Business entities, including properly-formed foundations, are separate legal entities that are distinct from the individuals associated with those entities. Consequently, there is a "corporate veil" that cannot be breached to impose liability on such an entity unless the elements required to pierce the corporate veil are proven. In the recent unpublished Appellate Division decision, the court confirmed this premise and found that the John "Jack" Phillips Family Foundation LTD. was not responsible to pay a judgment entered against John Phillips Jr. individually. In doing so, the court stated, "Like any other person or entity, the Foundation was entitled to due process, which would include the right to have the civil claim against it set forth in a complaint, the right to be personally served with that complaint, the right to file a responsive pleading, the right to discovery, and all the other rights delineated in our court rules prior to the entry of a judgment against it. See Nelson v. Adams, 529 U.S. 460, 465-66 (2000). The proceedings in the trial court short-circuited all these rights. Indeed, it seems as though the mechanism employed in the trial court required that the Foundation disprove its liability rather than requiring plaintiff to prove its entitlement to relief." Consequently, absent a separate lawsuit and requisite proofs, the only person or entity responsible for the judgment would be the individual defendant who was named in the lawsuit. (Comegno Law Group, PC v. John Phillips, Jr.)
The New Jersey Prompt Payment Act ("PPA"), N.J.S.A. 2A:30A-1, et. seq., includes numerous provisions that protect contractors including, the ability to collect interest of prime plus 1% on overdue balances and the ability to suspend performance after seven-day written notice of non-payment. In ERCO Interior Systems, Inc. v. National Commercial Builders, Inc., a New Jersey contractor sued a Kansas company for work that the contractor performed in New Jersey. When the NJ contractor brought suit for non-payment, the Kansas company moved to dismiss the case on the basis that the contract has a forum selection clause mandating that any enforcement actions be brought in Kansas. However, the Appellate Division held that due to the fact that the case involved the PPA, the forum selection clause was invalid. Noting that forum selection clauses will not be enforced where such enforcement would violate the public policy of New Jersey, the Court found that there was a strong public policy behind the PPA and that the PPA claim, along with the other associated claims of breach of contract, etc. must all be litigated in New Jersey. ERCO Interior Systems, Inc. v. National Commercial Builders, Inc.
In an unpublished decision from March 25th, the Appellate Division found a general contractor to be responsible for providing a safe working environment for the employees of its subcontractors based on the specific set of facts in that case. Notably, the court did not examine the terms of the subcontract (which wasn’t signed until after the accident), but relied upon provisions in the general contractor’s agreement with the owner that placed responsibility for safety barriers and OSHA compliance on the general contractor. Consequently, the court found that the general contractor owed a duty of care to a subcontractor’s employee that fell through a hole in the roof where there were no safety barriers or other fall protection. In doing so, the Appellate Division quoted the almost twenty-year-old case of Kane v. Hartz Mtn. Industries, stating, “[t]he public interest supports imposing a duty of care upon [the general contractor] for Plaintiff’s benefit. We have held the ‘public policy of this State … favors the general contractor as the single repository for the safety of all employees of a job.’” (Joel Rivera v. PNL Jersey Properties LLC, et. al.)
