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

Prospective corporations are free to incorporate in any state, regardless of where the corporation plans to physically operate or transact business.  It is of no consequence that the corporate organizers or shareholders reside in the state where the corporation chooses to incorporate. Moreover, it is of no consequence that the corporation actually operate or conduct business in the state of incorporation.  Despite the same, the state of incorporation may be extremely important to the internal affairs of the corporation. The exclusive right of regulation is known as the “Internal Affairs Doctrine.” That is because, corporate law is state law.

Until recently, American Courts have uniformly expressed their reluctance to entertain controversies arising from the “internal affairs” of corporations incorporated in other states. Previously, it was generally accepted doctrine that State Courts will not interfere in the management of the internal affairs of a foreign corporation. Rather, they would dismiss without prejudice cases concerning them.

Several states legislatures have resisted the absolute right of an incorporating state to regulate the internal affairs of a corporation. See N.J.S.A. § 14A:13-2(2) (foreign corporations “shall be subject to the same duties, restrictions, penalties and liabilities” imposed on domestic corporations). Like New Jersey, New York and California have a long history of regulating foreign corporations operating inside its borders.  California’s rationale for the regulation is the  protection of its residents who have a personal stake in foreign corporations’ as shareholders or employees.  Provident Gold Mining Co. v. Haynes, 159 P. 155, 156-157 (1919). In 1977, the California legislature enacted Corporations Code Section 2115 to allow it to regulate all corporations that conducted a majority of their business in California, despite the fact that they are incorporated elsewhere and considered “foreign corporations.”

New Jersey Courts have lead the way of “modernizing” the Internal Affairs Doctrine with an adaption of modern choice of law doctrine. In Krzastek v. Global Resource Industrial Power, Inc, A-1815-06T2, the New Jersey Appellate Division had to decide whether or not a Bergen County, Chancery Court properly applied New Jersey’s minority oppression statute while declining to apply Massachusetts’ law to a Massachusetts’ corporation. The Krzastek Court affirmed the Trial Court’s application of New Jersey over Massachusetts law. In doing so, the Krzastek Court reaffirmed New Jersey’s utilization of the flexible “governmental-interest” standard, which requires the application of law of the state with the greatest interest in resolving the particular issue that is raised in the underlying action. Id., (citing Gantes v. Kason Corp., 145 N.J. 478, 484 (2007)).  The “governmental-interest” standard, involves the consideration of some of the following factors:

• the needs of the interstate and international systems;
• the relevant policies of the forum;
• the relevant policies of other interested states and the relative interest of those states in the determination of the particular issue;
• the protection of justified expectations;
• the basic policies underlying the particular field of law;
• certainty, predictability and uniformity of result; and
• ease in the determination and application of the law to be applied.

Fu v. Fu, 160 N.J. 108, 122 (1999) (adopting, Restatement (Second) of Conflicts of Laws § 6 (1971)).

In Conway v. DialAmerica Marketing, Inc., BER-C-116-08, Judge Doyne applied the “governmental interest test” and held that New Jersey corporate law applied to DialAmerica, a Delaware corporation, because: the corporation’s principle place of business and headquarters were located in New Jersey; the entire board of directors resided here; and the corporation maintained critical books and records in the Garden State. Moreover, Judge Doyne found that the New Jersey legislature has “demonstrated a commitment to protecting minority shareholders,” and as such, “the relevant policies of the forum” state would be best served by applying New Jersey’s minority oppression law to the Delaware corporation. Id.

These decisions clearly demonstrate New Jersey Courts have the power to adjudicate foreign corporations under certain circumstances. New Jersey is on the forefront of modernizing the Internal Affairs Doctrine.

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Stark & Stark is representing a group of plaintiffs in a class action arising from the sale of several weight loss products in the United States including, Liquid Hoodia, Slimquick and NV products. If you, or someone you know, has purchased these products in the United States for personal use and not for resale between January 1, 2003 and August 5, 2011, you could receive a cash payment from a class action settlement.
 
A hearing is scheduled for November 2011 – at that time, if the Court approves the proposed settlement, anyone who purchased the products could be entitled to a cash refund. In order to obtain your refund, you must submit a claim form by October 24, 2011.

For more information and to submit a claim form, visit: www.WellNXUSASettlement.com. If you know of someone who has taken these products, we encourage you to share this information with them as well. If you would like to discuss this matter in more detail, please feel free to contact us at 609.895.7324.

