Stark & Stark was featured in the August 29, 2007 edition of the New Jersey Law Journal in the article, Stark & Stark Acquires Two PA Firms. The article discusses Stark & Stark's recent merger with the law firms of Liederbach, Hahn, Foy & Van Blunk of Richboro, PA and Marston & Shensky of Doylestown, PA.
You can read the full article here.
Robert J. Durst, Chair and Shareholder of Stark & Stark's Divorce Group, has authored the article Perfecting Your Role As An Attorney, for the August 13, 2007 Family Law supplement of the New Jersey Law Journal.
You can read the full article here.
In most cases, the single most important issue in a minority shareholder oppression dispute is the valuation of the complaining shareholder’s interest in subject closely held company. One important sub-issue is the applicability of marketability and minority discounts in valuing a less than controlling interest in the subject closely held corporation.
Before considering whether or not these discounts are applicable, a general understanding of the marketability and minority discounts and the rationale behind them is important. Generally, a minority discount is an adjustment which could be applied based upon the minority shareholder’s lack of control over the closely held business entity. The theory behind the minority shareholder discount is that non-controlling shares of non-publicly traded stock are not worth their proportionate share of the firm’s value because the minority owner lacks voting power to control the corporation’s actions. The marketability discounts adjusts for a lack of liquidity in one’s interest in an entity, on the theory that there is a limited supply of potential buyers of the stock of a closely held corporation.
The general rule in New Jersey is that in a statutory appraisal for purposes of determining the “fair value” of shareholders owned by a dissenting shareholder, N.J.S.A. 14A:11-1 to -11, or for valuing shares in a court-ordered buy-out resulting from an oppressed shareholder situation, N.J.S.A. 14A:12-7(1)(c), neither a marketability nor a minority discount should be applied absent extraordinary circumstances. Balsamides v. Protameen Chemicals, Inc., 160 N.J. 352 (1999); Lawson Mardon Wheaton, Inc. v. Smith, 160 N.J. 383 (1999). In other words, marketability and minority discounts generally are not applied in New Jersey valuation proceedings where there will be no actual transfer of shares and a sale of the entire business appears unlikely. Denike v. Cupo, 394 N.J. Super. 357, 383 (App. Div. 2007) (citing, Brown v. Brown, 348 N.J. Super. 466, 489 (App. Div. 2002)).
Although, the general rule sets forth that these discounts should not be applied the New Jersey Supreme Court has held that where “extraordinary circumstances” exist the application of the marketability and minority discounts maybe warranted. For example, in Balsamides the New Jersey Supreme Court found that a 35% marketability discount was appropriate because the oppressing 50% shareholder who was to acquire the shares of the oppressed 50% shareholder. The Balsamides Court found that equity demanded that the oppressor not be rewarded for his conduct by allowing a buy out at a discounted price. Hence, these discounts maybe applied where equity dictates.
It is extremely important that all parties involved in minority oppression litigation consider whether or not “extraordinary circumstances” warrant their application. Moreover, it is extremely important for the advocates to either prove or disprove that there are extraordinary circumstances present that warrant the application of the marketability and/or minority discounts. It is important to consider these principals throughout the litigation. Whether or not these discounts apply will have a huge impact on the ultimate resolution of this complicated form of litigation.
In a recent decision by the Court of Appeals for the Third Circuit, the court held that the express language of the franchise agreement will govern over any previously agreed upon terms and conditions.
In Travelodge Hotels, Inc. v Honeysuckle Enterprises, Inc., the franchisee had previously owned and operated an independent hotel in Branson, Missouri. During discussions with Travelodge, it indicated that it would convert to a Travelodge franchise if it could be assured that such conversion would result in a fifteen percent increase in business. Sales representatives of Travelodge provided Honeysuckle with a “Monthly Lost Business Summary Report” indicating that Travelodge was unable to fulfill 13,000 reservations in Honeysuckle’s market. The franchisee and the sales representatives from Travelodge calculated that 5,400 of those reservations would have amounted to a fifteen percent increase in the franchisee’s business.
