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

David J. Byrne, Shareholder and member of Stark & Stark's Community Associations group presented a seminar at the 21st Annual Cooperator's Co-Op & Condo Expo which was held April April 28 - 29, 2008 in New York. New York.

The seminar focused on avoiding litigation and stopping lawsuits before they start. Mr. Byrne discussed strategies for avoiding litigation related to everything from unpaid fees to disputes between neighbors, and discussed and analyzed laws and regulations governing administrative documents.

You can view a copy of the seminar materials here. A full recording of the seminar will be available online next week.

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A unit owner in a top floor of a Union City condominium recently decided to pay his monthly assessments into an escrow account, alleging that the condominium association had failed to maintain the roof, proximately causing damage to the unit, and personal injury to the owners living inside. In this matter, the owners filed a suit against the condominium, its board members and its managing agent, seeking damages associated with what they contend is a breach of duty on the condominium's part. The owners vacated their unit, and now claim that the condominium must restore the unit's interior and there after pay money to plaintiffs to compensate them for the loss of use of the unit and for disease and other maladies from which they contend to be suffering. In response, the condominium recorded a lien and filed a counterclaim seeking a judgment for all unpaid assessments, late fees and attorney fees. With the case still in its early stages, Megan Christensen and I filed a motion for partial summary judgment, on the condominium's behalf, seeking a judgment against the owners for all unpaid assessments and late fees. We argued that it is clear and fundamental under New Jersey law that a condominium owner must pay assessments regardless of what condition the unit may or may not be in. We asserted, basically, that there is no lawful reason why a condominium owner can ever fail and/or refuse to pay assessments. In response, the owners argued that the alleged, subjective, condition of their unit excused their nonpayment and/or that they should be freed from paying assessments until those conditions are remedied.

Fortunately, for the good of all members of this condominium, the court agreed with us, ruling that these owners are forbidden from withholding payment of assessments, and entering a judgment against the owners. The court also awarded late fees to the condominium. While the owners are still permitted to continue their suit against the Association, they have a judgment against them for all unpaid assessments and late fees. The condominium can execute on that judgment and, also, base a foreclosure action on this decision.

In the end, this case is another decision in a long line of decisions that reiterate the following basic principle under New Jersey law: a condominium owner is absolutely forbidden from withholding, or refusing to pay, assessments, for any reason. Condominiums should continue to hold the line against owners that try to hold their neighbors hostage by withholding the payment of assessments. While condominiums can always try to negotiate or otherwise discuss the dispute with owners, and reach an agreement or not, they should enter such a process from a position of strength, as they can always get the court to force the offending owner to pay his assessments, despite whatever else may be happening.

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Martin P. Schrama and Melissa D. Doogan authored the article Recent Revisions to the Trademark Trial and Appeal Board Rules for the New Jersey Law Journal's April 14, 2008 Intellectual Property & Life Sciences Supplement.

The article discusses the impacts the substantial rule changes set forth by the Trademark Trial and Appeal Board and the United States Patent and Trademark Office will have on trademark opposition and cancellation actions.

You can read the full article here.

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What is a short sale?  This a term which is being used with increasing frequency in today’s real estate market.

A short sale is when the proceeds from the sale of a home are not sufficient to fully pay off all outstanding debts which are secured by the property (mortgages) after first deducting the homeowner’s costs of selling the property.  In such instances, the selling homeowner can either bring funds to closing to make up the difference, or obtain approval from his mortgage holders to accept a reduced amount to satisfy his outstanding loans. 

Unless a homeowner is able to pay off all of the mortgages which are secured by his property, the homeowner will not be able to convey good title to a buyer.  If the homeowner is unable to obtain a sales price which enables him to pay off all loans and closing costs, and he does not have the funds to make up the difference, then he may want to try to obtain approval from his current lender(s) to accept an amount less than the full amount due on its mortgage.  For a lender, this may be acceptable to obtain repayment of a substantial amount of its loan and to avoid the costs and delay of foreclosing on the loan.  This will generally mean that the Seller will not receive any funds from the sale of his home.

In order to obtain such approval from a lender - which may or may not be granted - the homeowner needs to contact his lender(s) to determine what information they will need to make their decision.  This usually includes a financial statement of the homeowner, copy of a contract of sale, appraisal, and other pertinent documents.  Generally, a lender will not consider approving a short sale without a clear economic hardship on the part of the homeowner and an existing default or pending foreclosure.

Until recently, forgiveness of a debt under these circumstances, could trigger a taxable event according to the IRS.  This means that if a lender forgave a part of the mortgage debt by accepting a reduced amount in full satisfaction of the loan, then the amount forgiven could be deemed taxable income to the homeowner.  This was so even though the homeowner received nothing from the sale.  However, in December 2007 Congress passed the Mortgage Forgiveness Debt Relief Act of 2007.  This Act amends the Internal Revenue Code to exclude from gross income amounts attributed to a discharge of indebtedness incurred to acquire a homeowner’s principle residence.  The amount of the debt forgiveness can be up to $2.0 million.  Thus, a homeowner is now able to sell his home for less than what is owed on it without incurring an additional tax liability.   This exemption for forgiven debt, however, is only temporary and expires within three years.

