LittleCorp is a Missouri Corporation which is publicly traded.

1.  LittleCorp is a Missouri Corporation which is publicly traded. The founder, Larry Little, owned 51% of the outstanding shares of the corporation, and held the position of Chief Executive Officer as well as chairman of the Board of Directors.  As the directors were selected by straight (non-cumulative) voting, Larry controlled every seat on the Board of Directors, and made sure that only allies of his were selected to the Board. As a result, all of the executives of the corporation owed their employment to Larry and his allies. 

           As chairman of the Board, Larry decided that he was entitled to a number of perks paid for by corporate funds. These included a private jet to take him on both business and personal travel, several vacation homes, servants to maintain the vacation homes, and an expense account of $10,000 per month that was not subject to verification or audit by anyone other than Larry personally. These perks were not reported as compensation to Larry to the shareholders or the Internal Revenue Service; rather, they were accounted for from the budgets of various corporate departments under line items like "travel" or "maintenance." In recent years these perks cost the corporation well over a million dollars annually, over and above his generous compensation package. Members of the Board of Directors never questioned any of these expenses, although it was apparent to them that Larry had the unlimited use of the corporate jet, and vacation homes all over the world. 

           Recently, a bookkeeper for Littlecorp discovered these expenses and questioned them. When she raised the question with her supervisor, she was fired. However, she kept enough records to report the matter to law enforcement authorities as well as to several major shareholders of Littlecorp. Those shareholders are now suing both Larry and the rest of the Board of Directors for enriching Larry at the expense of the shareholders.

1. Do you think the court will allow the lawsuit to go forward? Why or why not?

1. If it goes forward, will it be successful? Why or why not? 

1. Hickory Dickory Decks is a Missouri limited partnership engaged in building decks and porches on houses and other buildings. The limited partnership is comprised of the following limited partners: Paul (25%), George (25%), John (25%) and Ringo (20%); there is one general partner: PGJR, Inc., a Missouri corporation, which owns 5% of the limited partnership. The only shareholders of PGJR, Inc., are Paul (25 shares), George (25 shares), John (25 shares) and Ringo (25 shares). Ringo is President of PGJR, Inc., and all four shareholders are on the Board of Directors.

           Ringo, as President of PGJR, is in charge of all day-to-day operations of Hickory Dickory Decks. In that capacity, he executed a contract to build a deck on the back of the clubhouse of the Hampshire Hills Country Club. The signature looked like this:

           Hickory Dickory Decks, a Missouri Limited Partnership

by:       Ringo Jones

           Ringo Jones, President, PGJR, Inc., General Partner

             The deck was completed on time and paid for in full by the Hampshire Hills Country Club. Unfortunately, because of a defect in the building materials used by Hickory Dickory Decks, the first time the new deck was used for a party, it collapsed, seriously injuring fifty club members. While Hickory Dickory Decks had liability insurance of $2,000,000, the lawsuits resulting from the deck collapse quickly exhausted the insurance coverage and all of the assets of Hickory Dickory Decks. Soon all of the assets of PGJR, Inc., the general partner, were also exhausted. Injured plaintiffs then began to join John, Paul, George and Ringo personally in their lawsuits.

           Will any of the limited partners have to reach into their personal assets to pay the injured plaintiffs? Explain.

1. Washington, Adams & Jefferson were three lawyers who practiced law together. Their cards, stationery and the sign on their door all said "Washington, Adams and Jefferson." They obtained their business and malpractice insurance as a partnership. Their phones were answered, at their instruction, "Washington, Adams and Jefferson."

           Each of the attorneys kept his or her own clients, accounts, and expense ledgers. Their office rent and the salary for employees was split equally among the three attorneys. None of the attorneys shared clients, information about cases, or equipment with the others, and each filed his or her own tax returns as self-employed. 

           Cassandra Claimant worked in the same building as Washington, Adams and Jefferson. She noticed the sign on the door one day and walked in, stating that she needed an attorney to handle her incompetent father's estate. She was referred by the receptionist to Ms. Adams.

           Cassandra hired Ms. Adams to handle her father's estate. Ms. Adams convinced Cassandra to turn all estate funds over to her, and Ms. Adams established a checking account in the name of "Estate of Carl Claimant, Samantha Adams, Attorney." The estate account contained approximately $100,000. 

           Several months after the estate account was established, Samantha wrote herself a check for the full balance of the account and moved to Nicaragua. When Cassandra discovered the loss of funds, she sued Washington and Jefferson, claiming that they were a law partnership and that the firm or Washington and Jefferson personally were liable for the funds entrusted to Samantha.

           Will Cassandra be successful? Explain.

           Boast Pharmaceuticals is a publicly-traded Missouri corporation in the business of manufacturing prescription drugs for the American and international markets. As an offshoot of research on new drugs to treat leukemia, the scientists at Boast discovered a drug which is remarkably effective at curing malaria. In fact, over ninety percent of patients in clinical trials treated with this new drug, Alaria, were cured after a ten-day course of treatment. 

           The drug costs Boast $1.00 per dose to manufacture, not counting the $750 million which it cost for research and development. The typical patient requires ten doses. Malaria is most prevalent in sub-Saharan Africa, where the average annual income is $30 per year. There is not a lot of demand for Alaria in Europe, China, or the United States. The problem for the management of Boast Pharmaceuticals is that they have happened upon a drug which is safe, effective with a very limited course of treatment, cheap to manufacture, and has very little chance of returning the research and development costs, much less making a profit.

           The president of the company presents to the Board of Directors the following options:

1. Continue making Alaria, writing off as a loss the research and development costs and selling it at cost to those organizations which can distribute the drug where it is needed most. The drawback to this plan is that the company would be devoting production capability to a drug which is returning nothing for the company, and has little chance in the future of producing a profit. There are also questions as to how many doses the company could actually sell, given that the cost would be prohibitive to the vast majority of its intended market. 

1. Discontinue making Alaria, but hold on to the patent, in the event that it is proven effective for some other, potentially more profitable disease. This would have the effect of making the drug unavailable for twenty more years, until patent protection expires and another company could develop a generic version. It would also guarantee millions more deaths from malaria, as current treatments are not nearly as effective.

1. Discontinue making Alaria, and donate the patent rights to some other company or organization in the hope that that company can manufacture and distribute the drug where it is needed.

1. Continue to manufacture Alaria, selling it below cost (their market research indicates that they could sell the drug at fifty cents a dose to non-profit organizations, which would then be responsible for distributing the drug). The company would lose fifty cents on each dose they manufactured; they estimate the demand at ten million doses a year, so under this plan the company would lose five million dollars a year on Alaria.

           After heated discussion at the board meeting, the majority of the Board of Directors votes for option B, in the hope that another use can be found for the drug within the company's time of patent protection. A number of shareholders, learning of the decision of the board, are angered at the Board's decision and want to force the company to continue making the drug and sell it at cost, or donate the patent rights to another company. 

           Discuss the options for shareholders, and their chance of success.