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BOARD OF BAR EXAMINERS of the Supreme Court of Delaware


2006 BAR EXAMINATION QUESTIONS

Question 1 | Question 2 | Question 3 | Question 4
Question 5 | Question 6 | Question 7 | Question 8


QUESTION 1

            Rodney Anderson is the President and CEO of Tuffboy, Inc., an industrial cleaning company.  Justin Banner is a former employee of Tuffboy, who started on a cleaning crew, and after a year on the job, rose to middle management.  Six months ago, Anderson and Banner had a falling out.  After initially treating Banner like the son he never had, Anderson soon grew suspicious of Banner, concluding he was not trustworthy.  Anderson eventually fired him.  After the termination, Anderson was bitter whenever the topic of his former employee came up.  When Anderson was recently informed that Banner was forming a competing venture, Neocleen, Inc., Anderson was outraged. 

            Anderson became further angered when he realized that long-term customers of Tuffboy were being contacted by Banner, on behalf of Neocleen, in an effort to take their business.  Anderson suspected, and subsequently confirmed, that when Banner left Tuffboy, he took with him a customer contact list and cleaning procedure protocols.  Anderson had worked out the cleaning protocols over the years, and went to great pains to keep them, and his customer list, confidential.  Both the protocols and the list would have economic value to any competitor in the industrial cleaning market. 

            One of the customers on the customer list, Hanover Hotels, had a five-year contract that granted Tuffboy exclusive cleaning rights to its 100 area hotels.  Because of Neocleen’s solicitation, Hanover ended its relationship with Tuffboy after only three years.  As a result, Tuffboy lost $200,000 in profits.  Neocleen realized $300,000 in profits under its new contract with Hanover. 

            One rainy afternoon, Anderson confronted Banner in a public parking lot outside of a shopping center.  The rhetoric escalated and a crowd of shoppers gathered around to see what the noise was.  At one point, Banner loudly proclaimed:  “Old man, you can’t run a clean business.  What makes you think you can clean someone else’s business?”  Banner knew this to be a false statement.

            After hearing this, Anderson raised his umbrella, began waving it wildly and rushed towards Banner.  Anderson swung his umbrella down upon Banner, but Banner stepped to the side, and Anderson instead hit Banner’s new car, destroying the windshield and scratching the paint.  Banner thereafter grabbed Anderson to restrain him, and held him in a headlock until a policeman arrived two minutes later.  Anderson did not suffer any physical harm in the incident.

            After this unfortunate episode, Banner presented a claim under his comprehensive automobile insurance (the premium for which he paid himself), for damage to his new car.  The reduction in fair market value of the vehicle was $3,000, but because his insurance policy only provided an amount equal to the costs of repair, it paid him $2,000. 

            Tuffboy filed suit against Neocleen in Delaware Superior Court, seeking damages against Neocleen.  Banner filed an action against Anderson in Delaware Superior Court, and Anderson filed a counterclaim against Banner.

 

1.  What causes of action can Tuffboy assert in its civil action against Neocleen?  Identify each cause of action, its elements, and discuss whether Tuffboy should prevail on the facts presented.  Explain your answer.
2.  What damages can Tuffboy recover against Neocleen?  Discuss the factual and legal basis for your answer.
3.  What causes of action can Anderson assert against Banner?  Identify each cause of action, its elements, and discuss whether Anderson should prevail on the facts presented.  Explain your answer.
4.  What damages can Anderson recover against Banner?  Discuss the factual and legal basis for your answer.
5.  How much is Banner entitled to recover from Anderson for property damage to his car?  Discuss the factual and legal basis for your answer.

 

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QUESTION 2

            Carla Cutter owns a beauty salon along a busy street in Smalltown, Delaware.  On both sides of the street near the salon there are stores, a public library, school, and post office.  Students and other pedestrians frequently cross the street in front of the salon without the benefit of a marked crosswalk or traffic light, and drivers attempting to exit from driveways along the street have difficulty seeing pedestrians and oncoming traffic because of parked cars.  To alleviate concerns over vehicular and pedestrian traffic safety, the Smalltown police chief studied traffic conditions and proposed several alternative solutions, including restricting parking on both sides of the street in front of Cutter’s salon.  During a regular public meeting, the town council adopted a resolution, based on the police study, designating no parking zones on both sides of the street in front of the salon.  Cutter loses some clients because of the parking restrictions.

            (1)  Discuss any federal constitutional claims Cutter may assert in a suit to invalidate the no parking zone, and whether she will prevail.  Explain your answer.

            Pending the outcome of her suit, Cutter takes a part-time job at a local nursing home as a hair stylist.  Sarah Senior, an 80-year old resident of the facility, is scheduled for a haircut.  Unknown to Cutter, Senior has dementia and refuses to cooperate with Cutter, causing Cutter to accidentally cut off large, uneven chunks of Senior’s hair.  Cutter angrily tells Senior:  “You old cow, hold your damn head still.”  Because Senior becomes extremely agitated, Cutter is unable to correct her mistakes, and Senior’s family complains about Cutter’s incompetence to the Board of Cosmetology and Barbering (“Board”).  In addition, the facility reports Cutter’s comment to the Department of Health and Social Services, and Cutter is charged with a violation of the patient abuse statute, which provides:  “Any person who knowingly abuses, mistreats or knowingly or recklessly neglects a patient or resident of a facility shall be guilty of a class A misdemeanor.”  The statutory definition of abuse “includes, but is not limited to, ridiculing or demeaning a patient or resident, making derogatory remarks to a patient or resident or cursing directed towards a patient or resident….” 
 
