BA Cases Flashcards
Patterson v. Domino’s Pizza, LLC
Agency Formation
In Patterson, the Plaintiff entered into a franchising contract with Dominos. The franchising agreement specified Domino’s standards and procedures, but did not give Dominos the right to manage the day-to-day operations of the franchisee. One of the employees of this Dominos store was harassed, and the victim sued Dominos under a theory of agency. The court held that no control was being exercised since there was a meaningful division of autonomous authority between the franchisor and franchisee (employees of this store were in charge of hiring staff, they were called independent contractors in the contract).
Dissent: an Agency relationship existed because Dominos was giving instructions, so it was exercising some control.
Advice to Dominos:
● Avoid control! Area managers should stay in their lane b/c if you direct the franchise, likely exerting more control & face liability
● Give the franchisee a general manual but allow for the franchise to conduct its own day-to-day operations
Jensen v. Cargill
Agency Formation
In Cargill, a large grain distributor was found liable for the obligations of a grain operator with which the distributor had contracted to purchase grain, despite the fact that the large distributor was also a victim of a fraud and only took de facto control (the criteria for when a lender becomes a principal under Restatement § 14 O) of the grain operator’s operations after the fraud was uncovered
The court held that a Cargill exercised “de facto” control (and therefore that a P-A relationship existed) since:
○ Cargill had a right of refusal on grain
○ Cargill made constant recommendations to Warren
○ Cargill had right of entry onto Warren’s premises to do periodic checks & audits
What Cargill Could Have Done:
1. Draft documents so they do not suggest de facto control.
2. Never make loans to operators you are purchasing grain from.
3. Pay closer attention to amounts actually being disbursed.
5. Keep the status quo, and recognize law suits like this are a cost of doing business
Mill Street Church v. Hogan
Agency Relating to 3P (Contracts)
In Hogan, a painter was regularly hired to paint a church and typically recruited his brother to help him. On one particular job that required two people to complete, the church suggested an alternative helper, but that person was hard to reach. The painter then offered the job to his brother, who accepted, but got injured on the job. The court held that the painter had implied authority to hire his brother as a helper, and therefore that the brother was an employment of the Church when he was injured.
(1) Is Sam’s belief relevant?
● No; actual authority is about the belief of the agent (here, that’s Bill)
(2) Did it matter that this was a very high, difficult portion of the Church to paint?
● Yes; relevant to whether Painter’s belief was reasonable b/c more than one person was needed to complete the job → helps show that belief was reasonable
Opthalmic Surgeons v. Paychex
In Paychex, the court held that an employee who requested more money from payroll processing company than she was supposed to receive had apparent authority to act. Her employer had never examined any of her payment reports, and the court held that this was an acceptance of her actions.
The employer should have had someone else paying the employee, instead of allowing her to pay herself.
Silence may count as a manifestation
Watteau v. Fenwick
Undisclosed Principal Liability
In Fenwick, a company purchased a tavern from the owner, but allowed the old owner to continue managing the bar and his name remained painted on the tavern. The old owner was only allowed to purchase ales & mineral water, but he purchases cigars & other supplies from a 3rd party without telling the new owners.
The third party sued to collect for the price of the supplies from the new owners, which the court allowed under a theory of Undisclosed Principle Liability (Restatement §2.06). However, the court here created liability for policy reasons: they didn’t want principals to hide behind their agents
Fenwick should have:
- Disclosed themselves so that 3rd Parties will know who they are dealing with (maybe by removing the old owners name, or adding theirs to the tavern)
Clover v. Snowbird Ski Resort
Agency Relating to 3P (Torts)
In Clover, the court held that an employee was acting within the scope of his employment when he injured someone while skiing. The employee worked at ski resort and was instructed to check on a restaurant nearby, using his skiis as transport. The court thought of this as more of a detour than a frolic, as the employee was returning to his duties when he hit the Plaintiff.
Frolic/Detour Factors:
■ Was the employee within his shift/ spatial boundaries of his employment
■ Employer gave employees ski passes to get around the mountain
■ Act of skiing = method used by Snowbird employees to get around to different locations of the resort.
General Automotive v. Singer
Agency Roles and Duties
In Singer, the General Manager of a car manufacturer was responsible for soliciting work for the company. However, if he determined that some orders were unsuitable for the company, he ended up quoting customers and dealing with another machine shop to do the work. The court held that he breached his contractual and fiduciary duties to the company by engaging in this type of business.