Honeysuckle subsequently entered into a license agreement with Travelodge. Although Honeysuckle negotiated three changes from the original license agreement, the final agreement did not include any reference to the condition regarding increased sales. In contrast, the license agreement expressly disavowed any express or implied covenants or warranties that were not otherwise stated in the agreement. The license agreement also contained language that the franchisee acknowledge that no salesperson made any promise or provided information about projected sales, revenues, income, etc.
After entering into the license agreement, the franchisee failed to pay the required royalty payments. Travelodge filed suit in the United States District Court for the district of New Jersey seeking outstanding fees as well as liquidated damages. Honeysuckle filed a breach of contract counterclaim, as well as a claim that it was fraudulently induced to enter into the license agreement by Travelodge producing the “Monthly Lost Business Summary Report”, indicating that Honeysuckle would increase its business by at least fifteen percent. Honeysuckle also produced evidence that the report inaccurately reported the number of room requests. Notwithstanding, the District Court entered judgment in favor of Travelodge.
In affirming the District Court’s decision, the Court of Appeals held that if the franchisee believed that Travelodge had guaranteed the fifteen percent increase in business, it would have insisted that such term be included as one of the negotiated changes to the license agreement and would not have signed an agreement that expressly negated any such guarantee. In addition, the court held that any purported reliance by Honeysuckle on Travelodge’s statements were refuted by the multiple acknowledgments contained in the agreement that no Travelodge representative made any representations about sales and profits.
Last month, a House bill known as H.R. 3010 and Senate Bill 1782 (both generally known as the “Arbitration Fairness Act of 2007”) started moving through the judiciary committees on their way to further action by Congress. These bills would seek, among other things, to void all arbitration agreements related to franchise disputes. A “franchise dispute” is defined in both bills to include disputes regarding franchise sales, operations, and even the franchise fee itself. These bills are an attempt by legislators to circumvent established case law that have uniformly enforced arbitration agreements in the areas of employee disputes and consumer purchases.
The impact of this legislation is considerable. New Jersey courts, like several other states, have held that franchise agreement provisions providing for out-of-state arbitrations are enforceable. See Allen v. World Inspection Network, Int’l, Inc., 389 N.J.Super.115, 911 A.2d 484 (App. Div. 2006). Previously, the New Jersey Supreme Court held that forum-selection clauses in franchise agreements are presumptively invalid, and should not be enforced. Kubis & Perszyk Assocs. v. Sun Microsystems, 146 N.J. 176 (1996). However, New Jersey courts (as in other states) have distinguished arbitration provisions from other forum selection clauses under the rational that the Federal Arbitration Act preempts state franchise laws. This legislation would effectively negate the rational applied by the Allen court, as well as other courts throughout the country.
While not much will occur during the remainder of August due to Congress’ summer break, these bills will be moving through the respective Committees at the beginning of September.
The deceptively titled “Employee Free Choice Act of 2007” has been defeated in Congress. The Act, which would have allowed for, among other things, “card voting” by employees to establish a union (in lieu of an actual, verifiable vote) posed a significant risk to the franchisor community.
Although strong union interests quickly moved the bill through the House in the Spring, bi-partisan action has effectively defeated the Bill. Although this is good news for franchisors, the franchisor community needs to watch for any attempts to revive this defeated legislation over the next year leading up to the presidential election campaign.
It used to be that homeowners went to their local banker to borrow funds to purchase a new home. The local banker usually knew the home buyer as well as the property and its value. If the homeowner later encountered trouble making timely payments, he or she would go back to the bank which held their mortgage, meet with their banker, and together they would try to work out a solution acceptable to both sides to forestall a possible foreclosure.
Now, however, it is not unusual for a home buyer to use the internet or a mortgage broker to find a lender for them with whom they have had no prior contact. And thus begins a confusing journey for a homeowner who may someday be in financial distress and need to find the ultimate holder of their mortgage.
In recent years a process called “securitization” has made mortgages much more easily available to home buyers. At the same time, this process has made it much more difficult for a borrower to locate the ultimate holder of their mortgage with authority to modify the terms of their loan.
