1. Betty and her sister Betsy are fans of natural ice cream. To introduce others to their passion, they want to open an ice cream parlor to sell their creations. They come to you for advice as to what type of form would be best for their budding company. One of their potential investors is a former classmate (a Chinese citizen) of Betty’s from her MBA days at Wharton. In addition, one of Betsy’s former classmates from Harvard Law School is the general counsel of a major food products company. The company may have an interest in investing in the business.
Please discuss the pros and cons of the different forms of business entities they might establish; then make your recommendation as to which would be the best type for them, stating why you came to that conclusion.
Note that for this assignment, no citations to specific authority are required. However, you should, of course, discuss the applicable rules for the various business types when completing this assignment.
2.ManBank is a large, publicly held bank located in New York City. Joan sits on the board of directors for the bank. Joan’s friend, Bob, comes to her one day and tells her, “I’m looking to start a new airline, but the only problem is that I don’t have enough money. All I need is $300 million and I’ll have enough money to realize my dream and own my own airline.” Joan researches Bob’s background and discovers that, in fact, Bob worked as an assistant regional manager for a Midwestern airline for 12 years. Joan also discovers that, during Bob’s tenure there, Bob’s region increased sales by 28%.
Based on this information and on her friendship with Bob, Joan recommends that ManBank give Bob the $300 million loan, which is to be collateralized by the airplanes owned by Bob’s new airline. The board accepts her recommendation and gives Bob the loan. Unfortunately, Bob does a poor job and his airline goes bankrupt in three years. When Bob defaults on the loan, the bank is only able to recover $150 million.
The shareholders bring a derivative lawsuit against Joan for breach of her fiduciary duty of care. They claim that her research into Bob was deficient and that, based on Bob’s background and the state of the airline industry, she should have known that the venture was not likely to succeed.
For this assignment, I would like you to read the NPC courseware and the following cases:
Bayer v. Beran, 49 N.Y.S.2d 2 (N.Y. 1944)
Federal Deposit Insurance Corporation v. Lawrence Bober, 2002 U.S. Dist. LEXIS 13231 (S.D.N.Y. 2002)
Leonard Minzer v. Gerard C. Keegan, 1997 U.S. Dist. Lexis 16445 (E.D.N.Y. 1997)
Auerbach v. Bennett, 47 N.Y.2d 619 (N.Y. 1979)
Alpert v. 28 Williams St. Corp, 457 N.Y.S.2d 4 (App. Div. 1st Dep’t 1982)
In addition, find and read the applicable sections of New York Business Law and New York Banking Law and then answer the following 2 questions:
1) Is Joan’s conduct protected by the “business judgment rule”?
2) Keeping in mind your answer to question #1 and applying the appropriate standard to the case, how likely is the derivative action against Joan to succeed?