February 1987, Question 1 Business Associations
#1 Liability of Adco
I. 16(b)
The rule prohibits a director, officer or 10% shareholder of a publicly traded corporation on a national stock exchange or with assets of $10,000 and 500 shareholders from purchasing and selling or selling and purchasing stock of the corporation in less than 6 months. The corporation is entitled to the maximum difference between any sale and purchase during this 6 month period. 10% shareholders must be in that position at the time of both the purchase and the sale of the shares. Aco never previously owned any Tco shares so therefore not a 10% shareholder at the time of both the purchase and sale, so there is no 16(b) liability.
#2 Liability of Dan
II. 10b-5
1. Direct liability
The rule prohibits the use of an instrumentality of interstate commerce in any scheme to defraud make material misrepresentations or omissions or in any other way use fraud in the purchase or sale of securities. An insider must either disclose inside information or not trade in the securities. An insider may also be liable for tipping information regarding the company for an improper purpose. Here, Dan neither traded any stock nor used the instrumentality of interstate commerce to defraud the Teo.
(1) Fraud
To establish fraud one must show
1) Intent to defraud
2) Material misrepresentation or omission (one that a reasonable investor would consider important)
3) Reliance on the representation/omission
4) Purchase or sale of securities
5) Damages
2. Tipper liability
A tipper is liable if the information was shared for the improper purpose of direct or indirect personal gain. Here, Dan could probably be liable because he shared the information with his family member Sam who was in a position to purchase the stock and who later did purchased for gain. Since Sam was his son, Dan was in the position of indirect personal gain and Dan could likely have had the improper purpose of enriching himself through his son.
#3 Liability of Sam
3. Tippee liability
A tipped is liable only if scienter is present where the tipper a fiduciary duty and the tippee knew the cuty had been breached. Sam probably had scienter because he probably knew what his father did as a CEO and the nonpublic corporate information are being shared to him. Sam used the insider information to purchase Teo shares on December 3. Sam profited when the share rose from $5 to $8.5 when he sold 10,000 shares for $35,000 profit and this would be disgorged.
#4 Liability of Len
4. Misappropriator liability
Len, the lawyer may be liable for misappropriation of non-public, insider information in the purchase or sale of securities. An insider is a director, officer, shareholder, or any other holder of material nonpublic corporate information. Len used the insider information to purchase Teo shares on December 3. Len profited when the share rose from $5 to $8.5 when he sold 10,000 shares for $35,000 profit and this would be disgorged.
February 1987, Question 4 Torts
Johnny v. Acme
Strict liability
Products Liability
Strict torts liability
Express warranty
Misrepresentation
Implied warranty
Negligence
Defenses
Contributory negligence
Comparative negligence
Assumption of risk
I. Strict Products Liability
Johnny's lawsuit against Acme seeks to recover on a strict products liability theory. In order to establish such a claim, the Johnny must demonstrate that (1) the defendant is a merchant, (2) there was either a design or manufacturing defect in he product, (3) the product was not altered after leaving the merchant, (4) the product caused the plaintiff’s injury, and (5) the customer was using the product in a foreseeable manner.
Johnny v. Harold
I. Negligence
1. Duty
In order to properly examine duty, it’s necessary to look at the duties owed to a trespasser, licensee and invitee.
(1) Trespasser
An undiscovered trespasser is owed no duty under the common law. Anticipated trespassers need to be warned of active operations and artificial conditions that are unreasonably dangerous. Here, Harold would argue that Johnny was a undiscovered trespasser that Harold does not owe duty to make the conditions safe. The ROSEBRITE has a warning printed on its label so the warning should be sufficient if needed. However, Johnny is probably not a trespasser as he was a neighbor who was there to play with Harold's son.
(2) Licensee
A licensee is one who is invited onto the land of another as a social guest. They are owed to warnings regarding unreasonably dangerous conditions involving active operations, hidden but discovered dangers, artificial and natural conditions. Though it is not clear whether Johnny was invited as a social guest, he is probably a licensee because Harold's son probably invited him to come over to play. Therefore, Johnny is a licensee and Harold owes him the warning to unreasonably dangerous conditions.
