In Week 3, Donny Woods, Jamaica Johnson and Gerald Smith opened a new restaurant and bar in Tampa, Florida. You determined the type of business organization and gave the business a name. You also evaluated some of the legal issues faced by the business. This week, you will continue to assess the legal and ethical issues facing the restaurant.
Part 1 – Accountants’ Liability
Garnett Food Service, Inc. owned the building and land that Woods, Johnson and Smith planned to purchase. Prior to putting the property on the market, Garnett hired Lindsey Silver, of the accounting firm of Stevens, Silver and Winters to conduct an audit of the current business located on the property. Silver knew that potential buyers would use the audit report in making their decision to purchase the property. Silver’s audit report showed the current restaurant to be profitable. Woods, Johnson and Smith relied on the accountant’s report in agreeing to purchase the property. It was later discovered that Silver made a number of mistakes that overstated the profitability and value of the property. Woods, Johnson and Smith sued Silver and her accounting firm for damages based on negligent misrepresentation of fact. Silver used lack of privity of contract as her defense.
• Analyze the arguments for each party. Be sure to include a discussion of the various approaches to the duty of care a public accountant owes to third parties.
Part 2 – Sureties and Guarantees
Fifth Third Bank loaned $100,000 to Woods, Johnson and Smith to purchase the restaurant. Since the three parties did not have much cash or other assets, the bank required assurance of payment from another party. Chuck Wagon agreed to be a surety for the loan.
• Evaluate the bank’s options if the restaurant defaults on the loan. Be sure to identify the amount Wagon is responsible for paying, if any.
• Explain why the bank prefers the surety to a guaranty.
Part 3 – Secured Transactions and Bankruptcy
Harrell Restaurant Supplies agreed to sell two new commercial refrigerators to [Restaurant Name] for$17,500. Harrell retained a security interest in the equipment. [Restaurant Name] agreed to pay for the equipment in equal installments over 48 months.
• Evaluate Harrell’s rights as a creditor if [Restaurant Name] files bankruptcy 18 months after purchasing the equipment.
• Discuss Harrell’s rights as a creditor if [Restaurant Name] sold the two refrigerators for $750 approximately 30 days prior to filing bankruptcy.
• Explain how a failure by Harrell to file a financing statement might impact the outcome of both scenarios.
Part 4 – Employment Discrimination
Born in 1970, Florita Lopez immigrated from Mexico in 2001 and became a U.S. citizen in 2005. Lopez speaks fluent English with a strong Hispanic accent. Her accent does not interfere with her ability to communicate with others. Lopez worked as a cook and waitress for 20 years. Although she did not have any formal management experience, Lopez applied for a shift manager’s job with [Restaurant Name]; however, she was not hired for the position. The restaurant currently employs 5 full time employees and 11 part time employees.
• Analyze the possible grounds Lopez might have for a discrimination lawsuit against [Restaurant Name].
• Provide support for each ground selected and then provide arguments that [Restaurant Name] could make to counter each claim.
• Explain how your answer might change if the restaurant only employs a total of 12 people.
Part 5 – Insurance and Agency
Mitch Dawson is a delivery driver for [Restaurant Name]. While delivering orders within the scope of employment, Mitch rear-ended a car driven by Nick Smith. Mitch was insured by Nationwide Insurance and his policy contained the following information.
Exclusions—What is not Covered
Nationwide will not pay for any damages an insured person is legally obligated to pay because of:
1. Bodily injury or property damage arising out of the use of your insured auto while used to carry persons or property for a charge, or any auto you are driving while available for hire by the public.
• Analyze the liability on the part of Mitch, Nick Nationwide and [Restaurant Name]. Be sure to cover issues related to both insurance and agency.
Part 6 – Agency
Because of some recent thefts in the area, the restaurant hired Cross Security Service (CSS) to provide security for the property and deter thieves and vandals. The security guards were required to carry firearms; however, they had to be certified. Jeff Liddell was the security guard assigned to watch the restaurant. Even though Jeff Liddell was not certified, he brought his gun since he was only two days away from qualifications with the firearm. On December 31, Liddell fired his weapon at Martin West, in the belief that West was attacking a female patron who was trying to unlock her car. West died and his mother filed a lawsuit against CSS and the restaurant, claiming her son’s death was a result of negligence for which CSS and the restaurant were responsible.
• Justified the arguments for each party.
• Explain the restaurant’s best defense.
Part 7 – Consumer Protection
[Restaurant Name] does not publish the prices of drinks on the menus. Brad Dickens, a customer of the restaurant filed a lawsuit claiming that failure to provide drink prices on the menu constitutes an unfair business practice because customers must make quick decisions about ordering drinks after asking about the price. Another plaintiff, Charles Pirtle, claimed that he was not provided with a cost for his drink until after he ordered it, which constitutes consumer fraud.
• Analzye the applicability of state and/or federal consumer protection laws that Dickens and Pirtle can assert against [Restaurant Name]. Select which party should win and support your answer.
Part 8 – Recommendations
• Conclude your paper by jusifying suggestions for [Restaurant Name] to help prevent future occurrences of these types of legal problems and ethical issues, if applicable. Be specific in your recommendations.
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