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Sunday, September 03, 2006

Test Examples

Question One

You have been asked to chair a task force in your company (or agency) to think through your firm’s (or agency’s) approach to employees who leave the firm voluntarily and possibly take information with them inappropriately. Your firm (or agency) is not a high tech firm, but your CEO has read articles and briefings lately about the way the exit experience in high tech firms is fraught with potential legal problems, and thinks there may be some applicability to your firm. The CEO wants to pay attention to this area. You will have both a lawyer and an HRM specialist on your taskforce; nevertheless, you want to lead and guide the process and establish the salient issues early on. You have decided to write a preliminary memorandum in which you 1) outline the areas you want the task force to examine, and 2) briefly explain what legal problems lead to select these areas for examination. This memorandum is addressed to the task force, but you are running a draft through your immediate supervisor, who reports directly to the CEO.

Write the draft memorandum. You are free to fine-tune the problem to an industry, which might be your own, but err (if you err) on the side of expansiveness in identifying issues the firm might face.

Company XYZ
To: XYZ Task Force
From: VP of CR
CC: Executive VP of CR
Date: September 21, 2004
Re: Exit Interview and Process-Voluntary Resignation
Attn: XYZ Task Force
In light of the competitive environment that XYZ Incorporated operates, it has been deemed necessary to protect the integrity of all Intellectual Property, trade secrets, and other associated intangible information and assets of the company. In order to assure proper compliance the following issues should be addressed by the XYZ task force.
· Review of pertinent employment contract(s), offers of employment and employee handbook. The first line of “defense” is to outline the rights and responsibilities of the company and employee prior to hiring. This will avoid potential pitfalls related to development and ownership of patents, trademarks and other works as well as provide guidelines surrounding more ambiguous issues such as moonlighting, post employment expectations related to non-compete clauses, standards of conduct/behavior, and other associated concerns or expectations. To the greatest extent possible, the offer of employment, employment contract and employee handbook should delineate these expectations in a method consistent with local, state and federal guidelines related to the type of position for each employee [exempt, non-exempt, consultant and so forth].
· An ongoing record of all company material, hardware, software, etc should be maintained at all times. Additionally, provisions for maintaining security issues of hardware/software should be implemented [for example, no hardware or software additions or deletions should be allowed for sensitive areas without proper authentication]. Ghosting, back-up’s, and duplication of all text, memo’s, project contacts, and other information belonging to the company should be provided for in advance and used throughout the term of employment to assure the company has all information should an employee decide to leave [Note. This does not prevent the employee from having the information as well, it only assures that the company doesn’t have to go ‘begging’ to reclaim it’s own property]. Personal use of company property should be clearly delineated in advance including the use and/or monitoring of Email, Internet, Phone and other forms of communication. Each employee should provide written verification of having received this communication and adherence.
· Expectations of how/when/if to dispose of files, written materials or other information should be clearly defined in advance and adhered to during the course of employment. For example, in research all notes are routinely saved and destruction of these would constitute a serious violation with potential ramifications related to defending the IP claim at a later date.
· Decision of how to address disputes should be clearly delineated in advance…arbitration for example….should be included in above/below documents.
· Expectations of contacting co-workers, company clients, affiliates and other human assets should be clearly delineated in advance. A company policy on the use of competitive intelligence should be modeled both internally and externally on an ongoing basis as well as outside communications in general.
· Upon receiving notice of an employee’s intent to resign, the company should provide a list of all hardware, software, notebooks, contact lists, and other assets in the employee’s possession with specific instructions on returning each item as well as other items which may have gone unmentioned. If home use of equipment or information was expected then proper methods of transferring information and deleting all back-ups, other should also be made clear. Security measures such as user names/passwords, log-in’s, other should be changed immediately upon leaving the company. Written clarification of post employment non-compete clause(s), confidentiality of information, trade secretes, and more should be summarized and reviewed during an exit interview with the employee signing a verification of compliance and understanding. Additionally, any outstanding IP issues should be addressed at this time including invention agreement issues, patent agreements [which often require the name of the inventor even if the company owns the patent], copyright etc…

Question Three

Acme designs and manufactures communications and network equipment. Beta entered into a joint marketing and development agreement with Acme, a manufacturer of computer equipment and software, in March 1998. Under this agreement, Acme agreed to make minimum quarterly purchases of computer equipment and software from Beta for incorporation into Acme’s products. The agreement was amended on October 20, 1999 to require Beta to continue to provide technical support and spare parts. Two later, on October 22, Acme filed a petition under Chapter 11 of the U.S. bankruptcy code.

