Civil Procedure Professor Robin Effron Final Exam: Essay Portion, Fall 2008 Instructions: 1.

The exam consists of two essay questions. I have suggested the time you should spend on each question its value in calculating your final exam grade. You have three hours and fifteen minutes to complete this portion of the exam, so be sure to allocate your time accordingly. 2. The exam has 7 pages including this cover page. Please check to make sure you have all 7 pages. 3. Please spend some time at the beginning to think through and outline your answer. 4. The exam is open book. 5. Please be sure to respond only to the questions asked. 6. If your answer on one issue would end your inquiry into the problem, always assume that you do not know how a judge would rule on each issue, and therefore must discuss the further issues. 7. Use only the facts in the fact patterns. If the fact patterns remind you of a real world situation, do not use or import facts that are not in the fact pattern. 8. If a relevant fact is unclear, make any necessary assumptions and state explicitly what those assumptions are and how they affect your answer.

Good luck!

QUESTION 1 (43% of exam grade; suggested Time: 1 hour and 45 minutes) In late 2007, Achilleas, Berisa, and Gabriel were the best of friends as seniors at New York University (NYU) in Manhattan. During this time, they came up with a great idea for a website, www.BookofFaces.com. Achilleas asked the group if his girlfriend Gretchen, an exchange student from Austria, could join in their venture. The group quickly agreed. They also realized that they needed some start up money, and Gabriel asked his parents for help. His parents, proud of their enterprising boy, said wed love to help your project and contributed $30,000 to their efforts. The four students then spent much of the year developing their business idea. They organized their business in Delaware as Book of Faces.Com, LLP. Gretchen became so involved with the project and her relationship with Achilleas that she made repeated references to her desire to stay in the U.S. beyond her one-year exchange program. By April of 2008 the website was ready to launch. Unfortunately, just before the site was set to go online, Gretchen announced to the group that she missed her life in Vienna, so at the end of the school year she would be returning to Austria after all. Achilleas was deeply hurt and broke up with Gretchen immediately, vowing never to speak with her again. He took solace in his blog where he wrote vituperative and spiteful comments about her and revealed embarrassing secrets about her life that he had learned in the course of their relationship. Gabriel, who had always carried a torch for Gretchen, immediately took her side. Well come up with a better website, anyway, he told her. Berisa, who didnt want to see her months of hard work go to waste, stuck with Achilleas and the website. Gabriel and Gretchen made good on their promise and started another website called www.EvenBetterBookofFaces.com. They did not organize or register the business under the laws of any state. On April 14, 2008, the original website, www.BookofFaces.com launched and Achilleas and Berisa, the sole remaining partners in Book of Faces, LLP made lots and lots of money. Although they were never sure exactly of the terms by which Gabriel had gotten money from his parents, they decided it was only fair to pay it back as if it were a loan, and they returned the $30,000 with interest. Meanwhile, Gretchen and Gabriels website launched on April 30, 2008 and was far less successful as a second-comer in the same market. By August, 2008, the students had graduated and Gretchen returned to her life as a student at the University of Vienna and Gabriel stayed in New Jersey (where he had always lived with his parents because he was a commuter student at NYU). Berisa stayed in New York where she had been born and raised. Achilleas returned to his parents home in New Jersey as he had each summer during college, although he spent most of the summer of 2008 preparing to start a masters program at Stanford in computer science. After all, he told his parents, anyone who wants a serious career in computers really needs to be on the west coast. Gabriel and Gretchen, disappointed by the poor performance of www.EvenBetterBookofFaces.com, became increasingly angry at Achilleas and Berisa for getting rich off of an idea that they had all worked on together. They estimated that, had they 2

