40 terms

Practice Final Summer 2009

STUDY
PLAY
1. The 2005 Bankruptcy Act made it harder for individuals to qualify for Chapter 7 bankruptcy. Which of the following test(s) is (are) included in the 2005 Act to determine if an individual qualifies for Chapter 7 bankruptcy?

A. Rights Test
B. Means Test
C. Median Income Test
D. B and C
E. A, B and C
D. B and C
2. The McDonald's Corporation, a franchisor, grants a franchise to Ida, a franchisee, whereby Ida opens a McDonald's fast-food franchise restaurant in the O.C. (eh, Orange County). In the franchise agreement, McDonald's and Ida agree that Ida must place signs inside the restaurant, outside the restaurant, and on the drive-through menu which states that Ida's McDonald's restaurant is a franchise and that the McDonald's Corporation is not the principal of Ida's franchise and that McDonald's Corporation is not liable for any acts of negligence caused by the franchisee, Ida. Ida puts up all of the required signs. A month after Ida opens the franchise, Eric Cartman, a regular customer at Ida's franchise, slips on a BigMac hamburger that has fallen on the floor; Eric is terribly injured. The BigMac hamburger was on the floor for 4 hours before Eric slipped on it. Eric sues Ida and McDonald's Corporation to recover for his injuries. Is McDonald's Corporation liable?

A. Yes, because a franchise automatically creates a principal/agency relationship
B. Yes, because McDonald's Corporation created an apparent agency by allowing the franchisee to use its trade name and trademarks
C. Yes, because an implied agency was created
D. No, because a franchisor is never liable for the acts of a franchisee
E. No, because consumers have been notified that the McDonald's Corporation is not liable for the franchisee's negligent acts
E. No, because consumers have been notified that the McDonald's Corporation is not liable for the franchisee's negligent acts
3. Quart-Size is a rapper whose rap is no longer rapping. The sales of Quart-Size's CDs are now quart-size, so on August 1, 2009 Quart-Size files for bankruptcy. Quart-Size does not qualify for a Chapter 7 bankruptcy, so he files for and is granted a Chapter 13 bankruptcy. A five-year payment plan is approved by the Bankruptcy Court. Which of the following is true?

A. Quart-Size receives a discharge on his debts on August 1, 2009
B. Quart-Size must pay his disposable income during the five- year payment plan to a trustee, who distributes the money to Quart-Size's creditors
C. Quart-Size receives a discharge on his debts on August 1, 2014, if all the payments from his disposable income have been paid as required by the payment plan
D. A and B
E. B and C
E. B and C
4. Which section of the Securities Act of 1933 imposes criminal liability on defendants?

A. Section 11
B. Section 12
C. Section 10(b)
D. Section 32
E. Section 24
E. Section 24
5. Samantha, an MBA student, is a reporter for the Daily Trojan daily newspaper. She writes a daily newspaper article called "Stock Picks" wherein she recommends stocks to buy long or sell short. She always tells the truth in her articles. Samantha writes her articles the day before they are published in the Daily Trojan. Samantha is such a good analyst that she is 90% right with her recommendations and predictions. Because of her analytical ability Samantha's "Stock Picks" articles are widely read and followed by other MBAs, Wall Street investment bankers and securities professionals who follow Samantha's advice and buy and sell short the stocks she recommends, and the market always "moves" up or down based on Samantha stock picks. Samantha, however, has been investing in each company discussed in her Daily Trojan newspaper article the day before the article appears in the newspaper. The U.S. government wants to sue Samantha for a violation of Section 10(b). What theory should the government assert against Samantha?

A. Derivative theory
B. Tipper-Tippee theory
C. Misappropriation theory
D. Issuer theory
E. Respondeat superior theory
C. Misappropriation theory
6. (from the book) Amazon.com and BarnesandNoble.com, the two largest online book retailers in the world, together lobby Congress to pass a new federal statute requiring online book retailers to offer a minimum of 3 million titles from their company web sites in order to remain in business. Smaller book retailers who want to sell books online sue Amazon.com and BarnesandNoble.com for allegedly violating Section 1 of the Sherman Act by engaging in an unlawful restraint of trade. What defense should the defendants raise?

