Identify any claims that super soda may bring against board

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Reference no: EM131046265

Prepare 5-8 pages paper according to the instruction. Each question should be 3-4 pages,must be in memo format.

Question One

Imagine that you are an associate at Ram & Ram LLP, a law firm located in New York City. Further imagine that Ares Ram, a senior partner in the firm, phones you in your office and asks you to come to his office. Now imagine that, as you attempt to enter his office, you must jump to the side to avoid a collision with a woman dashing into the hallway. Finally, imagine that, once you are safely inside his office, Mr. Ram says to you:

Phew! I am glad your reflexes are so good. Entria Entrepreneuria - the woman to whom you were just, ah, introduced - is my most energetic client. She is always dashing from place to place and, it seems, problem to problem. Please, have a seat, and I'll you everything you need to know to assist me in resolving her predicament.

In January of 2009, Ms. Entrepreneuria founded Aesthetic Antiques Company. The business has just one store - not too far from here, actually. So that she has ample time to dash from estate sale to estate sale and flea market to flea market, Ms. Entrepreneuria hired Sal Sales to work in the store. When she hired him, she said:

In order for Aesthetic Antiques to be a success, we must both focus our efforts on our respective strengths. So, I'll devote my energy to finding heirlooms, and you devote your time and talents to selling them. You can determine the best way to showcase all the treasures I find, but don't do anything else without checking with me. In addition to a weekly salary of $500 and a commission of 10% of sales, Mr. Sales lives in the apartment above the store without paying any rent. Over the course of the first several months he worked in the store, Mr. Sales observed that, while many passersby seemed interested in the heirlooms artfully displayed in the store's windows, they exited the store almost immediately upon entering it. By speaking with several people who had engaged in this pattern of window shopping followed by rapid retreat, he learned that they were concerned that they may be injured by heirlooms falling from the rickety racks on which they were stacked in the store.

To entice the window browsers to become store buyers, in June of 2009 Mr. Sales phoned Case Cases, the owner of Cases Cases Company, and said:

I'm in charge of sales at Aesthetic Antiques, and I can't sell anything using the rickety racks that are in the store. After spending the morning doing extensive internet research, I've concluded that I'll surely be able to sell everything that I can attractively showcase in display cases.

Please send a dozen of your deluxe displayers to Aesthetic Antiques as soon as you can.

Mr. Cases replied, "We'll have them to you by the end of next week. The total cost, including taxes but not delivery costs (which we'll happily waive), is $150,000. To whom should we send the bill?" In response, Mr. Sales said, "Thank you very much! You can send the bill to Aesthetic Antiques. The owner, Entria Entrepreneuria, is in the store several times a week, and so she'll be sure to see it shortly after it arrives."

The next day, Mr. Cases phoned the store, and Ms. Entrepreneuria answered, saying "This is Entria Entrepreneuria, the owner of Aesthetic Antiques." Mr. Cases responded, "It's Case Cases, calling from Cases Cases. I need to verify the color of the deluxe displayers that you ordered. Do you want us to stain them using a dark finish, a medium one, or a light finish?" As she was dashing out the door, Ms. Entrepreneuria said, "I'm terribly sorry, but I am on my way to an antique show, so I don't have time to answer any questions. Please call back in a few moments and speak with Mr. Sales. He's currently finalizing a sale, and then he'll be able to answer all your questions." When Mr. Cases phoned the store thirty minutes later, he spoke with Mr. Sales, who selected the medium finish.

A couple of weeks later, as Ms. Entrepreneuria was dashing into the store from a flea market, she encountered Mr. Sales conferring with Mr. Cases while several delivery people were unloading deluxe displayers from a large truck. Ms. Entrepreneuria exclaimed to Mr. Sales, "We cannot have new things in the store! Aesthetic Antiques sells heirlooms, all of which are, necessarily, old. The treasures I find will look decrepit in these deluxe displayers, and no one will buy any of them. You aren't supposed to make this type of change without speaking to me!" Turning to Mr. Cases she said, "I'm terribly sorry, but you must take all these deluxe displayers back to your factory.

Aesthetic Antiques can't use them, and it won't pay for them." Later that afternoon, Mr. Sales approached Ms. Entrepreneuria as she was reading the company's mail, and he directed her attention to the front of the store. As she watched people engage in the pattern of window shopping followed by rapid retreat, he summarized their concerns regarding the stacks of heirlooms on the rickety racks.

