legal analysis case 1(complete)

JULY AT THE MULTIPLEX

DATE: March 2, 2016

TO: Mr. Plex, Owner, Royal Theater

FROM: Dreamwork, Team 1: Nicole Riedel, James Fernandez, Sergio Martinez, Jeff Nakama, Connie Situ

RE: Analysis of Liability for Fraud

Per your request, we have prepared an analysis of Royal Theater’s liability for fraud as alleged

by the moviegoer, Tommy. Please contact us if you need any additional information.


Legal Analysis:

We understand that the basis of Tommy’s potential litigation against you and the rest of

the Consortium is fraud. In order for Tommy to prevail in a cause of action for fraud, he would

need to establish: “(1) that a representation of fact was made; (2) that the representation was

false; (3) that when made, the representation was known to be false or made recklessly without

knowledge of its truth; (4) that it was made with the intention that the plaintiff should rely upon

it; (5) that the plaintiff reasonably did so rely; and (6) that the plaintiff suffered damage as a

result.” (Cao and Cao v. Nguyen and Pham, 258 Neb. 1027; 607 N.W.2d 528; 2000 Neb. LEXIS

56.)1 Notably, if he fails on any of these six elements, the cause of action for fraud also

necessarily fails. (We are assuming for purposes of this analysis that a contract was in fact

created between Royal 16 Theater and Tommy.)

Tommy must first show (1) that a Representation of fact was made to him, and (2) that

the Representation was false. As you know, the ticket purchased by Tommy specifies that “The

Governator” will be shown in your theater at 1:00 p.m. The ticket contained no language

indicating that there were 20 minutes of advertisements prior to the start of the film. Our

investigation revealed that Tommy learned of the 1:00 p.m. start time by looking at the time

advertised in the local newspaper, also saw the time on the marquis at your theater, and verbally

confirmed the start time with the cashier when he purchased his ticket. In fact, “The Governator”

film began at 1:20pm, after the 20 minutes of ads.

We expect that Tommy will contend that the advertised 1:00 p.m. start time was a

Representation of fact. We concede that 1:00 p.m. was the advertised start time for the movie;

however, the term “movie” is undefined. As you know, movies these days regularly have 15-20

minutes of advertising preceding the actual film screening. This is the industry custom and

practice. Moreover, there is no language on the ticket that states that the term “movie” is

confined to the film at issue and does not include advertisements. There was no representation

made to Tommy, whether written or oral, that should have led him to believe that “movie” did

not include any advertisements. Tommy interpreted the movie start time to be synonymous with

the film start time, but there is nothing to support that presumption.

1 This case was utilized solely for the purpose of identifying the elements of a cause of action for fraud. After reviewing the Cao et al. v. Nguyen et al. (supra) record, we have determined that the facts of that case are so readily distinguishable from this instant matter as to not be on point. Additionally, it is a Nebraska case and therefore not binding precedent.

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As discussed above, the Representation was made to the public at large and to Tommy in

general that the “movie” started at 1:00 p.m. If we define the term “movie” as including any

advertisements and “The Governator” film – the way films are typically distributed in the

modern day - the “movie” did in fact start at 1:00 p.m. Under this analysis, the Representation

that the “movie” started at 1:00 p.m. was accurate and not at all false.

Obviously, Tommy will interpret the term “movie” to mean the actual film, i.e. “The

Governator” in order to support his claim of fraud. Should a jury accept Tommy’s interpretation

of this undefined term, it is likely they would also accept his claim that the Representation was

false. Notably, when a term such as “movie” is undefined in contract, the courts typically impose

an interpretation of the term which is compliant with industry standards/custom and practice. As

we mentioned previously, current custom and practice is to run 20 minutes of ads.

Assuming arguendo that “movie” is interpreted by Tommy’s definition, even so, Tommy

must still show (3) that when made, the Representation was known to be false or made

recklessly. Should a court and/or jury find that the start time of the movie was misrepresented, it

remains that because industry practice is to include 20 minutes of advertising, it is still unlikely

the court/jury would find that the Representation was made with knowledge of falsity or

recklessly.

The points on which all parties are likely to agree are (4) that the Representation was

made with the intention to make Tommy rely on it, and (5) that Tommy did rely on the

Representation. We can likely stipulate to the facts that the Representation that the “movie”

started at 1:00 p.m. was certainly made with the intention that Tommy would rely on it, and

moreover, we concede that he did rely on that Representation.

