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

Bill Singer, Shareholder in Stark & Stark’s Securities group, was interviewed yesterday on CBC News. Mr. Singer commented on the 150-year sentence delivered to Bernard Madoff in response to the tens of billions of dollars he stole from hundreds of investors in his Ponzi scheme.

Mr. Singer states that while he is happy that Madoff received the maximum sentence possible, it will do little to change the ways of criminal Wall Street investors. Mr. Singer warns that regulation of our securities markets has to be preemptive and focused on prevention instead of punishment in order to prevent another similar situation from occurring again in the next five to ten years.

You can watch the full interview online here.
 

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Thomas D. Giachetti, Chair of Stark & Stark’s Securities group, and Henry E. Van Blunk, Shareholder in Stark & Stark’s Business & Corporate group, authored an article for the June 2009 edition of the Charles Schwab Institutional Compliance Review, entitled An Overview of Internal Succession Planning for the Registered Investment Advisor.

The article discusses the various facets a corporation needs to consider when implementing a successful succession plan. Mr. Giachetti  and Mr. Van Blunk recommend advisors to create a succession plan which focuses on planning for business continuity, protecting existing client relationships and determining what will happen when an the advisory firm founders retire. You can read the full article online here. (PDF)

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David J. Byrne, Shareholder and Co-Chair of Stark & Stark’s Community Association group, authored the article, The Status of Affordable Housing Units After a Foreclosure and Involuntary Sale, for the June 22, 2009 edition of the New Jersey Law Journal. The article discusses how the recent economic downturn and troubled real estate market downtown affect mortgages and affordable housing agreements following a foreclosure.
 

You can read the full article here. (PDF)

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With the advent of the newest employee benefit in New Jersey, business owners ask what impact Family Leave Insurance will have on the employer’s discretion to terminate employment due to business conditions or other considerations. The Legislature has made it clear that the amendments to the Temporary Disability Benefits law, commonly known as the “Paid Family Leave Act”, confer a monetary benefit, but not a leave entitlement. In other words, this law does not further erode the “At-Will” concept of employment, that the employer is free to change the working conditions or terminate the employment of a worker with or without notice and with or without good cause for the termination.
 

Of course, appropriate law limits this discretion where there is a written contract specifying a certain duration of employment or if the employer’s action violates applicable laws (These laws include Family Leave Acts, Discrimination Laws, implied promises contained in written or oral policies, and New Jersey’s Conscientious Employees Protection Act.) In the context of Family Leave laws, those employers who are covered under the Federal or New Jersey State Acts (Under Federal law, covered employers are those who employ 50 or more employees for each working day during 20 or more calendar weeks in the current or preceding calendar year, either at the main work site or without 75 miles of that work site. The New Jersey law applies to employers with 50 or more employees.) Must still comply with the laws and regulations promulgated under these Acts. However, these amendments do not confer additional leave rights to employees.  
 

Must the employer pay the employee’s wages for this paid leave period? Family Leave Insurance benefits are fully funded by employee contributions through payroll deductions, which began on January 1, 2009.  The employer will not be required to contribute to this plan. In addition, an employer can require an employee to use up to two weeks of any paid sick leave, vacation time or other leave as full pay, if made available by the employer, prior to utilizing Family Leave Insurance benefits.
 

For what reasons may an employee claim these benefits? Benefits shall be granted for an employee to bond with a child during the first twelve months after the child’s birth, if the covered individual or the domestic partner or civil union partner of the covered individual, is a biological parent of the child, or for the first twelve months after the placement of the child for adoption with the covered individual. In addition, benefits can be claimed to care for a “family member” with a serious health condition as defined in the law. Benefits are NOT available due to the serious health condition of the covered employee.
 

“Serious Health Condition” means an “illness, injury, impairment or physical or mental condition”, which includes any of the following:

1.    In-patient care or continuing treatment by a health-care provider, including any period of incapacity or subsequent treatment in connection with in-patient care. (a) “Period of incapacity” means inability to work, attend school or perform other regular daily activities due the serious health condition, treatment therefore, or recovery there from. OR  
 

2.    Continuing treatment by a health-care provider, which involves one or more of the following: (a)    A period of incapacity (inability to attend work, school, etc.) for more than three consecutive calendar days, that also involves.
(i)    Treatment two or more times by a health-care provider.   
OR
(ii)    Treatment by a health-care provider on at least one occasion, which results in a regime of continued treatment. Treatment includes prescription drugs, such as antibiotics. Regimes, such as resting, drinking fluids, taking aspirin, which can be initiated without visiting a health-care provider, are not sufficient.

