A Look into Los Angeles Clippers' Owner Donald Sterling's Lawsuit against the NBA

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On May 30, 2014, Los Angeles Clippers owner Donald Sterling filed a civil suit against the National Basketball Association and its commissioner, Adam Silver, in the United States District Court for the Central District of California, Western Division. The Civil Complaint sets forth five causes of action against the defendants. They include: antitrust violations; conversion; breach of contract; breach of fiduciary duty; and violations for denial of Sterling’s constitutional rights. The Complaint seeks compensatory in excess of $1 billion along with injunctive relief “eliminating [Sterling’s] lifetime ban, eliminating the $2.5 million fine, the reinstatement of longtime Chief Executive Officer of the Clippers, Andy Roeser, the removal of the interim Chief Executive Officer installed by the NBA, Richard Parsons, and the termination of the NBA’s proceedings to strip Donald Sterling and the Sterling Family Trust of their ownership in the Los Angeles Clippers.”

 

Sterling’s Constitutional Claims:

In his complaint, Sterling alleges that his telephone conversation with his girlfriend, Ms. Stiviano was a private conversation which took place in California. He asserts that unbeknownst to him and in violation of California Penal Code §632(a), that private telephone conversation was recorded. Moreover, his complaint asserts that pursuant to California Penal Code §632(d) “[e]xcept as proof in any action or prosecution for violation of this section, no evidence obtained a result of….recording a confidential communication in violation of this section shall be admissible in any judicial, administrative, legislative, or other proceedings.” Sterling asserts that the NBA’s use of an illegal recording as evidence against him constitutes a violation of his right to privacy. In support of that contention, Sterling will assert that the NBA investigation constitutes an “other proceeding.” His complaint cites two federal court decisions in which secretly recorded telephone conversations were excluded from evidence in civil lawsuits per that statute.

Unlike most states, California’s right to privacy is applicable both to “state actors” (i.e. the government) and non-state actors. For example, in Hill v. National Collegiate Athletic Assn., 865 P.2d 633, 641-642 (Ca. 1994) the California Supreme Court rejected the NCAA’s argument that its drug testing policy did not violate the California Constitutional right to privacy because the NCAA was not a state actor. The California Supreme Court in Hill held that both state and private actors could violate California’s constitutional right to privacy. In 2009, the California Supreme Court revisited and narrowed its previous holding in Hill in the case Sheehan v. San Francisco 49ers, Ltd., 201 P.3d 472, 478 (Ca. 2009) as to the applicability of the right to privacy to non-state actors.

First, I expect the Defendants to argue that they are not subject to California’s constitutional right to privacy because they were in New York State. In other words, I expect a choice of law argument. Assuming the Court applies California law, I expect Silver and the NBA to argue that they are not “state actors” and the “other proceeding” set forth in California Penal Code §632(d) does not apply to the NBA’s internal grievance and discipline system. I also anticipate that the defendants will argue that Sterling suffered no damages because the team sold for a price which met or exceeded the fair market value of the team.

 

Conversion Claim:

Sterling’s civil lawsuit against the NBA and Commissioner Silver alleges that the forced sale of the Clippers constitutes the civil tort of conversion. Pursuant to California law “conversion” is generally described as the wrongful exercise of dominion over the personal property of another. Gruber v. Pacific States Sav. & Loan Co., 13 Cal.2d 144, 148 (1939) The basic elements of the tort are (1) the plaintiff's ownership or right to possession of personal property; (2) the defendant's disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages. Burlesci v. Petersen, 68 Cal.App.4th 1062, 1066 (1998).

I expect the NBA and Silver to attack the conversion claims by attacking the “causation” and “damages” elements of the tort. As per the causation element, the NBA and Silver should assert that it did not sell the Los Angeles Clippers. Rather, Sterling’s wife, Shelly sold the team after Mr. Sterling’s doctors determined that he was “impaired” by early onset dementia. The Sterling Family Trust document contains a provision which allows either Mr. or Mrs. Sterling to control the trust in the event the other is deemed to be impaired. Hence, they should argue that they did not cause Sterling to lose the team.

Second, the NBA and Silver should attack damages by asserting Sterling did not suffer any damages because the $2 billion sale price either equaled or exceeded the value of the team.

 

Breach of Contract Claim:

Sterling’s complaint asserts the NBA’s fine, lifetime ban and initiation of the process which lead to the sale of the team are not authorized by the NBA-Constitution and its By-Laws. He claims that his private actions do not warrant the imposition of the punitive measures imposed by NBA Commissioner Silver. I expect the NBA and Silver to assert that they possess inherit and specific powers to protect the integrity of the game and therefore were authorized by the governing documents to impose those punishments on Sterling. I also expect Silver and the NBA to argue that the NBA-Constitution and By-Laws do not prohibit Sterling’s punishments. Finally, I expect the defendants will also assert that Sterling’s punishments were warranted because of his abhorrent behavior.

