Mr. Lewis states that applying to the New Jersey Consumer Fraud Act to cases such as this could be harmful to banks and brokerage houses, as the ramifications of applying the statute to such sales could be mind-boggling because of the treble damages and court costs provisions. You can read the full article online

. (PDF)

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

• Assessing both the benefits and risks of litigation
• Pursuing insurance coverage
• Determining when and whether to seek a negotiated resolution to litigation
• Developing strategies for less expensive dispute resolution alternatives including mediation and arbitration
• Managing and planning the cost of litigation
• Taking necessary steps to protect your business' interests

The seminar is free, however, registration is required. Please contact Kelly at (609) 791-7030, or by email: Kelly@stark-stark.com to register.

In the State of New Jersey, there are essentially two ways in which an individual may challenge a Will.  The first way is to allege that the decedent lacked the requisite capacity the date the Will was executed.  This is a fairly low standard to meet, as the decedent need only be aware that he/she possesses assets, and in addition, that he/she wishes to transfer these assets to certain other individuals.  In levying a challenge in this regard, the Court may review medical records and other information concerning the decedent’s physical and mental health in order to determine if this individual possessed the requisite mental capacity on the day the Will was executed.  The medical records are relevant as they may demonstrate physical or mental conditions which could suggest that the decedent may have lacked the capacity to execute a Will on the date the Will was executed.  This often involves the need for expert witnesses to review medical records, and thereafter, to render their opinion as to the capacity of the decedent on the date the Will was executed. 
 

The other way in which an individual may challenge a Will concerns an allegation of undue influence.  Simply put, undue influence means that the Will does not reflect the true intentions of the decedent, but instead, reflects the wishes of an individual who asserted their influence over the Testator, thereby rendering the Will inconsistent with the Testator’s true wishes.  In order to prove a claim of undue influence, the contestant must first establish that there existed a confidential relationship between the decedent and the party which is alleged to have unduly influenced the Testator.  A confidential relationship exists when the Testator and another individual shared a relationship where trust or confidence is naturally reposed by the decedent with this individual.  Another instance under which a confidential relationship arises is in an attorney/client relationship where there is a fiduciary relationship between the parties. 
 

Once the contestant of the Will has established the existence of  a confidential relationship, he/she must establish suspicious circumstances with regard to the creation and execution of the Will.  Once this has been achieved, the Court can shift the burden of proof upon the proponent of the Will to demonstrate the validity of this document. 
 

After a lawsuit has been commenced, the Court will often recommend that the parties consider mediation in an attempt to resolve the matter without the need for additional litigation.  Often, the parties are able to resolve the litigation through Mediation without the parties incurring additional expenses.  If a case cannot be resolved through mediation, the case will move forward through discovery, and thereafter, to Trial.  Once an Estate litigation matter is scheduled for Trial, the parties should be aware that the Trial will not be heard before a jury, but rather is decided by a Chancery Judge that hears probate matters.  Once the Judge renders his/her decision, either side may make an application for fees to the Estate. 
 

If the party prevails in contesting the Will, the Will could revert to a previous Will, if said document still exists, or the individual could be deemed as having died without a Will.  Thereafter, the Court may appoint an independent Executor if the named Executor is disqualified.  If the Will is not invalidated by the Court, then it will be probated in the manner which had been sought to be probated by the Executor originally.  Thereafter, the Estate litigation will conclude.

The New Jersey legislature has responded to the concerns of New Jersey minority shareholders by enacting the “Oppressed Minority Shareholder Statute” (N.J.S.A.14A:12-7). The Oppressed Minority Shareholder Statute was enacted to protect minority shareholders against shareholders, directors and officers of closely held corporations that have (i) acted fraudulently or illegally, (ii) mismanaged the corporation, (iii) abused their authority as directors or officers, or (iv) acted oppressively or unfairly toward one or more minority shareholders. The statute, coupled with a series of cases decided by New Jersey courts over the course of the past twenty-five years interpreting the “Oppressed Minority Shareholder” statute, have afforded minority shareholders in closely held corporations, with twenty-five or fewer shareholders, substantial protection against oppressive conduct. Interestingly enough, the percentage of stock that a shareholder owns does not necessarily determine whether or not a shareholder is considered a minority shareholder. In one decision, the court found that the plaintiff (a 98% shareholder of the subject corporation) was an oppressed minority shareholder. In that case, the stock was held in a voting trust which was controlled by the owner’s father and the shareholder had no control over the stock. Since that decision, courts  have interpreted the meaning of “minority shareholder” loosely, allowing any shareholder to claim protection under the statute if the shareholder can prove, irrespective of the percentage of stock he/she owns, that he/she lacks sufficient control over the affairs of the corporation and is being oppressed by those shareholders in control.