3.    Any incapacity due to pregnancy or pre-natal care.

4.    Conditions not currently incapacitating but which require multiple treatments.

5.    Any period of incapacity or treatment for such incapacity due to chronic serious health condition.

6.    A period of incapacity, which is permanent or long-term due to a condition for which treatment may not be effective.
 

The above-listed inclusions are broadly stated and there are refinements and exclusions, which should be evaluated in any given situation.

 Who is eligible for Family Leave Insurance benefits? An employee can collect benefits if he or she is currently employed in “covered employment” or out of “covered employment” for less than two weeks. Employment, including employment with governmental entities, covered under the New Jersey Unemployment Compensation Law is covered with respect to Family Leave Insurance.
 

Notwithstanding the above, an employee is not qualified for any period that:

1. The employee receives temporary disability benefits from any source;
2. The employee receives unemployment insurance benefits;
3. The employee receives full salary or paid time off;
4. The employee is working;
5. The employee is under family leave, which did not start while the claimant was a covered individual or within fourteen days of the claimant’s last date of work;
6. The employee was on family leave for the care of a family member and the care recipient was not under the care or supervision of the health-care provider;
7. The employee is out of work due to a stoppage of work, which exists because of labor dispute at the claimant’s place of employment; or
8. The employee has been discharged by the most recent employer for gross misconduct under applicable unemployment compensation law. 

How much is the benefit and for how long does it last? An employee can receive a maximum of six weeks of Family Leave Insurance benefits in a twelve-month period, which is denoted as the three hundred sixty-five consecutive days that begins with the first day that the employee establishes a valid first claim for Family Leave Insurance benefits. An employee may re-establish a claim within the same period for a different care recipient, or a claim during or following employment with a different employer. However, the employee cannot receive more than six weeks of benefits during the twelve-month period.  In the event of care for a family member with a serious health condition, claims may alternatively be filed for intermittent weeks or for forty-two intermittent days during the twelve-month period. 

The weekly benefit rate is based on the employee’s average weekly wage in the eight calendar weeks immediately before the week in which the benefit commences. The rate is two-thirds of this wage, up to a maximum of Five Hundred Forty-Six ($546.00) Dollars. 
 

What steps must an employee take to apply for these benefits? If an employee intends to take the benefits to participate in providing care for a family member with a serious health condition, he or she must give the employer reasonable and practicable notice, unless the time of the leave is unexpected or the time of the leave changes for unforeseeable reasons. The request must be supported by a medical certification. In addition, a reasonable effort must be made to schedule the leave so as not to unduly disrupt the operations of the employer.  If possible, the employee will be required to provide a schedule of the required leave days. In the case of an employee who intends to claim insurance benefits to bond with a newborn or newly adopted child, thirty days prior notice must be given, except if the leave is unforeseeable. Failure to do so will result in a loss of two days leave. 

This analysis is intended to highlight the most salient provisions of the Family Leave Insurance benefits law, and has been derived from the Family Leave Insurance Fact Sheet published by the Department of Labor as well as other sources. Details and interpretations of the law will be published in the New Jersey Administrative Code. If there are any questions relative to the application of this new benefits law, an employer should consult counsel so as to ensure proper compliance.

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Trial Court Rules that Mendham Must Provide Municipal Services with respect to A Condominium's Access Road

The Mendham Knolls Condominium Association is a small condominium situated in Mendham.  Access to the condominium is achieved only via Boundary Oak Lane, an approximately 156 foot long road that empties into the condominium's parking area.  New Jersey's Municipal Act provides for certain enumerated services or reimbursement for the cost of services to a qualified private community in "the same fashion as the municipality provides these services on public roads and streets."  Mendham argued that it need not provide either services, or reimbursements, in relation to Boundary Oak Lane as it was more akin to a driveway and Mendham does not provide any services in relation to driveways.  The condominium argued that Boundary Oak Lane is a road and eligible for services or reimbursements as Mendham does provide services on township roads.
 

The court first found that the applicable road-related standards are those in place currently, not at the time of the road's original construction.  The court then relied upon pictures of the road and neighborhood as well as how it had a "drive" for a name along with some other factors.  It concluded and ruled that Mendham must comply with the Municipal Services Act with respect to Boundary Oak Lane.  This condominium will now have the snow and ice removed from Boundary Oak Lane as well as have their related street lighting costs reimbursed.  This will certainly help the community balance its budget in upcoming years, without assessments.
 

