FINAL EXAMINATION

Agency, Partnerships and LLCs

University of San Diego School of Law

Summer, 2005

PROFESSOR KLEINBERGER

General Instructions

This is an open book examination.  You may use the text, any additional materials distributed by the professor during the course (whether via email or in hard copy) 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 summer 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 contains seven questions worth in the aggregate 90 points.  Points are allocated as follows.  The bracketed numbers comprise a suggested time allocation.

Question A       5 points            [10 minutes]

Question B       5 points            [10 minutes]

Question C       10 points          [20 minutes]

Question D       10 points          [20 minutes]

Question E       20 points          [40 minutes]

Question F       20 points          [40 minutes]

Question G       20 points          [40 minutes]

The suggested time allocation: (i) is merely a suggestion, and (ii) was produced simply and mechanically by allocating time in proportion to the point allocation (90 points, 180 minutes, 2 minutes suggested per point).  Neither the point allocations nor the time suggestions necessarily imply anything about the appropriate length of any particular answer.

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, 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.)

Explain your conclusions.  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:

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.

Some of the questions are multipart, and a later part of a multipart question might direct you to assume some particular answer to an earlier part.  That direction does not imply anything about what the correct answer actually is for the earlier part of the question.

Applicable Law

Unless a question specifically states otherwise, assume that: (i) each partnership is an ordinary general partnership (i.e., not an LLP) governed by RUPA; and (ii) each limited liability company is organized under RULLCA, 2005 Annual Meeting version.

Question A [5 points]

Willie has a successful business manufacturing and selling chocolate.  He wants to acquire a secret recipe from Charlie, who insists on a large up-front payment, plus a 30% share of all revenues earned during the next five years from selling chocolate made with the recipe.  Willie agrees, but Charlie is concerned that he (Charlie) might be personally liable for any harm caused by any defectively manufactured chocolate distributed by Willie.

1. With specific reference to Charlie’s concern, does it make sense from Charlie’s perspective to formalize the Willie-Charlie arrangement as a limited liability partnership?

2.  If the arrangement were restructured so that Charlie’s share is 3% of all chocolate revenues for the next five years, would Charlie’s risk of personal liability for defectively manufactured chocolate increase, decrease, or remain the same?

Assume that any product defect would come exclusively from a manufacturing problem and not from any problem with the secret recipe.  Confine your analysis to concepts studied in this course.

Question B  [5 points]

Harry claims that he and Sally had an oral agreement under which: (i) the parties would form a partnership to develop and then sell a parcel of land; (ii) Harry would work fulltime supervising the development and would contribute $10,000 in cash; and (iii)Sally would contribute the parcel of land.  Sally denies any such agreement was ever made and, moreover, asserts that the alleged oral agreement is in conflict with the “land provision” of the statute of frauds.  Harry responds to the statute of frauds argument by stating, “That’s ridiculous.  An agreement to form a partnership is an agreement to create transferable interests, which are personal property.  Not real property.”  Who is right?

Question C  [10 points]

Ajax Laundry Service, LLC (“Ajax”) provided laundry service to Tim’s Taco and Sub Shop (“Shop”) for 15 months.  During each month, Ajax picked up dirty uniforms, towels and other items each Tuesday and returned them freshly laundered each Thursday.  Ajax billed at the end of each month.  After 15 months, Shop decided to find another provider and notified Ajax that “we no longer want the service.”

Ajax responded, “You signed a 3-year service contract with us.  You can’t get out now.” 

Shop rejoined, “We had no idea of any such 3-year term.  Your invoices don’t mention it.  They merely give a monthly charge.”

As proof of the 3-year contract, Ajax showed Shop an agreement form (calling for a 3-year term) signed on behalf of Shop as follows:

Tim’s Taco and Sub Shop,

by Tim Poulin

At the time Poulin signed the contract, he was an assistant manager, who had Shop’s permission only to schedule employee shifts, supervise employees in the workplace, and sign documents acknowledging deliveries.  He had no connection to the “Tim” in Shop’s name.

