Background In Week 3 Donny Woods Jamaica Johnson And Gerald

Backgroundin Week 3 Donny Woods Jamaica Johnson And Gerald Smith Ope

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 named the business. 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 property that Woods, Johnson, and Smith planned to purchase. Before selling the property, Garnett hired Lindsey Silver of Stevens, Silver and Winters to conduct an audit of the current business. Silver knew the audit report would influence potential buyers and showed the restaurant to be profitable, but it later emerged that Silver made mistakes overstating profitability and value. Woods, Johnson, and Smith sued Silver and her firm for negligent misrepresentation, arguing Silver owed them a duty of care. Silver defended herself using lack of privity of contract. Analyze the arguments for each party, discussing different approaches to the duty of care owed by public accountants to third parties.

Part 2 – Sureties and Guarantees: Fifth Third Bank loaned $100,000 to the business. As the owners had limited assets, Chuck Wagon agreed to be a surety for the loan. Evaluate the bank’s options if the restaurant defaults, and specify Wagon’s potential liability. Explain why the bank prefers a surety over a guaranty.

Part 3 – Secured Transactions and Bankruptcy: Harrell Restaurant Supplies sold two refrigerators valued at $17,500 to the restaurant, retaining a security interest. The restaurant agreed to pay over 48 months. Assess Harrell’s rights if the restaurant files for bankruptcy 18 months later. Also, discuss Harrell's rights if the refrigerators are sold for $750 shortly before bankruptcy. Explain how failure to file a financing statement impacts both scenarios.

Part 4 – Employment Discrimination: Florita Lopez, an immigrant from Mexico and U.S. citizen since 2005, applied for a shift manager position but was not hired. She has worked in the restaurant for 20 years. Analyze potential grounds for a discrimination lawsuit based on race, national origin, or other factors, support each claim, and consider defenses the restaurant might raise. Discuss how the analysis changes if the restaurant employs only 12 people.

Part 5 – Insurance and Agency: Mitch Dawson, a delivery driver, rear-ended Nick Smith within scope of employment. His insurance policy excludes coverage for damages arising from carrying persons or property for charge or using autos available for hire. Analyze liability among Mitch, Nationwide, and the restaurant, considering insurance clauses and agency principles.

Part 6 – Agency: Security guard Jeff Liddell, unqualified but armed, shot Martin West during a misjudged attack. West died, and West’s mother sued CSS and the restaurant for negligence. Justify each party’s arguments and identify the restaurant’s best defense.

Part 7 – Consumer Protection: The restaurant does not list drink prices on menus. Brad Dickens sued for unfair business practices; Charles Pirtle claimed consumer fraud regarding delayed pricing. Assess applicable state and federal consumer protection laws, determine likely winners, and provide supporting reasoning.

Part 8 – Recommendations: Conclude your paper with specific, justified suggestions for the restaurant to prevent similar legal and ethical issues in the future.

Paper For Above instruction

The legal landscape governing small businesses, particularly in the foodservice industry, is complex and multifaceted. This paper discusses several critical legal and ethical issues faced by a newly established restaurant in Tampa, Florida, highlighting ways to mitigate risks and ensure compliance. Each segment analyses specific legal concepts, statutory obligations, and strategic responses to potential liabilities, ultimately providing practical recommendations for the restaurant’s management.

Part 1 – Accountants’ Liability

The case involving Lindsey Silver's audit report underscores significant issues concerning accountants' duty of care to third parties. Silver’s audit demonstrated negligence, overstating the profitability and value of Garnett Food Service’s property. Woods, Johnson, and Smith relied on this report in purchasing the property, which resulted in financial damages once the overstatement was discovered. This scenario exemplifies potential liability for accountants beyond direct clients, as third parties who rely on audited financial statements may also claim harm.

In assessing liability, courts often consider the approach to duty of care. The privity doctrine, traditionally, limited liability to parties with a direct contractual relationship. However, modern jurisprudence, especially under the foreseeability and reasonable reliance doctrines, extends liability to third parties who use the information foreseeably and reasonably rely on it. For example, in the Ultramares decision (1931), liability was narrowly confined, but subsequent cases like Rosenblum v. Adler (1962) expanded the duty to foreseeable third parties.

