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.

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.

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.  

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.

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."

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.

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.

In Allen v. V and A Bros., Inc., ___ N.J. ___ (2011), the New Jersey Supreme Court had before it William and Vivian Allen, homeowners who had contracted with V and A Brothers, Inc. to landscape their property and to construct a retaining wall in preparation for the installation of a pool. At no time was the parties’ agreement reduced to writing. When construction of the pool did not proceed as initially contemplated, V and A Brothers modified their plan and moved the location of the retaining wall and increased its height. V and A Brothers did not obtain the Allens’ consent for the change in design, nor did it obtain municipal approval before accepting final payment from the Allens after completion of work. Not long after the work was completed, the retaining wall developed cracks and a visible bulge, undermining the integrity of the pool installation.

After consulting with an engineer who concluded that the movement of the retaining wall was caused by its excessive height and the use of inferior backfill material to support it, the Allens filed their two-count complaint. The first count, alleging breach of contract, was directed solely at V and A Brothers. The second count, alleging violations of the CFA, was brought against the corporation as well as the two owners of the corporation and its employee.  The latter count alleged violations of the Home Improvement Practices regulations, specifically failure to execute a written contract, failure to obtain final approval before accepting final payment, and the failure to obtain the Allens’ consent before modifying the design of the retaining wall and substituting backfill material.

Before trial, the lower court granted the individual defendants’ motion to dismiss the complaint as to them, reasoning that the CFA does not create a direct cause of action against individuals, and absent allegations to support traditional veil-piercing, there is no basis on which to recover against the individual defendants. After trial, where the Allens secured treble damages and attorneys’ fees against the corporation in excess of $550,000, the Allens appealed the dismissal of the individual defendants. The Appellate Division reversed the dismissal, but also barred the individual defendants from litigating damages. The Supreme Court then granted the defendants’ petition for certification to review the Appellate Division’s order.

Defendants argued that the principals and employees of a corporation are not “persons” as contemplated by the CFA, and that personal liability under the CFA must be supported by grounds to pierce the corporate veil. They also argued against barring the individual defendants from contesting the quantum of damages. 

After examination of the statutory provisions of CFA, the Home Improvement Practices regulations which formed the basis of the Allens’ claim and subsequent case law, the Supreme Court concluded that the CFA unquestionably does not limit recourse to the corporation, and, accordingly, does not preclude personal liability. That conclusion was nothing new, as New Jersey courts have long held that corporate officers and employees may be held individually liable for their substantive violations of the CFA, but for the first time, the court also held that these individuals may also be personally liable when the basis for the CFA claim is a regulatory violation. Accordingly, no veil piercing is required to reach the individuals behind the corporation, those individuals having already been identified in the explicit definition of “person” under the CFA.

Having answered the question whether personal liability may attach in the context of a regulatory violation of the CFA, the Supreme Court then addressed the circumstances under which personal liability may be warranted. It concluded that while principals of a corporation may be “broadly liable,” as they are the ones who determine corporate policy, employees may be liable when they take unilateral actions which are unlawful.

Homeowners have been given one more weapon to combat against home improvement contractors, their principals and their employees who employ unlawful practices.  To ensure proper handling of the matter and to help ensure individual wrongdoers are taken to task for their misdeeds, homeowners should seek counsel experienced in these matters and equipped to wield the weapons of this enhanced arsenal.

Mr. Siegelheim has worked with Marco Cucchi, Owner of Thomas Sweet in Princeton, New Jersey, in discussions of expanding his business into more New Jersey towns, the tri-state area, and other parts of the U.S.  Mr. Siegelheim assisted in finalizing the deal, which took place April 14, 2011 in the Stark & Stark Lawrenceville, New Jersey office.

You can read the full story detailing the expansion into China online here.

In reaching its conclusion the Appellate Division noted that the Anti-Eviction Act expressly states that notice must be given to the residential tenant, “prior to the institution of the action [for possession].” Conversely, the statute governing non-residential evictions contains no such express language requiring notice before the commencement of suit. Thus, the Appellate Division held, “We find nothing in the plain language of N.J.S.A. 2A:18-53 that would permit or require us to read into that statute the requirement that notice to quit precede suit.” 350 Main Street, LLC at 13.
 