 

Anti-Trust Claim:

Sterling’s Complaint asserts that the forced sale of the Los Angeles Clippers violates federal anti-trust laws because it will result in the team being sold for less than it is actually worth. As stated above, I expect both Silver and the NBA to assert that although they said that the team must be sold, it was Sterling’s wife Shelly who sold the team. She did so prior to the adjudication of the case and had the power to do so pursuant to the trust language.

I also expect Silver and the NBA will argue that their actions do not violate federal anti-trust laws as a matter of law.

Finally, I believe the NBA and Sterling will argue that Sterling did not suffer damages because the team was sold for a price which met or exceeded its fair market value.

 

Breach of Fiduciary Duties:

Finally, Sterling’s complaint asserts that Sterling, the NBA and its Board of Commissioners owed him certain fiduciary duties, including duties of loyalty, cooperation, good faith and fair dealing, and the exercise of good care by violating his constitutional right to privacy, “imposing harsh and unprecedented penalties disproportionate to the alleged offense and to the offenses of others, by conducting an inadequate investigation, and by expressly denying Plaintiffs an adequate opportunity to prepare and defend themselves.” I expect the NBA and Silver to assert as a matter of law that they neither owed nor violated any fiduciary duties to Mr. Sterling. Furthermore, I expect them to assert, assuming arguendo Sterling can demonstrate a breach of fiduciary duty, that he suffered no monetary damages because the team was sold for a price which met or exceeded its fair market value.

Pursuant to the Federal Rules of Civil Procedure, the NBA and Silver will either file an answer to the complaint or a pre-answer motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b). Assuming the case is not settled or dismissed by way of motion, the parties will be afforded an opportunity to take discovery. After the close of discovery, I expect the parties to file various motions. Assuming the case is not dismissed or settled by then, I expect the case to be tried. Typically, Federal Court Judges try to move their cases along. Hence, if the case is to be tried, I expect a trial in the next 24-36 months. 

Getting Paid when the Hiring Contractor is in Financial Trouble

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A major concern any contractor or sub-contractor has when working on a project is being paid for the materials and services that they have provided. When the project is progressing without any financial difficulties, payments are timely issued and the sub-contractor or contractor is paid for all the work that they perform. At times, however, there may be concerns as to the financial stability of a sub-contractor or contractor who hires your company to provide materials and services. In such cases, when a party is experiencing a financial difficulty, it becomes important to try to make arrangements to ensure that your company receives payment. If the financial situation concerning the contractor or sub-contractor who retained your company is fairly dire, there are two different vehicles by which your company may attempt to secure payment for the materials and services it has provided without filing a lien claim which might affect the project being completed. This could be in either the form of a Joint Check Agreement, or in the alternative, the issuance of direct payments from the owner or the primary contractor directly to your company.

Should the party which hired your company be experiencing financial difficulty, one potential arrangement would be a Joint Check Agreement. Pursuant to a Joint Check Agreement, payments would be issued directly to both the company which retained your company, as well as your company directly from either the owner or the primary contractor. The fact that checks are issued jointly in your company’s name, as well as the company that retained your company, it would prevent the other company from cashing the checks without your authority and/or consent. As a result, this ensures that your company receives payment for the materials and services it provided. 

Another arrangement whereby your company could receive payment when the financial stability of the company which hired your company is in question concerns direct payments being issued from the primary contractor or the owner. In such circumstances, in lieu of paying the party which retained your company, and thereafter, you receiving payment, the owner or primary contractor would pay your company directly. In order for payments to be directly issued, the primary contractor or the owner would have to obtain the consent of the company who hired you in this regard.

Both a Joint Check Agreement, as well as a direct payment from the primary contractor owner are two vehicles by which your company can receive payment without the risk of the contracting party which hired your company from taking the payment for its own use and benefit. These vehicles would typically require the consent of the party which retained your company.

It is suggested that if you have concerns as to payment from the primary contractor or a sub-contractor that you contact an attorney to discuss the possibility of a Joint Check Agreement or direct payments. If you wait too long in the process, you may end up not receiving any payment for materials and services you’ve provided. As such, it is best to consult with an attorney early and often. 

New Jersey Appellate Court Reverses Trial Court and Remands Member Deadlock Case to Binding Arbitration

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On May 22, 2014, the New Jersey Appellate Division reversed a trial court’s denial of a motion to compel deadlocked members of a limited liability company to arbitrate their disputes in accordance with the governing operating agreement. Comando v. Nugiel, 2014 N.J. Super. Unpub. Lexis 1167 (App. Div. 2014). The Comando decision: (1) provides a good overview of the law in New Jersey governing arbitration of disputes; and (2) concludes the disagreements present in the dispute constituted “deadlock.”

The Comando case centered on a dispute between Elizabeth Comando (“Comando”) and Mary Nugiel (“Nugiel”) regarding a New Jersey limited liability company, 10 Centre Drive, LLC (“the LLC”). The two of them contributed money and co-signed a mortgage, to aid the LLC in purchasing a building located at 10 Centre Drive in Mercer County, New Jersey. The building was purchased to be used by another company (RCP Management Company) they worked together for. Although RCP Management Company was initial owned solely by Nugiel, the two agreed that Comando would eventually become a co-owner.

