Instructions:

1. The exam consists of 7 pages, including this cover sheet. Please check now to ensure your copy is complete.
   
2. Your exam is due 8 hours after you pick it up, or at 6 pm on Friday, December 10, whichever is earlier. You must return your exam in person, and must return your copy of the exam questions at the same time. If during the exam you have any questions regarding its administration, you should contact the office of Academic Services and they will contact me if necessary.
   
3. The exam is open book; you are free to consult any written or electronic materials and are expected to have all assigned course materials available. Additional research is discouraged, and is unlikely to improve your exam performance. Formal citations to course materials are unnecessary, but you should refer specifically to statutory provisions when discussing them.
   
4. Please follow the instructions for each question carefully. If you feel that any of your answers depend on facts not provided in the question, you should say so and state clearly any additional assumptions you are making.
   
5. There are two questions on the exam, each with a separate 1500–word limit. You may not use any leftover space from one question in answering another; any attempt to use shorthand or nonstandard abbreviations will be counted as if full words were used. Answers exceeding the word limit will be penalized by reducing their score in proportion to the excess.
   
   To ensure compliance with the word limit, you must provide a word count for each question. If you are using a computer, please use your word processor program to perform the count. If you are writing by hand or typewriter, you may make a good faith estimate by counting the words in a sample page and extrapolating to the length of the entire exam.
   
6. To ensure that you receive full credit for your answers, please: (a) write or print your exam ticket number on all parts of your exam; (b) begin your answer to each question on a new sheet of paper; (c) use double spacing and 1-inch margins, so that I have enough room to make notations on your exam; (d) if you write your exam by hand, write legibly.
   
7. I recommend that you spend about 2 hours reading the exam, thinking about your answer, and outlining your response. Writing the exam should take no more than 4 hours. This leaves 1 hour to edit and proofread your answer and 1 hour for eating, traveling, etc.
   
8. I will notify you when grades are ready and will post a feedback memo on the class website as soon as possible after that. Good luck on the exam, and have a good holiday.

QUESTION 1:  50% of exam; limit of 1500 words. Answer both parts A and B.

ABC Consulting offers financial planning services (investment, retirement planning, and other kinds of advice) to individuals. At least one ABC Consulting office can be found in nearly every major city in the United States; most large cities, including New York, Chicago, and Los Angeles, have multiple offices. ABC owns and operates only about half of these offices; the remaining offices are franchises. That is, ABC sells to various entrepreneurs the right to open an “ABC Consulting Office;” the entrepreneur pays a monthly fee and, in return, receives training, support, and business leads from ABC. The franchise agreement sets out ABC’s duties, inter alia, as follows:

Paragraph 1: ABC hereby grants, and Franchisee hereby accepts, for the period [described elsewhere], and within the area described in Paragraph 2, the right to operate a financial consulting franchise for the sole purpose of offering financial management advice to individuals or groups.

Paragraph 2: This franchise is for the area (“Franchise Area”) consisting of [the contract would then specify a particular geographic area]. ABC agrees that, as long as Franchisee shall not be in default hereunder, ABC will not establish an office for the purposes heretofore described within the Franchise Area.”

Paragraph 3: ABC shall help Franchisee obtain contracts from government or industry and will furnish information and assistance in identifying potential national accounts. Such information and any related client lists will remain the sole property of ABC.

* * * * *

Paragraph 10: Franchisee agrees to use best efforts in operating the franchise and shall pay ABC monthly royalties equal to 15% of gross revenues.

* * * * *

Paragraph 24: Franchisee agrees not to enter into any competing business endeavor in the Franchise area for two years following the termination of the Franchise.

A “national account” is a client, usually a large corporation with operations in multiple states, that has hired ABC to offer financial management advice to its employees. Under Paragraph 3, ABC agrees to offer a franchisee the opportunity to serve such employees living or working in the Franchise Area. These opportunities are very lucrative because it is much easier to find clients through a corporate employer than through local advertising or word-of-mouth networking.