           (2)   Cutter moves to dismiss the criminal charge, claiming that the patient abuse statute violates the United States Constitution.  Discuss possible grounds in support of Cutter’s motion, and whether she will prevail.  Explain your answer.

            After investigating the family’s complaint, an investigator from the Division of Professional Regulation seizes Cutter’s license claiming incompetence and negligence, and issues her a temporary license which is effective for fifteen days.  Pursuant to statute, the investigator informs Cutter that she has a right to request a hearing before the Board at which she can contest the revocation of her license.  The statute provides that a license may be revoked for up to one year following an investigator’s certification that there is probable cause to believe a violation has occurred; however, if a hearing is requested, revocation is not effective until the final decision of the Board results in a decision adverse to the licensee.  If no written request for a hearing is filed within the fifteen-day period, revocation becomes effective immediately thereafter.  The investigator certifies a violation based upon probable cause, but Cutter does not request a hearing within the fifteen-day period, and her license is revoked for one year. 

            (3)   Discuss any federal constitutional claims Cutter may raise on appeal from the revocation of her license, and whether she will prevail.  Explain your answer. 

            Assume Cutter’s motion to dismiss the criminal charge in Question (2) above is denied, and Cutter is convicted of a violation of the patient abuse statute.  Assume that on appeal, the Delaware Supreme Court rules the statute unconstitutional as applied to Cutter, reversing the judgment of the lower court.  In response to public outcry, a bill is passed and signed into law that

(A)       declares the Supreme Court’s decision in Cutter v. State “null and void;”

(B)       creates a new felony offense entitled “Abuse of an Adult Suffering from
            Dementia” that:

(i)         defines abuse the same as contained in the patient abuse statute, but does
            not limit the victims to patients or residents of long-term care facilities;
(ii)        provides that it is no defense to a prosecution that the person was unaware
            that the victim had dementia; and
(iii)       provides that prosecution under this section does not preclude prosecution
            under any other section of the Delaware Code; and

(C)       requires that any person convicted of a violation of the patient abuse statute or
            “Abuse of an Individual Suffering from Dementia” must be registered in the
            Adult Abuse Registry, and have his/her name, address, and date of conviction
            published on the internet and posted locally to inform the community of the
            presence of an adult abuser. 

The bill’s synopsis cites studies from other states showing the propensity for recidivism of convicted adult abusers, and declares that the legislative intent is to protect society’s most vulnerable adults through registration and community notification. 

            (4)   Without repeating any claims addressed in Question (2) above, discuss any state or federal constitutional issues implicated by this legislation, both in general and as applied to Cutter.

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QUESTION 3

      In March 2004, Art Kane was diagnosed with cancer and was told by his doctor that he had less than two years to live.  At that time, Art owned a business which was worth over $1 million and held stocks worth about the same amount. 

      When he received the bad news concerning his health, Art determined to get his affairs in order.  He married a woman, Cindy, whom he had been seeing for the last year.  He also had a Will prepared by his lawyer, Larry Lawyer.  The Will left his business to his son from a previous marriage, Ben Kane, and his stock to his new wife, Cindy Kane.  Art showed the Will to Cindy shortly after it was executed.

      In May, 2004, Ben asked his father Art for money to purchase a house.  Art agreed, sold $250,000 worth of his stock and transferred the money to Ben.  On the same day, Art told Cindy that he had explained to Ben that the money was a loan, and that when Art died and Ben inherited the business, Ben would pay her back.  Art also gave her a memo explaining the terms of his Will and the distribution of his assets at his death.  The memo listed Art’s assets, and stated that the business should be given to Ben, and the stocks given to Cindy.  One of the listed stocks was crossed out with a note next to it in Art’s handwriting which stated “to be paid back by Ben.”

      A few weeks later, Art met with Larry Lawyer about a tax problem relating to his business.  After the meeting was over, they went to lunch and Art mentioned the transfer of the $250,000 to Ben.  Art told Larry that he did not expect that Ben would pay back the loan.
 
      A couple of months later, in late August 2004, Art went out drinking with some old friends.  After spending several hours at the bar, he drove home, picked up Cindy and was driving to a local restaurant when he was involved in an intersection collision.  The intersection was controlled by a traffic light.  Immediately after the accident, the driver of the other vehicle, Phil Plaintiff, yelled out “I never saw the light.”  Phil suffered serious injuries in the accident.

      Art was unconscious after the accident and was taken to the hospital by an ambulance. While in the hospital, he told Cindy in confidence that he had been drinking heavily at the bar prior to the accident.  On September 10, 2004, a priest was called to the hospital because it appeared that Art might die at any time.  Art confessed to the priest that he had run a red light at the time of the accident.