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Effective September 19, 2011, the Securities and Exchange Commission amended Rule 205-3 of the Investment Advisers Act of 1940 (“Advisers Act”) which generally prohibits an investment adviser from entering into, extending, renewing or performing any investment advisory services for compensation based on a share of capital gains or capital appreciation of, the funds of a client (“performance fees”). Rule 205-3 of the Advisers Act exempts an investment adviser from the prohibition against charging performance fees in certain circumstances, including when the client is a “qualified client”. 

The amended Rule 205-3 allows an investment advisor to charge performance fees if the client has at least $1 million (raised from $750,000) in assets under the management with the investment advisor immediately after engagement for advisory services or if the investment advisor believes, immediately prior to being engaged, that the client has a net worth of more than $2 million (raised from $1.5 million) (together, in the case of a natural person, with assets held jointly with a spouse).

Investment advisors should review and amend (if necessary) their disclosure documents and offering materials to comply with the amended Rule 205-3.

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Recently the SEC approved a new rule to define the term “family Office.” Pursuant to the SEC’s new definition, a “Family Office” is a firm: 1) whose only clients are family clients; 2) and is wholly owned by family clients and controlled by family members and/or family entities; and 3) does not hold itself out to the public as an investment adviser.

Under the rule, family members include all lineal descendants of a common ancestor (who may be living or deceased) as well as current and former spouses or spouse equivalents of those descendants, provided that the common ancestor is not more than ten (10) generations removed from the youngest generation of family members. Furthermore, the rule accepts all children by adoption and current and former stepchildren as family members.

Included in the definition of family clients are family members (as defined above) and all of the following individuals and/or entities: 1) key employees of the family office (including executive officers, directors, trustees and general partners for the family office or its affiliated family office); 2) any other employee of the family office or any affiliated family office (other than an employee performing solely clerical, secretarial, or administrative functions) who has participated in the investment activities of the family office or any affiliated family office for at least 12 months; 3) any estate of a family member, former family member, key employee (and in some instances, a former key employee); 4) nonprofit and charitable organizations funded exclusively by family clients; 5) certain family trusts; 6) and companies wholly owned and operated for the benefit of family clients.

Family Offices are excluded from registration with the SEC. While not required to register with the SEC, those firms fitting the definition of Family Office must respond to certain questions found on Form ADV Part IA and periodically update same.

Please Note: Advisers who are currently relying upon the Family Office exemption but will no longer qualify under the new definition, must register with the SEC by March 30, 2012 (a later compliance deadline of December 31, 2013 has been established for Family Offices that manage assets of nonprofit or other charitable organizations funded by, in part, non-family assets). If you would like to discuss this blog post in more detail, please feel free to contact me in my firm's Lawrenceville, New Jersey with any questions you may have.  

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Craig S. Hilliard, Shareholder in Stark & Stark Intellectual Property Group, co-authored the article, Trademark Infringement in Keyword Advertising, for the September 26, 2011 edition of The New Jersey Law Journal.

The article discusses the challenges electronic media poses for the interpretation of the Lanham Act.  It presents situations where marks are used in non-traditional ways.  In particular, the use of keyword advertising, where words are linked to advertisements in a web page, may stretch the limits of the Lanham Act.  Recently, a Second Circuit decision in Rescuecom Corp. v. Google, Inc., redefined a “use in commerce”, one of the basic criteria required to prove trademark infringement.  This article will address the changes in the Second Circuit’s position on keyword advertising, and how its position compares to other Circuits.
 

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Noah A. Schwartz, member of Stark & Stark’s Business & Corporate Group in the firm’s Marlton, New Jersey office, will be featured on this evenings edition of WHYY’s Newsworks Tonight. The program will air from 6:00 – 6:30 PM on station 90.9 FM.

Mr. Schwartz joins host Maiken Scott as they discuss a common issue facing many families after the death of a loved one: do we have to pay bill collectors looking for money after our family member has passed away? Mr. Schwartz discusses special considerations offered after the loss of a spouse, child and parent.

**Updated September 28, 2011 - 8:40 AM** In case you missed last night's edition of Newsworks Tonight with Mr. Schwartz, you can listen to the full program online here.

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Paul A. Lieberman, Shareholder in Stark & Stark's Securities Group, was quoted in the August 20, 2011 New York Post article, Ashton's Hard Sell With Feds.

Recently, Ashton Kutcher’s comments regarding several internet based social media companies has come under scrutiny after Kutcher authored an article for Details magazine in which he praises Tinychat, Fourquare, Arbnb and several other companies, while failing to disclose the fact that he is an investor in the companies. Now the Federal Trade Commission and the Securities Exchange Commission are questioning if this move warrants a federal investigation.