In 1994, Bobby Brewster began work as a consultant at one of ABC’s franchised offices on the upper west side of Manhattan. The "Franchise Area” for this office was called “UWS” and defined as the area “North of 59th Street, South of 110th Street, East of the West Side Highway, and West of Central Park West.” Bobby was a hard worker and, within a few years had risen to a managerial position in the office. In 2002, Bobby purchased the franchise from the previous owner using money deriving from a family inheritance. But storm clouds loomed on the horizon. In January 2004, ABC decided to purchase and operate several of its franchise offices in Manhattan, including offices with geographic areas covering the Chelsea and Midtown neighborhoods. It also began eyeing Bobby's franchise, noting that its revenues had fallen in the year and a half since Bobby assumed ownership. Later in the year, ABC made an offer to purchase Bobby’s franchise, but Bobby, who likes being her own boss and who feels sure that revenues will increase after she completes the MBA program that she is pursuing through night courses, rejected it outright.

Part A. You are ABC's senior in-house attorney. Your superiors have explained to you that ABC has decided to begin moving toward a business strategy that relies less on geographic location and more on one-to-one relationships between client and consultant. Under this strategy, ABC plans to encourage the development of online relationships with individual clients through Web-based communication, and plans to begin allowing individual franchisees to negotiate exclusive relationships with national clients under which the client could send all their employees' accounts to a single ABC office without regard to location. In order to prevent destructive competition among its franchisees for such business relationships, however, the national ABC organization will have to establish some sort of policy that sets priorities among franchisees who simultaneously seek to serve the same national client.

It is now January 2005, and ABC would like to begin using its Midtown office to serve clients living throughout the New York metropolitan area. In particular, as it enters new contracts with large companies in the area, ABC would like to steer some but not all of those accounts to its own offices in Midtown, even though this would mean serving some customers who reside or work in Bobby’s UWS franchise area. Bobby has gotten wind of this proposed strategy through unofficial channels, however, and has objected to it strenuously, accusing ABC of plans to “poach” her clientele and threatening to withhold royalties due for the fourth quarter of 2004.
Your superiors have asked you whether ABC would be within its legal rights to notify Bobby that she risks default and termination of her franchise contract if she continues to refuse to pay royalties or to undermine ABC's new business strategy.

Please draft a short memo that identifies and evaluates the alternative approaches ABC could take in procuring Bobby's cooperation.

Part B. You are Bobby Brewster's attorney. Bobby has come to you for legal and negotiating advice regarding the potential dispute brewing with ABC. What ABC does not know is that Bobby has received an offer from a competing financial services firm, XYZ Investment, to head up their downtown office. Bobby is potentially interested in jumping ship, especially in light of her concern that ABC may go back on its agreement with her, but she is concerned about the clauses in the ABC contract that may limit her ability to take existing clients with her or to continue to solicit business from existing clients or their employees. In addition, she has asked for advice in negotiating contract terms that are more favorable than the terms appearing in her original ABC contract — either with ABC, or in any new contract with XYZ.

Please draft a short memo that responds to Bobby's concerns.


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QUESTION 2:  50% of exam; limit of 1500 words.

Keith Kanavos has for many years been a frustrated investment banker at the firm of Slimm Chance in midtown Manhattan. For some time now he has wished to leave his job and pursue his life-long ambition of emulating Donald Trump. In this regard, Keith is already portly, sports an obvious comb-over, and has adopted the practice of sneaking up behind co-workers and shouting “You’re fired!” But to complete his transformation, Keith knows he needs to become a successful real estate developer like his hero. So, in early April 2005, he left his employer and formed his own firm, Rump Development.

Keith’s decision was prompted in large part by New York City’s announcement that it would construct a new stadium on the far west side of Manhattan in association with its bid to host the 2012 Olympics. With cunning foresight of the sort usually associated with his hero, Keith realized that the new stadium would raise the value of real estate in the surrounding neighborhood. He also realized the stadium would draw people to the area and increase demand for retail services such as restaurants, cleaners, and the like.

On Thursday, April 14, Keith contacted an old friend, Willie Wilkoff. Willie is the president and majority stockholder of Wilkoff Realty, which owns several buildings in the neighborhood. Keith outlined his plans and his available financing and asked if Wilkoff Realty had any suitable buildings. Willie took notes and told Keith he would talk to his colleagues and get back to him. The next day, April 15, Willie sent Keith an e-mail, stating that he had identified a building that “would meet your needs.” The e-mail indicated the address of the building, described its features including square footage and layout, and stated a price of $20 million. Keith immediately fired back an enthusiastic response, and the two quickly arranged for Keith to visit the building with an architect and team of inspectors. The inspection, which took place a week later on Friday, April 22, appeared to confirm Willie's prediction. Keith was very excited about the building, and asked to see a legal description and copy of the blueprints for the building, which Willie provided. That evening, Willie sent Keith another short e-mail, which stated, “Let me know what you decide; the ball's in your court.”