You are CEO of Acme. You examine the contract with Beta and find a clause in the contract that expressly permits each party to the contract to terminate it if the other party files for bankruptcy, is the subject of a bankruptcy petition, or becomes insolvent. On the other hand, you notice that the amendment to the contract is silent on this issue.

What are your options? What are the possible consequences associated with making a poor decision?

Whew…I *think* that in light of the contract stipulating termination of the contract for bankruptcy and the absence of information in the amendment, the original contract would take precedent. For example, on page 190 of the text, the example states:

“Like attachments, addenda provide a way for the parties to modify the main agreement….The addendum should spell out relevant changes and state clearly that if the terms of the original agreement conflict, the addendum’s terms should prevail”.

Although this language almost sounds as though the amended contract would take precedent, I *think* it is specific to the areas modified—not the entire contract. In this case, the area modified was for Beta to continue to provide technical support and parts…essentially it sounds as though the only modifications to the original contract was the time –not terms- of the contract.

The other major consideration that would come to mind is the issue of timing. The filing for bankruptcy took place only days later—charges that misrepresentation or withholding of important information would likely be considered instrumental before signing a contract or amendment. On the other hand, routine continuation of service provisions may not warrant disclosure due to market considerations.

No mention of timing for signing and acceptance is mentioned so I assume that to be in effect however, other conditions may still be imposed. In this case, ACME has full control over the bankruptcy whereas BETA does not. ACME knew about the bankruptcy and would seemingly have more responsibility to comply with the terms of the contract [in this case purchasing x number of units]. Consideration of whether or not the contract amendment can/would be rescinded and perhaps, recover damages, would be of utmost concern [in my opinion].

The consequences of making the wrong decision would first and foremost be breach of contract. Under normal circumstance if ACME fails to purchase the required number of units after knowingly entering into a contract with BETA then ACME may be responsible for the resulting monetary damages….however, since this is a bankruptcy case, ACME would have protections not afforded under normal circumstances. BETA would be required to petition the court to lift the stay and would not be allowed to try to collect from ACME. ACME has the choice of which contracts to recognize and BETA would still be required to perform while ACME is under bankruptcy protection.

Question Four

SemiCorp manufactures electronic components, including a pressure sensor. SemiCorp published a catalog that gives the specifications of the sensor and suggests uses ranging from automobile emission systems to medical instruments. SemiCorp sells the sensors through an independent distributor.

SureBeat Company buys sensors from the distributor and uses them in pacemaker devices. Dr. Art Cardi implanted a SureBeat pacemaker in one of his patients, Ed Goodheart. The pacemaker sensor failed while Goodheart was water-skiing, and he drowned.

Who is possibly subject to liability for Goodheart’s death? Under what legal theories?
What must the plaintiff’s do to prove that the pacemaker is defective?
What arguments can the defense raise to avoid liability? To reduce damages?
If you were a risk manager of SemiCorp, what would you think to be appropriate actions to take to protect human lives and avoid future liability for your firm?

1. In this scenario, all parties are potentially subject to liability claims in Goodheart’s death initially through the concept of strict liability for defective products but also through implied/other warranties. In the concept of strict liability for defective product, “even if the seller makes no warranties it may still be liable under the theory of strict product liability…extends to anyone in the chain of distribution including the manufacturers, wholesalers, distributors and retailers.” [Bagley & Dauchy, 239]. The plaintiff does not need to demonstrate negligence or at fault, they only need to demonstrate [Bagley & Dauchy, 239-240]:
1. Defendant was in the chain of distribution of the product sold.
2. The defect caused the injury.
3. The plaintiff can further sue for negligence if they can prove defendant failed to use reasonable care.
4. Can sue for breach of warranty if there was a warranty.

Since everyone above was in the chain of distribution, everyone is potentially at risk either for strict liability and/or breach of warranty.