Most importantly, and the element most heavily in favor of your prevailing in defending

any potential lawsuit is that Tommy still must demonstrate that he (6) suffered damage as a result

of the Representation. Although Tommy attempted to have his money refunded, that is not

enough to establish damages. The causation required here is very clear. Tommy must

demonstrate that he suffered damage specifically as a result of the difference between the start

time of the “movie” that was advertised and the start time of “The Governator” portion of the

screening.

Our investigation revealed that Tommy decided to go to a movie due to the unreasonable

heat on that day. We also learned that Tommy wanted to enter the theater while the lights were

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still on. This means that Tommy would have wanted to be at the theater before the 1:00 dimming

of the lights, regardless of the ads, so that he could easily find his seat. If Tommy had arrived at

1:20 p.m., the theater would have already been dark. Finally, we have learned that Tommy

endured the commercials without incident because the theater was air conditioned and

comfortable, further evidence of the fact that he was not damaged by the 1:00 p.m. start time of

the ads and the subsequent 1:20 p.m. start time of the film.

In fact, Tommy did not seek out the manager of the theater to complain until more than

30 minutes after he determined that he did not like the movie. If Tommy truly objected to the

commercials, he could have left during the initial 20 minutes of ads. Moreover, he could have

left after determining the movie did not justify the ads. He did neither; rather, he waited until

more than 30 minutes had elapsed before he went to complain. Tommy actually seems to be

more upset that he did not like the movie than the fact that there were 20 minutes of ads.

Damages are measured in terms of money. Tommy must show that he spent money that

he would otherwise not have spent in reliance on the allegedly false Representation (i.e. the start

time of 1:00 p.m.), but that is not the case. He paid nine dollars to attend a movie, attended the

movie, and decided he did not like it well after the movie began. Tommy is basically seeking a

guarantee that he will like the film by requesting a refund despite having stayed until well after

the film began. Obviously this is not reasonable, because if that were the standard for

determining whether consumers were entitled to refunds, movie theaters would quickly go

bankrupt. In any event, whether or not Tommy liked the movie does not impact his claim for

fraud.

Tommy’s only possible claim under this element would be the fact that he was charged

more than the typical matinee fee for this movie; however, he was expressly told by the cashier

that the higher charge was due to the blockbuster nature of the film. Still, Tommy could try to

argue that the higher charge was, at least in part, due to the 20 minutes of ads.

In sum, under his contract with the theater, Tommy paid money for a product (i.e. the

movie) and received that product (watching the first 30 plus minutes.) The fact that he did not

like the movie may give rise to a different claim if Tommy can find something to imply that the

theater offered a money-back guarantee of customer satisfaction; however, fraud is not that cause

of action. Stationed on our legal analysis, The Royal 16 Theater has a secure defense against

Tommy.

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Statistical Analysis

The Consortium has requested the firm to perform a statistical survey to determine the

number of patrons that resent commercials/ads before the feature film when gong to the theater.

The survey conducted was a random sampling of (a) 100 patrons and (b) 300 patrons. Before the

results were calculated, a 10% parameter was set to determine the next course of action. If the

percentage of patrons is 10% or greater, the firm will suggest that the consortium should consider

a settlement with Tommy and any lawsuit filed. If the percentage of patrons is 10% or less, the

firm will suggest to the consortium that they should vigorously defend any lawsuit attempted.

The firm is able to calculate data using a statistical analysis using one, two or both methods. One

method is Hypothesis Testing, and second method is calculating the Confidence Interval. Both

calculations are acceptable to analyze this survey. Both the confidence interval and hypothesis

testing method was chosen for this survey.

The first step to a statistical analysis is to determine the conditions. There are two main

conditions that we must first determine before calculating the data:

1. Is the sample size large enough and is the sampling method a simple random sample?

a. Yes, the sampling method is random and yes, the sample size is large enough.

2. Does the sample include at least 10 successes and 10 failures?

a. Yes.

Type I versus Type II error

Hypotheses that are made are usually not 100% correct, which create errors. There are

two types of errors: type I and type II. Type I error depicts the rejection of the null hypothesis

when it is true while using the probability alpha (α). Failing to reject the null hypothesis leads to

a type II error, which uses the probability beta (β). In this case, the consortium made a prediction

that the percentage is 10% or more of customers resent the commercial/ads is the null hypothesis.

Less than 10% is the alternative hypothesis.

Null and Alternative hypothesis:

-Null hypothesis is the hypothesis that sample observations result purely from chance.

H0: P = .10 (If 10% or greater, the consortium should consider a settlement.)

-Alternative hypothesis is the hypothesis that sample observations are influenced by some

non-random cause.