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House Bill 2491 and Senate Bill 1539 of the New Jersey Legislature seek to expand the type of franchises, which are subject to the New Jersey Franchise Practices Act. In general, the New Jersey Franchise Practices Act currently applies to franchises where: 1) the franchisor has granted the franchisee a license, mark, trade name, etc.; 2) there is a “community of interest” in the marketing of goods and services; 3) where the franchisee has established or maintains a “place of business” in New Jersey; 4) where the gross sales between franchisor and franchisee are more than $35,000 in the prior year; and 5) more than 20% of the franchisee’s sales are derived from the franchise. The proposed change in the statute would apply the provisions of the Franchise Practices Act to “mobile” franchises, in other words, franchises that do not have a brick and mortar location. Under the proposed Bill, a “place of business” would include a location where the franchisee “displays for sale or at which or from which the franchisee sells the franchisor goods.” This would include an office or warehouse from which franchisee personnel visit or call upon customers or, perhaps more importantly from which the franchisor’s goods are delivered to customers.

Potentially more significant than the proposed changes to the definition of “place of business” is the additional language that the Bill would tack on to the “general purpose” section of the Franchise Practices Act. The proposed Bill would add the following language:

“…and to protect franchisees from unreasonable termination by franchisors that may result from a disparity of bargaining power between national and regional franchisors and small franchisees. The legislature finds that these protections are necessary to protect not only retail businesses, but also wholesale distribution franchisees that “through their efforts” enhance the reputation and goodwill of franchisors in this State. Further, the legislature declares that the courts have in some cases more narrowly construed the Franchise Practices Act then was intended by the legislature”.

This additional language should concern franchisors doing business in New Jersey, since it is unnecessary to achieve the expansion to the “place of business” definition that is the focus of the Bill. This tougher language may indicate that there are further changes to the statute being considered. Certainly, the inclusion of the proposed language would be used as a justification by judges to give much broader application to the Act than has been the case in years past.

The two Bills are currently in the initial stage of the legislative process, and will probably not be acted upon until May or June of this year. The current sponsors of the two Bills are Assemblyman Joseph Cryan – District 20 (Union County) and Senator Bob Smith – District 17 (Middlesex and Somerset Counties). The legislation was introduced in the House on March 10, 2008, and in the Senate of March 17, 2008.

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David J. Byrne, Shareholder in Stark & Stark's Community Associations group will present at the 2009 Cooperator Co-Op & Condo in New York, New York. The expo will take place Tuesday April 29th from 9AM - 5PM.

Mr. Byrne will present  on avoiding litigation.  During the seminar Mr. Byrne and an experienced property manager will discuss strategies, ideas and ways for cooperatives, condominiums and homeowners associations to avoid litigation.  The speakers will discuss ways unpaid maintenance fees and assessments can be collected, ways regular payments can be assured, without necessarily resorting to counsel. 

They will discuss alternative dispute resolution and conflicts among shareholders, owners, neighbors, boards and others.  Strategies, both practical and legal, to deal with difficult and objectionable shareholder and/or owner conduct will be provided.  Laws and regulations applicable to document retention, and the inspection of records by shareholders and owners, will be reviewed and analyzed."

You can find additional information and ways to register here.

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On March 31, 2008, the New Jersey Supreme Court decided Toll Bros. v. Board of Chosen Freeholders, which principally held that a developer may seek to modify or reform an off-tract improvements obligation in a developer’s agreement when the project to which such obligation relates has changed.  By ruling in this fashion, the Supreme Court took a practical and equitable stand in resolving the problems that developers and property owners face when things just don’t work out as planned.

The facts of Toll Bros, like all cases, are of importance to understanding fully the context of the instant controversy and the breadth of the Supreme Court’s decision.  Briefly, the developer in this case - Toll Brothers, Inc. - acquired a parcel of land in foreclosure with municipal and county approvals and, thereafter, entered into developer’s agreements with Burlington County and Moorestown Township to memorialize its agreement to complete certain off-tract roadway improvements, which the local planning board and the county planning board had required as a condition of the approvals applicable to the Toll Brothers property and a smaller, adjacent parcel owned by another corporate entity.  Over time, Toll Brothers substantially decreased the scope of the original development plan for its property while the approximate cost of the required off-tract improvements had risen from $2,100,000 to $5,000,000.  However, notwithstanding these circumstances, neither the County nor the Township were willing to adjust Toll Brothers’ obligations and, consequently, a multitude of lawsuits were commenced.

