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Question 1Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A bakery's owner gave its longtime purchasing manager a company credit card and a list of approved suppliers and told her to "keep the flour and sugar coming." The owner privately instructed the manager not to place any single order above $20,000. The manager ordered $35,000 of flour from a regular supplier that had dealt with her for years and had no notice of the limit. The bakery refused to pay. Is the bakery bound to the supplier?

  1. Yes, because a purchasing manager has inherent authority to bind the bakery to any supply contract.
  2. No, because the supplier had a duty to inquire into the manager's actual authority.
  3. Yes, because the owner's manifestations clothed the manager with apparent authority to make the purchase. Correct answer.
  4. No, because the manager's actual authority was limited to orders of $20,000 or less.

Explanation

Apparent authority arises when the principal's manifestations to a third party reasonably lead that third party to believe the agent is authorized. A secret limitation on the agent's actual authority does not defeat apparent authority when the third party has no notice of it. The bakery therefore is bound by the manager's order.

Question 2Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

Two contractors orally agreed to renovate and resell houses together. One supplied all the capital; the other supplied labor and managed the projects. They agreed to split profits equally and did so for three projects. They never signed a writing or filed any certificate. A dispute arises over whether a partnership exists. What is the most accurate conclusion?

  1. A partnership exists only if the parties filed a certificate with the state.
  2. No partnership exists because only one party contributed capital.
  3. No partnership exists because the parties never reduced their agreement to a signed writing.
  4. A partnership exists because they carried on a business as co-owners for profit. Correct answer.

Explanation

RUPA defines a partnership as an association of two or more persons to carry on a business as co-owners for profit. Sharing profits is prima facie evidence of partnership, and no written agreement or state filing is required. Capital contribution is not essential; labor and management can suffice.

Question 3Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A corporation's board of directors declined to declare a dividend despite a profitable year and retained earnings. A shareholder holding 40% of the shares demands that the corporation distribute a dividend and sues to compel one. Under the business judgment rule, what result?

  1. The shareholder loses, because dividend policy is committed to the board's business judgment. Correct answer.
  2. The shareholder wins, because a 40% shareholder has a right to proportional dividends once earnings exist.
  3. The shareholder wins, because a profitable corporation must distribute dividends to avoid the accumulated earnings tax.
  4. The shareholder loses, because a shareholder may never challenge a board's dividend policy in court.

Explanation

The board of directors generally has discretion to declare dividends, and courts review that decision under the business judgment rule. A shareholder cannot compel a dividend merely because the corporation is profitable and has retained earnings. Absent bad faith, self-dealing, or abuse of discretion, the board's decision stands.

Question 4Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A partner in a two-person accounting partnership secretly formed a separate accounting firm and diverted several partnership clients to it. The partnership agreement is silent on outside business activities. The other partner learns of this and sues. What is the likely result?

  1. The partner wins, because a partnership agreement that is silent on competition is unenforceable.
  2. The other partner wins, because a partner owes a duty of loyalty and may not compete. Correct answer.
  3. The other partner wins, because a partner may not earn income from any source other than the partnership.
  4. The partner wins, because partners may engage in outside business ventures unless the agreement expressly prohibits competition.

Explanation

Under RUPA, a partner owes a duty of loyalty that includes refraining from competing with the partnership and from appropriating partnership opportunities. A silent partnership agreement does not license secret competition. The competing partner must account for profits earned from the diverted clients.

Question 5Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

An associate at a real estate firm, without any authority, signed a lease on behalf of the firm for office space. The firm's managing partner later read the lease, said "this will work fine," and moved the firm into the space. The landlord now seeks rent. Is the firm bound?

  1. No, because the associate lacked actual authority when the lease was signed.
  2. No, because ratification requires a written resolution of the board of directors.
  3. Yes, because an associate in a real estate firm has inherent authority to sign leases.
  4. Yes, because the firm ratified the lease by accepting benefits with knowledge of the facts. Correct answer.

Explanation

Ratification occurs when a principal, with knowledge of the material facts, accepts the benefits of an unauthorized act or otherwise manifests assent. The firm's managing partner knew of the lease and moved in, which ratifies the associate's signature. A formal board resolution is not required unless the governing documents or statute demand one.

Question 6Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A promoter signed a contract with a supplier to buy equipment "on behalf of a corporation to be formed." The corporation was later formed and adopted the contract, but the supplier was never told that the promoter was released. The corporation failed to pay. Who is liable to the supplier?

  1. Neither is liable, because a corporation cannot adopt a contract made before its formation.
  2. Only the corporation is liable, because the promoter signed as an agent for a disclosed principal.
  3. The promoter is not liable, because the corporation's adoption of the contract automatically releases the promoter.
  4. The promoter remains liable, because adoption does not release the promoter without the supplier's novation. Correct answer.

Explanation

A promoter who contracts on behalf of a corporation not yet formed is personally liable on the contract unless the other party agrees to a novation. The corporation's later adoption makes the corporation liable as well, but it does not automatically release the promoter. The supplier therefore can enforce the contract against the promoter.

Question 7Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A member of a manager-managed LLC sold and assigned her entire membership interest to an outsider. The LLC's operating agreement is silent on transfers. The outsider demands to inspect the books, vote for managers, and participate in management. What rights does the transferee have?

