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CORPORATIONS
Professor Bradford
December 6, 2003
9:00 a.m.
3 Hours and 30 Minutes
(5 additional minutes for those downloading the exam)
INSTRUCTIONS
(You have already been given a copy of these instructions and you should have already
read them. No additional time is allotted for reading the instructions again.)
General Instructions for Everyone
1. This is a partially open book exam. You may use the Epstein casebook, the
Bradford & Ames book, the statutory supplement required for this course, and any
materials, such as notes or outlines, prepared exclusively by you. You may not use any
other materials and you may not consult with or communicate with any other person
during this exam.
2. This exam has ten (10) pages, including the instructions. The page numbers
appear on the top right-hand corner of each page. Please check to be sure that this copy
has all the pages.
3. The exam consists of five (5) questions. The recommended time for each
question is as follows:
Question 1………………..35 Minutes
Question 2………………..55 Minutes
Question 3………………..25 Minutes
Question 4………………..40 Minutes
Question 5………….…….45 Minutes
An additional ten minutes is not allocated to any particular question. Each question will
be weighted in accordance with its recommended time.
5. Do not spend all of your time writing. Think about the issues and organize
your answers before writing. Be concise. Be organized. Long, disorganized, rambling
answers will be penalized, as will merely “dumping portions of your notes or outline into
your answers rather than answering the question posed.
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6. For each question, assume, unless the question indicates otherwise, that
the Revised Uniform Partnership Act, the Revised Uniform Limited Partnership
Act, and the Revised Model Business Corporation Act apply.
7. If one of the statutes we have studied applies, cite the relevant sections and
subsections and explain how those provisions apply to the facts of the problem.
8. If you believe that additional facts are needed to answer a question, state
exactly what those facts are and how they would affect your answer. If you believe that a
question is ambiguous or unclear, note the ambiguity or lack of clarity and indicate how it
affects your answer.
9. The Honor Code is in effect.
10. Good luck and have a pleasant holiday.
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Instructions for Those Taking the Exam at the Law College
1. If you are taking the exam at the Law College, you may take the exam in this
room, in a typing room if you are typing, in the computer lab if you previously reserved a
spot, or anywhere else at the Law College.
2. You have three hours and thirty minutes (3:30) to complete the exam. You
must turn in your answers in this room, even if you are taking the exam somewhere else
in the building. If you finish more than five minutes early, you may turn in your answers
in the Dean’s Office.
3. If you are taking the exam on a computer, your answers must be formatted
either for WordPerfect or Microsoft Word, and turned in on a disk. Your exam number
must be on both the disk and the top of your answers. The file name should be your exam
number. For example, if your exam number were 666, the file name would be 666.doc or
666.wpd. Double space. Do not put your name on the disk or anywhere on the answers.
4. Be sure to save a copy of your answers on your computer or on another
disk, just in case it is needed. Do not delete it until the beginning of next semester.
5. If you are typing the exam, your exam number should appear on the top of each
page of typing paper. Double space. Do not put your name anywhere on the answers.
6. If you have any technical problems during the exam, please report them
immediately to the Dean’s Office; we will assume you had no technical problems until
when you reported them. Be prepared to finish your exam by writing it. (Regular
notebook paper is O.K.)
7. Save your answers often. No allowances will be made for problems you could
have avoided by saving your answers regularly.
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Instructions for Those Downloading the Exam
1. If you are downloading the exam, you may take the exam anywhere you wish.
The exam is available at the following URL at exactly 9:00 a.m. on December 6:
www.unl.edu/bradford/Final Exam.htm. That page also has a link to the official exam
clock. Please use that time to determine when you must return your exam answers.
2. You have three hours and thirty-five minutes (3:35), until 12:25 p.m. to
complete and return the exam. This includes additional time to download and print the
exam. You must send an e-mail, with the exam attached, to the Dean’s Office by no
later than 12:35 p.m. official exam time. E-mail the exam to the following address:
vlill2@unl.edu. Put “Corporations Exam” and your exam number on the subject line.
For example, if your exam number is 666, the subject line would read, “Corporations
Exam—Exam No. 666.” Vicki Lill will notify you by e-mail when your file is received.
3. Your answers must be formatted either for WordPerfect or Microsoft Word.
Your exam number should be on the top of your answers. The file name should be your
exam number. For example, if your exam number is 666, the file name would be 666.doc
or 666.wpd. Do not put your name anywhere on the answers.
4. Be sure to save a copy of your answers on your computer or on a disk, just
in case it is needed. Do not delete it until the beginning of next semester.