A. Unilateral refusal to deal
B. Conscious parallelism
C. Noerr doctrine
D. Failing company doctrine
E. Small company doctrine
C. Noerr doctrine
7. (from class) John Deere Corporation, which makes and sells large farm equipment, sells a $500,000 piece of farm equipment on credit to Farmer John, a farmer. Farmer John signs a credit agreement in which he agrees to pay John Deere $100,000 plus 10% interest on the outstanding balance each July 1 for the next five years. The farm equipment is made collateral for the secured loan. John Deere files a financing statement in the state's recording office to perfect its security interest in the farm equipment. This is covered by _________________ of the Uniform Commercial Code (UCC).

A. Article 2
B. Article 2A
C. Article 3
D. Article 7
E. Article 9
E. Article 9
8. Bree, Gaby, Eddie, and Lynette form "Wisteria Lane LLC" which operates a home catering service and provides food, flower, photography, and other services for weddings. It is a member-managed LLC. Which of the following is true?

A. Bree can bind the LLC to contracts with third parties
B. Bree can compete with the LLC by offering her own wedding planning and production services
C. Bree has the right to participate in the management of the LLC
D. A and C
E. A, B, and C
D. A and C
9. Securities sold pursuant to the intrastate offering exemption are "restricted" securities (cannot be sold to out-of-state purchasers) for what period of time?

A. Six months
B. Nine months
C. One year
D. Two years
E. Three years
B. Nine months
10. "Pinkberry" Incorporated is a company that operates a chain of franchised outlets that serve frozen yogurt, smoothies, and other desserts. The company has attained a cult-following of customers called "crackberries." Anyway, Pinkberry franchises franchisees to sell its products at small pink-colored outlets. Each Pinkberry franchisee is granted a specific territory. The Pinkberry Company provides each franchisee with the machines to make the yogurts, smoothies, and other food items, but all of these items are made at each location from yogurt, fruits, berries, and other items purchased by each franchisee. This is considered a ______________________ franchise.

A. Distributorship
B. Processing plant
C. Chain-style
D. Area
E. Fu fu
C. Chain-style
11. Frog Inc., a chain of over 500 fancy and expensive French restaurants located throughout the United States, has failed to keep up with the times. Its snooty restaurants with snooty waiters serving snooty food now have financial statements that are the same color as the restaurant chain's red mahogany booths and red décor. Frog Inc. needs time to redecorate, change its menu to fast food French cuisine, and reinvent itself as a viable "going concern" that serves "American Fries." You are Frog Inc.'s attorney. What type of bankruptcy should Frog Inc. file for?

A. Chapter 7
B. Chapter 9
C. Chapter 11
D. Chapter 12
E. Chapter 13
C. Chapter 11
12. The Frog Inc. saga continues. Frog Inc. wants to retain its current French-socialist management during the bankruptcy proceedings. Although current management has missed the dietary changes of Americans to modern types of cuisine, management has not engaged in fraud nor wasted corporate assets. All managers agrees to obtain M.B.A. degrees from USC and become capitalist imperial dogs. They also agree to go to Charm School for one year. Management is therefore allowed to remain in place during the bankruptcy under which of the following doctrines?

A. Reaffirmation contract
B. Executory contract
C. Lien release
D. Debtor in possession
E. Cram down
D. Debtor in possession
13. Wal-Mart, Target and Costco, all discount retailers, decide to sell Shaquille O'Neal's, an NBA superstar, new instructional video "I can't shoot free throws, but you can!" They all agree that they will all sell the popular video for $49.99 (most videos of this type are priced at $19.95) and at no other price. This is an example of which of the following?

A. Division of markets
B. Tying Arrangement
C. Price fixing
D. Resale price maintenance
E. Group boycott
C. Price fixing
14. In 2004, Tube bought a house on the beach in Malibu, California for $500,000 in order to be closer to the waves so he can surf more often. Tube paid $100,000 cash and borrowed $400,000 in a first loan from Wells Fargo Bank secured by his Malibu house. In 2009, Tube, because he is surfing all of the time and makes no money, defaults on the loan and files and qualifies for Chapter 7 bankruptcy. Because of the 2006-2012 Depression in California, Tube's house is only worth $200,000 at the time of default. Wells Fargo Bank receives the house in bankruptcy and sells the house for $200,000 to Patience. Which of the following is (are) true?

