November 2010

Kevin M. Hart, Shareholder in Stark & Stark’s Litigation Group, was quoted in the November 24, 2010 New York Post article, Fed’s Insider Fight. The article discusses Manhattan US Attorney Preet Bharara’s recent initiative to stop insider trading on Wall Street. Many find Bharara’s attempt risky and somewhat controversial, as cases in the past have demonstrated that prosecuting these types of cases are increasingly difficult.

Mr. Hart states, “Technically, insider information is what you come in possession of by virtue of your position in a company.” The controversy over what constitutes insider trading is growing now that Bharara and other enforcement officials are cracking down on a number of hedge funds, bankers and consultants in what is shaping up to be an historic insider-trading investigation.

You can read the full article online here.

A large number of YAZ® lawsuits were designated as Mass Tort or Multidistrict Litigation (MDL) cases over the past several months. Just recently, the three initial bellwether trials in the federal MDL were scheduled. Courts utilize a bellwether approach when there are a large numbers of plaintiffs proceeding on the same theory or claim, such as in the Yaz ® cases. Typically, a group of plaintiffs are chosen to represent all the plaintiffs with the same alleged ailment. The purpose is that common issues, such as causation and liability, are settled among all the plaintiffs without having to go to trial repeatedly. These representative plaintiffs proceed through a normal trial, including discovery and pretrial motions. Following the trial, the results act as the bellwether for the other plaintiffs’ trials. The verdicts from these bellwether trials are extrapolated to the remaining plaintiffs’ cases.

 

In the Yaz lawsuits, the Court designated the initial groupings as follows: pulmonary embolism cases; gallbladder cases and thromboembolic cases.  The remaining ailments, such as stroke and heart attack, will be considered subsequently.  At the time of the Court’s decision in October 2010, there were in excess of 3,700 filed cases in the federal MDL.  In an effort to move the litigation forward, the Court has set the following dates: 
 

  • The first trial is set September 12, 2011. This will be a pulmonary embolism (PE) case.
  • The second trial is set January 9, 2012. This will be a gallbladder (GB) case.
  • The third trial is set April 2, 2012. This will be an additional thromboembolic (VTE) case.

If you feel you have experienced any side-effects from taking YAZ® or Yasmin® (or the generic brand, Ocella®), you can contact Stark & Stark and speak to one of the Mass Tort/Pharmaceutical Litigation attorneys, free of charge, who can help assess any claims that you might have against the YAZ®, Yasmin® or Ocella® manufacturers.

New Jersey property with environmental contamination still has value but under what circumstances may an appraiser take into account that contamination when preparing an appraisal to be used in a New Jersey tax appeal? The New Jersey Supreme Court answered this question in 1988 in the seminal case of Inmar Associates v. Carlstadt, 112 NJ 592 (1988),.  The Inmar court held that when a property is in use, “normal assessment techniques will remain an appropriate tool in the appraisal process” (ie. no reduction). However, when a property is no longer in use, the cost to cure the contamination may be taken into account by an appraiser, but not by a dollar-for-dollar deduction.

 

Recently, the Appellate Division of the Superior Court of New Jersey had an opportunity to define “in use” in the context of a tax appeal case.   Pan Chemical Corp. v. Hawthorne Borough, 404 N.J.Super. 401 (App.Div. 2009).  In Pan Chemical, the property owner moved its business to a new location, but kept a small crew on site to avoid triggering environmental clean-up obligations under the Industrial Site Remediation Act (“ISRA”).  The property owner argued that despite the fact that it did not trigger ISRA, it was still entitled to take into account the contamination when valuing the property.  The Appellate Division disagreed.

 

The Pan Chemical court concluded that a bright line test was necessary for determining when a property was “in use” for purposes of applying the Inmar standard in a tax appeal case. After reviewing various case law and statutes, the court adopted the definition of closing of an operation under ISRA which is “the cessation of operations resulting in at least a 90 percent reduction in the total value of the production output . .  or, for industrial establishments for which the product output is undefined, a 90 percent reduction in the number of employees.”  See N.J.S.A. 13:1K-8(1)).  Since the property owner was still operating at about a 15 percent level, it was not entitled to any reduction in the assessment based upon the contamination.