5. If you have any technical problems during the exam, please contact Glenda
Pierce at 472-8264 or Vicki Lill at 472-8262 immediately. We will assume you had no
technical problems until you reported them. Be prepared to finish your exam by
writing it. (Regular notebook paper is O.K.)
6. Save your answers often. No allowances will be made for problems you could
have avoided by saving your answers regularly.
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Question One
(35 Minutes)
Imperial Galactic Limited is a limited partnership organized under the Revised
Uniform Partnership Act (not the 2001 Act). Imperial Galactic operates a hotel. Its sole
general partner is Vogon LLC, a manager-managed limited liability company. Vogon’s
only business is serving as the general partner of Imperial Galactic.
Arthur Dent is the managing member of Vogon; Arthur is also a limited partner,
but not an employee, of Imperial Galactic. Vogon’s operating agreement authorizes its
manager to take any action necessary to carry out Vogon’s business.
Ford Prefect owns a towel company. On September 1, 2003, Ford visited Imperial
Galactic’s office and asked to speak to the person in charge. “I’m in charge. I run the
hotel,” Arthur told Ford. After a long discussion, Arthur signed a contract agreeing to
buy 4,200 towels from Ford for a cash price of $10,000. Arthur signed the contract as
follows:
“Imperial Galactic Limited Partnership
By Arthur Dent.”
Imperial Galactic’s partnership agreement gives unlimited managerial authority to
its general partner, Vogon. The Imperial Galactic partnership agreement also authorizes
its four limited partners, all employees of Vogon, to enter into contracts on behalf of
Imperial Galactic.
Discuss whether Arthur Dent is personally liable on the contract with Ford
Prefect.
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Question Two
(55 Minutes)
John Yossarian (“Yossarian”) is a director of Milo Enterprises, Inc. (“Milo”), a
corporation incorporated in Delaware. Milo is in the business of manufacturing computer
guidance systems for airplanes and helicopters. Milo is not a publicly traded company; it
has only 300 shareholders.
Until recently, Yossarian owned 10,000 shares of Milo stock. He bought 7,000 of
those shares three years ago, for $30 a share, when he was first elected to Milo’s board.
He bought another 3,000 shares four months ago, for $48 a share, when Milo was having
a temporary cash flow problem and needed some cash. For the past two months,
Yossarian has been negotiating to sell some of his stock back to Milo to help pay for his
daughter’s law school education.
Yossarian is also the managing partner of Heller Research Partnership (“Heller”),
a general partnership that develops optical and laser devices. The other two partners are
Nately and Clevinger.
In November, Yossarian attended a presentation by Heller researchers, who
demonstrated a new laser guidance system that would work with optical photon
technology rather than existing computers. The new system will be cheaper and more
effective than existing guidance systems.
Nately and Clevinger were also at the research presentation. “Don’t you own
stock in a company that makes computer guidance systems?,” Clevinger asked Yossarian.
“This will kill them. Too bad you can’t sell the stock now that you know this top secret
information.”
“Yes, I own Milo stock,” Yossarian replied, “but not for long. I’m selling it as
soon as possible.” In response, Nately and Clevinger just looked at each other and said
nothing.
The next day, Yossarian met with Orr, the president of Milo, and told him he
would like to get the stock sale completed. The negotiations concluded two weeks ago,
with Yossarian selling 2,200 shares back to Milo for $50 a share. A majority of the Milo
board, none of whom have ties to Yossarian, approved the repurchase. Two days ago,
Heller announced that it had developed the new optical guidance system.
Discuss the possible claims against Yossarian arising out of his sale of the 2,200
shares to Milo.
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Question Three
(25 Minutes)
Santiago is a director of Hemingway Corporation (“Hemingway”), a public
corporation in the business of selling frozen fish to grocery stores across the United
States. Hemingway is incorporated in a state that has adopted the latest version of the
Model Business Corporation Act.
Santiago owns a sole proprietorship, Marlin Fishing (“Marlin”), a commercial
fishing operation in California. Marlin does not sell any fish to Hemingway.
On October 31, while on a trip seeking new business for Hemingway, Santiago
met DiMaggio, the multimillionaire owner of the DiMaggio Corporation. DiMaggio told
Santiago that DiMaggio Corporation was opening a new chain of grocery stores in
California, and was looking for suppliers. Santiago told DiMaggio about Marlin and,
shortly afterward, Marlin signed a contract to be the exclusive supplier of fish to
DiMaggio’s grocery stores.
