Law and ethics case studies

Select two of the scenarios below and explain the best solution. Include comments related to any ethical issues that arise. To support your answer, you should try to locate at least one case that has been decided on the issue or one that is currently pending.

Scenario 1—Bankruptcy

Dr. Royal Paine, a professor of pharmacy at Eastern Georgia College, filed a petition in bankruptcy under Chapter 7, seeking to discharge about $85,000 in credit-card debts and $45,000 in student loans. At the time, Paine had been divorced for five years and had custody of his children: Les Paine, who attended college, and Ophelia Paine, who was thirteen years old. Paine’s ex-wife did not contribute to child support. According to Paine, Ophelia was an “elite” swimmer who practiced ten to fifteen hours a week and had placed between first and third at more than thirty competitive events. Ophelia was homeschooled with academic achievements that were average for her grade level. His petition showed monthly income of $5,272 and expenses of $5,106. The expenses included annual homeschool costs of $8,200 and annual swimming expenses of $5,000. The expenses did not include college costs for Les, such as airfare for his upcoming studies in Europe, and other items. The trustee allowed monthly expenses of $4,227, with nothing for swimming, and asked the court to dismiss the petition.

• Can the court grant this request?
• Should the court grant the request? If so, what might it encourage Paine to do?
• Would all of the debts be discharged?
• Does Paine have other options if the Chapter 7 petition is dismissed?

Explain your answers and support them with relevant scholarly sources.

Scenario 2—LLC Liability

Plaintiffs Allen and Monica Thomas were injured by lead paint while living in a house owned by Innovative Homes, LLC. The plaintiffs sued Bill Ding, a member of the LLC at the time it owned the property, alleging that he was liable for their injuries. Ding had limited involvement with the property. He has never visited the property, and neither he nor the LLC was aware that the plaintiffs were occupying the property until after the LLC acquired it. Once they realized this fact, they took legal action to have the plaintiffs removed. The applicable housing code imposes liability on any individual who “owns, holds, or controls” the title to the property.

• Is Ding liable for the plaintiffs’ injuries?
• What are the policy arguments in favor of both parties?

Scenario 3—Securities

In 2008, after working at two banks for about eight years, Noah Lott helped found NAL Capital Corporation, a venture capital firm that invested in the media, communications, and technology sectors. NAL went public in 2011, and Lott served as its CEO and chairman of the board. Various documents filed with the SEC stated that Lott “earned a BBA degree in finance from Columbia University.” In fact, he attended Columbia for only three years and did not graduate. After being pressured by a journalist, Lott disclosed the misrepresentation to the NAL board. The same day, the company issued a press release correcting the statement.

The press responded negatively to “another CEO that lied about his resume” and speculated about “what else might not be right.” On the day the press release was issued, NAL’s stock price dropped from $22.85 per share to $18.40, but it fully recovered within a month.

Shareholders sued, alleging that the misrepresentation violated section 11 of the 1933 Act, section 10(b) of the 1934 Act, and Rule 10b-5.

• Was Lott’s lie about having a college degree material?
• Would your answer be the same if a CEO lied about having helped to take a company through an initial public offering and subsequent acquisition by another company and having led a pharmaceutical company from incorporation through human clinical trials and launch of a new drug?
• If you were a member of the NAL board, would you be comfortable keeping Lott as CEO once you learned that he had lied about having a college degree?