In the case of Michael S. Kimm v. Blisset, LLC., et als., in an opinion decided on August 28, 2006, the Appellate Division of the Superior Court of New Jersey ( Docket No. A-0965-04T2)  dealt with issues concerning the scope of an arbitrator's powers.    In the opinion, the Court drew distinctions between:  1) fee disputes between attorneys and clients; 2) arbitrations in Court annexed proceedings; and 3) arbitrations held pursuant to private agreements.  In addition, the Court focused on the meaning of the recently enacted  New Jersey Arbitration Act, N.J.S.A. 2 A: 23 B-1 to 32 as it relates to the powers of an arbitrator.   

The Court noted that, at its heart, arbitration is a creature of contract.  It is a favored remedy and arbitration agreements are liberally recognized.   It is state contract law principles that generally govern whether a valid agreement to arbitrate exists.

An arbitrator's powers is generally limited by the agreement of the parties.  The Court therefore noted that where only one of the parties believes that the arbitrator was empowered to act, and there was no evidence of an actual agreement, the arbitrator has no authority to act at all.    If the parties have not agreed in advance, the parties cannot force an arbitrator to give reasons for the award or to write a decision  explaining  his or her view of the facts.

In New Jersey, agreements to arbitrate made on or after January 1, 2003, are governed by the revised New Jersey Arbitration Act.  N.J.S.A.  2 A: 23B - 3a.  This revised Act is based largely on the Uniform Arbitration Act of 2000, see Assembly Judiciary Committee Statement on Senate Bill No. 514, L. 2003 c.95, and codified at N.J.S.A. 2A:23B-1 to -32.  This statute replaces the earlier version of the Arbitration Act, see N.J.S.A. 2A: 24 - 1 to -11.

The earlier statute required a written contract or a written "agreement to submit" to arbitration, in order for a party to be required to proceed to arbitration.    The revised statute, by comparison, only requires a "record", which presumably might fall short of a formal, contractual writing.  In addition, under the prior statute, an arbitrator's award had to be reduced to a judgment by a Court in order to be enforceable and the Court would have the ability to vacate, modify or correct the arbitrator's award .  

Under the new statute, the grounds upon which a Court may vacate an award have been expanded and the new statute also empowers the Court to correct or modify an award. The earlier statute gave the Court the authority to vacate an arbitrator's award if the arbitrator "so imperfectly executed (his) powers that a mutual, final and definite award" was not made.  The revised act specifically excludes an attack on an award, either by way of application to the arbitrator or the Court, on the grounds of imperfection, if the claim of imperfection is addressed to the merits of the award.  While an arbitrator may "clarify" the award, the arbitrator may not change his or her mind or reconsider the decision, in the guise of clarification.

Parties intending to have their disputes completely  resolved by arbitration should take care that any agreements they enter into deal clearly and concisely with the issue of what is to be arbitrated and how the arbitration is to be handled and be aware of the provisions of the New Jersey Arbitration Act.

Under Model Rule 4.1, a lawyer representing a client in general negotiations outside of the mediation process may not make a false statement of material fact to a third person. However, statements that are considered to be negotiation "puffing", or statements regarding a party's negotiating goals are not considered as false statements of material facts within the meaning of the Model Rules when dealing with general negotiations. The simple example given is where an attorney understates the willingness of a client to make concessions to resolve a dispute. Another example is where a party may exaggerate or emphasize the strengths or minimize the weakness of a factual or legal position. These remarks have been viewed as statements as to which a party would not ordinarily be expected to justifiably rely and are distinguished from a false statement of material fact.

There are obviously two different sides to the issue. In the context of a mediation, it has been argued that lawyers should be held to a more exacting standard of truthfulness because a neutral is involved. The other side asserts that less attention need be paid to the accuracy of information being communicated in a mediation as consensual deception is intrinsic to the process. The issue of "truthfulness in negotiations" also raises the question of whether a lawyer can accept a result that is unconscionably unfair, when it is to the benefit of the lawyer's own client. The other side takes the position that deception is inherent in the negotiation process and that an advocate should take advantage of every opportunity to advance the cause of the client.