Condominiums and associations must assert their rights under the Municipal Services Act even in the face of often dismissive municipalities.

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Vincent J. Mangini, Shareholder in Stark & Stark’s Real Estate, Zoning & Land Use group, will present a seminar entitled How to Immediately Cut Your Company’s Energy Costs and Control Energy Expenses in the Future in conjunction with New Jersey’s Clean Energy Program and its New Jersey SmartStart Buildings program. The seminar is hosted by CrunchEnergy, an energy services company dedicated to helping businesses reduce energy costs.
 

 
The seminar will be presented from 8:00 AM – 12:30 PM September 9, 2009 and September 10, 2009. The September 9th event will be held at The Villa in Mountain Lakes, New Jersey, and the September 10th event will be held at the Sheraton in Eatontown, New Jersey.

 

The seminar will provide actionable recommendations to cut energy costs immediately, while providing the insight to prepare for upcoming regulations and impending laws and current initiatives, like New Jersey’s Energy Master Plan. The material shared at the event will benefit New Jersey-based building owners, business owners, CFOs, energy managers and facilities managers - anyone who makes decisions about energy for buildings of 20K square feet or more.
Topics to be discussed include:

• Quick and no-cost building upgrades to reduce energy consumption
• Reducing peak demand
• Emerging technologies and incentive opportunities
• State Renewable Energy Tax Exemption
• Grants and loans for energy efficient projects
• Energy audits
• NJ Smart Start Buildings Pay-for-Performance Programs
• And other related topics.

Mr. Mangini will present the seminar with Joseph Carlamere of New Jersey SmartStart Buildings. Mr. Carlamere is involved in environmental consulting, company TRC’s design and development of the sector initiative of New Jersey’s Clean Energy Program as part of the team developing programmatic strategies that resonate to the following sectors: industrial, institutional, multi-family, higher education and hospitality. He also manages the Local Government Energy Audit Program for the NJOCE and the BPU.
 

Additional information and details on how to register for the events is available online here.
 

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Most transfers of title to real estate are made subject to "easement and restrictions of record, if any." Easements may be varied, but usually involve access rights for utilities, or perhaps a driveway easement to share a driveway with a neighbor. But what about those restrictions? What are they?

Most restrictions can be found as covenants contained in a deed, in a declaration of restrictions or on a legend on a filed map. Restrictions generally limit or otherwise affect how a property owner can use their lands. Perhaps they involve the distance a structure must be set back from a property line or other structure (unrelated to zoning setback requirements). Or, maybe they involve how a structure may be used (unrelated to land use ordinances). Or, they might even limit who can use the property. Some restrictions are referred to as nuisance restrictions because they prohibit the use of the property conveyed for any noxious or offensive purpose. Restrictions against public policy, such as those restricting use due to race, national origin, etc., are not enforceable.

Restrictions set forth in a deed transferring title, or those appearing in earlier deeds in the chain of title, are binding on a property owner. This is one of many reasons to perform a title search when buying a property - to determine if there are any recorded restrictions which will affect an owner's use of the property.

Some of the more common restrictions involve a neighborhood plan which may impose limitations on the size and dimensions of lots, the location of structures on a lot or how the structures may be used. Many of these types of restrictions were originally imposed prior to the existence of local zoning ordinances. Thus, a land owner could impose his/her own restrictions on a tract which was to be developed. Sometimes, associations were created with authority to approve or disapprove new structures on the lots. In more recent times, developers impose restrictions on subdivisions which are meant to supplement existing zoning requirements, often imposing more extensive restrictions in an effort to preserve a particular neighborhood scheme as envisioned by the developer.

Restrictions can also be imposed by property owners conveying only a portion of their property who want to benefit or protect the remaining portion they are retaining. For example, a property owner who subdivides off part of his/her property may want to prevent anyone owning the newly created lot from building within a certain distance (which may exceed the local zoning requirements) from their remaining lot. The subdividing property owner may also want to impose a restriction to retain the right to approve any new structure on the new lot.

Unless a restriction is deemed to be personal to the grantor imposing it, or there is a specified termination date, the passage of time alone will not serve to terminate a restriction.

As a result of the binding characteristics of restrictions, it is important to review the back title to a property being purchased to ascertain what, if any, restrictions may affect ownership rights to the property.

