Before beginning work on this week’s discussion forum, please review the link “Doing Discussion Questions Right,” the expanded grading rubric for the forum, and any specific instructions for this week’s topic.
By the due date assigned, submit your answers to this Discussion Area. Post the assignment directly in the discussion thread and label the answers with the appropriate scenario number. Do not copy the scenarios into the thread with the answers. Start reviewing and responding to your classmates as early in the week as possible. You should review and critique the work of other students, as outlined in the rubric, by the end of the week.
Select two of the scenarios listed below and explain the best solution for each. Include comments related to any ethical issues that arise. Support your responses with appropriate cases, laws and other relevant examples by using at least one scholarly source from the SUO Library in addition to your textbook for each scenario.
Scenario I – Business Organizations
Yolanda, Ginny, and Sara met while working for the Campus Subs in Knoxville, Tennessee. Yolanda was attending college to earn a business degree in hospitality. Ginny was attending culinary school to become a chef, and Sara was a recent graduate in sales and marketing. The three ladies decided to open their own soup and sandwich restaurant on wheels, also known as a food truck. They planned to start small with one truck but had big dreams to own a whole fleet of trucks that served a variety of foods.
Yolanda took a business law class and remembers there are several forms for organizing businesses. The ladies have come to you for advice about the various forms of business organizations.
- Evaluate three forms of business organizations including advantages and disadvantages related to the business the ladies plan to operate. At least one of the options must be the LLC or LLP.
- Select a business form for the friends and defend your choice.
- Explain the requirements for starting that form of business in your state.
Scenario 2—LLC Liability
Plaintiffs Karl and Ginny Drake were injured by lead paint while living in a house owned by Riverwood Homes, LLC. The plaintiffs sued Bill Ding, a member of the LLC at the time it owned the property, alleging that he was liable for their injuries. Ding had limited involvement with the property. He has never visited the property, and neither he nor the LLC was aware that the plaintiffs were occupying the property until after the LLC acquired it. Once they realized this fact, they took legal action to have the plaintiffs removed. The applicable housing code imposes liability on any individual who “owns, holds, or controls” the title to the property.
- Is Ding liable for the plaintiffs’ injuries?
- What are the policy arguments in favor of both parties?
Scenario 3—Securities
In 2010, after working at Regions Bank for 6 years, Noah Lott helped found Nova Capital Corporation, a venture capital firm that invested in the technology sectors. NCC went public in 2012, and Lott served as its CEO and chairman of the board. Various documents filed with the SEC stated that Lott “earned his MBA in finance from Harvard University and an undergraduate degree in management.” In fact, he attended Harvard for only year and did not graduate. After being pressured by a journalist, Lott disclosed the misrepresentation to the NCC board. The same day, the company issued a press release correcting the statement.
The press responded negatively to “another CEO that lied about his resume” and speculated about “what else might not be right.” On the day the press release was issued, NCC’s stock price dropped from $33.58 per share to $26.40, but it fully recovered within a six weeks.
Shareholders sued, alleging that the misrepresentation violated section 11 of the 1933 Act, section 10(b) of the 1934 Act, and Rule 10b-5.
- Was Lott’s lie about having a college degree material?
- Would your answer be the same if a CEO lied about having helped to take a company through an initial public offering and subsequent acquisition by another company and having led a pharmaceutical company from incorporation through human clinical trials and launch of a new drug?
- If you were a member of the NCC board, would you be comfortable keeping Lott as CEO once you learned that he had lied about having a college degree?
Scenario 4 – Bankruptcy and Secured Transactions
Coastal Property Restoration (CPR) periodically purchased used restaurant equipment from Slyce Pizza Company. CPR refurbishes and sells restaurant equipment to small restaurants. In December 2015, CPR purchased five used pizza ovens for $25,000. Because of the good relationship between the companies, Slyce financed the ovens for two years; however, Slyce did not obtain a perfected security interest in the ovens. In July 2016, CPR sold four of the ovens to another refurbishing company for $2,000 two days before filing bankruptcy. CPR still owes approximately $20,000 to Slyce for the ovens.
Evaluate the legal and ethical issues associated with CPR’s sale of the pizza ovens before filing bankruptcy. What recourse does Slyce have in recovering the monies still owed on the equipment or the remaining oven