Annie Baker and her friend Paula Accountant decide to go into business together

Annie Baker and her friend Paula Accountant decide to go into business together

Annie Baker and, her friend, Paula Accountant, decide to go into business together.  Annie Baker makes excellent cupcakes, as recently seen on “Cupcake Wars.”  Since the airing of the show, customers have been calling Annie off the hook.  Paula Accountant, whose accounting office is next door, has noticed the huge lines outside Annie’s little rental shop. Always one to capitalize on a good opportunity, Paula approaches Annie and asks her if she is interested in owning her own shop and making her amazing cupcakes on a larger scale.

Annie is, of course, very excited at this exciting opportunity.  However, she is upfront with Paula.  She has no money.  The rental office and equipment cost her so much money, she doesn’t have any finances to add to the partnership.

Paula, remembering the huge lines, tells Annie not to worry about it.  Paula is willing to put all the money up front, as long as Annie will do the baking full time in the shop.  They will split the profits.

With this understanding, the two go into business.  The first two weeks, business continues to grow at a rapid pace.  Annie is working 60 hours per week just to keep cupcakes on the shelves.  The demand for her cupcakes is insane.

Paula, ever the entrepreneur, decides that they need an even bigger shop.  She finds a new place and convinces Annie that they need a huge sign advertising that Annie is the famous “Cupcake Wars” baker.  Annie likes the sound of that and agrees.

Within 30 days, they have given notice on the old place and moved everything into the new shop.  Paula arranges for a huge sign that says “Annie’s Famous Cupcakes” on it.  In addition, Paula decides Annie needs a larger oven.  Without consulting Annie, Paula orders a much larger oven and lots of top line kitchen equipment so Annie can keep up with all the orders.  Annie is pleasantly surprised but thinks Paula is spending an excessive amount of money.

Within a few weeks, Paula, overeager for success, has put in $20,000 of her own money to the business.  Annie has not put in any money, but continues to work 60 hours per week, every week, to keep up with orders.  At this point, all the cupcake money is going to paying down the $20,000 that Paula has given up front.  The friends meant to enter a written agreement but got so excited about the business that they kept putting it off. Who has time for a written agreement when you have cupcakes to bake?

Right when the business was at its peak, COVID hits.  In the state of Fancy Land, the governor orders all nonessential businesses to close.  Irate, Paula immediately hires a lawyer for $2000 to argue that cupcakes were essential but eventually loses.

Now, eight months after the move to the new bakery, the business has zero income.  Even worse, it looks like the order will remain in effect for at least six months.  Paula has no more cash.  Annie tried to continue baking at her home but got shut down.

Paula’s lawyer has now sent Annie a demand letter for the $22,000 she says she loaned to Annie’s business.  The letter demands the $20,000 that Paula used to get the new space, the new sign, and other items that Annie may or may not have known about.  In addition, she wants to reimbursed the $2000 paid to her lawyer for unsuccessfully arguing that cupcakes are essential.

Annie is shocked.  She had put in all that work and effort based on their verbal agreement.  She is stunned that Paula, her friend, would now claim it was a loan.  Due to the shutdown, she has no money for a lawyer.

Annie hears you are a lawyer who does not charge much.  She pays you a small amount of money to help her out.  She is clear she has no more money.

For this assignment, please prepare a business letter to Annie which outlines the following:

1. Learning Experience: What went wrong?  What could Annie have done to prevent this?
2. Potential Liability: Based on the fact scenario, if Annie goes to court, what could she lose? What verdicts are possible?  How much will litigation cost?  Discuss possibilities as well as reasons for potential liability.
3. ADR: Annie can’t afford litigation. What are the alternatives?  Describe at least three alternatives in detail and explain the pros and cons, as they apply to Annie’s unique situation.

Remember, you got paid to prepare this opinion for Annie.  A one-page short letter will be completely unhelpful.  Your letter should be AT LEAST four pages, double-spaced, with 1” margins.  You may use any style or formatting you like but your opinion letter needs to look professional and provide exceptional information regarding the issues above. 

You will be graded as follows:

1. Content – 75% – There are not right and wrong answers to the issues, but your answers should show an excellent understanding of Annie’s situation as well as a complete and thorough discussion of the issues identified. Further, your letter should convey an understanding that Annie knows nothing about court or ADR or anything you have learned in class. She is in over her head and needs everything explained in detail.

Breakdown of 75%:

1. The first two issues identified set the foundation for the third issue. You should address these important issues, but focus most of your time on the third, ADR, issue.  The first two issues regarding the learning experience and potential liability will each count 15% of your grade. (First two issues are 15% each for a total of 30%).
2. The third ADR issue will count 45% of your grade. Make sure to spend most of your time on a complete discussion of the ADR issues.

2. Writing – 25% – As discussed in class, grammar and appropriate punctuation are essential. You must also follow the page number, spacing and margin requirements outlined above. Your letter should be very professional in tone and appearance.

You may contact our class Teaching Assistant to review your paper and/or you are welcome to use the Writing Center.  I highly recommend that you use one or both options in finalizing your response to Annie.

Remember, Annie is counting on you to help her.  Don’t let her down!