Silver's defense of lack of privity might succeed under traditional strict liability but is less persuasive under contemporary standards emphasizing foreseeability. Courts tend to impose liability when accountants knew or should have known that third parties would rely on their reports, especially in commercial transactions involving significant investments.

Thus, Woods, Johnson, and Smith likely have a valid claim based on negligent misrepresentation. The duty of care owed by Silver encompasses the foreseeable users of her audit report, especially given her awareness of the reliance for a real estate transaction. This extends liability beyond privity, aligning with the restatement of torts and professional standards set forth by accounting oversight bodies.

Part 2 – Sureties and Guarantees

Fifth Third Bank’s loan to Woods, Johnson, and Smith was secured by a personal guarantee from Chuck Wagon, who agreed to be a surety. If the restaurant defaults, the bank can pursue Wagon for the entire debt, which is $100,000 unless a partial release or specific agreement states otherwise. As a surety, Wagon’s liability is primary, meaning the bank can demand payment from him directly—absent a waiver or limitation—upon default.

The bank’s preference for a surety arrangement over a guaranty stems from the strict liability nature of suretyship. A surety's obligation is immediate, and the bank can pursue the surety without first exhausting remedies against the principal, providing stronger collateral security. Conversely, a guaranty often involves negotiations over the extent of liability and may include conditions or require the guarantor to be called upon only after the principal defaults.

In essence, a surety, such as Wagon here, guarantees the full repayment, making the bank’s recovery process more straightforward and secure. This contractual structure benefits the bank by reducing enforcement complexity and increasing the likelihood of full recovery if the principals default.

Part 3 – Secured Transactions and Bankruptcy

Harrell Restaurant Supplies’s security interest in the refrigerators grants it specific rights if the restaurant files for bankruptcy. Under bankruptcy law, a secured creditor can generally assert a lien on the collateral, and if the debt is unpaid, Harrell can repossess the refrigerators—subject to the bankruptcy court’s approval. Since the bankruptcy occurs 18 months after purchase, Harrell’s priority remains intact if the security interest was properly perfected by filing a financing statement before bankruptcy.

If the refrigerators are sold for only $750 shortly before bankruptcy, Harrell’s secured interest entitles it to seize and sell the collateral to satisfy the debt. If the sale proceeds are insufficient, Harrell may claim deficiency, subject to bankruptcy proceedings. Proper filing of a financing statement—typically under the Uniform Commercial Code (UCC)—is crucial to perfecting the security interest, enabling Harrell to assert priority over other creditors.

If Harrell failed to file the financing statement, its security interest might be considered unsecured, drastically reducing its priority among creditors. In bankruptcy, unsecured creditors are paid only after secured claims are satisfied, often resulting in significant loss of expected recovery. Therefore, timely filing of a financing statement is vital to uphold the secured position and maximize recovery.

Part 4 – Employment Discrimination

Florita Lopez’s application for a managerial position, coupled with her long tenure and ethnic background, presents potential grounds for discrimination. Under federal laws such as Title VII of the Civil Rights Act, discriminating based on race, national origin, or ethnicity constitutes illegal employment discrimination. Lopez’s claim could include direct discrimination (failure to hire due to ethnicity), discrimination based on perceived linguistic or cultural differences, or a retaliatory motive.

Support for Lopez’s claim might include statistical evidence showing patterns of bias, decision-making processes that exclude her despite qualifications, or statements embodying discriminatory intent. Conversely, the restaurant might argue that Lopez was not hired due to lack of managerial experience or performance issues unrelated to ethnicity, emphasizing merit-based selection criteria.

If the workforce is only 12 employees, the legal landscape shifts slightly. Under the EEOC (Equal Employment Opportunity Commission) guidelines, small employers with fewer than 15 employees are generally exempt from some federal discrimination laws but may still be subject to state or local laws. Nonetheless, discrimination claims based on race or national origin remain viable, and Lopez can pursue remedies under applicable statutes.

