Reference no: EM132182833

Write up to 2 Pages:

Instructions

Analyze the fact pattern presented below and submit one double-spaced document to the Chapters 39, 40 and 42 Individual Assignment dropbox folder by the date specificed on the course calendar. Label each question. Use the IRAC approach to help you organize your analysis (state the issue, discuss all relevant laws and legal concepts, apply the relevant legal principles to each hypothetical, and state your conclusion). Your assignment should not exceed three double-spaced pages.

Hypothetical

Risk Corporation has been in operation for the last five years. The corporation provides insurance services to clients. The articles of incorporation describe Risk Corporation's business purpose as "providing inclusive insurance services to homeowners." The corporation recently began offering clients an option to purchase cleaning services. Although all corporate formalities were satisfied during Risk Corporation's incorporation, Risk Corporation's address was listed incorrectly in the incorporation documents.

Due to a recent increase in the number of cyber attacks affecting companies in the local area, Risk Corporation’s board of directors decides to address the issue of data security during its regularly scheduled board meeting. Although board members were not instructed to learn more about the topic prior to attending the board member, board member Ellen Evans decides to do some outside reading before attending the board meeting. In reading about the issue, Ellen learns that damages from privacy breaches are not covered by Directors and Officers insurance. Alarmed, Ellen decides that Risk Corporation should increase its data security measures to reduce the risk that she would face personal liability as a director for damages resulting from a corporate data breach. Ellen encourages other board members to support the adoption of additional cyber security measures based on her fear that the directors could face personal liability if Risk Corporation suffered a data breach.

Without examining data security practices at other companies, Ellen encourages board members to approve a proposal to spend $5,000,000 in additional data security measures. Although board member Steve Stevens encourages the board to spend additional time evaluating the company's data practices before voting on Ellen's proposal, Ellen succeeds in persuading the board members to vote on her proposal. Pressed for time due to a commitment to attend another corporate board meeting following the meeting at Risk Corporation, Ellen persuades the board to vote on her proposal without waiting for late attendees. As a result, the board approves Ellen's proposal while latecomers continue to enter the boardroom.

Although many board members agree with Ellen, board member Phil Phillips votes against her proposal, convinced that the current security spending proposal is inadequate. Although Phil provides data supporting his position, the board approves Ellen's proposal. Concerned about the future implications for Risk Corporation, Phil Phillips contacts his sister, Sandy Phillips, and encourages her to reconsider her investment in Risk Corporation, based on the company's possible exposure to a data security breach. Although Risk Corporation planned to issue a pubic statement about its new security measures, Phil shares Risk Corporation's security spending plans with his sister prior to the public announcement. After learning about Risk Corporation's data security plan, Sandy decides to sells her shares of Risk Corporation stock.

Six months after the board votes to revise Risk Corporation's data security practices, a significant data breach occurs at the company. Many analysts believe that the security breach could have been avoided had the company enacted more sophisticated security measures. In addition, some analysts believe that the board's passive role in monitoring Risk Corporation's data security measures increased the likelihood that a data security breach would result. Had the board taken a more aggressive role in overseeing Risk Corporation's data security, it is possible that the data breach could have been avoided.

As a result of the data breach, customers’ personal and financial data is confiscated, resulting in financial losses of $10,000,000 for Risk Corporation customers. Following the discovery of the data breach, stock prices at Risk Corporation decline.  Shareholders file a derivative action.

Although Risk Corporation notifies customers of the security breach, the company does not notify customers in a timely manner. Risk Corporation notifies customers after two months, in violation of Wisconsin laws. The board does not take an active role in ensuring that customers are notified of the breach in a timely manner.

Instructions

Using the assigned readings and commentaries for Chapters 39, 40 and 42 (Do not discuss issues from other chapters), fully discuss and evaluate the legal issues posed by the above facts. Your analysis should include issues of potential liability.

Does the incorrect address shown in the incorporation documents void the incorporation? Why or why not? Explain using legal principles from the assigned reading.

If the incorrect address does not void the incorporation, could the shareholders be held personally liable for the customers' losses? Why or why not? What additional information would be helpful in answering this question?

If the incorrect address does not void the incorporation, can Risk Corporation offer cleaning services to clients based on its existing articles of incorporation? Why or why not?

If the incorrect address does not void the incorporation, will the board of directors be held liable? Why or why not? Explain using legal principles from the assigned reading.

Does the fact pattern presented above result in a violation of the Securities Exchange Act of 1934? Why or why not? Explain and discuss the specific nature of any violation and apply the relevant legal principles.

In your opinion, should corporate shareholders have a “say” in determining the appropriate level of data security? Why or why not? If shareholders do have input in determining the appropriate level of data security, should this input be advisory in nature? Explain.