Questions and Answers of The Legal Environment

ROLE REVERSAL Write a short-answer question that deals with the duty of care under the business judgment rule.
Think of an idea for a new company and prepare a corporate charter for your business. You can find examples of Delaware charters at http://contracts.corporate.findlaw.com. For extra credit, find a
A security is any transaction in which the buyer invests money in a common enterprise and expects to earn a profit predominantly from the efforts of others.
Before any offer or sale, an issuer must register securities with the SEC, unless the securities qualify for an exemption.
These securities are exempt from the registration requirement: government securities, bank securities, short-term notes, nonprofit issues, insurance policies, and annuity contracts.
If a final registration statement contains a material misstatement or omission, the purchaser of a security offered under that statement can recover from everyone who signed it.
The 1934 Act requires public companies to make regular filings with the SEC.
Under §16, insiders who buy and sell or sell and buy company stock within a six-month period must turn over to the corporation any profits from the trades. They must also disclose any trades they
Section 10(b) prohibits fraud in connection with the purchase and sale of any security, whether or not the issuer is registered under the 1934 Act.
Under the Foreign Corrupt Practices Act, it is a crime for any U.S. company to make payments to foreign officials to influence a government decision. This statute also requires reporting companies to
The NSMIA prohibits states from regulating securities offerings that are:• Traded on a national exchange;• Exempt under Rule 506; or• Sold to “qualified purchasers.”
Any securities offerings not covered by the NSMIA must comply with state securities laws, which are varied and complex.
CPA QUESTION When a common stock offering requires registration under the Securities Act of 1933:a. The registration statement is automatically effective when filed with the SECb. The issuer would
CPA QUESTION Hamilton Corp. makes a $4.5 million securities offering under Rule 505 of Regulation D of the Securities Act of 1933.Under this regulation, Hamilton is:a. Required to provide full
Does this excerpt from The Boston Globe reveal any potential securities law problems?Berkshire Ice Cream’s down-home investment strategy is paying off for more than 100 people who last year put up
ETHICS ETS Payphones, Inc., sold pay phones to the public. The company then leased back the pay phones from the purchaser, promising a fixed 14 percent annual return on their investment.Although
CPA QUESTION Pace Corp. previously issued 300,000 shares of its common stock. The shares are now actively traded on a national securities exchange. The original offering was exempt from registration
YOU BE THE JUDGE WRITING PROBLEM World-Wide Coin Investments Ltd. sold rare coins, precious metals, camera equipment, and Coca-Cola collector items. Its stock was registered with the SEC under the
Consider this scenario from the periodical Investor’s Business Daily, Inc.:You’re in line at the grocery store when you overhear a stranger say: “That new widget is going to make XYZ Co. a
Malaga Arabian Limited Partnership sold investments in the Spanish Arabian horse industry under Rule 506.James E. Mark, who purchased one of the partnership interests, alleged that the partnership
CoolCom, Inc., sends notice to all its shareholders that its annual report and proxy soliciting materials are on its Internet Website. It provides investors with the Internet location and a telephone
ROLE REVERSAL Prepare a multiple-choice question that focuses on an issue involving Rule 504, restricted securities, or insider trading.
Choose a company, go to the EDGAR database at the SEC (http://www.sec.gov/edgar.shtml), and look at all filings this company has made during the last year. What filings has it made and why? Extra
There are two categories of antitrust violations:per se and rule of reason. Per se violations are automatic; courts do not consider mitigating circumstances. Rule of reason violations, on the other
Any effort by a group of competitors to divide their market is a per se violation of the Sherman Act. Illegal arrangements include agreements to allocate customers, territory, or products.
Price-fixing and bid-rigging are per se violations of the Sherman Act.
Every company generally has the right to decide with whom it will do business. However, the Sherman Act prohibits competitors from joining together in an agreement to exclude a particular supplier,
Under a reciprocal dealing agreement, a buyer refuses to purchase goods from a supplier unless the supplier also purchases items from the buyer. Reciprocal dealing agreements violate the Sherman Act
The Robinson-Patman Act prohibits companies from selling the same item at different prices if the sale lessens competition. However, a seller may charge different prices if these prices reflect
Under the Clayton Act, the federal government has the authority to prohibit anticompetitive mergers and joint ventures.
Possessing a monopoly need not be illegal;acquiring or maintaining it through “bad acts” is.
To determine if a company is guilty of monopolization, ask three questions:• What is the market?• Does the company control the market?• How did the company acquire its control?
To win a predatory pricing case, a plaintiff must prove three elements:• The defendant is selling its products below cost.• The defendant intends that the plaintiff go out of business.• If the
A tying arrangement is illegal if:• The two products are clearly separate;• The seller requires that the buyer purchase the two products together;• The seller has significant power in the
Efforts by a manufacturer to allocate customers or territory among its distributors are subject to a rule of reason. These allocations are illegal only if they adversely affect competition in the
An exclusive dealing contract is one in which a distributor or retailer agrees with a supplier not to carry the products of any other supplier.Exclusive dealing contracts are subject to a rule of
When a manufacturer enters into an agreement with distributors or retailers to fix minimum prices, this arrangement is called resale price maintenance. RPM is a per se violation of the law.
