Troll Case
Darren Troll, CEO of Cash Cow Incorporated (CCI) brought CCI's two Vice Presidents, John Quick and Dirk Driven, into his office to unveil his new plan for a CCI amusement park, called FUN-A-MANIA-USA (FAMUSA). It was to be located outside Washington D.C. and its design was to be based on the design of D.C., itself. He had pitched his idea to the Board of Directors, but it was not approved. However, Troll was confident that the project would be a cash cow. He felt sure that once the Board saw the project succeed, they would approve the 3.7 million dollar expenditure.
In Troll's mind, the key was to get the project up and running before the next Board meeting some 11 months down the road. He assigns each VP tasks and tells them that this is their number one priority. John Quick, known for his fast work, is first up. He is assigned the task of finding the money to support the project from CCI's budget and to set up accounts for a new separate corporation named Fun-A-Mania-USA, Inc. Quick is also expected to set up the corporation. Troll tells Quick that he has until the next day, Friday, to get the money and accounts in place. Troll emphasizes to Quick and Driven that everything has to be in the name of the new company because he doesn't want the Board to get wind of things until they are all in place. "Think of it as a surprise gift for them," he said. Troll then turned to Quick and said, "Your job is to find the site, buy the land, and construct the amusement park. You have 10 months to get the job done." Both men roll their eyes as they leave the office. The deadline is impossible.
John had one last thing to do before he could go home for the day. He had to get the corporation for FAMUSA formed. Normally, he would have gotten legal to handle this, but they had gone home for the evening. He would just take one of the corporate books from the shelf and scan the documents into the computer. He would edit the existing name and put Fun-A-Mania-USA in its place. He names Troll, Driven and himself the shareholders and Board of Directors with the thought that this can changed later to CII when the Board approves the park plan. He had accomplished the job Troll gave him in one day.
The Board of Directors, now very much aware of FAMUSA plan, and not too happy, come to you for advice. They want your legal opinion on the following questions.
Questions:
1. Can Troll justify his action to start the amusement park project by asserting the best business judgment rule?
1. Yes, because Troll had diligently researched the project and in good faith felt it to be in the best interests of the company.
2. Yes, because he exercised his judgment in believing that other CEO's like him would also make the same judgment that he did.
3. No, because he failed to use care and diligence in executing his plan.
4. No, because he failed to use care, and failed to do so in a manner that a prudent person would believe to be in the best interest of the company.
2. Will the company be able to rescind John's sale of the condo to Yono?
1. Yes, because John acted outside the scope of his employment by selling the condo to a friend.
2. Yes, because Yono knew the condo was titled in the name of CCI not FAMUSA and that the proceeds of the sale were to go FAMUSA account.
3. No, because Yono had no reason to believe that the FAMUSA account was not owned by CCI.
4. No, because as Vice President, of CCI John had the implied, apparent authority to act as agent of CCI and bind CCI to the sales contract. Where the money went was irrelevant.
3. Joe Jolly has brought a suit in the state court against CCI to have the employment contract held void because he claims the contract was against public policy. The board wants to know if they can force him into arbitration as is stated in his contract.
1. Yes, because the terms of the contract call for arbitration to settle disputes.
2. Yes, because the courts will not hear contract cases when a contract calls for arbitration.
3. No, because the Federal Arbitration Act will permit court suits in cases where equity or legal grounds exist to revoke them.
4. No, because the terms of the contract, itself, allow him to bring the suit in the Court system as John did not give him thirty days notice.
4. Assuming that Jolly gets to keep the suit in the Court System, under what legal theory is he most likely to win his case.
1. It is an adhesion contract, which, by definition, is a contract whose terms he was unable to negotiate.
2. It is an unconscionable contract because CCI used their dominant position to impose an unfair, "covenant not to compete," clause and Jolly had no other job alternative at the time.
3. It is against public policy because the covenant not to compete is so long it approaches slavery.
4. It is an adhesion contract, but its terms are so unfair that the court could use its equity power to make it fair.
5. Jill Jackal has also filed suit against CCI as she has not yet received her promised royalty checks. Will Jill win?
1. No, because the oral agreement between Troll and Jackal cannot be heard by the court as it is not an exception to the parole evidence
2. No, because even if the Court heard the evidence, the oral agreement is not supported by any consideration.
3. Yes, because the cartoon was her creation and CCI should have to pay her for her ideas.
4. Yes, because her employment contract was amended by Troll when he verbally agreed to pay the royalty premium.
SHORT ANSWER:
Can the Board sue Troll and John for corporate negligence?
If so, why?
If not, why not?
ESSAY:
Instructions: Frame a complete definition of the legal question asked and explain how the law applies to the facts. Suggested length is two to three paragraphs.
Is FAMUSA a viable corporate entity in the eyes of the law? Explain. Be sure to include in your answer a discussion of the nature of a corporation and how it can be formed.