New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

On Friday, February 25, 2005, Rachel Lilienthal Stark, a member of the Firm's Business & Corporate Group was a guest expert on Venture Talk radio (WWDB 860 AM - Philadelphia).

On the February 25th show, Rachel Stark, was joined by another guest expert, Barry Cash, Internal Counsel - Pharmacopeia Drug Discovery, Inc., as they reviewed the business plans of Mark Banister, President - Medipacs LLC, and Stevie Ray Hansen, Chief Executive Officer - Austin Petroleum Group, Inc.

You can read Venture Talk Radio's press release regarding this episode here.

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On February 1, 2005, the Appellate Division in Weisfeld v. Medical Society of New Jersey, et al. upheld the dismissal of an employee's Conscientious Employee Protection Act (CEPA) claims against his employer, the Medical Society of New Jersey (MSNJ). After eleven years of employment, Plaintiff alleged that his firing was retaliatory for his disclosure of an alleged conflict of interest of individual members who sat on the board of two organizations, including his employer.

In the 1970's, MSNJ formed MIIX Group, Inc. (MIIX), a private insurance exchange owned by its member physicians for the purpose of providing affordable medical malpractice insurance to qualified physicians. When MIIX elected to go public in 1999, MSNJ received a substantial stock interest in the company in exchange for the sale of its underwriting entity.

Plaintiff complained to his supervisor about the "pervasive" MIIX influence at MSNJ and his "reasonable belief" that actions taken by those with dual service on the boards conflicted with the interest of MSNJ and its "fiduciary obligation" to its physician members.

On April 1, 2002, Plaintiff drafted a memo seeking to prohibit dual board members to participate in any discussions or recommendations regarding the sale of MIIX stock. On April 10, 2002, the MSNJ Board of Trustees terminated his employment.

The Appellate Division upheld the trial court's dismissal of his CEPA claim since Plaintiff presented no law, rule or code of conduct that precludes dual membership of the boards. Furthermore, the Appellate Division noted that New Jersey statutes especially endorse dual board memberships. The Appellate Division concluded that the alleged violation "must pose a threat of public harm, not merely private harm or harm only to the aggrieved employee."

New Jersey's Office of Administrative Courts has indicated that "whistle blower" suits have more than doubled since 2001. Despite the fact that the employer was successful in dismissing these claims, it still had to litigate this suit through appeal. New Jersey's employers must be vigilant in developing policies that satisfy CEPA statutory requirements.

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In Travelodge Hotels, Inc. v. Honeysuckle Enterprises., Inc., 2005 WL 356958 (D.N.J.), the plaintiff, franchisor Travelodge Hotels, Inc. sued the defendant, franchisee Honeysuckle Enterprises, to collect liquidated damages and unpaid royalties under the License Agreement between Travelodge and Honeysuckle.

The franchisee argued that the franchisor fraudulently induced him into entered into the license agreement by telling him, among other things, that by being part of the Travelodge reservation system, his reservations would increase by at least fifteen percent. The franchisee also argued that, after entering into the license agreement, he was not put onto the reservation system so the franchisor breached the license agreement.

The franchisor argued that the evidence relating to any discussions between the franchisor and the franchisee prior to entering into the license agreement are barred by the parol evidence rule.

The Franchisor's motion for summary judgment was denied, with the court finding that the parol evidence rule did not bar evidence revealing that the license agreement was fraudulently induced or materially breached by the franchisor.

This case reminds franchisors that disclaimer language in the franchise agreement will not protect them from sloppy sales techniques. Franchisors should be weary of making any specific earnings statements or guarantees, since franchisees could use those statements against the franchisors to make an argument to get out of an unsuccessful franchise.

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Yesterday, The United States Supreme Court heard arguments in Kelo v. City of New London. The Kelo case is an extremely important constitutional case since it will require the United States Supreme Court to define the limitations, if any, of the Taking Clause of the U.S. Constitution. The Taking Clause permits private property to be taken for a public use, including schools, road widening, and other projects whose completion benefits the public.

