Judicial Notice of COVID-19 Pandemic Held not to be a Substitute for Evidence of Mitigation of Damages
The COVID-19 pandemic has had a significant impact on the economy and has caused many businesses to struggle financially. Landlords and tenants have been navigating the challenges posed by the pandemic, including issues related to rent payments and lease obligations. In the recent unpublished case of Washington-Hudson Associates II LLC v. Town Sports International Holdings, Inc. (A-1357-21), the New Jersey Appellate Division addressed a dispute between a landlord and the guarantor of a tenant over unpaid rent and other charges under a commercial lease.
The first finding was that the lease in question did not provide for any rent abatement or reduction in the event of a pandemic or other unforeseen events. The court noted that the lease, "was clear an unambiguous in providing there would be 'no abatement, diminution or reduction' in rent for 'any inconvenience, interruption, cessation or loss of business,' caused 'directly or indirectly' by government orders. The court emphasized that the parties' contractual obligations should be enforced according to their plain terms, and required the guarantor to cover unpaid rent even though the tenant's business could not operate due to governmental orders.
Once the court found that the rent was not abated by the pandemic, the key issue in the case became whether or not the pandemic should be taken into account when determining whether or not the landlord mitigated its damages. The trial court had taken judicial notice of the pandemic and granted summary judgment, finding that "no reasonable jury could find that [the landlord] had failed to mitigate its damages because it could not have been expected to find a new tenant "in the middle of COVID when there's no vaccines."
The Appellate Division disagreed and opined that the trial court should not have taken judicial notice of the pandemic with regard to the mitigation of damages. The court found that the impact of the pandemic on the economy and on businesses was not a fact that was generally known or capable of accurate and ready determination. The court noted that the impact of the pandemic could vary depending on a variety of factors, including the type of business and the location of the business. As such, the court held that the trial court erred in taking judicial notice of the pandemic with regard to the mitigation of damages as opposed to letting the case proceed through discovery and trial to establish a record of the landlord's efforts to mitigate its damages.
In summary, this case highlights the importance of carefully reviewing lease agreements and understanding the parties' contractual obligations. It also underscores the need to seek legal advice when facing disputes over commercial leases, particularly in the context of the ongoing pandemic, as the impact of the pandemic will not be taken into account automatically in disputes over rent and other charges. Washington-Hudson Associates II LLC v. Town Sports International Holdings, Inc. (A-1357-21)
On March 7, 2023, the New Jersey Appellate Division issued an unpublished opinion in Ward & O'Donnell, LLC v. Nancy Ward, A-2702-21, concerning an action for ejectment from an alleged possessory life estate.
The case arose out of a dispute between Ward & O'Donnell, LLC, the owner of certain real property in Westfield, New Jersey, and Nancy Ward ("Nancy"), the sister of James Ward ("James"), a principal of Ward & O'Donnell, LLC. Nancy had been granted certain rights in the property in 1999 by James and their other sister, Josephine. Under the terms of the document signed by the siblings, Nancy had the right to possess and use the property for "as long as she wishes" without paying rent.
In 2018, Ward & D'Donnell, LLC demanded that Nancy begin paying rent for the unit, alleging that the building's expenses had increased to such a great extent that such payments were necessary. Nancy did not do so, and the owner then brought an action for ejectment against Nancy. The trial court denied the ejectment and found in favor of Nancy, but required her to pay her proportionate share of the property taxes and other expenses from 2018 forward. The Appellate Division affirmed the trial court's decision, finding that even without a deed, will, lease or other written contract, a life estate could (and was) created by the document signed by the parties was, in fact, sufficient to create a life estate. (Ward & O'Donnell, LLC v. Nancy Ward, A-2702-21)
The Federal Trade Commission (FTC) recently proposed a new rule that would ban the use of noncompete clauses in employment contracts. This proposal has the potential to have a significant impact on the way businesses operate and protect their confidential information and trade secrets. Although this rule is not yet in effect and in the comment stage, if the proposed rule is adopted there will be implications for both companies and employees.
What are Noncompete Clauses?
Noncompete clauses are agreements between an employer and employee that prohibit the employee from working for a competitor for a specified period of time after leaving the company. These clauses are often used by companies to protect their confidential information, trade secrets, and other valuable assets. They are common in industries such as tech, finance, and consulting, where employees have access to valuable company information and relationships.
Why is the FTC Proposing a Ban on Noncompete Clauses?
The FTC is proposing a ban on noncompete clauses due to concerns that they restrict competition and limit employee mobility. The Commission believes that noncompete clauses stifle innovation and limit consumer choice, as they prevent employees from using their skills and knowledge to benefit other companies and create new products and services. Additionally, noncompete clauses can limit the ability of employees to negotiate better wages and benefits, as they are often afraid to leave their current employer for fear of violating the noncompete clause.