H1: P < .10 (If 10% of less, the consortium should vigorously defend any lawsuit.)

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When the consortium makes a type I error, it would reject the null hypothesis if it is true,

while type II error fails to reject the hypothesis. In this case, the consortium can reject it if the

percentage is at least 10% to negotiating a settlement. However, since it failed to reject the null

hypothesis, it has to defend the case, leading the consortium to accept the null hypothesis that is

not true.

The first survey included 100 patrons and only 6 patrons resented the commercials.

n = 100

x = 6

alpha = .05

z-score = -1.3

p-value = .09

Based on the above data, the p-value (.09) is greater than the significance level (.05) which

determines that we FAIL TO REJECT the null hypothesis.

The second survey had 300 patrons and only 18 patrons resented the commercials.

n= 300

x= 18

alpha= .05

z-score= -2.3

p-value = .01

Based on the above data, the p-value (.01) is lower than the significance level (.05) which

determines that we REJECT the null Hypothesis.

According to the data above, if the consortium based its decision on 100 patrons, a type II error

would have occurred.

Confidence Interval

The Confidence Interval describes the uncertainty associated with a sampling method. In

this report, we will use a 95% confidence level. This means that the data collected and

calculated, we are 95% certain that the true population proportion lies between the confidence

intervals we get.

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Survey One

The first survey conducted included 100 patrons with 6 patrons resenting the

commercials.

Number of patrons resenting commercials/ads x= 6

Total number of patrons who were surveyed n= 100

The confidence level used c-level= .95

The confidence interval determined from above data (.01345, < p < .10655)

The interval converted into a percentage 1.34% – 10.7%

Based on the data above, we are 95% confident that with a random sample size of 100 patrons

and 6 patrons resenting the commercials/ads, the consortium should consider a settlement with

Tommy and any lawsuit being filed. This decision is based on the percentages above. The

confidence interval of 1.34% to 10.7% is outside/greater than the 10% rule mentioned earlier.

This tells us we are 95% confident that the actual percentage of patrons that are dissatisfied with

commercials/ads is greater than 10%.

Survey Two

The second survey had 300 patrons and 18 patrons resenting the commercials/ads.

Number of patrons resenting commercials/ads x= 18

Total number of patrons who were surveyed n= 300

The confidence level used c-level = .95

The confidence interval determined from above data (.03313, < p < .08687)

The interval converted into a percentage 3.31% – 8.69%

The percentages in the second survey conducted with 300 patrons were much tighter and smaller.

When the sample size was increased to 300 patrons, the confidence interval resulted differently.

With the 95% confidence level, it is revealed that the likelihood of patrons who resent the

commercials/ads is between 3.31% to 8.69%, which is less than the 10% predetermined limit.

Based on this fact, the firm suggests that the consortium should vigorously defend any lawsuit by

Tommy or any class action lawsuit.

Statistical Analysis Results

The firm was asked by the consortium to conduct a statistical analysis regarding the

number of patrons who are dissatisfied with the amount of commercial/ads before the actual

movie begins. A 10% rule was determined to either agree on a settlement or to defend

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vigorously against any lawsuit. The first survey of 100 patrons concluded that the consortium

should begin negotiations of a settlement because the percentage was outside the 10% rule.

Although it was only 10.7%, the .7% is still a critical factor. The second survey with 300 patrons

resulted in a different outcome. The confidence interval was between 3.31% and 8.69%. The

percentages here are below the 10% rule, which would indicate that the consortium should

vigorously defend any lawsuit. Given the data and calculations, the firm suggests that the

consortium should still consider to DEFEND any lawsuit.

Ethical issues and Principles:

We’ll start out by looking at the overall picture of where Royal 16 Theater may want to

be in the future, as well as analyzing the costs and benefits of their current practices. Assuming

Royal 16 Theater doesn’t change their refund policy, they may be approaching the demise of

their company in the immediate future. In order for a company to prosper they must maintain a

good relationship with their customers, and do everything to make it right. Like most business

practices preach, “The customer is always right”, Royal Theater 16 and the consortiums must

uphold the Principle of Honesty and maintain a positive relationship with their customers.

When discussing the ethical issue of the commercials and the exact start time of the

movie we must evaluate the Principle of Fidelity. The Principle of Fidelity states, that businesses

should be faithful which involves loyalty, truthfulness, promise keeping, and respect. When

reading the marquee, Tommy saw a posting that said his movie would start at 1:00pm, and never

did it specify commercial times. It would be in the business’s best interest, and from an ethical

stand point, to post commercial times. This will prevent any anxiety that a customer may have

from showing up late. This also gives elder customers and disabled customers a chance to make

it to the showing if presented with any unforeseen issues.