Moreover, the Appellate Division also noted that policy concerns surrounding the enactment of the Anti-Eviction Act have not been expressed in those cases concerning commercial evictions. Although unreported, the 350 Main Street, LLC decision should be a welcome sign for commercial landlords that New Jersey courts are not seeking to impose necessary protections in the residential context in matters in the commercial arena, where such protections are neither needed nor appropriate.
 

Nevertheless, landlords and commercial property owners should not construe this decision or the absence of such express notice language in the statute governing non-residential evictions to mean that they are free to proceed as they deem appropriate. Even in the commercial context, there are requirements that must be complied with otherwise, a commercial landlord could find itself embroiled in an lengthy legal battle, where had they sought the advice and consent of trusted counsel same could have been avoided.

New Jersey, like most states, recognizes this right of publicity.  The right of publicity “signifies the right of an individual, especially a public figure or celebrity, to control the commercial value and exploitation of his name and picture or likeness and to prevent others from unfairly appropriating this value for commercial benefit.”  Hart v. Electronic Arts, Inc., 2010 WL 3786112 *5, (D.N.J. Sept. 22, 2010; citing McFarland v. Miller, 14 F.3d 912, 918 (3d Cir. 1994); Prima v. Darden Rest., 78 F.Supp.2d 337, 348 (D.N.J. 2000); also citing Jarvis v. A&M Records, 827 F.Supp. 282, 297 (D.N.J. 1993) (“[t]he right of publicity generally applies to situations where the plaintiff’s name, reputation or accomplishments are highly publicized and the defendant used that fact to his or her advantage”).  Fundamentally, the right of publicity acknowledges the validity and legality of a person’s interest in his/her name or likeness in the nature of a property right.  Restatement (Second) of Torts, § 652C comment a.  The courts have further articulated this right, recognizing that “a celebrity has the right to capitalize on his persona, and the unauthorized use of that persona for commercial gain violates fundamental notions of fairness and deprives the celebrity of some economic value in his persona.”  Hart, supra, at *5 (citing Prima, 78 F.Supp.2d at 349).  The violation of an individual’s right of publicity and unauthorized use of his/her likeness - especially celebrities whose status often generates wealth - harms the individual by diluting the value of his/her name and depriving that individual from just compensation.  Id.   
 

The prima facie case for infringement of the right to publicity is, in essence, a two-fold requirement: validity and infringement.  Validity relates to whether the individual has an enforceable “property” right in his likeness.  Hart, 2010 WL 3786112 at *6.  Infringement speaks to whether the defendant, without permission, used the likeness in such a way that plaintiff is identifiable and in a manner likely to cause damage to the commercial value of the individual.  Id.

Over time, this right of publicity has evolved (some states have adopted statutes protecting rights of publicity) and the number of publicity rights disputes has increased.  Athletes, in particular, are moving the chains.  Ed O’Bannon, who starred on UCLA’s 1995 NCAA basketball title team, filed a class-action lawsuit against the National Collegiate Athletic Association (“NCAA”) and Collegiate Licensing Company (“CLC”) for the use of his and other players’ images and likenesses in video content, photos and other memorabilia.  Sam Keller, a former quarterback at Arizona State and Nebraska, filed suit against Electronic Arts, Inc. (“EA Sports”) for replicating his likeness in its NCAA Football video games.  NFL great Jim Brown sued EA Sports over the use of his likeness in the popular Madden NFL video games, and most recently, NBA legend Oscar Robertson has filed suit against the NCAA, CLC and EA Sports arguing that the defendants have attempted to control his likeness into perpetuity.

Ryan Hart is advancing the ball in New Jersey.  On June 15, 2009, Hart filed a putative class action lawsuit, on behalf of himself and all others similarly situated, against EA Sports alleging, among other things, that EA Sports invaded his right of privacy by misappropriating his likeness for commercial purposes and violating his right of publicity.  In his complaint, he claims EA, without his consent, used his likeness in its NCAA Football video game series for the years in which Hart was quarterback of the Rutgers University football team, and again in 2009, in which Hart claims a photograph of him appears in a montage of actual college football players.
 