In a case that started in Connecticut, the City of New London sought to condemn about 115 parcels of land (homes and small business) for a project whose stated "public use/benefit" was to create more jobs and increase tax revenue. The properties, once acquired, would be broken into 7 separate projects which would be built by private developers.

The Kelo case is extremely important because the Supreme Court is being asked to define the limits under the "public use" requirement of the U.S. Constitution in a case of "economic redevelopment". This is not a case where an urban area that is "blighted" is in need of redevelopment, or a case where a town needs a new school. Rather, the justices decision in Kelo will prescribe how far can a town go when its goal is to create jobs and increase the tax base. The decision should answer the question, "Is the need for more expensive homes and more productive businesses a valid reason to take someone's home?".

Currently, state courts are split on this issue, with some letting this type of economic redevelopment proceed, while others are stopping it. The conflict in the state courts, along with the increase in the use of the Taking Clause for economic redevelopment, caused the Supreme Court to take the case.

Winners/Losers: Clearly, is the Court affirms and allows the takings, private developers and certain property owners will be the winners. For example, the developer who will build the projects in Connecticut will obviously make a profit. Also, home owners whose properties are not being taken will benefit from the increased tax revenues. The losers will be the owners whose property is being take. One homeowner involved in the Kelo case had lived in the home since 1918. Should the developer prevail, she will be kicked-out in order for nicer homes to be built.

The stakes in Kelo are high since the potential for economic redevelopment is astronomical and towns can almost always rationalize some need to create jobs and generate additional tax revenue.

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The New Jersey Law Against Discrimination (LAD) prohibits employers from discriminating in any job-related action, including recruitment, interviewing, hiring, promotions, discharge, compensation and the terms and conditions of employment on the basis of any of the LAD's specified protected categories.

These protected categories are: race, creed, color, national origin, nationality, ancestry, age, sex (including pregnancy and sexual harassment), marital status, domestic partnership status, affectional or sexual orientation, atypical hereditary cellular or blood trait, genetic information liability for military service, or mental or physical disability, including AIDS and HIV related illnesses. The LAD prohibits intentional discrimination based on any of these characteristics.

The LAD also prohibits harassment based on protected characteristics such as race, sex or nationality. Under the LAD, sexual harassment includes unwelcome sexual advances, requests for sexual relations or other verbal or physical conduct of a sexual nature. There are generally two types of sexual harassment. Quid pro quo harassment occurs when an employer attempts to make submission to sexual demands a condition of employment.

Hostile work environment sexual harassment occurs when an employee is subjected to sexual, abusive, or offensive conduct because of his or her gender. This conduct creates an unlawful work environment when it is severe or pervasive enough to make a reasonable person of the employee's gender believe that the conditions of employment have been altered and the working environment has become hostile or abusive. This analysis may also be applied to hostile work environments created because of an employee's race, nationality, creed, disability, or other characteristics enumerated by the LAD.

Stark & Stark attorneys can help your Company to develop employment policies that meets the statutory requirements pursuant to LAD.

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The February 14, 2005 edition of the New Jersey Law Journal featured a story about Stark & Stark's addition of an office in New York City. The firm now has offices in Princeton, Cherry Hill, Philadelphia and New York.

You can read the firm's press release announcing our newest office here.

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Most community associations, condominium associations, and cooperatives in New Jersey were organized as non-profit corporations. Corporations, even non-profit corporations, have certain annual filing requirements which must be made with the State of New Jersey. We are seeing an increased number of associations which have not maintained their corporate filings and have even reinstated a few which had to change their corporate names.

The requirements are not complex but must be addressed regularly and accurately. A corporation must submit an annual report with the required fee each year following its date of incorporation. This is also an opportunity to ensure that its registered agent and the physical location of the registered office is correct. A corporation which fails to file its annual report for two consecutive years may have its charter revoked. As a result of this revocation, the corporation can lose the right to use its corporate name, among other things. To reinstate its good standing, the corporation must submit certain forms and fees. If, while its charter was revoked its name has been "taken" by another corporation, the association will have to come up with a new name requiring new filings and additional fees. A Stark & Stark attorney can serve as the association's registered agent which facilitates the necessary filings each year.

