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Written Assignment #2 BA-303 Homework Assignment #2 (200 Points) Review Each Fact Scenario Below CAREFULY. (1) Identifying the legal issue or issues involved and then (2) ANSWER ONLY THE SPECIFIC QUESTIONS ASKED. Make sure you EXPLAIN the LEGAL BASIS for your conclusions. Most answers should not exceed 50-100 words for each specific question. HONOR CODE APPLIES: DO YOUR OWN WORK. DO NOT WORK WITH OR CONTACT ANY LIVING PERSON INSIDE OR OUTSIDE THE UNIVERSITY. YOU MAY ONLY USE YOUR TEXT-BOOK TO RESEARCH THESE ISSUES. DO NOT RESTATE FACTS IN YOUR ANSWER (or I deduct points). NOTE: BE PREPARED TO EXPLAIN TO ME HOW YOU CAME TO YOUR ANSWERS AND CONCLUSIONS INCLUDING PAGE NUMBERS IN YOUR TEXTBOOK. USE BY A STUDENT OF ANY COMMERCIAL PAPER-WRITING, RESEARCH SERVICES IS A SERIOUS HONOR CODE VIOLATION. PROBLEM #1: (150 POINTS) Elaine, Jerry, and George have a great business idea. While traveling in South Florida, they saw several baseball batting cages. Customers lined up to pay five dollars to swing a bat and hit the baseballs inside a safety cage. Once they returned to Virginia, Elaine, Jerry, and George formed “EJG CORPORATION” (EJG-CO) to get into the Batting Cage business. The Articles of Incorporation authorized the issuance of 100,000 shares of stock and preemptive purchase rights on any shares being sold by any other shareholder (right of first refusal). Jerry, Elaine and George were named as the three directors. Jerry owns 40,000 shares, George owns 40,000 shares, and Elaine owns 20,000 shares. Unlike Florida, using indoor facilities, they felt that could stay in business year round. EJG-CO purchased commercially available pitching machines capable of pitching at four different speeds (Little League - 40 mph, Babe Ruth League – 60 mph, Minor League – 70 mph, and Major League – 80+). EJG-CO also purchased an insurance contract for $1,000,000 in total coverage in case anyone got injured or hit by a pitch. EJG’s business model is to establish FRANCHISE contract arrangements with local entrepreneur franchisees in the NC, SC, VA area. The franchisees are all required to establish local LLC’s to operate batting cages under the Trademark-name of “Caged-Heat Fun Centers.” After three fast-paced years, EJG-CO has run into a few “speed bumps” on the road to success. As it happens, Jerry is an old friend of yours. Having heard you took Business Law at Shenandoah University, Jerry comes to you for advice. “I’ve got some problems,” Jerry confides. “Several months ago, we brought in a guy named Newman. Newman is a computer nerd who recently flunked out of the Loudon Community College, to set up our computer system with a local area network (LAN) in our home office. EJG-CO got a great deal for his services-- he agreed to do the whole thing for $30,000, including providing us a new server and 10 desktop computers. We provided him with some office space and also let him drive one of our company delivery vans when he needed to go get supplies or computer parts for our office network. He basically just worked on his own time. He came and went whenever he wants. I mean, no one else in our office has a clue how to install the LAN. We paid him progress payments in installments every month, but I’d have to check with the bookkeeper to be sure. Last week Newman was driving down to Front Royal in our company delivery van to pick up some supplies for the job when he decided to swing by the KFC for something to eat. The KFC is about six blocks from where he picked up the supplies in Front Royal. While he was driving toward KFC, he heard a siren behind him, panicked, and swerved into oncoming traffic. He struck another car driven by a lady named Julie McGooley and banged her up pretty bad. I was furious and told Newman to “get all your stuff and get your a## out of our building. And don’t ever come back here again.” Well, today I get a call from Julie McGooley’s lawyer. She tells me that unless we pay Julie McGooley $500,000 bucks immediately, Julie is gonna sue the pants off of EJG-CO as soon as Julie is discharged from the hospital. What do you think my friend? Should I pay this guy off? Do I have a legal defense to payment? “That ain’t the worst of it,” continues Jerry. “About six months ago, Elaine hit on a bright idea. She would set up a separate company called “Elaine’s Temporary Holdings LLC” (i.e. ETH-LLC) and, during slow months, instead of constantly trying to sell new updated batting machines to our Franchisees, EJG-CO could sell its excess batting-cage machines from our corporate inventory to her LLC. In return, EJG-CO would book the sale as “revenue” to EJG-CO’s account books. The contract with Elaine’s ETH-LLC however, included a mandatory machine buy-back provision. This required EJG-CO to repurchase the machines from ETH-LLC company within 12 months at full original purchase price, plus interest. Brilliant, I thought. By recording the sale to Elaine’s ETH-LLC, we could increase our revenue in the short term. This made EJG-CO’s stock more valuable and helps EJG-CO secure more credit lines from local banks. ETH-LLC got the value of the interest payments, which beefed up Elaine’s personal income and kept her a happy camper. EJG-CO could then buy back the machines in a few months from ETH-LLC at full cost when business picked up, and write off the interest payments on our taxes as a business expense. It was a win-win situation, or so I thought. Unfortunately, we failed to account for the fact that when we resell these machines from Elaine’s ETH-LLC, even though they are unused, because of minor technology changes we made to our current machines, ETH-CO’s batting machines are considered less desirable as “used-old-stock” by our franchisees. But, the buyback provision forces us to repurchase the machines at full retail price! But, because we can only sell them to the public as “used-old-stock,” they fetch, at most, 75% of our actual cost. Also, I guess we never told George about Elaine’s separate ETH-LLC arrangement with EJG-CO. He found out about the arrangement last week. Now he is furious and is threatening to sue both EJG-CO and ETH-LLC. He says our “mismanagement” is threatening the solvency of the company. Can George really sue? If so, what is/are the legal basis’s for his lawsuit? If he can sue, what “cause of action” will he use and do you think he will win? Why or why not?” “Oh, one more thing,” Jerry said. EJG-CO has a board of directors/shareholders’ meeting coming up in a few weeks. I’m concerned that Elaine might just get frustrated with the whole business and sell all of her shares to George. I don’t have the cash myself to buy any stock from Elaine. If George buys Elaine’s shares, he will own 60% of the stock! If he has 60% ownership, will George be able to remove me as President? Even if he does that, is there anything in the Articles of Incorporation of EGH Inc. that might protect me from being voted completely off the board of directors? Advise Jerry on ALL the issues raised above. Thoroughly analyze each issue for him, and then explain to him the legal basis for your conclusions regarding each issue. PROBLEM II: (50 POINTS) Jerry decided he better get a new car. His ’89 Toyota Tercel was not cutting the mustard any longer. Jerry decided to buy a pick-up truck. He saw a used 2011 Ford F-150 advertised for sale for $11,000 by a private individual, Bob Thornton. The F-150 had a V-6 engine, 4-wheel drive, and an extended cab. Jerry met with Bob and they signed a written contract for the sale of the vehicle. Jerry paid $500.00 cash down and promised to return 2 days later with a bank cashier’s check for the balance of $10,500, at which time Jerry would get title of the truck. Two days later, Jerry went back to Bob’s house with the bank check, all set to drive away in the pick-up truck. When Jerry arrived, Bob informed Jerry he had a better offer and he had already sold the truck to Larry Bird for $13,000. Two days after, Jerry found another 2011 F150 Truck with 4-wheel drive, extended cab, and a V-6 engine for $15,000. Discuss all issues.