If a minority shareholder has concerns of oppression, said shareholder has recourse by commencing litigation against the majority shareholders under N.J.S.A.14A:12-7. In the event that litigation is initiated, a court will fashion a remedy that it deems most appropriate, given the facts of the case. If oppression is found to exist, one of the most common remedies is to appoint a custodian or provisional director to run the corporation’s daily affairs until the shareholder disputes are resolved, ordering a sale of the corporation’s stock, or entering judgment to dissolve the corporation. A judgment dissolving a corporation is a very drastic remedy and will only be ordered by the court if the court finds that the corporation has been irreparably harmed. Another common remedy that a court will utilize in resolving shareholder oppression claims is to order a buy out of the stock of one or more of the shareholders involved. The usual scenario is for the court to order the majority shareholders to buy out the minority shareholder’s stock interest in the corporation. However, in special circumstances, courts have ordered the minority shareholder to buy out the majority shareholders’ stock interest.

In the instance of a buy out, a critical element of the court’s decision will be the value of the selling shareholder’s interest.  In such cases, a shareholder agreement may establish the value or a court may determine the value of the interest. It is important to understand that there are various ways of valuing an interest in a corporation. In some instances the court may apply a “fair value” standard. “Fair value” is intended to fairly compensate the shareholder and may differ from a stock’s “fair market value,” as consideration is given to the fact that an impartial buyer may not be willing to buy a small stake in a closely held corporation. In appropriate circumstances, a court may also apply “marketability” and/or “minority interest” discounts to the valuation of the stock. Marketability discounts are applied to reflect the fact that there is only a small pool of potential buyers, if any, for the stock held by the minority shareholder and finding a market for the sale of the stock to an outside buyer would be difficult. Minority interest discounts may be applied when it is determined that any outside purchaser will also lack control over the corporation, so the “minority interest discount” will reflect a downward adjustment to the value of the minority shares.

A shareholder in a closely held corporation would be wise to remember that if “frozen out” of corporate decisions, shareholders may have significant rights under New Jersey law. A shareholder should continuously document the acts of the majority shareholders that he/she disapproves of, because acquiescence in inappropriate corporate acts can be used as a defense by the majority shareholders should litigation ensue. Furthermore, if a shareholder feels that the majority shareholders are mismanaging the corporation, he/she should exercise his or her statutory right to access the records of the corporation to determine if the majority shareholders are mismanaging the corporation and wasting corporate assets. In the event that a review of the corporate records proves that the majority shareholders have mismanaged the corporation, subjecting the minority shareholder to oppression and a resulting loss of stock value, he/she should seek legal counsel and protection under the “Oppressed Minority Shareholder” statute.

1. the employee’s qualifications and abilities;
2. the qualities and quantity of services rendered for the benefit of the corporation;
3. the amount of time the employee devotes to the corporation;
4. the difficulties involved and responsibilities assumed;
5. the successes achieved by the individual;
6. the profits resulting to the corporation from the employee’s direct and indirect contributions;
7. the size and complexity of the business;
8. the number of people the employee is charged with training, mentoring and/or supervising;
9. the corporation’s financial conditions;
10. the prevailing economic conditions;
11. the compensation over the past few years (also considering factors which could have effected previous year’s compensation);
12. a comparison the compensation of other company employees; and
13. a comparison to others who work in similar companies.

 There are a number of remedies available to the Court if it were find that the compensation is excessive. One available remedy is requiring the repayment of what the Court determines to be excessive. Another remedy is the issuance of an injunction preventing future siphoning off of corporate funds and resources. A third available remedy is the appointment of a receiver or corporate director charged with running the day to day affairs of the company. The most often employed Court remedy is a Court Ordered buy-out of the minority interests. Of course, Court will often factor the additional value of the corporation had the majority shareholder taken reasonable compensation.