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If a person becomes incapacitated during a divorce proceeding, a guardian should be appointed by the Court in order to properly to govern the individual and their property. See Kingsdorf v. Kingsdorf, 351 N.J. Super. 144, 146 (App. Div. 2002). 

In order to do so, an application to the Court by the party who wishes to be come the guardian must be made.  Generally, when parties are in the midst of divorce litigation, the competent spouse is prohibited from becoming the guardian as it is usually deemed to be a conflict of interest.  Upon appointment of a guardian by the Court, the guardian may move forward on the incapacitated spouse’s behalf in order to negotiate and finalize the divorce proceedings. This includes, but is not limited to entering a Property Settlement Agreement and Final Judgment of Divorce.  This may even include filing the complaint for divorce on behalf of the incapacitated spouse. 

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Under N.J.S.A. 40:55D-21, if a developer is “barred or prevented, directly or indirectly,” from moving forward with an approval obtained pursuant to the Municipal Land Use Law (MLUL) “during the period of approval” on account of the institution of “a legal action” or the issuance of “a directive or order” by, among other government actors, a “political subdivision” for the purpose of “protect[ing] the public health or welfare” at a time when “the developer is otherwise ready, able and willing to proceed[,]” then - in such instance - the period of approval shall be suspended for so long as “said legal action is pending or such directive or order is in effect.”

Recently, in the matter of Friends of Peapack-Gladstone v. Borough of Peapack-Gladstone Land Use Board, et al., the Appellate Division of the New Jersey Superior Court interpreted this provision of the MLUL and decided, among other things, that the running of the period of approval for 18 golf cottages was tolled when a zoning officer declined to issue a building permit for the construction of the second such cottage, “because of his perception that the project was being advertised in a manner contrary to the Board’s prior approvals.”  In the Court’s view, the zoning officer was “plainly” acting as an agent of the Borough, a political subdivision, in rendering this decision which, according to the Court, “was manifestly an effort on his part . . . to ‘protect the public health and welfare’ in the Borough [and] . . . had the direct and indirect effect of halting the developer’s work on the project, at a time at which the developer was evidently ‘ready, willing and able to proceed’ with the building of the next dwelling.”

The Appellate Division’s decision in Friends of Peapack-Gladstone v. Borough of Peapack-Gladstone Land Use Board, et al. may be viewed on WestLaw at 2009 WL 1643315 (N.J.Super. A.D.) and has been approved for publication.

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Timothy P. Duggan, Shareholder of Stark & Stark’s Condemnation group, was quoted in the June 16, 2009 NJ Biz article, Senators announce amendments to eminent domain legislation. The article discusses the recent amendments to State Senate majority leader Steve Sweeney (D-West Deptford) and State Senator Ronald Rice’s (D-Newark) previously proposed eminent domain legislation, which would allow  redevelopment in the state while still providing protection and fair compensation to property owners if eminent domain is required.

Mr. Duggan states that you need a good compromise by making certain that redevelopment is allowed to go forward in some areas, such as inner cities, while curbing abuses in areas that are truly not blighted. Mr. Duggan also comments on effects the recent economy has had on several redevelopment plans in the area.

You can read the full article online here.

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In general, the United States Fair Housing Act makes it unlawful for a condominium, cooperative and/or homeowners association to discriminate in the terms, conditions or privileges of the sale or rental of housing, or in the provision of services in connection with a dwelling, because of race, familial status, gender, religion or disability.  When it comes to the "disabled", unlawful discrimination is further defined as the condominium's, cooperative's or homeowners association's failure to make a "reasonable accommodation" in its practices, policies, etc. so that an owner can have an "equal opportunity to use and/or enjoy a dwelling".  Specifically, the applicable federal regulation provides:  "(a) It shall be unlawful for any person to refuse to permit, at the expense of a handicapped person, reasonable modifications of existing premises, occupied or to be occupied by a handicapped person, if the proposed modifications may be necessary to afford the handicapped person full enjoyment of the premises of a dwelling".  In this regard, condominiums, cooperatives and/or homeowners association often receive requests from disabled owners that they be allowed to modify a common facility, building component, etc., at their expense.  For example, a disabled owner may ask for the right to install a ramp to her unit to allow for wheelchair access to the unit.   When considering a "reasonable accommodation" request, as they are commonly called, the condominium, cooperative and/or homeowners association should not condition its approval of the request on the disabled person's promise or duty to restore the area in question back to its original condition.  In fact, it is clear that only with request to rentals, not owners, can this be done.  The applicable federal regulation provides: "In the case of a rental, the landlord may, where it is reasonable to do so, condition permission for a modification on the renter agreeing to restore the interior of the premises to the condition that existed before the modification, reasonable wear and tear excepted."
 

