BUSINESS FORMATION & SALES BLOG

Does New Jersey Anti-Discrimination Law Protect People Who Voice Complaints About Behavior They Cannot Prove Is Discriminatory?

If an employee “voices a complaint about behavior or activities in the workplace that he or she thinks are discriminatory,” but it turns out they are not, is the employee still protected under the N.J. Law Against Discrimination? That issue was addressed by the Court in Battaglia v. UPS, 214 N.J. 518 (2013).
In that case, an employee of UPS was demoted after he complained that managers had made derogatory comments about women and certain other activities. However, he was unable to prove that the discrimination actually took place.
The Supreme Court determined that it would not matter if the activity was actually contrary to law, so long as the person complaining about it had a good faith basis to believe it was. As the Court noted “we do not demand…that he or she be able to prove that there was an identifiable discriminatory impact upon someone of the requisite protected class.”
The basis for the Court’s ruling was that the N.J. Law Against Discrimination is a remedial statute. That means that it is meant to address a social ill, in this case, discrimination. Therefore, it will be read expansively so as not to discourage people from making reasonable complaints that might happen to turn out later to be unprovable.

May a Limited Partnership Require New Partners to Sign a Personal Guaranty to Enter a Partnership?

If a limited partnership admits new partners, may those new partners be required to sign a personal guaranty? That question was addressed in the recent case of Hughes v. Mainka, Superior Court of New Jersey, Appellate Division, Docket No. A-2721-11T# (June 14, 2013).
In that case, the dispute was over whether the existed limited partners – who had guaranteed a loan to the partnership – could require the new limited partners to do the same thing.
The Court determined that they could not. However, the holding was very fact-specific. It related to the fact that “neither the Original nor Amended Partnership Agreements required limited partners to personal guarantee a partnership loan.” Id at 17. The Court concluded that this reflected an intent not to make such a requirement a condition for new partners.
The Court held that the new partners were right in resisting the requirement. This case highlights the necessity to carefully review both the intent and plain language of a partnership agreement before entering into a limited partnership.

New York Enacts the Nonprofit Revitalization Act of 2013

The trend in nonprofit law is to provide for more oversight – both financial and managerial – so as to bring nonprofits in line with the best practices of the private sector. The State of New York recently took a step forward in that direction by passing the Nonprofit Revitalization Act of 2013 (“Act”).
The Act provides for a number of changes to tighten the way nonprofits are run. First, it creates a mechanism for nonprofit boards of trustees to police their potential conflicts of interest. A formal structure must be set up to identify and consider whether these conflicts are such that they must be prohibited.
There is a new mechanism to allow for a lawsuit to “unwind”  interested party transactions. Likewise, an employee of the nonprofit will no longer be allowed to serve as its Board Chairman. There are also provisions to allow meetings to take place by email or video link.
Overall, any nonprofit operating in New York should review the provisions of the Act to ensure compliance with it.

Is a Forum Selection Clause in a Franchise Agreement Enforceable?

Most franchise agreements contain forum selection clauses – language that requires, among other things, disputes to be determined in a particular state or county. But are they enforceable?
The Supreme Court of the United States recently determined that not only are they enforceable, but they will be enforced in almost every instance.  Specifically, in Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, No. 12-929, 571 U.S. ____ (2013), [READ CASE HERE] the Supreme Court held,
Normally, a district court considering a §1404(a) motion must evaluate both the private interests of the parties and public-interest considerations. But when the parties’ contract contains a valid forum-selection clause, that clause “represents [their] agreement as to the most proper forum,” Stewart, 487 U. S., at 31, and should be “given controlling weight in all but the most exceptional cases,” id., at 33 (KENNEDY, J., concurring). 
The case made it clear that the preference of the party bringing the suit (the Plaintiff) would no longer be taken into account.  As the Court stated, “the plaintiff’s choice of forum merits no weight, and the plaintiff, as the party defying the forum-selection clause, has the burden of establishing that transfer to the forum for which the parties bargained is unwarranted.” Id. at 3.
Another interesting aspect of the ruling was that the parties’ private interests would be overridden by the forum-selection clause. Only in unusual circumstances would it not control. “[T]he court should not consider the parties’ private interests aside from those embodied in the forum-selection clause; it may consider only public interests. Because public-interest factors will rarely defeat a transfer motion, the practical result is that forum-selection clauses should control except in unusual cases.” Id. at 3.

