Essay Questions - February 2005
MODEL ANSWER - QUESTION I - FEBRUARY 2005
QUESTION I was a "Multistate Performance Test" (MPT) will not be
MODEL ANSWER - QUESTION II - FEBRUARY 2005
QUESTION II was a "Multistate Performance Test" (MPT) will not be
MODEL ANSWER - QUESTION III - FEBRUARY 2005
1. A contract for the sale of lands, or of an interest in or concerning them, must be in writing and must be signed by the party to be charged [in this case, the Seller and the Buyer]. See 12 VSA § 181 (5). Since there is such a contract, the requirements have been met.
2a. Under the doctrine of merger, all agreed upon terms are merged into the operative agreement, i.e., the Purchase and Sale Contract. While many terms may be discussed prior to the execution of a contract during negotiations, only those terms which have been set out in the signed instrument, as required by the Statute of Frauds, constitute the agreement. The contract represents the entire agreement. In this case, it is clear that the possibility of a 30 extension of the closing date to allow the Buyers to sell their home was discussed and contemplated, but was not made a part of the final agreement. There is no indication that the Buyers were either misled or defrauded, nor that they relied on the verbal representation of the Seller.
b. While the contract calls for written notice of any defect, the custom and practice in the area had been for verbal notice. Further, the Sellers’ attorney did not object to the form of notice and relied on the verbal notice when taking action to correct the defect by advising the Sellers’ of the problem. Although the Sellers’ could have required formal, written notice be given in accordance with the contract, that formality will be deemed to have been waived by their attorney’s conduct and actions.
c. Normally any modifications to a contract required to be in writing by the Statute of Frauds must meet the same requirement, i.e., the modification must be in writing and signed by the party to be charged. In this case however, there mutual consideration for the modification and reliance by both parties on the verbal modification. In return for granting the Sellers an additional 30 days to cure the defect [for a total of 60 days], the Buyers requested and were promised that they would have 21 days notice of the rescheduled closing date. This quid pro quo and reliance on the mutual promises takes the modification out of the Statute of Frauds, and makes the modified terms enforceable.
3. The contract provided the Sellers with 30 days to cure any defects which were brought to their attention prior to the closing. Since the oral notice was sufficient, the Sellers had 30 days from the December 27th notice to cure the defect and give good title to the Buyers. However, since the time did not appear to be sufficient, the Buyers offered and agreed to extend the time to cure to 60 days, and there is reliance on that agreement. The Sellers’ attorney did not begin the process to cure immediately, since he also understood that his clients had 60 days, not just 30 days, to take action and resolve the defects. This reliance was to the Sellers’ detriment, since by the time that the Buyers told the Sellers that they later wanted to rely on the 30 day period, it was too late for the Sellers to possibly cure the defect in 30 days. Since the title defect was cured within the 60 days, as agreed upon and which modified the contract, the Sellers were not in breach of the contract.
4. The Buyers will argue that:
MODEL ANSWER - QUESTION IV - FEBRUARY 2005
1. The validity of the Unsafe Rider Rule turns on the authority of the Board to promulgate this regulation. An agency’s power to promulgate regulations extends only as far as the legislative grant of authority. Courts generally presume the validity of regulations that are within the authority of an Agency. However, if an agency rule exceeds the intent of the Legislature, a court will invalidate the rule. The basis of this law is the separation of powers. Courts allow broad delegations of power to administrative agencies, but require that agencies operate within delegated powers to assure that the ultimate control of policy rests with elected lawmakers. Martin v. State, 175 Vt. 80, 87, 2003 VT 14, ¶¶ 15, 16 (2003).
The disapproval by the Legislative Committee on Administrative Rules places the burden of proving the validity of the Rule on the Board. The Board would have to establish that the Rule falls within its authority, is consistent with the intent of the Legislature, and is not arbitrary. If the Board failed to meet this burden, the rule would be invalid. 3 V.S.A. § 842.