  1. The transferee becomes a full member with management and voting rights immediately upon assignment.
  2. The transferee receives management rights but no distributions until admitted as a member.
  3. The transferee receives economic rights and information, but no management or voting rights. Correct answer.
  4. The transferee receives nothing at all until the other members unanimously admit her as a member.

Explanation

An assignee of an LLC membership interest ordinarily receives only the transferor's economic rights, such as rights to distributions, plus reasonable information about the LLC. Management and voting rights require admission as a member under the operating agreement or by the required members' consent. The outsider therefore does not become a full member merely by buying the interest.

Question 8Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A shareholder of a public corporation wants to sue the CEO and four directors for breaching fiduciary duties in a transaction that benefited the CEO. The seven-member board has three directors who are independent and four who are the CEO's longtime business associates and approved the transaction. The shareholder sues without first making a demand on the board. What is the best argument that demand is excused?

  1. Demand is excused because the shareholder owns less than a majority of the corporation's shares.
  2. Demand is excused because the CEO is also a director.
  3. Demand is excused because a majority of the board lacks independence and approved the transaction. Correct answer.
  4. Demand is excused because derivative suits never require a pre-suit demand.

Explanation

A pre-suit demand on the board is excused when demand would be futile, typically because a majority of directors are interested, lack independence, or face a substantial likelihood of liability. Here four of seven directors are closely tied to the CEO and approved the challenged transaction. The shareholder may therefore proceed without demand if she pleads those facts with particularity.

Question 9Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A sole member of a consulting LLC commingled client payments with personal funds, used the LLC bank account to pay personal expenses, and never observed any formalities. The LLC now cannot pay a judgment creditor. The creditor sues the member personally. What is the best analysis?

  1. The member is personally liable automatically because a single-member LLC is legally a sole proprietorship.
  2. The member may be liable if the LLC was her alter ego and honoring the entity would work an injustice. Correct answer.
  3. The member cannot be liable because an LLC statute always shields members from personal liability for LLC debts.
  4. The member is liable only if the creditor proves the LLC committed a tort against the creditor.

Explanation

Courts may pierce an LLC's veil and hold a member liable when the member uses the entity as an alter ego and honoring the separate entity would work an injustice or fraud. Commingling funds, paying personal expenses from the LLC, and ignoring formalities are classic alter-ego evidence. Limited liability is the default, but it is not absolute.

Question 10Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A director of a real estate development corporation learned that a parcel adjacent to the corporation's project was for sale. She disclosed the parcel to the board. After full discussion, the board voted that the corporation lacked financing for any additional acquisitions that year and declined the parcel. The director then bought the parcel for herself and later sold it at a profit. The corporation sues. What is the likely result?

  1. The director is not liable, because the corporation was financially unable to take the opportunity and had rejected further acquisitions. Correct answer.
  2. The director is not liable, because a director may take any opportunity that the board has not formally offered to her.
  3. The director is liable, because any opportunity learned of in the corporate role always belongs to the corporation.
  4. The director is liable, because a director may never acquire property that is adjacent to property owned by the corporation.

Explanation

A director may take a corporate opportunity only if the corporation lacks the financial ability to pursue it, the opportunity is not in the corporation's line of business, or the corporation validly rejects it after disclosure. The board's informed decision that it could not finance further acquisitions supports the director's purchase. Without a breach of loyalty, the director is not liable.

Question 11Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A courier company hires a driver as an employee and assigns him a daily route. While making a scheduled delivery, the driver negligently runs a red light and injures a pedestrian. The pedestrian sues the courier company. Is the company liable for the driver's negligence?

  1. Yes, but only if the company had notice of the driver's prior accidents.
  2. Yes, because the driver was acting within the scope of employment when the injury occurred. Correct answer.
  3. No, because the driver alone committed the negligent act.
  4. No, because the company did not direct the specific manner of driving.

Explanation

Under respondeat superior, an employer is vicariously liable for torts committed by an employee acting within the scope of employment. Making a scheduled delivery is within the driver's scope of employment, so the company is liable even without direct fault in the driving.

Question 12Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

Two acquaintances orally agree to operate a food truck together and to divide the net profits equally; they sign no other document and file no state registration. A supplier later claims the two are partners and seeks payment of an unpaid food-truck debt. Under the Revised Uniform Partnership Act, what is the strongest basis for finding a partnership?

  1. They orally agreed rather than signing a written contract.
  2. The supplier extended credit to the food truck.
  3. The friends co-owned the food truck's equipment.
  4. They agreed to share the net profits of the business. Correct answer.

Explanation

RUPA provides that a person who receives a share of profits is presumed to be a partner unless the profits are received for a listed exception such as wages, rent, or debt repayment. Sharing net profits from a jointly operated business is therefore prima facie evidence of partnership.

Question 13Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A person owns 100 shares of record in a public corporation and has held them for two months. She sends the corporation a written demand to inspect its stockholder list and board minutes, stating that she wants to communicate with other stockholders about a planned proxy contest. The corporation refuses. Is she entitled to inspect?

  1. Yes, but only after she obtains a court order and posts a bond.
  2. Yes, because she has a proper purpose and made a written demand as a stockholder of record. Correct answer.
  3. No, because a stockholder may inspect only financial statements, not board minutes.
  4. No, because she has owned her shares for less than one year.

