On July 5, 2016, the United States District Court of Appeals for the Ninth Circuit issued a decision in the case entitled United States v. Nosal. The case involved a former employer and others using the password of another employee to hack into his former employer’s database in order to access and take information which belonged to his former employer.

The decision has gained a lot of attention and press because Mr. Nosal’s criminal conviction was based upon his use of another employee’s passwords. There are a large number of articles and blog posts warning that the holding in the case could result in the criminal prosecution of an individual who uses a friend’s Netflix or HBO GO password to access those sites. While that could be one result of the decision, I believe the holding in the Nosal case does not currently go that far. Per the Ninth Circuit, “this appeal is not about password sharing. Nor is it about violating a company’s internal computer use policies.” Rather, the case revolves around accessing a protected computer with the intent to defraud as defined in the Computer Fraud & Abuse Act (CFAA), 18 U.S.C. § 1030.

Continue Reading Does Recent 9th Circuit Court of Appeal Decision Make It a Crime to Share Passwords to Online Accounts?

Two US Senators recently demanded that FINRA explain how it plans to minimize the high rate of brokers who are involved in criminal activity or have been the subject of customer complaints.

Clearly Senators Warren and Cotton are not familiar with how the FINRA U-4 and U-5 process works. In addition, they are probably not overly familiar with the history of federal securities laws. As a brief background, the federal securities laws have been built on and continue to operate on the theory that “sunlight is the greatest disinfectant.” The laws have been built and we continue to operate under a fair market where people are free to make their own informed decisions. Senators Warren and Cotton should look past this misleading data and understand some common realities.

Continue Reading Senators Warren and Cotton Misled by Misleading Report on Broker Check

As the dust settles on the legal battle between Apple and the F.B.I., businesses should take note of the many issues related to the privacy and confidentiality of electronically stored information. Though Apple arguably emerged victorious in refusing to create a backdoor for its security measures, the still unknown point of access utilized by the F.B.I. highlights the risk that electronically stored information is never truly secure. Data breaches at Sony, Home Depot, Target, and even within the federal government highlight this point.

Given their volume and value of data, businesses need to be particularly cognizant of the cyber-threats and nimble in response to cyber-attacks. However, it is not enough to simply recognize the threat posed by a cyber-attack. Businesses need to be prepared to act swiftly and effectively to prevent any further misappropriation or transmission of electronically stored information.

Continue Reading A Cyberlaw Preparedness Primer for Businesses

Sports Authority, Inc. (“Sports Authority”) appears to likely be the next big tenant Chapter 11 bankruptcy filing. Recent reports are indicating that the sporting and apparel chain is preparing to file for Chapter 11 bankruptcy protection, as debt payments are due in 10 days, according news reports from Bloomberg Business and other outlets. Of its 450 stores,Bloomberg reports that Sports Authority plans to close as many as 200 locations within a bankruptcy proceeding.

Sports Authority was once the biggest sporting-goods chain in the U.S, but over the past few years has had difficulty competing with Dick’s Sporting Goods Inc., Lululemon Athletica Inc., Gap Inc.’s Athleta, and Amazon.com Inc.

Landlord’s Questions

If you are a landlord, it’s a good idea to review your accounting and call any defaults that may exist. Furthermore and operationally, you may want your property manager to speak with the store manager to obtain important security code, HVAC, and utility information, if you don’t already have it on hand. If a store is rejected or abandoned in a bankruptcy proceeding you don’t want to be scrabbling for that information after the fact.

If Sports Authority does file for file bankruptcy protection, some vital questions are: (1) Will they remain a tenant?; (2) When will rent be paid?; (3) Are there pre-petition claims that are owed?; (4) Is there Debtor in default of pre petition non-monetary obligations?; and (5) What other damages are owed (both pre- and post-petition)?

Trade Creditor Questions

Trade creditors, including suppliers, should also be asking important questions such as: (1) Have you been paid on time and does a reclamation claim (right to take back goods shipped, unpaid within 45 days) exist?; (2) Can an administrative claim be asserted?; and (3) Should a proof of claim be filed, and if so, how?

