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This week's New Jersey Legal Update podcast will discuss hedge fund side letters and what managers need to know.

This week's New Jersey Legal Update is presented by Aaron Buser, a member of the Firm's Securities Group.

You can download the New Jersey Legal Update Podcast # 38 here. (7 MB)

Technorati Tags: New Jersey : Podcast : Hedge Fund : Side Letter

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An investment adviser’s fiduciary obligations can restrict a dually registered investment adviser representative and registered representative ("broker/adviser") from effecting certain brokerage transactions. Section 206(3) of the Investment Advisers Act of 1940 effectively prohibits a dually registered broker/adviser from participating in brokerage transactions without first disclosing to the advisory client the brokerage capacity in which the broker is acting and obtaining consent from the client for the particular transaction. This requirement does not apply to brokerage transactions in which the broker/adviser is not acting as an investment adviser in the relationship.

Generally, a broker/adviser is not acting as an investment adviser when the "client initiates the transaction with its broker/adviser from whom the client has not received advice to buy or sell the security." See SEC No-action letter of December 15, 2005 (emphasis added). Similarly, the broker is not acting as an investment adviser if, within a particular transaction, the broker only provides "generalized, non-specific investment advice to a customer, (e.g., ‘invest a portion of your account in equity securities,’)" and the client then directs the broker to effect a transaction in a particular equity security.

In addition, a broker/adviser can control the fiduciary obligations placed upon advisers by incorporating certain provisions in the client advisory agreement.  The agreement can allow for the termination of the advisory relationship under certain circumstances, for example, following the delivery of a financial plan. It is essential that the client be provided with clear notice about the change in relationship from adviser to broker and the resultant change in obligations that dictate the broker’s relationship to the client.  The SEC has plainly stated that a mere statement to the client that the firm has changed the capacity under which it is acting is inadequate to effectively alter the nature of the adviser relationship thereby relieving the adviser from its fiduciary obligations.

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On June 22, 2006, the State Assembly voted on and overwhelmingly passed a revised version of the eminent domain reform bill (No. A3257), which Assemblyman John J. Burzichelli introduced on June 8, 2006. Indeed, Assembly bill A3257 was amended in a number of significant ways prior to being approved by the full Assembly. A sampling of these amendments follows below.

• Condemnation in designated redevelopment areas prohibited if the property to be acquired therein is also located within an agricultural development area.
  • Replacement of the substantial evidence test with a requirement that the municipality show, by a preponderance of the evidence, that the delineated area fulfills the criteria set forth in the Local Redevelopment and Housing Law at N.J.S.A. 40A:12A-5.
  
• Expansion of the statute of limitations to challenge redevelopment area designations from 45 to 60 days.
  
• Limitation on the duration of a redevelopment area designation to 10 years following the final adoption of an ordinance making such determination or 10 years following the final adoption of the redevelopment plan, whichever occurs later. This amendment to A3257 includes a mechanism for extending the life of a redevelopment area designation by an additional five years (for a total of 15 years).
  
• Replacement of the originally proposed provision in Assembly bill A3257 that entitled persons displaced by redevelopment to all rights and benefits provided under the Uniform Transportation Replacement Housing and Relocation Act, N.J.S.A. 27:7-72, et. seq., with detailed amendments to the Relocation Assistance Act, N.J.S.A. 20:4-1, et. seq., providing for certain increases in the maximum allowance for moving and related expenses and the required replacement housing payments, and requiring annual adjustments for these (and other) payments based upon the Consumer Price Index for All Urban Consumers.
  
• Requirement that redevelopers reimburse the Department of Community Affairs for the cost of providing rental assistance to displaced tenants who are eligible for the rental assistance program for low income individuals or households established pursuant to N.J.S.A. 52:27D-287.1, et. seq., “for a period not to exceed four years from the commencement of occupancy of the new unit[.]”
  