Stark & Stark’s team of commercial litigators hold decades of experience prosecuting and defending complex claims of copyright and trademark infringement, breach of contract, fraud, theft of trade secrets, and unfair competition. In the Strategies For Commercial Litigation Seminar you will learn from experienced commercial litigators how to develop a litigation strategy that can be employed in any type of commercial lawsuit including:

• Assessing both the benefits and risks of litigation
• Pursuing insurance coverage
• Determining when and whether to seek a negotiated resolution to litigation
• Developing strategies for less expensive dispute resolution alternatives including mediation and arbitration
• Managing and planning for the cost of litigation
• Taking necessary steps to protect your business’ litigation interests

The seminar is free, however, registration is required. Please contact Kelly at (609) 791-7030, or by email: Kelly@stark-stark.com to register.

You can read the full article online here.

Generally, “oppression has been defined as frustrating a shareholder’s reasonable expectations.”  Brenner v. Berkowitz, 134 N.J. 488, 506 (1993) (citing, 2 O’Neil’s Close Corporations § 9.29 at 132 (Callaghan & Co., 3rd ed. 1988)).  The following situations could constitute actionable unlawful “oppression” where the majority:

1. has cut off the flow of income to the minority owner by refusing to declare dividends;
2. terminated the employment of the minority or their family members;
3. removed the minority from the board of directors;
4. decided to award themselves (or their family members) exorbitant salaries and/or bonuses;
5. diverted corporate assets to other corporations which are owned by the majority and not the minority;
6. siphoned off corporate assets by entering into leases or loans with terms favorable to the majority while at the same time detrimental to the minority;
7. refused to enforce contracts that are beneficial to the corporation because the enforcement of those contracts would be personally detrimental to the majority;
8. withheld company information;
9. embezzled company assets; and/or
10. acted fraudulently towards the corporation, which, in turn affects the minority shareholder.

   
In blog articles to follow, I will go into greater detail as to the majority’s use of the afore-described squeeze-out techniques along with how a minority shareholder may employ the law to fight back.

Fortunately, New Jersey, unlike other states, provides protections for oppressed minority shareholders.  N.J.S.A. 14A:12-7(c).  When the New Jersey Legislature enacted those protections, it recognized that the size and nature of closely held companies, coupled with the fact the relationships tend to be more intimate and intense than in a larger corporate environment could lead to oppression.
 

The purpose of this brief article is to discuss some of the causes of oppressive conduct  and to make recommendations which will hopefully prevent them. Another purpose is to provide those who have been oppressed, or the subject of an unlawful squeeze-out, with the understanding that you are not alone.  Under New Jersey law, you have recourse if you are the victim of oppressive conduct.
 

I. Greed

As might be expected, many squeeze-outs are caused largely to avarice of individuals who see and seize opportunities to enlarge their power and influence and increase their wealth.  Frequently, an unchecked greedy shareholder will seek power and wealth at the expense of others. Because closely held corporations are generally run by “majority rule,” the majority shareholder could take advantage of their majority position.
 

In addition, a shareholder who holds a position of power within a corporation and runs the business like a one-person autocratic manner may cause unrest amongst the shareholders. Obviously, it is inappropriate for an individual to run a business as a one-person show where others are owners.  The autocratic leader may ignore or simply disregard the input or opinions of the other shareholders leading to conflict.

Obviously, the commencement of litigation could aid the minority shareholder in fighting back the oppressive conduct of a greedy or autocratic shareholder. So as to avoid costly litigation, it is always prudent to create corporate rules at the time the corporation is created. This will protect the shareholders from a “greedy” or autocratic party.  It is also prudent for the shareholders to take necessary steps to maintain their relationships during the course of their association with the corporation and the other owners.
 

II. Personality Clashes & Family Quarrels.

Many times conflicts between the shareholders are caused by changes in personal relationships amongst them. Oppression often occurs as a result of a change that disrupts a relationship or triggers a family dispute.
 

