Articles Posted in Business Law

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handshake-2056023__340-300x200As a general rule, oral contacts in New Jersey are enforceable – not that they are recommended; indeed.  Our attorneys, we always recommend that contracts be in writing because they are easier to prove and leave less room for misunderstandings.  However, if you can prove the terms of an oral contract New Jersey courts will generally enforce it.

A big exception applies to this, however, in the Statute of Frauds.  Under the New Jersey Statute of Frauds, courts will refuse to enforce certain oral contracts even if you can prove them.  This law is based on the premise that oral contracts are inherently less reliable, and writings in certain situations are necessary to prevent perjury or unfounded claims.  The Statute of Frauds has its roots in the old Statute for the Prevention of Frauds and Perjuries which was adopted by the English Parliament in 1677, and was thus the law in England’s American Colonies when they became independent.  The main elements of the Statute of Frauds are found in one section of New Jersey Statutes, but other elements are spread in different sections of Chapter 25 of Title 2A of New Jersey Statutes.

The main types of contracts which the Statute of Frauds requires to be in writing are:

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puzzle-693873__340-300x228An attorney-client relationship involves the reasonable reliance by an individual (the client) on the professional knowledge and/or skills of an attorney who is aware of and accepts responsibility for that reliance.  While a written agreement is not required for this relationship to exist, there must be some mutual understanding, consensus, and/or act manifesting the acknowledgement of the relationship.

One of an attorney’s obligations to a client the duty to maintain the confidentiality of communications with the client. The New Jersey Supreme Court  has said that:

Such an obligation is necessary for several reasons. Persons who seek legal advice must be assured that the secrets and confidences they repose with their attorney will remain with their attorney, and their attorney alone. Preserving the sanctity of confidentiality of a client’s disclosures to his attorney will encourage an open atmosphere of trust, thus enabling the attorney to do the best job he can for the client.

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thumbs-up-1198238__340-300x300Our 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.

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american-963191__340-300x200New 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….)

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document-428335__340-300x200In 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

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courthouse-303370__340-300x192The 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:

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courthouse-1223280__340-300x200“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.

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eighteen-wheeler-614201__340-300x225The 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.

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recycling-1341372__340-300x300New 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.

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A partnership is an unincorporated association of two or more people who act as co-owners of a business for profit.  Under New Jersey business law, a partnership may be created even when there is no written partnership agreement between the parties (this is known as “defacto partnership.”  However, just like any other business venture, a partnership is required to register their business with the State of New Jersey Secretary of State and obtain an employer identification number for tax purposes.

While a partnership agreement under New Jersey partnership law is not necessary, in the event that there is no partnership agreement, the default rules for partnerships will govern a partnership.  Every partnership which has either income or loss from sources within the State of New Jersey, or in which any partner resides in New Jersey must file tax forms with the State of New Jersey.  Beginning on January 1, 2015, the New Jersey Division of Taxation discontinued the use of tax Form PART-100 (which was previously used to report the gross income tax filing fee and the corporation business tax) and created two new partnership tax forms (Forms NJ-1065 and NJ-CBT-1065.)

For tax purposes, each partner received profits and losses just as though it were personal income, but set forth on a Schedule K-1.  (This is different from a corporation which is separately and additionally subjected to taxes on the business’s earnings.)  A partnership with more than 2 owners must pay a filing fee per owner. The fee is currently $150 per partner.  The fee is applicable to any owner notwithstanding the fact that the owner may only be a partner for part of the year.