Explanation

A stockholder of record generally has a right to inspect corporate books and records, including minutes and stockholder lists, for a proper purpose reasonably related to her interest as a stockholder. Communicating with other stockholders about a proxy contest is a proper purpose, and no minimum holding period applies.

Question 14Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

An employee who has no purchasing authority orders $40,000 of equipment from a supplier in the company's name. When the company's CEO learns of the order, the CEO signs and sends the supplier a letter stating that the company confirms and will pay for the order. The company later refuses to pay. Is the company bound?

  1. No, because ratification must be by the same employee who made the contract.
  2. Yes, because the CEO ratified the contract with knowledge of its terms. Correct answer.
  3. No, because the supplier had not yet delivered the equipment.
  4. No, because the employee lacked actual authority to place the order.

Explanation

Ratification occurs when a principal, with knowledge of the material facts, affirms an unauthorized act of an agent. The CEO's written confirmation and promise to pay constitute ratification, making the company bound as if the employee had original authority.

Question 15Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A general partnership operates a retail furniture store. Without consulting the other partners, one partner contracts to buy inventory from a regular supplier on the partnership's usual credit terms. The other partners object and refuse to pay. Is the partnership bound on the contract?

  1. Yes, because the purchase was in the ordinary course of partnership business. Correct answer.
  2. No, because a partnership is liable only for torts committed by partners.
  3. No, because the partner lacked actual authority for this particular purchase.
  4. No, because every partner must consent to every partnership contract.

Explanation

Under RUPA, an act of a partner apparently carried on in the ordinary course of the partnership business binds the partnership unless the partner had no authority and the third party knew of the lack of authority. Buying inventory on usual credit terms is within the ordinary course of a retail furniture business.

Question 16Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A judgment creditor obtains a $250,000 judgment against a member of a limited liability company. The member has no separate assets, but the LLC holds valuable equipment and cash. Under the typical LLC statute, what is the creditor's best remedy against the member's LLC interest?

  1. Obtain a charging order against the member's distributional interest in the LLC. Correct answer.
  2. Seize and sell the LLC's equipment to satisfy the judgment.
  3. Vote the member's interest to remove the LLC's manager.
  4. Force the LLC to dissolve and distribute its assets.

Explanation

A charging order is the usual exclusive remedy for a judgment creditor of an LLC member. It reaches the member's right to receive distributions but does not make the creditor a member or give the creditor management or voting rights.

Question 17Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

Organizers of a new business attempt to incorporate but fail to file the articles of incorporation. They believe in good faith that the corporation exists, use a corporate name, keep minutes, and conduct business. A creditor later sues the organizers personally. Under the traditional de facto corporation doctrine, what is the result?

  1. They may avoid liability under the de facto corporation doctrine. Correct answer.
  2. They are personally liable because promoters always guarantee corporate debts.
  3. They are personally liable unless the creditor relied on their personal credit.
  4. They are personally liable because no articles were filed.

Explanation

The traditional de facto corporation doctrine may protect organizers from personal liability when a corporation statute exists, the organizers made a good-faith attempt to comply with it, and they actually exercised corporate powers. The doctrine is a narrow exception to the usual rule that defective incorporation leaves owners personally liable.

Question 18Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A corporation has 1,000 shares outstanding and will elect five directors at its annual meeting. A stockholder owns 100 shares and wants to use cumulative voting to elect one director. How many votes may the stockholder cast for a single candidate?

  1. 1,000 votes
  2. 20 votes
  3. 500 votes Correct answer.
  4. 100 votes

Explanation

In cumulative voting, a stockholder may multiply the number of shares owned by the number of directors to be elected and cast all those votes for one candidate. Here, 100 shares multiplied by five director positions equals 500 votes.

Question 19Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A Delaware corporation's charter includes a provision authorized by DGCL Section 102(b)(7). The board approves a major acquisition that later collapses; shareholders sue the directors for monetary damages, alleging only that the directors were grossly negligent in failing to investigate. What is the directors' best defense?

  1. The business judgment rule bars all claims against directors.
  2. Directors are liable only if they profited personally.
  3. The charter provision eliminates liability for breaches of the duty of loyalty.
  4. The charter provision bars monetary damages for duty-of-care claims. Correct answer.

Explanation

DGCL Section 102(b)(7) permits a charter provision exculpating directors from monetary liability for breaches of the duty of care, including gross negligence. It does not bar claims for breaches of loyalty, bad faith, intentional misconduct, or improper personal benefit.

Question 20Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A partner in a five-person accounting partnership withdraws before the term stated in the partnership agreement expires, and the withdrawal violates the agreement. The firm suffers a $100,000 loss from the abrupt departure. Under the Revised Uniform Partnership Act, what is the most likely consequence for the departing partner?

  1. The dissociation is ineffective because the agreement forbids withdrawal.
  2. The partner is liable only if the other partners unanimously vote to expel him.
  3. The partner is wrongfully dissociated and liable for damages caused by the withdrawal. Correct answer.
  4. The partnership automatically dissolves and the partner owes no damages.

Explanation

A partner who withdraws in breach of an express provision of the partnership agreement is wrongfully dissociated. Wrongful dissociation does not necessarily make the withdrawal ineffective, but the dissociating partner is liable to the partnership and other partners for damages caused by the breach.

Question 21Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

An agent signs a supply contract in her own name with a vendor and does not disclose that she is acting for a principal. The principal later refuses to perform, and the vendor learns of the principal's identity. Which statement best describes the vendor's rights?