Ms. Entrepreneuria then declared, "I agree: the store needs display cases. But, they must be heirloom display cases, which I am certain I can find in my regular viewings of antique shows and visits to flea markets." And, sure enough, by the end of the year Mr. Sales was able to showcase attractively (and securely) all the heirlooms in the store. To avoid any additional confusion, in January of 2010 Ms. Entrepreneuria hired Manny Manager to work in the store. When she hired him, they entered into a written agreement that says:

Manny Manager shall serve as the manager of the store, located on Columbus Avenue between 49th Street and 50th Street, owned by Aesthetic Antiques Company. He shall be responsible for the operation of the Aesthetic Antiques Store, including determining the hours ofoperation and setting the prices at which the heirlooms in the store are sold. All decisions relating to the display of the heirlooms shall be made in consultation with Sal Sales. All other decisions shall be made in consultation with Entria Entrepreneuria.

As compensation for serving as the manager of the Aesthetics Antiques Store, Mr. Manager shall receive a salary of $1,000 per week and a bonus of 20% of annual profits. /s/ Entria Entrepreneuria Owner, Aesthetics Antiques Company /s/ Manny Manager Manager, Aesthetics Antiques Store In each of the first several months he managed the store, Mr. Manager noticed that, with so many people coming in to buy the attractively-showcased heirlooms, the floor underneath the display cases was becoming increasingly dirty and defiled. To ensure that the store would be thoroughly cleaned without any damage to the heirloom display cases, in June of 2010, Mr. Manager hired Careful Cleaners Company, which he owns equally with his sister, Clara Cleana, to provide weekly janitorial services. The cost of these special services is $900 per week,  about three times greater than the price typically charged for standard cleaning services. To save on administrative expenses, Careful Cleaners sends invoices to its customers every six months.

In December of 2010, as she was reading the company's mail, Ms. Entrepreneuria came upon a bill from Careful Cleaners. Waiving it in the air, she exclaimed to Mr. Manager, "We do not need to spend a fortune on janitorial services! Aesthetic Antiques sells heirlooms, all of which are, inevitably, a bit tarnished. The treasures I find will look decrepit in a spotless store, and no one will buy them. You aren't supposed to make this type of change without speaking to me!" Mr. Manager approached her, and after they spoke for several minutes she declared:

I agree: the store needs to be cleaned weekly by janitors with special skills. But, I am certain I can find a cleaning company offering specialized janitorial services for only double the price charged by cleaning companies providing standard services. I'll arrange for Aesthetic Antiques to pay two-thirds of this bill, and you must make arrangements with Careful Cleaners to charge Aesthetic Antiques $600 per week for its special cleaning services.

To eliminate any lingering confusion, in January of 2011, Ms. Entrepreneuria incorporated the company, making sure to prepare all the necessary materials and to file the requisite papers with the Secretary of State. So, now Aesthetic Antiques has five people on its Board of Directors:

Ms. Entrepreneuria, who owns 60% of the outstanding shares of the company's stock, and who serves as the company's Chief Executive Officer, earning a salary of $3,000 per week;

Mr. Manager, who owns 15% of the outstanding shares of the company's stock, and who serves as the company's Chief Financial Officer, earning a salary of $1,500 per week;

Mr. Sales, who owns 15% of the outstanding shares of the company's stock, and who serves as the company's Chief Operating Office, earning a salary of $1,000 per week;

Anita Antiqua, a world-renowned expert on antiques, who owns 5% of the outstanding shares of the company's stock; and Res Restorer, a world-renowned expert on restoration techniques for antiques, who owns 5% of the outstanding shares of the company's stock.

Due to the fact that all profits that are not invested in the business are paid as dividends, no bonuses or commissions are paid to the shareholder / employees (although Mr. Sales continues to live in the apartment above the store without paying rent).

During 2012 and 2013, business blossomed. As a result, Aesthetic Antiques paid all salaries owed to its employees. In addition, the company paid quarterly dividends to its shareholders - a total of $300,000 in each of these past two years.

In the current year, however, business has withered. Indeed, at this month's regularlyscheduled meeting of the Board of Directors, Ms. 

Entrepreneuria reviewed the company's financial results with the other directors, noting the continual decline in sales. She then announced: It's clear that we are facing an era of diminished desire for heirlooms.

Every single month, fewer people come into the store. And so, every single month, despite artfully showcasing them, fewer of the treasures I've found are sold. To ensure that Aesthetic Antiques survives this downturn, we must immediately cut all salaries in half, and we must also immediately cease all dividends.