A. Wells Fargo Bank properly sold the house to Patience
B. Wells Fargo Bank becomes an unsecured creditor in the bankruptcy proceeding for $200,000
C. Wells Fargo Bank would be able to recover a deficiency judgment for $200,000 against Tube
D. A and B
E. A, B, and C
D. A and B
15. Bree, Gaby, Eddie, and Lynette form "Wisteria Lane LLC" which operates a home catering service and provides food, flower, photography, and other services for weddings. It is a manager-managed LLC. Bree and Gaby are named the managers. Which of the following is (are) true?

A. Bree and Gaby can bind the LLC to contracts with third parties
B. Eddie can bind the LLC to contracts with third parties
C. Lynette cannot bind the LLC to contracts with third parties
D. A and C
E. A, B, and C
D. A and C
16. To keep up with the times, Frog Inc. converts its snooty high-end expensive and saucy French restaurants to French fast food restaurants serving "American Fries." However, the Depression of 2006-2012 hits and no one wants to pay to eat at fast food French restaurants. Frog Inc. is heading toward bankruptcy. This time Frog Inc. wants to surrender (hey, they are French!) and just give up and quit. This time what type of bankruptcy should Frog Inc. file?

A. Chapter 7
B. Chapter 9
C. Chapter 11
D. Chapter 12
E. Chapter 13
A. Chapter 7
17. You are sitting at Starbucks coffee shop sipping on your double-nonfat-half-café-hold-the-foam-4-shot-hold-the-wip-Latte when you hear the two men at the next table talking. One is a nerdy looking guy with glasses and the other is a young guy in bluejeans. The two men shake hands and you hear the nerdy guy say "You got a deal. Microsoft Corporation will pay 300% premium for YouTube stock in our merger to be announced tomorrow." The young guy says "As president of YouTube Corporation, you got a deal." The two men toast with their double-nonfat-half-café-hold-the-foam-4-shot-hold-the-wip-Lattes. You gulp down your double-nonfat-half-café-hold-the-foam-4-shot-hold-the-wip-Latte and run to the nearest stockbroker and place your life savings of $500,000 on call options on YouTube stock. The next day the merger of Microsoft and YouTube is announced and you become a trillionaire. Which of the following statements is true?

A. You are not liable for violating Section 10(b)
B. You are liable for violating Section 10(b) under the misappropriation theory
C. You are liable for violating Section 10(b) under the tipper-tippee theory
D. You are liable for violating Section 10(b) as an insider
E. You are liable for violating Section 10(b) as a temporary insider
A. You are not liable for violating Section 10(b)
18. Jimmy, George, Bill, and George W. form a new corporation called "Planet Palm Springs Inc.", which will operate a new theme restaurant in Palm Springs, California to cater to retirees (old people). The restaurant will have canes, walkers, oxygen tanks, and other old people memorabilia hanging from the walls, and will play nonstop recordings by Frank "Blue Eyes" Sinatra, Bing Crosby, Dean Martin, and Connie Francis. Planet Palm Springs, Inc. wants to raise $10,000,000 from investors located and living anywhere in the United States, who have little or no income or assets. Planet Palm Springs Inc. can issue these new securities under which of the following?

A. Small offering exemption
B. Private placement exemption
C. Intrastate offering exemption
D. Nonissuer exemption
E. None of the above
E. None of the above
19. Chanel, Prada, Louis Vuitton, and Gucci, all snotty, high-end and expensive fashion designers of fashion designer clothes, each individually decide that they will not sell their own snotty, high-end, and expensive fashion designer clothes to Wal-Mart, Target and Costco, all discount retailers, because the proletariat Wal-Mart, Target and Costco are not the suitable outlets to sell the designers' bourgeois snotty, high-end, and expensive fashion designer clothes. Wal-Mart, Target and Costco sue Chanel, Prada, Louise Vuitton, and Gucci for violating Section 1 of the Sherman Act by engaging in an unreasonable restraint of trade. Which of the following is (are) true?