  1. The vendor may enforce the contract against neither party, because the principal was undisclosed when the contract was made.
  2. The vendor may enforce the contract only against the agent, because a principal who remains undisclosed at the time of contracting is not bound by the agent's act.
  3. The vendor may enforce the contract against either the agent or the principal, but may recover only one satisfaction. Correct answer.
  4. The vendor may enforce the contract only against the principal, because the agent acted solely for another party's benefit.

Explanation

When an agent contracts without disclosing the principal, both the agent and the undisclosed principal are liable to the third party. The third party may choose to enforce against either one, but is entitled to only one full recovery. Discovery of the principal's identity does not eliminate the agent's liability.

Question 22Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A corporation's articles of incorporation contain no provision addressing preemptive rights. The board proposes to issue additional common shares for cash to raise capital. A current shareholder demands the right to purchase a proportionate number of the new shares to preserve her percentage ownership. Under the default rule of the Revised Model Business Corporation Act, which response is correct?

  1. The shareholder may purchase a proportionate number because preemptive rights are presumed for all cash issuances.
  2. The shareholder has no preemptive right unless the articles of incorporation provide for one. Correct answer.
  3. The shareholder may purchase a proportionate number only if the board approves her request by majority vote.
  4. The shareholder has no preemptive right because preemptive rights apply only to issuances of preferred stock.

Explanation

Under the Revised Model Business Corporation Act, shareholders do not have preemptive rights unless the articles of incorporation provide for them. Preemptive rights are therefore opt-in, not automatic, for cash issuances of common shares. A board vote cannot create the right if the articles are silent.

Question 23Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A retired accountant's former firm maintains a website that identifies him as a partner. The accountant knows about the listing and does not ask the firm to remove it. A lender, relying on the website, makes a loan to the firm, which later defaults. The accountant never signed the partnership agreement, never shared profits, and never participated in management. Is the accountant liable to the lender?

  1. Yes, but only if he had actual authority to bind the firm to the loan.
  2. Yes, because he knowingly allowed the firm to hold him out as a partner and the lender relied on that. Correct answer.
  3. No, because he never shared profits or participated in management, and both are required to create a partnership.
  4. No, because a person can be liable as a partner only by signing the partnership agreement or by making a capital contribution.

Explanation

Under partnership-by-estoppel principles, a person who represents himself as a partner, or knowingly permits another to do so, is liable to a third party who reasonably relies on the representation. Actual partnership status, profit sharing, and management participation are not required. The accountant's knowledge and failure to object support estoppel.

Question 24Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

A member holding a 10 percent interest in a member-managed LLC asks to inspect the LLC's books and records, including bank statements, to investigate suspected mismanagement. The managing member refuses, saying that only members holding at least 25 percent may inspect. The operating agreement is silent on inspection. What is the member's best argument?

  1. The member has an absolute right to inspect every record of the LLC at any time, without stating any purpose for the inspection.
  2. The member may inspect the records only after obtaining a court order and posting a bond to protect the LLC from disclosure.
  3. The member has no right because the operating agreement is silent and the managing member has discretion.
  4. The member may inspect records reasonably related to her interest as a member because she has stated a proper purpose. Correct answer.

Explanation

Members of an LLC generally have a statutory right to inspect books and records that are reasonably related to their interest as members, provided they state a proper purpose. Investigating suspected mismanagement is a proper purpose. Silence in the operating agreement does not eliminate that right, and the managing member cannot impose a 25 percent threshold.

Question 25Business Associations (Agency and Partnership; Corporations and Limited Liability Companies)

Three siblings own all shares of a close corporation. The two older siblings hold 70 percent and control the board; the youngest holds 30 percent and has worked as the corporation's only sales manager for a decade. After a dispute, the board removes her as an officer and employee, stops paying dividends, and increases the older siblings' salaries so that no earnings remain for distribution. The corporation continues to be profitable. The youngest shareholder sues. Which theory is strongest?

  1. The majority shareholders violated the appraisal statute by failing to offer to buy her shares at fair value.
  2. The board violated the federal securities laws by eliminating the dividend while continuing to pay salaries.
  3. The majority shareholders breached fiduciary duties by using their control to frustrate her reasonable expectations as a shareholder-employee. Correct answer.
  4. The board acted within the business judgment rule because decisions about dividends, salaries, and employment are committed to the board's discretion and cannot be challenged by a minority shareholder.

Explanation

In a close corporation, controlling shareholders owe fiduciary duties and cannot use their power to frustrate a minority shareholder's reasonable expectations in a manner that amounts to oppression. Removing her from employment while eliminating dividends and draining earnings through salaries can support a breach-of-fiduciary-duty claim. The business judgment rule does not shield conduct that operates as a squeeze-out.

Question 26Civil Procedure

A plaintiff files a diversity action in federal district court asserting a state-law negligence claim. The defendant argues that the forum state's statute of limitations does not control because the federal court is free to apply a uniform federal time limit. How should the court characterize the state statute of limitations for Erie purposes?

  1. As a discretionary case-management rule the court may accept or reject
  2. As procedural law that the federal court may replace with a federal rule
  3. As substantive law that the federal court is bound to apply Correct answer.
  4. As federal common law governing the timeliness of diversity actions

Explanation

A federal court sitting in diversity applies state substantive law and federal rules of procedure. Statutes of limitations are treated as substantive for Erie purposes, so the limitations period of the state whose substantive law governs the claim controls. A Federal Rule of Civil Procedure displaces state law only when it validly governs practice and does not abridge a substantive right.

