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Business law in Partnerships

1.Guarente-Harrington Associates was a limited partnership formed for the purpose of investing in securities. There were two general partners and 40 limited partners. The partnership agreement provided that no partner could withdraw any part of his or her interest in the partnership except at the end of the fiscal year and with not less than 30 days’ prior notice. Arthur Andersen & Co. (Arthur Andersen), a national CPA firm, was hired to audit the books of the limited partnership. In certifying the financial statements of the partnership and preparing its tax returns, Arthur Andersen failed to report that the general partners had withdrawn $2 million of their $2.6 million capital investment at times other than at the end of the fiscal year and without proper notice. The partnership suffered losses because of this lack of capital. Shelby White, a limited partner, sued Arthur Andersen for accounting malpractice. Is Arthur Andersen liable under the Ultramares doctrine?

  1. Newton’s fire department had a minimum height and weight requirement for its firefighters. These requirements disqualified approximately 80% of all women, but only 5% of all men. Jane, a female who has wanted to be a firefighter all of her life, applied for a position on the Newton fire department, but was not hired because she did not meet the minimum height and weight requirements. Jane sues the department for discrimination. Explain whether or not Jane has a valid claim under the anti-discrimination laws.


  1. Michael H. Clott was chairman and chief executive officer of First American Mortgage Company, Inc. (FAMCO), which originated loans and sold the loans to investors, including E. F. Hutton Mortgage Corp. (Hutton). FAMCO employed Ernst &Whinney, a national CPA firm, to conduct audits of its financial statements. Hutton received a copy of the financial statements with an unqualified certification by Ernst &Whinney. Hutton bought more than $100 million of loans from FAMCO. As a result of massive fraudulent activity by Clott, which was undetected by Ernst &Whinney during its audit, many of the loans purchased by Hutton proved to be worthless. Ernst &Whinney had no knowledge of Clott’s activities. Hutton’s own negligence contributed to most of the losses it suffered. Hutton sued Ernst &Whinney for fraud and negligence. Is Ernst &Whinney liable?

Could the company be found guilty of motor vehicle homicide?


  1. Brian Gauthier, an experienced truck driver, worked for Todesca, a paving company. After about a year driving a particular 10-wheel tri-axle dump truck, Gauthier noticed that the back-up alarm had stopped working. When he reported this, the company mechanic realized that the old alarm needed replacement. The mechanic had none in stock, so the company instructed Gauthier to drive the truck without the alarm.

About a month later, Gauthier and other Todesca drivers were delivering asphalt to the work site on a highway at the entrance to a shopping mall. A police officer directed the construction vehicles and the routine mall traffic. A different driver asked the officer to “watch our backs” as the trucks backed through the intersection. All of the other trucks were equipped with back-up alarms. When it was Gauthier’s turn to back up, he struck the police officer, killing him.

The state charged the Todesca Corporation with motor vehicle homicide, and the jury found the company guilty. The trial judge imposed a fine—of $2,500. The court of appeals reversed the conviction, and the prosecution appealed to the state’s highest court.

ISSUE: Could the company be found guilty of motor vehicle homicide?


  1. Assume that you are a high-level manager for a shoe manufacturer. You know that your firm could increase its profit margin by producing shoes in Indonesia, where you could hire women for $40 a month to assemble them. You also know, however, that human rights advocates recently accused a competing shoe manufacturer of engaging in exploitative labor practices because the manufacturer sold shoes made by Indonesian women working for similarly low wages. You personally do not believe that paying $40 a month to Indonesian women is unethical because you know that in their impoverished country, $40 a month is a better-than-average wage rate. Assuming that the decision is yours to make, should you have the shoes manufactured in Indonesia and make higher profits for your company? Or should you avoid the risk of negative publicity and the consequences of that publicity for the firm’s reputation and subsequent profits? Are there other alternatives? Discuss fully.



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Category: Sample Questions