The trial court consolidated all of the aforesaid actions and found, among other things, that unlike the conditions of approval contained in a resolution Toll Brothers had no right to seek a modification or reformation of a developer’s agreement based upon a change in circumstances.  In a reported decision, 388 N.J.Super. 103 (2006), the Appellate Division affirmed the trial court with respect to its rulings on the County’s right to enforce its developer’s agreement, but reversed the trial court’s decision regarding the Township’s developer’s agreement.  The reason for the Appellate Division’s distinction in this regard resided in the specific text of each contract.

Under the County’s developer’s agreement, Toll Brothers had to construct all the off-tract improvements when the number of buildings for which it had received permits generated more than 18% of the traffic projected for development under the original plan.  As such, according to the Appellate Division, Toll Brothers’ downsizing was largely irrelevant to the County’s developer’s agreement, because its obligation to build out the improvements was not tied to the completion of development under the original plan but, rather, accrued upon the 18% trigger. 388 N.J.Super. at 129.  Although the Appellate Division acknowledged that the Municipal Land Use Law prohibited the County from requiring Toll Brothers to build the off-tract improvements identified in the developer’s agreement as a condition of approval for Toll Brothers’ downsized development plan, it ruled that such limitations are inapplicable to a voluntary agreement. Ibid. at 123-124.  Contrarily, under the Township’s developer’s agreement, the contractual language required staged improvements that were directly linked to the original development plan and, therefore, could not be enforced once the scope of such plan had been reduced. Ibid. at 130-131.

On appeal, the Supreme Court began its analysis by recognizing that “[u]nder the MLUL, a planning board may only impose off-tract improvements on a developer if they are necessitated by the development.”  As such, “[a] developer cannot be compelled to shoulder more than its pro rata share of the cost of such improvements. . . . [This] is so even if the developer is a willing participant in a separate developer’s agreement.” – A.2d –, 2008 WL 833160 (N.J.) at *1.  To hold otherwise, would be contrary not only to the letter and spirit of the MLUL, but also sound public policy. Ibid. at *14.

Furthermore, even if disproportionate public benefits and improvements could be obtained from developers on a truly voluntary basis, such arrangements would “[p]lainly violate the nexus and proportionality requirements in the MLUL that serve as the Legislature’s check on a municipality’s limited planning power[,]” and thereby would be unenforceable.  A municipality’s exercise of this “limited planning power” must comply with the dictates of the MLUL even if the same is expressed in a contract rather than a resolution of approval.  Indeed, “[a] developer and a municipality cannot do by contract what the statute prohibits.” Ibid. at *15.  On the contrary, “[a] developer’s agreement is an ancillary instrument, tethered to the conditions of approval, and exists solely as a tool for the implementation of the resolution establishing the conditions.  Accordingly, if the resolution . . . changes, the developer’s agreement enjoys no independent status and must be renegotiated.”  As such, “[w]e do not view the ancillary developer’s agreement as a bar to Toll Brothers’ application for modification of the resolution setting the conditions of approval.” Ibid. at *13.

The Court also rejected the County’s alternative arguments, namely, that “[e]ven if Toll Brothers is not barred from advancing a changed circumstances challenge to the conditions of approval,” it is not entitled to relief, because the project was not completely abandoned and “[b]ecause the County relied to its detriment on what it considered the binding developer’s agreement in its later dealings with other developers.”  As to the first alternative point, the Court stated that limiting a developer’s right to seek a modification of a condition of approval only to instances where a project is abandoned “would offend the nexus and proportionality requirements reflected in the MLUL.”  Respecting the County’s detrimental reliance claim, the Court likened this to promissory estoppel and given that “[b]oth Toll Brothers and the County knew or should have known that the conditions of approval were subject to change if the facts in the case changed and that the developer’s agreement was not a stand-alone obligation[,]” the County’s reliance was not reasonable and, therefore, “this argument too must fail.” Ibid. at *15-16.

In light of the Court’s determinations, it reversed the Appellate Division and remanded the matter to the trial court for further proceedings.

The foregoing summary of Toll Bros. v. Board of Chosen Freeholders shows how the Supreme Court in this case was determined not to let local and county government reap a windfall of public benefits at the expense of a single developer, who for one reason or another was unable to complete a particular project as originally approved and, instead, send a firm message that such situations call for flexibility and accommodation.  The common sense approach taken by the Supreme Court will have positive implications for developers and the building industry, especially now, in the current financial climate where flexibility is unquestionably at a premium.

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Recently, the Appellate Division of the State of New Jersey in Patel v. 323 Central Avenue Corp., et. al., declared that a tenant’s exercise of his option to purchase certain commercial property was barred.  The court found that the contract was never signed, no enforceable oral agreement was ever intended, the tenant did not make a valid election to exercise his option under lease, and the tenant did not extend his option under the lease.  See Patel v. 323 Central Ave. Corp., et al. A-3724-06T2 (App. Div. 2008).