What is Business Goodwill?

The United States Court of Appeals for the Second Circuit held that a seller of the “good will” of a business is not barred from answering the factual inquiries made by the former client as long as the seller’s responses are within the scope of the information sought by the former client. Bessmer Trust Co v. Branin, 16 N.Y. 3d 549 (2011).
Branin worked as an investment portfolio manager at Brundage, Story & Rose, LLC (Brundage). While working at Brundage, Branin became the favorite of one of Brundage’s clients, the Palmer family. Eventually, Brundage sold its assets, including client accounts and related good will, to Bessemer. For a while, Branin continued to work for Bessemer. Eventually he resigned from Bressemer to join Stein Roe. Before leaving Bessemer, Branin prepared a list of his clients to help Bessemer transition the accounts to other investment advisors at the firm. Branin did not notify his clients about his decision to join Stein Roe. Thus, he did not actively solicit any of his former clients. In spite of this, several of Branin’s clients decided to transfer their accounts to Stein Roe. The Palmers were among them.
Before transferring their accounts to Stein Roe, the Palmers had a separate meeting with each of the firms to discuss how the firms would handle their accounts.  Branin participated in the meeting between Stein Roe and the Palmers, but only as a passive participant. Finally, after meeting with both the firms, the Palmers decided to transfer their accounts to Stein Roe. Based on this, Bressemer, Branin’s former employer brought an action for breach of good will against Branin. The United States District Court for the Southern District of New York found that “Branin ‘improperly induced the Palmer account to leave Bessemer and that this inducement in fact caused the Palmer account to leave Bessemer and join Stein Roe’ in violation of New York law.” Id at 555.
Branin appealed and the Court of Appeals barely provided anything useful other than the basic principles regarding solicitation of former clients. The Court not only acknowledged the absence of a specific rule to determine whether a seller of “good will” has engaged in improper solicitation of his former clients, but also declined to create one.  The Court held that “while a seller may not contact his former clients directly, he may, ‘in response to inquiries’ made on a former client’s own initiative, answer factual questions. Furthermore, under the circumstances where a client exercising due diligence requests further information, a seller may assist his new employer in the ‘active development . . . [of] a plan’ to respond to that client’s inquiries. Should that plan result in a meeting with a client, a seller’s ‘largely passive’ role at such meeting does not constitute improper solicitation in violation of the ‘implied covenant.’ As such, a seller or his new employer may then accept the trade of a former client.” Id at 560.
The lesson of this case is to tread very carefully when one could be accused of backtracking on the sale of business good will.

May the Government Provide Funding for Religious Schools That Discriminate Based on Gender?

May the Government provide funding for religious schools that discriminate based upon gender and other suspect classifications? The currently-pending case, American Civil Liberty Union of New Jersey; Unitarian Universalist Legislative Ministry of NJ and Gloria Shore Andersen v. Rochelle Hendricks and Andrew P. Sidomon-Eristoff, Superior Court of New Jersey, Chancery Division, General Equity Part: Mercer County is seeking to answer that question.

The suit stems from a $750 million bond issue that was approved by New Jersey taxpayers to fund higher education. $11 million dollars of that money was allocated by Governor Christie to support two New Jersey schools: Beth Medrash Govoha and Princeton Theological Seminary. The issue relates to whether these institutions should have been funded with government money, given the fact that they train clergy and discriminate (albeit, legally) on the basis of suspect classifications, such as gender and religion.

One of the interesting aspects of this case it is primarily being brought under the New Jersey Constitution. It provides protection against government intrusion into religious matters that is superior to that of the federal constitution.  Indeed, Article 1, paragraph 3 of the New Jersey Constitution prohibits taxes being used “for building or repairing any church or churches, place or places of worship, or for the maintenance of any minister or ministry” and Article 1, paragraph 4 prohibits establishing a preference for one sect over another.

Another impediment to the funding is that the schools engage in activity that, if engaged in by a private party, would violate the New Jersey Law Against Discrimination. Religious institutions enjoy an exception to that law which allows them to discriminate on such items as gender or religion. However, the government is covered by the restrictions in the New Jersey Law Against Discrimination. Therefore, when the government funds an otherwise exempt institution, the government is violating the Law Against Discrimination.

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