LAW& ETHICS 4-1

Select two of the scenarios below and explain the best solution. Include comments related to any ethical issues that arise. To support your answer, you should try to locate at least one case that has been decided on the issue or one that is currently pending.

Scenario I—Bankruptcy

Rusty Weaver, a project manager for the Tipton Machinery, filed a petition in bankruptcy under Chapter 7, seeking to discharge $75,000 in credit-card debts and $45,000 in student loans. Weaver’s wife died and left him with two children, Paul, who attended college, and Diana, who was thirteen years old. According to Weaver, Diana was an "elite" swimmer who practiced ten to fifteen hours a week and placed between first and third at more than thirty competitive events. Diana was homeschooled with academic achievements that were average for her grade level. His petition showed monthly income of $5,325 and expenses of $5,200. The expenses included annual homeschool costs of $8,200 and annual swimming expenses of $5,000. The expenses did not include college costs for Paul, or airfare for his upcoming summer trip to Europe, and other items. The trustee allowed monthly expenses of $4,227, with nothing for swimming, and asked the court to dismiss the petition.

• If Weaver qualified for Chapter 7, which debts would be discharged? Which debts would not be discharged? Why?
• Using the median income from your state, does Weaver qualify for Chapter 7?
• Should the court grant the trustee’s request? Does Weaver have other options if the Chapter 7 petition is dismissed?

Explain your answers and support them with relevant scholarly sources.

Scenario II—LLC Liability

Plaintiffs Karl and Ginny Drake were injured by lead paint while living in a house owned by Riverwood Homes, LLC. The plaintiffs sued Bill Ding, a member of the LLC at the time it owned the property, alleging that he was liable for their injuries. Ding had limited involvement with the property. He has never visited the property, and neither he nor the LLC was aware that the plaintiffs were occupying the property until after the LLC acquired it. Once they realized this fact, they took legal action to have the plaintiffs removed. The applicable housing code imposes liability on any individual who "owns, holds, or controls" the title to the property.

• Is Ding liable for the plaintiffs' injuries?
• What are the policy arguments in favor of both parties?

Scenario III—Securities

In 2010, after working at Regions Bank for 6 years, Noah Lott helped found Nova Capital Corporation, a venture capital firm that invested in the technology sectors. NCC went public in 2012, and Lott served as its CEO and chairman of the board. Various documents filed with the SEC stated that Lott "earned his MBA in finance from Harvard University and an undergraduate degree in management.” In fact, he attended Harvard for only one year and did not graduate. After being pressured by a journalist, Lott disclosed the misrepresentation to the NCC board. The same day, the company issued a press release correcting the statement.

The press responded negatively to "another CEO that lied about his resume" and speculated about "what else might not be right.” On the day the press release was issued, NCC's stock price dropped from $33.58 per share to $26.40, but it fully recovered within six weeks.

Shareholders sued, alleging that the misrepresentation violated section 11 of the 1933 Act, section 10(b) of the 1934 Act, and Rule 10b-5.

• Was Lott's lie about having a college degree material?
• Would your answer be the same if a CEO lied about having helped to take a company through an initial public offering and subsequent acquisition by another company and having led a pharmaceutical company from incorporation through human clinical trials and launch of a new drug?
• If you were a member of the NCC board, would you be comfortable keeping Lott as CEO once you learned that he had lied about having a college degree?

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