Articles Posted by Insights

Legal Advice On: Diversity, Discrimination and Immigration

Published on: May 4, 2017 | by Lindabury, McCormick, Estabrook & Cooper, P.C.

Lindabury’s Labor and Employment Law partner, John H. Schmidt, was interviewed by New Jersey Business Magazine‘s Editor-in-Chief Anthony Birritteri for the article published in the May 2017 issue. Their discussion focused on the fine lines of major issues employers face regarding diversity and discrimination in the workplace and in the hiring process.

New Jersey’s Law Against Discrimination (NJLAD) is among the strongest anti-discrimination laws in the country and according to John Schmidt, “The New Jersey LAD is much broader than the provisions of Title VII because the latter deals with race and sexual discrimination. On the federal level, there is a separate statute for disability discrimination, as an example. In fact, since the mid-to-late 1980’s, most plaintiff attorneys have decided it is to their advantage to bring claims under the NJLAD”

Most companies claim they are equal opportunity employers and have been recognized by the top diversity lists. John Schmidt cautions; “If you select a particular class of individuals [a certain minority group] to hire – giving preference to them- you could be in violation of the NJLAD and federal laws.”

Appellate Division is Favorable, but Stops Short of Permitting Condominium Association’s Appointment of Rent Receiver During Foreclosure Proceedings

Published on: April 20, 2017 | by Blake C. Width

The April 13, 2017, decision of the appellate division in Mill Pointe Condominium Association v. Rizvi, sought to address a condominium association’s efforts to obtain rental income, during the pendency of a foreclosure lawsuit involving an empty condominium unit. By way of background, the association had obtained a judgment against the unit owner who had failed to pay both his residential loan mortgage payments and common expense assessments, and then filed a motion before the Law Division seeking the appointment of a rent receiver, during the pendency of the mortgage lender’s foreclosure lawsuit. The association’s proposed remedy would apply the rent payments to the outstanding judgment in its favor leading up to the foreclosure. The Law Division judge denied the association’s motion, which was opposed by the mortgage lender on the basis that the commencement of a leasehold with a third-party tenant would interfere with the completion of the foreclosure suit, and that it would force the lender to become a landlord. Unfortunately, the Appellate Division was unable to rule on this issue, which became moot because the foreclosure judgment was granted before the court could address the issues. It’s important to note, however, that the court found that the association had “raised interesting and novel legal issues that could have widespread importance.” The court went so far as to recommend that future appellants file a motion to accelerate the appeal, advising the court of the time factors involved.

While the guidance from the Appellate Division in Mill Pointe Condominium Association is certainly no guaranty that another appellate panel will favorably view an association’s request for the appointment of a rent receiver in order to obtain rental income from an otherwise vacant condominium unit, it certainly presents an indication that the court is interested in investigating the possibility of a remedy for similarly situated associations facing lengthy foreclosures.

There are positive and negative considerations involved in the appointment of a rent receiver, even without the potential for contested litigation with a mortgage lender, as was the case in Mill Pointe. Generally speaking, the appointment of a rent receiver by a condominium association is more typical in the context of a foreclosure action commenced on the association’s behalf. On the positive side, rent receivers are able to collect income and apply it to monthly assessments, fees, and arrears owed on a condominium unit as set forth in the order of appointment, and they have a responsibility to avoid waste and disrepair. On the negative side, rent receivers are court-appointed professionals who are answerable only to the court, and do not take direction from the association, once appointed. Furthermore, a rent receiver is only permitted to remain in place for a limited amount of time, from the date of appointment, to the conclusion of the foreclosure case. In order to gain the most benefit, smart associations will consider moving for the appointment of a rent receiver in conjunction with initiating foreclosure proceedings.