Please take a moment to ensure that your association's corporate filings are up to date.

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On February 7, 2005, the Appellate Division in Comprehensive Psychology System, P.C. v. Prince upheld the trial court's refusal to enforce a restrictive covenant in an employment contract for professional services by a licensed psychologist. In the lower court, the trial judge refused to restrain Dr. Prince from contacting any patients or contacting referral sources because he deemed the enforceability of these restrictions barred by NJAC 13:42-10.16, a provision of the rules adopted by the Board of Psychological Examiners. The provision reads as follows:

A licensee shall not participate in offering or making a partnership or employment agreement that restricts the right of a licensed health care professional to practice the licensed profession after termination of the relationship, except an agreement concerning the benefits upon retirement.

On appeal, the employer contended that the regulation was amended on April 5, 2004 and this amendment allowed non-competition agreements:

The licensee shall not enter into any business agreement that interferes with or restricts the ability of a client to see or continue to see his or her therapist of choice.

The Appellate Division failed to apply the holding in Karlin v. Weinberg, 77 N.J. 408 (1978), which held that restrictive covenants ancillary to employment contracts between physicians are enforceable to the extent that they protect the legitimate interest of the employer, impose no undue hardship on the employee, and are not injurious to the public. Finding that the regulation was similar into that restrictive covenants between attorneys are per se unreasonable and unenforceable as injurious to the public interest, the Appellate Division ruled that the boards new language for the regulations did not allow the enforceability of a restrictive covenant against a psychologist.

Finally, the Appellate Division noted that a psychologist who changes his office locations, voluntarily or involuntarily, has a duty to inform patients of the change and the new location and phone number. If not, the court noted that this may be akin to patient abandonment.

New Jersey's employers must be careful in drafting restrictive covenants in employment agreements to ensure their enforceability in court.

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In Saint-Gobain Performance Plastics Corp., HCM Div. v. Truseal USA, Inc., 2005 WL 22937 (D.N.J.), the District of New Jersey signaled the continued vitality of the equitable doctrine of "assignor estoppel" in the face of recognized exceptions. Simply stated, the doctrine holds that an assignor of a patent is, as against an assignee, estopped to deny the validity of the patent. The logic behind the doctrine is that the assignor should be estopped from defending patent infringement claims by proving that what he assigned was worthless.

This logic was tested against a line of cases, dealing primarily with licensee estoppel, that reasoned that it is as much in the public's interest that competition should not be repressed by worthless patents, as it is that the patentee of a valuable invention should be protected in his monopoly. However, the doctrine of assignor estoppel was found to remain intact, along with its considerable conditions and exceptions.

For example, the doctrine is one of equity and not law, therefore its application, unlike estoppel by deed, is not automatic and depends upon the balance of equities between the parties. Furthermore, the assignor, while estopped from challenging the validity of the patent, may still defend against an infringement claim by arguing for narrow claim construction or on the basis that the subject of the assignment is obviously old in the art and plainly belongs to the public.

In this manner, the doctrine has evolved to combat the unfairness and injustice that would be suffered by an assignee if the assignor were permitted to raise the defense of patent invalidity, while remaining maleable to the dictates of the public good and sensitive to the facts presented in each individual set of circumstances.

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Stark & Stark is happy to post its first podcast.

On Thursday February 10 2005, Gary Forshner, a member of the Firm's Commercial Real Estate Group conducted a Luncheon Seminar for the Mercer County Bar Association - Real Estate Section.

The seminar, Planning and Zoning 101, addressed issues concerning:

* Site Plans, Subdivisions, Variance and Other Appeals
* The Role of Municipal Officials and Boards
* State and Outside Agency Approval
* Superior Court Appeals - Complaints in Lieu of Prerogative Writs

You can listen to an audiocast of Gary's presentation here.

If you would like to download a copy of the program's agenda, click here (PDF).

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Foreclosure Unit Update: The New Jersey Foreclosure Unit is attempting to shorten the delay in entering final judgments in foreclosure actions. As of February 2, 2005, the New Jersey Foreclosure Unit was experiencing delays of approximately two months in entering final judgments.