In 1994 the Borough of Haledon approved a variance for the operation of a car wash located on a gas station property. The variance contained certain conditions that required certain aspects of the car wash business to be run out of the gas station. Over the years, the car wash was sold separately from the gas station, which ended the common ownership of the two businesses. The car wash was actually sold three different times, with each new owner receiving a certificate of occupancy from the Borough. However, when the latest owner sought a certificate of compliance as part of the process to sell the business to a fourth owner, the Borough denied the application for failure to comply with the conditions of the 1994 variance. The owner argued that the conditions could no longer be complied with due to the lack of common ownership of the car wash and gas station, and that the Borough never sought to enforce the twenty-year-old conditions. However, the Borough disagreed as did the trial court. In a recent unpublished decision, the two-judge panel affirmed the Borough's decision and held that despite the Borough's non-enforcement of the variance conditions for almost twenty years, and despite the fact that multiple prior certificates of occupancy had been issued to car wash owners during that time, the variance conditions were enforceable as such conditions run with the land as part of the variance and there was no action by the Borough amounting to a permanent waiver of enforcement. (Belmont Car Wash LLC v. Planning and Zoning Board of the Borough of Haledon)
The awarding of a $163.5 million contract to design and build a school in Passaic was upheld by the Appellate Division in an unpublished decision earlier this month. The 2nd highest bidder attempted to have the bid rejected for failure to comply with the bid specifications of the New Jersey Schools Development Authority. Specifically, there was a requirement that the technical proposal be submitted in PDF form in addition to the multiple hard copies that were required. While a PDF was submitted by the lowest bidder, the PDF was incomplete and missing an organizational chart and some subcontractor forms. However, the missing items were included with the hard copies that were submitted simultaneously with the bid. Consequently, both the authority itself and the court agreed that such failure was insufficient to overturn the award to the lowest bidder, stating that while the electronic copy didn't fully match the paper submission, it was not a material defect. (Ernest Bock & Sons, Inc. v. New Jersey Schools Development Authority, et. al.)
In New Jersey, the Uniform Fraudulent Transfer Act ("UFTA") is codified at N.J.S.A. 25:2-20 to -33 and provides protection to creditors of companies that sell off their assets without providing adequate security for the company's creditors. In a March 8th unpublished opinion of the Appellate Division, the court agreed with the trial judge that a fraudulent transfer occurred when the proceeds of the sale of a Dunkin' Donuts were distributed to the owners of the company without providing adequate security to satisfy a lease guaranty that the company remained obligated on.
The company that owned the Dunkin' Donuts location was called ARCP, LLC and they sold the location to a new entity in 2010. As part of the sale, the commercial lease was assigned to the buyer but ARCP remained as a guarantor on the lease. Despite the fact that ARCP remained as a guarantor on a lease that had multiple years remaining, ARCP disbursed all of the proceeds from the sale by paying off any debts due at the time and then disbursing the remaining $326,793.19 to the members of ARCP, leaving ARCP insolvent. Eventually, the buyer defaulted on the lease and declared bankruptcy, resulting in the landlord enforcing the lease guaranty of ARCP as there were significant monies owed. The Appellate Division agreed with the trial court that the transaction demonstrated the "badges of fraud" that a court uses to determine whether or not a fraudulent transfer had occurred. Although there was no lease default at the time of the sale of the location, the lease guaranty was a contingent liability that should have been accounted for prior to the disbursements to the members. Accordingly the individual members were found liable for the $291,464.94 judgment obtained by the landlord. (Main Land Sussex Company, LLC v. Priti Shetty, et. al.)
The New Jersey Consumer Fraud Act ("CFA") protects homeowners from (among other things) unconscionable commercial practices of residential contractors, including those who threaten to file criminal charges if they are not paid. A recent Appellate Court decision involved a homeowner who withheld payment to an HVAC contractor who failed to repair an air conditioning system after three service calls. The contractor then proceeded to threaten the homeowner with the filing of criminal charges, and then (when payment wasn't made) actually filed charges for theft of services with the local police department. The charges were eventually dismissed by the municipal court, and the homeowner was ultimately successful on a CFA claim in Superior Court.
On appeal, the Appellate Division upheld the finding of a CFA violation but remanded the case back to the trial court to revisit the award of only $19,800 in attorney fees and costs. In doing so, the court noted the specific conduct of the contractor stating, "[the contractor] admitted that [it] has a history of instituting criminal actions as a means of collecting its unpaid invoices. This outrageous abuse of our criminal justice system is precisely the type of unconscionable commercial practice the CFA was designed to protect consumers from and deter unscrupulous commercial entities from engaging in." Accordingly, the matter was remanded to the trial court to revisit the amount of attorney fees and costs awarded. (Jeffrey S. Jacobs v. Mark Lindsay and Son Plumbing & Heating, Inc., et. al.)