received profits as equal shareholders with Achilleas and Berisa, they would have netted approximately $250,000 each. On September 30, 2008, Gabriel and Gretchen filed a lawsuit against Achilleas and Berisa in the U.S. District Court for the Southern District of New York. They served Berisa at her home in New York on October 15, 2008 and Achilleas at his new off-campus apartment in California where he had just begun graduate school, also on October 15, 2008. In the lawsuit, Gabriel and Gretchen each sought damages of $250,000 under New York state contract law. In the complaint, they alleged that the content of www.BookofFaces.com really belonged to all four of them together because of the work they had done in developing the product. The complaint further alleged that any copyright or trademark that Achilleas and Berisa purported to hold in the product was invalid. Gretchen, still smarting from the Achilleass spiteful blog postings, instructed their lawyer to add a second cause of action on her behalf alone, against Achilleas alone. This claim was for intentional infliction of emotional distress caused by Achilleass mistreatment of Gretchen in the aftermath of their breakup. She alleged damages of $50,000 for the intentional infliction of emotional distress. Achilleas and Berisa were none to pleased to be slapped with a lawsuit. But, they did not file any jurisdictional motions to dismiss under Rule 12. Instead, they answered the complaint and filed a counterclaim against Gabriel and Gretchen for infringement of copyright and trademark, both under federal law. The case proceeded to trial on both the breach of contract claims and the copyright and trademark counterclaims. A jury returned a verdict in favor of Gabriel and Gretchen, awarding them $150,000 each in damages. Achilleas and Berisa moved for a directed verdict. The district court denied their motion and Achilleas and Berisa appealed the decision. QUESTIONS *** Assume for the purposes of this problem that the court has personal jurisdiction over all the parties and that they were properly served in accordance with Rule 4. *** Part (A) Is this case properly in federal court? If not, is there anything that the judge can do about it?

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Part (B) *** Assume for this part that any possible problems with subject matter jurisdiction in the S.D.N.Y. action were resolved in favor of Gabriel and Gretchen. *** While the appeal was pending, Gabriels parents looked with envy upon the $300,000 in total damages that the trial court had awarded their son and Gretchen. They began to rethink the terms of the money they had given to four students, thinking of it less as a gift or a loan, and more as an investment in a now-profitable business. Gabriels parents decided that they also wanted a piece of the action, and they filed a lawsuit against Achilleas and Berisa in the U.S. District Court for the District of New Jersey. The complaint alleged breach of contract, alleging that they were investors in the company and as such were owed a portion of the profits. Achilleas and Berisa moved under Rule 12(b)(1) to dismiss for lack of subject matter jurisdiction based on lack of diversity of citizenship. Gabriels parents want to use the fact that the court in the S.D.N.Y. action retained subject matter over the first action as a basis for establishing subject matter jurisdiction in the second lawsuit. Specifically, they want to argue Achilleas should be collaterally estopped from arguing that he is a citizen of New Jersey for diversity jurisdiction purposes. How should the district court rule on this issue? (Address only the issue of Achilleass citizenship. Do not address any other aspect of subject matter jurisdiction in the second action.) Part (C) *** Assume for Part I that the New Jersey District Court retains jurisdiction over the lawsuit and proceeds. *** Achilleas now wants to argue that Gabriels parents are claim precluded from bringing their lawsuit because they should have joined in the first action in the S.D.N.Y. How should the district court rule on this issue?