• Establishment of a new mandatory provision in redevelopment agreements requiring redevelopers to provide written notice to any property owner who receives a written offer from the municipality or designated redevelopment entity pursuant to the good faith negotiations requirements under the Eminent Domain Act of 1971, N.J.S.A. 20:3-1, et. seq., detailing “the total compensation provided for in each contract of sale between the redeveloper and any property owner in the redevelopment area.”
  
• Requirement that municipalities disclose to the Department of Community Affairs “an accounting of the cost of all municipal investments made in the redevelopment area subsequent to the final adoption of an ordinance determining the area as in need of redevelopment[.]” The term “municipal investments” includes such items as tax abatements, density bonuses and municipal infrastructure. “In addition” the amendments to A3257 provide that “the municipality shall disclose any other public infrastructure to be provided in the redevelopment of the area using public funds.”
  
• Grant to prospective condemnees, by amending section 6 of the Eminent Domain Act of 1971 (codified at N.J.S.A. 20:3-6), of a right to “provide information, data or otherwise raise issues of concern to the owner relating to the valuation of the property and damages to the remainder arising from the proposed acquisition.” The amendments to N.J.S.A. 20:3-6 through the revised version of Assembly bill A3257 also extend the period of time within which the prospective condemnee has to respond to a written offer from 14 days (after mailing) to 45 days (after receipt), which may be further extended by 25 days (for a total of 70 days). The aforesaid amendments further provide that, during this post-offer period, a prospective condemnee may seek clarification of, additional information on, and/or otherwise discuss, the offer with a representative of the condemning authority, and may submit a counter-appraisal for review and consideration. Should negotiations fail or the prospective condemnee not respond, “the condemnor may then send . . . a letter setting forth an intent to commence condemnation proceedings in the Superior Court.”
  
• Requirement that a municipality or designated redevelopment entity pay to owners of businesses displaced through the use of eminent domain an additional payment “for the value of goodwill[,]” which means “the benefits that accrue to a business as a result of its location, reputation for dependability, skill or quality, and any other circumstances resulting in probable retention of old or acquisition of new patronage.”
  
• Limitation on the acceptance by municipalities or designated redevelopment entities of political contributions from redevelopers.

The debate over eminent domain reform now heads to the State Senate where a companion bill (No. S2088) was introduced on June 26, 2006, and referred to the Senate Community and Urban Affairs Committee for consideration.

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Taking a drive down the backroads of some of America’s farms brings to mind the old saying “the old gray mare ain’t what she used to be.” In fact, the mare is often not a horse at all, but may be an alpaca, llama or some other type of exotic breeding animal.

On June 16, 2006, The New York Times article “The New Face of Farming,” (registration required) discussed this recent trend of niche, hobby and artisan breeders raising a variety of animals, including llamas, alpacas, heirloom chickens and belted and white Galloway cattle.

Although this new type of animal husbandry can be a true joy, legal pitfalls can abound, including disputes on the terms of the contract of sale, arguments over whether a warranty applies, interstate transportation of the animal from an out-of-state auction site, and whether any UCC and/or state statutory liens are on the animal.

Our office has dealt with a variety of these issues from reviewing basic contract rights to full litigation.Whether you breed or purchase alpacas, llamas, horses or any of the other types of new and exotic animals, it is important to think about your legal rights before the sale. Some questions to ponder include:

1. How are disputes handled under the terms of the contract of sale? For instance, some sales contracts require that written notice be given to the seller and veterinarian of the seller before a claim is made. Further, some contracts require that the seller’s veterinarian be permitted to examine and treat the animal to remedy the physical problems. Additionally, who pays for the animal’s medical treatment and board during the period? It is important to know what your obligations are under the contract to avoid any impairment of your legal rights.
   
2. Does the contract contain any express warranties? Some contracts may provide a warranty for the animal. In some cases, the warranty may be based on age of the animal, while others may be a simple year term from the sale. Further, some warranties may allow the seller the option of replacement with a “like” animal, replacement of the money paid or a credit for the buyer. Further, even though a warranty may expire, particular actions by either the buyer or seller may permit the warranty to be extended.
   
