Read the Ethics Case regarding Fuzzy Toys LLC. Using IRAC, who is liable to Catherine and for how much. How much will Catherine recover? Was it ethical for Angela, Yoko, and Serena to set up their toy business as an LLC?

ethics moral ETHICS CASES 30.7 Ethics Case Angela, Yoko, Cherise, and Serena want to produces "Heidi," a new toy doll and female action figure. The start a new business that designs and manufactures toys for new toy doll is an instant success, and Fuzzy Toys, LLC, pro- children. At a meeting in which the owners want to decide duces and sells millions of these female action figures. After what type of legal form to use to operate the business, Cherise a few months, however, the LLC starts getting complaints states: that one of the parts of the female action figure is breaking We should use a limited liability company to operate our off quite regularly, and some children are swallowing the part. business because this form of business provides us, the own- The concerned member-managers of Fuzzy Toys, LLC, issue ers, with a limited liability shield, which means that if the an immediate recall of the female action figure, but before all business gets sued and loses, we the owners are not personally of the dolls are returned for a refund, Catherine, a 7-year-old liable to the injured party except up to our capital contribu- child, swallows the toy's part and is severely injured. Catherine, tion in the business. through her mother, sues Fuzzy Toys, LLC, Allied Insurance Company, Angela, Yoko, Cherise, and Serena to recover The others agree and form a limited liability company damages for product liability. At the time of suit, Fuzzy Toys, called Fuzzy Toys, LLC, to conduct the member-managed LLC, has $200,000 of assets. The jury awards Catherine $10 business. Each of the four owners contributes $50,000 as her million for her injuries. Who is liable to Catherine and for capital contribution to the LLC. Fuzzy Toys, LLC, pur- how much? How much does Catherine recover? Did Angela, chases $800,000 of liability insurance from Allied Insurance Yoko, Cherise, and Serena act ethically in setting up their toy Company and starts business. Fuzzy Toys, LLC, designs and business as an LLC? Explain