New Jersey Lawyers Blog

Published on: April 6, 2017

Fiduciary Duties and the Business Judgment Rule: Bad Judgment Without Bad Faith Does Not Create Liability for Directors, Officers and Owners

thumbs-up-1198238__340-300x300 Our attorneys represents businesses and the people who own and run them. One source of significant conflict in New Jersey business law are the fiduciary duties of the directors, officers and owners of businesses.

New Jersey business law imposes fiduciary duties on a company’s directors and officers. This also applies to joint owners, including shareholders in corporations, partners in partnerships and members in limited liability companies (also known as “LLCs”). Essentially, under New Jersey law directors, officers and joint owners act as trustees to all of the business’s owners. They owe a duty of loyalty to the owners, including both the majority and minority owners. As effective trustees, they must place the interests of the owners ahead of their own. They also owe a fiduciary duty of care – they must exercise reasonable care in carrying out their duties.

Breach of these fiduciary duties open directors, officers and owners up to personal liability. They may be sued for violation of these duties if any of the owners allege that they suffered harm, financial or otherwise, because of a breach of these fiduciary duties.

Published on: April 4, 2017

New Jersey Supreme Court Issues Opinion on Fraudulent Conveyance

by Maurice W. McLaughlin

american-963191__340-300x200 New Jersey’s Uniform Fraudulent Transfer Act, often referred to as the “UFTA,” is designed to protect creditors from debtors who transfer assets to avoid paying their debts. New Jersey’s Supreme Court recently issued a landmark decision on the UFTA.

In the case of Motorword, Inc. vs. William Benkendorf, et al., the New Jersey Supreme Court overturned an Appellate Division decision which had approved of the cancellation of a loan in a very fact-sensitive decision. Carol and Morton Salkind owned multiple companies, including Motorworld, Inc., Fox Development, Inc., and Giant Associates, Inc. Benk did landscaping work for Fox and Giant; Fox and Giant paid approximately $4,000,000 to Benk, but still owed about $1,000,000. Morton Salkind and Benk’s owner, William Benkendorf, were longtime friends and business associates, but Benkendorf did not expect to collect the last $1,000,000.

Benkendorf ran into trouble with the IRS and needed to resolve some payroll tax issues. He asked Morton for a loan. Morton agreed, but required that it go through Motorworld, and that the debts of Giant and Fox could not be used to offset the loan obligation. They signed the note for the loan, and Carol loaned $500,000 to Motorworld to fund the loan. Benkendorf did not pay, despite extensions and amendments, and incurred significant interest and penalties which increased the amount due to more than $1,000,000. Eventually, because of Benkendorf’s financial difficulties, Morton agreed to forgive the loan from Motorworld in exchange for Berkendorf forgiving the amounts due from Fox and Giant. So essentially the debts owed between the Salkinds’ companies and Benkendorf and his companies were mutually extinguished, which would be fine and fair – and legal – if the story ended there. (Of course, if it did the courts would have never become involved….)

Published on: March 23, 2017

New Jersey’s Law Against Discrimination: Damages in Consideration of Unemployment Benefits

by Pauline M.K. Young

images New Jersey’s Law Against Discrimination (the “LAD”) makes it unlawful to discriminate against someone on the basis of race, age, nationality, gender, religion, sexual orientation and several other specifically protected groups. While this covers an array of relationship scenarios, it is often applied in the context of an employment relationship.

Any person who has been subjected to unlawful discrimination in employment may file a lawsuit under the LAD. The LAD specifically provides for remedies to include all those that are available in typical tort actions. A tort action is generally a civil action in which one person or entity sues another for some wrongful conduct which the actor committed in breach of some actual or implied duty to the other person or entity (other than by way of a breach of contract). These damages may involve a number of categories such as back (past lost) pay, front (future) pay, emotional distress, lost benefits, etc. The act also provides for punitive damages – meaning damages in addition to actual losses which are imposed to punish the wrongdoer for egregious and/or intentional acts, and deter future wrongful acts.

In virtually every employment discrimination case, the plaintiff is required to mitigate her losses. This means that an employee who has, for example, been fired because of a discriminatory purpose or motivation, must make reasonable efforts to find another job to reduce her damages.

