• January 4th, 2017

Case Studies

Paper , Order, or Assignment Requirements

From your course textbook, Anderson’s business law and the legal environment, comprehensive volume,
Author: David P. Twomey; Marianne M. Jennings; Stephanie Greene
Edition 23
Copyright Date: 01-10-2017
Publisher: Cengage South-Western
ISBN: 9781305575080
Read the following chapters:
• Types of business organizations
• Partnerships
• LPs, LLCs, and LLPs
• Corporation formation
• Shareholder rights in corporations
• Securities regulation

Select two of the three case studies below. It is not necessary to copy the case study into the paper. Cite your sources in APA format on a separate page.
To help find legal cases to support your analysis; you may use Google Scholar. Google Scholar is a user-friendly legal research tool. To use Google Scholar simply Google “Google Scholar” to locate, then click on the “Case Law” button below the search bar to switch to case law searching. Please note, it is optional. You will primarily use your text and online lecture materials for your references.

Case Study 1 – Securities
In 2013, after working at First State Bank for 5 years and Third State Bank for 3 years, Ted Smartt helped found Smartt Capital Corporation (SCC), a venture capital firm that invested in the ecommerce, Internet and similarly situated technology sectors. SCC went public in 2015, and Smartt served as its CEO and chairman of the board. Various documents filed with the SEC stated that Smartt “earned a B.B.A. in accounting from Stanford University.” In fact, Smartt only attended Stanford for three years and did not graduate. After being pressured by a journalist, Smartt disclosed the misrepresentation to the SCC board. The same day, the company issued a press release correcting the statement.

The press posted negative comments such as “another CEO that lied about his resume” and speculated about “what else might Smartt be hiding.” On the day the press release was issued, SCC’s stock price dropped from $42.55 per share to $32.40, but it fully recovered within 90 days.

Shareholders sued, alleging that the misrepresentation violated section 11 of the 1933 Act, section 10(b) of the 1934 Act, and Rule 10b–5.
• Was Smartt’s lie about having a college degree material?
• Would your answer be the same if a CEO lied about having helped to take a company through an initial public offering and subsequent acquisition by another company and having led a medical instruments company from incorporation through launch of a new technological breakthrough in surgical instruments?
• If you were a member of the SCC board, would you be comfortable keeping Smartt as CEO once you learned that he had lied about having a college degree?

Case Study 2 – Liability of Corporations, Shareholders and Officers

In 2008, Mr. and Mrs. Smith formed “Working Dogs, Inc.” an Ohio corporation, for the purpose of breeding, raising and training German Shepherds for sale to various law enforcement agencies and similar businesses. They chose to incorporate so that their personal assets would be shielded from any liability arising out of the operation of the business. The Smith’s purchased the vacant land next to the family home and constructed a concrete kennel with fenced dog runs for 25 dogs. Title to the lot and the kennel was in the name of the corporation. The Smith’s son, John, helped raise and train the dogs until he went to college. After John went off to college, the Smiths decided that running the kennel was too much work and were considering selling the business. When John found out, he asked his parents to let him take over the family business, using the dog lot and kennel. The Smiths agreed and appointed John as the corporation’s President, replacing Mr. Smith. John was offered 60% ownership of the shares in the corporation but he declined stating he didn’t need want the hassle of stocks.
As the sole shareholders and directors of the corporation, Mr. and Mrs. Smith entered into a written agreement with John that stated any net annual profits would be split as follows: 60 % paid to John; 20% paid to Mr. and Mrs. Smith, and 20% retained by the corporation in earnings.

John consistently deposited the proceeds from dog sales into the corporate account, and paid only expenses related to Working Dogs, Inc. out of the corporation’s bank account. The corporation held its annual shareholder and director meetings on December 31st, right before the annual New Year’s party. These meetings served to inform the Smiths about how the business had performed over the prior 12 months, and John’s future plans for the corporation. John typed up the minutes from these meetings and retained them in a file.
With his degree in marketing, John quickly established a demand for the dogs across the country by setting up a website in the corporate name, advertising in publications that were well-read by law enforcement and participating in working dog events. Because of the success of his advertising, Working Dogs, Inc. was able to sell dogs in advance of their births, based on their stated pedigrees. John received a healthy cash flow from the business and the Smiths were pleased with the John’s success until they found out that the corporation was being sued by the Kansas City Police Department for fraudulent misrepresentation.
Unbeknownst to the Smiths, most of the puppies from the last 2 litters of pre-sold puppies died shortly after birth as a result of a virus. To avoid refunding the money, John purchased puppies from several German Shepherd rescue groups and shipped them to the purchasers with the standard representation on company letterhead that the puppies were the same as described in the contracts. The Kansas City Police Department received 6 of the puppies. By the time the case was scheduled for trial, two other purchasers joined the lawsuit. The claims totaled more than Working Dogs Inc.’s assets. Working Dogs, Inc., John, and Mr. & Mrs. Smith were all named as defendants in the lawsuit.
• Discuss the legal theories under which John and/or Mr. and Mrs. Smith may be held liable for the acts of the corporation.
• Can the plaintiffs obtain a judgment against John personally for his own individual liability, notwithstanding the existence of the corporation? Explain.
Case Study 3 – Shareholder Rights

Greg Dawson, a former Vice President of Finance for Coca-Cola, owned 100,000 shares of Coca-Cola (KO) stock. Dawson’s stock ownership consisted of approximately 7.5% of the company’s total stocks. After a merger between Pepsi and Quaker Oats, Dawson left Coca-Cola and started working as the Vice President of Finance for Quaker Oats. When Coca-Cola offered to purchase Dawson’s stocks, he requested access to Coca-Cola’s corporate books to determine the value of the stock. Coca-Cola refused the request on the basis that Dawson worked for a competitor.

What are the rights of each party? How would you resolve the case? Support your answer with appropriate laws, cases and/or examples.

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