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 In the recent unpublished case of Washington-Hudson Associates II LLC v. Town Sports International Holdings, Inc. (A-1357-21), the New Jersey Appellate Division addressed a dispute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)
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.
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)
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.
In a reported opinion from the Appellate Division, the Court overturned a trial court verdict in the amount of $457,870.86 (inclusive of counsel fees), finding that there was no violation of the Uniform Fraudulent Transfer Act (“UFTA”). The suit was brought by a landlord who had been leasing 16,000 square feet of a strip mall to a Amma Corp. for the operation of a supermarket. Prior to the end of the lease, the owners of Amma Corp., Mr. and Mrs. Perez, created a new company named NRVP LLC and opened another supermarket under that company’s name in a different location less than a half-mile away. The Perezes operated both supermarkets simultaneously for approximately nine months, but proceeded to have Amma break its lease with its landlord about nineteen months early. After breaking the lease, the Perezes shut down Amma Corp.
Unable to find a replacement tenant for Amma Corp., the landlord sued NRVP LLC for the balance due under the remainder of Amma’s lease on a successor liability theory. The trial court testimony indicated that other than a trademark, no assets of Amma were transferred to NRVP. However, given the common ownership, the close proximity in location, and the transfer of Amma’s trademark of the term “Super Supermarket” to the new company, the trial court found that NRVP was liable for the debts of Amma as a “continuation of the selling corporation,” and entered judgment in favor of the landlord.
However, the Appellate Division disagreed and reversed the trail court’s decision, finding that transfer of all, or substantially all, of the assets of the prior company is a prerequisite to the imposition of liability upon another company. Here, while there was the transfer of a trademark, the expert testimony was that is value was only $740 and there were no other assets transferred. Accordingly, there could be no successor liability. 160 West Broadway Associates LP v. 1 Memorial Drive LLC, et. al
The Appellate Division, in an unpublished opinion, reviewed a challenge by a company seeking to enjoin an ex-contractor from soliciting business from a specific third-party client. The contractor ceased working with the company in 2016 and was precluded by contract from soliciting business from former clients. In 2017, the parties were ensconced in a legal suit seeking to prevent competition. At that time the parties came to an enforceable agreement regarding the ex-contractor's ability to solicit former clients and created a list of untouchable clients. To note, there was no language concerning any clients "successors and/or assigns."
Between 2016 and 2018 one third-party client merged with another unrelated entity. This entity reorganized its internal governance, the IRS issued it a new tax identification number, though the business office address remained the same, and, important to the facts of this case, new account numbers were issued to this new entity for its electric service. In addition, this merged entity was not named as a former client in the settlement agreement.
The trial court held that the parties' prior settlement agreement did not include this new entity and that the ex-contractor could contact and solicit business from it. The Appellate Division agreed and upheld the trial court's decision relying on the facts that the merged entity reorganized its internal governance, was issued a new tax id from the IRS, was assigned new account numbers for electric service, and the parties' settlement agreement did not specifically include former clients and their "successors and/or assigns." A court must not rewrite an agreement to create more favorable terms for one party. Capital Energy Inc. v. MT
In a recent unpublished case from the Appellate Division, the court upheld a trial judge's piercing of the corporate veil, and held the individual defendants personally liable to repay monies loaned to their company. Despite the funds having been paid to a corporation, the court noted that there were no stock certificates, no financial reports, no tax documents filed with the state or the IRS, and cash withdrawals that were allegedly for business purchases but for which the defendants produced no documentation. The trial judge stated that the defendants used the plaintiffs' money for whatever expenses they had without any accounting whatsoever and ruled that the corporation was just a "mere facade" for the defendants' "personal gain". The Appellate Division agreed, and held the individual defendants liable to repay the Plaintiffs. This case enforces the importance of following the proper corporate formalities when operating any business entity in order to preserve the shield against personal liability. (Longmuir v. Kickin' It, Inc., et. al.)
NJ Supreme Court Rejects Appellate Division's Attempt at Expanding a Commercial Landlord's Non-delegable Duty
In a recently decided case, the NJ Supreme Court rejected the Appellate Division's attempt at expanding a commercial landlord's non-delegable duty (a duty that cannot be assigned). Over the course of decades, our courts have created certain duties for commercial landlord's which cannot be assigned to a tenant. One such duty is that of maintaining a safe sidewalk for the general public to use. However no court has ever found that same duty exists for any private area of the leased property.
In the case at bar, the plaintiff slipped and fell on a portion of icy driveway which was separated by a fence from the sidewalk. The tenant had been assigned all the duties to maintain the property and was even declared the "de facto owner" per the lease terms. Further, the tenant testified that he was solely responsible for clearing snow and ice from the property. Regardless of the weight of evidence, the Appellate Division still found the commercial landlord had liability in not verifying that the driveway was free of the transient condition of snow and ice prior to plaintiff's fall.
However, the Supreme Court disagreed and prevented such holding from overturning years of precedent. In doing so, the Court held (1) a driveway is private property, open to invitees, and not akin to a sidewalk which is used by the general public, (2) this particular lease assigned complete control of the property to the tenant even where the landlord reserved a right to enter to make repairs or in the case of emergency, and (3) even under alternative analysis of Hopkins v. Fox & Lazo Realtors the landlord here did not have a duty to protect the plaintiff (especially since plaintiff did recover for his injuries from the tenant).
In sum, a commercial landlord has certain duties which it cannot delegate to its tenant. Maintaining a private portion of the leased premises is not one of those items - yet. (Shields v. Ramslee Motors)
In a recent unpublished decision from the Appellate Division, the court found that a real estate broker had waived the right to receive quarterly commission payments in advance since the realtor failed to enforce that contractual provision for 11 years. The commission agreement at issue was for the lease of a commercial property and stated that the realtor would be paid a 6% commission on the rent, "in four equal installments per year, in advance..." While such payments were originally made in advance on a quarterly basis, at some point the owner switched to making monthly payments instead. In ruling for the owner the trial court found that the realtor accepted, "monthly payments continuously for eleven years, thereby constituting a waiver of the quarterly payment schedule set forth in the agreement." Such finding was upheld by the Appellate Division. This case underscores the importance that parties to a contract not sit on their rights and enforce contractual provisions in a timely manner when they are not being followed. (Barry H. Gertsman & Company v. 5218 Atlantic Avenue Associates LLC, et. al.)
Attorney Jeffrey Heldman recently obtained a $300,000 judgment for a client following a four-day trial in Bergen County Superior Court. In a case that rested upon the credibility of the witnesses (including competing handwriting experts), Mr. Heldman successfully proved to the court that the disputed debt was due. Key to this result was Mr. Heldman’s cross-examination of both the defendant, and the defendant’s handwriting expert witness, which led to the court giving less weight to the testimony of the defendant and his expert. In a case where the believability of the witnesses was the critical factor, such a finding was essential to the success of the firm’s client. The case was tried in the before Judge Mary E. Thurber. Please be advised that every case is different and has a unique set of facts. Therefore, past results are not necessarily indicative of the outcome in any other matters.
Peter J. Vazquez, Jr.