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dynamic business law

Business Law And The Legal Environment 9th Edition Jeffrey F Beatty, Susan S Samuelson - Solutions

. In Boston, 50 restaurants threatened to stop accepting the American Express credit card if the company refused to reduce the commission it charged on each purchase. Visa International, one of American Express’s rivals, offered to pay the group’s legal expenses. American Express then lowered
. YOU BE THE JUDGE WRITING PROBLEM American Academic Suppliers(AAS) and Beckley-Cardy (B-C) both sold educational supplies to schools. When B-C’s sales began to plummet, it responded by reducing its catalog prices. It also offered an additional discount in states in which AAS was making
. Businesses in Silicon Valley often struggle to recruit enough engineers and, as a result, salaries are highly competitive. Adobe, Apple, Google, Intel, Intuit, Pixar, Lucasfilm, and eBay entered into various agreements with each other not to recruit the other’s employees. Is this legal?
. It used to be that disposable contact lenses cost $169 a year. But then each of the five major manufacturers independently told retailers to charge at least $270 a year. Is this legal?
. After acquiring the Schick brand name and electric shaver assets, North American Phillips controlled 55 percent of the electric shaver industry in the United States.Remington, a competitor, claimed that the acquisition of such a large market share was a violation of the law because the increased
. Ahorizontal merger is automatically illegal if(a) the resulting company controls at least 90 percent of the market(b) the resulting company controls at least 50 percent of the market(c) the resulting company has the ability to exclude competitors(d) All of these
. All the first-run movie theaters in Houston, Texas, charge the same prices for tickets.If one cinema raises its prices, so do the others. What is this type of activity called, and is it a violation of the antitrust laws?(a) Refusal to deal; it is a rule of reason violation.(b) Conscious
. Reserve Supply Corp., a cooperative of 379 lumber dealers, charged that Owens-Corning Fiberglass Corp. violated the Robinson-Patman Act by selling at lower prices to Reserve’s competitors. It presented proof that these prices had harmed competition. Owens-Corning admitted that it had granted
. If Sterling Steel (SS) refused to buy concrete from Carat Concrete (CC) unless CC bought steel from SS, would that arrangement be a violation of antitrust laws?(a) Yes, a per se violation.(b) It used to be a violation but is no longer.(c) Yes, if it has an anticompetitive impact.(d) Yes, if SS
. Are horizontal price-fixing and vertical price-fixing pers e violations of the Sherman Act?(a)> Yes; Yes(b) Yes; No(c) No; Yes(d) No; No.
. Is regulation crowdfunding a good idea? Does it provide enough protection to investors?
. The SEC believes that anyone in possession of material, nonpublic information about a company should be required to disclose it before trading on the stock of that enterprise, no matter how they acquired the information. Instead, the courts have developed a more complex set of rules. Do you agree
. As we learned in Chapter 35, Kenneth Chenault reportedly left Facebook’s board after disagreements with Mark Zuckerberg over important issues such as how to handle disinformation on its site. Does this event create any legal requirements for Facebook?
. Federal security laws assume that, as long as the issuer provides adequate disclosure, investors are knowledgeable enough to assess the quality of a stock. Many states take a different approach—they refuse to permit the sale of securities that they deem to be of poor quality. Should securities
. Omnicare was a company that sold medication to nursing homes. When it made these sales, it often received rebates from drug companies. In its registration statement under the 1933 Act, the company stated that the rebates were legal. Ultimately, however, some states sued drug companies for making
. An employee in the credit card division of Last National Bank could tell by looking at credit card statements what restaurant chains were doing well. Then the stock of those companies would often go up. The employee began trading on this information, which he learned as part of his job. At the
. At an Alcoholics Anonymous meeting, a man told his mentor, Timothy McGee, that he had started drinking again because he was so stressed out about his company being acquired. McGee bought stock in that company. Has McGee done anything wrong legally? Ethically?
. ETHICS David Sokol worked at Berkshire Hathaway for legendary investor Warren Buffett, who is renowned not only for his investment skills but also for his ethics. Bankers suggested to both Sokol and the CEO of Lubrizol that the company might be a good buy for Berkshire. Sokol then found out that
. ETHICS Suppose that, while waiting in line at the grocery store, you overhear a stranger saying that the FDA is going to approve a new drug tomorrow—one that will be a huge success for Alpha Pharmaceuticals. Is it legal for you to buy stock in Alpha? Is it ethical? What would Kant and Mill say?
