tort law the bank is liable for the ruined tires only if the bank knew or had reason to know of the glass in the parking lot.  Assume also that a bank employee checks the parking lot for debris each morning and that the glass involved in this matter was not present when the employee did his morning check.  Is the bank liable for the ruined tires?

 

 

C.  Minn. Stat. ' 302A.445, subd. 1 states:

 

The board [of directors] may fix, or authorize an officer to fix, a date not more than 60 days, or a shorter time period provided in the articles or bylaws, before the date of a meeting of shareholders as the date for the determination of the holders of shares entitled to notice of and entitled to vote at the meeting.  When a date is so fixed, only shareholders on that date are entitled to notice of and permitted to vote at that meeting of shareholders.

 

Such provisions are colloquially called Arecord date@ provisions.

 

1.  If the articles of a Minnesota corporation so provide, may the board establish a record date 75 days in front of a shareholder meeting?

 

2.  A corporation validly establishes March 15 as the record date for a shareholder meeting to be held on April 10.  On March 20 a shareholder (ASeller@) sells its shares to a person (ABuyer@) not previously a shareholder in the corporation.  Who, if anyone, has the right to vote at the April 10 meeting the shares sold by Seller and purchased by Buyer?

 

 

D. HomeTown, Inc., and MegaHuge, Inc. are both publicly traded corporations.  MegaHuge approaches HomeTown and initiates discussions about a possible merger, with HomeTown to merge into MegaHuge.  Eventually, MegaHuge offers an all-cash merger which would provide HomeTown=s shareholders a very significant premium.  HomeTown=s own investment bankers tell HomeTown=s board of directors, AThis offer is at the top of the range you could expect anytime in the next five years.@   HomeTown=s board decides to reject the offer and triggers a series of poison pills which effectively prevent MegaHuge from proceeding with a hostile takeover.  The board issues a press release that states, AAlthough we are gratified that MegaHuge=s unsolicited offer indicates the high value our shareholders enjoy, this company is not for sale for the foreseeable future.@

 

1.         If a court is called upon to evaluate the conduct of HomeTown=s board, will the court use the Revlon standard or the Unocal standard?  (For the purposes of this question D-1, do not concern yourself with actually applying the standard.)

 

2.         Suppose that HomeTown=s board rejected the offer principally because MegaHuge refused to agree to a two year Ano layoff@ pledge for HomeTown employees.  Would that rejection and rationale be consistent with the board=s duties?  (Do not concern yourself with possible remedies.)

 

End of Part One

 

 

 

Part Two

 

In 2001, I.M. Disgruntled (ADisgruntled@) retained the law firm of Horse, Cat & Dog (AHCD@) to do some legal work for her.  The firm was a general partnership located in a state which has not adopted RUPA, so except as otherwise stated below the firm is governed by the original Uniform Partnership Act (i.e., not RUPA).

 

At the time Disgruntled engaged HCD and throughout the time HCD did work for her, HCD had 12 partners and was not a limited liability partnership.

 

At the end of 2001, HCD presented Disgruntled with a final bill for $7,000.  Disgruntled was more than disgruntled; she was irate.  She refused to pay the bill.  Subsequently, HCD sued her in Conciliation (i.e. small claims) Court.

 

HCD sent one of its associates (AAssociates@)[2] to the Conciliation Court hearing.  On the steps of the courthouse, Disgruntled and HCD settled their dispute, on the basis of the following agreement written hurriedly by Associate and signed by Associate on behalf of the firm and Disgruntled: AThe firm of Horse, Cat & Dog and Disgruntled hereby release each other from all claims of any sort whatsoever, conditioned only on Disgruntled making final payment of $2000.@  Disgruntled made the $2000 payment the next day.

 

This year Disgruntled discovered that HCD had committed serious and damaging malpractice while representing her.

 

 

A.                 Assume that the release quoted above is effective to protect HCD.  Disgruntled wants to sue Mal-1 and Mal-2, the two HCD partners who mishandled her work.  Does the release protect them?

 

 

B.                 Suppose that just before Associate left for the Conciliation Court hearing, HCD=s managing partner gave Associate these words of instruction: AJust try the case.  If we lose, we=ll appeal.  We get a trial de novo anyway.  You can settle, but only for $6,000 or more.  We=ll give Disgruntled a token, but nothing more.  I don=t want it to look like we admit to overcharging.@  Is the release signed by Associate binding on HCD?  [The facts stated in this Question B do not apply to any other question in Part Two.]

 

 

C.                 Assume that:

 

1.                  the release when signed was effective to protect HCD,

 

2.                  the release does not protect Mal-1 and Mal-2,[3]

 

3.                  a month after the release was signed:

 

a.                   a partner (not Mal-1 or Mal-2) left HCD,

 

b.                  a new partner joined HCD, and

 

c.                   HCD continued operating in the same location, without liquidation and under the same name.

 

Does the release still protect HCD?

 

 

D.                 Same assumptions as in Question C, plus assume the release does not still protect HCD.[4]  Is the new partner at risk of personal liability in connection with Disgruntled=s malpractice claims?

 

 

E.                  Suppose that the state in which HCD is located adopts RUPA and, effective one week before the Conciliation Court hearing, permits existing general partnerships to immediately opt in to coverage under RUPA.  (At this point, there is no release in existence.)

 

1.                  Would it help the partners of HCD other than Mal-1 and Mal-2 to have HCD to opt in to RUPA and then become an LLP before the hearing?

 

2.                  Assume that having HCD opt in to RUPA and becoming an LLP before the hearing would help the partners of HCD other than Mal-1 and Mal-2,[5] would doing so also help:

 

a.                   Mal-1 and Mal-2?

 

b.                  HCD itself?

 

 

 

End of Part Two

End of Spring 2002 Exam

 


[1]This assumption does not imply anything about the correct analysis for Question A-1.

[2]As the term Aassociate@ indicates, Associate was a lawyer employee of HCD, not a partner.

[3]This assumption does not imply anything about the correct analysis for Question A.

[4]This assumption does not imply anything about the correct analysis for Question C.

[5]This assumption does not imply anything about the correct analysis for Question E-1.