A. Chanel, Prada, Louise Vuitton, and Gucci have engaged in an illegal group boycott
B. Chanel, Prada, Louise Vuitton, and Gucci have engaged in an illegal division of markets
C. Chanel, Prada, Louise Vuitton, and Gucci have engaged in legal conscious parallelism
D. Chanel, Prada, Louise Vuitton, and Gucci have engaged in an illegal price discrimination
E. A and D
C. Chanel, Prada, Louise Vuitton, and Gucci have engaged in legal conscious parallelism
20. Smork, a USC freshman majoring in chemistry, invents a new body cream that, if rubbed on the skin, sucks out the body fat from that location; it is non-surgery liposuction. With this cream a user can "spot" the area that needs a little thinning, rub some cream on that area, and the fat disappears! Smork names the cream "LIFO "("last in, first off") and names his new corporation that will produce the cream LIFO, Inc. The potential for LIFO is tremendous as the phone rings off the hook with calls from Oprah, Monica, Allie, Rosey, et al. LIFO, Inc. is planning on going public and is preparing the materials to file its registration statement with SEC. What can LIFO Inc. not do during the prefiling period?

A. Make offers to sell its securities
B. Sell its securities
C. Condition the market
D. B and C
E. A, B and C
E. A, B and C
21. Ally, Lin, Won-Suk, and Jen form a new California limited liability company (LLC) called "MatchmakingLA.com, LLC." The company offers dating and relationship advice, and screens males as potential mates. In order to be listed as a potential husband on the website, a male must have a net worth of $5 million, have to be given a lobotomy, and thereafter answer "I love you, can I buy you something" to any questions asked by females who select him as a mate. In the Articles of Organization, Ally, Lin, Won-Suk, and Jen choose to be a manager-managed LLC. Lin and Jen are named the managers of the LLC. The website is an instant success as love-distressed females across the world seek mates from MatchmakingLA.com, LLC. Ally, seeing the success of MatchmakingLA.com, LLC, decides to open a competing business called "Studs&Duds.com" where she screens males as potential husbands. In order to be listed as a potential husband on the Studs&Duds.com web site, a male must have a net worth of $5 million, have to be given a lobotomy, and thereafter answer "I love you, can I buy you something" to any questions asked by females who select him as a mate. Ally's new website is a success and takes business away from MatchmakingLA.com. MatchmakingLA.com sues Ally to recover damages. Which of the following is true?

A. Ally has breached her duty of loyalty by competing with MatchmakingLA.com
B. All has breached her duty of care by competing with MatchmakingLA.com
C. Ally is not liable because she is protected by the Business Judgment Rule
D. Ally is not liable because she has not breached a duty of loyalty by competing with MatchmakingLA.com
E. Ally should use her own service
D. Ally is not liable because she has not breached a duty of loyalty by competing with MatchmakingLA.com
22. In the United States, Starbucks Coffee Shops are owned by the Starbucks Corporation. However, Starbucks Corporation decides to open Starbucks Coffee Shops in China. To do so, Starbucks Corporation grants the Sino Corporation, a Chinese corporation, a franchise to select and grant local franchises to owners that Sino Corporation selects throughout China. What type of franchise arrangement exists between Starbucks Corporation and Sino Corporation?

A. Processing plant franchise
B. Distributorship franchise
C. Distributorship franchise
D. Area franchise
E. Local franchise
D. Area franchise
23. Planet Hollywood, Inc., a chain of over 100 restaurants worldwide, has failed to keep up with the times. Its financial statements now are now in the same shape as the restaurant chain' décor. Planet Hollywood needs time to redecorate, change its menu, and reinvent itself as a viable "going concern," Planet Hollywood files for chapter 11 Bankruptcy. Planet Hollywood has $100 million in unsecured debt but wants to come out of bankruptcy with only $40 million of unsecured debt. Planet Hollywood files a plan of reorganization in which it proposes to do away with $60 million of unsecured debt. Is this possible?

A. Yes, under the automatic stay rule
B. Yes, under partial discharge
C. Yes, under executory contract
D. No, no unsecured debt can be reduced under a Chapter 11 bankruptcy
E. No, unless Planet Hollywood proves "undue hardship"
B. Yes, under partial discharge
24. The "Howey test" is used to determine whether a sale of something is an "investment contract" and therefore a security that is subject to federal securities laws. Which of the following is not an element of the Howey test?