(3) Advice to Singer
○ Singer could have just left Automotive
○ Singer could have over-communicated and told Automotive everything he was up to
○ Rewrite the contract
Martin v. Peyton
Partnership Formation: Creditors do not equal partners
FACTS
In order to save KN&K, one of its partners entered into a transaction with Peyton for a loan of $2.5 million worth of securities to KN&K. In return for the loan, the lenders were to receive 40 percent of KN&K’s profits until the debt was repaid. They executed several agreements to this effect. A creditor of KN&K sued the lenders, claiming that their transaction with KN&K, as illustrated by the agreements, made them partners in that firm and thereby liable for KN&K’s debts.
HOLDING
(1) Mere words / statements that no partnership was intended are NOT conclusive
(2) Sharing profits is not decisive if “merely the method adopted to pay a debt or wages, as interest on a loan or for other reasons”
(3) Central question is whether they “carry on as co-owners of a business for profit”
Questions on the Case:
(1) What changes to the facts would make it more likely that a partnership was formed?
○ Exercise of the option; anything to demonstrate a little bit more control
Meinhard v. Salmon
Partnership Roles and Duties: Duty of Loyalty
FACTS:
M&S become partners after S enters into a 20 yr lease agreement w/ Gerry.
- M: providing the money; S: providing the labor
- 60-40 profits for 5 years, then split 50-50
S took an opportunity that arose out of the partnership and kept it to himself. S never disclosed this to M; S argues he did all the sweat work
HOLDING:
The very fact that S was in control w/ exclusive powers of direction charged him more obviously with the duty of disclosure, since only through disclosure could opportunity be equalized. S breached.
Questions about the case:
(1) What could S have done differently to satisfy Cardozo?
■ S could have warned M that plan had been submitted so they could both compete. Without telling M anything, S excluded his co-adventurer from any chance to compete)
(2) Would disclosure have allowed S to proceed under the RUPA default?
■ NO! Under 409(f), all of the partners may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate duty of loyalty (ratification still needed?)
(3) What was the basis of S’s defense?
■ This was an opportunity beyond the 20 yr lease/joint venture, so it was not the property of the partnership & was instead a new project
(4) If repping S, what provision would you include?
■ Clause that permits partners to engage in future, independent ventures; reasonable and enforceable
(5) If repping M, what provision would you include?
■ Don’t leave it up to chance; put in writing that any new development/project belongs to the partnership
(6) Which rule would be agreed upon?
■ Unknown; parties didn’t negotiate that so we have to fill in the gap here. Fairest way to fill this gap is to require disclosure and lots of communication
(7) Suppose the contract says that both S&M didn’t owe fiduciary duties to each other. Valid?
■ No; partnership agreement “may not…eliminate the duty of loyalty under 404(b)…but (i) agreement may identify specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable”
Day v. Sidley & Austin
Partnership Roles and Duties: Breach of Fiduciary Duties
FACTS
Day was a partner at Sidley & Austin but was not a part of the firm’s executive committee (located in the firm’s headquarters in Chicago). Sidley & Austin wanted to merge with and buy out a smaller firm, which the executive committee told the underwriting partners about.
After the merger, Day was demoted and filed lawsuit against the firm (said they blindsided him). Day says he wasn’t told about these changes; firm made him think he was safe after securing his vote for the merger (“no one is going to be worse off”). Claims he was defrauded.
Day also sued for breach of fiduciary duty based on secrecy about merger consequences; says that they should have been forthcoming with the changes
HOLDING
No fraud.
○ (1) Court responds w/ saying he wasn’t “deprived of any legal right” since a relocation could have happened regardless
○ (2) Day couldn’t have accurately believed that there would be no changes
Breach of Fiduciary: No breach.
○ Court disagrees w/ Day and says that the Ex. Comm. can keep secrets about the internal structure of the firm but they cannot engage in self-dealings
○ Here, they didn’t keep secrets to advantage themselves at the expense of the firm; there is no duty to disclose this type of information regarding changes to the internal structure of the firm
Questions About the Case:
(1) What was Days right to control before the merger? Did it change after the merger?
■ Day lacked any real right to control both before and after the merger.
(2) Is the control system sensible? Why?
■ Probably; it makes decision-making more efficient & streamlined
(3) What should Day have done to protect himself when he joined?
■ He probably couldn’t have done much differently
(4) What could Sidley and Austin have done to avoid this suit?
■ They could have just had the Ex. Comm. be more forthcoming and honest with Day
(5) Was the Sidley & Austin partnership agreement well-drafted?