In the Opinion, the Committee found that the ethical standard for negotiating in or out of the mediation process are the same. Lawyers are not held to a different or higher standard in a mediation because of the consensual nature of mediation. The Model Rules do not require a higher standard of truthfulness in any particular negotiating context. The Committee ruled that a lawyer representing a party may not make a false statement of material fact to a third person but may make statements regarding negotiating goals or willingness to compromise. For example, even though a client's Board of Directors has authorized a higher settlement figure, a lawyer may state in a negotiation that the client does not wish to settle for more than $50. However, it would not be permissible for the lawyer to state that the Board of Directors had formally disapproved any settlement in excess of $50., when authority had been in fact been granted to settle for a higher figure.

Technorati Tags: New Jersey : Alternative Dispute Resolution : Mediation

The New Jersey Supreme Court was recently faced with a similar issue in the case of NCP Litigation Trust v. KPMG, LLC., A-19 September Term 2004, decided June 28, 2006. In the NCP case, the New Jersey Supreme Court held that auditor responsibility was not limited to only auditors who actively participated in the corporate fraud. The Court found that independent auditors can be held liable for a corporate client's fraud, even if they did not participate in or have direct knowledge of the misconduct. The New Jersey Supreme Court expressly declined to follow the Illinois decision in Cenco Inc. stating that Cenco was decided more than 20 years before and that "events since then suggest that auditors must be more alert to corporate fraud and, where appropriate, courts should take steps to protect and safeguard the public from that fraud". The New Jersey Supreme Court indicated that it was writing "...under a clean slate in addressing the issue under New Jersey law. "

The NCP case involved a fraud committed by the chief financial officer and chief executive officer who provided the auditor with fake numbers to artificially inflate the company's stock value and thereby bolster the CFO's financial stake in the business. The company eventually filed bankruptcy and it's shareholders sued the auditor for malpractice claiming that the auditors knew or should have known of the CFO-CEO's fraudulent activities.

The auditor defended the suit on the basis of the "imputation doctrine", which generally protects third parties from suits involving corporate wrongdoers. The Court held that the auditor may have had an independent contractual obligation to detect the fraud, which it allegedly failed to do. The "imputation doctrine" was designed to protect the innocent and the Court found that relieving the auditor of liability would not promote the purpose of the doctrine.

Justices Jaynee laVecchia and Roberto-Soto wrote dissenting opinions stating that the "imputation doctrine" should apply, especially because the auditors in this case were not aware of and did not participate in the creation of fraudulent financial data.

Technorati Tags: New Jersey : Imputation Doctrine : Corporate Fraud

On the issue of whether an individual has the "testamentary capacity" to execute a will, Judge Doyne noted that the mental capacity of a testator is to be tested as of the time of the execution of the will. Gellert v. Livingston, 5 N.J. 65 (1950). The test of whether an individual has the necessary testamentary capacity to execute a will centers around whether the testator was able to comprehend and understand: the property he was about to dispose; the natural objects of his bounty; the meaning of the business in which he is engaged; the relation of each of these factors to the other and the manner of distribution that is set forth in the will. See, In re Will of Landsman, N.J. Super. 252, 267 (App.Div. 1999).

In addition to what the party claiming a lack of testamentary capacity must prove, the contestant usually has the burden of proving that there was a lack of capacity by clear and convincing evidence, In re Coffin's Estate, 103 N.J. Super. 1 (App. Div. 1968), as it is presumed that the testator was of sound mind and competent when a will is executed. Haynes v. First National State Bank, 87 N.J. 163, 175-176 (1981).

On the issue of "undue influence", Judge Doyne, citing the Haynes case, noted that undue influence is the "mental, moral or physical" exertion which destroys the "free agency of the testator" by preventing him "from following the dictates of his own mind and will and accepting instead the domination and influence of another." As in the case of testamentary capacity, the burden of proving undue influence falls upon the party claiming that there was undue influence.