      Art died on September 13, 2004, and Cindy was appointed as the representative of his estate.  After recovering from the grief caused by her husband’s death, Cindy asked Ben to pay her back the $250,000 loan.  Ben refused, claiming he owed her nothing.  When Cindy pressed the issue, Ben hired attorney Tom Tort to represent him.  After meeting with Ben, Tom wrote to Cindy on October 28, 2004, and said “we know your husband loaned Ben the money to buy his house, but that loan was an obligation to Art personally and is no longer valid now that he has died.  Please contact me to discuss a resolution of this issue.”

      In October, 2005, Phil Plaintiff filed suit against Art’s estate for his personal injuries.  Shortly thereafter, Cindy filed suit against Ben for repayment of the “loan.”  Both cases have been assigned to the Delaware Superior Court judge for whom you clerk.  Assume that in the course of the litigation, the following issues are raised and you are asked to prepare a memo discussing the issues, and giving the Court your opinion on how it should rule.  Explain your reasoning as to each issue:

      In connection with the suit of Cindy Kane v. Ben Kane the following issues arise:

      (1)   At Larry Lawyer’s pre-trial deposition, Ben’s attorney asks Larry about his discussion of the $250,000 transfer with Art.  Cindy’s attorney objects and directs Larry not to answer.  Ben’s attorney asks the Court for an Order compelling Larry to answer.  How should the judge rule and why? 

      (2)   Cindy seeks to introduce the memo prepared by her husband showing his list of assets with the one stock crossed out and Art’s handwritten note “to be paid back by Ben.”  Is it admissible?  Explain your answer.

      (3)   Cindy seeks to introduce into evidence at trial the letter from Ben’s attorney Tom Tort to show the transfer was a loan.  Is it admissible? Explain your answer.
                   
      In connection with the suit of Phil Plaintiff v. Cindy as Representative of Art’s Estate:

      (4)    Phil’s attorney calls Cindy as a witness at trial and asks her to testify as to everything Art said to her in the hospital.  Cindy’s counsel objects.  How should the judge rule? Explain your answer.

      (5)    Phil also seeks to testify at trial that Art offered him $5,000 to drop his claims.  Is this testimony admissible?  Explain your answer.

      (6)    At trial, Phil’s attorney calls a nurse who was present in the room during Art’s confession to the priest and asks her to testify as to what she heard Art say about the accident. Cindy’s counsel objects.  How should the judge rule?  Explain your answer.

      (7)    At trial, Phil calls an expert in accident reconstruction.  The expert is prepared to testify that it is his opinion to a reasonable degree of scientific certainty that Art was driving at an excessive speed.  The opinion is based on the expert’s calculations with respect to the tire skid marks at the scene.  The expert also claims to have psychic abilities and is prepared to testify that he can also tell from the skid marks that Art was intoxicated at the time of the accident.  Are the expert’s opinions admissible?  Explain your answers and discuss what standard the judge should apply to the issues.

      (8)    Cindy’s attorney seeks to introduce evidence at the trial that Phil cheated on his taxes eight years ago.  Phil was charged with felony tax fraud, but accepted a plea bargain which reduced the charge to a misdemeanor.  Is it admissible?  Explain your answer.

      (9)    Cindy’s attorney also seeks to introduce the testimony of a witness who heard Phil’s statement about the light after the accident.  Is it admissible?  Explain your answer.

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QUESTION 4

Part A.

     
In 1941, an irrevocable trust was set up for Barry Beneficiary by his parents.  Barry was also his parents’ sole heir and, as such, would have inherited all their assets directly in 1957, when his parents died, had the 1941 Trust not been created.  The 1941 Trust provided that all income from the Trust assets, above the rate of inflation, would be distributed to Barry at the beginning of each year.  From 1941 through 2006, large sums have been paid to Barry according to the terms of the 1941 Trust.  The 1941 Trust also specified that upon Barry’s death, the trust corpus would be donated to a church organization selected by his mother.  The terms of the 1941 Trust were established by an oral agreement between Barry’s parents and the trustee, a local bank, but never put in writing.  Several witnesses to the oral terms are still alive and of sound mind, and the terms have been consistently adhered to by the bank. 

      Barry, who is now preparing for retirement, would like to take for himself all the assets in the 1941 Trust corpus.  He wants to ask the court to declare the 1941 Trust invalid for lack of a written instrument.  Assuming all other requirements for a trust are met, will Barry be successful in his suit?  Why or why not?  Explain your answer.

Part B.


      In 2006, Sally Settlor, aged 75, and her son Larry met with their lawyer and representatives of the Blue Hen Bank to establish a trust for the benefit of Larry.  The Bank will serve as trustee.  Sally Settlor executed a written Trust instrument on May 1, 2006.  During the conversations leading up to the preparation of the instrument, Sally became confused, causing her son Larry to provide some of the required information.  On many points of fact Sally was willing to defer to Larry.  The Trust corpus was identified as money then in the possession of Sally’s brother Charles, but which she expected to inherit very shortly, as her brother Charles was on his deathbed.  Sally’s attorney and Larry witnessed Sally’s signature on the Trust instrument.  Sally’s brother Charles died on May 5, 2006, and the money she inherited from him was placed in the Trust. 