The process begins when a borrower goes to a mortgage broker or lender who originates their loan. The loan is then assigned to a servicing company which collects the homeowner’s mortgage payments which are available for distribution to investors. A Wall Street investment bank then gathers thousands of these loans and packages them together to create mortgage-backed securities which generate an income stream from the loan payments to be distributed to investors. The securities are in the form of investment trusts. Once these loans are gathered and placed in a trust, the trust issues bonds which are sold to investors. A trustee bank oversees the trust, including the servicers of the loans, on behalf of investors. At each stage - the gathering of loans into a trust, the servicing of loans, there are agreements setting forth the responsibilities of the overseeing party. This agreement binds the servicer of the mortgage and controls what a servicer can do to assist borrowers who are behind in their loan payments. Because the borrower makes their mortgage payments to the servicer, the servicer is their primary contact in this process.
It is the limitations which are frequently imposed on a servicer to modify existing loans in a trust which have been creating difficulties for buyers in distress who are attempting to resolve their problems with their lender prior to a foreclosure action being instituted. Such borrowers are finding it increasingly difficult to find a party who has the authority to make substantive modifications to their mortgages to alleviate or “work out” a borrower’s immediate financial problems.
The extent to which mortgages are now securitized (60% of the home mortgages made in the U.S. in 2006 went into securitized trusts) has added to the difficulties the mortgage industry is currently facing. Often, there is no easy way to find a responsible party who can help a borrower find a solution when a borrower is facing financial distress, leaving the commencement of a foreclosure action more likely.
A New Jersey appeals court has affirmed the state's right to a phase-in period before it accepts joint income tax returns from same sex couples under the New Jersey Civil Union Act.
In Quarto v. Adams the Appellate Division rejected a constitutional challenge by two women who claimed that their 2003 Canadian marriage entitled them to full parity with heterosexual married couples, including the right to file a joint income tax return as of October 25, 2006, the same day the New Jersey Supreme Court issued its decision in Lewis v. Harris granting same sex couples the same rights as heterosexual couples.
The appeals court ruled that New Jersey's recognition of the relationship would, however, begin on February 19, 2007, the same day the New Jersey Civil Union law went into effect. This was also the same day that the New Jersey Attorney General's Office issued a formal opinion granting recognition to same sex marriages from Canada and some other nations.
The result is that same sex couples will be allowed to file joint New Jersey income taxes beginning in 2007.
Adam J. Siegelheim, member of Stark & Stark's Franchise Group, was quoted in this month's Franchise Times' article Big Deal? Domino's decision could have big impact, or not.
You can read the full article here.
Thomas B. Lewis, Chair of Stark & Stark's Employment Group, and Shareholder of Stark & Stark's Litigation Group, was quoted in the August 6, 2007 issue of the National Law Journal, in the article, Litigation Gets Personal.
You can read the full article here.
Paul W. Norris, Shareholder and member of Stark & Stark's Litigation Group, was quoted in Friday's New Jersey Law Journal Article, Californian Can Be Sued in NJ for Alleged Libel on Internet.
The article discusses the recent decision in Goldhaber v. Kohlenberg, which states that making libelous statements in a web-based forum can be grounds for suit in New Jersey, because the material was "targeted" toward a New Jersey Audience.
You can read the full story here.
The Third Annual Eminent Domain in New Jersey Conference, presented by CLE International and Stark & Stark, will be held October 15 and 16, 2007 at the Nassau Inn Princeton, New Jersey. This is an educational two-day seminar focusing on finding a balance between property owner's rights and condemning authorities.
The seminar will provide a case law update and seminars focusing on: representing municipalities, legal challenges one will face during the redevelopment process, updates on redevelopment legislation and a discussion on condemning residential areas vs. commercial/retail/industrial areas.
The conference will also feature a mock trial with the Honorable Douglas J. Wolfso, Esq. and several New Jersey Real Estate attorneys, including Stark & Stark Shareholder, Timothy Duggan.
Mr. Duggan and Vincent Mangini, both Shareholders and member of Stark & Stark's Condemnation and Real Estate Groups, will present the case law update at this year's seminar.
You can log onto CLE's seminar page for registration information and a downloadable brochure of the conference here.
