[Cookie Problems] Rashi Makes Great Chocolate Chip Cookies and Sells

question 3

Multiple Choice

[Cookie Problems] Rashi makes great chocolate chip cookies and sells them in her café called Rashi's Famous Cookies. Some of her friends have expressed interest in selling her cookies. They want to use her name and identify the cookies as Rashi's Famous Cookies. Seeing a business opportunity, Rashi agrees to bake the cookies and provide them frozen to her friends who will open other cafés under her café's name. Rashi strictly controls all packaging and sales. She also frequently inspects kitchens used by the sellers, pursuant to her agreements with them. Lola, one of Rashi's friends who entered into an agreement with Rashi to open a café and sell the cookies, was not being careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Jonah, becoming ill. Jonah threatens to sue both Lola and Rashi. Rashi is so exasperated that she cancels all the franchise contracts. Although the franchise agreements provide that,as long as requirements are met, the franchise agreements will continue for a period of two years, Rashi takes the position that the cookies involve a personal service using a trade secret, and that she cannot be held liable to her franchisees for discontinuation of the franchises.
-Will Rashi likely be held liable to Jonah?

• A) Yes, but only if Lola has officially filed for bankruptcy protection.
• B) Yes, but only if Lola is insolvent.
• C) Yes, because the cookies had her name on them.
• D) No, because she was a franchisor.
• E) It is unclear and depends on whether she exercised too much authority in the day-to-day affairs of Lola's business.

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Definitions:

Net Operating Income

A financial metric indicating the income generated from a company's core business operations, excluding deductions of taxes and interest.

Turnover

The rate at which inventory or assets are sold and replaced over a certain period of time, indicating the efficiency of sales or the usage of assets.

Investment Opportunity

A potential venture or project that promises returns or profits to the investor.

Combined Margin

The total margin that results from combining the gross margin and net margin of a company.