      Larry’s sister Pauline wants to challenge the Trust in court to obtain a share of her deceased uncle Charles’ assets.  Discuss the theories under which Pauline can challenge the validity of the Trust, and for each theory, evaluate the probability of success.  Explain your answers.

Part C.


      Sally Settlor executed a written irrevocable Trust instrument for the benefit of both her children, Larry and Pauline, in 1960.  Sally signed over 10,000 shares of Blue Chip Company stock to fund the Trust.  The Trust instrument named Tammy Trustee as Trustee.  The Trust instrument instructs that Sally is to receive the income from the Trust corpus during her lifetime, and that at her death the Trust corpus will be distributed to Sally’s then living issue, per stirpes. 

      Seeking to diversify the Trust corpus, which was earning income at five percent per year, Tammy sold some of the stock for $500,000.  Tammy used the $500,000 to help purchase a house for $1 million.  Tammy lived in the home for five years paying the mortgage out of her own funds, and then sold it for $2 million.  She reinvested $750,000 of the proceeds from the sale of the house back into the Trust, representing a benefit to the trust of approximately ten percent per year. 

      Larry and Pauline grew suspicious of Tammy’s real estate dealings and learned of the home purchase through an investigator.  They filed suit, asking the court to remove Tammy as Trustee and to award damages.  Discuss any relevant statutory and/or common law rules and how a court would likely rule on these requests.  Explain your answer.

Part D.


      Assume that under the facts set forth in Part C, Tammy remained the Trustee of the Trust for Larry and Pauline until after Sally’s death.  Between the time of Sally’s death and the distribution of the Trust corpus, Pauline died childless.  In her valid will, she left everything to the college she had attended.

      The Trust instrument reads in part:  “Upon the death of the Settlor, Trustee shall pay over whatever remains of the Trust estate to Settlor’s children, Larry and Pauline.  If either or both of them shall be deceased, to Settlor’s then living issue, per stirpes.”

      Larry believes that the entire corpus of the Trust should be distributed to him.  Discuss the relevant statutory and/or common law rules and how a court would likely distribute the corpus of the Trust.  Explain your answer.

Part E.


     
Assume that the facts are as in Part D except that (1) Pauline died before Sally’s death and (2) Pauline was survived by Freda Friend, a college classmate, not related to her by blood, whom she legally adopted as her daughter five years ago.  There is no evidence that Sally knew of Pauline’s adoption of Freda.  Larry has letters from Sally to him and Pauline, written years after the Trust was created, stating that she hoped each of them would carry on the “Settlor” family bloodline by having children of their own, and that the Trust was created to encourage them to do so. 

      Discuss the relevant statutory and/or common law rules, and whether Freda would receive any portion of the Trust corpus under the language of the Trust instrument?  Explain your answer.

Part F.


      Assume the same scenario as in Part E, in which Pauline adopted Freda as a daughter and then died before Sally.  Tammy distributed half the Trust to Freda before Larry brought his action to declare himself the sole beneficiary of the Trust. 

      Discuss whether Larry has a claim against Freda, and whether Larry is likely to prevail.  Explain your answer.


Question 1 | Question 2 | Question 3 | Question 4
Question 5 | Question 6 | Question 7 | Question 8


QUESTION 5

     Midlantic Hardware, Inc. (“MHI”) is a corporation incorporated in Delaware with its principal place of business in Wilmington, Delaware.  MHI operates hardware retail stores in the middle Atlantic States.  MHI is not a registered company with the Securities and Exchange Commission, but its common stock is publicly traded on a smaller stock exchange with fewer registration requirements.  MHI held its last annual meeting on August 1, 2005.  During 2006, MHI stock has traded consistently around $30 per share.

      MHI’s Certificate of Incorporation authorizes one class of stock, Common Stock, and a total of 4,000,000 authorized shares.  MHI has 1,000,000 shares of Common Stock issued and outstanding.  MHI’s Certificate of Incorporation also provides that the MHI Board of Directors shall include up to five but not less than three directors and that a quorum of the Board shall be a majority of the directors.

     MHI’s Board of Directors includes the following five persons:  (1) MHI’s founder, Chairman and Chief Executive Officer, Al Abbott; (2) Bob Abbott, who is Al’s son and MHI’s Chief Operating Officer; (3) Charles Abbott, who is Bob’s son and MHI’s Chief Financial Officer; (4) Dana Duke, who is a retired businesswoman, and (5) Ed Els, who is a retired businessman. 

      Al, Bob, and Charles Abbott are co-owners of Abbott Holding, LLC, a family investment vehicle they use to hold and trade personal stocks and other investments.  Neither Abbott Holding LLC, Al, Bob, Charles, Duke, nor Els owns any MHI stock.  Al, Bob, and Charles Abbott also are employees of MHI and receive compensation in the form of annual salary and bonus determined by the compensation committee of the Board, which is comprised of Duke and Els.  Neither Duke nor Els is an employee of MHI.

