Case Analysis

July at the Multiplex

EXECUTIVE SUMMARY

Purpose

The intention of this report is to examine Tommy’s claim of fraud, Mr. Plex’s request for

a statistical survey of his patrons, and finally, the ethics behind how Mr. Plex operates his

theater. Tommy recently visited Royal Theater, owned by Mr. Plex, and disliked the experience

for several reasons including the showing of advertisements before the movie, the movie itself,

and the subsequent handling of his complaint by management.

Analysis & Results

Tommy claims that Royal Theater is liable for fraud for misrepresenting the starting time

of the movie. All six elements that are needed to prove fraudulent misrepresentation are analyzed

and it can be determined that not all six elements are met.

After stating a hypothesis regarding the results of the consortium’s survey, the data is

analyzed to determine that the hypothesis stating the consortium should settle the lawsuit is the

best course of action. However, after analyzing some hypothetical results with a higher number

of patrons surveyed but the same percentage disliking the commercials, we determined that the

best course of action is to fight the lawsuit.

The Stakeholder/Utilitarian Theory and the Rights Theory are both discussed and we can

determine that the theater acted ethically in their operations.

Recommendations

We recommend fighting the case in court as Tommy will be unable to prove Fraudulent

Misrepresentation. Statistically, surveying 300 or more patrons will provide a more accurate

analysis that also agrees with fighting the case. Ethically, the use of signs in the ticket booth or

labels on the ticket indicating commercials will be shown would be a good solution.


INTRODUCTION

Purpose

Our goal is to provide Mr. Plex and the consortium with an objective analysis of the legal and

statistical aspects of the case experienced by the patron Tommy. Tommy attended a movie

screening for “The Governator” and was dissatisfied with the movie and resulting handling of his

complaints by Mr. Plex’s theater. The specific events that occurred are listed below:

Key Facts

The high temperature & humidity outdoors led Tommy to seek relief inside the theater. Tommy checked movie availability in the newspaper and movie was scheduled to begin

at 1 pm. Tommy rushed to the movie theater and arrived 15 minutes early. Tommy paid $9.00 for a ticket. Ticket stated movie begins at 1:00 pm. Cashier confirmed 1:00 pm movie start time. Tommy paid $9.00 for a drink and popcorn. Tommy was not a regular moviegoer; he hadn’t been in “several” years. Tommy found the right theater room at 12:58 pm. Commercials were screened from 1 pm to 1:20 pm. Movie started at 1:20 pm. Tommy found the movie was horrible but give it a 30 minute chance. Tommy left the theatre room early. Tommy asked for a refund but was denied due to theater policy.

Assuming that a contract exists between Tommy and Royal Theater and that part of the contract

stipulates the movie beginning at 1 pm we will analyze the possibilities of fraud facing Royal

Theater. After discussing the theater’s liability, Mr. Plex asks us to conduct a random sample

survey of 100 patrons to determine whether or not they resent the commercials. Using the results

from the survey we will advise Mr. Plex on his next course of action with Tommy. We will also

discuss Mr. Plex’s options if the amount of patrons sampled were increased. Lastly, as with any

business decision, the ethical standards must be taken into consideration and we will discuss the

ethics behind screening twenty minutes of commercials prior to the movie.

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ANALYSIS OF LIABILITY FOR FRAUD

Nature of the Case

Tommy is threatening a class action lawsuit against Royal 16 Theater and its owner Mr.

Plex. He alleges that the movie starting time of 1:00 pm was fraudulently misrepresented by the

theater seeing as Tommy sat through 20 minutes of commercials before the actual movie started

at 1:20 pm.

Facts

Wanting to escape the heat and humidity, Tommy decided to see a movie at the air

conditioned Royal 16 Theater. The movie starting time of 1:00 pm was advertised in the paper,

posted on the marquee, confirmed by the movie theater cashier, and was listed on the ticket stub.

The movie began at 1:20 after 20 minutes of commercials. Tommy disliked the movie and left

early and his request for a refund was denied by the manager.

Relevant law

Fraudulent Misrepresentation occurs when an innocent party consents to a contract with

fraudulent terms. He or she may usually avoid the contract, because he or she did not genuinely

assent to the fraudulent terms.

In order for the plaintiff to prove Fraudulent Misrepresentation all of the following

elements must be met: that a representation of a fact was made, that the representation was false,

that when made, the representation was known to be false or made recklessly without knowledge

of its truth, that it was made with the intention that the plaintiff should rely on it, that the plaintiff

reasonably did so rely, and that the plaintiff suffered damages as a result (Cao and Cao v.

Nguyen and Pham, 2000).

