Question

Angela, Yoko, Cherise, and Serena want to start a new business that designs and manufactures toys for children. At a meeting in which the owners want to decide what type of legal form to use to operate the business, Cherise states:
We should use a limited liability company to operate our business because this form of business provides us, the owners, with a limited liability shield, which means that if the business gets sued and loses, we the owners are not personally liable to the injured party except up to our capital contribution in the business.
The others agree and form a limited liability company called Fuzzy Toys, LLC, to conduct the member managed business. Each of the four owners contributes $ 50,000 as her capital contribution to the LLC. Fuzzy Toys, LLC, purchases $ 800,000 of liability insurance from Allied Insurance Company and starts business. Fuzzy Toys, LLC, designs and produces “ Heidi,” a new toy doll and female action figure. The new toy doll is an instant success, and Fuzzy Toys, LLC, produces and sells millions of these female action figures. After a few months, however, the LLC starts getting complaints that one of the parts of the female action figure is breaking off quite regularly, and some children are swallowing the part. The concerned member managers of Fuzzy Toys, LLC, issue an immediate recall of the female action figure, but before all of the dolls are returned for a refund, Catherine, a seven year old child, swallows the toy’s part and is severely injured. Catherine, through her mother, sues Fuzzy Toys, LLC; Allied Insurance Company; Angela; Yoko; Cherise; and Serena to recover damages for product liability. At the time of suit, Fuzzy Toys, LLC, has $ 200,000 of assets. The jury awards Catherine $ 10 million for her injuries. Who is liable to Catherine and for how much? How much does Catherine recover? Did Angela, Yoko, Cherise, and Serena act ethically in setting up their toy business as an LLC? Explain.


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  • CreatedAugust 12, 2015
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