Condominiums, cooperatives and homeowners associations should consult with counsel once it receives any owner or resident request for a "reasonable accommodation" pursuant to the United States Fair Housing Act.

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On May 18, 2009, the United States Bankruptcy Court for the District of New Jersey issued a General Order with respect to the New Jersey Judiciary Foreclosure Mediation Program.  This Order clarifies that participation in the Foreclosure Mediation Program, where the homeowners have filed for Bankruptcy, does not violate the automatic stay.  Furthermore, a mortgagee does not have to obtain relief from the automatic stay to participate in the Foreclosure Mediation Program.

In addition, this Order makes it clear that in Chapter 13 cases, the debtor is obligated to continue to make regular monthly mortgage payments as well as required payments to the Chapter 13 trustee during the time the mediation process is pending.

This Order further makes clear that if the automatic stay was in place during participation in the program, it remains in place.  If the mortgagee wishes to continue with any foreclosure proceeding, relief from stay must be granted by the Bankruptcy Court.

Finally, this Order directs that any resolution or settlement, including any modification to the mortgage, must be approved by the Bankruptcy Court.  If any settlement impacts a provision of a Chapter 13 Plan, a modified plan must be filed.

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Recently, in the matter of Schmidhausler v. Planning Board of Borough of Lake Como, the Appellate Division of the New Jersey Superior Court addressed, among other issues, what the remedy for an aggrieved party should be when a municipal board renders a decision on an application for development under the Municipal Land Use Law that is tainted by the failure of one of its members to read or listen to the testimony presented on the matter during a prior meeting in violation of N.J.S.A. 40:55D-10.2.  In this case, the planning board voted to approve an application for a subdivision with variance relief by a narrow one-vote margin.  The plaintiffs argued that the remedy in such instance should be the striking of the disobedient board member’s vote.  The Appellate Division, however, was not persuaded by plaintiffs’ suggestion, especially here, where such action “would result in a tie vote and . . . an automatic denial of the application.”  Instead, the Court opted to remand the matter to the planning board for another round of deliberation and a new vote after “those who had not attended one or all of the hearings in this matter review the transcript of any meeting or meetings that they may have missed[ and] certify they have done so[.]” According to the Court, this course of action was preferable to “denying the application outright or putting all of the parties to the cost and expense of an entire new hearing[.]”

By this case, the Appellate Division has provided a clear message to all parties involved in the prosecution and disposition of applications for development under the MLUL that a failure on the part of municipal board members to abide by N.J.S.A. 40:55D-10.2 - while not triggering a new hearing - will likely cause the board’s decision to be deliberated and voted on anew.  The Appellate Division’s decision in Schmidhausler v. Planning Board of Borough of Lake Como may be viewed on WestLaw at 2009 WL 1491306 (N.J.Super. A.D.) and has been approved for publication.

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Hydroxycut®, the group of dietary supplements which claim to be fitness and weight loss aids, have recently been linked to severe, and sometimes life threatening injuries. Recent reports state that these injuries include damage to the liver, kidneys and other internal organs, rhabdomyolysis (severe muscle damage), cardiovascular disorders and even death. On May 1, 2009, the United States Food and Drug Administration (FDA) issued a warning urging consumers to discontinue the use of the supplements due to the severe health dangers associated with Hydroxycut®. Following the warning from the FDA, the makers of Hydroxycut® issued a voluntary recall of the supplements.

These supplements include Hydroxycut® Regular Rapid Release Caplets, Hydroxycut® Caffeine-Free Rapid Release Caplets, Hydroxycut® Hardcore Liquid Capsules, Hydroxycut® Max Liquid Capsules, Hydroxycut® Regular Drink Packets, Hydroxycut® Caffeine-Free Drink Packets, Hydroxycut® Hardcore Drink Packets (Ignition Stix), Hydroxycut® Max Drink Packets, Hydroxycut® Liquid Shots, Hydroxycut® Hardcore RTDs (Ready-to-Drink), Hydroxycut® Max Aqua Shed, Hydroxycut® 24, Hydroxycut® Carb Control and Hydroxycut® Natural. Hydroxycut® supplements are manufactured and distributed by Iovate Health Sciences and MuscleTech Research and Development, Inc.