What are the Implications of the Proposed Rule?
If the proposed rule is adopted, it would have a significant impact on businesses that currently use noncompete clauses in their employment contracts. Companies would need to revise their contracts and find alternative ways to protect their confidential information and trade secrets. They may need to rely on other forms of protection, such as confidentiality agreements, and existing law related to trade secrets.
Employees would also be impacted by the proposed rule. They would have more freedom to move between companies and use their skills and knowledge to benefit other businesses. This could lead to increased competition, which could benefit consumers by leading to lower prices and increased innovation.
The FTC's proposed ban on noncompete clauses is a significant development in the world of employment law. If the rule is adopted, it could have a significant impact on the way companies protect their confidential information and trade secrets, and the way employees use their skills and knowledge. Businesses and employees should stay informed about the proposed rule and its potential implications, and seek the guidance of a qualified attorney if they have questions.
The recent New Jersey Appellate Court decision in the case of JPC Merger Sub LLC vs. Tricon Enterprises, Inc. (A-2893-21), has shed light on the enforceability of "pay if paid" provisions in the state. In this case, Tricon sought to enforce a "pay if paid" provision contained in a subcontract with JPC. This provision stated that Tricon's obligations to pay JPC would only be enforceable if Tricon had received payment from the owner of the project.
The court determined that the "pay if paid" provision was enforceable and that Tricon was obligated to make payments to JPC if and only if Tricon received payment from the third party. The court found that the provision was clear and unambiguous and did not contravene any public policy. The court stated, "we believe that a prohibition against the use of pay-if-paid provisions as conditions precedent in construction contracts should come from the legislature rather than the courts. Thus, we hold that as long as the contract specifies a clear and unambiguous intent and agreement by the parties to shift the risk of nonpayment, a pay-if-paid provision is enforceable subject to the parties' implied duty to not frustrate conditions precedent to their performance." This decision reinforces the principle that clear and unambiguous language in contracts is key and will be given weight by the courts in New Jersey.
In conclusion, after the JPC v. Tricon case, it appears that "pay if paid" provisions in New Jersey are enforceable, as long as they are clear and unambiguous. This decision serves as a reminder to parties entering into contracts in New Jersey to ensure that their agreements are clear and unambiguous, to avoid any disputes over enforceability in the future.
From an unpublished Appellate Division opinion, we have another example of a pro se litigant's inexperience with the legal process costing him possession of his premises and possibly $30,000. (*Pro se means those who forgo attorney representation and chose to represent themselves in court.)
This landlord, appearing pro se, brought an eviction action against a commercial tenant. At trial the landlord appears to have not properly entered the written lease into evidence and appears to have failed in fleshing out the terms of the lease. As such, the tenant admitted evidence of what appeared to be certain repair receipts undertaken and which the tenant claimed were expenditures which must reduce the rental payment obligations. (Known as a Marini hearing in NJ). The landlord lost his case at trial and the tenant remained in the property.
On appeal, the landlord asserted - for the first time - the fact that the terms of the lease required the tenant to make those repairs and therefore those receipts for repairs should not have reduced the rental payment obligation. The Appellate Division declined to review new or novel arguments on appeal which were not raised at trial. This means the landlord lost again.
The good news is that the landlord still has the option to file a legal action in the law division seeking those monies be paid to him based upon the terms on the lease (which is a contract), and contract suits must be filed within six years of the date whereon the breach occurred. It will be an uphill battle for this landlord but the lesson here is spending a little bit for attorneys fees (which should be recoupable per terms in any lease!) could have led to a positive result including eviction of a non-paying tenant, installation of a good paying tenant, and recovery of almost $30,000.
Jongho Jung v. Freds Bagels LLC, BER-LT-542-21; A-1494-21 (1/17/23)
In 1995 New Jersey enacted the Affidavit of Merit ("AOM") statute as past of tort reform. That meant plaintiffs who file a professional negligence or malpractice suit against certain professionals must submit a signed AOM within 60 days of the filing of an answer, otherwise the suit can be dismissed.
In a recent case, Gilligan v. Junod, the plaintiff sued, but not limited to, Ms. Junod who is a licensed practical nurse. The action sounded in health care negligence and malpractice. The plaintiff did not submit an AOM. Ms. Junod argued that as a licensed professional the plaintiff was required to submit an AOM, and because plaintiff did not timely submit one, the suit must be dismissed as to her.
The Appellate Division held that the AOM statute was clear that - as to the nursing profession - only a registered nurse was a covered professional. Therefore no AOM was needed to sustain a suit against a licensed practical nurse.
Guy Gilligan, et al. v. Susan Junod, L.P.N., et al., A-1907-21 (11/9/22)
Good news for new / upstart businesses embroiled in litigation seeking lost profits as part of their damages. New Jersey has joined the ranks of the majority of states recognizing that there should not exist a "per se ban on claims by new businesses for lost profits damages . . .."