According to Hart, the similarities between he and the “virtual” Rutgers quarterback in the video game are palpable, the commonality of the attributes unmistakable.  For example, the virtual quarterback in the video game shares the same height and weight as Hart.  Aside from those immutable traits, the virtual quarterback dons jersey number 13, wears a left wrist band and has a helmet visor, just as Hart did when he ran the Rutgers offense.  Hart points out that the virtual quarterback, like Hart, hails from Florida.  Hart also has alleged that EA, in the promotion of its video game, used actual video footage of him throwing a pass in Rutgers’ 2005 Insight Bowl game against Arizona State.
 

The NCAA, CLC and EA Sports have raised several defenses to these claims.  After all, the doctrine has discernible standards.  For example, in Hart’s case, EA Sports has argued that Hart’s likeness was not used for a commercial purpose.  The use of a person’s likeness for non-commercial purposes, such as the dissemination of news or information, generally is not actionable.  See Castro v. NYT Television, 370 N.J. Super. 282 (App. Div. 2004) (disallowing emergency room patients filmed for a reality TV show to recover for misappropriation of their likeness).  Not every use of one’s image by a commercial publication is considered a commercial use.
 

EA Sports also has sought safe harbor under the First Amendment, arguing that the medium in which the alleged misappropriations have occurred - the video games - are creative, expressive works entitled to First Amendment protection.  According to the court in Hart’s case, the applicability of this defense depends on whether the video game is considered commercial speech or an artistic work.  Hart, supra, *10 (citing Facenda v. N.F.L. Films, Inc., 542 F.3d 1007, 1018 (3d Cir. 2008).  In these cases, the defendants also have pointed to the existence of various federal laws under which the claim may be preempted.
 

The plaintiffs, however, maintain that the misappropriation of their likeness is tantamount to stealing; they otherwise would be entitled to market and promote themselves and reap the financial benefits.       
 

Many of these cases (including Hart’s) are pending, and it remains unclear how these disputes will resolve.  Still, what is clear is that a right of publicity exists, and it gives an individual, especially a public figure or celebrity, the right to control the exploitation of his likeness and to prevent others from infringing upon that right for commercial benefit.

In McMillen v. Hummingbird Speedway, Inc., a personal injury action, the defendant questioned in a set of interrogatories whether the plaintiff belonged to any social networking sites and to provide plaintiff’s usernames, login names, and passwords. McMillen v. Hummingbird Speedway, Inc., No. 113-2010 CD (C.P. Jefferson, Sept. 9, 2010).  Upon reviewing the public portion of plaintiff’s Facebook account, the defendant discovered comments relating to relevant facts surrounding the litigation.  Plaintiff’s counsel claimed confidentiality or privilege to the information.  Defendant then moved to compel discovery, arguing that the areas to which they did not have access could contain further comments which would impeach or contradict plaintiff’s disability and damages claims.  Plaintiff contended that the court should recognize communications “shared among one’s private friends on social network computer sites as confidential and thus protected against disclosure.”  A “social network site privilege” has not been recognized under Pennsylvania statute or case law.  President Judge John Henry Foradora found that while people use these forums, such as Facebook, MySpace, and their counterparts to seek advice on personal and private matters, “it would be unrealistic to expect that such disclosures would be considered confidential.”  After careful review of the privacy and disclosure policies of Facebook and MySpace, the court concluded that the users are on notice that their communications posted may be revealed to third-parties.  Accordingly, the court held that access to one’s social networking sites is not protected by any privilege.  As a result, plaintiff was compelled to turn over his usernames and passwords of his Facebook and MySpace accounts to defendant’s counsel.

Likewise, in Romano v. Steelcase Inc. a New York Suffolk County Supreme Court ordered plaintiff to sign an authorization permitting the defendant to access her Facebook and MySpace accounts, including any records previously deleted or archived. Romano v. Steelcase Inc., N.Y.S.2d 650 (N.Y. Sup. Ct. 2010).  In a personal injury action, defendant found pictures of plaintiff on her Facebook and MySpace accounts that yielded relevant information regarding damages and the extent of plaintiff’s injuries.  Acting Justice Jeffrey Arlen Spinner rejected plaintiff’s arguments that it violated her Fourth Amendment right to privacy.  In analyzing the websites privacy policies, the court found users are aware that they post content to the sites at their “own risk.” 

In light of these two decisions, it becomes increasingly apparent that courts are not willing to recognize a privacy interest in one’s accounts on social networking sites.  So remember, everything can become public.