However, of particular significance is the fact that the burden of proof will switch if it can be shown that a confidential relationship existed between the testator and beneficiary and suspicious circumstances are present.

These basic concepts and points of law are relevant to almost every will contest. Unfortunately, probate litigation usually involves fights among family members where the relationship has deteriorated over the years. When a loved one dies, some family members will have remained close with the decedent, and the relationship with others will have faded. Whatever the relationship, questions as to the disposition of a loved one's assets often present issues of capacity and undue influence.

As reported in The Washington Business Review, the Marty and Dorothy Silverman Foundation ("Foundation") is seeking payment of nearly $25 million for 31 acres of property from the University Heights Association ("UHA") in Albany, N.Y. The UHA is a consortium of the Albany Medical Center, Albany Law School, Albany College of Pharmacy and The Sage College's Albany campus, and is looking to improve the inventory of buildings on the four campuses as well as create a medical research hub and improve the surrounding neighborhood. The UHA contends that the $25 million in dispute were not loans that needed to be repaid and that the Foundation intended to forgive the payments. Foundation lawyers indicate that the UHA filed tax returns and financial statements in which it listed the payments as loans and that the loans are to be repaid.

The parties have been trying to come to a meeting of the minds that is acceptable to everybody, without success, for over three years.

After the filing of two lawsuits by the Foundation, the UHA attempted to seek Chapter 11 bankruptcy protection in a defensive move to protect association assets, but a Federal Bankruptcy Court Judge dismissed the filing as premature. State Supreme Court Justice Karla Moskowitz has ordered the two sides to try to work out their differences through the Alternative Dispute Resolution program in Manhattan.

While the parties are somewhat skeptical that mediation can help settle this longstanding dispute, both sides will give it a good faith try. The UHA indicated that the Chapter 11 could be refiled, depending on the outcome of mediation.

The Court will pick a mediator who is acceptable to both sides. The mediation process, which is anticipated to take between thirty and forty-five days, is non-binding.

It will be interesting to see if the mediation process can help these parties resolve their differences and avoid a costly fight played out in the courts.

If a will has been admitted to probate by the Surrogate's Court, New Jersey Court Rule 4:85-1 allows a party four months to file a complaint to set it aside. However, if the complaint is not filed within the four month period, a party may seek relief under the "escape provision" of Rule 4:85-1 and file the complaint within a "reasonable time under the circumstances". Under section (f) of New Jersey Court Rule 4:50, this relief can only be secured where there are exceptional, extraordinary and compelling grounds for such relief.

In The Matter of the Estate of Florence Schifftner, Deceased, decided on April 25, 2006, the Appellate Division of the New Jersey Superior Court dealt with the issue of whether an inability to afford counsel constitutes "exceptional, extraordinary and compelling grounds" and therefore a reason to allow a litigant to attack the probate of a will after the four month period.

The plaintiff in the Schifftner case was seeking to overturn a judgment admitting the will of his late mother to probate. The will had been probated after due notice to the plaintiff and he did not file an appeal. The plaintiff argued that although he was aware of the will being probated, he was unable to take appropriate action as his did not have sufficient funds at the time to hire an attorney. The Appellate Division concluded that indigence, under the circumstances of this case, was not an "extraordinary" reason justifying relief. The Court noted that it was an unfortunate fact that many litigants were unwilling to obtain, or unable to afford, representation. The Court went on to say that pro se litigants are allowed the same protection afforded to represented litigants and pro se litigants are given the right to be heard. The Court held that counsel is only required when a litigant faces a "consequence of magnitude" such as a criminal prosecution that threatens actual incarceration or the loss of a fundamental constitutional right such as an interference with the parental relationship.

The Court went on to say that where the consequences are less severe, the failure of representation is not fatal. The possibility of losing a civil suit does not implicate the need to have counsel. The plaintiff in Schifftner, having filed his complaint to overturn probate of a will more than four months after probate, was therefore not allowed to use the Rule 4:50 "escape provision" based upon the fact that he could not afford to hire a lawyer during the applicable time period.

