Legal Defenses for Fred and Sally: Cough Syrup Case Analysis

1 5-2 Final Project Milestone Two Harriet Creyer 5-2 Final Project Milestone Two Southern New Hampshire University BUS – 307 Business Law II

2 5-2 Final Project Milestone Two 5-2 Final Project Milestone Two TO: Fred & Sally FROM: Harriet Creyer DATE: October 1st, 2023 SUBJECT: Fred's Miracle Cough Syrup I. What legal defenses might Fred and Sally raise with regard to the checks written by Jane to Don? Why do you believe they will be successful or unsuccessful? Fred and Sally may have several legal defenses they can raise with regard to the checks written by Jane to Don, but the ultimate success of these defenses will depend on various factors including the specific laws in their jurisdiction and the evidence available. Forgery: Fred and Sally can argue that the checks written to Don were forged. Jane forged both Fred's and Sally's signatures on these checks. If they can prove that they did not authorize these transactions and that Jane acted without their knowledge or consent, they may be successful in showing that they are not liable for the checks written to Don. Unauthorized Transactions: Fred and Sally can argue that they did not authorize these transactions, and they were not aware of Jane's actions. Embezzlement Defense: While Jane was clearly embezzling money from the company, Fred and Sally can argue that they had no knowledge of her actions. They may claim that they had reasonable safeguards in place to prevent embezzlement, such as regular financial audits or oversight, and that Jane managed to circumvent these safeguards through her deceitful actions.

3 5-2 Final Project Milestone Two II. What legal defenses might Fred and Sally raise with regard to the check written by Jane and delivered to the church? Why do you believe they will be successful or unsuccessful? Forgery: Defense Explanation: Fred and Sally can assert that Jane forged their signatures on the check made out to "Cash" and that they did not authorize or have knowledge of this transaction. Potential Success: If they can provide convincing evidence that their signatures were indeed forged and that they had no knowledge of or consent to this particular check, this defense may be successful. Forgery claims can absolve them of liability for the check. Lack of Authority: Defense Explanation: Fred and Sally can argue that Jane did not have the authority to issue checks made out to "Cash" on behalf of the company and that such transactions were not part of the company's regular business operations. Potential Success: This defense could be successful if they can demonstrate that Jane exceeded her authority in issuing the check to "Cash" and that this was not a legitimate business expense. Embezzlement Defense: Defense Explanation: Similar to the previous scenario, Fred and Sally can assert that they had no knowledge of Jane's actions, and they took reasonable precautions to prevent embezzlement.

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4 5-2 Final Project Milestone Two Potential Success: The success of this defense would depend on their ability to show that they had adequate financial safeguards in place to prevent embezzlement and that Jane managed to circumvent these safeguards through deceitful actions. Innocent Party Defense: Defense Explanation: Fred and Sally could argue that they were innocent parties in this matter, having no knowledge of Jane's actions and believing that the check was a legitimate church donation. Potential Success: The success of this defense may depend on their ability to demonstrate that they had no reason to suspect wrongdoing and that they promptly took corrective action upon discovering Jane's embezzlement. III. What, if any, civil claims do Fred and Sally have against Jane based on her actions? Why do you believe they will be successful or unsuccessful? Embezzlement : Claim Explanation: Fred and Sally can file a civil claim for embezzlement against Jane. Embezzlement involves the misappropriation or theft of funds or property entrusted to someone's care. Likelihood of Success: The success of this claim would depend on their ability to demonstrate that Jane misappropriated company funds for her personal use, which is consistent with the definition of embezzlement. Given the evidence of Jane's unauthorized financial transactions, this claim has a reasonably high likelihood of success.

5 5-2 Final Project Milestone Two Fraud : Claim Explanation: Fred and Sally may bring a civil fraud claim against Jane. Fraud typically involves intentional deception or misrepresentation that causes financial harm to another party. Likelihood of Success: To succeed in a fraud claim, Fred and Sally would need to show that Jane intentionally engaged in deceptive practices, such as forging signatures and concealing her actions, which led to financial harm to the company. Given the evidence of forgery and deceitful conduct, a fraud claim is likely to have a strong chance of success. Negligence : Claim Explanation: Fred and Sally may bring a negligence claim if they can demonstrate that Jane, in her role as the bookkeeper, failed to exercise reasonable care in handling the company's finances, leading to financial harm. Likelihood of Success: To succeed in a negligence claim, they would need to show that Jane's actions fell below the standard of care expected in her position and that this negligence directly resulted in financial losses. Given the evidence of her unauthorized financial transactions, a negligence claim could be successful. IV. Analyze the forms of bankruptcy available to the business in this instance. What form is most appropriate and why? Chapter 7 Bankruptcy (Liquidation) :