Mr. Manager responded, While it's true that sales have decreased in each of the past nine months, the situation is clearly temporary. The winter was deplorably cold, the spring was very rainy, the summer was super hot, and the past few months have been dreadfully windy. To limit their exposure to the unpleasant weather, people have spent less time out and about the City this year than they have in past years. But, now that the holiday season has arrived, people will be eager to see and be seen. They'll resume strolling the sidewalks and watching the windows, and they'll return to the store to buy the attractively-showcased heirlooms. Sales will again increase. There's no need to rush into drastic actions like cutting salaries and ceasing dividends.

After discussing these conflicting views for thirty minutes, the Board of Directors voted to adopt a resolution reducing every employee's salary to one-half its current level and implementing a policy of refraining from declaring and paying dividends, in each case, effective immediately. As you've no doubt guessed, Ms. Entrepreneuria, as well as Ms. Antiqua and Mr. Restorer, voted in favor of the resolution, while Mr. Manager and Mr. Sales voted against it.

And, as I'm sure you've grasped, after all these, ah, episodes with Aesthetic Antiques, Ms. Entrepreneuria is concerned that the next  installment of the saga will consist of litigation. She's asked me to give her a preview over lunch tomorrow afternoon. So that I can be sure to address thoroughly all of the claims that may arise before she dashes away from the table, please prepare a memo for me that identifies any claims that:

(1) may be brought against Ms. Entrepreneuria, analyzes the strengths and weaknesses of each of these claims (including any defenses), and evaluates the likelihood of the success of each of these claims;

(2) may be brought against the Board of Directors analyzes the strengths and weaknesses of each of these claims (including any defenses), and evaluates the likelihood of the success of each of these claims;

(3) may be brought against Aesthetic Antiques, analyzes the strengths and weaknesses of each of these claims (including any defenses), and evaluates the likelihood of the success of each of these claims; and

(4) Ms. Entrepreneuria may bring, analyzes the strengths and weaknesses of each of these claims (including any defenses), and evaluates the likelihood of the success of each of these claims.

For your answer to Question One, write the memorandum Mr. Ram has requested. In writing the memorandum, be sure to draw upon specific elements of the relevant materials included among the readings or the discussions that comprised our course in Corporations.

Question Two

Imagine that you remain delighted to be an associate at Ram & Ram LLP. Further imagine that, the next day, after ordering your lunch through Seamless Web and eating it in the courtyard, you return to your office to find a message from Mr. Ram asking you to come to his office. Now imagine that, when you arrive in his office, Mr. Ram says to you: Thanks again for all of your help yesterday. Using your memo as a set of talking points, I was able to elucidate for Ms. Entrepreneuria the myriad claims embedded in each of the episodes she's experienced with Aesthetics Antiques. And, I must say, she must have found the discussion compelling, because she didn't dash from the table until we had finished it. Before we are drawn back into that saga, I need your help in resolving a quandary for Ima Investa, one of my first - and favorite - clients. So, please have a seat, and I'll tell you everything you need to know about her most recent ordeal.

Splendid Blendids Company, a Delaware corporation whose shares of common stock are traded on the New York Stock Exchange, manufactures and markets juices and smoothies made from fruits and vegetables mixed in milk, flavored water, or yogurt. The company was founded in 2004 by Chi Chiron, who, with a 25% stake in the company, is its largest shareholder, as well as a member of its Board of Directors and its Chief Executive Officer.

Mr. Chiron regularly works more than one hundred hours a week, a consequence, he regularly proclaims in interviews with members of the financial press, in discussions with the other members of the Board of Directors, and in meetings with employees, of his drive to ensure that everyone has easy access to healthy drinks. In each of these settings, Mr. Chiron often acts erratically, alternately singing nursery rhymes and screaming lewd obscenities.

He also routinely berates his subordinates for failing to spend as much time at the factory as he does, and then he fires them. To avoid the costs associated with claims of harassment and wrongful termination, as well as negative publicity, on the instructions of Mr. Chiron, Splendid Blendids provides each terminated employee with a severance payment of $5 million (which is approximately one-tenth of one percent of the company's average annual revenues) so long as the (former) employee signs a confidentiality agreement prohibiting all discussion, and mention, of Mr. Chiron. For nearly a decade, this approach worked quite well. Although rumors occasionallysurfaced - and were noted in the paper, the  boardroom, and the factory - that Splendid Blendids paid (former) employees to remain silent as a means of protecting Mr. Chiron, they were, well, rumors. Then, on August 31, 2014, Hacka Hacker, a computer programmer at Nile, Inc. (the electronic commerce company), used the knowledge she gained while resolving delivery problems with juices and smoothies from Splendid Blendids ordered through the Nile portal to gain unauthorized access to the company's human resources intranet, and she retrieved a copy of each of the fifty severance agreements into which Splendid Blendids has entered. The next day, she sold all the shares of common stock of Splendid Blendids she owned, and then she posted copies of the severance agreements (with the names of the (former) employees (as well as other identifying information) redacted) to an online forum devoted to clean eating.