      At the quarterly meeting of the MHI Board on June 30, 2006, Al Abbott informed the MHI Board that he heard from a reliable source that BIG Hardware, Inc. (“BIG”), was considering making a proposal to acquire MHI.  Charles Abbott presented a valuation analysis to the Board based on MHI’s 2006 - 2008 projected cash flow indicating a present going concern value for MHI in the range of $40 to $45 per share.  In view of a potential BIG proposal, the MHI Board unanimously resolved that it was in the best interests of the MHI stockholders to institute a Preferred Share Purchase Rights Plan (i.e., a “poison pill”) which would empower the MHI Board to protect the MHI stockholders from inadequate hostile takeover attempts.  The MHI Board also resolved to authorize Al Abbott to consult with MHI’s outside attorneys, Love, Anderson & White (“LAW”), to determine the necessary steps for MHI to institute a Rights Plan as soon as possible.  LAW had previously advised the MHI Board in general regarding such a Rights Plan which would involve the distribution by MHI to its stockholders of one Preferred Share Purchase Right for every share of Common Stock outstanding and the rights would be triggered in certain circumstances where a hostile bidder attempted a hostile acquisition of MHI.

      Also at the June 30, 2006 Board meeting, the MHI Board approved the Notice of Annual Meeting for the MHI 2006 annual meeting and the related Proxy Statement, scheduling the annual meeting to be held on August 1, 2006.  The MHI Board also set a record date for the annual meeting of June 30, 2006.  The Notice and Proxy Statement provided that the matters to be voted on at the annual meeting included the election of directors, any adjournment of the annual meeting and such other business to come before the meeting.  MHI planned to mail the Notice of Annual Meeting and the related Proxy Statement to all MHI stockholders on July 3, 2006. 

      Immediately following the June 30, 2006, Board meeting, directors Duke and Els departed for a mountain climbing expedition in Africa.  Duke and Els informed the Abbotts prior to their departure that they would be unreachable by any form of communication until their planned return to the United States on August 5, 2006.

      On July 1, 2006, Al Abbott received a letter by telecopy from Zack Zeus, Chief Executive Office of BIG, proposing a merger of BIG and MHI pursuant to which BIG would acquire all of the outstanding MHI common stock for $35 per share in cash.  Zeus’ letter stated that if BIG and MHI could not execute a definitive merger agreement by December 31, 2006, BIG intended to commence a tender offer for any and all outstanding shares of MHI for $35 per share in cash.

      On July 1, 2006, Abbott contacted David Love, a senior partner at LAW.  Abbott informed Love about the BIG proposal and stated that MHI needed to move quickly to establish the Rights Plan.  Love told Abbott that in order to institute a Rights Plan, the MHI Certificate of Incorporation would need to be amended to authorize the issuance of 50,000 shares of Preferred Stock.  Abbott and Love scheduled a meeting for July 2, 2006 to discuss MHI’s strategy.

      Al, Bob, and Charles Abbott met in the evening on July 1, 2006.  With Duke and Els absent and incommunicado until August 5, 2006, the Abbotts formulated three alternative strategies for Al to discuss with LAW. 

      ALTERNATIVE #1:    The Abbotts, as a majority of the Board, would execute a written consent of directors (1) to approve an amendment to the Certificate of Incorporation to authorize 50,000 shares of Preferred Stock to be proposed for stockholder approval, and (2) to approve a new form of Notice of Annual Meeting and related Proxy Statement to add a vote on the proposed Certificate Amendment to the agenda for the August 1, 2006, annual meeting.

      ALTERNATIVE #2:    The Notice of Annual Meeting and Proxy Statement would not be mailed on July 3, 2006 in the form approved at the June 30 Board meeting and MHI would not hold the annual meeting on August 1, 2006.  Instead, when Duke and Els returned on August 5, 2006, the MHI Board would meet as soon as possible to approve a new Notice of Annual Meeting and Proxy Statement and set a new date for an annual meeting to be held in mid-November 2006 to consider the election of directors and the Certificate amendment. 

      ALTERNATIVE #3:    The Abbotts, as a majority of the Board, would approve a grant by MHI to Abbott Holdings LLC of an option to purchase 1,100,000 shares of MHI Common Stock at $10 per share, immediately exercisable.  Abbott Holdings would exercise the option only if a hostile acquiror such as BIG attempted to acquire MHI before MHI established its Rights Plan.  Further, the option would expire upon the establishment of the Rights Plan by MHI.

      You are an associate attorney at LAW.  Love has requested you to meet with Al Abbott.  Assume that Al Abbott presented to you the three Alternatives and requested written answers from LAW to the following four questions.

      QUESTION #1:  If the Abbotts proceed with Alternative #1 and the amendment is approved by a majority of the shares voted by the MHI stockholders at the August 1, 2006 annual meeting, will the stockholder approval validly authorize amendment of the MHI Certificate of Incorporation under Delaware law?  Explain your answer. 

      QUESTION #2:  If the proposal to delay and reschedule the annual meeting for mid-November 2006 in Alternative #2 is pursued, could a public stockholder of MHI assert any potentially meritorious claim under Delaware law to challenge such action?  Explain your answer.

      QUESTION #3:  If the Abbotts proceed with Alternative #3, could BIG or the public stockholders of MHI assert any potentially meritorious claims under Delaware law to challenge the option?  Explain your answer. 