Comando and Nugiel executed an operating agreement for the LLC. Section 5.5 of the operating agreement addressed the circumstance of a members' deadlock on management decisions (deadlock provision), which stated:

In the event the [m]embers are unable, for any reason, to agree regarding any matter or decision requiring the approval of a majority or more of the [m]embers, (a "[d]eadlock"), then the [m]embers shall mutually agree upon an individual with appropriate expertise to cast a vote to break any [d]eadlock (the "[r]eferee"). The [r]eferee shall be appointed by the [m]embers within three (3) days after the date of the [d]eadlock. The [r]eferee will make such inquiry into the [d]eadlock as it, in its sole discretion, deem appropriate. The [m]embers may agree on any rules to govern such inquiry, and in the absence of an agreement, the rules of the American Arbitration Association shall apply. Within five (5) days after the date of the appointment of the [r]eferee, the [r]eferee shall present a written decision regarding the resolution of the [d]eadlock to the [m]embers which shall be final and binding upon the [m]embers. The [r]eferee shall have the authority to decide all matters presented to it. In the event either [m]ember fails or refuses to act in accordance with the [r]eferee's decision for any reason, then the other [m]ember may seek all remedies permitted under the law in order to enforce the decision. The [c]ompany shall pay the fees and reasonable out-of-pocket expenses of the [r]eferee. Except as otherwise set forth herein with respect to [r]eferee expenses to be paid by the [c]ompany, each [m]ember shall be responsible for their own costs and expenses association with the resolution of any [d]eadlock hereunder.

Difficulties and disagreements developed between them concerning RCP Management Company. By January 2013, the two reached an impasse over RCP's ongoing operations. In February 2013, Nugiel informed Comando she desired to sell RCP to a third-party. Comando replied, expressing her desire to exercise her right to purchase RCP, which Nugiel rejected. Comando resigned on April 1, 2013. Beginning in June 2013, Comando urged the sale of the LLC’s real property, a request which Nugiel refused.

On July 13, 2013, Comando, individually and derivatively filed a lawsuit against Nugiel in the Superior Court of New Jersey, Bergen County, Law Division. Included among the numerous claims against Nugiel and RCP are an assertion of Comando's de facto ownership interest in RCP Management Company and breach of contract, as well as a claim Nugiel wrongly diverted corporate profits for her sole benefit and committed fraud. Nugiel filed a counterclaim, alleging Comando overbilled clients to inflate her salary and percentage of profits, Comando revealed RCP Management Company’s confidential information to her new employer, and if Comando is found to be a shareholder of RCP Management Company, she breached her fiduciary duty to the corporation and fellow shareholder, Nugiel.

Comando filed a motion pursuant to the above-mentioned “deadlock provision” seeking to have the case remanded to binding arbitration. Nugiel opposed that motion. In her opposition, Nugiel argued that the “deadlock provision” was inapplicable and that Comando waived arbitration when she filed a lawsuit in Court. The trial court agreed with Nugiel.

The Appellate Division reversed that decision. In doing so, the Comando Court cited governing case law favors enforcing parties’ contractual agreements to arbitrate. Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 168 N.J. 124, 131 (2001); Alamo Rent A Car, Inc. v. Galarza, 306 N.J. Super. 384, 389 (App. Div. 1997); Angrisani v. Fin. Tech. Ventures, L.P., 402 N.J. Super. 138, 148-49 (App. Div. 2008).

The Comando Court found that the disagreements between Nugiel and Comando concerning the sale of the LLC’s real property constituted “deadlock” which triggered the arbitration clause contained in the Operating Agreement.

Finally, the Comando Court held that the commencement of the litigation in Court did not constitute a waiver of the arbitration clause. In reaching that conclusion, the Court recognized “"[t]here is a presumption against waiver of an arbitration agreement [.]" Spaeth v. Srinivasan, 403 N.J. Super. 508, 514 (App. Div. 2008). Moreover, “party's waiver must be expressed "clearly, unequivocally, and decisively.” Camando (quoting, Cole v. Jersey City Med. Ctr., 215 N.J. 265, 277 (2013)). There is no single test for the type of conduct that may waive arbitration rights." The Camando Court following the New Jersey Supreme Court’s Cole decision set forth that the factors should be evaluated when undertaking the necessary are:

(1) the delay in making the arbitration request; (2) the filing of any motions, particularly dispositive motions, and their outcomes; (3) whether the delay in seeking arbitration was part of the party's litigation strategy; (4) the extent of discovery conducted; (5) whether the party raised the arbitration issue in its pleadings, particularly as an affirmative defense, or provided other notification of its intent to seek arbitration; (6) the proximity of the date on which the party sought arbitration to the date of trial; and (7) the resulting prejudice suffered by the other party, if any.