. Do you love ice cream? Here is an opportunity for you! For only $800, you can buy a cow from Berkshire Ice Cream. The company gets milk from the cow, and you get to share in the profits from the sale of the ice cream. Just last month, Berkshire mailed $32,000 worth of checks to investors, who are
. Fluor, an engineering and construction company, was awarded a $1 billion project to build a coal gasification plant in South Africa. Fluor signed an agreement with a South African client that prohibited them both from announcing the agreement until March 10. Accordingly, Fluor denied all rumors
. Three months ago, Noah bought stock under Rule 506 in TreesNFlowers, Inc. He has lost interest in the company and would like to sell the stock. Which of the following statements is true?(a) He can sell the stock now, so long as he sells it to an accredited investor.(b) He can sell the stock now,
. If a publicly traded company wishes to issue more public stock:I. The company will undertake an IPO II. The investors must receive a copy of the registration statement Ill. The investors must receive a copy of the prospectus IV. The underwriters are not liable for any errors in the registration
. Lily would like to raise money for her video game start-up by selling shares. If she decides to raise money through crowdfunding, she(a) can only sell to accredited investors(b) can sell up to $5 million in stock during each 12-month period(c) can sell through any website(d) must file a report
. CPA QUESTION Pace Corp. previously issued 300,000 shares of its common stock. The shares are now actively traded on a national securities exchange. The original offering was exempt from registration under the Securities Act of 1933.Pace has $2.5 million in assets and 425 unaccredited
. CPA QUESTION When a common stock offering requires registration under the Securities Act of 1933,(a) the registration statement is SECA effective when filed with the SEC(b) the issuer would act unlawfully if it were to sell the common stock without providing the investor with a prospectus(c) the
. In the Grisham case, the debtor had virtually no income but owed about $200,000 in debts that could not be discharged. What kind of fresh start is that? Should limits be placed on the total debt that cannot be discharged? Is the list of nondischargeable debts appropriate?
. A bankrupt who owns a house has the option of either paying the mortgage or losing his home. The court cannot reduce the amount owed; its choice is to discharge the entire debt or leave it whole. Congress considered a bill that would permit a bankruptcy judge to adjust the terms of mortgages to
. What about the rules regarding repeated bankruptcy filings? (See the chart in Exam Review.) Are these rules too onerous, too lenient, or just right?
. Some states permit debtors an unlimited exemption on their homes. Is it fair for bankrupts to be allowed to keep multimillion-dollar homes while their creditors remain unpaid? But other states allow as little as $5,000. Should bankrupts be thrown out on the street? What amount is fair?
. Look on the internet for your state’s rules on exempt property. Compared with other states and the federal government, is your state generous or stingy with exemptions? In considering a new bankruptcy statute, Congress struggled mightily over whether to permit state exemptions at all. Is it
. Terry and Kerry filed for divorce. Terry then filed for bankruptcy. What impact would the bankruptcy filing have on the divorce?
. ETHICS On November 5, Hawes, Inc., a small subcontractor, opened an account with Basic Corp.,a supplier of construction materials. Hawes promised to pay its bills within 30 days of purchase. Although Hawes purchased a substantial quantity of goods on credit from Basic, it made few payments on the
. After filing for bankruptcy, Yvonne Brown sought permission of the court to reaffirm a $6,000 debt to her credit union. The debt was unsecured, and she was under no obligation to pay it. The credit union had published the following notice in its newsletter:If you are thinking about filing
. Dr. Ibrahim Khan caused an automobile accident in which a fellow physician, Dr. Dolly Yusufji, became a quadriplegic. Khan signed a contract to support her for life. When he refused to make payments under the contract, she sued him and obtained a judgment for $1,205,400. Khan filed a Chapter 11
. YOU BE THE JUDGE WRITING PROBLEM To finance her education at DeVry Institute of Technology, Lydia borrowed $20,000 from a private lender.After graduation, she could not find a job in her field, so she went to work as a clerk at an annual salary of $12,500. Lydia and her daughter lived with her
. Mary Price went for a consultation about a surgical procedure to remove abdominal fat. When Robert Britton met with her, he wore a name tag that identified him as a doctor and was addressed as “doctor” by the nurse. Britton then examined Price, touching her stomach and showing her where the
. The Public Service Loan Forgiveness Program(a) applies to everyone who works in public-service jobs.(b) applies only to people who are in income-based repayment programs.(c) applies to debtors who make payments to the best of their ability.(d) allows forgiveness of any student loans.