 

Although a bright line test is easy to apply, the result does not seem fair to a property owner whose property is being assessed significantly above its true value merely because ISRA has not been triggered.  However, this appears to be the law since the New Jersey Supreme Court refused to accept the case for review.  In addition, the New Jersey legislature is reviewing a new bill which may further complicate matters for property owners.

On November 9, 2010, the U.S. Department of Housing and Urban Development (HUD) issued a press release unveiling its proposal to oversee a new loan insurance pilot program intended to support homeowner financing of energy efficient improvements. Under the Consolidated Appropriations Act, 2010 (P.L. 111-117, 123 Stat. 3034), approved on December 16, 2009, HUD is required to administer an Energy Efficient Mortgage Innovation pilot program directed at the single family housing market.  In response to this mandate, HUD has proposed to supplement and work through the Federal Housing Administration’s Property Improvement Loan Insurance Program (“Title I Program”) governed by Title I of the National Housing Act (12 U.S.C. § 1703).  This new initiative – the FHA Home Energy Retrofit Loan Pilot Program – will be known for short as the FHA PowerSaver.
 

The FHA PowerSaver pilot program, as proposed, is designed for persons who are interested in installing energy conservation measures that improve home energy performance or facilitate such results.  In this regard, HUD will insure “single family property improvement loans,” as such term is defined in the Title I Program regulations (24 C.F.R. § 201.2), through FHA-approved lenders that are originated during a two-year period to eligible borrowers.

 

Eligible borrowers must either hold fee simple title to the property they are seeking to improve or hold a contractual interest therein evidenced by a properly recorded land installment contract.  In either case, the property (i) must be a single family, detached home, (ii) must be the borrower’s principal residence and (iii) must be within one of the geographic areas identified by HUD as being optimal for this pilot program.

 

Loan terms will likely be limited to 15 years, so that the repayment term will closely match the useful life of most energy conservation measures.  However, according to the HUD notice published in the Federal Register on November 10, 2010, a 20-year loan term may be approved for improvements that have a longer useful life, such as renewable energy facilities or geothermal systems.

 

In addition to guaranteeing home improvement loans, HUD will have at its disposal $25 million, which Congress allocated for the Energy Efficient Mortgage Innovation pilot program through the Consolidated Appropriations Act, 2010.  According to the November 10th Federal Register notice, “HUD will utilize those funds primarily to provide incentive payments with grant funds to participating lenders to support approved activities that deliver bona fide benefits to borrowers, with remaining funds available to support the evaluation of the [PowerSaver] Pilot Program.”

 

HUD will be accepting comments on the proposed PowerSaver pilot program until December 27, 2010.  Instructions on how to submit comments are included in the November 10th Federal Register notice.  HUD is expected to announce formally the establishment of and final details for the FHA PowerSaver through the issuance of another notice in the Federal Register following its review of public comments.

Majority or controlling shareholders sometimes use a statutory merger as a method for squeezing out or altering minority shareholder’s rights and preferences. New Jersey law provides a statutory procedure by which two or more corporations can be combined into a single corporation even if all of the shareholders do not agree with the merger. N.J.S.A. 14A:10-3.  Under New Jersey law, the directors of the combining companies adopt a plan for merger, which sets forth the terms and conditions of the merger including the manner in which the shares of each of the constituent corporations are to be converted into shares, obligations, cash or other securities of the surviving corporation.  N.J.S.A. 14A:10-2.  The boards of directors then submits the plan to the shareholders of each constituent corporation. N.J.S.A. 14A:10-3.  New Jersey law requires that the board of directors provide at least twenty (20) but no more than sixty (60) days notice to the shareholders before a shareholders’ meeting is scheduled to vote on the proposed merger. N.J.S.A. 14A:10-3(1).  The notices to the shareholders must include: (1) a copy or summary of the plan of merger or consolidation; and (2) a statement informing the shareholders who do not agree with the merger or consolidation that they have the right to dissent and have their shares purchased by the corporation for “fair value.”  N.J.S.A. 14A:10-3(1)(a)-(b).