A mediated settlement will be of obvious benefit to all involved since it will allow the town and the company to avoid a costly litigation battle. During last October's financial town meeting, Blackstone voters, acting on the request of officials, appropriated $50,000 as a down payment on the legal costs of taking a stand against ANP in court. This year, officials are asking for an even heftier fortification of the war chest -- $250,000 -- to carry on the courtroom battle, if necessary.

Arguing that softening market conditions for electricity have lessened the value of its holdings, ANP wants the town to reduce its assessments, thereby lowering the company's tax bills. The town calculates ANP's taxes in two ways: Like any property owner, ANP gets a tax bills for its real estate and land. When the company built its plant in the late 1990s, it also negotiated a plan known as a Payment in Lieu of Taxes, or PILOT, fixing assessments on turbines and other business equipment for 20 years, through 2019.

The two methods resulted in a combined assessment of roughly $2.87 million on the company this year. But the company, as it did last year, protested the assessment in court and paid only a portion of it -- about $1.94 million. The payment represents 100 percent of the company's obligations on real estate, but only about two-thirds of what the town maintains it owes under the PILOT. If the trend continued for the life of the agreement, the town would stand to lose about $10 million in revenue.

This is another example of the beneficial role mediated resolutions can play in business litigation.

Technorati Tags: New Jersey : ADR : Alternative Dispute Resolution

The New Jersey Court Rules do not specifically define whether a professional who is subpoenaed to testify at a deposition is entitled to be compensated for the time spent at the deposition. In the matter of Leonard Charles v. 1170 Apartment Corp. et. als., the New Jersey Apellate Division recently dealt with this issue. This case involved an attorney who was subpoenaed to testify at a deposition involving a former client. The attorney was no longer involved in the case and had no interest in the outcome. The attorney requested that he be compensated at his usual hourly rate and the plaintiff that subpoenaed him refused to pay him.

New Jersey Court Rule 4:14-7(b)(1) provides that a subpoened witness shall be reimbursed for the "out-of-pocket" expenses and loss of pay incurred in attending the deposition. The plaintiff in the Charles case argued that the subpoenaed attorney should not be compensated as the Rule was only intended to protect individuals such as hourly employees. The plaintiff asserted that the Rule was not intended to cover professionals. The Appellate Division disagreed and held that a literal reading of the Rule would defeat the underlying intent. The Court noted that the overwhelming purpose of the Rule was to provide compensation to individuals who are compelled to appear at a deposition in a controversy in which they have no stake in the outcome. The Court went on to hold that the term "loss of pay" includes an actual loss of income, as in the case of a salaried employee, or in the case of a professional, loss of billable time. It does not matter whether the professional is a member of a firm or is a single practitioner.

The Court concluded by quoting President Lincoln and noting that "a lawyer's time and advice are his (or her) stock in trade." This opinion is extremely helpful to all involved as it resolves as issue that has caused uncertainty where none should exist.

Technorati Tags: New Jersey : Litigation

In The Matter of the Estate of Lee Siegel, deceased, Docket No. P-480-04, Judge Gerald C. Escala, Presiding Judge of the Chancery Division for Bergen County, rendered a decision on December 8, 2005, following a two-day bench trial in an estate matter. The decision centered around attorney fee applications made in the case.

While finding the attorney fee applications themselves to be reasonable, the Court admonished the litigants and counsel for having failed to perform a reality check as they proceeded with the case toward trial. Judge Escala noted that:

"All too often, litigants leave common sense behind when they embark on litigation in which they convince themselves they are destined to prevail, oblivious to the fact that they might not be successful. They also fail to notice the sometimes astounding amount of time in legal services (and costs) they are incurring to pursue their claim. It must be because in addition to their self-conviction of the justice of their case, they also firmly believe they will not have to pay for the legal services, so they proceed vigorously without regard to the costs. Or, they have a notion that counsel fees can be assessed by the court from some unidentified source, that is, one not related to the cause at hand."

The Court went on to explain that New Jersey follows the American Rule with regard to payment of legal fees, which requires that each side pay their own legal fees, with certain limited exceptions.