Cole v. Jersey City Med Ctr., 215 N.J. at 280-81

After applying those factors, the Camando Court held that there was not a waiver and reversed the Trial Court’s decision. The case was ripe for arbitration.

Delaware Supreme Court Allows By-Laws to Require "Losing" Party to Pay the Prevailing Party's Legal Fees and Costs If Adopted for A Proper Purpose

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On May 8, 2014, the Delaware Supreme Court in the case ATP Tour, Inc. v. Deutscher Tennis Bund, 2014 Del. Lexis 2009 (2014), held that a fee shifting provision in a non-stock corporation’s by-laws can be enforceable under Delaware law provided it was adopted for a proper purpose.

The case involved a Delaware non-stock corporation ATP Tour, Inc. Its members include professional men's tennis players and entities that own and operate professional men's tennis tournaments. In 2006, the board amended ATP's bylaws to add an Article 23, which in summary provided that if any member or owner commences litigation against ATP Tour which “does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then each Claiming Party shall be obligated jointly and severally to reimburse the League and any such member or Owners for all fees, costs and expenses of every kind and description (including, but not limited to, all reasonable attorneys' fees and other litigation expenses) (collectively, ‘Litigation Costs’) that the parties may incur in connection with such Claim).”

After the enactment of that bylaw, two members commenced litigation against ATP asserting that the corporation violated federal anti-trust laws and breached fiduciary duties. A federal jury ultimately found in ATP’s favor after a ten day trial. ATP filed a motion pursuant to Federal Rule of Civil Procedure 54 seeking the recovery of the attorneys’ fees and costs it spent successfully defending itself in that litigation. The Federal District Court Judge denied the application finding that federal law pre-empted the enforcement of fee shifting agreements when anti-trust claims are involved. ATP appealed the District Court’s decision to the United States Court of Appeals for the Third Circuit. That Court disagreed with the trial court’s reasoning but found that there was no Delaware case law answering questions relating to whether or not a Delaware corporation’s bylaws could permit a losing party to pay the prevailing party’s counsel fees and costs. The case was sent to the Delaware Supreme Court to answer those unanswered questions.

The Delaware Supreme Court affirmed that Delaware follows the American Rule, under which parties to litigation generally must pay their own attorneys' fees and costs.Relying on previous decisions, the Delaware Supreme Court found it was settled that contracting parties may agree to modify the American Rule and obligate the losing party to pay the prevailing party's fees.The Delaware Supreme Court held that “corporate bylaws are ‘contracts among a corporation's shareholders,’ [and found that] a fee-shifting provision contained in a non-stock corporation's validly-enacted bylaw would fall within the contractual exception to the American Rule.”

The Delaware Supreme Court did limit their decision to the enactment of fee-shifting bylaws so long as they were put into place for a proper purpose. Citing the landmark decision, Schnell v. Chris-Craft Industries, 285 A.2d 437 (Del. 1971), the Delaware Supreme Court held when deciding whether or not a specific fee-shifting bylaw is enforceable “depends on the manner in which it was adopted and the circumstances under which it was invoked.” The Delaware Supreme Court further held “bylaws that may otherwise be facially valid will not be enforced if adopted or used for an inequitable purpose.”

This is an extremely important decision because Delaware is the state where a majority of corporations are incorporated. The decision could profoundly change intra corporate litigation because Delaware corporations may take notice and adopt similar bylaws in an effort to make litigation more expensive and risky. The decision is also extremely important because Delaware law is often followed by other jurisdictions. It is possible that other states may follow Delaware law and permit their corporations to enact bylaws that force the losing party to pay the winner’s counsel fees.

Do You Have The Waiver and Release You Need?

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Having the right waiver and release can help you to quickly save money and find peace.  If you fail to obtain a required waiver or release, you can suffer from liens, disputes and lawsuits.

Black’s Law Dictionary states that a waiver or release involves giving up or abandoning of a claim or right.  Often, waivers and releases are included as part of settlement agreements.  Since it is also possible to give up claims and rights by conversations or conduct, it is essential to ensure that you do not unintentionally lose your claims and rights.  Waivers and releases can also be contained in other documents and good leases, construction contracts, and other agreements will include lien and claim waivers and releases.  In addition to obtaining releases, it is important to obtain both lien and claim waivers, since simple lien waivers may not prevent the filing of claims.  

Waivers and Releases Can Cut Costs 

Waivers and releases can help you to quickly prevent liens and claims, and resolve disputes and lawsuits.  They can also save you time and money by deterring defaults with tough language to inspire compliance, such as increasing payments and attorneys’ fees and costs for violations.  Waivers and releases are effective at cutting costs and reducing risks because they are generally enforced when they are voluntarily and properly prepared and exchanged unless there is a defense to the making of the document, or they are prohibited by laws, such as laws relating to residential tenants and consumers.  It is also important that documents be exchanged at the right time.  For example, construction lien and claim waivers may not be enforceable if they are not exchanged when required by law.  Similarly, certain rights and judgments may not be enforceable unless they are obtained to settle a pending claim, such as an eviction action.  In order to fully benefit from these valuable documents, it is essential to consider all possible issues, including all potential parties (such as subsidiaries and affiliates, officers, directors, shareholders, partners, employees, agents, members, managers, successors, assigns, heirs and personal representatives) and all potential issues (including past, present, and future claims, demands, actions, causes of action, suits, debts, sums of money, promises and damages, regardless of whether asserted, unasserted, known or unknown). 

