GROUP DISCUSSION QUESTIONS PARTA In this part A, we want to make sure we understand the basic facts in the previous hypothetical, and then think about and reference some of those facts in answering the 2 questions below. You don't have to write down your answers, but can discuss the questions amongst your group members. 1. Briefly, what happened here? What do you see as the main issue? 2. Do you feel that Luisa has the right to do what she is doing with her separate company? Or, is Luisa wrong to be doing what she is doing, even if her argument is freedom of contract? Explain. (Note: Are there any facts in the scenario which you can point to support your position!) Business Law I (Hypothetical #1) Narrative On the Start-Up Company "T87 Organ Synergies Inc Formation of the Company: 4 individuals (Roberto, Luisa, Huang Fu and working for different companies involved in the healthcare and/or biomedical fields. Tung transplant surgeon for a local hospital in Philadelphia: Luisa is a biomedical resca science lab in Maryland that employs 75 people: Huang Fu is a top salesman for Tirm in New Jersey; and Darlene is a health care administrator for a chain of local nospa York. to, Luisa, Huang Fu and Darlene) are currently and/or biomedical fields. Roberto is a heart & Luisa is a biomedical researcher working for a is a top salesman for the largest pharmaceutical chain of local hospitals in upstate New Roberto, Luisa, Huang Fu and Darlene casually know each other through vari networks and conferences they have attended over the years. At one such conterende ly know each other through various professional Newark, NJ, they discovered that they each have a desire to form a start-up company. ears. At one such conference held this year in industry. Since their individual skills and experience complemented each other, they decided are to form a start-up company in the healthcare next few months they would brainstorm and come up with an idea for a possible new ented each other, they decided that over the me up with an idea for a possible new business venture. Over the next few months they ver te next few months they met once in person and via Skvne several times. They eveniamy arrived at the idea for their venture: A new prescription drug which has the potential to lengua of patients who have undergone heart transplants. Based on their research and expertise, weyem their new product could lengthen lives by at least 3 years. The next step was to form a company new venture. They called it TS7 Organ Synergies Inc. ("TS7"' for short). They had a lawyer arant a contract that would govern their relationship with each other. To save cash, they decided that we come would be simple for now, and that they would add in more details at a later time. Now the company was ready to begin the research. design and clinical testing of the potential new drug so that they can apply for something called a "patent". Patents are issued by the US government and provide legal protection to inventors from other people who might try to copy (or steal) an original idea from an inventor. If someone steals the idea, that person might be able to get the product to the marketplace before the original inventors do. In order to begin the research, design and testing phase, they estimated that it would cost an initial amount of $200,000. They agreed to each invest $50,000 dollars, which would cover the $200,000 in starting cash. Other than for Roberto (the lung & heart transplant surgeon, who is wealthy), the investment of $50,000 nearly depleted the savings of all the other partners, but they felt the high risk might lead to high reward, so they moved forward with the project. They would be equal partners/shareholders in this new company, and have equal authority. The Beginning of Conflict: After working together for nearly I year in the design and testing phase for their new product, the partners were confident that their product was going to deliver the desired resulte and that they were well on their way to securing a patent for their new product. However, a potential conflict began to emerge Unknown to the other partners, about monus arter they formed the company Luise (b with someone else and began developing a drug with biomedical researcher) started a separate company with someone else and began devel that she and her partners in TS7 were developing. One of the other similar life saving prospects to the drug that she and her partners in TS7 were devel his professional network that Luisa was doing this and at the partners in TS7 (Huang Fu) heard a rumor via his professional network that Luisa wa to secure her own patent and negotiate a contract to soon market the drug to the same time she was trying to secure her own patent and negotiate a contract to so public. When the other partners learned this and confronted her, Luisa stated that the than the drug that 787 is developing", and that anyway, her from competing by creating a similar product, and "their agreement with each other does not prevent her from competing by creat that freedom of contract' gives her the right. Theo ting" with TS7 with her new product. They alleged that ners of TS7 are not happy about this state of affairs, and made a demand that Luisa stop "competing" with TS7 with her n that she has a moral obligation, and duty of loyalty to TS7 even if the contract did not address this situation, that she has a moral bli based on their relationship as partners in building 787 and the effort, knowled all contributed to the venture. TS and the effort, knowledge and expense that they have Group Discussion Questions Part B (statutory interpretation and policy discussion) Assume that the partners of TS7 (other than Luisa) decide that they woul based on something they call a "Breach of Fiduciary Duty" by Luisa to them ar they are able to prove this "Breach of Fiduciary Duty they can sue Luisa for a very amount of money based on her alleged bad conduct. decide that they would like to sue Luisa y Luisa to them and the company. If sue Luisa for a very substantial a "Breach of Fiduciary Duty". We will learn more a. For today's purposes, we will ignore the full list of facts the par order to prevail (i.e. win) on a lawsuit alleging a "Breach of Fiduciary will ignore the full list of facts the partners of TS7 would need to prove i about "fiduciary duties" later in the semester. What we want to loc or isn't considered a "fiduciary the semester. What we want to focus on now is whether Luisa is Without a law that deems Luisa a fiduciary in this business context, Juciary based on the language of the statute (i.e. the local law). based on the language of the ans, Luisa a fiduciary in this business context, then the partners of 157 would not be able to even begin thinking about a lawsu ble to even begin thinking about a lawsuit for Breach of Fiduciary Duty. Below are the elements of 2 different US state statutes regarding how those states den state statutes regarding how those states define a fiduciary in the business context: State Statute #1 (most common) u: Generally, in the business context, a fiduciary relationship will exist in a situation where one or more persons (l) has a confidential relationship where there is special trust in, and the judgment of another, and/or (ii) where a special duty e wher, and/or (11) where a special duty exists on the part of one person to protect the interest of another. For clarity, under our state's statute. 2 examples of fiduciary relationships are as con (a) the attorney/client relationship, where the attorney has a special duty to act on behalf of the client, who places trust and reliance on the attorney's ethics and professionalism, or (b) the principal/agent relationship - such as when shareholders in a company who have expressly chosen not to be involved in the decision- making of the company, but who delegate decision-making authority to an elected manager of the company. Here, the principals would be the shareholders who have chosen not to be involved in decision-making, but who decide to appoint the manager (as agent) to act on their behalf. Hint: Recall that in our hypothetical, all the partners have equal authority, and that no one has been delegated as the 1 leader for the company. Question: Would the partners of TS7 be able to begin to evaluate a lawsuit against Luisa for Breach of Fiduciary Duty under this state's definition of the term "fiduciary? Why or why not? State Statue #2 (broader, considers context) ly in the business context, a fiduciary relationship must be determined by the "Fiduciary" defined: Generally, in the business context, a fiduciary relatin and context. In a closely held company, for example, where there are only specific facts and circumstances, and context. In a closely held company f thority to any specific partner, more or less equal monetary a few partners. very little delegation of authority to any specific partner tribution to the success of the new venture, then a fiduciary investment by the partners, and equal contribution to the success of the antext, the law recognizes a certain expectation of trust, relationship may be found to exist. (Note: In this context, the law recognizes an good faith and honesty). 1 for determining that Luisa is a fiduciary? Why or why Question: Does State Statute #2 fit our hypothetical for determining that Luisa isa not? that State #2 was motivated by policy considerations in crafting this statute? Question: How do you think that State #2 was motiv