If all members of the consortium decide to stick with the 20 min commercials without

notice and non-refundable tickets, they run the risk of losing business in the future. In today’s

society there is an enormous amount of options, as well as competitors. Losing a loyal customer

today, results in loss sales and profitability for years to come. Many consumers look to fellow

friends and family members for possible referrals and this could result in negative feedback to

Royal 16. All it takes is one unhappy customer like tommy to create a ripple effect that could put

Royal 16 out of business in the years to come.

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Utilitarian Approach

Another way we can look at this case through an ethical standpoint is using a Utilitarian

Approach. A Utilitarian approach, simply put, looks to find the the overall maximum benefit

over harm for everyone affected disregarding the means of getting there. This is an effective

approach because it measures everyone equally and since everyone desires to be happy our

outcome will have the best interest of both parties in mind. It was first introduced by European

Philosopher Jeremy Bentham during the 18th century.

Before we begin let’s establish another ethical question that was seen “Should have Royal 16

theatres refund Mr. Tommy his money back?”

Parties Involves

Looking at the situation the people being affected directly is Tommy (the movie goer)

and the Royal 16 Theatre, but it doesn’t end there. We have to look at all the stakeholders which

can indirectly involve potential customers, the other movie theatres, and the community itself.

Actions

Now that we have established the people involve let’s begin by seeing what approaches

we can use to solve our dilemma. We see Two potential actions you can take Which Involves

whether or not we should refund Mr. Tommy his money for the movie or continue to deny him

his money reimbursement.

If we reimburse Mr. Tommy, his money or give him some sort of theatre credit we for

one would not have this potential lawsuit in our hands and most importantly we would have

retained a customer who could have potentially brought more customer to our business. In short

term we would have lost 9 dollars that day but would have saved ourselves the cost of a lawsuit

and a customer. Now we understand that Royal 16 theatres has a right to do whatever they want

with their property but we suggest that a change in this refund policy would also benefit the

Theatre long term as well. The theatre would gain a good reputation throughout the community

for empathizing with the customer and therefore draw in more potential customers. Now we

understand that some might try to abuse this refund policy so adding certain limitations or

restrictions would help reduce this problem

Now if you choose to deny Mr. Tommy his money you would be maximizing profits for

that day keeping all your earning. Customers have no choice but to sit there and watch or loose

their nine dollars. Having a no refund policy eliminates the chances of scams and exploiting the

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theatre. The cost of continuing this policy can prove to be dire in the long term. Unhappy

customers might sit there for that day but choose to never return or worse go to a competing

movie theatre. You might also have to deal with long term lawsuits like this one. The community

might also hear about this unfair treatment and choose not to go there because of that.

If we take both of these into account, the best possible outcome is to refund his money

back. It would be the maximum benefit for both parties with the least amount of harm because

you retain a customer and the customer will leave happy being treated fairly.

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Appendix

Statistical Formula Used:

Confidence Interval Formula

Survey One Calculations

Proportion of unhappy moviegoers p^ = 0.06

Z-score z= 1.96

Confidence Level ci= .95

Sample Size n = 100

Lower Limit = 0.06-1.96 sqrt (0.06(1-0.06))/100 = .01345

Upper Limit = 0.06+1.96 sqrt (0.06(1-0.06))/100 = .10655

Confidence Interval is between (.01345, .10655) = 1.34% - 10.7%

10.7% is greater than the 10% value.

Survey Two Calculations

Proportion of unhappy moviegoers p^ = 0.18

Z-score z = 1.96

Confidence Level ci= .95

Sample Size n = 300

Lower Limit = 0.18-1.96 sqrt (0.18(1-0.18))/300 = .03313

Upper Limit = 0.18+1.96 sqrt (0.18(1-0.18))/300 = .08687

Confidence Interval is between (.03313, .08687) = 3.31% - 8.69%

The confidence interval is below the 10% rule.

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Works Cited

"ETHICAL PRINCIPLES." - School of Education. Syracuse University, n.d. Web. 26

Feb.2016.<http://soe.syr.edu/academic/counseling_and_human_services/modules/

Common_Ethical_Issues/ethical_principles.aspx>.

"Only the Ethical Survive." - Resources. N.p., n.d. Web. 29 Feb. 2016.

<http://www.scu.edu/ethics/publications/iie/v10n2/ethical-surv.html>.

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legal analysis case 1(complete)

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