This decision is very helpful to commercial landlords as it supports basic contract law maxims, which requires commercial tenants who wish to exercise certain options to exercise those options with particularity and pursuant to the terms of the contract.

Background
The tenant was a physician who entered into a lease agreement for commercial property in Orange, New Jersey.  The landlord was wholly owned by Ocean Mountain Healthcare Incorporated.  In addition, Cathedral Healthcare Systems (the “Affiliate”) had an affiliation agreement with the hospital.  The tenant’s lease for the commercial space was to terminate on March 19, 2005.  The lease provided the tenant with an opportunity to extend the term of the lease and the right to purchase the commercial property.  The tenant sent a letter to the Chairman of the Affiliate (not the landlord)  in February 2004 expressing a desire to exercise the option - almost a year prior to the expiration of the contract.  Although not specifically noticed by the tenant, the landlord sent back an unsigned  written contract to sell the property.  The tenant then forwarded a deposit check to the landlord with the signed contract.  After the lease term ended, the landlord forwarded to the tenant a letter advising that it was no longer in the position to sell the commercial space, later returning the tenant’s deposit check.

The tenant filed suit claiming specific performance, breach of contract, breach of implied covenant of good faith and fair dealings, fraud, consumer fraud, successor liability.  The lower court dismissed all counts of his complaint.  The Appellate Division affirmed that ruling.  

Appellate Division Upholds Landlord’s Rights
The Appellate Division, upon review of the case, noted that the tenant failed to present clear and convincing proof of the contract.  Noting in the record, that although that the landlord had forwarded a contract to the tenant to sign and the tenant had executed the contract, as well as provided the deposit, at no point had the landlord actually signed the contract.  Further, the Court noted that when the tenant exercised its option to purchase the lease term failed to request an extension of the term.  As such, when the landlord advised the tenant that it no longer wanted to sell the building, the tenant was outside his contractual period.  The Court also noted that the tenant had failed to strictly comply with the terms of exercising his option.  For instance, the contract provided that the tenant was to provide notice to the landlord via certified mail, return receipt.  Rather than sending to the landlord, the tenant sent this option to the Affiliate.

Practical Implications for Commercial Landlords
This opinion is very beneficial to commercial landlords providing a tenant the option to purchase the commercial property.  The contractual obligations of both parties will not be over ridden simply by one party’s assumption that it has complied with specific provisions of the contract.
    
Following are some issues that commercial landlords should review with their attorney before providing an option to purchase.  

1. Review the notice provisions of the option.  For an option to be exercised correctly, it should be noticed pursuant to the terms of the contract.  If the notice requires for certified mail, return receipt then the notice should be sent via that method. .
2. Be sure to correctly exercise the option.  When an option is exercised, it is important for the party exercising that option to ensure that all portions are exercised.  In this case, the tenant only attempting to exercise his option to purchase the property.  He did not exercise any option to extend the lease term.  Due to the tenants failure to exercise his option to extend the lease period, when the landlord rejected his offer to purchase the property, the tenant had no recourse.
3. Is this the final version of the lease?  In this case, the landlord’s counsel was acute to note to send a “draft” contract without any signatures.  The landlord did not agree to these terms but rather put a “draft” contract out for the tenant’s review.  As such, when the tenant signed it, the contract was still in flux at this point.

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On March 31, 2008, the New Jersey Superior Court, Appellate Division, decided Viecelli et al. v. Planning Board of the Borough of Point Pleasant, et al., an unpublished decision. In this case, the plaintiffs constructed improvements on land for an ice cream shop after receiving site plan approvals from the planning board. After numerous inspections, the planning board’s engineers advised the municipality by letter that the plaintiffs had satisfactorily completed the project in accordance with the planning board’s resolution of approval and in reliance upon these representations the municipality issued a certificate of occupancy.

Some time later, the planning board discovered that the completed improvements differed from the approved site plans and demanded that the plaintiffs remedy all such deficiencies.The plaintiffs filed suit challenging the planning board’s decision. In addition to requests for declaratory and injunctive relief, the plaintiffs brought claims for damages under the Tort Claims Act and the Civil Rights Act of 1871. In response the planning board filed a claim against the plaintiffs under the Frivolous Litigation Statute and one of its members, who the plaintiffs were suing personally, brought a counterclaim alleging the plaintiffs’ facilities constituted a nuisance.

The chancery judge found, among other things, that the planning board was not estopped from requiring the plaintiffs to comply with the approved site plan despite the issuance of a certificate of occupancy and, as such, required the plaintiffs to either submit to the planning board an amended site plan application or comply with the site plan, as approved. Additionally, the chancery judge dismissed without prejudice the Tort Claims Act causes of action for failing to comply with the statute and dismissed with prejudice the Civil Rights Act claim on grounds of immunity.The chancery judge also dismissed the nuisance counterclaim and denied the planning board’s request for counsel fees under the Frivolous Litigation Statute.