In the article, Mr. Lieberman states, “He's getting close to the line, if not crossing it, in terms of SEC regulations on insider trading."

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Adam J. Siegelheim, Shareholder in Stark & Stark’s Franchise Group, authored the article, Strategies to Develop a Social Media Policy for Your Business, for the July 2011 edition of Mercer Business Magazine.

In the article, Mr. Siegelheim the importance of businesses implementing a social media plan in order to avoid negative publicity through social media outlets. Mr. Siegelheim states that companies who do not proactively manage their brand through social media channels risk their online reputation being placed in the hands of disgruntled customers and employees.

You can read the full article online here.
 

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A recent published case with a unique set of circumstances serves as a reminder that for a plaintiff to prevail and secure treble damages under the Consumer Fraud Act (CFA), not only must the plaintiff show that the defendant committed unlawful conduct, that plaintiff must also be able to demonstrate that he suffered an ascertainable loss. 

The plaintiffs in Gupta v. Asha Enterprises, LLC, __ N.J. Super.__ (App.Div. 2011) had unquestionably been quite specific when they ordered vegetable samosas from the defendant Indian restaurant for take-out; they were being purchased for a group of individuals who were strict vegetarians. When the time came for the plaintiffs to pick up their order, they were handed a tray indicating the samosas were, in fact, vegetarian, and were reassured of the “vegetarian nature of the food.”

Notwithstanding their abundance of care, plaintiffs were served and began to consume meat-filled samosas. The Indian restaurant was insistent that the samosas were vegetarian, however the plaintiffs returned to verify the samosas’ content. Once there, an employee of the Indian restaurant confirmed that is was he who was mistaken; the samosas contained meat. The Indian restaurant then prepared an order of vegetable samosas for the plaintiffs and delivered it to them without additional payment.

The plaintiffs brought their complaint alleging that consumption of the meat contained in the samosas caused them spiritual injuries resulting in damages. The motion judge subsequently granted the defendants’ motion to dismiss.

On appeal, plaintiffs argued that the motion judge erred in her dismissal of their CFA claim. The appellate panel agreed, noting that the CFA specifically forbids “act[s] constituting misrepresentation of food.” However, the panel declined to recognize the plaintiffs’ spiritual loss and need to travel to India to undergo a purification ritual as an ascertainable loss cognizable under the CFA, which requires evidence of loss of “moneys or property.” Because the Indian restaurant provided the plaintiffs with an order of vegetable samosas, the plaintiffs were demonstrably made whole, and the panel explicitly declined to recognize a spiritual loss in the absence of any supporting precedent.

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Home improvement contractors hoping to avoid liability under the Consumer Fraud Act (CFA) have one fewer argument in their arsenal; the Appellate Division has held that homeowners who act as general contractors of their own home improvement projects may still resort to the protections of the CFA.
In Murnane v. Finch Landscaping, LLC, ___ N.J. Super. ___ (App. Div. 2011), the Appellate Division considered the viability of a CFA claim brought by a homeowner who had contracted with several contractors to design and construct a patio at his home. During construction of the patio, several changes were made to the written contract with one of the contractors, though none of these changes were put into writing. When the job was complete, that contractor invoiced the homeowner for additional amounts not reflected in the original contract. The homeowner refused payment and brought an action in the Special Civil Part alleging breach of contract and violations of the CFA.

Later realizing that if his damages were trebled under the CFA, the damages would be in excess of the jurisdictional limit of the Special Civil Part, the homeowner moved to have the matter transferred to the Law Division. The defendant home improvement contractor opposed the motion, arguing that the homeowner, having characterized himself as “the general contractor of his patio project,” cannot invoke the protections of the CFA. The motion judge denied the homeowner’s motion to transfer and granted the defendant contractor’s cross-motion to dismiss the CFA claim.

On appeal, the defendant contractor relied upon Messeka Sheet Metal Co, v. Hodder, 368 N.J. Super. 116 (App. Div. 2004) for the proposition that a homeowner who acts as a general contractor may not proceed under the CFA. The appellate panel easily distinguished Messeka, where the plaintiff homeowner was precluded from proceeding under the CFA not because he acted as a general contractor, but because he had no direct contractual relationship with the defendant contractor. The existence of a contract between the homeowner and defendant home improvement contractor was not at issue here. As such, there was no basis to exclude an individual from the protections of the CFA who is clearly an “owner, tenant or lessee, of a residential or noncommercial property,” regardless of his service as a general contractor on his own home improvement project.

Homeowners must be constantly vigilant when dealing with home improvement contractors and should not hesitate to seek competent counsel when their contractors employ unlawful practices.

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