      QUESTION #4:   Assume for answering this question only that the Abbotts proceed with Alternative #2 and the annual meeting is held on November 17, 2006.  Further assume that 750,000 shares are present in person or by proxy at the annual meeting, and that 400,000 shares are voted in favor of the election of the incumbent directors and the proposed amendment to the Certificate of Incorporation.  Can MHI file the Certificate Amendment and issue the Preferred Stock?  Explain your answer. 

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QUESTION 6

      Bill Adams lives in Westminster Hills in Delaware.  All Westminster Hills residents agree to restrictive covenants in their deeds that prohibit the operation of businesses in their homes.  Adams wants to sell his home and contacts Robin Rice, a local realtor.  Rice tells Adams that she believes Adams can sell his house for $465,000.  Adams knows that other comparable houses in the neighborhood have sold in the range of $650,000 - $750,000.  Adams asks Rice why she thinks his house will sell for so much less than other comparable houses.

      Rice explains that Adams’ home is worth less because of the business operated by Adams’ next door neighbor, Nancy Nash.  For the past eight years, Nash has taken in dogs of friends and neighbors for boarding while the dogs’ owners are away.  Nash generally has anywhere from three to ten dogs boarded at her home.  The dogs have indoor pens, but also have individual outdoor runs.  As her business has grown, Nash has invested considerable money in the business, constructing first-class boarding facilities.  As one might expect, the dogs bark, and the barking can be clearly heard on Adams’ property.

      Adams explains to Rice that Nash’s dogs have never bothered him -- he is a dog lover and actually enjoys seeing the dogs from his back deck.  In addition, at the time Nash started her business, Adams was president of the Westminster Hills Neighborhood Association.  At the time, Nash asked Adams about the conflict between Nash’s operation of a business and the neighborhood’s restrictive covenants.  Adams told Nash not to worry about it and that Adams would make sure no one “causes a stink” over the problem.  Nash was very appreciative and offered Adams “free doggie housing” for life.  Each year, when Adams and his wife visit their Florida condo, they leave their yellow lab Sadie with Nash -- at no charge.

      Nonetheless, Adams explains that he must sell his home and cannot afford to sell it for only $465,000.  He asks Rice to come up with a solution.  Rice advises Adams to retain you as his lawyer and Adams does so.  You advise Adams to try to work out some type of solution to the problem with Nash.  Adams attempts to do so, asking Nash to keep the dogs indoors at all times.  Nash refuses.

      Adams then asks you to file a lawsuit in a Delaware court and asks what types of relief he might seek.  You explain that Adams should ask for (a) a declaratory judgment that Nash is in violation of the restrictive covenants of Westminster Hills; (b) temporary and permanent injunctive relief prohibiting Nash from operating a business from her residence; and (c) monetary damages.  Adams wants to file litigation asking for all of those remedies.

 

1.  In what Delaware court should the suit be filed?  Explain your answer.

2.  What must Adams show to obtain a temporary restraining order, and alternatively a preliminary injunction forcing Nash to keep the dogs indoors?  Is the court likely to grant a temporary restraining order or preliminary injunction?  What defenses would Nash raise?  Explain your answers.

3.   If a temporary restraining order is entered, how long will it remain in place?  If a preliminary injunction is entered, how long will it remain in place?
As you are preparing the lawsuit, Adams tells you that Nash has presented him with an unconditional offer to purchase Adams’ home for $465,000.  Adams still wants to press forward with the lawsuit, however. 

4.   What effect, if any, will the $465,000 offer have on Adams’ entitlement to equitable relief?  Explain your answer.
Adams believes he will recover more money in the lawsuit if he asks for a jury trial and punitive damages, and suggests that you make these two requests in the complaint.

5.   What impact will including a jury demand and punitive damages have on the court in which to file suit?  Explain your answer.

6.   What defenses are available to Nash to defend against the merits of Adams’ claims, and what are the elements of those defenses?  Explain your answer.

 

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QUESTION 7

      You are a new Delaware Deputy Attorney General, assigned to the “Indictment Unit.”  Your boss, the supervisor of the Indictment Unit, has asked for a memo on any proposed indictment listing the charges, and explaining in a sentence why the charge is justified.  You now need to prepare indictments on the basis of the following report of an investigator assigned to the Attorney General’s Office.

To:       Deputy Attorney General
From:   John Smith, Investigator
Date:    July 23, 2006

      On February 1, 2006, I applied for and received authority to conduct a wiretap in relation to phone 302-987-6543, located in Dover, Delaware, and subscribed to by the suspected drug dealer, T. Able (age 26, one prior conviction, in 1999, for possession of cocaine).  During the course of the wiretap, I intercepted the following conversations between Able and other suspects.

      On February 3, 2006, I heard the following conversation between Able and J. Baker (age 32, one prior conviction, in 1995, for burglary 3rd):

Baker: Hello.
Able:   Hello.
Baker: What do you hear?
Able:   Nothing.  I was thinking I’d get ten dresses, but my old dry-cleaner is all out.  So I’m looking for a new dry-cleaner. 
Baker: OK.  Because I have a couple of guys who need some dresses, but I don’t have any right now.
Able:   OK.  Bye. 

“Dresses” is code for drugs of some kind.  During surveillance from the next-door high school, police saw Baker walk out the front door of her residence in Smyrna, Delaware, and get into her 2002 Lexus about two minutes after this conversation.  Police were not able to follow the Lexus, and do not know where Baker went.