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Analysis

Tommy argues that that the movie starting at 1:00 pm was misrepresented by the cashier,

the marquee, the newspaper advertisement, and the ticket because the actual movie started at

1:20 pm, instead of 1:00 pm as advertised. However, Royal Theater will contradict that

statement, as commercials are a part of the movie which, in fact, started as advertised at 1:00 pm.

Moreover, any reasonable person who goes to the theater knows that having several commercials

before the movie begins is a standard procedure, and since Tommy had not been to a movie for a

long time, Royal Theater should not be held responsible.

Tommy will also argue that Royal Theater knew that the official time for the movie is

about 20 minutes later than advertised and stating that the movie begins at 1:00 pm was known

to be false. Royal Theater can argue that the information regarding the official time is the correct

one. This is so because a reasonable person who attends movies often is aware of the fact that

each movie starts with some commercials, and it is assumed that the time for the beginning of

those commercials is the official time for the movie.

Next, Tommy can argue that Royal Theaters made the statement regarding the time when

the movie starts with the intention that Tommy will rely on it. This is so because it was officially

published in the public newspaper, and the personal of the theater were informed about exactly

the same information so if anybody were to ask they would confirm the advertised information.

However, Royal Theater will argue that the time for the movie was set so any reasonable person

would realize that the movie would begin in about 15 to 20 minutes later, as it is a very common

procedure.

Finally, Tommy states that there is no doubt that he reasonably relied on the statement

made by Royal Theaters that the movie will start at 1:00 pm. Additionally, Tommy will argue

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that he was never told anything about any commercials before the movie. Royal Theater will

contend that Tommy did not ask if there will be any commercials, so he cannot claim that his

reliance was reasonable. Royal Theaters will also argue that any reasonable person understands

that the theater is a business and it makes its money not only from the movie itself but also from

advertisements. This should be a well known fact for Tommy as his major at his university is

business.

In regards to damages, Tommy did paid $9.00 for the ticket and the same for some

snacks. However, Royal Theater will argue that the snack expenses should not be involved as it

was Tommy’s own decision without any other information that he could rely on.

ANALYSIS OF MOVIEGOERS’ OPINIONS

Null & Alternate Hypothesis

The consortium makes a statement regarding the population of movie goers and requires

the use statistics to analyze their statement. This statement is referred to as a hypothesis. The

consortium decides to survey their patrons to see if their statement is accurate. The survey will

ask patrons whether or not they resent the commercials shown before a movie. Surveying the

entire population of movie goers about whether or not they resent the commercials is impractical.

Instead, the consortium determines a sample size of 100 will be sufficient to test their hypothesis

for each individual in the sample. If the percentage of movie goers who dislike the commercials

is 10% or greater, the consortium will consider settling the lawsuit with Tommy. This is the

hypothesis being tested and is referred to as the null hypothesis, represented by H0 in the

appendix. However, if the percentage is less than 10% they will fight the case in court. This is

referred to as the alternate hypothesis and is represented by H1 in the appendix.

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Acceptance or Rejection Decision Rule

From the results of the survey they can reject or accept the null hypothesis. Accepting the

null hypothesis simply means we can’t disprove that the percentage of movie goers who dislike

the commercials is greater than or equal to 10%. This does not mean that the null hypothesis is

true for the entire population because the results we are calculating are based on a sample size

and cannot prove or disprove the hypothesis for the full population. If the null hypothesis is

rejected, the conclusion will be that less than 10% of movie goers dislike the commercials.

Significance Level and Type I & II Errors

As mentioned earlier, we can’t determine if the null hypothesis is true for the entire

population since we are only sampling a portion of the population. Because of this, there is a

level of “risk” that is allowed and it is referred to as the level of significance. The level of

significance will be 5% or .05 and is the probability of rejecting the null hypothesis when it is

true. A Type I Error is rejecting the null hypothesis, H0, when it is true. In this case, the Type I

Error would be for the Consortium to fight the case in court against Tommy when in fact they

should have settled with Tommy. A Type II Error is not rejecting the null hypothesis when it

should be rejected. The Type II Error for this case would be to settle with Tommy when in fact

they should have fought the case in court.

Test Statistic & p -value

With the given level of significance and our hypothesis indicating the direction of our

hypothesis test, we find our critical value that separates the region rejecting and the region of not

rejecting the null hypothesis. The results of the survey of 100 patrons indicate that 6% of movie

goers resent the commercials. Using this sample proportion, the hypothesized population

proportion, and the sample size we can find the test statistic and determine where it lies in

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relation to the critical value. Since the test statistic lies within where the hypothesis is not

rejected there is not sufficient evidence to warrant rejection of the claim that 10% of patrons

agreed with Tommy and resented the ads. We can conclude that the consortium should settle the

lawsuit with Tommy. The p-value is also determined to give additional insight into our decision

to accept the null hypothesis. The p-value calculated is greater than the significance level so

therefore our null hypothesis is not rejected which agrees with our original conclusion. However,

although the p-value is greater than the significance level, it is still relatively small, less than .10,

which provides the possibility that the null hypothesis is not true.