Waivers and Releases Can Create Opportunities  

Well drafted waivers and releases can also grant you additional new rights to help you reach your current and future goals.  For example, they can be used to quickly obtain missing rights, such as rights to develop and improve properties.  They can also be used to creatively and quickly resolve other issues that you may not be willing or able to cost-effectively resolve at a trial, such as other current problems, future potential problems and payments, confidentiality, jurisdiction, venue, and governing law. 

Obtain the Waivers and Releases You Need

It is critical to consult counsel to ensure that you have the waivers and releases you need to succeed.  Many issues must be addressed, including what waivers and releases you need, when you need them, and if and when they are enforceable.

Properly Serving As a Power Of Attorney

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At some point in our lives, many of us are chosen to serve as a Power of Attorney for an elderly or an incapacitated person who may need assistance with their day to day affairs, whether due to infirmity, immobility, or issues with their mental capacity.  Prior to taking actions utilizing the Power of Attorney, it is a good idea for an individual to have ground work laid out to properly memorialize any actions taken while utilizing the Power of Attorney to avoid potential future legal action.  As a litigator who works extensively in probate litigation, I have seen many instances where a lawsuit is filed due to alleged abuses of a Power of Attorney.  As such, below are some simple rules to follow when utilizing a Power of Attorney. 

The first suggestion would be to utilize accounting software, such as Microsoft Excel, in order to create a spreadsheet wherein you would track any and all transactions when utilizing the Power of Attorney.  Each transaction can be recorded in an Excel spreadsheet, and furthermore, all relevant receipts can be indexed which are related to the expense.  It is suggested that you spend the time to organize and categorize any and all expenses, as well as the accompanying receipts and keep them organized in a notebook which corresponds with the Excel spreadsheet.  In this notebook, it would also make sense for you to maintain copies of all bills which facilitated and required the payment.  The use of an Excel spreadsheet when coupled with the retention of original bills and receipts is a very strong step towards alleviating any confusion concerning the use of the Power of Attorney should an accountant be required. 

Another important consideration would be to ensure that the party you are assisting has a separate bank account that is not co-mingled with any assets of your own.  Is it is important while utilizing a Power of Attorney that you do not co-mingle any of your assets, or the assets of the person you are assisting.  Maintaining separate and distinct accounts is a good way of ensuring that there is no co-mingling of funds, and as well, alleviates allegations as to the misuse of an account.   In this same breath, it is suggested that a party save any and all bank account statements and keep them in the same notebook which contains the accounting and the Excel spreadsheet that was discussed above.

If there are concerns that a sibling or other family member may challenge your expenses under the Power of Attorney, it is suggested that you continuously invite them to review any expenses on no less than a quarterly basis.  By providing them with this opportunity it may resolve any issues which might lead to future litigation.  Above all else, in order to avoid litigation it is essential that while serving as a Power of Attorney that you maintain transparency with all accounts and that you maintain and organize your records.

An Unfair Will Doesn't Mean an Invalid Will

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Just because a Will may be unfair to different members of a family its lack of perceived fairness does not invalidate the Will in the absence of additional evidence.  It is well settled that if the testator has the capacity to execute a Will, then in that event, it is not the duty of the Court to rewrite the Will, but instead, to enforce it in its current format.  The test of capacity to execute a Will is quite a low standard.  In general, the testator need only understand the property which he possesses and which he wishes to dispose of and the individuals to whom he wishes to bequeath this property.  Provided the testator meets this simple two pronged test, and the distribution is not the subject of an outside influence which is unlawful in nature, then the bequest will stand.  This might be despite the fact that the decedent’s bequest may be extremely unfair to other potential heirs of the Estate.

Often times, a party may seek counsel due to a Will which they feel is unfair or improper.  Usually, this occurs when a change is made in the Will not long prior to the death of the decedent.  Unfortunately, the minimal test of capacity allows the decedent to execute a Will which may drastically differ from his or her previous wishes and one which the Court will uphold if the testator possesses the capacity on the date it was executed.  There are other ways to challenge a Will based upon allegations of undue influence which thereby caused the decedent to execute a Will which was not in accord of his true intentions, but instead, reflects the wishes of another person who has benefitted by same. The test of undue influence, however, is entirely separate and distinct from capacity to execute a Will.

With regard to capacity, if the Court finds that there is sufficient capacity and there is no evidence of any other improper influence, the Will will be enforced in its present format no matter how unfair it may be to the other members of the decedent’s family.  As such, simply because a Will is unfair does not mean that it is invalid.  Obviously, if a party encounters a Will which is grossly unfair and was created not long prior to the death of the testator, then in that event, this individual can consult with an attorney to see whether there are ways to attack the validity of the Will based upon either an allegation of lack of capacity or undue influence.

