• LAW225
• Assignments
• 5.2 Case Study: Corporations

Robert K. Powers and Lee M. Solomon were among the limited partners of the Cosmopolitan Chinook Hotel (Cosmopolitan), a limited partnership. Cosmopolitan entered into a contract to lease and purchase neon signs from Dwinell's Central Neon (Dwinell's). The contract identified Cosmopolitan as a "partnership" and was signed on behalf of the partnership, "R. Powers, President." At the time the contract was entered into, Cosmopolitan had taken no steps to file its certificate of limited partnership with the state, as required by limited partnership law. The certificate was not filed with the state until several months after the contract was signed. When Cosmopolitan defaulted on payments due under the contract, Dwinell's sued Cosmopolitan and its general and limited partners to recover damages. Powers and Solomon denied liability, arguing that they were limited partners.Dwinell's Central Neon v. Cosmopolitan Chinook Hotel, 587 P.2d 191, 1978 Wash. App. Lexis 2735 (Court of Appeals of Washington)

1. What is a defective formation of a limited partnership?
2. Did Powers and Solomon act ethically in denying liability for the contract? Why or why not?
3. Are the limited partners liable? Why or why not?
4. Do you agree with the outcome of the case? Why or why not?

Lawrence Gaffney was the president and general manager of Ideal Tape Company (Ideal). Ideal, which was a subsidiary of Chelsea Industries, Inc. (Chelsea), was engaged in the business of manufacturing pressure-sensitive tape. Gaffney recruited three other Ideal executives to join him in starting a tape manufacturing business. The four men remained at Ideal for the two years it took them to plan the new enterprise. During this time, they used their positions at Ideal to travel around the country to gather business ideas, recruit potential customers, and purchase equipment for their business. At no time did they reveal to Chelsea their intention to open a competing business. The new business was incorporated as Action Manufacturing Company (Action). When executives at Chelsea discovered the existence of the new venture, Gaffney and the others resigned from Chelsea. Chelsea sued Gaffney and the others to recover damages.Chelsea Industries, Inc. v. Gaffney, 449 N.E.2d 320, 1983 Mass. Lexis 1413 (Supreme Judicial Court of Massachusetts)

1. What is the fiduciary duty of loyalty?
2. Did Gaffney act ethically in this case? Why or why not?
3. Did Gaffney and his partners breach their fiduciary duty of loyalty? Why or why not?
4. Do you agree with the outcome of the case? Why or why not?