      On February 4, 2006, I heard the following conversation between Able and N. Charlie (age 48, one prior conviction, in 1994, for forgery 3rd):

Able:     Hello.
Charlie: Hello.  It’s Charlie.  Can I have three logs?
Able:     Sure.  You want “Killer” or “Bear”?
Charlie: “Killer.”
Able:     OK, it’ll be 19.
Charlie: OK.  Same place as last time?
Able:     OK.
Charlie: I’ll be there in twenty minutes.
Able:     OK.

A “log” is code for 130 individual bags of heroin.  Nineteen is code for $1900.  “Killer” and “Bear” are brands of heroin.  An individual bag of heroin consists of .02 grams of heroin.  During surveillance from the next-door police station, police saw Charlie walk out of his house in Kent County, Delaware, and get into his 1999 Honda Civic about two minutes after this conversation.  Police followed him for another sixteen minutes to Dover, Delaware, where he was last seen about three city blocks from Able’s home, heading in the direction of Able’s home.

      On February 5, 2006, I heard the following conversation between Able and D. Davis (age 20, one prior conviction, in 2005, for possession of marijuana):

Davis:   Hello. 
Able:    It’s me.  What’s up?
Davis:   Not much.
Able:    Not much here either.  Would you like a Humboldt?  It’s really fine.
Davis:   Yes, I would.  But I don’t have any money. 
Able:    Well, I’m not giving it away.  Call me if you get the money.
Davis:   OK.  Bye.
Able:    Bye.

“Humboldt” is a type of marijuana.  A Humboldt is one marijuana cigarette.  Surveillance of Davis’ home in Sussex County, Delaware, was being conducted from the next-door church, and showed that he was present at the time of this call, but he was not seen leaving his home any time during the four hours that followed this conversation.

      On February 7, 2006, I applied for and received authority to conduct search warrants at the homes of Able, Baker, Charlie, and Davis.  I was assisted in the execution of these warrants by numerous police officers from various police departments. 

      At Able’s home in Dover, police recovered the following evidence from a safe in Able’s bedroom: a pocketknife with a two-inch blade; $9,900 in cash, all tens and twenties; and an unloaded semi-automatic Smith and Wesson pistol.  In a desk in the same bedroom, police found a receipt for the purchase of the Smith and Wesson pistol, from “Guns R Us,” dated January 3, 2006, in the name of T. Able, for $225.  T. Able was not home during the search. 

      When police executed the search warrant at Baker’s home in Smyrna, they discovered that Baker and her four-year-old son were home and asleep.  Under Baker’s bed, police found a .45 caliber pistol.  An evidence detection officer examined the pistol for fingerprints.  Only one print was identified, and it belonged to Baker.  In the son’s room, police found 400 individually wrapped bags of heroin (average weight of .02 grams per bag) hidden inside the pillowcase on the son’s bed.  Baker was arrested without incident. 

      When police executed the search warrant at Charlie’s home in Kent County, Charlie was the only person at home.  He was asleep in a chair.  When a Kent County police officer, in full uniform, awoke Charlie, Charlie spat in her face, temporarily blinding her.  Charlie then took a swing at her with his fist, but missed her entirely.  Officer Edwards, standing nearby, used his stun gun to momentarily incapacitate Charlie, and Charlie was taken into custody without further incident.  About a minute later, the Kent County police officer recovered her eyesight, and there were no after effects.  After Charlie was handcuffed, during a search incident to the arrest, officers lifted Charlie’s sweatshirt, and recovered a loaded .22 caliber handgun that had been in the waistband of Charlie’s pants.  Charlie was advised of his Miranda rights, and gave a statement in which he said that he has the .22 for protection because he keeps his life savings in his home.  During the search at the home, the only evidence seized was $1,560 in cash.

      At Davis’ home in Sussex County, I personally took part in the execution of the search warrant, with Officers Farley, Grant, and Hardy of the Sussex County Police.  We knocked on the door, announcing ourselves as police, but there was no response for a minute.  We then forced our entry into the house.  We found Davis and his girlfriend, M. Idle (age 14, no criminal record), in a bedroom, unclothed.  They were detained while the search was conducted.  Officer Farley found a safe in the attic.  When he could not open it, he asked Davis for the combination, which Davis gave him.  When Officer Farley opened the safe, he found the following: $100 cash, Davis’ checkbook, and a videotape.  Davis was advised of his Miranda rights, which he waived, and he then gave a statement.  He was handcuffed during the statement.  He denied ever selling marijuana, but admitted that he had smoked marijuana before.  He was asked about the videotape, and admitted that he had installed a hidden video camera in his bedroom, and that the videotape showed him and Idle having sex the day before.  He said that Idle did not know about the video camera or the videotape.  He said that he and Idle were in love, and would get married as soon as her parents would agree to it.  Officer Grant, who was present for this statement, then realized that Idle was his cousin’s daughter, and stated, very angrily, “I’m going to kill you.”  Officer Grant then pulled out his service revolver and pointed it right at Davis.  Davis fainted.  Officer Grant was quickly restrained by Officer Hardy and me.  I later obtained a search warrant for the videotape, and confirmed that the videotape showed Davis and Idle having sexual intercourse. 