Judge Escala's words should be seriously considered by every attorney and client that becomes involved in litigation. Our courts are not a place to litigate personal feelings or personal agendas. Economic realities must play a key, if not defining, role. The toll in terms of cost, time and emotion is often not appreciated at the outset of a case. Parties should assess the strength of their case at the outset and honestly consider the strength of the other side. Playing the devil's advocate is a must. Attempting to settle early on through the process of mediation is a wise course to follow. It is true that certain cases will go to trial. However, all trial attorneys and litigants should heed the well written words of Judge Escala.

Technorati Tags: New Jersey : Litigation

At the same meeting, the Conference also addressed the issue as to whether an attorney, not admitted in New Jersey, may represent a party at a New Jersey Court ordered mediation without first being admitted pro hac vice. The Conference concluded that such representation may only take place in specific, limited circumstances. The Conference defined such circumstances as where "the lawyer engages in representation of a party to a dispute by participating in arbitration, mediation or other alternate or complimentary dispute resolution program on behalf of an existing client in a jurisdiction in which the lawyer is admitted to practice and the dispute originates in or is otherwise related to a jurisdiction in which the lawyer is admitted to practice."

Mediation in New Jersey has become mandatory in most cases and usually takes place in the early stages of litigation. Mediators are appointed by the Court from a State appointed list, but the litigants have the option of choosing their own mediator.

"The first thing is to decide if the business needs a headline grabbing national firm, mid-sized firm, small firm or solo practitioner," says Lewis J. Pepperman, co-managing director of Stark & Stark, a 96 attorney law firm headquartered in Lawrenceville, NJ with offices in Cherry Hill, NJ and Philadelphia. "The law has become so specialized that most solo practitioners or small firms may not be able to handle many of the issues facing a growing business. Entrepreneurs have better things to do than look for a new attorney every time a different legal issue comes up."

While the national firms with legions of lawyers and offices seemingly everywhere have the resources, they come at a price. Giant firms mean giant overhead, which a client pays for. For many businesses it's overkill. "The client ends up paying for resources they'll never use. If your business basically operates in New Jersey and Pennsylvania, it's irrelevant if the law firm has offices in Beverly Hills and Atlanta." Many mid-size firms have national capabilities, without having an office in every state.

For many businesses, a mid-sized law firms with 75 -100 attorneys makes the most sense from an economic and talent perspective. "Firms this size usually have been together a number of years and have built up a reputation. They have the depth and practice groups to provide representation in just about every area of law," said Pepperman. "Firms such as Stark & Stark can do the same quality work as the national firms but at lower rates. The client pays for what they need."

Pepperman advises business owners to thoroughly cross-examine their law firm candidates:

Are you familiar with my industry?
The first consideration should be the attorney's legal skills and general experience. Is the person a quick study? Does the firm represent any of your competitors?

Who will be doing the day-to-day work on my business?
The senior partner may make the initial pitch for the business, but will have little if any involvement after that. Ask to meet the person who will actually be working on your business.

How will my business be billed?
Lawyers have become more flexible in negotiating fees. Don't be afraid to ask for a flat fee or contingent fee on certain matters. What expenses are included in the fees and what is billed separately?

What can I do to keep my legal bills down?
Communication is the key. Don't be afraid to ask hard questions. If it is helpful to you to receive statements twice a month, ask for it. Understanding what your lawyer is doing helps both you and your lawyer.

Will I be able to approve staffing on my business?
Make sure the experience and cost of the attorney is appropriate in relation to the value of the work being done. There are times when more than one attorney will be needed to work on a matter. Does that second attorney need to be a senior partner billing at top dollar or would an associate with a moderate level of experience fit the bill? Would you be better off with just one attorney assigned to the matter, rather than having layers of lawyers reviewing each other's work? How many attorneys attend a deposition?

Does the firm explain legal matters in plain English?
Make sure that your law firm is willing to translate at no extra cost. If you receive a legal brief or memo, insist on a short summary... in plain English.

Looking for a lawyer is like seeking out any other business service. Do some research and don't be afraid to ask questions. Know what you really need.