3. Has the animal been properly examined? Whether you’re the buyer or seller, it is important to have the animal fully examined by a trained medical professional, including having a copy if the animal’s full medical history. This way you can ensure that all necessary vaccinations and examination have been given to the animal before the purchase. Additionally, for purchasers, it is important to physically examine the animal by a trained veterinary professional whom you know and respect, and who can ask the right medical questions.
   
4. Are UCC or state statutory liens on the animal? Certain state statutes will allow creditors to place stablemen’s liens on animals. Further, there may be UCC liens placed on the animal. It is important to have your attorney review whether any liens are on the animal before purchase or sale.
   
5. What state statutes need to be complied with to transport the animal across state lines? Each state has their own guidelines on transporting animals interstate. It is important to review with your attorney and veterinarian what those statutes are and the appropriate medical certifications to be obtained before the animal is transported across state lines.

These are just a few of the questions to ponder before buying or selling exotic animal. This new niche of animal husbandry can provide great satisfaction to both new and more experienced breeders. However, as everyone knows, ounce of prevention is worth a pound of cure. Knowing your legal rights and remedies ahead of time can save your both time and expense. 

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This week's New Jersey Legal Update podcast will discuss reasons why individuals should consult an attorney when creating and implementing an estate plan.

This week's New Jersey Legal Update is presented by Steven Friedman, Chair of the Firm's Trusts & Estates Group.

You can download the New Jersey Legal Update Podcast # 37 here.(9.7 MB)

Technorati Tags: New Jersey : Podcast : Estate Plan : Wills

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The New Jersey Condominium Act (the "Act") at N.J.S.A. 46:8B-38 specifically prohibits a condominium association or its developer from reserving or retaining a right of first refusal to purchase a condominium unit upon resale, gift, or devise, by the unit owner. This provision of the Act adopted in 1980 effectively supplemented and amended the prior section of the Act, N.J.S.A. 46:8B-36, which provided for a rebuttable presumption of unconscionability with respect to master deeds or by-laws which had provided for a right of first refusal on behalf of the condominium or its developer.

It is unlikely that you will find a public offering statement or master deed drafted for a recently developed condominium which includes a provision allowing for a right of first refusal on behalf of either the condominium or its developer. However, rights of first refusal have been found in older governing documents, specifically those drafted in the late 1990s and which pertain to condominiums funded with HUD monies or other urban renewal funds.

A condominium's board of trustees should be aware that such provisions providing for a right of first refusal are prohibited by the Act and should therefore advise its management to keep a look-out for instances where a developer may attempt to enforce such a right of first refusal. 

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In Kelo v. New London the United States Supreme Court upheld the taking of non-blighted property needed for economic development as a legitimate “public use” under the Fifth Amendment to the United States Constitution, but also recognized “the hardship that condemnations may entail, notwithstanding the payment of just compensation” and “emphasize[d] that nothing in our opinion precludes any State from placing further restrictions on its exercise of the takings power.” In the wake of the Kelo decision, the legislative and the executive branches of our state government have closely scrutinized a public entity’s authority under current law to acquire real property by eminent domain for redevelopment purposes (a type of economic development). Indeed, over the last several months the Assembly Commerce and Economic Development Committee has held hearings on this topic and, on May 18, 2006, the newly reestablished Department of the Public Advocate issued a detailed report offering numerous recommendations for reform.

One of the Public Advocate’s principal criticisms of the substantive law governing redevelopment acquisitions, the Local Redevelopment and Housing Law (“LRHL”), is the lack of objective, meaningful criteria for designating property as being in need of redevelopment – a prerequisite to condemnation - that is consistent with state constitutional limitations on redevelopment takings. Under Article VIII, Section 3, Paragraph 1 of the New Jersey Constitution, private lands may be taken for redevelopment only if they are “blighted areas.” Historically, according to the Public Advocate, blight has been understood to be a “current condition of . . . deterioration, decay and stagnation[,]” but current law far exceeds this understanding.