It’s a good idea for commercial landlords and trade creditors to speak with bankruptcy counsel now to formulate and execute a plan in the event of the likely bankruptcy filing. Stark & Stark’s Creditor’s Rights Group can help. Our bankruptcy attorneys regularly represent landlords throughout the country, including recently in the District of New Jersey, Southern District of New York, District of Delaware and Eastern District of Pennsylvania on a variety of issues. For more information the Sports Authority filing, and how Stark & Stark can assist you, please contact Thomas Onder, Shareholder at (609) 219-7458 or tonder@Stark-Stark.com. Mr. Onder writes regularly on commercial real estate issue and is a member of ICSC and Chair of the 2016 ICSC PA/NJ/DE Next Generation Committee.

Join Rachel Stark, Esq. and Dolores Kelley, Esq. of Stark & Stark and James Bartolomei, CPA and Nicholas Demetrios, CPA of HBK CPAs and Consultants as they present the FREE educational seminar Creative Tax Strategies for Businesses on November 19, 2015 from 8:30 – 10:00am. The event will be held at Greenacres Country Club (2170 Lawrenceville Rd, Lawrencville, NJ 08648)

Gain insight on methods to increase your bottom line through tax saving business structures and tactics. This seminar will discuss the various creative tax strategies for businesses, including:

  • Real Estate Tax Issues like Farmland Assessment, Like-kind exchanges and Tax Appeals
  • S corp. vs. LLC’s for consulting companies
  • Formation for Digital or Multi-state businesses with a focus on state tax issues and strategies for choosing state of formation
  • Tax saving strategies for companies selling outside the USA (IC-DISC’s)
  • Saving taxes and building wealth through self insurance (forming a Captive Insurance Company)

Breakfast will be served. Space is limited and pre-registration is required.

Eventbrite - Creative Tax Strategies for Businesses

Please register by November 14, 2015.

The New Jersey Uniform Commercial Code (the “UCC”) was amended, effective May 11, 2015, imposing new requirements on the filing of a financing statement to perfect a security interest in collateral within the scope of Article 9 of the UCC. The amendment provides that in order to be sufficient, a financing statement must state that the collateral listed in the financing statement falls within the scope of Article 9 of the UCC, pursuant to N.J.S.A. 12A:9-102 and 12A: 9-109. Furthermore, the name of the secured party listed on the financing statement must be the legal name of the secured party or the legal name of its representative.

While the purpose of the amendment is to prevent fraudulent filings, a failure to comply, even if there is no fraudulent intent, could result in an ineffective filing, a restraint of collection or enforcement, an alternative disposition of the collateral and in some instances statutory damages, attorneys fees and/or an injunction from filing any future liens, encumbrances or claims against the debtor (or any other persons specified by the court) without court approval. In addition, for some creditors, the filing office can refuse to file a financing statement that does not comply with the new requirements. The amendment is applicable to all financing statements filed on or after May 11, 2015.

If you have filed a financing statement since May 11th or intend to file a financing statement, you should consult an attorney to ensure your filing complies with the strict requirements set forth in the newly enacted amendment. If any financing statement filed on or after May 11th is not in compliance, an amendment should be filed immediately.

Stark & Stark’s Family Law, Business and Estate Planning attorneys will present the FREE educational seminar, Keeping it in the Family: Strategies for Protecting Business Interests and Inherited Assets During a Divorce, on Tuesday, July 14, 2015. The seminar will be held at Stark & Stark’s Lawrenceville, New Jersey office from 12:00-1:00pm. Failing to plan for a divorce can have costly consequences for a family business or inheritance. Join Stark & Stark’s attorneys for a discussion about the risk posed by a divorce and the best strategies for protecting your family’s assets. (Click Here for Event Flyer) RSVP today by visiting www.Starkevents.eventbrite.com. For more information, please contact events@stark-stark.com.

On March 17, 2015, the Appellate Division issued an important decision which provides guidance to New Jersey Trial Courts asked to judicially expel a member of a Limited Liability Company. IE Test, LLC v. Kenneth Carroll (App. Div. 2015)

N.J.S.A. 42:2B-24(b)(3) permits the expulsion of a member of a New Jersey Limited Liability Company under certain circumstances. The Appellate Division in IE Test, LLC v. Kenneth Carroll, provides a wonderful analysis of expulsion of a member based upon wrongful conduct (N.J.S.A. 42:2B-24(b)(3)(a)) or that the continued membership was not practicable to continue the business (N.J.S.A. 42:2B-24(b)(3)(c)).