. Grass Co. is in bankruptcy proceedings under Chapter 7. Who will serve as trustee?I. The debtor in possession II. A person appointed by the U.S. ‘Trustee Ill. The head of the creditors committee LV. The UiSyirustce V. A person elected by the creditors.(a) All of these individuals are eligible;
. Dale is in bankruptcy proceedings under Chapter 13. Which of the following statements is true?(a) His debtors must have filed an involuntary petition.(b) His unsecured creditors will be worse off than if he had filed under Chapter 7.(c) All of his debts are discharged as soon as the court
. CPA QUESTION Unger owes a total of $50,000 to eight unsecured creditors and one fully secured creditor. Quincy is one of the unsecured creditors and is owed$6,000. Quincy has filed a petition against Unger under the liquidation provisions of Chapter 7 of the federal Bankruptcy Code. Unger has
. CPA QUESTION Decal Corp. incurred substantial operating losses for the past~ three years. Unable to meet its current obligations, Decal filed a petition of reorganization under Chapter 11 of the federal Bankruptcy Code. Which of the following statements is correct?(a) A creditors’ committee, if
. CPA QUESTION A voluntary petition filed under the liquidation provisions of Chapter 7 of the federal Bankruptcy Code(a) is not available to a corporation unless it has previously filed a petition under the reorganization provisions of Chapter 11 of the Code(b) automatically stays collection
. Would the following initiatives improve corporate governance? Can you think of others that would?(a) Require the board of directors to implement shareholder proposals that receive a majority vote(b) Require proxy access(c) Prohibit boards from seating directors who fail to receive a majority vote
. Ina recent year, three individuals accounted for 70 percent of all shareholder proposals at Fortune 250 companies. Fewer than 10 percent of those proposals passed. These individuals typically own only a few hundred shares of each company. If, as firms estimate, the cost of including each proposal
. Shareholders at Citigroup offered a shareholder proposal that would require the bank to hold back a substantial percentage of its top executives’ pay for ten years.This sum could then be used to pay any fines or other liability arising out of illegal activities that take place on the
. For several years, CSK Auto fraudulently reported inflated earnings. During this period, Maynard Jenkins was CEO. He was not involved in the fraud, however, and was never charged with a crime. Nonetheless, the SEC sought to clawback some of his earnings during this period. Is Jenkins financially
. Corporate executives are not the only people to earn fabulous salaries. Some athletes earn even more than CEOs. What is the difference between athletes and executives (besides a hook shot)?
. When Comcast decided to hold a virtual annual shareholders meeting, an investor submitted a proposal that would have required the company to hold a hybrid meeting—that is, both in person and online. Must Comcast allow a vote on this proposal at its annual meeting?
. ETHICS After a recent annual meeting, Cisco Systems reported the results of the votes on both management and shareholder proposals. The company reported the results of its own proposals as a simple ratio of those in favor divided by the total number of votes cast. But for shareholder proposals,
. YOU BE THE JUDGE WRITING PROBLEM Two shareholders of Bruce Co., Harry and Yolanda Gilbert, were fighting management for control of the company.‘They asked for permission to inspect Bruce’s stockholder list so that they could either solicit support for their slate of directors at the upcoming
. DeVry Inc. runs for-profit schools. Its shareholders submitted a proposal that would require the company to “annually report to shareholders on the expected ability of students at Company-owned institutions to repay their student loans.”Must DeVry include this proposal in its proxy material
. William H. Sullivan, Jr., purchased all the voting shares of the New England Patriots Football Club, Inc. (the Old Patriots). He organized a new corporation called the New Patriots Football Club, Inc. The boards of directors of the two companies agreed to merge. After the merger, the nonvoting
. Pfizer Inc. paid $2.3 billion to settle civil and criminal charges alleging that it had illegally marketed 13 of its most important drugs. This settlement made history, but not in a good way. It was both the largest criminal fine and the largest settlement of civil healthcare fraud charges ever
. If directors and officers cause harm to their company, :(a) shareholders have the right to file suit against them and recover damages(b) shareholders have the right to file suit against them and recover damages only if the board permits the suit(c) shareholders have the right to file suit against
. By law, a candidate for the board of a publicly traded company must receive a(a) majority of the votes cast(b) majority vote of the shares outstanding(c) plurality of the votes cast(d) plurality of the shares outstanding
. A company is allowed to hold its annual meeting online(a) if a majority of its shareholders approve(b) if it also holds a live meeting for shareholders who want to attend in person(c) if it simulcasts a video of the meeting(d) without shareholder approval
. Companies are required to I. disclose the relationship between financial performance and executive compensation II. appoint a lead director to run the meetings of the independent directors III. establish a clawback policy IV. have an independent chair of the board(a) All of these(b) If and Il(c)
. A majority of shareholders at Weed, Inc., wanted to reinstate the former CEO of the company and sell off an unprofitable division. Do shareholders have the right to make these two decisions?(a) Yes to both.(b) No to both.(c) The shareholders have the right to sell off an unprofitable division,
. James owned Despatch Industries. When his son, Wade, and son-in-law, Alan, started working for the company, they both signed identical employment contracts, which provided for a severance payment if they left the company. After Wade and James had a falling-out, Wade resigned. The Despatch board
. An appraiser valued a subsidiary of Signal Co. at between $230 million and$260 million. Six months later, Burmah Oil offered to buy the subsidiary for$480 million, giving Signal only three days to respond. The board of directors accepted the offer without obtaining an updated valuation of the
. ETHICS Ronald O. Perelman, chairman of the board and CEO of Pantry Pride, met with his counterpart at Revlon, Michel C. Bergerac, to discuss a friendly.acquisition of Revlon by Pantry Pride. Revlon rebuffed Pantry Pride’s overtures, perhaps in part because Bergerac did not like Perelman. The
. Under Delaware law, corporations have the right to decide that the corporate opportunity doctrine does not apply to its managers. ‘Thousands of companies have done so. Why would a company do that? Should it? Does such a decision help or hurt shareholders?