The Joint Accounts and Multi Party Deposit Account Act

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Often times, in order to simplify writing checks on behalf of an elderly individual or one whose capacity may be failing, individuals may agree to open a joint account which would then permit the person who is providing assistance to write checks on behalf of the individual who actually has deposited the funds into the account.  This typical joint account with right of survivorship is subject to the Multi Party Deposit Account Act.  This Act has important implications with regard to matters wherein the subject account may be a substantial asset of the Estate once the true owner of the account passes away.  It is for these reasons that you should be aware of the Multi Party Deposit Account Act.
 
Under the Multi Party Deposit Account Act, the joint account belongs to the parties in proportion to the net contribution by each to the sums on deposit unless the terms of the contract indicate a different intent or there is clear and convincing evidence of a different intent at the time the account was created. In other words, if one party deposits all the account funds into the account during their life, then in that event, this party owns all the funds contributed to the account. At the time of death of one party to the joint account, however, there is a reputable presumption that a right of survivorship was created in the remaining party. This means that the sums remaining on deposit at the death of a party through a joint account belong to the surviving party, or parties, against the Estate of the decedent unless there is clear and convincing evidence of a different intention at the time the account is created. As such, the account would pass to the survivor under the account, unless there is clear and convincing evidence that the account was created as a matter of convenience to assist the decedent during his life, or there is other evidence which demonstrates by clear and convincing evidence that the account was not to pass to the survivor upon the death of the decedent. Clearly, this is important when considering how funds may pass to the Estate.
 
In a recent decision, the Court also found that not only may it consider evidence at the time the account is created, but moreover, that the Court may also consider evidence after the account was created to determine whether or not the account was one of merely convenience, or the account passed to the survivor at the death of one party to the account. The standard is whether there is evidence of a clear and convincing nature which demonstrates that the right of survivorship has been invalidated by prior intentions of the true owner of the account. The case law differs, however, whether the account was created as a means of convenience in lieu of the operation of the Power of Attorney or a similar instrument. As discussed above, recent case law has held that the intention of the owner to the account may be revealed at a time long after its creation if the parties’ conduct throughout the time that the account was maintained demonstrates its convenient nature. Regardless you should always be aware of the impact of The Multi Party Deposit Accounts Act as it relates to what assets may compromise an Estate. 

New Rules for Commercial Arbitration

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Many franchise agreements require mandatory arbitration of disputes, and a substantial number fall under the supervision of the American Arbitration Association (“AAA”). The AAA has issued revised Commercial Arbitration Rules that will apply to cases filed as of October 1, 2013.

These significant changes were meant to address common criticisms of arbitration, including burdensome discovery, lack of arbitrator control, and increased time and expense. The goal is to make arbitration better-managed, faster and more cost-effective.

The revisions include:

  • A mediation step for all cases with claims of $75,000 or more (subject to the ability of any party to opt-out). New Rule R-9 makes mediation mandatory. Absent an agreement of the parties to the contrary, the mediation is to occur concurrently with the arbitration and in a manner that does not delay the proceeding. A party may unilaterally opt-out from mediation.
     
  • Arbitrator control over information exchange (discovery). The new Rules direct the arbitrators to convene a preliminary hearing as soon as practicable following the appointment of the tribunal, and include a checklist of possible items to be discussed during the preliminary hearing (R-21); allow production of electronically stored documents to be completed in the manner most convenient and economical to the producing party (R-22); allow the arbitrators to allocate the costs of producing documents (R-23); and give the arbitrators the authority to impose sanctions to address abusive conduct (R-58).
     
  • The availability of emergency measures of protection. An “emergency arbitrator” may grant interim relief before the arbitral tribunal is constituted (R-38). A party may request the AAA to appoint an emergency arbitrator, prior to the constitution of the tribunal. Within one business day, the AAA must appoint a single emergency arbitrator, who must then establish a schedule for the consideration of the application for emergency relief within two business days. This provision is not intended to prevent applications to courts for provisional relief.
     
  • Access to dispositive motions. The revised Rules expressly grant arbitrators the authority to hear dispositive motions, as long as the party who intends to bring the motion shows that the motion is likely to succeed in disposing of or narrowing the issues in dispute (R-33).

Since arbitration is a matter of contract between the parties, some of these Rules, like mandatory mediation, may be varied by the agreement. Agreements that have AAA arbitration clauses should therefore be reviewed and updated. New agreements should be drafted with these Rules in mind.

 

Contingency Fee and Other Alternative Fee Arrangements

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Often oppressed minority shareholders cannot afford the cost to retain an attorney to stand up to the oppressor. The majority shareholder will use the company’s financial resources to pay their attorney while the oppressed minority shareholder will be forced to cover their attorney fees personally. Although, Courts have discretion to award counsel fees, rarely do they award them to the oppressed. 