Vertical maximum price-fixing is a rule of reason violation of the Sherman Act. It is illegal only if it has an adverse impact on competition.
Harcourt Brace Jovanovich (HBJ) granted BRG an exclusive license to market HBJ’s bar review materials in Georgia and to use HBJ’s trade name. HBJ agreed not to compete with BRG in Georgia, and
Fifty bakeries in New York formed an association.They developed a system of distribution under which stores were only allowed to buy from a single baker. A store that wanted to shift to another baker
Fifty restaurants in Boston threatened to stop accepting the American Express card if the company refused to reduce the commission it charged on each purchase. Visa International, one of American
BAR/BRI is a company that prepares law students for bar exams. With branches in 45 states, it has the largest share of the bar review market in the country. Barpassers is a much smaller company
YOU BE THE JUDGE WRITING PROBLEM American Academic Suppliers (AAS) and Beckley-Cardy (B-C) both sold educational supplies to schools. B-C’s sales began to plummet, and it was rapidly losing market
Two medical supply companies in the San Francisco area provide oxygen to homes of patients. The companies are owned by the doctors who prescribe the oxygen. These doctors make up 60 percent of the
Videos of Jurassic Park and Snow White and the Seven Dwarfs were due in stores the same month. The stores ought to have been delighted at the prospect of having two blockbusters to sell, but instead
ETHICS An 18-year-old woman with a mental disability and her mother (the Nelsons) brought a malpractice suit against one of the doctors at the Monroe Regional Medical Center. As a result, the Monroe
ROLE REVERSAL Prepare a short-answer question based on an article you have found in the newspaper that involves an antitrust issue.Choose one of the cases featured at
The Electronic Communications Privacy Act of 1986 is a federal statute that prohibits unauthorized interception or disclosure of wire and electronic communications or unauthorized access to stored
The Children’s Online Privacy Protection Act of 1998 prohibits Internet operators from collecting information from children under 13 without parental permission. It also requires sites to disclose
The Gramm-Leach-Bliley Privacy Act of 1999 requires banks and other financial institutions to disclose to consumers any non-public information they wish to reveal to third parties.
The U.S. Department of Commerce and the European Union have established safe harbor principles for the collection of personal data.Any company that complies with the safe harbor rules will be
Spyware is a computer program that slips onto your computer without your permission—through e-mails, Internet downloads, or software installations. Congress has considered legislation to control
The Fourth Amendment to the Constitution prohibits unreasonable searches and seizures by government agents. This provision applies to computers.
Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM)is a federal statute regulating spam. This statute applies to virtually all promotional e-mails, whether or not the
Under the Communications Decency Act of 1996, ISPs and Web hosts are not liable for information that is provided by someone else.
Hacking is illegal under the federal Computer Fraud and Abuse Act of 1986. The CFAA prohibits:• Computer espionage;• Theft of financial information;• Theft of information from the
Fraud is the deception of another person for the purpose of obtaining money or property from him.
The Identity Theft and Assumption Deterrence Act of 1998 prohibits the use of false identification to commit fraud or other crime.
Three travel agents used fictitious accounts to steal 61 million frequent flyer miles from American Airlines. They traded this mileage in for 546 free tickets, with a value of $1.3 million.As
To demonstrate the inadequacies of existing computer security systems, Cornell student Robert Morris created a computer virus. His plan, however, went awry, as plans sometimes do. He thought his
YOU BE THE JUDGE WRITING PROBLEM Jerome Schneider wrote several books on how to avoid taxes. These books were sold on Amazon.com. Amazon permits visitors to post comments about items for sale.
Anthony Davis operated a computer bulletin board system that permitted users to send and receive e-mail, access the Internet, and download software. Davis’s system had one attribute that
Ton Cremers was the director of security at Amsterdam’s famous Rijksmuseum and the operator of the Museum Security Network (“the Network”) Website. Robert Smith, a handyman working for Ellen
Craig Hare offered computers and related equipment for sale on various Internet auction Websites. He accepted payment but not responsibility—he never shipped the goods.Both the FTC and the U.S.
ROLE REVERSAL Write a short-answer question that deals with an issue involving crime in cyberspace.