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David J. Byrne, Shareholder and Co-Chairperson of Stark & Stark's Community Association Group presented materials related to minimizing risk, avoiding litigation and alternative dispute resolution, in conjunction with Donald B. Brenner, Esquire, during a seminar entitled "Managing Costs and Risks in Challenging and Uncertain Economic Times". The presentation was held at the Meadowlands Exposition Center in Secaucus, New Jersey on Wednesday, May 13, 2009. 
 
Mr. Byrne focused his presentation on how condominiums, homeowners associations and cooperatives can avoid and/or resolve conflicts through alternative dispute resolution, as well as comply with New Jersey in respect of alternative dispute resolution.  He discussed mediation, arbitration and ADR.  Mr. Byrne also discussed how to best employ ADR in the context of community associations, to best ensure rule compliance, dispute resolution and the absence of litigation.

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Thomas B. Lewis, Chair of Stark & Stark's Employment group, was quoted in the June 5, 2009 article on Law360.com entitled, Securities Sales Not Subject To Fraud Act: NJ Court. The article discuss the recent New Jersey Supreme Court ruling which states that a broker accused of failing to properly transfer funds for the purchase of securities and the firm that employed the broker can't be held liable under the New Jersey Consumer Fraud Act.

Mr. Lewis states that applying to the New Jersey Consumer Fraud Act to cases such as this could be harmful to banks and brokerage houses, as the ramifications of applying the statute to such sales could be mind-boggling because of the treble damages and court costs provisions. You can read the full article online

. (PDF)

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In a just-decided case (Bello-Englesbe v. Englesbe, decided June 5, 2009), a New Jersey appeals court rejected a father's request to reduce child support based on terms of his Marital Settlement Agreement (MSA). The two judge panel ruled that the MSA failed to establish an income baseline from which an application for relief from a support obligation could be measured.

The significance of this ruling is that courts will not presuppose starting points if the divorcing parties do not establish them in their MSA. Attorneys and clients should ensure that such details are addressed and quantified if necessary, to includes parenting schedules, income and earning capacity assumptions, pension division formulas, life insurance provisions, college contribution formulas and so forth.

As this case demonstrates, it pays to "get it right" the first time to avoid future problems occasioned by insufficient explanation or lack of attention to detail.

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Brian A. Carlis, Shareholder in Stark & Stark Securities group, authored the article Having the Law on Your Side: Experienced legal counsel can ease the path to independence as part of the 2009 InvestmentNews What You Need to Know About Going Independent Workshop Series. The full article is below:

Going independent can be an enormous opportunity for you as a financial adviser. Perhaps most importantly, you have the flexibility to do what you believe is best for each of your clients, to create a firm that reflects your approach and your experience. At the same time, you are building a business that could have significant value when you are ready to sell it down the line.

Of course, you also have the risks and the responsibilities of running your own business. But increasingly, advisers are willing to accept the risks in order to embrace the opportunities.

The full-service or regional broker/dealers you work for are interested in making it as difficult as possible for you to take your clients with you when you go – for obvious reasons. But there are ways to keep the process from being too confrontational, and for increasing the likelihood that it turns out in your favor.

The first step is to engage a law firm that has experience in this area. Legal experts can provide guidance for severing the ties with your broker/dealer, as well as in other areas of setting up your new business.

Restrictive Covenants
Your attorney can help you assess where problems are likely to arise, and provide you with alternatives for dealing with the problems. The first step is to determine whether you have agreed to any restrictive covenants that will affect your ability to interact with your clients once you leave the firm.

If you work for a full-service or regional broker/dealer, the chances are very good that you have a non-solicitation agreement, in which you agreed not to solicit your clients when you are leaving the full-service or regional broker/dealer. If you are not sure whether you have signed such an agreement, your attorney may be able to tell you whether the broker/dealer you work for usually requires this agreement. But the strong likelihood is that you have a non-solicitation agreement in place.

You may hear the comment that non-solicitation agreements “aren’t worth the paper they are printed on.” However, that is not actually the case. Brokerage firms are very serious about protecting their client rosters by enforcing their non-solicitation agreements.

Another issue is whether you have any promissory notes with the firm you are leaving. You might have signed a promissory note if, for example, you borrowed money from the firm. Some firms also require that you repay the cost of training or other costs associated with your employment at the full-service or regional broker/dealer.