The plaintiffs appealed from the judgment of the trial court, which the Appellate Division affirmed. In upholding the trial court’s ruling on the estoppel issue, the Court found that the plaintiffs had no grounds for reliance upon the certificate of occupancy.

Although the CO was issued by the Planning Board on their engineer’s apparently erroneous recommendation, plaintiffs did not fulfill their obligations either.  The authorizing resolution and the application for the CO specifically required plaintiffs to bring any deviations to the Planning Board’s attention, and they chose not to do so. . . . [P]laintiff’s knowledge and failure to act in accord with the resolution and the application for a CO defeats their claim of equitable estoppel.

In light of this determination, the Court concluded that the planning board “[w]ill not be barred from compelling plaintiffs to modify their completed site, or seek approval of a modified site plan, despite the issuance of a CO.” 

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For more information on landlord tenant issues, for residential or commercial leases, please feel free to contact Tom Onder, Stark & Stark’s Commercial Litigation and Creditor’s Rights Group at (609) 219-7458 or via email a tonder@Stark-Stark.com.

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The Vermont legislature introduced House Bill No. 790 on February 1, 2008.  The Bill would render non-compete provisions of franchise agreements void unless the franchisor can prove to the Court’s satisfaction that the franchise agreement is:  (1) consistent with public policy; (2) necessary to protect the franchisor; (3) not a contract of adhesion; and (4) reasonable considering the subject matter and conditions.  Clearly the third requirement is problematic. 

A “contract of adhesion” is legal-speak for “non-negotiable” and is “take-it-or-leave-it” in nature.  Most franchise agreements are non-negotiable because it is important for the system to maintain uniform and consistent standards.  However, various courts have deemed franchise agreements to be contracts of adhesion because of the superior bargaining power of the franchisor.  Since most franchise agreements are contracts of adhesion, and if this Bill passes, it will be extraordinarily difficult for franchisors to enforce non-competition agreements among franchisees in Vermont. 

One can only hope that this idea does not spread beyond the borders of the Green Mountain State.    Vermont’s legislature appears intent of following this strange course of action, which is out of step with the other states.  Watch this log for more updates.

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The issue of pre-owned assets frequently arises in divorces involving persons who were married later in life or second marriages.  If one or both of the parties have accumulated assets prior to their marriage, very difficult issues often arise as to how those assets should be treated in the event of a divorce.
   

Although this article will not specifically discuss Prenuptial Agreements, the best advice to be given to any person who own significant assets at the time of their marriage, is to negotiate and properly execute a Prenuptial Agreement.
   

The Prenuptial Agreement should specifically itemize the pre-owned assets by description, estimated value, account number or other clear and unequivocal identification.  The Agreement should then define not only the intended distribution of such assets in the event of a divorce, but the distribution of any increase in value and whether or not either or both of the parties should receive credit for maintaining or paying the carrying costs such as mortgage payments or taxes for a pre-owned asset.
   

However, in those cases in which the parties do not negotiate and enter into a Prenuptial Agreement, the distribution of pre-owned assets can become a complex issue in the event of a divorce.
   

The general rule is that only assets which are “acquired” during the marriage are subject to distribution at the time of the divorce.  By definition, assets which were owned prior to the marriage are not “acquired” during the marriage and are, therefore, not subject to marital distribution.
   

The starting point for any analysis of pre-owned assets is to develop a balance sheet of the assets which either or both parties owned at the time of the divorce and, to the extent possible, from account statements, IRA or 401(k) account statements, pension statement or real estate tax records establish a value of the asset as of the date of the marriage.
   

Unfortunately, however, as with any general rule, there are often more exceptions to the rule than there are consistencies in its application.
   

One of the most frequently encountered exceptions is when one or both of the parties transfer pre-owned assets from their individual names subsequent to the marriage.  Many people make such transfers for tax claiming purposes, estate planning purposes or sometimes simply in order to have control over the asset in the event of the other party’s disability.
   

While the transfer of a pre-owned asset from individual to joint names may be appropriate for any of these purposes, it may also have very significant consequences in the event of a divorce.  In most instances, the law will find that there was a “transmutation” of the asset from an individual pre-owned asset which would be exempt from marital distribution into a marital asset.  It is presumed that the person making the transfer intended the other person to have a joint interest in the asset and it is further presumed that the person making the transfer understood that by doing so, the asset would become subject to marital distribution in the event of a divorce.  Although rebuttable, these presumptions are very difficult to overcome at the time of a subsequent divorce and any time a pre-owned, individually titled or owned asset is to be transferred into joint names, serious consideration must be given to the impact which such transfer would have upon that asset in the event of a divorce.
   

Further problems arise when the pre-owned asset increases in value during the marriage.  For example, a home which is owned by one of the parties at the time of the marriage may significantly increase in value over the several years of the marriage.  Similarly, a business owned by one of the parties at the time of the marriage may increase in value during the marriage.  Or, something as simple as an IRA account, a brokerage account or a bank deposit may increase in value over the course of the marriage. 
  