(3) Invitee
An invitee is one who has been invited onto the land of [sic] property of another for the property owner’s benefit. The rule for invitees is that the property owner owes all the same duties that is [sic] owed to licensees, plus the owner needs to make reasonable inspections for unreasonable dangerous conditions existing on the premises. Here, Johnny seems to have no obvious economic benefit to Harold as probably not invitee.
b) Attractive Nuisance. Where a landowner has anattractive nuisance on his land, the landowner mayhave the duty to make the artificial condition safe orhave a greater duty than to just warn the trespasser.
1. Foreseeable to have children trespassers.
Since the station is near his home it isforeseeable that children might trespass.
2. Unlikely to appreciate the danger. It isarguable that a 12 year-old boy is unlikely toappreciate the danger that high voltageelectricity presents; however, younger childrenmight not.
3. The cost to make safe outweighs the risk ofharm. The risk of harm in this case is deathfrom electrocution. However, given the socialutility of the activity and the steps taken by (fence, warnings, razor wire) one could arguethat the appropriate actions were taken tosatisfy the landowner’s duty.
Taller Fence? might argue that ataller fence was not that costly incomparison to the risk. Here the fencewas only 6 ft. Arguably a taller fencemay have prevented from entering thestation.Assuming the special duties of a landowner were satisfied, onlyowed a duty of reasonable care to.
Breach
Causation
Damages
July 1987, Question 2 Civil Procedure
#1
Personal jurisdiction
#2
Waiver of personal jurisdiction
Waiver of subject matter jurisdiction
#3
Motion for summary judgment
#1
I. Personal jurisdiction
Personal jurisdiction refers to the court’s power to bind the person of the defendant. The traditional bases of personal jurisdiction are (1) domicile; (2) personal service in the state; and (3) consent - either expressly through a forum clause or impliedly by failing to raise lack of PJ in your first response to the court.
1. Due Process
To have personal jurisdiction over a defendant who is not a resident of the forum, the forum state must have a long arm statute and meet the minimum contact requirements of International Shoe to meet due process requirements.
To have personal jurisdiction, due process also requires that defendant be given notice and have the opportunity to be heard. Defendant must be served with the summons and complaint within 120 days of filing of the complaint. In this case, Dan was properly served with the complaint at its principal place of business.
2. Long arm statute
Long arm statute is a statute that allows the state to assert jurisdiction.
Here, State X has a long arm statute that provides that its courts may exercise jurisdiction over nonresidents “on any basis not inconsistent with the Constitution of the United States.”
Dan was properly serviced with process and the state had a long arm statute that could reach Dan. If the state means minimum contact requirements, Dan would be subject to the state's personal jurisdiction.
Therefore the court may exercise jurisdiction to the limits allowed by due process.
3. Minimum Contact (International Shoe)
To meet the test in International Shoe, the forum must show that defendant has such minimum contacts with the forum that assertion of personal jurisdiction would not offend traditional notions of fair play and substantial justice. To have minimum contacts, the courts will analyze the (1) D’s purposeful availment of the forum; and (2) D’s foreseeability of a lawsuit.
(1) Purposeful Availment:
In analyzing purposeful availment, the court will consider (1) the nature and quality of D’s actions; (2) voluntary acts of D directed at the forum; (3) whether D intentionally placed a good in the stream of commerce; and (4) where injury is shown, jurisdiction is established. Here, Dan had one-eighth partial ownership interest in the cabin and this does not indicates that he purposely availed himself of the benefits and protections of the laws of State X.
(2) Foreseeability of Lawsuit:
The court must also determine whether Dan could reasonably foresee that its actions could lead to a lawsuit, i.e., it being haled into court in State X.
It appears that Dan drivers regularly traveled State X’s roads to conduct business. Therefore, it would be reasonable for Dan to foresee that one of its drivers may get into an accident while in State X and cause damage.