Your attorney probably will ask you how your firm usually deals with advisers who leave the firm. That is no guarantee that they will treat you the same way, of course. But it is an indication of how they are likely to react to the news that you are leaving.

Your attorney also will want to know how long you have been with the firm, and how many of your clients came with you to the firm from a previous firm, compared with how many clients joined you while you were at your current employer.

If you try to leave without resolving the issues of promissory notes and restrictive covenants, or even if you address them but not to the satisfaction of your broker/dealer, your broker/dealer can take you to court to get a temporary restraining order to stop you from contacting your clients.

In this case, your attorney can help you to negotiate a solution with your broker/dealer. Such solutions usually involve one of two things:

• Monetary compensation. Often the registered representative agrees to pay the broker/dealer a percentage of trailing 12 months compensation in order to get out of the non-solicit agreement.
• Time. The broker/dealer may require the registered representative to abide by the terms of the non-solicitation agreement for a period of time, usually one year.

The Protocol
It seems that most of the cards are held by the broker/dealer. But you do have some protection, through the Protocol for Broker Recruiting, generally referred to as the protocol.

The Protocol for Broker Recruiting was developed in 2004 among Citigroup’s Smith Barney, Merrill Lynch and UBS Financial Services. The idea was to further client privacy and freedom of choice when advisers move between firms. If your current firm and the firm you are joining are both members of the protocol, and if you strictly follow the protocol, neither you nor the new firm has any liability, monetary or otherwise. However, the protocol does not keep the previous firm from bringing a claim for raiding.

Since its creation in 2004, and especially in the last half of 2008 and so far in 2009, the protocol has been extremely popular -- and most of the new firms joining the protocol are registered investment advisers. It costs nothing to join the protocol.

Leaving Your Firm
So what should you and shouldn’t you do when leaving a firm, in order to conform to the protocol and make a smooth transition for yourself and your clients?

First, understand that you absolutely may not solicit clients before you have resigned from the firm. That means you can’t tell them you are going to be leaving or give them any kind of hint that you are going out on your own. In fact, it is best if you don’t talk about your pending resignation with anyone at the firm you are leaving, no matter how much you think you trust them. If word of your plan leaks out, even accidentally, you probably will be fired summarily, before you are ready to make your move.

When you are ready, you should resign in writing to your local branch manager. Such resignations traditionally are done late on a Friday afternoon so that if the firm decides to take you to court, it cannot do so until Monday.

Be very brief in your letter of resignation. This is not the place to outline your grievances against the firm or to thank people for the experience of working there. The best resignation letter says simply, “I hereby resign my employment effective immediately. I can be reached at….”

In addition to your letter of resignation, you also should give your manager a spreadsheet file including six categories of information: client name, address, email, phone number, account title and account number.

You also should create a spreadsheet file for yourself, with the same information except for the account number. Pursuant to the terms of the protocol, that is all you are allowed to take when you leave your firm. You may even, for example, be asked to surrender your BlackBerry if the broker/dealer believes it contains information that is proprietary to the firm.

Be calm and rational when you leave. It is likely to be an uncomfortable and even difficult moment, but you can take heart from the realization that, statistically speaking, most of your clients probably will decide to come with you.

Additional Assistance
In addition to helping you leave your broker/dealer, an experienced attorney can help you with a wide range of other decisions you have to make when you set up a new business.

You need to choose the legal structure of your business. There are advantages and disadvantages to setting up, for example, an S corporation or an LLC. An attorney can explain the differences and help you decide what structure is best for you. If you have a partner or partners, an attorney can draw up a partnership agreement. And an attorney can help you think through how you might want to exit from your business someday.

Your attorney also should be able to help you with issues such as compliance, and can be an important resource in the event of regulatory reviews. The right attorney can be an invaluable partner as you create the kind of business you want to call your own.

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New Hampshire has now become the 6th state to legalize same sex marriage, with Massachusetts, Connecticut, Iowa, Vermont, and Maine as its predecessors.  In addition, New Jersey and California allow civil unions.  The effect of the New Hampshire decision is that the state will now provide gay couples the same rights and privileges of heterosexual couples.   By allowing gay marriage in lieu of a civil union, New Hampshire is providing gay couples additional protections they do not receive in New Jersey or California, as the couple may refer to each other as “spouse” not partner.   This is especially significant to those in the military, who are essentially prohibited from obtaining health and other benefits for their civil union partners, as the result would be outing themselves.