Published on: March 20, 2017

Lost Profits as Commercial Damages and The New Business Rule

by Maurice W. McLaughlin

document-428335__340-300x200 In a business dispute, a prevailing party is awarding damages awarded damages it can prove, typically awarded lost profits. The “New Business Rule,” however, has traditionally including recovery of lost profits for “new” businesses, because their lack of a track record makes estimating lost profits too speculative. The is a longstanding rule in New Jersey commercial litigation. However, several newer cases indicate that it may be on the way out and indeed may already be dead, and in any event courts strain to avoid its application. This is logical, because another guiding principal of New Jersey business law is that equity requires that courts try to prevent a wrongdoer from profiting from its misdeeds at the expense of an innocent party. The new cases lead to the conclusion that that it is questionable whether the New Business Rule remains valid at all.

Lost Profits as a Measure of Damages.

When one party to a contract breaches a contract the other party may recover compensatory damages, which are the natural, probable and foreseeable consequences of that breach. As New Jersey’s Supreme Court explained “[T]he goal is to put the injured party in as good a position as if performance had been rendered.” Lost profits are one of main elements which businesses can recover as compensatory damages in a breach of contract lawsuit.

Published on: March 19, 2017

Equitable Relief in the Chancery Division of New Jersey’s Superior Court

by Maurice W. McLaughlin

courthouse-303370__340-300x192 The General Equity Part of the Chancery Division of the Superior Court of New Jersey has the ability to grant “equitable” relief in addition to money damages, making it a desirable venue for business dispute.

Where a New Jersey lawsuit is heard is determined by New Jersey’s Rules of Court. Civil actions are heard in the various divisions of the Superior Court. Civil cases with disputes of up to $3000 are heard in the Small Claims Division of the Superior Court. Civil cases with disputes of up to $15,000 are heard in the Special Civil Division of the Superior Court. All other cases are heard in either the Law Division or Chancery Division, General Equity Part. The Law Division hears lawsuits which seek primarily “legal” damages – ie., suits which are primarily for money. The General Equity Part of the Chancery Division hears “actions in which the plaintiff’s primary right or the principal relief sought is equitable in nature.” Thus, in order to understand what is heard in the Chancery Division, we need to take a brief trip back to Merry Olde England and talk about the split between courts of “law” and “equity.”

The law courts in England gave “legal” relief, but developed a complex system of writs. If a suit did not fit precisely within the requirements of one of the writs, relief was denied. The office of the chancellor developed even prior to the Norman Conquest in 1066 as the “king’s conscience,” and could grant relief when remedies at law were inadequate. The chancery, or equity, court eventually carved out its own sphere, creating a rigid and artificial barrier between law and equity, creating a situation in which litigants sometimes could not find relief in either. Charles Dickens described the effects well in his classic novel Bleak House:

Published on: March 17, 2017

Money Damages in Business Litigation

by Maurice W. McLaughlin

“Legal” and “Equitable” Remedies in New Jersey Courts

Business litigation involves a claim that one party caused business harm to another, and sometimes counterclaims that each side caused the other harm. At the end of the case, if a court (whether a judge or jury depending on the facts and procedural status of the case) finds that one side did, in fact, harm the other, it will award a remedy. Through ancient legal doctrine stretching back to Merry Olde England, the law recognizes two types of relief, legal remedies and equitable remedies.

Legal relief is at is essence money damages. A civil action for legal relief involves a claim that a party has been wronged in violation of the law, and the harm can be compensated with an award of money damages. For example, a contract was breached by party B, and as a result party A suffered $1000 in lost damages; when the court awards the party A $1000 in damages, that is a “legal” remedy, and the damages are “compensatory” damages. Let’s say instead that Party B defrauded Party A, and that Party A suffered $1000 in damages. The $1000 party A lost are still compensatory damages. However, in fraud punitive damages are available if the fraud was especially egregious. So let’s say the court awarded another $2500 in addition to the $1000 compensatory damages to deter Party B from ever defrauding anyone again. The $2500 are punitive damages.

Published on: March 16, 2017

Solid Waste Transportation: CPCN’s and Other Requirements

by Pauline M.K. Young

eighteen-wheeler-614201__340-300x225 The New Jersey Department of Environmental Protection (“NJDEP”) regulates, monitors, and enforces a wide range of environmental laws throughout the State, including things such as the transport and disposal of solid waste.

The State Legislature and the NJDEP have enacted numerous laws, rules, regulations, and reporting requirements for waste transporters in an effort to ensure the safe, clean transportation of waste throughout the State.

The process for becoming a licensed waste transporter generally begins with the formation and registration of a business entity such as corporation or limited liability company with the State of New Jersey and obtaining a federal Employer Identification Number (FEIN or EIN) with the Internal Revenue Service. Next the company would need to obtain an A-901 license. Obtaining that license from the NJDEP can be a long and invasive process requiring a significant amount of information to be provided to the NJDEP in addition to fingerprinting and background checks for all owners and key employees. It is not uncommon for this process alone to take approximately one year.