Practice tip: Depending on the facts of the case, mortgagees may want to evaluate the merits of seeking court approval to force the sale of mortgaged property while the foreclosure is pending. This relief, commonly called a "sale pendente lite", was recently granted by a state court judge in Bergen County.

Two mortgagees held mortgages with a combined balance of $7.5 million which were secured by property with a fair market value of $2.65 million. The property owners made it clear that they were unwilling (or unable) to pay the real estate taxes which were accruing at the rate of $36,000 per year, and had no intention of making interest payments. Although the property owners were not contesting the foreclosure, they remained in possession of the building.

The court reviewed the existing case law and determined that the "loss of interest and impairment of funds ultimately to be realized by the accumulation of property taxes" is grounds to authorize the sale of the property while the foreclosure proceeds. The court entered an order (1) authorizing the immediately listing of the property, (2) directing the property owners to cooperate with the mortgagees in showing the property to prospective buyers, and (3) appointed a receiver to sign all necessary papers in conjunction with the sale. While the property was being listed, the mortgagees continued with their foreclosure actions.

Keep this case in mind when you have a property with no equity that is being further consumed by unpaid property taxes.

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On February 3, 2005, the Third Circuit in Gary v. The Air Group, Inc. reversed the District Court's dismissal of an employee's "whistle blowing" claims pursuant to New Jersey's Conscientious Employee Protection Act (CEPA). The District Court held that the employee's state law whistle blower claim was preempted by the federal Airline Deregulation Act (ADA) as amended by the Whistleblower Protection Program (WPP).

In this case, the employee was employed from March 15, 2001 through August 30, 2001 as a co-pilot. In July 2001, the employer hired a new pilot- in-command for the group. The plaintiff spent approximately four days assisting the pilot-in-command with preparations for a Federal Aviation Administration (FAA) required "route check." During this period, the plaintiff believed that the pilot-in-command was unqualified to pilot an aircraft because he: (1) did not have the requisite jet time mandated by the FAA; (2) was unfamiliar with FAA mandated basic flight procedures; (3) did not properly proceed with the FAA mandated "pre-flight check list" safety measure; (4) was unfamiliar with the air space into which he was planning to fly; and (5) was unfamiliar with how to obtain departure clearance at certain airports.

Based upon these observations, the plaintiff "reasonably believed" that if the employer permitted the pilot- in-command to fly, he would be endangering himself, the passengers, crew, the public and the aircraft. The plaintiff also believed that the pilot-in-command violated certain FAA regulations.

On August 30, 2001, the plaintiff called his supervisor to stress his concerns. Hours later, the employer terminated plaintiff's employment. The plaintiff alleges that the termination of his employment was in retaliation for the report of the pilot- in-command's lack of qualifications as well as potential FAA violations.

On April 29, 2002, the plaintiff filed a Complaint in the Superior Court of New Jersey alleging that his termination was in violation of CEPA. On May 29, 2002, the employer removed the case to the District of New Jersey and subsequently moved to dismiss plaintiff's Complaint on the grounds that his CEPA claim was preempted by federal law. The District Court granted the employer's motion to dismiss on August 8, 2002.

The Third Circuit analyzed the issue as to whether the ADA, as amended by the WPP, preempted the employer's CEPA claim. The Third Circuit reversed the dismissal of his CEPA claims and held that it was not preempted by the ADA. In support of its conclusion, the Third Circuit reasoned that language of the WPP was silent on the issue of preemption.

CEPA is one of the most powerful whistleblower statutes in the country. It is understandable that the employer would want to attempt to dismiss the CEPA claim in favor of litigating this action pursuant to the ADA, which is probably a less-settled cause of action against an employer. This decision highlights the importance of an employer to enact proper policies to handle whistleblower- type complaints by employees. Stark & Stark attorneys can help you to develop policies and provide training that satisfy CEPA statutory requirements.

More information regarding recent CEPA legislation and court decisions can be found here, here, here, and here.