Any time there is an increase in the value of the asset, the increase in value must be analyzed from several perspectives. 
   

First, was the increase as a result of additional contributions to the account or, in the case of real estate, improvements to the property.  If so, such added contributions or improvements would be “acquired” during the marriage and would be subject to marital distribution in the event of a divorce.
   

On the other hand, if the asset has increased in value without added investment, contributions or improvements, the increase must be analyzed as to whether it is “active” or “passive.”  “Active,” generally speaking, means that the increase was as a result of work effort or management by one or the other of the parties.  “Passive” means that the increase in value has been simply as a result of market forces or inflation.
   

For example, a simple brokerage account which was not traded, but yet increased dramatically due to market force would probably be a “passive” increase.  On the other hand, if the account was actively managed, traded and controlled by one or the other of parties, and the increase in value could be traced to that party’s trading or management decision, the increase would likely be “active.”
   

In the case of most small businesses or professional practices, the increase in value is almost always attributed to work efforts of one of the parties.  In the case of real estate, an increase in value may be a combination of inflation and market factors or as a result of the party’s maintenance, improvement or upgrades to the property.
   

Obviously, it is very difficult to accurately and precisely separate the amount of increase which is “active” versus that portion of the increase which is “passive.” 
   

Issues arise such as How much did the home increase in value because the parties remodeled the bathroom versus how much the increase is simply attributed to an increase in the value of real estate in general.
   

Unfortunately, the difficulty in analyzing and distributing pre-owned assets and/or their increase in value does not end simply with this complicated scenario. 
   

Once it is determined that some portion of the increase was “active,” you must then determine which of the parties actively contributed to the increase in value.  If it was the spouse who owned the assets efforts which contributed to increase in value, the increased value is going to be distributed much differently than if it were the active efforts of the non-owning spouse.
   

Very often, even determining the amount of the increase is simply a matter of expert opinion as opposed to hard and fast figures.  If, for example, a property or a business has been owned for several years, in order to determine the amount of increase in value, someone has to appraise that property as it existed several years earlier.  It is, at best, a difficult proposition to go back in time, analyze comparable sales or comparable businesses as they may have existed several years earlier and then to extrapolate that data into a valid value which can be used for the purposes of determining the amount of increase in value.
  

All of this simply brings us a full circle to the subject of Prenuptial Agreements.  All of this difficulty, the sometimes subjective determination as to whether the increase in value is “active” or “passive” and the difficulty of conducting appraisals several years in the past can be avoided by the arms-length negotiation and execution of Prenuptial Agreement prior to the marriage.
   

In addition to prior owned assets, the subject of inherited assets often comes into play at the time of a divorce.
  

One or both of the parties may have inherited assets during the marriage.  If so, by New Jersey Statute, inherited assets are exempt from marital distribution and remain the property of the person who inherited them. 
   

However, as with pre-owned assets and their increase in value, there are a number of exceptions and complications in the practical application of that seemingly simple rule.  Suppose, for example, a party inherits money which they, in turn, invest in improvements to jointly owned real estate.  Or, suppose that one of the parties inherits money which the couple uses to pay down debt during the marriage thereby allowing their income to be used more fully for investment into a small business or improvements to their real estate.
   

Again, as a general rule, the principals of “transmutation” apply to inherited assets.  If a person inherits money or assets which they then title in joint names or invest into a jointly owned asset, it would usually be assumed that they intended those funds to become marital property and that the exempt nature of the inherited asset has been “transmuted” into jointly owned marital assets which will be distributed between the parties at the time of a divorce.  Therefore, whenever any married person inherits money or assets, it is important for that person to make their own individual decision as to whether they intend for those funds or assets to become marital property or whether they intend that they should continue to be individually owned, exempt from distribution in the event of a divorce and remain their sole property in the event of a divorce.  Whichever alternative a person chooses, care must be taken in defining the form and nature of the ownership of the assets after the inheritance.
   

A final and often overlooked consideration regarding pre-owned or inherited assets is a provision in the general equitable distribution statute which provides that the “source” of the funds or assets is a relevant factor in the determination as to the distribution of that asset in the event of a divorce.  Therefore, even though an asset may be “transmuted” from an individual prior owned or inherited asset into a marital asset, the fact that the “source” of the asset as it existed at the time of the divorce was initially a pre-owned or inherited asset may significantly impact the percentage of distribution which each party receives at the time of the divorce.  There is a reported case in New Jersey where a person’s pre-owned small business significantly appreciated during the marriage and, admittedly, appreciated as a result of “active” (i.e., the work efforts) of both parties during the marriage, therefore, the “active” increase in value of the asset was a marital asset and was subject to equitable distribution at the time of their divorce.  The Trial Court, however, awarded the non-owner spouse only 10% of the increased value of the asset.
   