As a result of this self-searching process, it appears that New Jersey is now ready to take up the Supreme Court’s invitation to clarify the circumstances under which private property may be taken for redevelopment (and refine the statutory process for doing so).

On June 8, 2006, almost one year after the Supreme Court decided Kelo, a proposed reform bill (No. A3257) was introduced in the State Assembly, which incorporates many of the recommendations contained in the Public Advocate’s report. Significantly, the reform bill eliminates some of the overreaching and ambiguous language that the Public Advocate warned “could apply to virtually any property.” For example, under the reform bill a municipality would no longer be able to delineate property as being in need of redevelopment (the equivalent of “blighted” under the LRHL) merely because its current condition was “not fully productive.” Similarly, the reform bill deletes in its entirety the so-called “smart growth planning principles” criterion. The Public Advocate in its report strongly criticized the use of smart growth concepts as a basis for condemnation, because they have no bearing upon the present condition of the property being taken and this runs afoul of the “blighted areas” limitation under the New Jersey Constitution.

In addition to tightening up the criteria for the delineation of redevelopment areas, the reform bill treats many other aspects of redevelopment planning and the designation and acquisition of property for redevelopment purposes. Among these include the quality and quantity of pre-hearing and post-determination notices, the nature and extent of public participation in the redevelopment planning process, the content requirements for redevelopment plans, competitive bidding, the valuation guidelines for just compensation and relocation expenses. Of course, a complete evaluation of these (and other) proposed statutory changes is beyond the scope of this article. Suffice it to say that whether you own or lease property in an area being considered for redevelopment or are the designated redeveloper, a thorough understanding of redevelopment law as it continues to develop and change is crucial to protecting your interests – and, having competent legal counsel can make all the difference.

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Currently there is legislation pending in the New Jersey Legislature that will require builders to pay subcontractors upon demand or immediately instigate arbitration. These bills (A-3174/Caraballo and S-1726/Sweeney) are on a "fast track".

By way of background, this proposal provides that an invoice is automatically deemed approved and certified by an owner 10 days after the owner receives it, unless the owner disputes the amount in writing. It then requires the owner to make full payment to the contractor not more than 20 calendar days after the billing date specified in the contract. According to this proposal, all disputes regarding payment are submitted to binding arbitration.

This proposal was introduced by Senator Sweeney (D-3) in March, released from the Senate Labor Committee, and forwarded to the Senate Budget and Appropriations Committee for further review. The Assembly companion measure was introduced by Assemblyman Caraballo (D-29) earlier this month and forwarded to the Assembly Labor Committee for review.

Technorati Tags: New Jersey : Real Estate : Legislation : Prompt Pay : Contractor

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This week's New Jersey Legal Update podcast will discuss the recent Appellate Court decision in Siddons v. Cook which stated that condominiums may have a duty to warn condominium owners of potentially dangerous conditions known to it, even involving property or issues related only to an individual unit.

This week's New Jersey Legal Update is presented by Christopher Florio, Co-Chair of the Firm's Community Associations Group.

You can download the New Jersey Legal Update Podcast # 36 here.(4.5 MB)

Technorati Tags: New Jersey : Podcast : Community Association : Condo

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In an effort to clarify the rights of the over one million New Jersey citizens who reside in various community associations governed by an association board, the New Jersey Supreme Court has recently announced that it has granted certification and will hear the Twin Rivers Homeowners’ Association’s appeal of the Appellate Division’s decision in Committee for a Better Twin Rivers v. Twin Rivers Homeowners’ Association, 383 N.J. Super. 22 (App. Div. 2006). The landmark Appellate Division decision issued February 7, 2006, was previously the subject of an informative blog and podcast by David J. Byrne, Esquire, Co-Chair of the firm’s Community Associations Group.