■ Hiding the ball a but; “provided however” is pretty convoluted language
● *Case can be reconciled w/ Meinhard b/c there was an agreement to restructure and have the Ex. Comm. control
National Biscuit Company v. Stroud
Partnership Roles and Duties
FACTS
Stroud told Nabisco that it wasn’t going to pay for anymore bread, and didn’t want Nabisco to accept any more orders from Freeman (Stroud’s partner). However, Freeman kept ordering bread. When the partnership dissolved, Nabisco sued to recover unpaid price of bread.
HOLDING
Each partner has an equal right in the management and conduct of a partnership, and differences with a partnership are decided by a majority of the partners.
Court found for Nabisco b/c Freeman has actual authority to buy bread; it’s in the ordinary course of Stroud’s business.
Stroud can’t really restrict Freeman unless there’s a majority consensus with the other partners (here, only 2 partners).
Stroud, as Freeman’s sole co-partner, had no authority to negate Freeman’s purchase.
Questions About the Case:
(1) Does previous business with NBC matter?
■ Yes, in some ways b/c it helps to show ordinary course of business
(2) Is Freeman personally liable to NBC for bread?
■ Yes! Partners are jointly and severally liable under RUPA 306(a) “for all debts, obligations, and other liabilities of the partnership”
(3) What if Freeman is only an agent of Stroud?
■ Prob no liability for Stroud b/c they said they weren’t going to buy NBC’s bread, so NBC (3rd party) should have been on notice that Freeman probably didn’t have authority to buy the bread since Strouds told NBC no more bread
(4) Why wasn’t Stroud’s notification to NBC enough?
■ Freeman as a partner had actual authority to continue ordering bread since he was a partner with equal authority
(5) What risks did NBC face?
■ Didn’t necessarily know that Freeman and Stroud were partners
(6) What could Stroud have done to protect himself from obligations incurred by Freeman?
■ Stroud could have limited Freeman’s ability to contract in the original partnership agreement
Prentiss v. Sheffel
Partnership Termination
FACTS
Parties never executed a formal partnership agreement: Prentiss: 15%; Iger & Sheffel: each 42.5%. I & S wanted to get rid of P b/c he wasn’t paying his bills and wasn’t carrying his weight → sued for dissolution.
Trial court found partnership was at-will and was dissolved by freeze out & there was no bad faith; appoints a receiver and orders the sale of property
HOLDING
In a three-man partnership at-will, a purchase of the partnership assets at a judicially supervised dissolution sale is proper
Rejected P’s arguments:
- P wasn’t carrying on in the business for profit any longer
- P shouldn’t even be complaining b/c he got 15% of 2.25 million after I&S’s bid was accepted (Pr would have been worse off under another bid)
Pav-Saver v. Vasso
Partnership Termination: State Law v. Agreement
FACTS
Agreement said: if one party terminated unilaterally, Pav-Saver would take back its IP, and that the party not terminating would receive liquidated damages. Also states that the partnership would be permanent unless both partners agreed to terminate.
Illinois had adopted the UPA: when a partnership is terminated in violation of the partnership agreement, the non-terminating partners may continue the enterprise, AS LONG AS they pay the terminating partner the value of their interest, not counting good will value.
Pav-Saver terminated the partnership unilaterally. Vasso responded by taking over the Partnership’s operations, including retaining control over the intellectual property contributed by Pav-Saver. Pav-Saver sued to recover its intellectual property, and Vasso countersued for a declaration that it was entitled to the property.
HOLDING
The parties agreed that by ending the partnership unilaterally, Pav-Saver ended it wrongly. Therefore, the UPA gave Vasso the right to continue the business, which they did, continuing to use the IP. That IP is absolutely essential to the manufacture and sale of paving machines.
Partnership agreement said that Pav-Saver was entitled to return of IP if one party unilaterally breached, but that does not override state law/UPA. Thus, Pav-Saver cannot win the return of its patents.
UPA also requires Vasso to pay the exiting partner the value of his interest. UPA says that goodwill not be considered when determining the value of a terminating partner’s interest, so liquidated damages affirmed.
Questions About the Case:
(1) What argument can you offer that majority is
incorrect?
■ UPA only provides default rules; if parties have a written agreement, it should control
■ IP should have been returned instead of being used to continue, whether or not there’s a wrongful dissociation
■ Prof thinks this is correct?
(2) How important is the language stating they formed a permanent partnership?