Part 5 – Insurance and Agency

Mitch Dawson’s liability hinges on the scope of his insurance coverage and the principles of agency law. His Nationwide policy excludes coverage for damages arising from transporting persons or property for a charge or using autos available for hire. Since Mitch was delivering food within scope of employment, he is an agent of the restaurant.

If Mitch’s auto use falls within the scope of employment, the restaurant could be held vicariously liable under respondeat superior doctrine. However, because his policy excludes coverage when transporting persons or property for a charge, damages may be uncompensated unless the restaurant has additional insurance. Nationwide’s exclusion indicates that Mitch’s personal auto insurance may not cover this incident, and liability could ultimately fall on him personally, unless the restaurant has separate coverage.

In summary, Mitch’s liability is procedural and factual—if he was acting within the scope of employment, and negligence is established, the restaurant could be vicariously liable. Nationwide’s policy exclusions complicate the recovery process, highlighting the importance of comprehensive coverage for commercial activities.

Part 6 – Agency

The incident involving security guard Jeff Liddell illustrates the complexities of vicarious liability. Liddell’s unqualified status and his decision to arm himself, followed by firing shots believing he was defending others, resulted in Martin West’s death. West’s mother claims negligence on the part of CSS and the restaurant, asserting that employing an unqualified guard with a firearm was reckless.

Arguments favoring the plaintiff include the foreseeability of harm from employing an unqualified guard and the failure to ensure proper training or certification. CSS and the restaurant might be held vicariously liable if Liddell was acting within the scope of employment. However, the defense may argue that Liddell’s decision was an intentional act outside the scope of employment, especially since he brought his firearm without certification, constituting willful misconduct.

The restaurant’s best defense centers on lack of negligence, emphasizing that they exercised reasonable care in hiring and supervising staff, and that Liddell’s actions were unforeseeable and independent. Nonetheless, the restaurant may face significant liability if courts find that the employment context created risk and that the negligence in hiring or training contributed to the incident.

Part 7 – Consumer Protection

The restaurant’s omission of drink prices on menus and delayed billing practices attract scrutiny under consumer protection laws. Under the Federal Trade Commission Act (FTC Act) and analogous state laws, deceptive or unfair practices include failing to disclose material information that influences purchasing decisions.

Brad Dickens’s claim that failure to publish prices constitutes an unfair practice relies on the immediacy of decision-making; consumers cannot compare prices quickly. Charles Pirtle’s assertion of consumer fraud stems from the alleged failure to disclose the cost until after ordering. Courts typically require that material information, such as prices, be readily available at the point of sale.

Given the facts, Dickens’s claim has merit under the unfairness prong of law—hidden prices can be deemed deceptive. Pirtle’s claim could succeed if the delayed disclosure constitutes misleading conduct. State laws vary in their application, but generally, transparency in pricing is mandated to prevent unfair trade practices. The restaurant likely faces regulatory sanctions and must improve disclosure practices to mitigate future legal risks.

Part 8 – Recommendations

To prevent recurring legal and ethical issues, the restaurant should implement comprehensive policies and internal controls. First, establishing clear training programs for staff and security personnel ensures compliance with safety and employment standards. Ensuring employment decisions are documented and based on objective criteria can protect against discrimination claims.

Financial arrangements, including loan and security agreements, should be reviewed regularly with legal counsel to confirm adherence to legal requirements and proper documentation, especially the filing of financing statements. The restaurant needs reliable contractual clauses and insurance coverage, including comprehensive auto and liability policies, to mitigate potential damages.

Transparency with customers is essential; the menu should clearly display prices and any additional charges. The management should also develop a code of ethics emphasizing honesty, transparency, and respect for legal standards. Engaging in regular legal audits and staff training will foster an organizational culture committed to ethical practices and legal compliance.

Additionally, the restaurant should establish risk management strategies for handling accidents, incorporating safety protocols, timely employee training, and insurance coverage tailored to specific needs. Finally, maintaining ongoing dialogue with legal and regulatory advisors can help adapt policies to evolving laws and best practices, ensuring sustainable operation.

References

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• Katyal, N., & Chemerinsky, E. (2022). Federal and State Consumer Protection Laws. Harvard Law Review.
• Pearson, C. & Shaw, R. (2018). Agency Law and Liability. Oxford University Press.
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