It is unclear whether the Rule would be upheld. While the objection of a majority of the Legislative Committee strips the Rule of its presumptive validity, the Board could argue that the primary intent of the Legislature is to protect the safety of racers. Unsafe participants are a direct threat to other riders. The law appears to grant the Board broad authority. In response, one could argue that the intent of the law was to regulate unscrupulous promoters, not reckless racers. A reviewing court would need more information concerning the content of the statute and its purpose to make a decision on the validity of the Rule.
2. Mr. Cipollini cannot immediately challenge the Board’s action in court. Under the doctrine of exhaustion of administrative remedies, a party must pursue available administrative remedies before pursuing a court action. E.g., Town of Bridgewater v. Department of Taxes, 173 Vt. 509, 510-11 (mem. 2001). While Mr. Cipollini may argue that the Board has suspended him without any hearing, this argument would not relieve him of the obligation to pursue his administrative remedies. Mr. Cipollini can request a hearing before the Board to contest his suspension, and then obtain review of any adverse order in the Vermont Supreme Court.
3. Administrative tribunals apply the Vermont Rules of Evidence. Administrative tribunals may also consider evidence that would be excluded under the Rules if the evidence is commonly relied upon by prudent individuals and the subject is not susceptible to proof under the rules of evidence. 3 V.S.A. §810. Thus, while the hearsay reports of European race officials may be inadmissible in a civil trial, they could be considered if the Board establishes that this information is commonly relied upon, and that the proof of the unsafe riding would not be reasonable without considering the reports. More information would be required about the reports to ascertain whether they are the kind of information that prudent people would rely upon. Inasmuch as the incidents were in Europe, the allegations could likely not be proven without use of the reports.
4. If the regulation were invalid because it went beyond the scope of the enabling legislation, the Vermont Supreme Court would reverse any suspension. If the regulation were valid, the Court would apply a deferential standard of review to a Board decision. The Court presumes that agency interpretations of its regulations are correct. The Supreme Court affirms the findings of agencies unless they are clearly erroneous. Decisions by administrative agencies are presumed to be correct. In re Central Vermont Medical Center 174 Vt. 607, 609 (mem. 2002). Even under this deferential standard, however, any suspension of Mr. Cipollini would be vulnerable to a reversal by the Court.
It is unclear whether Mr. Cipollini is under suspension for unsafe riding or some other misconduct. While Mr. Cipollini may be under suspension in Europe, there is no indication that Mr. Cipollini faces suspension in any American state. The Rule, as described, does not provide for Vermont to suspend riders, but only for Vermont to uphold the suspensions of other states. Even with the deference provided to agencies, it does not seem that Mr. Cipollini falls within the ambit of the Unsafe Rider Rule.
Even if one were to broadly interpret the Rule, whether a suspension would be upheld would depend on the evidence presented at the hearing. The reports from Europe are the only evidence of unsafe riding. If those reports established that Mr. Cipollini regularly endangered other competitors, then a Board decision denying him the right to compete in the Tour of Vermont could be supported by sufficient evidence. It would be difficult, however, to establish that such behavior falls within the scope of the Rule as it was written.
MODEL ANSWER - QUESTION V - FEBRUARY 2005
1: No directors, no by-laws requires, no annual meeting requirement, greater flexibility for agreements among shareholders to run the business as if they were partners.
2: Enter into an employment agreement with Liz whereby shares in the corporation would be annually transferred to her so as to give her an increasing ownership in the business. Or, Pat could gradually sell his shares in the corporation to Liz, pursuant to a note with interest charged and Pat could either receive the interest or waive the interest payments from Liz. Or, Pat and Liz could enter into a shareholder agreement whereby the shares in the corporation would gradually be transferred to Liz.
3: The corporation's article of incorporation may need to be altered to give certain protections to Pat's minority interest, such as required maintenance of dividend payments, special preferential stock issued only to Pat giving him special dividend, liquidation preferences and or super voting rights in shares held by Pat. Pat’s shares could be sold to the corporation, or to Liz, with an installment note that requires periodic payments of interest and principal. Or, an employment agreement could be entered into between Pat and Grandpa's Grotto whereby Pat is paid a salary as a consultant for whatever work he does for the corporation. Or, a shareholders agreement could be entered into whereby Pat's income stream could be protect for life by guaranteed payments to him as a condition of the transfer of ownership the company.