Question 27Civil Procedure

An out-of-state corporation is sued in a state where it operates a large distribution warehouse and has appointed a registered agent for service of process, but where it is neither incorporated nor headquartered. The claim has no connection to the warehouse. Where is the corporation considered 'at home' for purposes of general jurisdiction?

  1. In every state where it has registered an agent to accept service of process
  2. Wherever it conducts substantial, continuous, and systematic business
  3. In any state where the plaintiff resides and where the injury occurred
  4. In its state of incorporation and in the state of its principal place of business Correct answer.

Explanation

General jurisdiction allows suit on any claim, but it exists only where a corporation is essentially at home, which ordinarily means its place of incorporation and its principal place of business. Continuous and systematic business in a state supports only specific jurisdiction tied to the claim, and appointing an agent for service does not create general jurisdiction.

Question 28Civil Procedure

A defendant moves under Rule 12(b)(6) to dismiss a complaint for failure to state a claim. What standard governs the court's evaluation of the factual allegations in the complaint?

  1. The court requires clear and convincing evidence of each element at the pleading stage
  2. The court weighs the allegations against the defendant's denials under a preponderance standard
  3. The court asks whether the plaintiff could prove no set of facts that would support relief
  4. The court asks whether the allegations state a plausible claim for relief on their face Correct answer.

Explanation

A complaint must contain enough factual matter, accepted as true, to state a claim for relief that is plausible on its face, and legal conclusions standing alone are insufficient. The court does not weigh evidence or decide whether the plaintiff will ultimately prevail. The old 'no set of facts' formulation was retired in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal.

Question 29Civil Procedure

A plaintiff who is a citizen of State A sues two defendants in State A's state court. Defendant One is a citizen of State A; Defendant Two is a citizen of State B. The complaint asserts only state-law claims, and the amount in controversy exceeds $75,000. Defendant Two, with Defendant One's consent, files a timely notice of removal based on diversity. The plaintiff promptly moves to remand. How should the federal court rule?

  1. Deny remand, because complete diversity exists between the plaintiff and Defendant Two
  2. Deny remand, because both defendants consented to removal of the action
  3. Grant remand, because the notice of removal was not filed within thirty days of service
  4. Grant remand, because a citizen of the forum state is a defendant in the action Correct answer.

Explanation

Under 28 U.S.C. § 1441(b)(2), a diversity case is not removable if any properly joined and served defendant is a citizen of the state where the action was filed. Complete diversity and a sufficient amount in controversy do not cure that forum-defendant defect. Because Defendant One is a State A citizen, the timely remand motion succeeds.

Question 30Civil Procedure

A plaintiff sues in federal court on a federal securities claim. She also joins a state-law tort claim against a separate defendant arising from an unrelated transaction that shares no common nucleus of operative fact with the securities claim, and the state claim would destroy diversity. May the court exercise supplemental jurisdiction over the state claim?

  1. No, because the amount in controversy on the state claim does not exceed $75,000
  2. Yes, because supplemental jurisdiction is discretionary and may be extended to any joined claim
  3. Yes, because the court has original federal-question jurisdiction over the anchor claim
  4. No, because the state claim is not part of the same case or controversy as the federal claim Correct answer.

Explanation

Supplemental jurisdiction under 28 U.S.C. § 1367(a) reaches claims that are part of the same case or controversy, meaning they derive from a common nucleus of operative fact with the claim that supports original jurisdiction. A wholly unrelated state claim against a separate defendant falls outside that constitutional and statutory power, even though the court has federal-question jurisdiction over the anchor claim.

Question 31Civil Procedure

In a federal case, the plaintiff seeks notes an attorney took while interviewing a witness in anticipation of litigation. The notes contain no verbatim statement and no attorney mental impressions, the witness has since died, and the plaintiff has shown that the information cannot be obtained elsewhere without undue hardship. How should the court rule on the work-product objection?

  1. Deny discovery, because materials prepared by an attorney are absolutely protected
  2. Grant discovery, because the plaintiff has shown substantial need and undue hardship Correct answer.
  3. Grant discovery, because work-product protection attaches only after the complaint is filed
  4. Deny discovery, because work-product protection applies until the witness is unavailable

Explanation

Rule 26(b)(3) gives qualified protection to documents prepared in anticipation of litigation. Ordinary fact work product may be discovered on a showing of substantial need and inability to obtain the equivalent without undue hardship, while opinion work product receives stronger protection. The notes contain no mental impressions, and the witness's death makes her account otherwise unobtainable.

Question 32Civil Procedure

A plaintiff sues a manufacturer for negligence. The manufacturer moves for summary judgment, supporting the motion with deposition excerpts and an expert affidavit. The plaintiff responds with a brief that repeats the allegations of her complaint and offers no depositions, affidavits, or other record materials. How should the court rule?

  1. Deny the motion, because the parties disagree about how the injury occurred
  2. Deny the motion, because the plaintiff has demanded a jury trial
  3. Grant the motion, because the defendant's expert affidavit is uncontradicted and therefore conclusive
  4. Grant the motion, because the plaintiff offered no record evidence creating a genuine dispute of material fact Correct answer.