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The United States Bankruptcy Court for the District of New Jersey recently adopted a new General Order favorable to secured lenders. Effective January 3, 2005, secured creditors may send the following notices and take the following action without concern over violating the bankruptcy stay or bankruptcy discharge:

*Monthly statements and coupons: Secured creditors may continue to send regular monthly statements and coupons to borrowers who file for bankruptcy protection. Often times, borrowers stop making payments merely because they fail to receive a monthly statement or coupon.

*Escrow Statements: Mortgagees may send escrow statements disclosing the status of a borrower's escrow account.

*Change in Monthly Payment: Secured creditors may change the amount of a bankrupt debtor's monthly payment resulting from an increase in property taxes or insurance premiums, or an increase in the interest rate of a variable rate loan.

Important Note: Although a notice may be mailed to a borrower who filed for bankruptcy protection, the notice cannot demand payment. Secured lenders must be careful and make certain the notices are for informational purposes only and are not being mailed as a means of collecting a debt.

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It is critical that homeowners associations are vigilant of the way in which their municipality assesses taxes on the community's common area. Now that the 2005 property tax assessments are being mailed out, many people may have questions about how community associations should be taxed. An area that community associations should pay particular attention to, is how their common property areas are taxed.

Common areas include clubhouses, pools, and recreation areas such as playgrounds and tennis courts. In New Jersey, towns and municipalities may not tax a condominium's common elements. It is generally believed, but not technically the case, that the common areas of a homeowners association enjoy the same tax protection.

Many associations are improperly assessed taxes on their common areas. Now is the time to review tax assessments and determine whether a tax appeal is warranted. We suggest the following:

1.Get a copy of your 2005 tax assessment. Your tax assessor will send you a small "green card" in January or early February stating the association's tax assessment. If you do not receive the tax card, call the township tax assessor.

2.Review the tax card and determine if common property is being separately assessed. Is the clubhouse being assessed at its full value? Is open space being assessed as a building lot?

3.Review the association's governing documents to confirm that the common property is specifically identified as common property, subject to restrictions on use and transfers.

4.If the common property is being separately taxed, call us to discuss filing a tax appeal. We may be able to help reduce the assessment to a nominal value or no value at all.

5. IMPORTANT: The deadline to file your tax appeal is April 1, 2005.

Should your homeowner association have questions regarding the assessment of its common property area, contact A. Christopher Florio, David J. Byrne or Timothy P. Duggan to discuss your specific matter.

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Gary Forshner, a member of the Firm's Commercial Real Estate Group will conduct Luncheon Seminar for the Mercer County Bar Association - Real Estate Section on Thursday February 10, 2005.

The seminar, Planning and Zoning 101, will address issues concerning:

* Site Plans, Subdivisions, Variance and Other Appeals
* The Role of Municipal Officials and Boards
* State and Outside Agency Approval
* Superior Court Appeals - Complaints in Lieu of Prerogative Writs

Participants in the luncheon seminar will be credited for 2.0 NJ/PA/NY CLE credits.

To register for this luncheon program, please contact the Mercer County Bar Association at 609.585.6200.

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Since the beginning of 2005, New Jersey Appellate Courts have struck down two separate state regulations relating to the use of annuities for Medicaid planning by holding that the regulations violate federal law.

On January 4, 2005, the appellate court ruled that a state regulation capping the amount of funds that a Medicaid applicant may use to purchase a commercial annuity contravenes federal law. Estate of F.K. V. Division of Medical Assistance and Health Services (App. Div. No. A-1004-02T5).

Then on January 21, 2005, in the matter of A.B. v. Division of Medical Assistance and Health Services (App. Div. No. A-4973-02T2), the appellate court held that federal law prohibits the State of New Jersey from requiring that it be named as the remainder beneficiary of an actuarially sound commercial annuity purchased by the community spouse of a Medicaid applicant.

In both cases, Medicaid applicants successfully challenged state regulations which went far beyond what federal law provided and which were used to deny Medicaid eligibility for the applicant. The courts found that the State exceeded its authority and that the regulations were improperly drawn or enforced.

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