A recent New Jersey Lawyer article speculates that the eventual Supreme Court decision may be the biggest free-speech case in the state since the Supreme Court’s 1994 decision in New Jersey Coalition Against War in the Middle East v. J.M.B. Realty Corp., 138 N.J. 326 (1994). In New Jersey Coalition, the Supreme Court ruled that private shopping malls must – subject to reasonable restrictions – provide free-speech rights to demonstrators and allow leafletting on issues of public import. In doing so, the Court observed that suburban shopping centers “have substantially displaced the downtown business districts at the centers of commercial and social activity.” In Twin Rivers, the Appellate Division went even further than the Court in New Jersey Coalition to say that community associations essentially perform public functions and have supplanted the role once played by towns and municipalities. Moreover, the Court in Twin Rivers went on to hold that state constitutional rights to free speech outweigh certain restrictions imposed by homeowners associations, even though such property is private. The Supreme Court will now be left to determine whether the Appellate Division’s decision went too far and was too expansive, ultimately leaving community associations without clear and defined parameters as to the rights of their members.

Stark & Stark will continue to monitor this significant case and provide timely updates as to its progress. If you would like to discuss the Twin Rivers decision and how it affects condominium associations in more detail, please contact one of the attorneys in Stark & Stark’s Community Associations Group.

Technorati Tags: New Jersey : Condo : Community Association

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When first entering into the mediation process, it is not unusual for one or both sides to not have much faith that mediation will be able to solve the dispute. However, experience has shown that a skilled, trained, mediator, with knowledge of the industry, can help to bring an amicable solution to even the most adverse situation.

As reported in The Washington Business Review, the Marty and Dorothy Silverman Foundation ("Foundation") is seeking payment of nearly $25 million for 31 acres of property from the University Heights Association ("UHA") in Albany, N.Y. The UHA is a consortium of the Albany Medical Center, Albany Law School, Albany College of Pharmacy and The Sage College's Albany campus, and is looking to improve the inventory of buildings on the four campuses as well as create a medical research hub and improve the surrounding neighborhood. The UHA contends that the $25 million in dispute were not loans that needed to be repaid and that the Foundation intended to forgive the payments. Foundation lawyers indicate that the UHA filed tax returns and financial statements in which it listed the payments as loans and that the loans are to be repaid.

The parties have been trying to come to a meeting of the minds that is acceptable to everybody, without success, for over three years.

After the filing of two lawsuits by the Foundation, the UHA attempted to seek Chapter 11 bankruptcy protection in a defensive move to protect association assets, but a Federal Bankruptcy Court Judge dismissed the filing as premature. State Supreme Court Justice Karla Moskowitz has ordered the two sides to try to work out their differences through the Alternative Dispute Resolution program in Manhattan.

While the parties are somewhat skeptical that mediation can help settle this longstanding dispute, both sides will give it a good faith try. The UHA indicated that the Chapter 11 could be refiled, depending on the outcome of mediation.

The Court will pick a mediator who is acceptable to both sides. The mediation process, which is anticipated to take between thirty and forty-five days, is non-binding.

It will be interesting to see if the mediation process can help these parties resolve their differences and avoid a costly fight played out in the courts.

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This week's New Jersey Legal Update podcast will discuss hedge fund registration issues and whether or not general partners and managers should register under the Investment Advisor Act.

This week's New Jersey Legal Update is presented by Aaron Buser, a member of the Firm's Securities group.

You can download the New Jersey Legal Update Podcast # 35 here.(7.7MB)

Technorati Tags: New Jersey : Podcast : Hedge Fund

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Stark & Stark's Investment Adviser Regulation group is pleased to announce that the latest Investment Adviser Compliance Update has been published and is available for download.

The Summer 2006 edition covers topics including:
Risk Assessment
SEC's New Examination Request List
Succession Planning Your Practice
Branch Office Registration
13-F
206(4)-7

You can download a copy of the latest Investment Adviser Compliance Upate here (PDF).

Technorati Tags: New Jersey : Securities : Compliance

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John MacDonald, a member of the Franchise group, authored the article Understand Relevant State Law When Starting a Franchise for Law Journal Newsletters Franchising Business & Law Alert, April 2006.

The article explains how franchising laws vary from state to state and how these differences should be taken into account when deciding on the location for a franchise.

You can read the article here.

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