Explanation

Once the movant supports a summary-judgment motion with record materials showing the absence of a genuine dispute, the nonmoving party may not rest on the allegations of her pleadings. She must respond with specific citations to admissible record evidence. Because the plaintiff produced nothing beyond her complaint, summary judgment is appropriate.

Question 33Civil Procedure

After a car collision, the plaintiff sued the other driver in federal court and recovered a final judgment for damage to her car. She now sues the same driver in federal court for her personal injuries from the same collision. What is the driver's strongest basis for dismissal?

  1. Because the property-damage judgment is not final until the plaintiff has satisfied it
  2. Because the plaintiff waived the personal-injury claim by failing to move to amend her complaint before judgment
  3. Because issue preclusion establishes every fact the first court decided, including the extent of her injuries
  4. Because claim preclusion bars any claim arising from the same transaction Correct answer.

Explanation

A final judgment on the merits precludes later litigation of the same claim, and the transactional test treats all rights and remedies arising from a single event as one claim. Property damage and personal injury from the same collision form one transaction, so the personal-injury action is barred even though it was never filed. Issue preclusion reaches only what was actually litigated and necessary to the first judgment.

Question 34Civil Procedure

The plaintiff is injured at a storage facility and timely files a complaint naming 'Riverside Storage' as the defendant, based on her belief about the owner's name. After the limitations period expires, she learns the facility is owned by 'Riverside Holdings, LLC' and moves to amend to substitute that entity. Riverside Holdings received actual notice of the action within ninety days after the complaint was filed and knew it was the intended defendant. Should the amendment relate back?

  1. Yes, because any amendment arising from the same conduct relates back to the original filing date
  2. No, because a plaintiff's mistake about the owner's name is not the kind of mistake the rule protects
  3. No, because an amendment adding a new party never relates back after the limitations period expires
  4. Yes, because the defendant had timely notice and knew it was the intended party Correct answer.

Explanation

Rule 15(c)(1)(C) allows relation back when the party to be brought in by amendment received notice within the period set by Rule 4(m) and knew or should have known that the action would have been brought against it but for a mistake concerning the proper party's identity. Both conditions are satisfied here. Prejudice is not a separate element of the rule.

Question 35Civil Procedure

A plaintiff files suit in the District of State A, where venue is proper. The defendant moves under 28 U.S.C. § 1404(a) to transfer the case to the District of State B, where the key witnesses and records are located and where the action could have been brought. What standard governs the court's decision on the motion?

  1. The court must dismiss the action if the chosen forum is inconvenient to the defendant
  2. The court may transfer for the convenience of the parties and witnesses and in the interest of justice Correct answer.
  3. The court may transfer only if the plaintiff consents to the change of forum
  4. The court must transfer if the defendant shows that venue is improper in the transferor district

Explanation

Under § 1404(a), a district court may transfer a civil action to any district where it might have been brought, or to which all parties have consented, for the convenience of the parties and witnesses and in the interest of justice. The transferor court weighs private and public factors. Improper venue is handled under § 1406, not § 1404(a).

Question 36Civil Procedure

A limited liability company organized under State A's law has its headquarters and manufacturing plant in State B. Its members are three individuals: one citizen of State A, one of State B, and one of State C. The LLC sues a corporation incorporated in State C with its principal place of business in State D for breach of contract, seeking $200,000. The defendant is not registered to do business in State B and has no operations there. Does the federal district court have diversity jurisdiction?

  1. Yes, because the amount in controversy exceeds $75,000 and the corporation is a citizen of State C only.
  2. No, because the LLC's headquarters in State B makes it a citizen of State B, which destroys diversity.
  3. Yes, because the LLC is a citizen only of its state of organization and principal place of business, making the parties diverse.
  4. No, because the LLC is a citizen of each member's state, and one member shares State C with the defendant corporation. Correct answer.

Explanation

For diversity purposes, an LLC takes the citizenship of each of its members, not its own place of organization or headquarters. Because one member is a citizen of State C and the defendant corporation is also a citizen of State C, complete diversity is absent regardless of the amount in controversy.

Question 37Civil Procedure

A plaintiff files a federal complaint and sends the defendant a written request to waive service of a summons, along with a copy of the complaint and a prepaid means of returning the waiver. The defendant is a corporation located in the same district, receives the request, but does not return the waiver within 30 days and offers no good cause. What consequence does Rule 4(d) authorize?

  1. The plaintiff must serve the defendant personally and cannot recover any of the costs of service.
  2. The defendant is deemed to have waived all objections to personal jurisdiction by refusing to sign.
  3. The complaint must be dismissed unless the plaintiff serves the defendant within 14 days of the request.
  4. The court may shift the costs of service, including reasonable attorney's fees, to the defendant. Correct answer.

Explanation

When a defendant refuses without good cause to waive service, Rule 4(d)(2) shifts the expenses of effecting service, including reasonable attorney's fees, to the defendant. Waiver would have waived service objections, but refusal does not itself waive personal jurisdiction.

Question 38Civil Procedure

A plaintiff sues a car dealer in federal court, alleging that the dealer fraudulently concealed that a used car had been in a major accident. The complaint describes the time, place, and content of the dealer's alleged misrepresentations and identifies the salesperson involved. The dealer moves to dismiss under Rule 9(b). How should the court rule?