END OF QUESTION 1

QUESTION 2 (37% of exam grade; suggested Time: 1 hour and 30 minutes) In February of 2005, Jonathan Harker and Mina Murray, recently engaged to be married, decided that they should buy a house in the town of Whitby, Montana. Although they did not have the cash for a down payment, their mortgage broker, Lucy Westenra, assured them that down payments are so 1990s. You totally dont need that anymore. She offered to arrange for an adjustable rate mortgage (ARM) instead, which did not require a down payment. The loan did, however, involve a variable interest rate that was hard for Jonathan and Mina to understand. Jonathan and Mina figured that they needed to buy property sooner rather than later to take advantage of acquiring property before it got ever more expensive. They didnt worry too much about the ARM, figuring that in the worst-case scenario, they could sell their house for a profit, pay off the mortgage, and return to being renters. Lucy Westenra worked for Renfield Regional Bank and Trust (Renfield), a savings and loan bank incorporated in Montana with its principal place of business in Cheyenne, Wyoming. On March 1, 2005, Renfield issued a $150,000 loan to Jonathan and Mina for their new house, which Lucy brokered and Jonathan and Mina both signed. The documents instructed Jonathan and Mina to send their monthly mortgage check to The Loan Processing Company at an address in Boise, Idaho, making the check payable to The Loan Processing Company. From March 1, 2005 through August 1, 2005, Jonathan and Mina made timely monthly payments on their new home, sending the checks to The Loan Processing Company in Boise. Jonathan and Mina received a letter in the mail from Renfield. It informed them that their mortgage had been assigned to Dracula Corp., but that they should continue sending their payments to The Loan Processing Company. It also informed them that they could inspect the contract between Renfield and Dracula by making this request in writing to The Loan Processing Company. Jonathan and Mina did not request nor did they receive this contract. Jonathan and Mina continued to make timely payments on their loan until April of 2007 when Mina lost her job and the interest rate on their loan adjusted sharply upwards. At this point, Jonathan and Mina were unable to make their monthly payments. Dracula Corp., which is incorporated in Delaware with its principle place of business in New York, is known for its bloodsucking practices on the secondary mortgage market. One way in which Dracula Corp. has maintained its high profits is by reducing litigation costs. To do this, they include a forum selection clause and a choice of law clause in every contract made with a primary lender. Dracula Corp.s contract with Renfield for the assignment of Jonathan and Minas loan contained such a clause, specifying New York for both the forum and the governing law. When Jonathan and Mina defaulted on their loan payments for six months straight, Dracula Corp. decided to take action. By this time the housing market had crashed and Jonathan and Minas home was worth only $50,000. Dracula Corp. filed a lawsuit in the U.S. District Court for the Eastern District of New York. Count I of the complaint sought the equitable remedy of foreclosure on the property, but dissatisfied that a foreclosure would not net them the full value of the loan, they also included Count II seeking money damages in the amount of $90,000 on the promissory note their estimate of the balance that would be due on the loan. 5

Dracula Corp. properly served Jonathan and Mina in Montana. They based jurisdiction on a New York statute which reads in relevant part: A court shall have personal jurisdiction over all claims arising in whole or in part out of the transaction of business in the State of New York. QUESTIONS: *** Assume for purposes of this question that this case is properly in the E.D.N.Y. under the courts 1332 diversity jurisdiction. *** *** Assume for purposes of this question that there were no defects in the actual service of process on Jonathan and Mina. *** Part (A) Jonathan and Mina do not want to defend a lawsuit in New York they can barely afford their existence in Montana. They make a special appearance to move for dismissal of the case because the court lacks jurisdiction over Jonathan and Mina. How should the court rule? *** Assume for purposes of Part (B) that the court has retained jurisdiction over the case and has proceeded to the merits.

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Part (B) Section 1301(3) of New Yorks Real Property and Proceedings Law (RPAPL) states that While an action for foreclosure is pending or after final judgment for the plaintiff therein, no other action shall be commenced or maintained to recover any part of the mortgage debt. The New York Court of Appeals (New Yorks highest court) has recently held that Section 1301 prevents a lender or holder of a mortgage note for real property from seeking to enforce rights upon default by pursuing a legal remedy and an equitable remedy at the same time. This law was passed to prevent large financial institutions from abusing their power against small owners of property who are already having financial difficulties. Jonathan and Mina argue that RPAPL 1301(3) prevents Dracula Corp. from pursuing both the foreclosure and the money damages. They argue that under this election of remedies law, Dracula Corp. must choose whether to pursue the mortgage or money damages action. Dracula Corp., however, argues that it is entitled to pursue both claims. They point to Federal Rule of Civil Procedure 18 which reads: Rule 18. Joinder of Claims (a) In General. A party asserting a claim, counterclaim, crossclaim, or third-party claim may join, as independent or alternative claims, as many claims as it has against an opposing party. (b) Joinder of Contingent Claims. A party may join two claims even though one of them is contingent on the disposition of the other; but the court may grant relief only in accordance with the parties relative substantive rights. In particular, a plaintiff may state a claim for money and a claim to set aside a conveyance that is fraudulent as to that plaintiff, without first obtaining a judgment for the money. Dracula Corp argues that under this rule, their complaint properly joins the two claims. Of these two provisions RPAPL 1301(3) or FRCP 18, which one should the court apply to determine the propriety of Dracula Corp.s pleading?