In summary, pre-owned assets, inherited assets and/or their increase in value during the marriage are complicated and difficult issues.  The best advice to any person owning significant premarital assets is to enter into a Prenuptial Agreement.  In addition, whenever married parties are given tax, estate planning or other advice concerning the form of ownership, the unpleasant subject of what may occur in the event of a divorce must be considered. 
   

Finally, in the event of an inheritance during the marriage, the parties must be aware of and consider the impact and various alternatives concerning the form of ownership, maintenance or control of that asset during the marriage and the impact which those various forms of ownership or control may have at the time of a divorce.

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Thomas J. Pryor, Shareholder and Chair of Stark & Stark's Insurance Coverage & Liability Group, has authored the article, The Importance of Insurance Coverage in Mediating  Complex Construction Claims for the March 31, 2008 issue of the New Jersey Law Journal.

You can read the full article here.

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If Benjamin Franklin were still alive, his oft-quoted statement would likely have been: “In this world nothing is certain but death, taxes, and politics.”  The estate tax changes in the Economic Growth and Tax Relief Reconciliation Act of 2001 stand as a testament to the absurd results made possible when politicians are permitted to write tax law.  Tax law that are dictated by political agenda hurt everyone.

Although the 2001 changes altered the structure of the estate tax, they were temporary, leaving pundits certain that the law would be changed or made permanent before long.  They were wrong.  The law has remained unchanged for the past 7 years, preventing families from engaging in meaningful planning based on a reliable and predictable tax law.  The federal budget deficit makes it now unlikely that the changes will become permanent.

The absurdity for New Jersey residents is reflected in the chart below, which shows the effect of the 2001 estate tax changes on three estates:

The federal estate tax debate is unlikely to end.  It serves as a useful political tool, allowing opponents of the tax to demonstrate concern for its impact on family businesses and farms, while allowing supporters of the tax to point to repeal as yet another clash between the haves and the have-nots.  The only question remaining is whether the uncertainty will ever end.

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Bankruptcy filings increased in February 2008 by 18% from January, and by 28% from a year earlier. In fact, February was the busiest month for filings since Congress overhauled bankruptcy law in October 2005 with the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA").  This increase in filings also increases the chance that you will be faced with bankruptcy issues. Some of the revisions contained in BAPCPA that you may encounter are set forth below.

Pre-Petition Shipments Of Goods. BAPCPA created substantial additional rights for suppliers that sold goods to a debtor prior to the bankruptcy filing.  Section 503(b) of the Bankruptcy Code allows administrative-expense status to all claims for "the value of any goods" received in the ordinary course of business by a debtor within 20 days before the bankruptcy filing. The supplier must request administrative-expense status. By doing this, the supplier is in a better position than unsecured creditors to be paid, since a Chapter 11 plan of reorganization cannot be confirmed unless administrative claims are fully paid in cash on the effective date of the plan. Unsecured creditors typically receive only a fraction of their claims.

Reclamation Claims.Suppliers may now exercise their right to reclaim goods 45 days after the debtor's receipt of the goods under Section 546(c) of the Bankruptcy Code. Prior law limited the period for reclamation to 10 days after receipt of the goods. A written demand for reclamation of such goods must be made not later than 45 days after delivery. Suppliers must move quickly or their right to reclaim will be lost. If the 45-day period has not expired as of the filing of a bankruptcy case, a supplier will have an additional 20 days after the filing of the case to demand reclamation of the goods sold. A reclamation demand is "subject to the prior rights" of a holder of a security interest in the goods sold.

Preferences:  Small Claim Threshold and Venue. Creditors of a debtor who received small payments during the 90-day pre-bankruptcy preference look-back period are protected by BAPCPA.  Aggregate payments received by a creditor not exceeding $5,000 are now exempt from preference liability.  Also, creditors who have received potential preference payments in an amount less than $10,000 will no longer have to defend themselves in the home bankruptcy court of the debtor, which could be located in another state.  Instead, such preference actions must now be commenced in the creditor's home district.  

Preferences: Ordinary Course Defense. Prior to BAPCPA, to avoid preference liability, a creditor had to prove that the payment it received from the debtor was made in the ordinary course of business of both parties and that the payment was made in accordance with "ordinary" industry terms.  In other words, a creditor had to establish both defenses to prevail.  BAPCPA made it easier to defend a preference action, since a creditor now has to prove only one of the two defenses, thereby reducing the creditor's burden of proof.

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The March 24, 2008, edition of the New Jersey Lawyer reported that the New Jersey Attorney General is investigating whether or not it’s Division of Consumer Affairs should assert fraud or Consumer Fraud claims against JuicyCampus.com, a free website which allows individuals to post anonymous opinions to "often nonsensical and sometimes vicious discussions" about who’s the most overweight student on campus, or who on campus has the most morally casual attitude? This invites the following question: can the New Jersey Attorney General successfully assert claims against this website? Probably not.