  1. Dismiss, because Rule 8's notice pleading never requires specific facts.
  2. Dismiss, because fraud claims may not be brought in federal court without a state court determination.
  3. Deny, because the complaint pleads fraud with particularity as Rule 9(b) requires. Correct answer.
  4. Deny, because Rule 9(b) applies only to securities fraud.

Explanation

Rule 9(b) requires a party alleging fraud to state with particularity the circumstances constituting fraud, typically including the who, what, when, where, and how. The complaint supplies those details, so it satisfies the heightened pleading standard.

Question 39Civil Procedure

A Texas resident operates a website selling custom furniture. He has no office, employees, or bank account in Oregon. He deliberately markets to Oregon customers through targeted online ads, makes about 5% of his sales to Oregon residents, and ships furniture there. An Oregon customer buys a defective table and sues in Oregon federal court. The defendant moves to dismiss for lack of personal jurisdiction. What is the most likely result?

  1. Deny, because the plaintiff is a resident of Oregon and personal jurisdiction is automatic for resident plaintiffs.
  2. Deny, because the defendant purposefully targeted Oregon and the claim arises from that activity. Correct answer.
  3. Dismiss, because the defendant lacks a physical presence in Oregon.
  4. Dismiss, because a website alone can never support personal jurisdiction.

Explanation

Specific jurisdiction requires purposeful availment of the forum and a claim arising out of or relating to the defendant's forum contacts. Targeted advertising, sales, and shipments to Oregon establish purposeful direction, and the defective table claim arises directly from those contacts.

Question 40Civil Procedure

A plaintiff files a diversity action in federal court in State A for personal injuries. State A has a statute that requires a plaintiff in a malpractice case to file an affidavit of merit with the complaint; federal Rule 8 requires only a short and plain statement. The defendant moves to dismiss for failure to file the affidavit. The federal rule is valid under the Rules Enabling Act. How should the court rule?

  1. Defer to state court interpretation of the federal rule.
  2. Apply the federal rule because a valid Federal Rule of Civil Procedure controls. Correct answer.
  3. Dismiss because Erie requires federal courts to follow all state procedural rules.
  4. Apply the state affidavit requirement because state substantive law governs in diversity.

Explanation

Under Erie and the Rules Enabling Act, a valid Federal Rule of Civil Procedure controls over a conflicting state rule of practice or procedure. Because Rule 8 governs the pleading standard and is valid, the state affidavit-of-merit requirement does not apply in federal court.

Question 41Civil Procedure

In a federal employment discrimination case, the plaintiff serves her complaint and the defendant answers. The parties have held their Rule 26(f) conference, and the plaintiff has not received any discovery requests. The defendant wants the plaintiff's relevant documents and witness list. What does Rule 26 require?

  1. The plaintiff may withhold all documents because discovery has not opened.
  2. The plaintiff must produce only documents that support the defendant's case.
  3. The plaintiff must serve initial disclosures without awaiting a discovery request. Correct answer.
  4. The plaintiff need not produce anything until the defendant serves interrogatories.

Explanation

Rule 26(a)(1) requires a party to disclose, without a discovery request, the identity of witnesses and copies of documents that the party may use to support its claims or defenses. The obligation arises after the Rule 26(f) conference or as ordered by the court, and it is not excused by the absence of interrogatories.

Question 42Civil Procedure

A homeowner sues a contractor in federal court for defective kitchen remodeling, invoking diversity jurisdiction and seeking $100,000. The contractor believes the homeowner failed to pay the final $30,000 invoice for the same remodeling job. The contractor wants to assert the unpaid invoice. If the contractor does not assert it now, what is the likely effect?

  1. He may assert it only if it independently satisfies the amount in controversy.
  2. He must assert it in state court because federal courts lack jurisdiction over it.
  3. He may assert it later because it is permissive.
  4. He is barred from later asserting it because it is a compulsory counterclaim. Correct answer.

Explanation

A counterclaim is compulsory under Rule 13(a) if it arises out of the same transaction or occurrence as the opposing party's claim and does not require adding a party over whom the court lacks jurisdiction. The unpaid invoice arises from the same remodeling contract, so failing to plead it waives it in later litigation.

Question 43Civil Procedure

An attorney files a complaint against a company alleging product defects. The company believes the factual allegations lack evidentiary support and sends the attorney a draft Rule 11 motion, giving 21 days to withdraw or correct the complaint. The attorney does nothing. After 21 days, the company files the Rule 11 motion. What is the proper outcome?

  1. The court may impose sanctions only after a jury finds the allegations false.
  2. Sanctions are unavailable because the company did not file the motion before the answer.
  3. The motion is proper because the company complied with the 21-day safe harbor. Correct answer.
  4. The court must impose dismissal as the only sanction.

Explanation

Rule 11(c)(2) requires a party seeking sanctions to serve a motion and allow 21 days for the challenged paper to be withdrawn or corrected. If the violation persists, the movant may file the motion, and the court has discretion to impose appropriate sanctions.

Question 44Civil Procedure

A plaintiff sues in federal court seeking both money damages for breach of contract and specific performance of the same contract. The defendant demands a jury trial on all issues. The court must decide whether the Seventh Amendment requires a jury. What is the correct approach?

