LEGAL ANALYSIS PROJECT FACT PATTERN

LEGAL ANALYSIS PROJECT FACT PATTERN

Charlotte McMann, an avid runner, has developed a fail-proof method to evaluating a runner’s stride and identifying the optimal shoe for the individual. Charlotte has spent many years researching, in her private time, the influence of height, weight, gait, strike patterns, foot shape, and foot motion (pronation vs. supination) on an ideal running shoe. Charlotte used her own funds to conduct consumer testing. The highly customized approach received an 84% approval rating with consumers even up to 6 months after the methodology was tested on them. She has decided that she should maximize her benefits with the methodology and become an entrepreneur in the retail of running shoes. In pursuit of her goals, she first speaks with her lawyer, Matthew Stinson of the law firm Stinson, Stubeck and Jolie L.L.P., about all the legal aspects of her business. Matthew, a runner himself who had met Charlotte at an organized race in 2012, was impressed with Charlotte’s method. He first recommended that Charlotte name her method and secure a trademark and patent on her methodology. He then suggested that she open a partnership. He strongly recommended she avoid any sort of incorporation or limited liability structure. Instead, he suggested Charlotte operate as a Limited Partnership. Matthew expressed his interest in being the limited partner, suggesting he would even contribute 80% of the capital necessary for her to open her first shop. Matthew further offered to do her legal work (including her patent application) without charge, if she agreed to the partnership. Charlotte expressed concerns of maintaining her ownership of the methodology, stating she did not want to share control with anyone else at this early stage. Matthew assured her that as a General Partner, she would have ultimate control of all management of the company. He did not further describe how the Limited Partnership would operate. Charlotte spent the next week speaking with her friends and coworkers about Matthew’s advice and offer. Katia, Charlotte’s friend, thought it was the perfect set-up for Charlotte to have ultimate control but without having to get loans to cover the expenses. Charlotte agreed but was worried that maybe she should see who else would invest in her idea; perhaps she should explore other potential investors. Mirshan, another of Charlotte’s friends, agreed that her idea was really ground-breaking. He even believed that all the best companies would want to invest and that she should try to sell licenses for her methodology to the major sporting goods stores. Charlotte decided to speak to Matthew again to see what other options may be available to her. Matthew, again, really focused on how a Limited Partnership would give her ultimate control and that he would be providing a large amount of the financial backing she needed to get started. He continued to dismiss the other options, stating that in order for her to gain the support of the big sporting goods stores, she’d have to promote her product to them. The promotion process was not only expensive but may divulge enough of her methodology that it may get misappropriated. Charlotte was sold and agreed to partner with Matthew to open her first store. Matthew asked that Charlotte send him the details of her business idea as soon as she had them ready. After some thought, Charlotte designated the name of her methodology, for patent purposes, as “Stride Guide” and identified a location for the business, naming the business “Street Cred”. She sent this information, complete with the financials and general operating guidelines to Matthew for his review. The next day Matthew emailed her the Partnership Certificate Agreement, which Charlotte immediately signed without reading it and sent back to Matthew. The certificate was silent as to the sharing of profits and losses, but stated that Matthew was a limited partner and would contribute 70% of the necessary capital to the partnership. Matthew did specify that any income from licensing of the Stride Guide methodology would also be shared partnership income. Matthew then filed a certificate of limited partnership with the secretary of state’s office. However, Matthew forgets to submit the patent application for Stride Guide. About a month later, Matthew came into the store to check it out. While waiting for Charlotte to finish with a customer, Matthew started talking to another one of the customers, Clint Murdoch, about his experience with Stride Guide. Clint said he had heard rave reviews at a runner’s association about Stride Guide and that seasoned runners believed Stride Guide to be the biggest innovation in running since the minimalist shoe movement. Clint was determined to see how it worked for him. Clint then said he was going to have to leave soon because he was due back at the office for an appointment. Matthew then stated he was a partner in the business and offered to serve Clint so he could return to the office with his new running shoes and accessories. Matthew had never used the Stride Guide method before but he had heard Charlotte describe it so he gave it a go. Matthew then sold Clint a pair of running shoes based on his determination of the results. Matthew assured Clint it would be the best running shoe he’d ever run in, going on to describe the comfort he would experience during all his long distance runs, even eliminating any chance of a running injury. The company was operating successfully and after only six months, Charlotte was making huge profits. Most of the profits were being reinvested in promoting her business but finally she arrived at the point where she was able to pay herself and Matthew. The year had started out very poorly for Charlotte as she had expected that Matthew would be covering 80% or more of the financials of the business. When he broke it to her that he would only cover 70%, Charlotte had to find funds elsewhere. She got a loan against her car, and moved into a much smaller apartment so she could afford to make ends meet. She was upset with Matthew for not telling her but was still grateful he was doing so much to help her business. She decided that she would send Matthew a check for $8,000, which was 50% of the profits. She continued to make payments to Matthew for 3 months. Matthew never acknowledged the payments. Then, Matthew asked if he could review the books. Charlotte was surprised. She did not want to offend Matthew but she felt he was impinging on her management authority. She was the sole manager of the partnership and really didn’t want someone rifling through her financials and giving unsolicited advice. She wrote a very polite email to Matthew saying that she would really prefer to answer any of his questions without giving him access to the books. Continuing on to say that she hoped he was happy with the unparalleled success Street Cred had been experiencing. Matthew wrote back that he was impressed but would like to know what profits had been for each of the last 3 months. Charlotte quickly sent him the information he requested. Matthew was appalled that Charlotte had not been giving him his fair share of the profits. How could she have him put up all that funding and then cheat him out of his share of the profits?? He quickly gives Charlotte a piece of his mind. Charlotte, after having heard Matthew’s tirade, hung up the phone in shock. She was clueless as to how this had happened. She had been living in near poverty for 6 months and couldn’t believe that Matthew was complaining about $3,200 a month when he was a partner in a successful law firm earning more than twice that amount PER DAY! Charlotte’s confusion turned to rage but she didn’t know what to do. After all Matthew was her lawyer. Feeling defeated and cornered, Charlotte started making payments to Matthew for 70% of profits. Charlotte complained to her friends and Mirshan suggested she try to license the methodology. It had made quite a name for itself in town and he believed she could make up the difference in profits that way. Charlotte was motivated and the next day she set out to discuss the idea with the local stores. Charlotte started at Biscayne Sporting Emporium, a local chain of sporting goods stores. The CEO, Sebastian Gerhard, liked her ideas and had heard of Stride Guide. After hearing her sales pitch, he looked at her and asked “how many people have you trained to use this methodology?” Charlotte felt the blood rush to her face; she realized she had not trained anyone in using the methodology. Sebastian looked torn. He really wanted to get in early on this deal but was fairly certain his floor associates would not be able to adopt this methodology. He expressed his concern to Charlotte and she said she would take some time to think about it and call him with a proposed solution. Engrossed in her thoughts on how to overcome this new challenge, Charlotte left Biscayne and got into the company van. She was headed to lunch with a sales representative who wanted to discuss a new product line with Charlotte. As she was stopped at a red light, Charlotte reached down to search her purse to find her phone; she needed to call the sales rep to let them know she was running a few minutes late. Suddenly she heard a blaring car horn and then her car lurched forward throwing her head into the dash and jerking her body back again, slamming her back into her seat as her airbag deployed. Her head was cloudy as she frantically looked around. Ahead of her there was no traffic, apparently she had missed the green light, and the driver of the car behind her was shaking his hands in the air with wild agitation. Charlotte was overwhelmed with confusion and slowly drifted to black. As Charlotte came to, she forced herself to op……………………..

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