The New Jersey Consumer Fraud Act.

New Jersey enjoys one of the strongest consumer protection statutes in the United States.  New Jersey Courts have consistently emphasized that like most remedial legislation, the New Jersey Consumer Fraud Act ("CFA") is to be construed liberally in favor of consumers. Although initially designed to combat "sharp practices and dealings" that victimized consumers by luring them into purchases through fraudulent or deceptive means, the Act is no longer aimed solely at "shifty, fast-talking and deceptive merchants" but reaches "non-soliciting artisans" as well. Thus, the Act is designed to protect the public even when a merchant acts in good faith. Despite the same, it appears that the CFA will not be a viable claim against the Juicy Campus website because it did not engage in activities which violate the CFA.

The CFA only recognizes three forms of violations.  They are: (1) misrepresentations of fact; (2) knowing omission of fact; and (3) per se violations of administrative code.  Cox v. Sears Roebuck & Co., 138 N.J. 2 (1994)The first apparently problem with the State’s possible case against the website is that most of the statements posted on the website appear to be "opinions" rather than "facts."  Opinions are generally not actionable under the CFA.  Moreover, in order for there to be a violation of the CFA, the State would need to prove that a consumer suffered an ascertainable loss which is has a casual connection to the misrepresentation, omission or per se violation of the act. In other words, the State would have to prove that the recipient of the false information suffered a loss as a result of reading those false statements.

FRAUD

In order to prove fraud, the State of New Jersey would have to prove by "clear and convincing evidence" that the defendant made a material misrepresentation of a presently existing material fact, with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance in that party to its detriment. The first procedural hurdle the State would face if it were to assert a fraud claim is that it may not have standing to assert that claim because it did not suffer and damages.  Unlike the CFA which gives the Office of the New Jersey Attorney General powers to assert claims under that Act, N.J.S.A. 56:8-3, in order to have standing to assert a common law fraud claim the State would need to demonstrate that it was somehow damaged. Perhaps, if the website in question has false statements about State colleges or universities, the State would have standing to assert a fraud claim. Since it appears not to be the case, I believe that any common law fraud claim asserted by the State would be subject to dismissal for lack of standing.

Like a CFA claim, the State would have trouble asserting a fraud claim because it appears that the statements made on the website were opinions rather than knowingly false presently existing material facts. Again, under the CFA and fraud opinions are not actionable.  Thus, unless the website posted a knowingly false presently existing material fact such as "X State University admitted 25 students who’s grade point averages and SAT scores were 90% below the mean SAT and GPA requirements because those students had ties to Governor X," the State could not assert common law fraud claims.

Moreover, in prove fraud, the State would need to prove that the website posted those presently existing false statements with knowledge that they were false at the time they were placed. The first issue is that the website simply hosts the statements of others. The website is really not making any statements. It also appears that as a result of the same, it would be extremely difficult for the State to prove that the website knew that the factual statements were false at the time they were made.

Finally, as discussed above, it appears that the State would not be able to prove by clear and convincing evidence that it detrimentally relied on those false statements and suffered damages as a result of the same. In order to successfully prosecute a fraud claim, the Plaintiff must prove amongst other things that it detrimentally relied upon the false statements and suffered damages as a result. A classic example of a party detrimentally relying and suffering damages is "Seller provides knowingly false income statements to a potential buyer, the buyer in doing its due diligence relies on the knowingly false income statements and purchases the company. After the purchase, the buyer learns that the pro-offered income statements were inflated and the company was not worth anywhere near what it paid for the company." In the aforementioned example, the buyer detrimentally relied on the false income statements and suffered damages as a result. It seems unlikely that the State of New Jersey detrimentally relied upon what was posted on the website in question and suffered damages as a result.

For the reasons stated above, the New Jersey Attorney General may want to consider not asserting charges against JuicyCampus.com.

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Rachel Lilienthal Stark, Shareholder in Stark & Stark's Franchise group, and Adam J. Siegelheim, member of Stark & Stark's Franchise group, have been named Legal Eagles in the franchise industry by Franchise Times Magazine.

Legal Eagles are chosen annually from hundreds of nominations across the country. Legal Eagles are recognized for their strong reputations among their peers, an active involvement in the franchise community through organizations such as the International Franchise Association and the American Association of Franchisors, and their experience and expertise in the franchise industry.

Rachel Lilienthal Stark concentrates her practice in the representation of start-up and emerging franchisors on a variety of issues including compliance with all federal and state regulations, disclosure documents, acquisitions and financing.

Adam J. Siegelheim focuses his practice in the representation of franchisors in various matters, including the preparation of disclosure documents, state registrations, and compliance with applicable federal and state regulations. Mr. Siegelheim is a member of the International Franchise Association, the American Bar Association Forum on Franchising and the New Jersey Bar Association's Franchise Law Committee.

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