  1. No jury is available because specific performance is an equitable remedy and equity dominates.
  2. A jury is required on the damages claim; the court then decides the equitable claim. Correct answer.
  3. The court has discretion to deny a jury because the plaintiff seeks both legal and equitable relief.
  4. A jury is required on all issues because the complaint includes a contract claim.

Explanation

The Seventh Amendment preserves the right to a jury trial in actions at law, and a request for money damages is legal. When legal and equitable claims share common factual issues, the jury ordinarily decides the legal claim first, and the court then applies the verdict to the equitable claim.

Question 45Civil Procedure

A group of 500 homeowners sues a chemical company in federal court, alleging that a nearby plant contaminated their wells. Each homeowner seeks $10,000 in damages. Common issues include whether the company released the chemical and whether it was negligent; individual issues include the amount of contamination on each property and each homeowner's medical history. The plaintiffs move to certify a class under Rule 23(b)(3). What is the court's best analysis?

  1. Certification is improper because each homeowner's damages are below $75,000 and federal courts lack jurisdiction.
  2. Certification is improper because Rule 23 never permits damages classes.
  3. Certification is proper only if every class member agrees to be bound.
  4. Certification depends on Rule 23(a) requirements plus predominance and superiority under Rule 23(b)(3). Correct answer.

Explanation

For a Rule 23(b)(3) damages class, the plaintiffs must satisfy numerosity, commonality, typicality, and adequacy, and show that common questions predominate and a class action is superior. The presence of individual damages issues does not automatically defeat certification.

Question 46Civil Procedure

A defendant is served with a removable state-court complaint on March 1 and wants to remove the case to federal court on diversity grounds. Absent an extension, by what date must the defendant file the notice of removal?

  1. Within 30 days after service of the complaint. Correct answer.
  2. At any time before the state court sets a trial date.
  3. Within 60 days after service of the complaint.
  4. Within 30 days after the state court grants leave to remove.

Explanation

Under 28 U.S.C. § 1446(b), a defendant generally must file the notice of removal within 30 days after receiving the initial pleading or service of the summons, whichever is shorter. State-court leave is not required. The removal deadline is not measured from trial setting.

Question 47Civil Procedure

In a federal civil action, a plaintiff serves written interrogatories on a defendant. Absent a stipulation or court order, how many interrogatories, including subparts, may the plaintiff serve on that defendant?

  1. Unlimited, so long as each is relevant
  2. Fifty
  3. Twenty-five Correct answer.
  4. Thirty

Explanation

Federal Rule of Civil Procedure 33(a)(1) limits a party to 25 written interrogatories, including all discrete subparts, unless the parties stipulate otherwise or the court orders a different number. Relevance alone does not remove the numerical limit.

Question 48Civil Procedure

A plaintiff timely sues a contractor for breach of a written construction contract. After the limitations period expires, the plaintiff moves to amend the complaint to add a fraudulent-inducement claim based on the same precontract negotiations and representations. The contractor opposes the amendment as time-barred. How should the court rule?

  1. Allow, because the fraud claim arises from the same transaction set out in the original pleading. Correct answer.
  2. Deny, because a fraud claim can never relate back to a contract claim.
  3. Deny, because the limitations period expired before the motion was filed.
  4. Allow only if the contractor consents in writing to the amendment.

Explanation

Rule 15(c)(1)(B) permits an amendment to relate back when the new claim arises out of the conduct, transaction, or occurrence set out in the original pleading. The fact that the limitations period expired before the motion does not defeat relation back if the test is satisfied. The contractor’s written consent is not required.

Question 49Civil Procedure

A plaintiff sues in federal district court. The defendant timely files an answer that asserts a counterclaim but does not raise improper venue. Three months later, the defendant moves to dismiss for improper venue. How should the court rule?

  1. Grant the motion, because venue is jurisdictional and cannot be waived.
  2. Deny the motion, because the defendant’s counterclaim waived all Rule 12 defenses.
  3. Deny the motion, because the venue defense was waived by omitting it from the answer. Correct answer.
  4. Grant the motion, because venue may be raised at any time before trial.

Explanation

Under Rule 12(h)(1), a defense of improper venue is waived if it is not raised in a Rule 12 motion or in the answer. Venue is not a jurisdictional requirement, and asserting a counterclaim does not waive all Rule 12 defenses.

Question 50Civil Procedure

A plaintiff sued a driver for negligence after a collision and lost after a jury found the plaintiff negligent. The plaintiff then sues a mechanic, alleging that the mechanic’s faulty brake repair caused the same collision. The mechanic was not a party to the first action but wants to use the jury’s negligence finding to defeat the plaintiff’s claim. Federal common law governs preclusion. May the mechanic invoke issue preclusion?

  1. No, because issue preclusion applies only when the party against whom it is asserted was the plaintiff in both actions.
  2. No, because the mechanic was not a party to the first action.
  3. Yes, if the plaintiff had a full and fair opportunity to litigate the negligence issue. Correct answer.
  4. Yes, because the first jury verdict is binding on every person who later litigates the same collision.

Explanation

Federal common law permits defensive nonmutual issue preclusion when the party against whom the issue is asserted had a full and fair opportunity to litigate it and the issue was actually decided and necessary to the judgment. The mechanic’s nonparty status does not by itself bar defensive use of the prior finding. The verdict is not binding on all persons merely because it arose from the same collision.