Is Shop bound to the 3-year contract?

            Question D  [10 points]

JB, LLC (“the LLC”) is a manager-managed limited liability company that manages apartment buildings.  Jeri is the manager of the LLC, as well as a member.  Bob is one of five non-managing members.  The LLC specializes in buildings that contain at least 50 units.  Strictly on his own, Bob decides to set up another limited liability company to offer management services for smaller buildings, having 12 or fewer apartments each.  Although the difference in size of building means that the two operations will involve some different skills and will have different target markets, there is a substantial overlap in the kinds of work both limited liability companies will do.  Also, some persons who own 50+ unit buildings also own buildings with 12 or fewer units.

1. Jeri learns of Bob’s new business and demands that he turn over any profits.  Is Bob obligated to do so?

2. Assuming that Bob is obligated to turn over the profits, are they owed to Jeri as manager, to the LLC, or to the members in the proportion that they share profits?

Question E  [20 points]

The partnership agreement of Diego Company states that the partnership “has a term of ten years unless sooner dissolved under applicable provisions of law.”  When it began, the partnership had seven partners.  Two years into the term, one partner died.  The funeral was held the next day.  The day after the funeral, another partner, Nadine, announced to the five other partners (“the other five partners”), “I’m done with this.  I’m out of here.  I quit.”

The following day, two of the other five partners signed a statement of dissociation concerning Nadine and asked her to sign as well.  She refused, saying, “I’ve changed my mind.”  Undeterred, the two partners filed the statement of dissociation, bearing only their signatures.  One month later, the other five partners met and two of five voted to dissolve the partnership.

1. Was the statement of dissociation valid and effective?

2. Is the partnership dissolved?

3. Assuming that the partnership is dissolved, may Nadine participate in winding up?

Question F  [20 points]

Drake, LLC (“Drake”) is a manager-managed limited liability company that repairs sailing vessels.  More than 90 days ago, Drake delivered to the appropriate public authority a properly completed and signed statement of authority that states, “No member of this limited liability company who is not also a manager may bind this company to any contract or in any other way commit this company to any obligation.”  More than 90 days ago, the public official duly filed Drake’s statement.

This morning, Francis, a non-manager member of Drake, placed a telephone call to Drake’s regular supplier of canvas and, purporting to act on Drake’s behalf, ordered 500 yards of canvas for a Friday delivery.  The supplier accepted the order.  When Elizabeth, Drake’s manager, learned of the order she immediately telephoned the supplier and repudiated the order.  She explained that Francis – though trying to be helpful – had no authority to make any commitment for Drake and that the lack of authority is documented in a filed statement of authority.

The supplier responded (truthfully) that:

Is Drake bound to the order?

Question G  [20 points]

Double Circle LLC (“Double Circle”) is a manager-managed limited liability company, with two members:  Square Peg, LLP (“Square Peg”), which owns a 35% profits interest in Double Circle, and Big Deal, LLC (“Big Deal”), which owns the other 65%.  Big Deal is the manager of Double Circle.  It has assigned to one of its employees, Charlene, the tasks that comprise Big Deal’s duties as manager of Double Circle.  Double Circle’s business includes the delivery of propane tanks, and a tragic accident has resulted in a tort lawsuit, asserting that Charlene’s negligence caused the accident.  The lawsuit seeks recovery not only from Charlene but also from Big Deal, Square Peg, Double Circle, the members of Double Circle and the partners in Square Peg.  Assume that Charlene was negligent and that her negligence proximately caused the accident and resulting damages.

1. Can Charlene avoid personal liability by proving that she was acting in good faith on behalf of her employer?

2. Determine whether each of the other defendants is liable.

End of Examination

Under the “land provision” of the statute of frauds, a promise or agreement to transfer an interest in realty is unenforceable unless evidenced in a writing signed by the party against whom enforcement is sought.