Multiple Choice Instructions: 1. This portion of the exam consists of ten multiple-choice questions. NOTE: ONLY 5 QUESTIONS ARE REPRODUCED HERE. 2. This portion of the exam will constitute 20% of your final exam grade. 3. You have forty-five minutes to complete this portion of the exam. 4. The exam has 6 pages including this cover page. Please check to make sure you have all 6 pages. 5. The exam is open book. 6. Please be sure to respond only to the questions asked. 7. Use only the facts in the fact patterns. If the fact patterns remind you of a real world situation, do not use or import facts that are not in the fact pattern.

Good luck! Thefollowingfactsapplytoquestions18. BoltBus,Inc.isacommercialbuscarrierthatoperatesservicebetweenNewYork CityandWashington,D.C.BoltBusadvertisesspaciouscomfortableseatsandfreeWiFi connectionasaninexpensivealternativetothetrain.RochellewastravellingfromNew YorkCitytoWashington,D.C.onBoltBus.ShebroughtherbrandnewMacBookwithher andworkedforaboutthreehours.WhenthebuswasabouthalfwaythroughMaryland, thebusdriverdecidedtostopattheChesapeakeHousereststopsothatpassengerscould getasnackandusethebathroom. Cruella,thewomansittingnexttoRochelleonthebus,boughtaventisizedcoffeeat thereststopBarstucksCoffee,Inc.,alargecoffeechain.Whenthebusresumeditstripon thehighway,CruellaspilledherhotcoffeealloverRochellesMacBook,completelyruining thecomputerandseverelyburningRochelleslegs.Rochellescreamedinpainandasked thebusdrivertopulloversothatshecouldseekmedicalattention,butbusdriverBob refused.WhenthebusreachedWashington,D.C.Rochellesoughtimmediatemedical attention,butthedamagewasdoneandsherequiredseveralpainfulskingraftstohealthe burns. RochellefiledalawsuitintheU.S.DistrictCourtfortheDistrictofMaryland.CountI allegednegligenceresultingpropertydamageforthelossofhercomputerandCountII allegedpersonalinjuryforherburns.ShenamedasdefendantsBoltBus,Inc.,Barstucks, Inc.,andCruella.

***Assumeforpurposesofallquestionsthatthecourthassubjectmatterjurisdictionover theactionandpersonaljurisdictionoverallparties.*** (1)BoltBus,Inc.impleadsBobthebusdriverunderFed.R.Civ.P.14becausetheyhavea rightofindemnityagainsthiminvirtueofhisemploymentcontract.CanRochellerecover tortdamagesdirectlyfromBob? (A) Yes,becauseanimpleadeddefendantacquiresthesamestatusasallotherpartiesin thelawsuit. (B) Yes,becauseBobandBoltBusarejointlyandseverallyliable. (C) No,becauseBobisnotanecessarypartytotheaction. (D) No,becauseRochellehasnotamendedhercomplainttoassertaclaimdirectly againstBobasathirdpartydefendant. (3)BobthebusdrivermakesamotiontodismissforimpropervenueunderRule12(b)(3). Thecourtdeniesthismotion.Afterthismotionhasbeendenied,whatothermotions,if any,canBobmake? (A) Amotiontodismissforlackofsubjectmatterjurisdiction. (B) Amotiontodismissforlackofpersonaljurisdiction. (C) Amotionforjudgmentonthepleadings. (D) Both(A)and(C). (4)BoltBusispreparingitsinitialdisclosurespursuanttoFederalRuleofCivilProcedure 26.WhichofthefollowingpiecesofevidenceisBoltBusnotrequiredtoturnover. (A) AcopyordescriptionofadocumentfromBobthebusdriverspersonnelfile showingthathecompletedamandatory4hourtrainingsessiononhowtohandle anemergencythatarisesduringabustrip. (B) Thename,address,andphonenumberofanotherpassengeronthebuswith RochellewhoclaimsthathesawherpushCruellawhileCruellawasholdingthe coffee. (C) AcopyordescriptionofaletterfromaformerpassengerinBobthebusdrivers personnelfilewhichcomplainsthatBobrefusedtolistentocustomersrepeated requeststoturndowntheairconditioning. (D) Thename,address,andphonenumberofanotherpassengeronthebuswith RochellewhoclaimsthatshedidnothearRochellecryoutinpainoraskthebus drivertostopthebus. QUESTIONSCONTINUEONTHENEXTPAGE 9