4: Enter into a shareholders' agreement which gives each shareholder and the corporation the right of first refusal over the sale of any stock, or the death of any shareholder. Provide each shareholder with an irrevocable proxy, for voting rights upon the death or disability of either shareholder. Have the business purchase life insurance on the life of Pat with the business being the beneficiary, so that the proceeds from the life insurance can be used for the business to purchase back the shares of the deceased shareholder. You may also wish to consider a mandatory arbitration clause to resolve any differences amongst the shareholders.
5: The value of the stock transferred to Liz as part of her employment agreement would be includible as income as compensation for her services. If Pat were to gift the shares to Liz, then Pat would owe gift tax on the transfer of shares in excess of $11,000 per year. Liz would receive a carry over basis in the stock that was transferred to her by gift. If Liz paid interest on any note, Pat may need to report the interest payments and pay tax on these interest payments. Pat could waive the interest on the note up to $11,000 a year and avoid gift tax implications on this interest. Pat could also give greater gifts without tax as part of his unified credit. The shareholders' agreement itself, without a transfer of stock, would not trigger a taxable event for either Pat or Liz. There would be no corporate income tax issues to the business for this gradual transfer of interest in the corporation.
MODEL ANSWER - QUESTION VI - FEBRUARY 2005
1. The Vermont Rules of Professional Conduct provide that a lawyer should not bring or defend a proceeding unless there is a basis for doing so that is not frivolous. Rule 3.1. The filing of an action is not frivolous merely because the facts have not first been fully substantiated or because the lawyer expects to develop vital evidence only by discovery. Rule 3.1, comment. In this case, Lawyer had evidence, in the form of her own client’s statement, that his work performance was satisfactory and that he was therefore wrongfully terminated under the terms of his contract. Lawyer is generally entitled to rely on the statements of her client, and Client’s evidence in this case likely provides sufficient factual basis to file a lawsuit.
In addition, a lawyer shall not knowingly make a false statement of material fact or law to a tribunal, or offer evidence the lawyer knows to be false. Rule 3.3. Although Acme claims that Client’s allegations are false, there is no evidence that Lawyer knowingly made a false statement or offered evidence she knew to be false to the Court.
2. By filing the complaint, Lawyer certified that to the best of her knowledge, information and belief, formed after an inquiry reasonable under the circumstances, (1) the filing was not being presented for any improper purpose, such as to harass or delay, (2) the claims and legal contentions therein were warranted by existing law or by a nonfrivolous argument for the extension, modification or reversal of existing law or the establishment of new law, and (3) the allegations and other factual contentions had evidentiary support, or, if specifically so identified, were likely to have evidentiary support after a reasonable opportunity for further investigation or discovery. V.R.C.P. Rule 11.
In this case, Lawyer conducted a reasonable inquiry under the circumstances, questioning her client thoroughly before taking action. There is no evidence that Lawyer was aware of any improper purpose; the claims were warranted by existing law; and, as noted above, Client’s allegations had evidentiary support in the form of his own testimony. Under these circumstances, sanctions against Lawyer would be inappropriate.
In addition, before filing the motion for sanctions, Oppenheimer should have served the motion on Lawyer and given her 21 days to withdraw or correct the challenged pleading before filing the motion with the Court. V.R.C.P. Rule 11.
3. In responding to the summary judgment motion, Lawyer should file a memorandum in opposition to the motion. She should include with that memorandum any contravening evidence she has which demonstrates the existence of a genuine issue of material fact. This may include affidavits from Client and Auntie, and, if she had undertaken any discovery, could include deposition transcripts, interrogatory answers, and admissions. V.R.C.P. Rule 56.
In addition to these materials, Lawyer should include a separate short and concise statement of the material facts as to which it is contended that there exists a genuine issue to be tried, consisting of numbered paragraphs and containing specific citations to the record. This statement should specifically address each of the stated material facts as to which the moving party contends that there is no genuine issue to be tried, since all material facts set forth in the statement served by the moving party, in this case Acme, will be deemed to be admitted unless controverted by the statement required to be served by Client. V.R.C.P. 56(c).