1.  Divorce. Divorce frequently causes minority oppression. Because of the size and nature of closely held companies,  business and family relationships often overlap. Family dysfunction can manifest itself in oppressive conduct.  For example, the spouse of a family member who was taken into a family owned closely-held company may get squeezed out once the marriage fails. Moreover, where ownership in a business is one of the assets that has been divided in a divorce setting, a former spouse who as received a minority interest may face oppressive conduct by the former spouse or the business associates of the former spouse who do not welcome the new owner in their midst. Obviously, you should discuss these issues with your matrimonial attorney at the inception of that relationship.  Those important discussions need to continue with your matrimonial attorney throughout the course of the representation. In addition, it is important to carefully chose a matrimonial attorney or law firm who has experience with these delicate and important issues.  My firm, Stark & Stark has professionals who possess the experience necessary to aid you if you are confronted with these issues.
2. Personal Clashes. Personal clashes often cause minority oppression. Changes in personal relationships caused by misunderstandings, “growing apart,” differences in work ethics and opinions have lead to strife amongst the shareholders. Like marriage, the relationships amongst shareholders require  “work.”  It is unrealistic to expect that shareholders will agree on every decision. The key to avoiding major discord amongst the shareholders which may lead to litigation is to work with one another and to listen to the other’s point of view.  The same strategies employed by a good marriage may help avoid shareholder disputes.

III. The Aging or Ill Shareholder.

An aging or ill shareholder may produce other circumstances conducive to dissension.  For example, a shareholder with diminished mental capacities caused by disease or advanced age may be taken advantage of by one of the other shareholders. Moreover, the diminished owner’s weakness and gullibility may be seized upon and utilized to squeeze-out a third-party.

In addition, oppressive conduct may be caused by an aging shareholder who refuses to relinquish control. Like the “greedy” shareholder, an aging founder who is accustomed to running the company the way they wish may regard the corporation as their own property. Sometimes as that person ages they may become more tyrannical.  That, of course, could lead to discontent.

   

To avoid problems caused by the aging or ill shareholder, I recommend that the shareholders discuss and create clear-cut retirement rules, disability and deferred compensation arrangements, which are put into place when the founder and all shareholders are healthy. I also recommend to avoid litigation with the aging or ill shareholder’s family that they know and understand the established rules well before their relative is confronted with diminished capacities.  If there are any questions related to the capacity of the aging shareholder at the time these plans are put into place, it is probably prudent to seek a qualified health care professional who could provide an opinion as to the competency of the elderly or sick shareholder if it is ever questioned.
 

IV. Death Of A Shareholder.

The death of a founder of a business or of a principal shareholder may produce problems which may lead to oppression.  Sometimes, the successor shareholder may want to actively participate while the others may not be willing for  him to join. As discussed above, personality clashes may present the new shareholder and the other participants from working together harmoniously.

   

Whenever a shareholder dies, the decedent’s block of shares may be divided amongst several people, which enhances the chances of an incompatible shareholder acquiring an interest in the company.  The unequal division of a majority shareholder’s stock between the testator’s children may serve as a catalyst for dissension, especially where the terms where unknown prior to the decedent’s death.  

   

To prevent dissension caused by the death of a shareholder it is wise to consider and implement a succession plan.  Often with the aid of a competent attorney like my partners, Rachel Stark, Esquire, Allen M. Silk, Esquire and Henry Van Blunk, Esquire who posses the training and experience in secession planning and may devise tax-friendly plans which can avoid turmoil in the event a shareholder passes.

   

Even if the shares are not divided, the death of a corporate leader could lead to oppression. A new person making decisions in place of the decedent could change the dynamic amongst the other shareholders.  In other words, the death of a shareholder could lead to a “greedy” leader taking control or personal clashes which could effect the dynamics amongst the surviving shareholders. Thus, I recommend that the shareholders discuss who and how the company should be lead if a shareholder were to die.
 

V. Financial Reversals, Personal Vices & Tough Economic Times.
 

Financial reversals and tough economic times often exacerbate problems that otherwise might not have arisen to provoking a squeeze-out.  Tough economic times, like the current recession often lead to discontent amongst the shareholders. Sometimes financial reversals and tough economic times result in a “greedy” shareholder taking more (either openly or by embezzling) than they should to support the lifestyle they established during better economic times. 

   

In addition, personal problems such as gambling, drug and alcohol addiction could lead to corporate dissension.  Addiction often causes problems within the workplace. Reduced effort generally results in decreased profits along with increased tensions amongst the shareholders.  Like tough financial times, addiction problems could result in embezzlement of corporate funds.
 