 

Hence, mergers or consolidation can be used to eliminate minority shareholders. Fortunately, Courts have been willing to intervene to prevent fraudulent transactions. As discussed in previous blog postings, majority shareholders owe minority shareholders and the corporation certain fiduciary duties. Fortunately, New Jersey Courts have closely scrutinized mergers in which the majority shareholder’s conflict of interest produces benefits for the majority at the expense of the minority and the purpose of the merger was to get rid of the minority. Berkowitz v. Power/Mater Corp., 135 N.J. Super. 36 (Ch. Div. 1975); Outwater v. Public Service Corp. of New Jersey, 103 N.J. Eq. 461 (Ch. 1928), aff’d, 104 N.J. Eq. 490 (E & A 1929). The central factor Courts consider when determining whether or not to set aside a merger is: does the proposed merger have a valid business purpose?  If it does, it will probably be upheld. If the Court finds that the merger did not have a valid business purpose it is subject to being disallowed.

On or about October 8, 2010, Henry Gifford and Gifford Fuel Savings, Inc. (collectively, “Gifford”), filed a lawsuit in the Southern District of New York against the U.S. Green Building Council (“USGBC”), individually and on behalf of all other similarly situated persons alleging, among other things, that USGBC’s Leadership in Energy and Environmental Design (LEED) rating systems are not based on objective criteria and that USGBC has mislead the public as to the efficacy of these protocols in achieving energy efficient buildings to their detriment.  In this regard, the Gifford complaint contains five separate counts, including causes of actions arising under three federal statutes, namely, the Sherman Anti-Trust Act, the Lanham Act and the Racketeer Influenced Corrupt Organizations Act, causes of action arising under the New York State General Business Law and one common law cause of action arising under the doctrine of unjust enrichment.  A complete copy of the Gifford complaint may be found on Westlaw at 2010 WL 4087620.

In a decision released on September 30, 2010, the New Jersey Supreme Court reaffirmed the holding of its previous decision in Iliadis v. Wal-Mart, where the Court emphasized that, where common issues predominate in the litigation, individual factual differences among the class members will not stand in the way of class certification.

 

Given the significantly more conservative treatment of class action certification by the Third Circuit, this new case clearly confirms the New Jersey Supreme Court’s determination in class action certification applications that all inferences regarding the class action test should be determined in favor of the Plaintiff.  The new decision in Lee should resolve any questions as to whether the New Jersey Courts will take a more conservative line after Iliadis, since it is now more than evident that the New Jersey Supreme Court plans to stand firm on its holding in Iliadias.

 

In this day, virtually every successful business has a presence on the internet.  The importance of a website to a company’s marketing strategies, its product sales and its overall image cannot be understated.  Yet, many businesses often neglect to take steps to protect the content on their website.  They seem to forget that as easy as it is to place content online, it is even easier to copy it without permission.  Digital technology has made it enormously simple for one individual to instantly become a large publisher of information.  All it takes is a laptop computer and a broadband connection, and one person can disseminate copyrighted, or copyrightable, material across the boundless landscape of the Internet.  This makes policing infringers a very difficult and expensive task.  For large corporations like Microsoft, that cost is a necessary part of doing business in this day and age.  For small businesses, however, that cost is prohibitive.  This makes it even more important for copyright owners to develop (and execute) a plan to protect their websites before any publication or disclosure.       
 

What are the copyright issues raised?  First, who owns the copyright in the web site?  If you hire an outside consultant to develop the site, you may run into troublesome issues over ownership if you don’t plan ahead.  The web site developer may claim an interest in the work as a compilation or in the underlying content itself.  Remember, the owner of the work under copyright law is the creator of the work, and not necessarily the person who paid for the work.  If one of your employees develops the web site at your direction, it will almost surely be considered a work-for-hire and you will own it.  However, someone outside your business will likely be considered an independent contractor, and therefore you should have a signed agreement designating the web site as a work made for hire.  That agreement should also contain an assignment of all copyright interests in the web site (in case a court disagrees that the work is done for hire). 
 

In any event, you should apply for a registration for your web site.  You should do it immediately (or at least within a month or so of the introduction of the site on the web) to protect your ability to seek enhanced damages and attorneys’ fees in the event of infringement.  If it is possible, a single registration is recommended for all of the elements of the web site.  What happens if you continually update your site?  The U.S. Copyright Office offers what are called "group registrations" that may give web site owners a less expensive and less cumbersome alternative to separate registrations. The three applicable group registrations available are for updates to automated databases, serial publications (defined as works which are intended to be issued in successive parts bearing numerical or chronological designations, such as the January issue of a trade publication), and daily newsletters (which requires that publication occur at least twice a week).  The Copyright Office has deposit and timing rules for using the different group registration methods, so those rules should carefully be consulted to choose the right one for your needs.