Condominium Owner Spill Act Suit Dramatically Increases Potential for Litigation Over Environmental Investigation Costs

Published on: April 20, 2017 | by Blake C. Width

The New Jersey Appellate Division’s decision in Matejek v. Watson, issued on March 3, 2017, compelled the owners of condominium units to share in the cost of environmental investigation under the New Jersey Spill Compensation and Control Act (the Spill Act), without proving liability. This remedy, not previously available to private parties, will likely give rise to an increase in Spill Act litigation due to this advantage over the Comprehensive Environmental Response, Cleanup and Liability Act (CERCLA), which is the federal counterpoint to the Spill Act.

The environmental contamination in Matejek v. Watson dates from 2006, when oil was discovered on the surface of a tributary to Royce Brook in Hillsborough. In response, New Jersey Department of Environmental Protection (NJDEP) removed underground storage tanks from each of five adjoining condominium units that were near the location of the tributary. Other than visiting the site a few months after the removal of the underground tanks in order to confirm the absence of oil in the tributary, the NJDEP took no further action and its file remained open, leaving, as the trial judge later found, a cloud on the title to all five units, given that the presence of the oil would have to be disclosed if any of the properties were to be sold.

Seven years after the removal of the tanks, the owners of one of the impacted condominium units sued the owners of the other four units under the Spill Act, in order to require the owners of the impacted units to participate in and equally share in an investigation, and if necessary, remediation of the property. The Association was joined to the lawsuit in order to compel access to any portions of the common elements required for investigation, testing or remediation.

What Happens to a Business Partner’s Interests in a Company After Death?

Published on: April 19, 2017 | by David R. Pierce

Have you ever heard a story among your friends about a company where two partners got along great, but then one suffered an untimely death and then his widow or children caused the company to breakup? That is a common scenario, although one might not be able to place the blame on the surviving spouse or the children. This is one of the ultimate worst case scenarios that proper planning can help avoid.

As shareholders in a small company each shareholder may have a reasonable expectation of continuing employment and participation in management of the company. When one shareholder dies, unless an agreement among the shareholders is in place providing a right for the company or remaining shareholder to purchase the deceased shareholder’s stock, that stock will be transferred to that deceased shareholder’s heirs, whether by will or by intestacy. As a result, most often the deceased shareholder’s stock ends up in the hands of a surviving spouse or children. In some cases the heir of the deceased shareholder will be able to step into his or her shoes and be able to participate meaningfully in the operation of the business. There may be personality conflicts and other difficulties in operating the business with a new partner, but hopefully, those can be worked out.

More often, however, the deceased shareholder’s stock is inherited by someone who does not have any clue about the business and cannot be expected to participate in or contribute to the operation of the business in any realistic sense. Sometimes this leads the remaining original shareholder to think that he will not pay them a salary since they are not working in the business and he can retain the earnings to reinvest in the business since he is not required to pay dividends. This is a recipe for disaster and some really unfortunate consequences.

Cybersecurity Insurance Considerations For Small And Medium-Sized Businesses

Published on: April 13, 2017 | by Lindabury, McCormick, Estabrook & Cooper, P.C.

Cybersecurity experts have observed that hackers and cybercriminals are increasingly targeting small and medium-sized businesses and that these efforts account for 60% of all cyberattacks. One expert described these companies as the “soft underbelly” of cybersecurity. Companies of all sizes face potentially significant costs in responding to a data breach and losses including business disruption, lost revenue and loss of reputation. The average time to resolve a cyberattack has been estimated at 46 days and costs can increase if the damage is not resolved quickly.

Such expenses could be catastrophic for small or medium-sized businesses so it is important for such companies to understand the insurance implications and select the appropriate coverage to protect against losses from a cyberattack.

TRADITIONAL INSURANCE

New Jersey Courts Are Limited Only By Imagination When Resolving Business Disputes Between Partners

Published on: April 13, 2017 | by David R. Pierce

When dealing with shareholder oppression claims the court has a broad arsenal of remedies at its disposal. In fact, the remedies available to the court are limited only by its own imagination and the court’s sense of fairness.