The FTC offers advice to Website operators about how to comply with the Children’s Online Privacy Protection Act at www.thomsonedu.com/westbuslaw/beatty. Find a Website that does comply and one
For many years, the jacket design for Webster’s Ninth New Collegiate Dictionary featured a bright red background. The front was dominated by a “bull’s-eye” logo. The center of the
“Hey, Paula,” a pop hit that spent months on the music charts, was back on the radio 30 years later, but in a form the song’s author never intended. Talk-show host Rush Limbaugh played a
From the following description of Jean-Pierre Foissey’s activities one evening, can you guess what he is doing and why?Mr. Foissey waits until sundown. Then it is time to move. A friend whom he
Roger Schlafly applied for a patent for two prime numbers. (A prime number cannot be evenly divided by any number other than itself and 1—2, 3, 5, 7, 11, 13, for example.) Schlafly’s numbers are
DatagraphiX manufactured and sold computer graphics equipment that allowed users to transfer large volumes of information directly from computers to microfilm. Customers were required to keep
Babe Ruth was one of the greatest baseball players of all time. After Ruth’s death, his daughters registered the words “Babe Ruth” as a trademark.MacMillan, Inc., published a baseball calendar
Harper & Row signed a contract with former President Gerald Ford to publish his memoirs.As part of the deal, the two agreed that Time magazine could print an excerpt from the memoirs shortly before
Frank B. McMahon wrote one of the first psychology textbooks to feature a light and easily readable style. He also included many colloquialisms and examples that appealed to a youthful student
ETHICS After Edward Miller left his job as a salesperson at the New England Insurance Agency, Inc., he took some of his New England customers to his new employer. At New England, the customer lists
YOU BE THE JUDGE WRITING PROBLEM Three inventors developed a software program that generated a particularly clear screen display on a computer. The PTO refused to issue a patent for this software. Do
ROLE REVERSAL Draft a multiple-choice question that focuses on an issue of copyright law.
Think of a name for an interesting new product.Click on Search Trademarks at http://www.uspto.gov/main/trademarks.htm to see if this name is available as a trademark. Also look at
Real property includes land, buildings, air and subsurface rights, plant life, and fixtures. A fixture is any good that has become attached to other real property.
A fee simple absolute provides the owner with the greatest possible control of the property, including the right to make any lawful use of it and to sell it. A fee simple defeasible may terminate
An easement gives a person the right to enter land belonging to another and make a limited use of it, without taking anything away.
The implied warranty of habitability means that a builder selling a new home guarantees the adequacy of materials and workmanship.
The seller of a home must disclose facts that a buyer does not know and cannot readily observe if they materially affect the property’s value.
When an owner of a freehold estate allows another person temporary, exclusive possession of the property, the parties have created a landlord-tenant relationship.
Any lease for a stated, fixed period is a tenancy for years. A periodic tenancy is created for a fixed period and then automatically continues for additional periods until either party notifies the
A landlord may be liable for constructive eviction if he substantially interferes with the tenant’s use and enjoyment of the premises.
The implied warranty of habitability requires that a landlord meet all standards set by the local building code and/or that the premises be fit for human habitation.
The tenant is obligated to pay the rent and must pay the landlord for any significant damage he causes to the property.
At common law, a landlord had very limited liability for injuries on the premises, but today many courts require a landlord to use reasonable care and hold her liable for foreseeable harm.
A gift is a voluntary transfer of property from one person to another without consideration.The elements of a gift are intention to transfer ownership immediately, delivery, and acceptance.
A bailment is the rightful possession of goods by one who is not the owner. The one who delivers the goods is the bailor and the one in possession is the bailee. To create a bailment, the bailee must
The bailee is obligated to exercise due care. The level of care required depends upon who receives the benefit of the bailment: if the bailee is the sole beneficiary, she must use extraordinary care;
Paul and Shelly Higgins had two wood stoves in their home. Each rested on, but was not attached to, a built-in brick platform. The downstairs wood stove was connected to the chimney flue and was used
CPA QUESTION On July 1, 1992, Quick, Onyx, and Nash were deeded a piece of land as tenants in common. The deed provided that Quick owned half the property and Onyx and Nash owned one quarter each. If
Summey Building Systems built a condominium project in Myrtle Beach, South Carolina. The project included an adjacent parking deck.Shortly after Summey relinquished control to the condominium
YOU BE THE JUDGE WRITING PROBLEM Dominion Bank owned a large office building in Washington, D.C. Because it planned to sell the building, the bank stopped leasing new space and five of the 13 floors
ETHICS Jane says to Cody, “If you will agree to work as my yard man, I’ll pay you $1,000 per week for a normal work week. You can start on Monday, and I’ll guarantee you eight months’work.”
YOU BE THE JUDGE WRITING PROBLEM Eileen Murphy often cared for her elderly neighbor, Thomas Kenney. He paid her $25 per day for her help and once gave her a bank certificate of deposit worth $25,000.
ROLE REVERSAL Write a short-answer question focusing on one of the following: a fixture, an easement, or adverse possession.
ROLE REVERSAL Write a multiple-choice question highlighting the difference between any two of the following: a contract, an inter vivos gift, or a gift causa mortis.

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