BUS673 – Legal aspects of business
Midterm exam due 4/3/2013
Total words counted: 3,913
1) According to the given facts in the case between RepairCo and Yodel, there are two possible causes of action that RepairCo have against Yodel regarding her “side business”.
First of all, and most importantly, Yodel had seriously violated one of two main responsibilities she has to the RepairCo, which is a duty of loyalty. The facts in the case plainly indicate that Yodel was a key person in RepairCo operation. Yodel had broad authority to manage and conduct the business of the machine shop, especially in sale activities. As a manager, Yodel is charged with a duty of loyalty that prohibits her from operating a business that will compete with the employer or usurp any business opportunities that the employer might be interested in exploring. Applying this law to the facts of this case yields the following analysis: Yodel had operated her own business that not only compete with RepairCo (dealing RepairCo’s orders with other machine shops), but also usurp RepairCo’s business opportunities. It became even severer as Yodel intended not to inform and discuss those orders to the company, that means she had done her job unfaithfully. In other words, Yodel did deprive RepairCo of acquiring orders for parts or repair work. Her unethical deeds can be considered as defrauding both RepairCo and its clients.
The second potential issue is hypothetical to some extent. It relates to the law of trade secret which is designed to protect a company’s business secrets. The inference might be that once receiving orders for parts of the RepairCo machine shop, instead of forwarding those customer lists to the shop Yodel had secretly sent them to another machine shops. Still there was not enough fact showing whether the customer list is identified as a RepairCo trade secret. There is also the lack of details in Yodel’s performance of her wrongdoings. So that it would be hard to make an evident claim under the trade secret infringement. We can just learn that Yodel illegally disclosed customer orders and key purchase contracts to RepairCo’s competitors.
The third issues is about her so-called agency – manufacture consulting and broker service. Again, we do not have adequate fact on hands to affirm that Yodel did violate the law of agency. One assumption withdrawn from given facts was that Yodel call herself a RepairCo’s agent specialized in consulting, brokering orders for parts of the sort manufactured by RepairCo. On that assumption, the legal issue could be a lack of manifestation by RepairCo that Yodel will act for the company; and lack of understanding between the parties. Apply that rules, Yodel’s agent is unauthorized. Even if she was eligible to launch the business, she cannot benefit from self-dealing, usurping RepairCo’s opportunities, and making secret profit.
2) Yodel might be able to defend herself on the flowing grounds:
In regard with her breach of a duty of loyalty, Yodel might state that she did it based on her good faith, or a fiduciary duty. Yodel believed that there were some kind of business offer that could not be done by Yodel or lack of suitable equipment, or she thought that RepairCo could not make it at a competitive price. Thereby she would probably argue that she acted on the company interest. One of her advantage is Yodel was particularly specialized in her field and knowledgeable about company capability. Making the most of that point, her judgment not to giving RepairCo unsuitable orders might be feasible in terms of financial analysis.
On one hand, RepairCo will definitely win its lawsuit if the court can prove that Yodel infringed trade secret protection, broker her duty of loyalty, and violate the law of agency. That likelihood is possible due to one rule is that, the term “good faith” is a state of mind characterized by both “honesty” and “faithfulness to the director's