BLAW 308 California State University Northridge fiduciary duties & Partnership Case Questions
Essay (50 points). Jan, Bobby and Marsha, who have all been friends since high school, form a partnership called Living Easy to develop two residential apartment complexes in their home town. Because they have been friends for so long and trust each other, they do not enter into a written partnership agreement. Instead, they simply agree that they will equally share in the profits and losses of the partnership. Bobby soon discovers that Jan and Marsha are extremely capable and hard workers and begins cutting down the time that he devotes to the partnership. Soon, Bobby is coming into the office only one day a week. He spends the other days hanging out at the tennis courts. Bobby brags on the tennis courts about what an accomplished apartment complex developer he is, and attracts the attention of two other tennis players, Marco and Eve, who also want to get into the business of developing apartment complexes. Bobby convinces Marco and Eve to hire him as a consultant, and Marco and Eve agree to pay him $2500/week for his consulting services, which money Bobby keeps for himself. During the course of his consulting, Bobby provides Marco and Eve with plans for an apartment complex marked “SECRET” that were created by Living Easy, in order that Marco and Eve can use them as a basis for their development. Eventually, at the urging of Marco and Eve, Bobby leaves Living Easy before the two apartment complexes have been completed and becomes partners with Marco and Eve in developing apartment complexes that will directly compete with Living Easy.Has Bobby breached any fiduciary duties to Living Easy and Jan and Marsha? Which ones? What specific facts support the breach of each duty that you identify? (40 points)Is Bobby entitled to be paid for his partnership interest in Living Easy? If so, how will the buyout price for his interest be calculated? When is Bobby entitled to receive payment? (10 points)Short Answer (20 points). Kawhi and Sweet Lou are clothing designers who agree to share a retail space to display and sell their designs. The sign on the door says “Kawhi and Sweet Lou Designs.” However, Kawhi and Sweet Lou keep their businesses separate, and do not share management responsibilities or profits. One day, Morgan meets with Kawhi to discuss Kawhi potentially designing and sewing gowns for a very large and expensive wedding. Kawhi fails to impress Morgan with his presentation. As Morgan is leaving, however, she comments on how much she loves the gowns that Sweet Lou is displaying. Eager not to lose the sale, and in front of Sweet Lou, Kawhi states that if Morgan will hire Kawhi for the project, his partner, Sweet Lou, will be in charge of designing the gowns. Morgan agrees to go forward. Unfortunately for Morgan, Kawhi has a very busy second career as a basketball player, and two weeks before the wedding, has not even begun to work on the gowns. In a panic, Morgan hires another designer, but must pay him on a rush basis in order for him to complete the gowns in time for the wedding. Morgan sues Kawhi, Sweet Lou, and Kawhi and Sweet Lou Designs for the extra money Morgan had to pay to have the gowns completed on time.Do Kawhi and Sweet Lou have a legal partnership between them? Why or why not? (10 points)Is Sweet Lou liable to Morgan for her damages? If so, on what basis and why? (10 points)Multiple Choice (2 points each). Sylvia is a partner in a delivery company called Howe Moving. Sylvia buys a van for the partnership to use, but takes title to the van in her name. Which of the following is NOT a factor under RUPA for classifying the van as partnership property?Amanda, Sally and Jess are close friends who form a limited partnership to open a salon. Amanda, as general partner, contributes $100,000 and Sally and Jess, as limited partners, contribute $125,000 each. Two years later, Sally accuses Amanda of falsifying the financial records and withdraws from the limited partnership. How much will Sally receive from the partnership at the time of her withdrawal? Oscar and Felix are partners in a general partnership. Oscar does 2/3’s of the work and Felix does 1/3 of the work. The partnership makes $300,000 in profits. Under the RUPA, how much of the $300,000 is Felix entitled to receive?Carol is the only general partner in XYZ Limited Partnership. She contributes $50,000 in capital. Bob and Ted are the only limited partners. They each contribute $25,000 in capital. XYZ suffers a loss of $12,000. The partners do not have a partnership agreement. What is Ted’s share of this loss?The primary reason to choose the limited liability partnership instead of a limited partnership as a form of business is to:Jill, Sabrina and Kelly formed an LLC two years ago. They did not enter into an operating agreement. Jill has contributed $100,000, Sabrina has contributed $50,000 and Kelly has contributed $50,000 to date. The LLC made a profit of $30,000 in two years. How much will Kelly’s share of the $30,000 be?A limited partnership:Lucy enters into a limited liability accounting partnership with Fred and Ethel, and invests $10,000 in the business. Ethel commits professional malpractice in handling Ricky’s account, and Ricky sues the partnership and obtains a judgment of $750,000. The partnership only has assets of $50,000. How much of Lucy’s personal assets are at risk for the judgment?A partner of a firm that rents apartments to college students allows his daughter to live in one of the partnership’s apartments for free. Under these circumstances, the partner:Which of the following is NOT true regarding a limited liability partnership and a limited partnership?The Barrel & Wine partnership is being wound up and liquidated. Net assets are to be distributed according to which of the following order of priority?The following is a form of business organization that has one or more general partners who manage the business and have unlimited liability for the obligations of the business and one or more limited partners who do not manage and have limited liability:When a limited partnership combines with another business, it is called a:A winding-up partner may not enter into a new contract unless:Kyle is a non-managing member of a manager-managed limited liability company called Innovative Resources. The other two members are Chip and Peter. Kyle is upset that Chip and Peter did not elect him to manage the company and forms another company that directly competes with Innovative Resources. In Innovative Resources’ lawsuit against Kyle, what is the likely result?Sylvia pays for the van with partnership funds.The title document for the van reflects Sylvia as “partner.”The van is used solely for partnership business.The title document makes reference to Howe Moving.$125,000$100,000$25,000$0
$150,000$100,000$200,000$0$3,000$4,000$6,000$12,000Create a tax shelter for the general partners.Raise larger amounts of capital.Limit the liability of the general partners.Relieve the limited partners from managing the partnership.$15,000$30,000$7,500$10,000Dissolves when a limited partner diesMay not have a corporation as a general partnerMay be taxed either as a partnership or as a corporationMay be created by default
$750,000$50,000$700,000$10,000Has a duty to dissociate for misusing partnership propertyHas a duty to account for the use of partnership propertyHas a duty to return the profits he received through this transactionHas a right to allow a family member to use partnership propertyBoth entities require compliance with state statutes in order to be formed.All partners in both entities have limited liability.Both entities may elect to be taxed as either a corporation or a partnership.The limited liability partnership form is available to only a few professions whereas a limited partnership may engage in a variety of businesses.First to creditors who are not partners, then to creditors who are partnersFirst to all creditors, then to partners as per their capital accountsFirst to partners per their capital accounts, then to all creditorsFirst to partners who have made loans to the partnership, then to all other creditorsLimited liability partnershipLimited liability companyLimited partnershipLimited liability limited partnershipMergerConversionDissolutionDissociationThe contract is in furtherance of the partnership’s purposeThe contract aids in the liquidation of the partnership’s assetsThe partner has a good faith, reasonable belief that it is in the best interest of the partnershipIt is with a previous customerInnovative Resources will win because Kyle has breached his duty not to compete against Innovative Resources.Innovative Resources will win and be able to force Kyle out of the company.Innovative Resources will lose because Kyle does not owe a fiduciary duty to Innovative Resources.Innovative Resources will lose unless it can prove that it directly lost business to Kyles’ new company.