EXAMINATION

AGENCY, PARTNERSHIPS, AND LLCs (APLLC)

FALL, 2006

PROFESSOR KLEINBERGER

Instructions

This is an open book examination.  You may use the casebook, any additional materials distributed by the professor during the semester (whether on Blackboard or in hard copy), and any notes, flowcharts, outlines, and other materials you have created in studying for the course or the exam.  You may use materials created by a group of students enrolled in this course this semester before the exam if you played a substantial role in the development of the group materials.  Except for the casebook and excerpts from commercial materials distributed by the professor, you may not use any commercial works.  Except as stated in the second and third sentences of this paragraph, you may not use any materials prepared by others.

You may use a laptop and other computer to write the exam and to access during the exam materials permitted under paragraph 1 of these instructions.  SecurExam software will not be used on this exam.  It would be a good idea to set your “autosave” function to the shortest time period.

A student using a laptop or other computer: (i) is responsible for making certain not to access any prohibited material during the exam (which includes, of course, not communicating with others during the exam); (ii) assumes all risk for any loss of data or any other mishap or malfunction connected with the use of the laptop or computer; and (iii) must by the end of the time allotted for the exam save the exam answer to the hard drive and send an email, with the exam as an attachment: to:  jane.andrews@wmitchell.edu subject line:  KLEINBERGER  EXAM # with a copy to the sender

This examination lasts three hours and contains six questions.  Each question has subparts.

Each of the six questions is accompanied by a suggested time allocation, which roughly corresponds to the relative weight of the question for grading purposes.  The suggestions are not straightjackets.  However, for example, it would be imprudent to spend 45 minutes answering a question recommended for 15 minutes, leaving only 15 minutes for a question recommended for 45 minutes.  The suggested allocations are:

Part One

Question A       10 minutes

Question B       35 minutes

Question C       45 minutes

Question D       40 minutes

Question E       35 minutes

Question F       15 minutes

Please keep in mind that “spotting 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 stating and 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 “treatise” on some area of law that 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. Cite all the way “down” to whatever sub-provision applies.  For example, a cite to MADE-UP STAT. § 101 does not warrant full credit if the applicable language appears in MADE-UP STAT. § 101(a).  Likewise, a cite to MADE-UP STAT. § 101(a) does not warrant full credit if the applicable language appears in MADE-UP STAT. § 101(a)(1).  Citation form does not matter, so long as the meaning of the cite is clear.  Remember – where a statute is relevant, citation to the statute is necessary but not sufficient.  You must still state the relevant points of law.

There is no need to cite case names or sections of the Restatements.  If doing so helps you, feel free to do so.  Do not, however, use case names or Restatement captions as a substitute for stating the law.

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

The grading rewards coherence.  It will probably be worth your while to take some time to think about the organization of each answer before you begin writing that answer.  Ask yourself: whether you have identified all the necessary parts of your analysis; whether all the issues you have identified are actually necessary; and whether your answer allocates the most space and attention to the issues that warrant the most analysis.

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.

Unless a question states otherwise, apply RUPA to issues relating to the law of general partnerships (including LLPs) and Re-ULLCA to issues relating to the law of limited liability companies.  In applying RUPA, assume that Section 302 does not exist.  (We have not studied it, and it does not mean what you might think it means.)

Budget your time.   BUDGET YOUR TIME.  BUDGET YOUR TIME.

Question A

(10 minutes)

            The Dread Pirate Roberts (DPR) decides to include the Future Man in Black (FMB) into the pirate business owned by DPR.  At which, if any, of the following points are DPR and FMB partners?  (Take the following points as cumulative – e.g., as of point 3, the facts stated in points 1, 2, and 3 are all true.)

DPR ceases saying each night, “Nice job, FMB.  I’ll probably kill you in the morning.” DPR ceases using FMB as a cabin boy (like a janitor) and promotes him to first mate. After a very successful escapade, DPR allots FMB 15% of the loot captured in that escapade . . . . . . and all future escapades. DPR relies increasingly on FMB’s advice and judgment and makes it known to the crew that “FMB and I pretty much co-run this ship and any of you who don’t like that can have a talk with the fish.” DPR “pensions off” the crew.  When a new crew is recruited, DPR pretends to be merely the first mate and allows FMB to pretend to be the owner of the pirate business.  FMB’s share of the “spoils” remains at 15% for the ensuing voyage. After the ensuing voyage and before the next voyage, DPR sells the business to FMB for 30% of all profits made during the next ten years.  DPR leaves the ship, never to return.

Question B

(35 minutes)

The Re-ULLCA provision on charging orders is Section 503, which was not part of the assigned reading.  The RUPA charging order provision was, and Re-ULLCA §503 is drawn from the RUPA provision.  Use the Re-ULLCA provision to answer these questions.  (This instruction should not be taken to mean that Re-ULLCA §503 is necessarily the only relevant statute.)