      Please write the memo your supervisor requires, and describe for each individual with criminal culpability the crimes that can reasonably be charged.  Explain for each crime charged, in one sentence, the factual basis for the charge.  Do not charge lesser-included offenses.  Be sure to specify, for any crime for which there is more than one degree (e.g., murder 1st and murder 2nd), which degree you are charging.

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QUESTION 8

      Giant Auto Maker Corp. (“Maker”) manufactures and sells specialty cars to targeted large businesses.  Keep Em Safe Security Corp. (“Security”), a provider of private security services to high end residences and commercial businesses, contacted Maker and offered to buy five vehicles for its security patrol fleet.  However, Security wanted the five cars specially outfitted with “extras” including an on-line GPS directional system and built-in cellular telephone and wireless email services linked to a twenty-four hour emergency assistance program.  Maker did on occasion include cellular and email “extras” in some of its fleet but did not manufacture the component parts.  Inclusion in its cars of GPS software to be manufactured by others was entirely new to Maker’s line. 

      Maker agreed to obtain the components needed for the “extras” from Computer Toy Seller (“Toy”) and also agreed with Toy to install the “extras” in the five cars, but required Security to pay Maker the extra costs at closing on the sale.  The “extras” were included on the invoice sent to Security by Maker with the notation that Maker would pay Toy for the “extra” components upon closing on the sale of the five vehicles.

      Maker had several cars in its inventory that it thought suitable for the Security order.  The cars had been leased out under three-year leases and, upon expiration of the leases, had been returned to Maker’s inventory.  Maker refurbished five of the cars and then retrofitted them with the cellular systems and on-line GPS service.  None of the cars had been driven more than 50,000 miles.  Because Maker did not wish to print entirely new Owners’ Manuals for the five specially-outfitted cars, instead it had printed labels which were pasted into the existing owners’ manuals over the original warranty provisions.  The labels read:

Any applicable warranties on this vehicle expire after four years or 50,000 miles, whichever comes first.  All implied warranties are disclaimed except as otherwise allowed by applicable law.  Maker’s liability for any claim for damages arising hereunder is expressly limited to $100,000.  All warranty claims are governed by the laws of the State of Delaware.  All applicable warranties extend to the original owners only and are NOT transferable or assignable.

      Maker represented the five cars to Security as new to the sales market.

      On January 2, 2006, Security paid Maker in full for the five vehicles.  But Maker only paid Toy a portion of the agreed-to cost of the “extras” as it was facing cash flow problems and needed to use the balance to cover other expenses.  Maker told Toy that it would pay the remaining balance due for the components in installments over a one-year period beginning the date of the sale.

      Security assigned the five Maker cars to each of its five security patrols in McMansionville, a tony enclave of multi-million dollar homes in northern Delaware.  It also began an aggressive advertising campaign featuring the cars, which Security dubbed its “new, state of the art stealth cars,” trumpeting the fact that the patrol cars had been specially outfitted to allow for immediate contact with law enforcement should the need arise, and, by the touch of a button, to provide the law enforcement authorities the fastest route to any scene where they might be needed.

      Gill Bates, a famous art collector, lived in McMansionville.  Bates’ home housed a collection of rare art valued at $1 Million.  After seeing the advertisements about Security’s new “stealth cars,” Bates subscribed to Security’s service.  In January, 2007, Gill Bates’ multi-million dollar chateau was burglarized.  Security’s patrol car, patrolling an adjacent neighborhood at the time, was notified by electronic transponder of a home invasion at the Bates property.  Relatively new to the area, the patrol agent hit the GPS system seeking direction to Bates’ property.  The system crashed.  The patrol agent then tried to call the police by cell phone but received no signal.  The built-in cellular system, apparently linked electronically with the GPS computer, had also crashed and no signal transmission could be made.  By the time the authorities reached the Bates estate, all the art was gone, as were the thieves. 

      The next day, Maker’s CEO read about the robbery in the newspaper.  Curious if one of Maker’s cars was involved in the case, CEO tried calling Security.  No one at Security would speak with CEO about the incident or even confirm that a Maker car had been involved. 

      Security undertook an investigation into the system failures in Security’s stealth car.  The investigation could not determine if the crash of the specially-outfitted systems was caused by a failure in the primary electrical system of the car, a failure in the component parts themselves, or a consequence of faulty installation. 

      Security immediately settled with Bates for the value of the lost art.  Security then comes to your firm, demanding that you sue everybody responsible.  Senior Partner asks you to answer the following questions:

      (1)   Who may Security sue to recover the damages suffered as a consequence of the failure of the electrical components of Security’s car?

      (2)   Discuss any claims in Security’s favor under the Uniform Commercial Code and the party or parties against whom the claims can be brought.

      (3)  Will the limitation on damages contained in the warranty label be upheld?  Explain your answer.

      (4)   Identify any defenses available to the defendant(s) to the UCC claims and discuss Security’s likelihood of success as to each.  Explain your answer.

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Board of Bar Examiners of the Supreme Court of Delaware
Carvel State Office Building
820 North French Street, 11th Floor
Wilmington, DE 19801-3545
(302) 577-7038 * FAX (302) 577-7037