A. Expect to make profits off the significant effort of others
B. Investment of money
C. Common enterprise
D. Oil, gas, and mineral interest
E. None of the above
D. Oil, gas, and mineral interest
25. Oprah is president of Dieter's, Inc. The common stock of Dieter's is listed on the New York Stock Exchange ("NYSE"). The stock price of Dieter's goes up and down with Oprah's weight; therefore USC MBA students stay at home every afternoon and watch the Oprah TV show to see Oprah's weight in making their investment decisions; the MBA students fail to attend their portfolio analysis course at the USC MBA program that is offered at the same time as the Oprah TV show. On August 1, 2009, Oprah purchases 1,000 shares of Dieter's common stock for $100 per share over the NYSE. She does not possess any inside information. On November 1, 2009, Oprah leaves her job at Dieter's Inc. to become president of a rival company, Weight Watchers, Inc. On January 1, 2010, Oprah sells the 1,000 shares of Dieter's stock for $150 per share. She does not possess any inside information. Oprah is liable for violating which of the following?

A. Section 16(b) of the Securities Exchange Act of 1934
B. Section 10(b) of the Securities Exchange Act of 1934
C. Section 27 of the Securities Exchange Act of 1934
D. Section 5 of the Securities Act of 1933
E. None of the above
E. None of the above
26. Whole Foods Markets, LP, is the largest grocery retailer of natural and organic foods in the United States. Wild Oats Markets Inc. is the second largest grocery retailer of natural and organic foods in the United States. Whole Foods and Wild Oats propose a merger of the two companies. Which of the following antitrust laws requires the companies to notify the Federal Trade Commission and the U.S. Justice Department of the proposed merger?

A. Hart-Scott Rodino Antitrust Act
B. Clayton Antitrust Act
C. Federal Trade Commission Act
D. Robinson-Patman Act
E. Sherman Antitrust Act
A. Hart-Scott Rodino Antitrust Act
27. Disney Company owns the trademark rights and copyrights to its main characters and their stories, such a Mickey Mouse, Pluto, Mulan, Winnie the Pooh, Donald Duck, Pocahontas, Ratatouille, Snow White, WALL-E ("EVE!"), and others. Disney Company enters into a contract with Nike Inc., an athletic wear company that produces athetic shoes, shirts, hats, and other athletic wear, that authorizes Nike Inc. to place likenesses of these characters on Nike's athletic wear. This is an example of

A. Franchising
B. Joint venture
C. Strategic alliance
D. Licensing
E. Area franchise
D. Licensing
28. General Motors Corporation is (was) a major manufacturer of automobiles, trucks, SUVs, and other vehicles in the United States. General Motors has franchise agreements with 2,000 independent automobile dealerships across the United States that are independently owned businesses that sell General Motors vehicles. General Motors (who is more like a lieutenant than a general) sales have dropped 50% over the past two years. General Motors (whose "L" is much greater than its "a") files for Chapter 11 reorganization bankruptcy. General Motors wants to eliminate 1,000 of the automobile dealer franchises even though each of these franchises has ten more years to go before their expiration date. General Motors would ask the Bankruptcy Court to allow it to rescind 1,000 dealer contracts under which of the following doctrines?

A. Executory contract
B. Automatic stay
C. Discharge of debts
D. Antideficiency statute
E. The 1,000 dealership contracts cannot be avoided by General Motors
A. Executory contract
29. The small offering exemption exempts the sale of securities not exceeding $__________ during a 12-month period from registration with the Securities Exchange Commission (SEC).

A. $500,000
B. $1,000,000
C. $10,000,000
D. $100,000,000
E. No dollar limit
B. $1,000,000
30. An involuntary petition for bankruptcy may be filed under what chapter(s) of bankruptcy?

A. Chapter 7
B. Chapter 12
C. Chapter 13
D. B and C
E. A, B, and C
A. Chapter 7
31. Lexus Motors and Infiniti Motors sell two high-end pricey automobiles in the United States market. In order to not compete with each other and to therefore keep their prices high for their automobiles, the presidents of the two companies agree that Lexus will sell cars in the states west of the Mississippi River and Infiniti will sell cars in states east of the Mississippi River, and neither will sell cars in the others geographical territory. Which of the following rule applies in examining whether this agreement violates antitrust law:

A. Rule of reason
B. Tying arrangement rule
C. Per se rule
D. Price discrimination rule
E. None of the above
C. Per se rule
32. Which antitrust law makes price discrimination illegal?