Hemingway has filed a lawsuit against Santiago claiming that he breached his
fiduciary duty to Hemingway by allowing Marlin to take this opportunity. Explain why
section 8.61 of the RMBCA does not apply to Hemingway’s claim against Santiago. (Do
not discuss any other issues!)
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Question Four
(40 Minutes)
Rand Corporation, a construction company, is incorporated in Delaware. It
currently has five directors on its board: (1) Peter Keating; (2) Austin Heller; (3)
Dominique Francon; (4) Steven Mallory; and (5) Ellsworth Toohey.
Keating owns 60% of the stock of another corporation, Cameron Corporation. He
is not a director, officer, or employee of Cameron. On July 1, 2003, the board of Rand
approved a contract to buy 10,000 tons of Grade A bricks from Cameron for a price of
$150,000. Keating was not involved in negotiating the contract, but he did vote in favor
of it.
On November 1, 2003, Howard Roark filed a shareholder’s derivative action on
behalf of Rand alleging that Keating, Heller, and Francon breached their fiduciary duties
in approving the Cameron contract. The complaint includes the following allegations:
General Allegations
11. At the time of the contract with Cameron, Rand’s board of directors
consisted of three directors: defendants Peter Keating, Austin Heller, and
Dominique Francon. All three directors voted in favor of the contract. The other
two board positions were vacant at the time, but were subsequently filled by
Steven Mallory and Ellsworth Toohey, who are not defendants in this action.
12. The plaintiff did not make a demand on the board of director prior to
instituting this action. Demand is excused because of the facts alleged in Counts
One and Two.
Count One: Violation of the Duty of Care
13. The Rand directors violated their duty of care in approving the
transaction.
14. The price paid in the transaction constitutes corporate waste. The
plaintiff has identified ten comparable purchases of standard Grade A brick in
2003. Of those, nine were for prices lower than the price paid by Roark to
Cameron. The tenth was for a slightly higher price per ton, but that contract
required the supplier to deliver the bricks over a longer distance.
15. The Rand directors failed to adequately inform themselves prior to
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approving the Cameron contract. The entire meeting lasted only one hour, and
the agenda for that meeting also included other matters.
Count Two: Violation of the Duty of Loyalty
16. The Rand directors violated their duty of loyalty in approving the
transaction. The transaction constituted impermissible self-dealing and was
unfair to the corporation.
17. Keating owns 60% of the stock of Cameron Corporation, the seller of
the brick. The board approved the transaction even though all the directors were
aware of this conflict of interest. For the reasons specified in ¶ 14, the price paid
was unfair to Rand.
18. Heller and Francon had no direct personal interest in the transaction,
but they are subject to Keating’s control and direction. Francon is a close
personal friend and golfing buddy of Keating. They have known each other since
they were children, and were once engaged. Heller was chosen for the Rand
board by Keating and almost always votes the same way Keating votes.
As the complaint points out, Mallory and Toohey are outside directors who were
elected to the board after the board approved the Cameron contract. Neither Mallory nor
Toohey have any connection to the transaction and both are independent of Keating.
Rand has filed a motion asking the court to dismiss the action because Roark did
not make a demand on the board of directors prior to instituting the action. Discuss
whether the Delaware court will grant the motion to dismiss.
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Question Five
(45 Minutes)
In 1980, Atticus Finch (“Atticus”) opened a sporting goods store in Maycomb
County, Alabama, “Finch’s Guns.” Atticus did not file anything to create this business.
The business was very successful and eventually became more than Atticus could handle.
Last year, Atticus asked his friends Scout and Jem to come work with him. He
told them that, if they would work full-time for him and pay him $2,500 each so he could
expand the store, he would pay them $20 an hour and give them each 1/8 of the store’s
profits. Scout and Jem agreed. There was no written agreement and they have had no
further discussions about how the store should operate.
Atticus continues to do all the management work for the store—bookkeeping,
ordering, and all the paperwork. Scout and Jem work in the store as sales people.
One day, Scout was talking in the store to Walter Cunningham, a salesman for
Ewell Firearms. Atticus walked by and said, “Walter, don’t try to convince Scout to buy
anything from you. I’m the only one who can order things for my store.” After Atticus
walked away, Scout just smiled at Walter and said, “Never mind him, Walter. We would
love to buy some guns from you.” Walter handed Scout a form contract to purchase 10
high-powered rifles for a total of $3,000. Scout signed it simply “Scout” and handed it
back to Walter.
Discuss whether Atticus is personally liable to Ewell on this contract.