The material facts of the case were undisputed and straightforward. Defendant Carroll and Mr. Cuppo were co-owners of a predecessor limited liability company, Instrumental Engineering, LLC (“IE”). Unfortunately, in or about 2009, IE was experiencing serious economic problems. As a result of those problems, Carroll and Cuppo decided that IE should file a Chapter 7 petition for bankruptcy.

According to Carroll, he purchased some of IE’s assets from the bankruptcy trustee and transferred them to Plaintiff, IE Test, LLC for $5,000, which remained due and owing to him. Cuppo refuted the same. Unfortunately, there was no documentation supporting Carroll’s contention.

IE Test, LLC had three members, Carroll (33%); Cuppo (34%) and James (33%). In addition to the disagreement relating to the $5,000, sale of assets from IE, the three members could not reach agreement as to the terms and conditions of an Operating Agreement. In addition, several of the members testified during the course of their depositions that they could not work together and did not speak with one another.

The Trial Court Judge found that IE Test, LLC could not establish that Carroll engaged in wrongful conduct that adversely and materially harmed the company. Nevertheless, the Trial Court found that pursuant to N.J.S.A. 42:2B-24(b)(3)(c), it was not reasonably practicable to continue the business with Carroll as a member. Carroll appealed the Trial Court’s decision. In its decision, the Appellate Division provided a wonderful analysis of judicial considerations when determining whether or not to expel a member.

The Appellate Court first provided guidance on the standard for judicial expulsion of a member of a New Jersey Limited Liability based upon “wrongful” conduct. Pursuant to N.J.S.A. 42:2B-24(b)(3)(a), a Court may only expel a member if it finds that the member’s conduct was “wrongful” and “actually harmed” the limited liability company in an “adverse and material manner.”

Next, the Appellate Court discussed the standard to expel a member because the continued inclusion of that member may not be practicable to carry on the business. The Court held that N.J.S.A. 42:2B-24(3)(c), does not require proof that the member committed any wrongful conduct whatsoever. Rather, subsection (c) is forward looking, only requiring proof that the member’s conduct makes it “not reasonably practicable to carry on the business if the member remained.”

The Appellate Division articulated the following seven factors when deciding whether or not to expel a member based upon the not reasonably practicable on the business statute:

  1. Whether the management of the entity is unable or unwilling reasonably to permit or promote the purposes for which the company was formed;
  2. Whether a member or manager has engaged in misconduct;
  3. Whether the members have clearly reached an inability to work with one another to pursue the company’s goals;
  4. Whether there is deadlock between the members;
  5. Whether the operating agreement provides a means of navigating around any such deadlock;
  6. Whether, due to the company’s financial position, there is still a business to operate; and
  7. Whether continuing the company is financially feasible.

The Appellate Division, applying those factors, affirmed the Trial Court’s decision expelling Carroll pursuant to N.J.S.A. 42:2B:24(b)(3)(c).

Whether in time of economic growth or decline, all businesses must be mindful of potential liability. The nature and extent of liabilities has a direct effect on profits, which can hamper business growth and require cutbacks, among other things. Knowing where and how liabilities arise can prevent negative effects on profits, avoid litigation premised on unintended and unknown acts, and promote overall business well-being. Continue Reading Agents of Liability: Can the Acts of Another Bind a Business?

On January 1, 2015, the New Jersey judiciary will expand its Complex Business Litigation Program statewide. The program has been operating in Bergen and Essex counties since 1996. It is designed to handle complex commercial and construction cases with $200,000 or more in damages. New Jersey will join 27 other states with some form of specialized business courts.

Cases are assigned to a specific judge from the beginning, and each judge assigned to the program will be expected to issue a minimum of two written opinions every year so as to develop a body of complex business case law. Cases in the program will not be subject to the court’s mandatory mediation and arbitration programs, although judges can encourage the parties to use alternate dispute resolution. Both jury trials and bench trials will be available.

The program will not include matters handled by general equity judges, or matters involving consumers, labor organizations, personal injury or condemnation, or cases in which the government is a party.

The decision to expand the program statewide was made in response to the New Jersey Supreme Court’s Working Group on Business Litigation’s recommendation. Last year, 199 complex commercial litigation cases and 71 complex construction litigation cases would have been deemed qualified for the program.

Parties in cases where the damages are estimated to be less than $200,000 may make a motion to have their matters transferred into the program if there are compelling issues to be resolved involving discovery, a large numbers of parties or witnesses, or a significant interpretation of a business or commercial statute.