A. Section 1 of the Sherman Act
B. Section 2 of the Sherman Act
C. Section 2 of the Clayton Act
D. Section 3 of the Clayton Act
E. Section 7 of the Clayton Act
C. Section 2 of the Clayton Act
33. General Motors Corporation files for Chapter 11 bankruptcy. Which of the following may be accomplished in a Chapter 11 bankruptcy?

A. Automatic stay of secured debt
B. Partial discharge of unsecured debt
C. Rejection of executory contracts and leases
D. All of the above.
E. A and C
D. All of the above.
34. On May 1, 2009, after getting angry with his father Peter, Stewie moves from California to Texas and purchases a house in Texas for $3,000,000. Stewie is rich because of his role in the TV series "Family Guy." Stewie pays cash for the house. On April 28, 2010, Stewie declares Chapter 7 bankruptcy and claims a $3,000,000 homestead exemption on his house that is normally allowed by Texas law. Under the new 2005 Bankruptcy Act, which of the following is true?

A. Stewie would be able to exempt $0 for his house
B. Stewie would be able to exempt $1, 500,000 for his house
C. Stewie would be able to exempt $125,000 for his house
D. Stewie would be able to exempt $3,000,000 for his house
E. Stewie would be able to exempt $2,000,000 for his house
C. Stewie would be able to exempt $125,000 for his house
35. Under federal securities law, the Securities and Exchange Commission (SEC) can obtain a civil penalty up to _________ times the illegal profits gained by insider trading.

A. one
B. two
C. three
D. five
E. ten
C. three
36. (from the book) Which of the following rules permits "qualified institutional investors" to purchase unregistered securities without being subject to the one year holding period of most exempt offerings?

A. Rule 144
B. Rule 144A
C. Rule 506
D. Rule. 147
E. Rule 504
B. Rule 144A
37. Bill Clinton writes his autobiography entitled "A Guy's Guide to Getting on Top." Bill's publisher, Random House Publishing Company (they pick the books they will publish at random) refuses to sell the new book to any retail store unless the store agrees not to sell the book for more than $50. This is an example of a(n):

A. Illegal resale price maintenance
B. Conscious parallelism
C. Price fixing
D. Price discrimination
E. Legal resale price maintenance
E. Legal resale price maintenance
38. Dr. Phil and Dr. Kevorkian are doctors and member-owners of "Beverly Hills Liposuction, LLP," a limited liability partnership (LLP) engaged in the practice of medicine. The doctors provide liposuction surgery whereby they surgically remove excess fat from patients to make their patients look skinnier. While performing a liposuction surgical operation on J-Lo's convex butt, Dr. Phil sucks out too much fat and J-Lo becomes disfigured with a concave butt. Since Liposuction LLP has no money, J-Lo sues Dr. Phil and Dr. Kevorkian to recover monetary damages for her injuries. Which of the following statements is (are) true?

A. Dr. Phil is liable
B. Dr. Kevorkian is liable
C. Dr. Kevorkian is not liable
D. A and B
E. A and C
E. A and C
39. Which of the following is (are) true concerning a Regulation A offering?

A. A Regulation A offering over $100,000 must have an offering statement filed with the SEC
B. A Regulation A offering is an exempt transaction
C. An issuer can issue up to $5 million of securities within a 12-month period
D. A and C
E. B and C
D. A and C
40. On August 1, 2009, Ethel qualifies for and files a voluntary petition for bankruptcy under Chapter 7. Her petition for Chapter 7 bankruptcy is accepted by the Bankruptcy Court and the Chapter 7 bankruptcy proceedings begin. On November 1, 2009, Ethel's Grandmother dies and Grandmother leaves her entire $1,000,000 fortune to Ethel. Which of the following is true?

A. Ethel can keep all of the money
B. The money becomes property of the bankruptcy estate
C. One-half of the money becomes property of the bankruptcy estate
D. One-third of the money becomes property of the bankruptcy estate
E. None of the above
B. The money becomes property of the bankruptcy estate