Thefollowingfactsapplytoquestions910. ThayerCorp.(Thayer)developsandmanufacturerspharmaceuticalsthatare marketedworldwideandheavilyintheUnitedStates.OneofThayersdrugs,Mioxx,has beenatopearnerforThayer.MioxxanarthritisdrugthatThayerclaimedwouldenhance thelivesofpersonssufferingfromjointpainbecausethepatientscouldtakethedrug withoutfearofstomachproblemsthatoftenaccompaniestheingestionofibuprofen. MioxxwasapprovedforsalebytheFDAin1997andThayerbegananaggressive marketingcampaignthatincludeddirecttoconsumer(DTC)advertisingontelevision andprintads,andenteringintoexclusivewholesalecontractswithmailorderpharmacies linkedtoinsuranceproviders. In2006reportsbegantoemergethatpatientstakingMioxxweresufferingfrom cardiacproblemsatanalarmingrate.Monika,anenterprisinglawyerinLouisiana, immediatelyfiledaclassactionintheU.S.DistrictCourtfortheEasternDistrictof LouisianaonbehalfofallcurrentandpastusersofMioxx,seekingdamagesforactual cardiacdiseaseandincreasedriskofcardiacarrest.Thenamedclassrepresentativewas Franck,adashingyoungmanwhohaddiedatthetenderageof37aftertakingMioxx. MonikaalsofiledaclassactionsuitagainstThayerandseveralinsurance companies,claimingthattheyhadconspiredtosystematicallyoverchargedcustomersfor MioxxinviolationoftheShermanAntitrustActandhadmademateriallyfalseand misleadingstatementsinviolationoftheFederalCommunicationsAct.Thenamedclass representativewasMarie,awomanwhohadorderedMioxxthroughherhealthinsurance prescriptiondrugorderplanforovertwoyears. (9)ThayeropposesclasscertificationofFrancksclassonthegroundsthatthethreshold requirementsofRule23(a)havenotbeensatisfied.Shouldthedistrictcourtdeny certificationonthisbasis? (A) Yes,becauseFrancksclaimisnottypicalofclassmembers. (B) Yes,becauseFranckcannotadequatelyrepresenttheclassmembers. (C) Yes,becauseclassactionsarenotasuperiorformoflitigationforpharmaceutical tortcases. (D) Yes,becausetheclassmembersdonothaveenoughissuesoflawandfactin common. (10)ThedistrictcourtcertifiesMariesclassactionunderRule23(b)(3).Whichofthe followingistrue? (A) Theplaintiffsareconstitutionallyrequiredtonotifyallclassmembersofthe pendingaction. (B) Absentclassmembersmustbegiventheopportunitytooptoutoftheaction. (C) Theinsurancecompaniesareimproperlyjoinedasdefendantsbecausetheclaimsof materiallyfalseandmisleadingadvertisementsdonotapplytothem. (D) Unknown,absentclassmemberswhodonotreceivenoticeofthependingaction willnotbeboundbythejudgment. 10