   

To avoid litigation and conflict, shareholders must be realistic and fair with one another. In addition, companies should establish protocols for addressing personal vices that if left untreated or unchecked could negatively affect the company and its shareholders.
 

VI. Undercapitalization of The Business.
 

In many instances, the undercapitalization of the corporate enterprise produce circumstances conducive to dissension.  Like financial reversals and tough economic times, the undercapitalization of a business could lead to tremendous problems. At the inception of the corporation, the shareholders need to consider how they intend on dealing with the possible need for additional capital and memorialize those agreements in writing.

   

In addition, shareholders sometimes try to characterize capital contributions as “shareholder loans” and seek re-payment of those “loans” during difficult times. The shareholders need to discuss and memorialize agreements when loans may and may not be repaid. Since undercapitalization could lead to discontent amongst the shareholders and other associated problems it is not wise to allow repayment unless the corporation is in a place financially when it may do so.
 

CONCLUSION
   
Minority oppression causes catastrophic damages to the squeezed-out shareholder and the corporation itself. Understanding and discussing the causes of oppression is important at the inception of the corporation and during the course of the shareholders’ relationships, so as to enact strategies to avoid it.

   

New Jersey law affords oppressed minority shareholder of a closely held corporation with a plethora of rights.  If you are an oppressed minority shareholder, you should speak with an attorney who is experienced representing those who were similarly situated.

The article gives a brief history of the origination of the Protocol for Broker Recruiting in 2004, and includes a question and answer section for recruiting and a list of do's and don'ts to follow under the Broker Protocol. You can read the full article here. (PDF)

The article discusses several pieces of statewide legislation designed to ensure trademark protection and the federal Lanham Act, which is the most comprehensive piece of trademark legislation. The article states that only through the selection and establishment of a strong trademark under the Lanham Act, will owners of a mark be able to determine when its trademark has been infringed upon.

You can read the full article here.

Mr. Hart discusses several common myths associated with employee theft, which will help employers understand the nature of the problem, and ways employers can alleviate the problem in their  company. You can read the full article here. (PDF)

The case presented to the Supreme Court by Engquist, however, differed from Olech in signifiacnt regard. In Enquist, the petitioner, Anup Enquist, was an employee of the Oregon Department of Agriculture (“ODA”), where she worked as an international food standards specialist. Engquist alleged that another ODA employee, Joseph Hyatt, made repeated attempts to harass her. In 2001, Hyatt was promoted to a supervisory position, despite some indications that Enquist may have been more qualified. After Hyatt attained the supervisory position, Engquist alleged that he continued to harass her, and a few months after his promotion, Hyatt, together with the Assistant Director of ODA, fired Engquist, citing budgetary reasons. Engquist, however, alleged that there was no credible justification for dismissing her instead of other ODA employees.

In 2002, Engquist brought suit in federal court against ODA. In her complaint, she included an equal protection claim, asserting that she had been mistreated and fired “for arbitrary, vindictive, and malicious reasons.” In effect, Engquist argued that the Equal Protection Clause forbids public employers from irrationally treating one employee differently from others similarly situated, regardless of whether the different treatment is based on the employee’s membership in a particular class. The District Court, when deciding a motion for summary judgment filed by ODA, held that Engquist could maintain a class-of-one claim by showing “that [ODA's] actions were spiteful efforts to punish her for reasons unrelated to any legitimate state objective.” The District Court also concluded that, “[a]s with any equal protection claim, plaintiff must also demonstrate that she was treated differently than others who were similarly situated.” At trial, the jury ultimately returned a verdict in favor of Engquist on her class-of-one claim.

The ODA appealed the District Court's decision, and the Ninth Circuit reversed, holding that “the class-of-one equal protection theory is not applicable to decisions made by public employers.” The Ninth Circuit, in its decision, contrasted the role that the government played in this case from the role it played in the Supreme Court's Village of Willowbrook decision. In Village of Willowbrook, the Ninth Circuit noted, the government acted a sovereign; whereas here, the government was acting as a proprietor managing its own affairs. The Ninth Circuit concluded that when a government is acting as a proprietor of its own affairs, as it does in the employment realm, the class-of-one theory of Equal Protection does not apply.