Published on: March 10, 2017

Age Discrimination Under Federal and New Jersey Employment Law – Illustrated by Two Recent Cases

by Maurice W. McLaughlin

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Our employment law department represents private sector employers and public and private sector employees. One of the most prevalent claims we see is age discrimination in the workplace.

Age Discrimination Laws

Age Discrimination is illegal under both state and federal law. New Jersey employment law prohibits this under the Law Against Discrimination. The Federal law prohibiting age discrimination is the Age Discrimination in Employment Act, or the “ADEA.” Both laws prohibit discriminating against employees or job applicants because of their age, although the coverage is much different. Two recent cases illustrate these differences.

Published on: March 8, 2017

Enforcing Judicial Consent Orders in Solid Waste and Recycling Cases

by Maurice W. McLaughlin

recycling-1341372__340-300x300 New Jersey heavily regulates the transportation and disposal of solid waste (garbage) and recycling. These activities are governed by New Jersey’s Solid Waste Management Act. It is also governed by regulations promulgated by New Jersey’s Department of Environmental Protection (known as the DEP). The Appellate Division of the Superior Court of New Jersey had the opportunity recently to review these matters in connection with the actions of a recycling company in Newark.

In the unpublished case of State, Department of Environmental Protection vs. T. Fiore Demolition Company, two companies (T. Fiore Recycling Corporation and T. Fiore Demolition Company, collectively referred to as “Fiore,” both corporations) obtained approval from the DEP to operate a class B recycling center and receive up to 1865 tons of Class B recyclables, and to store up to 30,314 cubic yards of it. Class B recyclables, also known as “construction and demolition” or “C&D” recyclables, include concrete, asphalt, cinder block, brick, wood, street sweepings, creosote wood and roofing shingles at a location in Newark which the court called Site A. Fiore’s business model was to be paid to take the recycling, and then to process and sell it for use in road and other construction projects. Next door to Site A was Site B, 26 acres Fiore leased form the Newark Housing Authority. Fiore did not have approval from the DEP for operations or storage on Site B, even though it was next door to Site A. As time went on, Fiore used Site B to store recyclables. At one point the pile of recyclables at Site B reached one hundred feet high.

This use prompted the DEP to visit the site, at which point it discovered the violations. The DEP issued a notice of violation, and litigation ensued. The DEP entered an administrative cease and desist order requiring Fiore to immediately cease accepting any materials on Site B, and to only accept one truckload at Site A for every three it removed from the combined sites. It was after this order that it was discovered that the stockpile had doubled in size to 100 feet.

Published on: March 6, 2017

How and When a Landlord’s Claims are Capped Under the Bankruptcy Code

by Robert Chewning, Esq.

Our bankruptcy attorneys represent debtors and creditors in New Jersey in Chapter 7, 11, or 13 bankruptcies. Recently, a Bankruptcy Court within the Third Circuit had the opportunity to clarify the cap placed on landlords’ bankruptcy claims under 11 U.S.C. 502(b)(6).

In the case of In re Filene’s Basement, LLC, the Bankruptcy Court reviewed the reach and application of 11 U.S.C. 502(b)(6) on a landlord’s potential claims. The Code section provides a cap to a landlord’s claim for “rent reserved” as a result of a debtor’s termination of a lease. The claim for “rent reserved” is capped at the greater amount of either one year of rent or fifteen percent of the remaining term of the lease – not to exceed three years. The time to calculate this claim for damages is from the earlier date, either the date of the filing of the petition or the date on which the landlord repossesses the property and/or the tenant surrenders the property. The landlord also retains a claim for unpaid rent prior to the earlier of those two dates.

This cap does not apply to all landlord claims as a result of a breach of a lease. In fact, courts are typically faced with determining whether landlord claims should be subject to the cap. The Bankruptcy Court in In re Filene’s Basement, LLC was faced with deciding whether the additional claims asserted by the landlord should be considered outside of the cap. The claims were for: (1) the cost to remove furniture left by the tenant; and (2) the cost to remove a mechanic’s lien as a result of the tenant’s nonpayment to a contractor. In reviewing these claims, the Court adopted the Ninth Circuit’s narrow interpretation of the 11 U.S.C. 506(b)(6) in In re El Toro Materials Co., Inc., which asked: “Assuming all other conditions remain constant, would the landlord have the same claim against the tenant if the tenant were to assume the lease rather than rejecting it?”