The laws of New Jersey recognize gay unions, whether marriage, civil unions or domestic partnerships, so long as the rights and privileges under the laws of the state granting such a union are substantially similar to those provided to a married heterosexual couple.  Thus, not only will a same sex marriage or civil union from New Hampshire  be recognized here, but should the marriage or civil union disintegrate, New Jersey will also provide a forum for dissolution by way of divorce if the jurisdictional requirements are met. 

New Jersey is currently considering a new law to allow gay marriage in lieu of civil unions. A competing measure has also been introduced to constitutionally ban gay marriage in the state, which has been met with little support.

Which state is next?  Possibly New York, which passed legislation legalizing gay marriage in the state assembly in April of this year.

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Adam J. Siegehleim, member of Stark & Stark’s Franchise group, has created a short web video entitled How to Franchise Your Business In Plain English. The video, inspired by CommonCraft, explains the step-by-step process of turning your business into a successful franchise system. How to Franchise Your Business in Plain English was first shown to the attendees of the 2009 Franchise & Financing Expo in Boston, Massachusetts June 6-7, 2009. 

How To Franchise Your Business In Plain English from Stark & Stark on Vimeo.

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This week, William Roseman, the Mayor of Carlstadt in Bergen County, New Jersey, and his former wife, were indicted for allegedly stealing health insurance benefits. One may ask, how do you steal heath insurance?  The answer is by failing to inform your health insurance carrier of entry of the final judgment of divorce. 

Generally, all carriers require notification of divorce within sixty days of entry of the final judgment, if not less.  For insurance purposes, divorce, like marriage and birth, constitutes a life change warranting modification of the persons eligible for benefits.  By failing to notify a health insurance or other insurance carrier of a divorce where the former spouse is no longer entitled to benefits constitutes, insurance fraud.  If you are contemplating divorce, it is important to speak with an attorney regarding your obligations to notify insurance carriers upon entry of the divorce judgment.  In addition, it is advisable to contact all insurance carriers to determine their notification requirements so that you can plan accordingly.

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Appellate Court Affirms Rockland County Supreme Court's Reliance Upon the Business Judgment Rule to Uphold Board's Decision to Make a Construction Contract without Owner Vote
 

In or around 2007 a condominium board of managers contracted for certain construction work on its buildings.  Owners within that condominium filed a suit against the condominium arguing that the contract called for "alterations" or "improvements", which required approval of the owners per the condominium's governing documents.  The resulting suit was captioned William F. Helmer, et al v. Marc A. Comito, et al.
 

As the matter involved an owner challenge to a board action, the court relied upon the business judgment rule.  The court wrote that under "'the business judgment rule, the court's inquiry is limited to whether the board acted within the scope of its authority under the bylaws (a necessary threshold inquiry) and whether the action was taken in good faith to further a legitimate interest of the condominium.  Absent of showing of fraud, self=dealing or unconscionability, the court's inquiry is so limited and it will not inquire as to the wisdom of soundness of the business decision.'"  In this case, the board determined that the work involved constituted "repairs" and "maintenance", which was within the board's sole authority to address.  There was an overwhelming amount of evidence that the buildings continued to suffer from leaks, and that experts hired by the condominium recommended repairs.  Further, the Village of Nyack Building Department opined that "the proposed scope of work is of a repair/maintenance nature and does not require a building permit".   As a result, the court found, the board was "within its authority in entering the construction contract without the unit owner approval required for 'alterations' or 'improvements' costing more than 25% of the estimated annual budget, such that the owners' complaint should be dismissed.
 

The case continues the longstanding applicability of the business judgment rule in matters involving challenges to board decisions.  It is imperative that boards ensure that the authority for a particular action is set forth in the governing documents or applicable laws, and that said action is motivated by good faith.  It is equally as important that a board document the evidence supporting its decisions and/or actions. 

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Legal Briefs On Divorce is a video podcast series providing viewers with a discussion on timely news and insight on current trends impacting divorce. This installment of Legal Briefs On Divorce is an interview with John S. Eory, Shareholder in Stark & Stark's Divorce Group, and Tom Hoberman, CPA with the accounting firm of WithumSmith + Brown.

Mr. Eory and Mr. Hoberman discuss the need for forensic financial investigations in your divorce, and Mr. Hoberman discusses his experience in conducting investigations in order to uncover fraud, embezzlement schemes, damages and assess internal control weaknesses.

Legal Briefs On Divorce With John Eory & Tom Hoberman from Stark & Stark on Vimeo.

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