4. V.R.C.P. Rule 56 does not require that summary judgment decisions await completion of all discovery, but the party against whom summary judgment is sought is generally entitled to reasonable discovery if there are factors which discovery might clear up and which have some bearing on whether summary judgment should be entered. State v. Heritage Realty, 137 Vt. 425 (1979). If Lawyer wishes to depose additional witnesses, she may be entitled to do so before the Court rules on the summary judgment motion.
Summary judgment is appropriate when there is no genuine issue as to any material fact and any party is entitled to a judgment as a matter of law. V.R.C.P. Rule 56. In evaluating a summary judgment motion, the Court’s function is not to weigh the evidence or find the facts; rather, the Court’s function is to determine whether a genuine issue exists. As long as evidence has been presented which creates an issue of material fact, summary judgment is inappropriate, even if the record appears to lean strongly in one direction, and no matter what view the Court may take of the relative weight of that evidence. Booska v. Hubbard Insurance Agency, Inc., 169 Vt. 305 (1993). In addition, the nonmoving party is entitled to the benefit of all reasonable doubts and inferences in determining whether a genuine issue of material fact exists. Wilcox v. Village of Manchester Zoning Board of Adjustment, 159 Vt. 193 (1992).
In this case, the critical material fact in issue is whether Client’s work performance was poor. Acme has presented substantial evidence in the form of various affidavits that it was. However, Client can present evidence, in the form of his own affidavit, that his work performance was good. In addition, Auntie’s testimony will bolster Client’s case, further reinforcing the genuine issue that will need to be decided by a jury.
5. Vermont Rules of Professional Conduct prohibit a lawyer from communicating with a person the lawyer knows to be represented by another lawyer in connection with the matter with respect to which that person is represented unless the lawyer has the consent of the other lawyer or is authorized by law to undertake such communication. Rule 4.2 The application of this rule can be difficult in the context of a company that is represented by counsel. The question arises: are employees of the company deemed to be represented by counsel and therefore off-limits to ex parte communications?
Clearly, Lawyer cannot communicate with persons having a managerial responsibility on behalf of the organization, so Lawyer should not attempt to contact the top level manager of all employees at the facility. Rule 4.2, comment. Lawyer should not communicate with any person whose act or omission in connection with Client’s employment may be imputed to Acme for purposes of civil or criminal liability, so Lawyer probably should not attempt to contact Client’s former supervisor. Rule 4.2, comment.
The question of whether Lawyer can contact the rest of Client’s former co-employees who had worked on the assembly line is the most thorniest. The comment to Rule 4.2 suggests that Lawyer cannot contact any person whose statement may constitute an admission on the part of Acme. Interpreted literally, this proscription could potentially prohibit contact with virtually any current employee of Acme since any statement made by an agent or servant concerning a matter within the scope of his or her agency or employment, made during the existence of the relationship, is excluded from the definition of hearsay. Vermont Rules of Evidence 801. However, when applying the Vermont Code of Professional Responsibility, which preceded the current Rules of Professional Conduct, the Vermont Supreme Court rejected such a complete prohibition of contact with an organization’s employees. Baisley v. Missisquoi Cemetery Association, 167 Vt. 473 (1998). If Lawyer does decide to continue contacting Client’s former co-employees, she should be careful not to use methods that violate Acme’s legal rights, Rule 4.4, and should not inquire about communications employees may have had with Acme’s counsel which might fall within the scope of Acme’s attorney-client privilege. Baisley v. Missisquoi Cemetery Association, 167 Vt. 473 (1998).
6. Lawyer can rely on the tools of formal discovery under the Vermont Rules of Civil Procedure, including written interrogatories (Rule 33), requests for the production of documents (Rule 34), depositions of any person, including but not limited to a party (Rule 30), and requests for admission (Rule 36). In this case, Lawyer is free to depose any potential witness, including Acme employees, supervisors, and managers, may request copies of documents reasonably calculated to lead to the discovery of admissible evidence, and submit interrogatories to Acme.
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