It has been the standard in New Jersey to bar claims for lost profits where same were remote, uncertain, or speculative. However, the Supreme Court has recently held that whenever a new or upstart business pursues a claim for damages of lost profits, such claims require a "fact-sensitive analysis of the evidence [to] decide whether plaintiffs can prove lost profits damages with reasonable certainty." In applying its new rule the Court explained: "if the trial court determines that plaintiffs' lost profits evidence is sufficient to establish their claim for damages with reasonable certainty despite plaintiffs' inexperience in developing [its new business], it should deny defendants' motions to bar the evidence and for summary judgment. If the court does not view plaintiffs' proofs to meet that test, it should grant defendants' motions and dismiss the complaints."
(Larry Schwartz v. Nicolas Menas, Esq. A-54/55-20)
The ABC Test for Independent Contractors
A common practice in the construction industry is to hire independent contractors ("ICs") in lieu of hiring employees. The benefit of having ICs over employees is that an employer would realize savings on its workers compensation contributions. This practice can be legitimate if the ICs meet this state's ABC test.
In a recent Supreme Court opinion, an employer ultimately failed the ABC test for sixteen additional employees. This saga began subsequent to an audit of its business by the government. This employer was found to have more employees (sixteen more) than it was reporting. The business appealed and an Administrative Law Judge found it only had three additional, unreported employees. Upon review of the ALJ's decision, the Commissioner of the Department determined indeed there was sixteen additional, unreported employees. The Appellate Division got involved and determined there were only five additional, unreported employees. The Commissioner appealed that decision wherein the Supreme Court agreed that there were sixteen additional employees.
The ABC test has three prongs and all three prongs must be satisfied in order for a finding that the person is an independent contractor ("IC"). The test begins with the presumption that the IC is an employee, meaning the employer has the burden proof. 'Prong A' must show that the IC is not controlled or directed by the employer nor that the employer has reserved the right to assert control or direction over the person. 'Prong B' must show that the services performed by the IC are "outside the employer's usual course of business or that the service is performed outside of all of the employer's places of business." 'Prong C' must show that the IC will survive after the services rendered are completed or stated another way the IC will not "join the ranks of the unemployed" following completion of services.
(East Bay Drywall LLC v. Dept. of Labor and Workforce Dev., A-7-21)
Differing subsurface or physical conditions ("DSC") clauses are often contained in construction contracts to protect a contractor from unknown subsurface conditions encountered during construction. These clauses permit additional recovery by the contractor when such conditions are encountered after the start o f work. Conversely, exculpatory clauses are often found in construction contracts as well which protect owners from claims for additional compensation from contractors where the contractors bid the project without completing a sufficient due diligence investigation. In a recent unpublished opinion issued by the Appellate Division, the exculpatory clause stated that the contractor, "will not use any of the information made available to him ... as a basis or ground of claim or demand of any nature." In addition, the contract language made clear that the owner did not, "warrant or guarantee that ... conditions ... encountered during construction will be the same as those indicated," and that, "[e]ach bidder must inform himself fully of the conditions relating to the construction ... and in particular as to subsurface and groundwater conditions."
The contractor argued that the DSC clause governed and trumped the exculpatory clause. However, the court disagreed and held that both DSC and exculpatory clauses can validly co-exist in the same contract. Therefore, there was a question of fact as to whether the contractor could receive additional compensation for the subsurface obstructions that contract encountered after beginning the work. At trial, the jury found there to be no cause for recovery by the contractor, enforcing the exculpatory language of the contract. The contractor moved for a judgment notwithstanding the verdict, but this was denied by the trial judge and upheld on appeal. (Scafar Contracting, Inc. v. City of Newark)
In an unpublished decision released last week, the Appellate Division overturned a trial court's judgment finding that there was no basis to enforce a ten-mile non-compete clause in an independent contractor agreement entered into between two medical professionals. The trial court ruled that the non-compete was unenforceable on the bases that the agreement was unsigned and also that a third location was added after the agreement was entered which the parties failed to address in writing as to whether or not it modified the non-compete clause. While the trial court believed that the record before it was sufficient to find that there was no enforceable non-compete, the Appellate Division disagreed and held, at least at that early juncture in the case, the making of a final ruling was premature. Specifically, the court should have permitted the parties to first develop a record in order to consider evidence regarding the Defendants' assertions that the parties entered into a separate oral agreement when the third location was opened, and that the parties agreed to include the new location within the restrictive covenant radius by way of text message conversations. Accordingly, the Appellate Division vacated the judgment and returned the matter to the trial court for further proceedings. Avhad, M.D., et. al. v. Elkholy, M.D., et. al.
Peter J. Vazquez, Jr.