SemiCorp may have erroneously given the impression of a warranty by describing suggested uses [Bagley, Dauchy pg. 234] specifying medical instruments. No mention of any limiting liability language was included further implying a potential warranty and opening SemiCorp to liability. This implied warranty guarantees goods are “reasonably fit” for the purpose for which they are sold, packaged and labeled. The “Implied Warranty of Fitness for a Particular Product” would likely be invoked by SureBeat and requires the following four elements be met [Bagley & Dauchy, 233-234]:
1. Buyer had a particular purpose for the goods. In this case SureBeat intended to use the sensors in the manufacture of pacemakers.
2. Seller knew of had reason to know of the purpose. Full information is not given so it is impossible to know if SemiCorp was aware of SureBeat’s intent. This would be one of SemiCorp’s arguments against liability but the implied warranty may over-ride some of this since SemiCorp suggested medical uses and would have reasonable expectations that someone making an order would/could use in that application.
3. Buyer relied on sellers expertise. SureBeat will likely argue they are not experts on the manufacture of sensors and rely upon SemiCorp for this.
4. Seller know or had reason to know of buyers reliance. SemiCorp would reasonably expect that most customers would not be experts on the manufacture of sensors.

2. In order to demonstrate the product was defective the following must be demonstrated [Bagley & Dauchy, 240-243]:
The product was defective when it left the hands of the defendant [I suppose this would still include everyone in the supply chain since it would be reasonable that some type of testing or quality assurance would be implemented by each party in the distribution chain].
The defect made the product unreasonably dangerous. In this case, a pacemaker would have to comply with regulatory agencies so an expectation of safety would be inherent to the average consumer. However, according to the text, “compliance with a regulatory scheme is not a conclusive defense…regulatory standards are often considered minimal requirements and compliance with them will not shield a manufacturer from liability…failure to comply is a prima facie case of defective product or negligence” [Bagley & Dauchy, 240].
Manufacturing defect
Design defect
Failure to warn

3. Possible defenses include:
1. Comparative fault: How much did the act of water skiing play into the failure of the pacemaker? Of course, the counter side is failure to warn—the doctor may/may not have warned about strenuous activity or the sensor or pacemaker manufacturer may not have warned the doctor of the ‘stress load’ the product could handle. Assuming warnings were in place, the adherence to the warnings would be a major issue. Closely related to this would be consideration of whether or not there is an inherent or obvious risk simply by wearing a pacemaker and if water skiing is considered a mis-use of the product.
2. State of the Art defense: if all information was conformed to in the best known manner given the general environment, technology and skill then the company can argue they were acting in a knowing and reasonable manner.

4. In order to avoid potential future liability concerns, SemiCorp should consider implementing language to limit liability and avoid the impression of an implied warranty or warranty of fitness for a particular purpose by implementing the following:
· Providing detailed specifications and limitations of the product without suggestions for use. In this manner a company purchasing the product would be making an independent assessment of what criteria expectations are required in the use of their own products.
· Follow the UCC rules “designed to ensure the buyer is aware of and assents to the disclaimers while excluding implied warranties by using language that calls the buyers attention to the exclusion of the warranties and makes plain there is no implied warranties” [paraphrased from pg. 234]. Basically they should put it in writing and make sure the warning is noticeable, compliant with UCC/other regulatory requirements and read/agreed to by buyers.
· Limit potential remedies by putting into writing
· Provide quality assurance testing measures and make them available to all potential buyers on given failure rate per 1,000; stress loads and other pertinent operating measures.

Question Five

Frederick is a partner in a general partnership that provides investment advice and the sale of securities to the general public. In carrying out partnership business, Johnson became aware that other partners were perpetrating a fraud against a set of customers. Under the circumstances, the fraud would rise to the level of a serious violation of the criminal law. Alarmed, Frederick took his findings to the managing partner, who looked into the matter and discovered that Frederick was correct. The managing partner discussed the matter with the other partners, who voted to expel Frederick from the partnership. Can Frederick sue for wrongful termination of his partnership? The partnership agreement is silent on the subject. Explain your reasoning.

Yes, Frederick can sue for wrongful termination of his partnership under the whistleblower act which is considered a statutory exception to the “employment at will” concept. Although the partnership agreement was silent and the company is not required to provide an explanation of the decision to terminate partnership in the employment at will situation, the fact that Frederick disclosed a known impropriety/illegal practice to upper management, it was found to be valid would likely resemble retaliation. There are both state and federal protections for whistleblowers and in this case, since it involved securities, it would likely fall under Federal protection and therefore, a Public Policy Exception since there are statutory provision in the securities act to protect the public at large. [Bagley & Dauchy, pgs 303-305. Miller and Jentz, pgs 42 and 900. “Business Law Today, 3rd Edition] –Note-this is NOT an online resource. It’s an old Biz Law book I own and refer to constantly].


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