NaturalLawn of America, Inc (NaturalLawn), a national franchisor of organic-based lawn care services obtained a preliminary injunction against a former New Jersey franchisee (the West Group), enjoining it from continuing to operate. NaturalLawn of America, Inc. v. West Group, LLC, 484 F.Supp.2d 392 (D.MD. 2007).
The West Group entered into three separate franchise agreements for different territories in New Jersey. At the expiration of these agreements, the West Group elected not to renew its franchise agreement, claiming that NaturalLawn’s marketing practices violated New Jersey law regarding pesticides.
Each franchise agreement contained post-termination covenants, including a two-year non-compete. Notwithstanding, upon the expiration of the franchise agreements, the West Group began operating a substantially similar business in the same territories, providing its customers with a letter indicating that it was now operating under the name “Jersey Green”.
NaturalLawn filed suit in the United States District Court in Maryland. In granting the preliminary injunction, the court described the West Group’s behavior as “inexcusable” and “as blatant and unjustified a repudiation of subsisting contractual obligations in a commercial context as had been known to or encountered by this court.” The court held that NaturalLawn was likely to succeed in proving that its trademark had been infringed, that West Group misappropriated NaturalLawn’s trade secrets, including its customer lists, and that the West Group had violated the non-compete.
In rejecting the West Group’s argument that NaturalLawn’s marketing practices violated New Jersey law, the court referred to this argument as “deeply misguided” and that the court was “not remotely convinced that New Jersey law is violated by [NaturalLawn’s] business model.” In addition to not providing the court with sufficient evidence that the marketing practices violated New Jersey law, the court also pointed out that the West Group provided no plausible explanation as to why it continued to operate the franchises for more than two years.
A number of States, including New Jersey, have recently enacted Civil Union or Domestic Partnership statutes which grant same sex couples some, but not all, of the rights and privileges of marriage.
In many instances persons who are now entering into Civil Union or Domestic Partnerships have been previously married, and a typical provision in their Marital Settlement Agreements or Divorce Judgments is that alimony of spousal support will terminate if they cohabit with an unrelated person in a relationship "analogous or equivalent to " a remarriage.
The issue has already arisen in several States as to whether a Civil Union or a Domestic Partnership with a person of the same gender is a relationship "analogous or equivalent to" remarriage which should terminate a person's right to alimony from a prior spouse. The matter is further compounded when the agreement or divorce judgment specifically refers to "cohabitation with a person of the opposite gender".
Arguments have been made that "remarriage" means remarriage, not something short of marriage and that if the parties chose to limit the cohabitation to persons of the opposite gender, their contract should be strictly interpreted and their support should continue notwithstanding a same gender Civil Union or Domestic Partnership.
A recently decided and well reasoned decision by the Virginia Court of Appeals held that a Civil Union was "analogous" to remarriage and terminated a Civil Union partner's prior alimony award. Stroud v. Stroud 49 Va. App. 359, 641 SE 2nd 142 (2007).
The Virginia Appellate Court reasoned that the phrase "analogous to remarriage" does not mean remarriage, but rather, by definition, analogous means "similar in some way" to remarriage. The Court held that an analysis of the particular relationship in issue supported the conclusion what it was, indeed, similar in a number of ways to marriage and, therefore, was a legitimate basis to terminate one of the parties alimony from a prior relationship.
By comparison a widely publicized case from the State of Oregon (for which a citation could not be found) recently came to an exactly opposite conclusion.Ultimately the highest Court of every State which has adopted Civil Union or Domestic Partnership Statutes will have to address this issue, and, perhaps, the United States Supreme Court will address the issue on a Equal Protection argument.
Until the issue has been addressed and resolved by a New Jersey Appellate Court, little or nothing can be done with regard to existing agreements judgments. However, competent representation now requires that this issue be considered in the negotiation and drafting of current agreements or judgments. If it is the intention that alimony should terminate in the event of a same gender cohabitation it should be clearly so stated. If not, the converse should be specifically stated.
To omit a specific reference will leave the parties open to an unknown and presently unpredictable future determination.
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