■ Very important b/c that led to the conclusion that the dissociation was wrongful (i.e., that Dale had the power but not the right to end the partnership)
■ Also, language labeling it as a “partnership” is not dispositive either way; if it looks like a partnership, then it is one
Kovacik v. Reed
Partnership Termination
FACTS
Two people entered into a partnership to remodel kitchens. One supplied capital (10k) and the other provided labor. The partners did not discuss the apportionment of losses. They lost money, and the capital-contributing partner asked the other to cover half of the total losses. Reed refused, and Kovacik filed this lawsuit.
HOLDING
Generally, when there is no explicit agreement as to losses, losses are to be divided equally between the partners, without regard to the amount each partner contributed to the venture.
HOWEVER, that rule only applies in cases where each of the partners contributed capital to the enterprise. In cases where one party contributed only labor and the other only capital (as is the case here), the rule is not applied because the partner contributing labor takes a loss in the form of his lost labor.
Questions About the Case:
(1) What is the intuition behind rejecting the statutory scheme?
■ Court found it to be unfair; “it would follow that upon the loss…of both money and labor, the parties have shared equally in the losses
(2) Two Possible Rules
■ (i) All capital losses were to be borne by the capital partner alone (Kovacik)
■ (ii) Sharing of capital losses in accordance with sharing of profits (statute)
(3) Which provisions of the default rules leads to this problem?
■ Probably the lack of compensation / salary for partners service only
(4) What if Reed had been paid a very nominal salary?
■ It was probably better for Reed that he was getting $0
(5) Why wasn’t a different rule adopted?
■ Parties probably just didn’t contemplate this scenario; or, maybe Kovacik knew the law (aka loss allocation) whereas Reed did not
(6) What might the effect of no loss-sharing by service partner be on behavior?
■ No risk / downside if no loss-sharing, so Reed can just be reckless and act without regard since he won’t be responsible for the losses
● Reed has nothing to lose except for OPM
(7) Advice to Reed?
■ He won; doesn’t really need advice since the decision worked in his favor
RUPA Response to Kovacik
● Comments to UPA § 401: Default rules apply, as does UPA § 18(a) where one or more of the partners contribute no capital, although there’s case law to the contrary
● Partners should foresee that application of the default rule might bring about unusual results and take advantage of their power to vary by agreement the allocation of capital losses
Walkovszky v. Carlton
Corporation Relating to 3P
FACTS
Carlton (D) owned a cab company. He was a controlling shareholder of 10 other corporations, each of which held title to two cabs and no other assets. Each cab carried $10,000 in car liability insurance (minimum required by state law) and Walkovszky (P) was hit by a cab owned by one of Carlton’s entities (Seon).
Walkovszky sued D, Seon, and each of Carlton’s other cab corporations, arguing that they all functioned as a single enterprise and should be treated accordingly.
HOLDING
To show that D was vicariously liable, P must show that a shareholder used the corporation as his agent to conduct business in an individual capacity. Here, Seon Cab Company was undercapitalized and carried only the bare minimum amount of insurance required by law. This is relevant, but it is not enough to allow a plaintiff to pierce the veil.
There must be some evidence that the owners themselves were merely using the company as a shell. Although P alleged that each of D’s companies were actually part of a much larger corporate entity, he could offer no proof to that effect. The mere fact that P might not have been fully able to recover his damages is not enough to justify letting him pierce Seon Cab’s veil.
Questions About the Case:
○ (1) Did Carlton attempt to defraud members of the general public?
■ No; “it’s not fraudulent for owner-operator of a single cap corporation to take out only the minimum required liability insurance”
● → can’t hold Carlton personally liable; can’t PCV
(2) What is the difference between enterprise liability and PCV?
■ Enterprise liability: gets access to the larger corporation that is “held financially responsible”
● Enterprise liability is not at issue; it’s not being litigated → if it was at issue, P would have to show Carlton didn’t respect separate identities of the corporations (assignment of drivers, use of bank accounts, ordering supplies)
■ PCV: have to show that D shuttled their personal funds in and out of the corporations without regard to formality and to suite their immediate convenience and that D was doing business in their individual capacities
● P failed to show unity of interest → can’t PCV
(3) What problems are there with Judge Fuld’s deference to the legislator?
■ Problematic to just defer to legislature in passing higher minimum liability insurance; doubtful that legislatures will do the right thing; they’re removed
Post Walkovszky Questions
(1) Can you incorporate your business for the express purpose of avoiding personal liability? YES.
(2) Can you split a single business enterprise into multiple corporations so as to limit the liability exposure of each part of the business? YES.