The statute applicable to oppressed minority shareholders does provide some remedies along with its rights. N.J.S.A. 14A:12-7 (1)(c)(8) states that “Upon the motion of the corporation or any shareholder who is a party to the proceeding, the court may order the sale of . . . the corporation’s stock held by any other shareholder who is a party to the proceeding to either the corporation or the moving shareholder . . . if the court determines in its discretion that such an order would be fair and equitable to all parties under all of the circumstances of the case.”

The statute also gives the court the power, under the appropriate circumstances, to order the dissolution of the company. Although this is a favored threat of a party claiming oppression, it is quite unlikely to be ordered by the court. The court is extremely reluctant to dissolve an operating business and will go the great lengths to preserve a business, including to the extent of ordering a sale of the business to a third party. At least one court has ruled that the statute contemplates the ongoing existence of the corporation or the existence of a successor operating the business as a requirement of any remedy that might be imposed. Thus, dissolution is likely to be the remedy only if the parties agree that it should be the ultimate remedy in the case.

Minority Shareholder Oppression: The Court’s View of “Unfair” Action

Published on: April 6, 2017 | by David R. Pierce

Statutory remedies are made available to shareholders in a small, closely held corporation should harmful actions be undertaken by other shareholder or directors of the corporation. Importantly, these statutory remedies are available only to owners of a corporation with 25 or fewer shareholders.

Pursuant to N.J.S.A. 14A:12-7(1)(c), a shareholder in a closely held corporation may seek judicial remedies if the directors or other persons in control of a corporation have:

Acted fraudulently;

Cybersecurity and the Importance of Attorney-Client Privilege

Published on: March 30, 2017 | by Robert W. Anderson

Businesses have a major need to assess their own cybersecurity risks, and to openly exchange internal information within the company to effectively address and mitigate an actual breach situation. Yet a company’s internal assessments of its own weaknesses and the holes in its cybersecurity protections can, ironically, actually expose the company to even greater danger in future security breach litigation. A company’s good faith internal report of its cybersecurity weaknesses can potentially serve as almost an admission that it has found its cybersecurity protections for personal and confidential data to be inadequate.

Similarly it is of extreme importance that in the midst of dealing with a cyber breach event, that the company’s personnel freely exchange information related to the breach crisis situation quickly and without undue worries about how the disclosure of that information might look in a future litigation discovery proceeding.

The involvement of the company’s legal counsel in all important aspects of a cybersecurity risk assessment and breach response is crucial because of the protections that involvement can potentially provide the company under the doctrines of (i) attorney-client privilege, and (ii) work product protection.

Regardless of Amount of Corporate Stock Owned, You May Still Be A “Minority Shareholder”

Published on: March 30, 2017 | by David R. Pierce

New Jersey statutes provide important rights and protections to “minority” shareholders of small, closely held companies. The applicable statute provides a right to file a lawsuit for relief under the following circumstances:

In the case of a corporation having 25 or less shareholders, the directors or those in control have acted fraudulently or illegally, mismanaged the corporation, or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers, or employees. N.J.S.A. 14A:12-7(1)(c) (emphasis added).

This is not the only justification for filing a lawsuit against fellow shareholders, but it is one that the legislature has seen fit to create.

Federal Data Privacy and Cybersecurity Laws

Published on: March 29, 2017 | by Robert W. Anderson

The United States does not currently have a single comprehensive federal law regulating data privacy and cybersecurity matters. Instead, there is a patchwork of laws which at times overlap, and in other cases may even potentially contradict one another. This patchwork, together with the growth in interstate and international data flow, heightens the risk of privacy violations and can create significant compliance challenges. Failure to meet these challenges, however, can result in government imposed civil and criminal sanctions (including fines and penalties), private lawsuits and class actions, as well as damage to a company’s reputation and customer trust.

The following is a brief summary of some of the most significant Federal legislation impacting data privacy and cybersecurity matters.

Federal Trade Commission Act (the “FTC Act”)