. The United States is the only developed country that allows boards to adopt poison pills. Are they a good idea? Do they protect shareholders? Or do they entrench management? Should any investor be allowed to purchase the stock of any willing seller without having to jump through the poison pill
. Some companies adopt a classified board of directors as an antitakeover defense.How does a classified board affect cumulative voting?
. Wallace, Inc. adopted a poison pill. Five years later, Moore Corp. offered to buy all Wallace’s stock for $56 a share, which was 27 percent over the existing market price. However, the offer was contingent upon the Wallace board eliminating the poison pill. Wallace consulted with its investment
. Careless Inc. ran HIV/AIDS treatment clinics. Some of its employees violated federal law by paying kickbacks to doctors who referred patients to Careless facilities.The Careless employee in charge of preventing this kind of behavior failed to see some obvious problems. The board had never asked
. Congressional Airlines was highly profitable operating flights between Washington, D.C., and New York City. The directors approved a plan to offer flights from Washington to Boston. This decision turned out to be a major mistake, and the airline ultimately went bankrupt. Under what circumstances
. Rodney Platt was the vice chairman of the board of Mylan. He was also one of the owners of an office park that Mylan leased, making him Mylan’s landlord. How could Mylan comply with the business judgment rule in connection with this transaction?
. YOUBE THE JUDGE WRITING PROBLEM Asher and Stephen owned and worked for a corporation named “Ampersand” that produced plays. Stephen decided to write Phi//y’s Beat, focusing on the history of rock and roll in Philadelphia.As the play went into production, however, the two men quarreled.
. Oil Co. was a controlling shareholder of Pogo, a company that drilled for oil and gas in the Gulf of Mexico. When some additional leases became available, Oil Co.purchased all of them for itself. How could Oil Co. avoid liability?I.Il.III.(a)(b)(c)(d)(e)By first offering the leases to Pogo’s
. When Attack made an offer to acquire the stock of Fish, the Fish board welcomed the offer. Not so when Francis Co. also indicated an interest in Fish. In its negotiations with Francis, the Fish board of directors failed to reveal that Microsoft had offered to pay $450 million for Fish’s patent
. Under the Williams Act,(a)(b)(c)(d)if shareholders offer more stock than the bidder wants, it must purchase shares pro rata target companies must reveal the names of any shareholders who acquire more than 5 percent of its stock 4 bidder must file a disclosure statement at least 24 hours before
. The duty of care(a)(b)(c)(d)is not a requirement of the business judgment rule protects directors who make an uninformed decision if it was entirely fair to the company protects a decision that has a rational business purpose, even if the activity was illegal will not protect directors who make a
. If a manager engages in self-dealing, which of the following answers will zor protect her from a finding that she violated the business judgment rule?(a) A special committee of the disinterested members of the board approved the transaction.(b) The transaction was of minor importance to the
. Does a tenure voting system make sense? What are the pros and cons?
. ETHICS In the Bigmar case, the court clearly believed that the directors had lied on the witness stand. Should the directors have been charged with perjury? Did they do the right thing when they lied on the stand to protect their company from the evil Ms. May? What would Mill and Kant have said?
. When Facebook went public, its disclosure document read:As a board member and officer, Mr. Zuckerberg owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling
. Some companies have created multiple classes of common stock that enable the founders to control their company long after it goes public. Should corporate laws permit this? If the founders want to control a company, why shouldn’t they own enough regular stock to do so?
. Facebook’s charter has an exculpatory clause, which protects directors from liability unless they act in bad faith or they intentionally engage in wrongdoing. Is that a reasonable standard?