            The operating agreement of a limited liability company provides that:

“this agreement may be amended at any time by the consent of members owning a majority of the interests in current profits owned by persons who are members”  “any person who ceases to be a member for any reason shall become a mere transferee of the person’s economic rights and shall have no further status as a member” “any member who no longer owns any interest in profits is automatically dissociated as a member”

Under the operating agreement:

In calculating the consent needed to amend the operating agreement, should the profits interests of a member subject to a charging order be counted? At which, if any, of the following points is a person dissociated as a member?  (Take the following points as cumulative – e.g., as of point c, the facts stated in points a, b, and c are all true.) The person becomes a judgment debtor.  The judgment is very large. The judgment creditor obtains a charging order and serves the order on the limited liability company. In the year following the service of the charging order (Year1), the limited liability company makes substantial distributions.  Of the distributions that would otherwise have gone to the member, the judgment creditor receives all.  The member receives nothing. In the next year (Year 2), the distribution scenario is essentially the same as in the previous year. In the year after that (Year 3), the distribution scenario is essentially the same as in the previous year. In the year after that (Year 4), the distribution scenario is essentially the same as in the previous year. In December of the year after that (Year 5), the court orders foreclosure, and the sale is scheduled for the following January. In the following January, the sale takes place. The next day the limited liability company has notice of the transfer of the transferable interest from the member to the purchaser at the foreclosure sale. Assume that, after a person is dissociated as a member, all the remaining members consent to amend the operating agreement to state:  “No member of this member-managed limited liability company owes any fiduciary duties as a member to any former member or transferee of a member.” Is the amendment effective as to the already-dissociated member? Assuming the amendment is effective, does it change anything?

Question C

(45 minutes)

            In the Ian Fleming novels about James Bond (a/k/a 007), Bond is “licensed to kill.”  That is, his employer (“the agency”) has authorized him to use his sound discretion in deciding whether to “terminate persons with extreme prejudice” (i.e., kill them).  On a particular mission (“the mission”) under “deep cover,” Bond is instructed to achieve a

particular goal:

“on whatever basis and using whatever means you judge necessary” traveling  incognito (i.e., without disclosing his true identity or the agency for which he works) while maintaining “radio silence” (i.e., no communication with the home office) except in the case of extreme urgency, as determined by Bond in his sole discretion; and for checking in daily for a signal that, if given, means that Bond is to immediately cancel the mission and return to the home office

1. During the mission, Bond orders multiple vodka martinis at a swank restaurant while talking to a “person of interest” to Bond’s mission.  Exigency arises, and Bond leaves suddenly and without paying.  (Treat the following subparts as separate situations – i.e., the facts in one subpart do not apply to the other subparts.)

a. If the restaurant later discovers that Bond works for the agency, may the restaurant collect from the agency for Bond’s unpaid bill?

b. If the restaurant later contacts Bond and asks him to pay the bill, may Bond properly decline to pay while referring the restaurant to the agency?

c. If Bond does pay the bill, is the agency responsible for reimbursing Bond?

2. During the mission, Bond has many adventures. During one adventure, while chasing a villain, Bond vigorously pushes an uninvolved individual out of the way.  The push is instrumental in allowing Bond to catch the villain.  Assume that the push constitutes a battery under applicable law.

a. Is Bond liable to the individual for the battery?

b. Is the agency responsible for Bond’s costs of defense and any judgment the individual obtains against Bond?

c. Is the agency liable to the individual?

d. Would your answer to question 2-c change if pushing the individual were accidental rather than intentional?

Question D

(40 minutes)

            Shrek and Donkey form a limited liability partnership, which they name Onion-Parfait Company, LLP (“OPC”), to develop certain lands located in a swamp.  They plan to buy individual parcels of land, build a house on each purchased parcel, and then sell each parcel-with-house to a customer. Shrek contributes a house and land valued at $40,000.  Donkey makes no contribution of money or other assets.  As part of their agreement, Shrek and Donkey agree to proceed conservatively and, in particular, never to buy a parcel of land without having first arranged to have a customer committed to buy the land upon completion of a house.

            For the first three parcels acquired, built on, and sold, things go fine.  Shrek and Donkey do all the work.  For the next parcel acquired, Shrek and Donkey agree to hire The Three Little Pigs Company, LLC (“the Company”) to do the building.  The contract contains plans and specifications but leaves to the Company all responsibility for doing the work.  The contract is in writing, and the writing has the following signature block:

                        Owner                                      Construction Company

                        Shrek*                                  The Three Little Pigs Company, LLC

                        Donkey*                              by  Big Pig,* Construction Manager

                                                            *This font indicates a signature

Is OPC bound to the contract? Are Shrek and Donkey each personally liable on the contract? During the construction, a full-time employee of the Company negligently drops a load of straw, sticks, and bricks, and, as a foreseeable result, a passerby, I.M. Wolfe, is injured. Is the employee liable to Wolfe? Is the Company liable to Wolfe? Is OPC liable to Wolfe? Is Shrek liable to Wolfe?

Question E

(35 minutes)

            While the construction project described in Question D is underway (and with the facts stated in Question D also applicable here), Donkey discovers what he believes to be a “once in a lifetime” deal on a parcel at the far end of the swamp.  Lacking the ability to consult with Shrek and fearful of losing the opportunity, Donkey purports to purchase the parcel on behalf of OPC.  He signs the purchase agreement “Onion-Parfait Company, LLP, by Donkey a general partner.”

Is OPC bound to the contract? Is Donkey liable to the seller in connection with the contract? If OPC sustains losses or expenses in connection with the contract, under RUPA § 405 may Shrek sue Donkey directly or is a derivate claim necessary? what, if any, is the relevance to the merits of the claim (i.e., leaving aside the direct/derivative question) of the following assertion by Donkey?

“I acted in good faith and for the best interests of the partnership.”

Question F

(15 points)

            Suppose that instead of purchasing the parcel described in Question E for the partnership, Donkey had purchased the parcel for himself.  Would that purchase breach any of Donkey’s duties?  Are any aspects of the partnership agreement arguably relevant to this question?

End of Exam

Have a great break.

No connection to Prof. Roberts is intended, and none should be inferred.

Not that it matters one iota to this exam, but The Princess Bride used the name “man in black” decades before Will Smith and Tommy Lee Jones became the Men in Black.

Yes, I know.  Piracy is against public policy.  Assume that it is not.