(3) Traditional Notions:
The court must balance the minimum contacts of defendant against traditional notions of fair play and substantial justice. This means that the court will look at (1) the relatedness between the claim and D’s conduct; (2) P’s interest in obtaining relief; (3) D’s burden v. benefit; and (3) the state interest.
#2
Real Property
Homeowners v. Bob
The Homeowners will sue Bob on implied reciprocal servitude and nuisance theories, and may seek both damages and an injunction.
Implied Reciprocal Servitude
The Homeowners have an equitable servitude in their land. The deed provision restricting their use of the land to residential purposes complies with the Statute of Frauds, gives actual notice to future owners of the land through the recording of the 30 deeds, both touches and concerns the land by restricting the purpose and use thereof, and clearly indicates an intention that the servitude exists. The issue, however, is whether this servitude is binding on Bob, since no such provision was included in his deed.
The Court will imply a promise, known as an implied reciprocal servitude, only when evidence exists that the developer intended a common development scheme for all of the lots and the grantee had actual notice of the covenants contained in the prior deeds.
Homeowners will argue that the deed provision itself constitutes evidence that Owen intended that the entire 45 lots be residential in nature. The provision specifically prohibits any structures other than single-family residences and clearly prohibits commercial uses, such as a shopping center. Bob will counter that Owen may have intended to preclude non-residential uses within those lots, *wt made no representations l.n the provision as to ttte remaining lots. Bob's position will be undermined &:r Owen's express 이'al representations 10 the prospective purchasers thot ttle entire trdct would be "purely residential" ！'n nature, (md Owen l。iu be h.eM to tilis omz promise, since It evidences an intent thal thc entire development would be limited to use each lotfor a residential, as opposed to a commercial, purpose. Thus, the Homeowners will overwhelmingly meet their burden rcsprcLing thefirst requirement. Th.4’ rcquireincnt of actual notice to Bob, the grantee, is likewise met, since all 30 purchasers had recorded their deeds. n/hile fh)i) did ".ot have actual notice ■d, infact was misled bY Owen wtto totd Bob mo restrictions existed, lle wiu be held to haDe H'cord notice, because the deeds were recorded and could have been examined by Bob. Bob's examination of Owen's direct chain oftitle //'/'// ,lut shield him because lle had lo learnfrom llis title search that at one time all lots were under Owen's common <)u、,tc,.slLip. This would give Bob constnlctbe notice ojl Ihe existence o보 the adjacent 30 lots and he sfzould have examined the n'corded deeds concerning those lots. Bob was also placed on inquiry notice of the provision, if the Homeownen' houses appeared, from their design, 10 conform to a common plan or restriction. }n conclusion, an implied reciprocal"""""'" wiu be""'"""' In 크o&,s land, UJld the Homeowners wiu- succeed In arguing that bnh's lund i,s restricted 10 residential ase.
Micro v. Pacific Department of Justice (DJ)
Issue of Standing
Micro may easily demonstrate standing to sue because its contracts with 20,000 customers will be adjudged illegal under the Act, causing Micro to suffer injury in fact.
Issue Ripeness for Review
DJ may argue that the issue is not ripe for review because they have not sought enforcement of the Act against Micro. However, Micro is presently in violation of this Act and is subject to its penalties, and thus should be allowed to seek declaratory relief against the party charged with enforcement of the Act.
State Power: State Regulation of Federal Activities
Micro may claim that the Act violates the Supremacy Clause because it seeks to regulate communications on the airwaves, which power is relegated to the Federal Commission (FCC) and Congress, through the Commerce Clause. DJ will counter that it is only seeking to regulate the manner in which the airwaves are used, and that its law does not interfere with the activities of the FCC. If the Act does not conflict with the FCC’s policies, it will be upheld. However, Micro has a strong argument that the Act violates the Commerce Clause, because by exempting government-owned stations, it discriminates against interstate commerce, by granting the government an exclusive monopoly over certain types of programming.