Oppressed minority shareholder should not hesitate to ask prospective attorneys about handling their case on a contingent fee basis. Often, I agree to handle minority oppression claims with a contingency fee arrangement. Before doing so, I discuss the pros and cons of a contingency fee versus an hourly fee. Factors that should be considered are: the value of the client’s shares; whether or not the majority will litigate for a prolonged period of time; and the ability to pay legal bills during the course of the litigation. If you are an oppressed minority shareholder, you should discuss alternative fee structures such as contingency fee arrangements with your prospective attorney. I am always happy to discuss and consider a contingency. Perhaps, a contingency fee structure will give you give you the ability to stand up to the oppressor.

Older Entries

July 29, 2013 — When Can Your Company Represent Itself in Court in the State of New Jersey?

June 17, 2013 — The Economic Loss Doctrine

June 10, 2013 — The New Jersey Adult Guardianship and Protective Proceedings Jurisdiction Act

May 28, 2013 — Documenting Change Orders in Construction Projects

May 24, 2013 — Documenting Back Charges in Construction Projects

May 2, 2013 — NJ Courts Re-Up "Ascertainable Loss" Standard in Consumer Protection Cases

April 9, 2013 — What is Corporate Deadlock?

April 3, 2013 — Oppression is Found

April 2, 2013 — Sandy Insurance Claims: Commonly Encountered Issues

March 29, 2013 — Stark & Stark Construction Litigation Attorney Published in US1

March 29, 2013 — Changes in the State Court Foreclosure Mediation Program in New Jersey

March 27, 2013 — Temporary Flight Restriction Violations

March 26, 2013 — Courts May Use Equitable Powers to Order A Mandatory Purchase of Stock if Oppression is Found

March 20, 2013 — The New Jersey Revised Uniform Limited Liability Company Act Provides for Remedies to Redress Oppression

March 19, 2013 — Stark & Stark Shareholder in Firm's Litigation Group Published in US1

March 15, 2013 — The "Purpose" for Forming LLCs was Expanded by New Jersey's Revised Uniform Limited Liability Company Act

March 13, 2013 — The Revised Uniform Limited Liability Company Act Changes the Duration of the Company

March 7, 2013 — The New Jersey Revised Uniform Limited Liabilty Company Act Broadly Defines the term "Operating Agreement"

March 5, 2013 — The New Jersey Revised Uniform Limited Liability Act Codifies the Covenant of "Good Faith and Fair Dealing"

March 4, 2013 — Stark & Stark Shareholder Featured in The New York Times Article on Wedding Industry Trademark Lawsuits

February 28, 2013 — New Jersey Revised Uniform Limited Liability Company Act Now Provides the Remedies and Protections Afforded Oppressed Minority Shareholders

February 26, 2013 — New Jersey Revised Uniform Limited Liabilty Act Addresses Manifestly Unreasonable Operating Agreements

February 25, 2013 — New Jersey Revised Uniform Limited Liability Company Act is Almost Upon Us

February 22, 2013 — Mark Your Calendars: The New Jersey Revised Uniform Limited Liability Company Act is About to Go Into Effect

February 19, 2013 — Mediator Fee Disputes Are Not Subject to Fee Arbitration

February 14, 2013 — Who Is Entitled to Participate in The Pre-Litigation Negotiations in an Eminent Domain Case?

November 9, 2012 — Hurricane Sandy and the Tax Assessor

September 5, 2012 — Gathering and Using Social Media As Evidence

September 3, 2012 — Hightstown Man Charged with Stealing $500,000 From 96-Year-Old Relative

August 27, 2012 — Attorney's Estate Tests Limits of Probating an Unsigned Will

August 8, 2012 — Referring Out a Will Contest to Avoid a Conflict of Interest

June 29, 2012 — Intestacy in a Will Contest

May 21, 2012 — Lightening the Burden Imposed by the Statute of Repose

February 9, 2012 — Do you Have a Duty to Preserve Evidence?

January 19, 2012 — The Entire Controversy Doctrine -Don't Waive Your Rights

December 29, 2011 — Condominium Board Members Must Treat All Unit Owners Equally

December 20, 2011 — Requirements for a Proper Privilege Log

December 7, 2011 — Stark & Stark Shareholder Comments on FINRA's Actions Against Former Citigroup Managers

November 11, 2011 — Attention Mediators: Be sure to finalize your settlement agreement in writing

November 8, 2011 — Expungement Statute Amended: New ruling allows permit of expungement after five years

October 17, 2011 — Settlement in Slimquick/Liquid Hoodia Class Action

September 29, 2011 — Trademark Infringement in Keyword Advertising

September 16, 2011 — Jurisdiction in Internet Defamation Cases

September 15, 2011 — Stark & Stark Shareholder Comments on AllianceBernstein's Decision Not to Sign Protocol for Broker Recruiting

August 16, 2011 — Lehman Pursues Former Brokers' Bonuses

August 12, 2011 — Under the Consumer Fraud Act, a Spiritual Loss Is Not an Ascertainable Loss

June 7, 2011 — A Note to New Jersey Shopping Mall Owners and Managers about Protesters and Solicitors

June 3, 2011 — Litigation Hold Letters - Do I Need to Comply?