If you lend your car to someone who you know does not have a driver's license, should they be covered by your automobile's insurance PIP policy if they drive your car and get into an accident? The New Jersey Appellate Division has ruled unlicensed drivers should not be covered and are therefore ineligible for recovery of medical benefits under the personal injury protection provisions of the owner's auto insurance policy.
This decision builds upon prior case law and continues to refine who a "permissive user" of an automobile can be. The Appellate Division held that public policy bars an owner from giving "permission" to someone who cannot, and should not, legally be operating a vehicle on the roadways. In this particular case, the owner was the mother of the unlicensed driver and both of them lived at the same residence. Not only was knowledge imputed to the mother, but she admitted that she knew the driver was unlicensed. Although the terms of the insurance policy did not explicitly exclude coverage of unlicensed drivers, the Court examined public policy which forbids unlicensed drivers from operating vehicles on the roadways of this State. If you are not entitled to drive but chose to do so, then you are not entitled to the benefits provided by an automobile's PIP insurance coverage, even if you are operating the vehicle with the owner's permission. (Norma Blanco-Sanchez v. Personal Service Insurance Company)
The approval of a 100+ room hotel in Lakewood was set aside by the Appellate Division for material deficiencies in the contents of the public notice, forcing the developer to re-start the approval process from scratch. The public notice of the application indicated that the plan was, "to construct a hotel as well as a bank," but omitted that the hotel was going to include a restaurant, bar and banquet facilities. The trial judge did not take issue with the contents of the notice, and found them to be "common amenities" for a hotel. However, the Appellate Division disagreed and remarked that, "[a] facility that is expected to be serving alcohol, and thereby inviting patrons who will drive to the location in order to consume intoxicating liquors, presents concerns of traffic and public safety that would reasonably be of concern to surrounding residents and property owners." Consequently, the appellate panel found the notice to be materially deficient and the approval granted by the Township was set aside. (Lakewood Realty Associates v. Lakewood Township Planning Board, et. al.)
A ten-year battle over a subcontractor lien claim was decided by the Appellate Division recently, and provided guidance regarding interpretation of the New Jersey Construction Lien Law ("CLL"). This case centered around a 100-unit residential development where the general contractor filed for bankruptcy, leaving its subcontractors unpaid. The subcontractor at issue in this lawsuit filed a lien claim in hopes of getting paid from the owner directly for its work performed in conjunction with the development. The lien was signed by the subcontractor's "Accounting and Information Systems Manager," and the issue before the court was whether or not this person was the appropriate signatory on the lien.
Prior to 2011, the CLL required that a lien claim be signed by a "duly authorized officer" of the company filing the lien. In 2011 the legislature revised the CLL and instead prescribed that a lien claim be signed by an “officer/member”, and included with the statute a revised lien claim form that indicated signature by, "the Secretary (or other officer/manager/agent) of the Corporation (partnership or limited liability company)”. In this matter, the Appellate Division held that this change in language was a new requirement that should be applied prospectively only, and was not a clarification of prior term of "duly authorized officer". Despite winning on this issue, the subcontractor ultimately failed to establish that its "Accounting and Information Systems Manager" was a duly authorized officer. The Court noted that: the subcontractor's Board of Directors did not identify the signer in any resolution, by-law provision, or other written document as a corporate officer; the subcontractor did not memorialize in writing that it authorized that person to execute lien claims; and on the subcontractor's requests for classification forms (which are needed for classification by the Division of Property and Management), the signatory was not identified as a corporate officer. As a result of having the wrong individual at the company sign the lien claim, the lien was dismissed and the subcontractor was left with no ability to recover the monies owed. (Diamond Beach LLC v. March Associates, Inc., et. al.)