Micro will raise the following arguments on the ground that the Act itself is unconstitutional.
State Action
Micro will have no difficulty proving that lawmaking is state action.
Micro will successfully argue that the Act violates the First Amendment freedom of speech.
First Amendment Freedom of Speech
Does the Act Attempt to regulate speech?
The First Amendment applies because the law attempts to regulate the showing of movies, which constitutes speech. Unless the speech falls within an unprotected category of speech, the government must demonstrate a compelling state interest.
Is the Material Obscene?
Obscene materials are those which an average person applying contemporary community standards would find appeal to the prurient interest in sex. While “R” and “X” rated motion pictures were described as “lewd” and “violent” by some legislators who adopted the Act, this characterization surely does not rise to the level of obscenity. While some of the “X” rated movies might be deemed obscene, some or all of the “R” rated movies may not be under community standard and thus cannot be excluded from First Amendment protection on this basis.
Is the Act Content Neutral?
The Act cannot be upheld on the grounds that it is content neutral, because by its own provisions, the Act seeks to prohibit the showing of motion pictures which have an “R” or “X” rating. Thus, the Act regulates the telecasting of movies based on their ratings.
Does a Compelling State Interest Exist?
Unless a compelling state interest exists, the Act violates the First Amendment. DJ will respond that the state has a compelling interest in controlling the type of material released on both public and private airways, and in protecting young people against movies which are “lewd” and “violent”. However, DJ must show that the Act meets this objective by the least drastic means. Micro will argue that other means exist rather than banning certain types of programming, such as locking mechanisms which black out programming in certain homes upon consumer request, broadcasting adult-content programs in the late evening, and using other alternative means of programming control.
Given the wide net cast by the provision of the statute and its chilling effect on both protected and unprotected speech, Micro’s position will prevail and the statute will be declared unconstitutional as violating the First Amendment. DJ’s asserted “compelling interest” will also be severely undercut by the fact that the Act exempts government stations, which are free to telecast the very type of broadcasts the Act seeks to prohibit.
Issue of Overbreath
The Act is also over broad, as it seeks to completely ban the telecasting of movies based on their ratings, thus prohibiting both protected and unprotected speech. Even assuming that portions of “X” rated movies may be be obscene by community standards, and the “R” movies presumably contain some non-obsecene materials, the Act bans both “X” and “R” movies in their entirety and therefore over broad.
Issue of Prior Restraint
The Act also constitutes a prior restraint. Censorship of speech by advance screening or licensing is generally disfavored and bears a heavy presumption against constitutional validity. The Act provides that movies are prohibited based on the ratings, which is determined against constitutional validity. The Act provides that movies are prohibited based on the ratings, which is determined by the National Movie Rating Board. Therefore, censorship is based on a prior existing review and evaluation based on the movie’s content. Furthermore, a prior restraint must contain standards that are narrowly drawn and the party seeking such restraint must seek an injunction and a prompt judicial determination of the validity of the prior restraint. Because DJ cannot justify the broad provisions of the Act and these procedural safeguards were not followed, it will be declared unconstitutional on this ground as well.
Equal Protection Issue
Micro will also challenge the exemption for governmental subdivisions under the Equal Protection Clause, which requires that the laws be applied equally to all. Because of the fundamental right of freedom of speech is involved, the Act will be subject to strict scrutiny. DJ will be unable to demonstrate a compelling state interest because the exemption in effect allows the government to telecast what the Act seeks to prohibit and therefore discriminates arbitrarily against private cable television systems. Therefore, the Act will be invalidated on this basis as well.
Contracts Clause Issue
Finally, Micro will argue that the Act violates the Contracts Clause, which prevents state destruction of existing contract rights. While the law serves an important public interest by disallowing motion pictures that some might find offensive, it does so in an arbitrary and over broad fashion for the same reasons already argued. Because the impairment of the existing contract rights between Micro and 20,000 of its customers is not justified by the purpose asserted, the Act is unconstitutional and violates the Contracts Clause.