The price of one share of common stock of Splendid Blendids immediately plunged 40% - from $20 per share to $12 per share. And, the next week, on September 8, 2014, the Board of Directors announced the adoption of a shareholder rights plan. After describing the features of the plan, which includes a 15% trigger with an exclusion for shares owned by Mr. Chiron, the announcement reports that the purpose of the poison pill is "to allow the Board of Directors, in light of recent revelations, to reconsider the longterm strategy for Splendid Blendids."

Last week, on December 1, 2014, Super Soda Company, the soft drink company in which the founder, Syr Syrup, holds a 40% stake, launched a tender offer for any and all shares of Splendid Blendids that it does not already own at a price of $16.80 per share (a 40% premium over the current market price). The tender offer is conditioned on (1) the redemption of the shareholder rights plan and (2) at least 51% of the outstanding shares being tendered (because Super Soda owns less than 1% of Splendid Blendids).

As you've no doubt guessed, Ms. Investa owns shares of stock in Splendid Blendids - approximately 1% of the outstanding shares, which she purchased in 2006. And, as I'm sure you've grasped, after all the rumors and revelations - and the tender offer - she is concerned that her investment ordeal will become a litigation ordeal. She's asked me to provide her with an overview of the legal landscape, and so we're going to meet for lunch tomorrow afternoon. As everyone knows, I'll need another one of your magnificent memos. Please be sure to:

(1) identify any claims that Ms. Investa may bring against Mr. Chiron or the Board of Directors, analyze the strengths and weaknesses of each of these claims (including any defenses), and evaluate the likelihood of the success of each of these claims;

(2) identify any claims that Super Soda may bring against the Board of Directors, analyze the strengths and weaknesses of each of these claims (including any defenses), and evaluate the likelihood of the success of each of these claims; and

(3) identify any claims the Securities and Exchange Commission may pursue, explaining the basis for these claims, and assessing the  Commission's prospects for success in pursuing each of these claims.

For your answer to Question Two, write the second memorandum Mr. Ram has requested. In writing the memorandum, be sure to draw upon specific elements of the relevant materials included among the readings or the discussions that comprised our course in Corporations.

Question Three

Imagine that the United States is comprised of fifty-one states, and Utopia is the fifty-first state in the Union. Further imagine that you are an aide to Senator Solon, a member of the Utopian Senate. Imagine now that he phones you at your desk and asks you to come into his office. When you step into his office, Senator Solon sighs and says to you:

My job is very difficult. You would think - certainly, I thought when I decided to run for office - that it would be very easy to serve in the legislature of our idyllic state, because there would be nothing to do but bask in the brilliance of our business law. But, some senator is always proposing some substitute for some enactment or edict. And I, certainly, do not want to support any change that will cloud our paradisal business climate. So, please, have a seat, and I'll everything you need to know to guide me through this brewing storm.

As you know, our standard for piercing the corporate veil, the Laya Test as articulated in Kinney Shoe, permits (assuming a unity of interest and ownership such that the separate personalities of the corporation and the individual shareholder no longer exist) the veil to be pierced when an inequitable result would occur if the corporate form were to be respected. In making this determination, the court focuses upon the adequacy of the corporation's capitalization.

At the end of the week, the members of the Senate will debate the merits of a bill that would, effectively, substitute the Van Dorn Test, as articulated in The Pepper Source, for our current standard. So that I can participate in the discourse without being distracted by the details of a standard our courts have not adopted, please prepare a memo for me:

(1) explaining, as precisely as possible, both the meaning of undercapitalization and the way in which it is measured; and

(2) identifying, as a matter of public policy, the advantages and disadvantages of judicial consideration of a corporation's capitalization in determining  whether or not to pierce its veil, including the relevant factors to be considered - for example, the stage of development of the corporation's business and the characteristics of the claimant seeking to pierce the corporate veil.

For your answer to Question Three, write the memorandum Senator Solon has requested. In writing the memorandum, be sure to draw upon specific elements of the relevant materials included among the readings or the discussions that comprised our course in Corporations.

Reference no: EM131046265

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