Author Archives: businesslawsuits

Will A Texas Cooperative Be Considered Similar Enough To A Non-Profit Such That The Non-Profit Statute Will Govern Its Conduct?

A recent Texas class action raised a novel issue of law. In that case, the Court was asked to determine whether Denton County Electric Cooperative, Inc. (“CoServ”) would be subject to the Texas Non-Profit Statute. The reason this came up was because the Non-Profit Statute had many more protections in it than the enabling statute for Texas cooperatives.

In Denton County Electric Cooperative, Inc. d/b/a CoServ Electric v. Nicole Hackett, Individually and on behalf of others similarly situated, Court of Appeals of Texas, Fort Worth, No. 02–09–00425–CV (May 10, 2012), the Court determined that the Texas “legislature did not intend to provide Electric Cooperative members with the same rights set out in the [Texas Non-Profit statute].” The sole exception would be if the cooperative enabling statute specifically incorporated the Non-Profit law.

Accordingly, the appellate court vacated the class certification.

How can a Business Owner Use a Prenuptial Agreement to Protect his or her Business From Being Subject to Equitable Distribution in a Divorce?

On June 28, 2013, Governor Chris Christie signed a law (Bill S-2151) which requires judges in New Jersey to evaluate prenuptial agreements as of the date of their signing and not as of the date of their enforcement.  This was a major change in the law.

It is of particular concern to business owners considering marriage. Typically, an owner will want to protect the business from being mandatorily sold in the event of a divorce. This law strengthens the enforceability of prenuptial agreements; therefore, it makes the protection afforded business owners that much more predictable.

The import of the law is that it prevents judges from considering the changes in circumstances between the time of signature and the time they are to be enforced. Prior to its enactment, N.J.S.A. 37:2-32 required judges to interpret premarital contracts as of the date of their enforcement. Therefore, if a contract was fair when it was signed, but when it was enforced would leave one spouse without financial support, it would be subject to attack. 

How can a For-Profit Corporation Adopt Some of the Social Conscience of a Non-Profit?

What do for-profit businesses need to do if they are seeking to perform the socially conscious work of a non-profit, as well? 
In light of the fact that some for-profit companies are looking for ways to do charitable work while avoiding the limitations imposed by the potential of shareholder derivative lawsuits for failing to maximize profits, new hybrid forms of corporations have been established.  Two examples of the new forms of hybrid entities are “benefit corporation” and “L3C” entities.
Benefit corporations, which are recognized in New Jersey, New York, Maryland, California, Hawaii, Vermont and Virginia, must have a dual purpose to perform a public benefit and create value for their stakeholders.  L3Cs (low-profit limited liability companies) have the same liability protection and tax treatment as an LLC but must have social benefit as their primary purpose and profit as the secondary purpose.

It remains to be seen whether this new development in the law will take the business community in a more socially conscious direction.

© 2014 Nissenbaum Law Group, LLC

Will a Contract Provision in a Distribution Agreement Between Franchisor and Franchisee that Limits the Scope of Damages be Enforceable?

Will a provision of a distribution agreement between a franchisor and franchisee that prevents a party from recovering “lost profits” be enforceable? That issue was considered in Strassle v. Bimbo Foods Bakeries Distribution, Inc., United States District Court for the District of NJ. Civil 12-3313. (RBK/AMD) (March 13, 2013).
In that case, the franchisor, of a bakery franchise signed a distribution agreement with the franchisee which stated in part “DAMAGES: notwithstanding anything to the contrary contained in this Agreement, in no event shall either party be liable to the other for any consequential, incidental, indirect, or special damages, including loss profits and punitive damages.” The issue was whether the bar for certain types of damages was enforceable.

The Court found that it was. It held that “to the extent plaintiffs seek recovery of profits which they planned to make (but for Defendants alleged breach) on the sale of individual…breads and role products to retail clients within their distribution territory the court holds that such recovery is barred under 11.12 of the parties’ distribution agreement.”

© 2014 Nissenbaum Law Group, LLC

Will the New Jersey Law Against Discrimination Protect People Who Voice Complaints About Behavior That 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.

© 2014 Nissenbaum Law Group, LLC

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.

© 2014 Nissenbaum Law Group, LLC

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.

© 2014 Nissenbaum Law Group, LLC

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).
Id. at 2.

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.

© 2014 Nissenbaum Law Group, LLC

Do you Need to Occupy a Residential Development in Order for the Residential Consumer Fraud Act Regulations to Apply?

Are residential structures that are not occupied, nor intended to be, protected under the home improvement regulations of the Consumer Fraud Act? This question was addressed in the recent case of Luma Enterprises, L.L.C. v Hunter Homes & Remodeling, L.L.C., Superior Court of New Jersey, Appellate Division, Docket No. A-6094-11T3. (July 1, 2013) [READ CASE HERE]

In that case, plaintiff contracted with defendant to renovate a structure into a daycare facility. Plaintiff agreed to pay the contract price in installments. Both parties agreed that failure to make an installment payment within ten days of its due date would result in a material breach. During renovation, plaintiff made two untimely payments, but defendant continued to work on the project without protest. After receipt of a third late payment, defendant stopped working on the project. Plaintiff filed a complaint and alleged

·         Consumer fraud; and
·         Breach of contract.

The Court dismissed the consumer fraud complaint. It found that the Consumer Fraud Act (“CFA”) did not apply due to the building was not occupied as a residence. Plaintiff appealed.

Plaintiff argued that the property’s residential zoning gave it an inherent residential use and thus was considered a “home improvement” under CFA regulations. The Court, however, held that plaintiff never intended the structure to be used as a home or place of residence – and indeed, no residents were living there – therefore the CFA was not applicable.

This holding meant that the Contractor was not held liable under the Consumer Fraud Act.

© 2014 Nissenbaum Law Group, LLC

May the Federal Trade Commission (“FTC”) enforce a franchisor’s obligation to the customers of its franchisee to prevent cyber-theft of those customers’ credit card information?

May the Federal Trade Commission (“FTC”) enforce a franchisor’s obligation to the customers of its franchisee to prevent cyber-theft of those customers’ credit card information? The recently-filed lawsuit entitled FTC v Wyndham Worldwide Corp., Federal District Court, District of New Jersey (Civ. Action No. 13-cv-1887) (ES)(SCM) may answer that question.
In that case, the FTC is interposing a consumer protection lawsuit against the Wyndham Worldwide Corp. (“Wyndham”) for, among other theories, deceptive advertising. Specifically, the FTC alleges that the privacy policy Wyndham provided to customers gave the customers a false sense that their credit card data would be protected more thoroughly than it was.
The reason this is an issue is that in April of 2008 and later in 2009, hackers were able to penetrate the Wyndham’s computer systems and obtain massive credit card data that should have been confidential.
Wyndham has defended on a number of bases. One such basis is that the FTC does not have jurisdiction to bring suit. In fact, Congress did not specifically authorize the FTC to bring a lawsuit for a private company’s data breach. However, the FTC has taken the position that it is not doing so. Instead, it is bringing a suit for deceptive practices that led customers to believe reasonable precautions were being taken to prevent a data breach.
As of this posting, the case is at an incipient stage. Time will tell whether or not Wyndham’s jurisdictional argument will be successful.