 

In addition to taking the steps necessary to protect your original website content, you should be aware of other issues raised by the publication of material on the internet. Many web sites are going to be compilations of data or other information which may itself be copyrightable.  By definition, a database is a compilation.  Those of you who place content online should know that to the extent it is a compilation, anyone else is free to use the material contained in that compilation as long as the new work does not feature the old material in the same selection and arrangement.  Copyright protection of compilations is thin under current law.
 

Moreover, there may be separate authors of the contributions to a collective work (for example, the different chapters to a trade publication on the internet). Usually, the publisher of a collective work has the right to use the components of the collective work only as part of the collective work.  The rights to use the individual chapters stay with the author.  Freelance writers have challenged the distribution of their articles over the internet despite old agreements which give publishers broad distribution rights.  You should get appropriate warranties from anyone providing you with the work of other authors and take other steps (such as securing promises of indemnification) before publishing the works of others on your website.  With the global reach of your website, the financial consequences of not doing so can be devastating.  
 

Finally, one of the important "exclusive" rights of the copyright owner is the right to prepare derivative works, for example, the television program based on the book, or the sculpture based on the photograph.   In the world of the web, the derivative work may be the software program that is modified to perform an additional function, or a graphic image that incorporates a preexisting image.  The advent of new digital technologies makes it stunningly easy to modify original works of authorship, through the simple process of downloading and uploading information.  Your web site should include specific warnings to people who visit the site that the material is not only copyrighted, but that you maintain the right to make derivative works based on the preexisting material at the site.

UPDATE:  In January 2013 the New Jersey Supreme Court reversed in part the decision outlined below.  You can read the updated version here.
 

It is getting to that time of the year where properties owners are thinking about appealing their property tax assessments for 2011.  A recent Tax Court decision (Prime Accounting Dept. v. Township of Carney) which hopefully will be reversed on appeal, stresses the importance of making certain that the person appealing their tax assessment is either the property owner or someone responsible for paying the taxes.
 

In Prime Accounting, the tax bill identified the owner of the property as “Prime Accounting Dept.”, which was a department of a prior tenant, “Prime Management Company”.  Most likely, the former tenant asked the tax assessor for their tax bills to be directed to the company’s accounting department. When the tax bill was changed naming the “owner” as Prime Management’s accounting department, no one thought there would be any problems. However, when an appeal of the property’s tax assessment was filed in 2009, Prime Management no longer was a tenant, yet it appears the tax bill for the property was never updated, which resulted in “Prime Accounting Dept.” being named as the plaintiff in the tax appeal. Standard practice for most tax appeal attorneys is to use the most recent tax bill as the source of the information to complete a County Tax Board Petition or Case Information Statement (for Tax Court cases).

 

When the issue was raised by the Tax Court, the plaintiff filed a motion seeking leave of court to amend the complaint to name the current tenant as the plaintiff (ie. change the plaintiff from Prime Accounting Dept. to Bocceli, LLC.).  The Tax Court denied the motion and dismissed the tax appeal.  The Tax Court held that it did not have jurisdiction since the original plaintiff was not a taxpayer and the amendment of the complaint could not correct this problem.  The decision has been appealed to the Appellate Division of the Superior Court of New Jersey.

 

It is important to make certain that the person or entity filing the appeal meets the definition of an aggrieved taxpayer (ie. owner, tenant paying taxes under a lease, etc.)  Although it may be more convenient and effective to have a tax bill sent to a particular person (ie. management company or department within a larger company), you need to make certain that the entity named in the petition or complaint is a “taxpayer”.

Timothy P. Duggan, Shareholder and Chair of Stark & Stark’s Bankruptcy & Creditor’s Rights Group, authored the article What to do When the Bank Comes Knocking at Your Door for the October issue of the New Jersey Lawyer.

The article discusses the various options available when dealing with defaulted loans and provides an overview of the more important issues and challenges attorneys face when negotiating a commercial workout or loan modification with a lender.

You can read the full article online here. (PDF)