Keith did not respond immediately; he wanted to mull over his options. But three days later, on Monday, April 25, Keith concluded that the building was suitable for his needs and sent an e-mail to Wilkoff, stating, “Great news, Willie! We’ve got a deal. I’ll start taking steps on my end to make this project a success. We should grab a beer to celebrate the new “Rump Tower.” –Keith. P.S. You’re fired! (Just kidding.) — K.”

With the e-mail to Willie out of the way, Keith took several steps to refurbish the building (a pre-war, 12-story structure) and line up new tenants. First, on April 29 he entered into a $9 million agreement with Doringer Partners, an architecture and construction firm specializing in retrofitting prewar buildings. Under the agreement, Doringer was to design and to oversee the production and installation of updated plumbing, electrical, heating and cooling systems for the building as well as new fixtures and design elements that would enhance the appeal of the building to upscale tenants. Of this total amount, $1.5 million was attributed to costs arising from the design phase of the project, $4.5 million to the production phase, $2 million to the installation phase, and $1 million to profit and recovery of overhead. Keith paid Doringer an up-front deposit of $500,000, and also initialed a written contract containing much fine print, including a clause that declared: “Liquidated damages. In the event of breach, Client agrees to pay Doringer one-third of the contract price as compensation for partial performance, lost opportunities and potential loss of commercial reputation.” Keith noticed this last clause before signing the contract and the one-third figure seemed steep to him, but he decided not to make an issue of it because he was sure that the project would be a success and because Doringer's price for the job was ten to fifteen percent less than quotes provided by other firms Keith had surveyed.

Finally, on May 10, Keith contacted Nigella Lawsuit, the celebrity owner/chef of Club Lucky, a mega-retro-diner in Wicker Park, Chicago. Keith was a huge fan of the restaurant and thought Club Lucky would be an ideal “anchor tenant” for the new building (that is, a large and prominent tenant that would draw customers who would provide significant spillover business for other tenants). Nigella told Keith that she would love to relocate her restaurant to New York. The “so-called ‘hipsters’ of Wicker Park,” she complained, “are far too annoying.” Not wanting to make a premature judgment, however, she asked for time to think about the offer; and Keith told Nigella that he needed a response within the next ten days. As it turned out, however, it did not take Nigella much time to make up her mind, for the very next day she gave an interview to a restaurant critic for the Washington Post, in which she stated that it was time for her to leave “Chi-town” for the “Big Apple”. She then closed her restaurant and hopped on a plane to Tahiti for a three-day celebration, planning to tell Keith about her decision when she returned.

Life looked good for Keith, but appearances can be deceiving. On Friday, May 13, less than three weeks after Keith sent his e-mail to Willie, New York lost its bid to be the site of the 2012 Olympics and Mayor Bloomberg made a public announcement that he would no longer support the west side stadium project. Upon learning this news, Keith determined that it no longer made sense to go ahead with his project and told Doringer to stop work on its design efforts, even though they had already expended one-fifth of the total cost budgeted for the design phase of the project. He also tried to call Nigella at home, but was told by her butler that she had closed the restaurant and flown to Tahiti. In a panic, Keith called Nigella’s cell phone, which had global coverage. When she answered, he immediately blurted, “We’ve got problems. Everything is on hold until I iron things out.” “But I was just about to call and accept your offer,” objected Nigella, “Good thing, then, that I reached you first,” replied Keith, who then hung up.

Following these events, Keith intended to try to get out of the contract to buy the building, but after a good night's sleep he reconsidered. Dreams die hard and the dream of becoming the next Trump convinced him that the building might have other uses. Perhaps it could become a casino; perhaps it would make a good parking lot. Just after resolving in his own mind to continue the project, however, Keith checked his e-mail account and discovered a new message from Willie Wilkoff. In this message, Willie apologized for not responding sooner, as he had gone on vacation to Nepal on April 15 and was unable to read Keith’s e-mail until now. Willie then dropped a bomb: he had never offered to sell the land, he claimed, but was merely feeling out Keith's interest. Furthermore, Willie said, there could never have been a completed deal because, in New York City, no real estate purchase is ever made without a detailed description of financing, permits, etc.; and Keith had never discussed these important details. In any event, Willie said, it was no longer possible to sell the land because he had bought it from his partners and was going to develop it himself.

Keith has come to our firm for legal advice. Write a memo advising him on his rights and his potential liabilities.