The Mulvaneys purchased the SL&B Ice Cream store in May of 2014. They have operated the store

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Question:

The Mulvaneys purchased the SL&B Ice Cream store in May of 2014. They have operated the store successfully since that time. The store is located in a busy shopping center on Rockville Pike (Montgomery County, Maryland) which also houses a 10-screen movie theatre and a bowling alley. Tom Mulvaney also has a full-time job as a mail carrier. Maureen Mulvaney focuses her attention on the operation of Sweet Licks & Bites. The Mulvaneys originally purchased the store for $250,000 which included all of the furniture, fixtures, equipment, the name, & an assignment of the real estate lease. They obtained a loan of $200,000 at 3.5% amortized over 10 years with monthly payments of $1,978. As of November 2020, when they decided to put the store on the market for sale, they still owed $79,816 on the loan principle. In the six years since 2014, the Mulvaneys had seen a steady increase in their sales by increasing their hours of operations and adding additional offerings on their menu.

They advertised SL&B in local papers and engaged a business broker, Steven Singer to help them sell their business. They agreed to pay Mr. Singer 10% of the gross sales price for the successful sale of the business. All parties offered the business for sale at the price of $475,000.

In December 2020, Mr. Jones was looking for a business opportunity. He was referred to Mr. Singer. After reviewing several businesses with Mr. Singer, Jones indicated his interest in SL&B.

On December 15, 2020, Mr. Singer introduced Leonard Jones to the Mulvaneys. At the time Tom Mulvaney explained that because of the cash nature of the business, he maintained two ledgers for sales in the business. The first ledger included all of the sales of the business, including cash receipts. This ledger was maintained so that the Mulvaneys could actually track their sales. The second ledger only contained credit card receipts and some minimal cash receipts. This is the ledger that the Mulvaneys shared with their accountants and used in preparing their taxes. The Mulvaneys insisted that Leonard Jones use the first ledger as the basis for their offer on the business. Leonard reviewed all the available materials with Mr. Singer. He then prepared an offer to buy the business for $400,000. He would put a deposit down of $80,000, take over the existing loan, and the remainder of the purchase price would be held by the Mulvaneys as a note and purchase money chattel mortgage on the business in the amount of approximately $240,000 at 4% over 10 years. The Mulvaneys accepted the offer. As a part of the contract, the Mulvaneys agreed to work with the Jones for 6 weeks post-closing. Both parties were represented by counsel at the closing. Mr. Jones, only showed on the ledger with all of the receipts to the attorney representing him at closing. The sale was finalized at SL&B in Rockville, Maryland on February 1, 2021.

The store is located in Rockville Maryland which is in Montgomery County. Maryland, Leonard Jones lives in Annapolis Maryland which is in Anne Arundel County Maryland. The Mulvaneys live in Fairfax Virginia, which is located in Fairfax County Virginia.

The contract contained Seller and Buyer Warranties.

Seller Warranties:

The Seller has provided all of the records to the Buyer necessary for the Buyer to make an informed choice on the purchase of the business.

The Business is organized and duly incorporated under the laws of the state of Maryland.

Seller has the authority to sell the business

Seller has prepared accurately and timely filed all tax returns on behalf of the business.

Seller has provided Buyer with accurate payroll records of the business.

There has been no act or omission by the Seller which would give rise to a claim of any kind.

The Seller will not compete in a similar business to that being sold with the Buyer for a period of three years within the Washington, Maryland, Virginia area.

Buyer Warranties

The Buyer has the financial resources to complete the transaction.

The Buyer is satisfied with the documents presented and the representations made by the Seller with regard to the business.

Buyer acknowledges that they are experienced business operators and have a complete understanding of the operation of the SL&B.

The Buyers and Sellers closed on the sale of SL&B on February 1, 2021. By July 2021, Leonard Jones realized that not only wasn't he making the amount of money claimed under Ledger 1, he wasn't even making the amount of money claimed in ledger 2. At this time, Mr. Jones decided to stop making payments to the Mulvaneys on the purchase money chattel mortgage. Leonard Jones contacted P&G in September 2021 after they attempted to resolve the matter directly with the Mulvaneys. The Mulvaneys contacted the TLDT in September 2021 when they realized there was an issue and that the Mulvaneys were seeking legal counsel.

Background:

If you are on TLDT, Attorney Gonzalez has received an offer to settle the case from Attorney Piazza on behalf of Jones in the amount of $200,000 to be paid by the Mulvaneys to Jones; and the Mulvaneys must take over the operation of SL&B along with all existing debt. Attorney Gonzalez knows that if the jury finds that the Mulvaneys committed fraud, the amount of any compensatory damages may be trebled. This could lead to a million-dollar or more judgment against the Mulvaneys. Attorney Gonzalez estimates the cost of going to trial to be $75,000. The Mulvaneys have asked about their ability to file a discharge of the judgment. if obtained, by filing a Chapter 7 Petition in Bankruptcy Court.

If you are on TLDT, you are to evaluate all parts of the settlement offer made based upon the facts as presented and the law involved in the claims made by the Mulvaneys. The issue becomes what is the likelihood of success on the merits of the case? Also, you will need to research the fundamental rights of the Mulvaneys to file a Chapter 7 Bankruptcy if they are found liable for fraud and/or misrepresentation and have the judgment discharged? This will require you to research current Maryland case law on the issues of the case. These may include fraud, misrepresentation, and the right to recission. What is the impact of a possible judgment including punitive damages? You are to make a recommendation on the Settlement Offer based on the research you have done. Be sure to provide the rationale for the recommendation made.

Format:

TO: Robert Gonzalez Esq.

FROM: (your name), paralegal

RE: Leonard Jones and the Mulvaneys BOC - Evaluation of Settlement Offer

DATE:

Label each part:

Use proper Bluebook Citation, if needed.

Use correct, complete sentences.

Cite your sources, both assigned course materials and independent research, with full citations using Bluebook or APA 7 format.

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