Describe and explain one of each of the following types of agency relationships from the facts of this case; principal/ agent; independent contractor.

ABC Company is a publicly traded company. It has about 200,000 shareholders, however, some 150,000 of those shares are owned by large pension funds. The bank for ABC Company is No Fraud National Bank.

ABC’s President, Big Bucks, is also on the board of No Fraud National. ABC’s Chief Financial Officer, Time Value, is also on the board of ABC and No Fraud.

ABC went public two years ago in an IPO. At that time, Time Value was the CPA who handled the accounting functions for the IPO since he was a senior partner in the CPA firm of Spreadsheet, Calculator and Itemization. Time Value provided an audit of the financial statements of ABC for this IPO and this audit report had no exceptions. Time Value had been aware of several pending lawsuits but he considered them to be frivolous claims so he made no allowance for them and listed them in the footnotes as claims against the company which had no merit.

It is now 2 years later and the financial results of ABC have been terrible. The stock has lost 95% of its IPO value and many of the shareholders are quite unhappy with these results. One factor which led to this reduction in stock value was that one of those “frivolous claims” ended up with the largest product liability jury verdict in history and the company did not have sufficient assets to pay for the appeal bond that was required to appeal the jury verdict. Because of this, they entered into a settlement agreement with the plaintiffs which requires them to pay the plaintiffs 50 million dollars each year for the next 20 years. ABC has made these payments, but has then not had the cash to pay their unsecured creditors.

What led to this jury verdict was a product ABC has made for many years- a nail polish remover. In 2000, it was discovered that this nail polish remover was causing skin cancer in many of the persons who used the product frequently. ABC denied that their product was dangerous. At the trial, a memo from the chemical engineers at ABC set forth the fact that the product was dangerous and could cause an increased risk of skin cancer if it was used frequently. The CEO of ABC refused to issue a product recall and he also testified at a Congressional hearing that the product had been thoroughly tested and it was “safe enough to use on a newborn baby’s skin and would cause no damage to such sensitive skin”. He then fired the chemical engineers who had written the memo and he advised the Board of ABC that the product was safe and that the engineers had been fired because they wanted too much money for the work they did.
Questions: 25 pts each

Describe and explain one of each of the following types of agency relationships from the facts of this case; principal/ agent; independent contractor.
Under what agency theories will Time Value, Big Bucks, ABC Company and No Fraud be liable for payment of the jury verdict? What duties did each have that they did not meet?

ABC Company is a publicly traded company. It has about 200,000 shareholders, however, some 150,000 of those shares are owned by large pension funds. The bank for ABC Company is No Fraud National Bank.

ABC’s President, Big Bucks, is also on the board of No Fraud National. ABC’s Chief Financial Officer, Time Value, is also on the board of ABC and No Fraud.

ABC went public two years ago in an IPO. At that time, Time Value was the CPA who handled the accounting functions for the IPO since he was a senior partner in the CPA firm of Spreadsheet, Calculator and Itemization. Time Value provided an audit of the financial statements of ABC for this IPO and this audit report had no exceptions. Time Value had been aware of several pending lawsuits but he considered them to be frivolous claims so he made no allowance for them and listed them in the footnotes as claims against the company which had no merit.

It is now 2 years later and the financial results of ABC have been terrible. The stock has lost 95% of its IPO value and many of the shareholders are quite unhappy with these results. One factor which led to this reduction in stock value was that one of those “frivolous claims” ended up with the largest product liability jury verdict in history and the company did not have sufficient assets to pay for the appeal bond that was required to appeal the jury verdict. Because of this, they entered into a settlement agreement with the plaintiffs which requires them to pay the plaintiffs 50 million dollars each year for the next 20 years. ABC has made these payments, but has then not had the cash to pay their unsecured creditors.

What led to this jury verdict was a product ABC has made for many years- a nail polish remover. In 2000, it was discovered that this nail polish remover was causing skin cancer in many of the persons who used the product frequently. ABC denied that their product was dangerous. At the trial, a memo from the chemical engineers at ABC set forth the fact that the product was dangerous and could cause an increased risk of skin cancer if it was used frequently. The CEO of ABC refused to issue a product recall and he also testified at a Congressional hearing that the product had been thoroughly tested and it was “safe enough to use on a newborn baby’s skin and would cause no damage to such sensitive skin”. He then fired the chemical engineers who had written the memo and he advised the Board of ABC that the product was safe and that the engineers had been fired because they wanted too much money for the work they did.
Questions: 25 pts each

  1. Describe and explain one of each of the following types of agency relationships from the facts of this case; principal/ agent; independent contractor.
  2. Under what agency theories will Time Value, Big Bucks, ABC Company and No Fraud be liable for payment of the jury verdict? What duties did each have that they did not meet?
  3. Explain any action the chemical engineers may have against ABC, the CEO of ABC and the CPA firm known as Spreadsheet, Calculator and Itemization for wrongful termination.

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