. As Shawe v. E/ting teaches us, a good shareholder agreement can prevent years of turmoil and litigation. If you were going to start a business, what provisions would you include in a shareholder agreement to avoid the type of all-out war that engulfed them?
. Auto sold used luxury vehicles. Steven owned 90 percent of Auto while his son, Joshua, was a 10 percent owner. Steven controlled Auto’s finances. While Steven generally maintained appropriate, separate corporate records, the address listed on Auto’s bank account was his personal address, not
. Suppose that a bank loaned money to Facebook at a time when both the bank and Mark Zuckerberg believed that the business had been incorporated, but they were wrong. It had not been. Could Zuckerberg refuse to pay back the loan on the grounds that it was invalid because it had been made to an
. Dickens, Inc., is a bookstore incorporated in Nevada. From its warehouse in Montana, it ships books to all 50 states. The company’s owner lives in New York, and its web designer lives in California. Where is Dickens a domestic corporation?Where must it qualify to do business?
. Michael incorporated Erin Homes, Inc., to manufacture mobile homes. He issued himself a stock certificate for 100 shares for which he made no payment. He and his wife served as officers and directors of the organization, but during the eight years of its existence, the corporation held only one
. Which of the following statements is/are true?I. Shareholders can amend the bylaws.II. Directors can amend the bylaws.III. Both shareholders and directors must approve any amendment to the bylaws.(a) Iand Il(b) II(cya(d) Il
, Participating preferred stockholders:(a) only receive payment after other preferred shareholders have been paid.(b) only receive payment after common shareholders have been paid.(c) are treated like both a preferred shareholder and a common shareholder.(d) receive all their payments before all
. CPA QUESTION A corporate stockholder is entitled to which of the following rights?(a) Elect officers(b) Receive annual dividends(c) Approve dissolution(d) Prevent corporate borrowing
. CPA QUESTION Destiny Manufacturing, Inc., is incorporated under the laws of Nevada. Its principal place of business is in California, and it has permanent sales offices in several other states. Under the circumstances, which of the following is correct?(a) California may validly demand that
. CPA QUESTION Generally, a corporation’s articles of incorporation must include all of the following except the:(a) name of the corporation’s registered agent.(b) name of each incorporator.(c) number of authorized shares.(d) quorum requirements.
. Is there any good reason to be in a partnership? If so, for what sort of business would it make sense?
, Lucan and Alison agreed to practice law together. Their stationery said, “The Lucan and Alison Partnership” and they told everyone they were partners. ‘They signed a partnership agreement providing that Lucan would receive a “guaranteed annual draw of $100,000.” The rest of the profits
. Carrie and Laura started a business together to sell bridesmaid dresses online.Carrie spent months preparing the financials and meeting with potential investors while Laura designed dresses and found suppliers. Once Carrie was finished with the financials and had identified some potential
. Dutch, Bill, and Heidi were equal partners in a lawn-care business. Bill and Heidi wanted to borrow money from the bank to buy more trucks and expand the business.Dutch was dead set against the idea. When the matter came to a vote, Bill and Heidi voted in favor, Dutch against. Dutch was so
. Mike Love and Brian Wilson were members of the Beach Boys. In the 1960s, they wrote songs together. The copyrights for these songs were later sold to Rondor, which paid the two men royalties when the songs were played. In 2004, Wilson re-recorded some of these songs on a CD called Good
. Four friends pooled their money to buy a small airplane because they enjoyed flying. Sometimes they flew separately, other times they went on vacation trips together. Abbi, who was one of the owners, heard that a boat was missing out on the Gulf of Mexico. She took a neighbor’s son Sam along
. Pedro and Juan have a business selling ties with fraternity insignia. Pedro finds out that an online shirt business is for sale. It sounds like a great idea—customers send in their measurements and get back a custom-made shirt at a price no higher than an off-the-rack shirt at the local
. When Michael Eagan married James Gory’s daughter Jennifer, the two men started a business flipping houses. Eagan found the houses and supervised their renovation. Gory provided the funds, purchased the houses in his name, and made all major decisions. He gave Eagan 50 percent of the net
. YOU BE THE JUDGE WRITING PROBLEM Herbert, an artist, entered into an agreement with Randy for the reproduction and distribution of his paintings.Herbert was to receive 50 percent of the gross sales revenues. Randy was responsible for all losses and for management of the business. Before leaving
. ETHICS Arthur, John, and George formed a partnership to drill and maintain cesspools for two years. After less than two months, John and George sent a letter to Arthur, informing him that they were dissolving the partnership. Arthur sued the two other men, asking the court to declare that the

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