The Supreme Court, hearing the case upon Engquist's appeal of the Ninth Circuit's decision, noted the it had previously recognized that the government’s powers are broader when it acts as an employer rather than a sovereign. With this principle in mind, the Court focused on the balance of interests between the government as employer and the employee. The Court noted that it has “long held the view that there is a crucial difference, with respect to constitutional analysis, between the government exercising ‘the power to regulate or license, as lawmaker,’ and the government acting ‘as proprietor, to manage [its] internal operation.’” Furthermore, the Court concluded that “[t]his distinction has been particularly clear in our review of state action in the context of public employment.” Therefore, the Court concluded, “the government as employer indeed has far broader powers than does the government as sovereign.” This is true because “[t]he government's interest in achieving its goals as effectively and efficiently as possible is elevated from a relatively subordinate interest when it acts as sovereign to a significant one when it acts as employer.”

While continuing to undertake this balancing process, the Court looked to its decisions involving the competing interests of the government as employer and the employee in the realm of First Amendment speech by public employees. The Court specifically looked to Connick v. Myers, 461 U.S. 138 (1983), a First Amendment case dealing with state employees, and noted that in Connick it held that “a federal court is not the appropriate forum in which to review the wisdom of a personnel decision taken by a public agency allegedly in reaction to the employee’s behavior.” The Court noted that in Connick it concluded that "government offices could not function if every employment decision became a constitutional matter.” Therefore, “constitutional review of government employment decisions must rest on different principles than review of . . . restraints imposed by the government as sovereign.”

The Court then used these principles as the touchstones for deciding Engquist's case, and concluded that its Olech decision did not create liability for the state government to class-of-one claims raised by state employees. In so concluding, the Court construed the Olech decision narrowly. In Olech, the Court notedthere had been a clear standard against which allegedly discriminatory government action could be measured. According to the Court, the same was not true in the case Engquist. The Court described the state government's decision in Engquist as a “form[] of state action . . . which by [its] nature involved discretionary decisionmaking based on a vast array of subjective, individualized assessments.” In such a context, “allowing a challenge based on the arbitrary singling out of a particular person would undermine the very discretion that such state officials are entrusted to exercise.” Therefore, while the Court's decision in Olech did apply the Equal Protection Clause to the claim of plaintiff who was not alleging class-based discrimination, the Enquist Court concluded that the same rationale could not be extended to cases in which the state government acts as an employer. The Court suggested that recognizing a class-of-one claim in this context would “upset long-standing personnel practices,” because “[t]he power of employers to discharge employees for reasons that may appear arbitrary, unless constrained by contract or statute, is well-established under the common law of at-will employment.” The majority went on to conclude that “[t]he class-of-one theory of equal protection is another constitutional area where the rights of public employees should not be as expansive as the rights of ordinary citizens.”

Although required to do so, Imperial failed to identify lace design No. 8191 as a derivative work on its copyright application. As this appears to have been the result of mere inadvertence rather than fraud, however, this omission in no way invalidates Imperial's copyright registration. See Eckes v. Card Prices Update, 736 F.2d 859, 861-62 (2d Cir.1984); Harrison/Erickson, Inc. v. Chicago Bulls Ltd. Partnership, 1991 WL 51118, at *5 (S.D.N.Y. 1991).

Mr. Rodack testified at trial that, since he believed he had designed the wagons himself based on his own original ideas, there was nothing ‘preexisting’ to report. He may have been entirely incorrect in his narrow reading of the term ‘preexisting,’ but this does not establish intentional or purposeful withholding of information.

Defendant offered nothing to refute Mr. Rodack's claim of lack of understanding of the requirements of section 6 of the application, except the fact that Mr. Rodack had prepared numerous applications in the past. This in itself is insufficient to prove fraudulent conduct or the necessary scienter to warrant invalidation of the copyrights.

The arrangement of the roses over the background portion of Pattern # 1365, while perhaps elementally symmetrical, does not appear to be designed to ease manufacture since, once the decision as to how to place the item against the background was made and executed, the whole piece was copied mechanically. Thus, it did not matter for manufacturing purposes of what the original design consisted. Rather, Sadjan's decision to place the roses in straight rows was an artistic decision. Further, there is no evidence that Sadjan copied the placement of the roses from any source. Consequently, the district court's finding that the particular arrangement given the Folio Rose in Pattern # 1365 was not original was clearly erroneous. Although the arrangement may have required little creative input, it was still Sadjan's original work and, as such, copyrightable.