In a recent unpublished case from the Appellate Division, the court upheld a trial judge's piercing of the corporate veil, and held the individual defendants personally liable to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.
In a recent unpublished decision of the Appellate Division, a construction management company was seeking to recover 50% of the profits from the construction of two new buildings in Montclair. The Plaintiff claimed that he had brought the Defendant into the project because the Plaintiff did not have the bonding capacity or experience needed in order to be awarded the project, and also participated in some of the pre-construction services. While there appears to have been some verbal discussions regarding a possible joint venture, nothing was ever put in writing and the Plaintiff did not actually participate in the construction of the buildings.
In finding that there was no joint venture created, the court found that the Plaintiff was, "unable to contribute money, property, effort, knowledge, skill or other asset to the common undertaking. Plaintiff's contribution to the joint venture seems to have been simply connecting [the owner and the Defendant] to perform the necessary work." The panel affirmed the trial court and found that the Plaintiff did not make any substantial contribution to the venture, and lacked the relevant construction experience and bonding capacity for the project. Finally, the court cited Supreme Court authority for the proposition that there cannot be joint venture unless there is an agreement to share not just profits, but also losses, and that was not present here. Consequently, the mere referral of a customer was found to be an insufficient basis to form a joint venture. (The Holder Group, Inc. v. Pike Construction Co., LLC, et. al.)
A recent non-precedential Appellate Division case serves as a reminder that not all arbitration provisions are drafted equally. At issue in a residential construction suit was the defendant-contractor's arbitration provision which required an aggrieved homeowner to file a claim with the American Arbitration Association in lieu of filing an action in court. However, the provision at issue did not contain specific language which would have informed a reasonable homeowner that by going to arbitration they would be "waiving a right to seek relief in a court of law." (see Atalese v. U.S. Legal Servs. Grp., 219 N.J. 430 (2014)). This proved fatal to the defendant-contractor's invocation of arbitration, and the defendant-contractor's motion to compel arbitration was reversed and the matter remanded to the trial court for (expensive) litigation. This serves as a reminder for all businesses and individuals with arbitration clauses in their contracts to have same reviewed by an attorney knowledgeable on the subject matter. (Becker v. Ollie Slocum and Son, Inc.)
The Appellate Division recently ruled on Restrictive Covenant Agreements ("RCAs"). These agreements are also known as non-competes or non-solicitation agreements. The first step in any of these types of cases is for the business to prove that it has a legitimate business interest in having a restrictive covenant with its employee or ex-employee. In ADP v. Kusins, et. al., the business cleared the first hurdle. In the business' RCA, it prevented ex-employees, "from soliciting any actual or prospective … client, regardless of the employee's geographical location or personal contact with the client, for a twelve-month period after termination." The Court here found these restrictions were too broad. However, the court did not void the entire RCZ, but instead curtailed the terms of the restrictions.
First, the court allowed ex-employees to be prohibited from soliciting any "actual clients" whom they had prior contact with while at the former business. Second, the court only permitted restricting solicitation of prospective clients, "if the employee gained knowledge of the potential client while at ADP and directly or indirectly, solicits that client after leaving." Third, with regard to the non-competition portion of the RCA, the Court found a business could, "restrict its former employees, for a reasonable time, from providing services to a competing business in the same geographical territory in which the employee operated while at ADP." The Court did not define what a "reasonable time" meant but in the particular RCA before the court, the length of the restriction was 12 months. (ADP v. Kusins, et. al.)
In an unpublished case, the Appellate Division overruled a trial court's finding that customer lists used by a former employee to compete with his former employer were not considered protected trade secrets. The trial court held that the information was not protected since the names, addresses and phone numbers of the people on the list were "well known in the industry" and therefore it was immaterial that the defendant obtained the information from his former employer's database. However, the Appellate Division opined that a more detailed analysis is required pursuant to Lamorte Burns & Co. v. Walters, listing the factors to be considered as follows: (1) the extent to which the information is known outside of the business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the owner to guard the secrecy of the information; (4) the value of the information to the business and to its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Given these factors and the specific facts of the case at issue, the appellate court ruled that there were issues of fact as to whether or not the customer lists were protected trade secrets and consequently remanded the case for trial. (Steris Corporation v. Shannon)
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.)
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.)
Peter J. Vazquez, Jr.