June 1, 2011 — New Jersey Supreme Court "Splits the Baby" on the Entire Controversy Doctrine

May 25, 2011 — Conflicting Loyalties: When corporate counsel should not represent a shareholder

May 18, 2011 — Timing is Everything: The Paradox of the "Occurrence" in Coverage Litigation

March 10, 2011 — Protect your Identity: Exercise your Right of Publicity

March 8, 2011 — The Seller's Disclosure Statement

March 7, 2011 — Postings on Social Networking Sites are Discoverable

February 22, 2011 — Stark & Stark Shareholder Comments on 'Garden Leave' for Brokers

November 24, 2010 — Stark & Stark Shareholder Comments on US Attorney's Attempt to Stop Insider Trading on Wall Street

November 18, 2010 — The Class Action Decision in Iliadis v. Wal-Mart Reconfirmed by New Jersey Supreme Court in Lee v. Carter-Reed Co.

November 17, 2010 — Copyright and the Internet: Protecting The Content of Your Website

November 5, 2010 — Stark & Stark Shareholder Comments on EMI Fraud Case

September 29, 2010 — Copyright Law Protection for Fashion Designs

September 21, 2010 — When Disputes Go From Dinner Table to the Conference Room

September 20, 2010 — How to Switch Firms... and Not Get Sued

August 31, 2010 — Stark & Stark Shareholder Obtains $3,000,000 Settlement in Shareholder Oppression Case

August 25, 2010 — Stark & Stark Shareholder Comments on FedEx Investigation

July 13, 2010 — J.P. Morgan Sues Former Adviser

June 29, 2010 — Closely Held Business - Loans to Directors, Officers or Employees

June 15, 2010 — Minority Oppression: Conflicts of Interest - Taking Advantage of a Business Opportunity

June 2, 2010 — Bad Contracts Between Shareholders - Unfavorable Loans and Lease Agreements

May 21, 2010 — A Case Study on the Importance of Forum Selection in Mass Tort Litigation

February 25, 2010 — Stark & Stark Shareholder Comments on Increase in Suits in Response to Protocol for Broker Recruiting

February 23, 2010 — Stark & Stark Shareholder Comments on Goldman Sachs Suit

February 19, 2010 — When A Subcontractor Should File & Perfect a Lien Claim

February 2, 2010 — Oppressed Minority Shareholders Should Be Afforded Protection

January 15, 2010 — Stark & Stark Shareholder Comments on Citigroup's Motion To Dismiss In Bonus Pay Class Action

November 18, 2009 — Contracts - Construction: Validity of Paid When Paid Provision

October 28, 2009 — Builders, Contractors and Homeowners: Beware Insurance Carriers Are Delegating Construction Deficiencies Coverage

October 27, 2009 — Constitution Law: Right to Privacy - Expungements

October 8, 2009 — Retrofitness Sued By New Jersey Fitness Club Owners

September 22, 2009 — Be Clear With Your Company Email Policy

September 4, 2009 — Federal Circuit Overrules Medinol Standard for Proving Fraud in Registering a Trademark

August 25, 2009 — Contesting a Will - State Court or Federal Court

July 21, 2009 — Squeeze-Out Technique: Withholding Information

June 11, 2009 — Stark & Stark Shareholder Comments on New Jersey Supreme Court Ruling Concerning to the New Jersey Consumer Fraud Act

May 22, 2009 — Stark & Stark Shareholder Comments on Enforcement of Brokers Bonus Repayment

May 20, 2009 — Litigation Strategies For Business Seminar

May 13, 2009 — Contesting a Will In New Jersey

April 27, 2009 — Are You Oppressed? Truth and Consequences for Minority Shareholders

March 27, 2009 — Squeeze-Out Technique: Excessive Compensation

March 20, 2009 — Squeeze-Out Technique: Termination of the Minority Shareholder's Employment

March 12, 2009 — Stark & Stark Shareholders to Present Strategies For Commercial Litigation Seminar

March 9, 2009 — Stark & Stark Shareholder Comments on Breach of Protocol for Broker Recruiting by Smith Barney Employees

March 6, 2009 — Squeeze-Out Technique: Withholding Distributions

February 27, 2009 — A Panoramic Discussion of the Squeeze-Out Techniques Often Used By Majority Shareholders

February 19, 2009 — Stark & Stark Shareholder to Present CLE Seminar Discussing Business Break-ups

February 2, 2009 — Squeezed Out By Your Business Partner?

October 29, 2008 — Protocol for Broker Recruiting

October 21, 2008 — Identifying When Your Trademark Has Been Infringed Upon

August 25, 2008 — Preventing Employee Theft

August 19, 2008 — Equal Protection: A State Employee Is Not a "Class-of-One"

August 15, 2008 — Claim of Undue Influence Resolved by Court Before Death of Testator