6 5-2 Final Project Milestone Two Applicability : Chapter 7 bankruptcy is available to various types of businesses, including sole proprietorships, partnerships, corporations, and LLCs. It involves the liquidation of the business's assets to pay off creditors. Chapter 11 Bankruptcy (Reorganization) : Applicability : Chapter 11 bankruptcy is typically available to corporations and LLCs, but in some cases, it can be used by sole proprietorships and partnerships as well. It allows for the reorganization and continued operation of the business while restructuring its debts. Chapter 13 Bankruptcy (Individual Reorganization) : Applicability : Chapter 13 bankruptcy is typically used by individuals, but in the case of a sole proprietorship where the business is closely tied to the owner's finances, it may be an option. It allows for the reorganization of personal debts, including those related to the business. Chapter 7 may be considered if the business is no longer financially viable, has significant debts, and there are minimal prospects for continued operations. In this case, the primary objective would be to liquidate the assets and distribute the proceeds among creditors to satisfy as much of the debt as possible. If Fred's Miracle Cough Syrup has valuable assets that can be sold to pay off debts, Chapter 7 could be an option. V. Analyze the implications of a potential bankruptcy action on the business assets (assume the business entity is the same form as you chose in Case Study 1). Explain which, if any, are subject to forced sales, liens, or forfeiture. Chapter 7 Bankruptcy (Liquidation) :

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7 5-2 Final Project Milestone Two Forced Sales : In Chapter 7 bankruptcy, the primary objective is the liquidation of assets to pay off creditors. Almost all non-exempt assets are subject to forced sale. Exemptions vary by state and federal law, but typically, certain essential assets such as personal property, tools of the trade, and a portion of the equity in a primary residence may be exempted from sale. Liens : Secured creditors with liens on specific assets will have priority in the distribution of proceeds from the sale of those assets. For example, if the business took out a loan secured by its equipment or real estate, those assets would likely be sold to satisfy the liens first. Forfeiture : Forfeiture typically occurs when assets are used to collateralize loans or debts. If the business defaults on secured debts, the creditor may have the right to seize and sell the collateral. VI. Analyze the implications, if any, of a potential bankruptcy action by the business on the assets of the individual family members (assume the business entity is the same form as you chose in Case Study 1). Explain if the assets of business owners are subject to forced sale, liens, or forfeiture. Sole Proprietorship (Fred as the Sole Owner): Business Owner's Assets : In a sole proprietorship, the business and the owner are considered a single entity for legal and financial purposes. If the business files for bankruptcy, Fred's personal assets may also be at risk. Business debts may be treated as personal debts, and creditors may pursue Fred's personal assets to satisfy the business debts. This could include personal savings, investments, real estate, and other assets. Forced Sale, Liens, or Forfeiture : Fred's personal assets may be subject to forced sale, liens, or forfeiture if they were used as collateral for business loans or if creditors have a legal

8 5-2 Final Project Milestone Two claim to those assets based on the business's debts. The extent to which Fred's personal assets are affected would depend on the specific debts and obligations associated with the business. VII. What legal recourse does Fred have against Bob for infringement of intellectual property rights? Do you believe he will be successful? Why or why not? Trade Secret Protection : If the recipe for Fred's Miracle Cough Syrup is a closely guarded secret, Fred could potentially pursue legal action against Bob for misappropriation of trade secrets. Trade secrets are protected under state and federal laws, including the Uniform Trade Secrets Act (UTSA) and the federal Defend Trade Secrets Act (DTSA). Copyright Protection If the recipe or any associated content is protected by copyright, Fred could potentially assert copyright infringement claims against Bob for posting such content online without authorization. Trademark Protection If Fred's Miracle Cough Syrup has registered trademarks for its name or logo, and if Bob has used similar marks in a way that causes consumer confusion, Fred might have grounds for trademark infringement claims. Likelihood of Success : The likelihood of success in such legal claims would depend on several factors, including the strength of the evidence, the applicable intellectual property rights, the extent of

9 5-2 Final Project Milestone Two misappropriation, and the specifics of Bob's actions. The success of these claims would also be influenced by the extent to which Fred has taken steps to protect his intellectual property, such as maintaining secrecy, registering copyrights or trademarks, and having clear agreements or policies in place regarding the use of company information. References The attorney general’s guidelines on seized and forfeited property, July 1990 . The United States Department of Justice. (2017, March 2). https://www.justice.gov/archives/ag/attorney-generals-guidelines-seized-and-forfeited- property-july-1990 Bankruptcy basics . United States Courts. (n.d.-a). https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics Business law Today - American Bar Association. (n.d.). https://www.americanbar.org/groups/business_law/resources/business-law-today/ Chapter 7 - Bankruptcy Basics . United States Courts. (n.d.-b). https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7- bankruptcy-basics Kubasek, N. K., Browne, M. N., Dhooge, L. J., Herron, D. J., & Barkacs, L. L. (2020). Dynamic Business Law . McGraw-Hill Education. Trade secrets act . Trade Secrets Act - Uniform Law Commission. (n.d.). https://www.uniformlaws.org/committees/community-home? CommunityKey=3a2538fb-e030-4e2d-a9e2-90373dc05792

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