Alternate Sample Survey

Instead, if 300 patrons had been randomly surveyed and 18 out of 300 agreed with

Tommy and resented the ads, we can conduct the test again and find if it is possible that the

percentage of all theater goers who are unhappy with the practice of showing advertisements

before the featured film begins is 10% or greater. The new test statistic is found to lie in the

rejection region so we reject the null hypothesis and conclude that less than 10% of movie goers

dislike the commercials and the consortium should fight the lawsuit instead of settle with

Tommy. Again, we can give additional insight into our conclusion with the p-value. It is found

to be less than the significance level which indicates the null hypothesis should be rejected and

agrees with the test statistic conclusion. This p-value is even smaller than the previous p-value,

slightly above .01, and very strongly indicates that the null hypothesis is not true.

ETHICAL ISSUES

Throughout this case there are a few different ethical issues regarding the twenty minutes

worth of commercials shown before the movie. The ethics plays in with whether or not it was

right for the movie theater to have shown commercials prior to the movie. The case states that

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the newspaper, cashier, and the purchased movie ticket list the starting time of the movie as one

o’clock with no other detailed statements. But, the Stakeholder/Utilitarian Theory, greatest good

to the greatest number, proves that the movie theater should show commercials and other

advertisements because it is for the good of everyone. It is for the good of everyone in the sense

that the movie watchers are shown what they may like, whether is a product they can buy or

another movie they can see. On the other hand, the Rights Theory, which includes fair and equal

treatment, shows that Tommy had the right to be warned about the commercials. Even though

the commercials were not there to harm him, he was disappointed because he felt that he was

tricked and lied to.

CONCLUSIONS

Legal

Based on all the evidence and arguments presented, the court will most likely conclude

that Royal Theater is not liable for Fraudulent Misrepresentation, due to the fact that most of the

six elements are not met.

Statistical

While the initial statistical analysis indicated that the consortium should settle with

Tommy, increasing the number of individuals sampled in the survey changed the

recommendation from failing to reject the null hypothesis to rejecting the null hypothesis and

therefore fighting the case in court.

Ethical

Even though Tommy had the right to know that twenty minutes of commercials were

going to be shown before the movie, the theater did not attempt to harm anyone in any way. By

showing the commercials they are thinking about the customers in a positive manner.

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RECOMMENDATIONS

Legal

Because all six conditions for fraudulent misrepresentation are not met, we would advise

the consortium to fight the lawsuit.

Statistical

In order to achieve the greatest accuracy for the statistical survey, we recommend

increasing the number of patrons surveyed to 300 or more.

Ethical

This issue can be resolved in many ways. One solution for this issue would be for the

movie theater to include a statement on the ticket and put a sign at the concession stand that

reads “all movies will have approximately twenty minutes worth of commercials shown at the

starting time.” Another solution to this issue would be to have the cashiers at the concession

stand mention that there will be twenty minutes of commercials at the starting time when any

questions about the movie are asked by the costumers.

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Works Cited

Cao and Caov. Nguyen and Pham, 258 Nev. 1027; 607 N.W. 2d 528; 2000 Neb. LEXIS 56.

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Appendix

Q2 work:

Case:Null Hypothesis: H0: p ≥ 10% or (0.10)Alternate Hypothesis: H1: p < 10% or (0.10)

Evidence:

X= 6; n = 100

= 0.06

Critical Value:α = 0.05z score = -1.645

Test statistic:

z = -1.33 Critical region in the left trail

p-value = area to the left of the test statistic.

Probability of z value between 0 and -1.33 is .4082; p-value is .5000-.4082 = .0918

p-value is greater than significance

level α (.05).

Therefore H0 is not rejected.

Q4 work:

Case:Null Hypothesis: H0: p ≥ 10% or (0.10)Alternate Hypothesis: H1: p < 10% or (0.10)

Evidence:

X= 18; n = 300= 0.06

Critical Value:α = 0.05z score = -1.645

Test Statistic:

z = -2.31 Critical region in the left tail

p-value = area to the left of the test statistic.

Probability of z value between 0 and -2.31 is .4896; p-value is .5000-.4896 = .0104

p-value is less than significance level α (.05).

Therefore H0 is rejected.

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