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

In a recent unpublished decision, 701 Penhorn Avenue Associates, Inc. v J. Fanok Services, Inc., BMF Air Freight aka Team Fanok and Jeffrey Fanok, App Div. Docket # A-2921-11T3, the Appellate Division upheld the trial court's judgment allowing Landlord to pierce the corporate veil of Tenant’s principal. It is an important decision for commercial landlords because it not only shows the factors required to pierce the corporate veil in New Jersey, but also the highlights due diligence needed before negotiating a lease.

In Penhorm, Landlord owned and leased a warehouse. Landlord had leased to a tenant, J. Fanok Services, Inc. (“Services”) since the 1960s. Services’ CEO was J. Fanok. In 2006, Fanok created J. Fanok Holdings, LLC (“Holdings”).  Due to the relationship with Services, Landlord and Holdings entered into a lease for four (4) units in the warehouse. Conveniently, all four (4) units were occupied by Services with subleases with Holdings.  Holdings had no employees, no inventory and no assets, other than the lease with Landlord.

In 2010, Holdings lost its biggest customer.  Subsequently, Holdings defaulted on all four (4) leases. Landlord filed a complaint, alleging among other things, veiling piercing and fraud.  Specifically, Landlord claimed Holdings was just a shell corporation and was entitled to pierce the corporate veil against the other defendants.

The court found that Fanok did not disclose to the Landlord that Holdings had no assets. Further, the court held that they abused corporate assets by setting up the shell corporation - Holdings.  Fanok and the entities appealed.

The Appellate Division upheld the trial court's judgment in-full . The Appellate Division held that Fanok did not dispute that he was the sole shareholder of Holdings. Further, Services paid all rent for Holdings. Finally, the company was completely undercapitalized and the lease was used to shield Services.  The Appellate Division held that based on Landlord’s showing of same owner, no employees, and undercapitalization, corporate veil piercing was shown.

This case is important because it emphasizes the importance of knowing who your tenant is, and what corporate form your tenant has structured for itself. When entering into a lease with the tenant, it is imperative for commercial landlords to conduct appropriate due diligence to find out the assets, ownership and form of the tenant. The landlord has the ability to find out this information before the lease is signed, rather than discovering after the fact that its tenant has no assets to pursue if they fail to pay.

For more discussion on your leasing issues, Stark & Stark’s Commercial Real Estate Group can help. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On Sunday, March 24, 2013, Namco, LLC dba Branch Brook filed for Chapter 11 bankruptcy protection before the District of Delaware (docket # 13-10610).  The Manchester, Connecticut based retailer sells pools, pool accessories and other recreational equipment and operates 37 stores mostly in the Northeast.  Bankruptcy documents state Namco closed 21 stores since January 2012.

Whether you’re a landlord or a trade creditor, you should immediately contact counsel to protect your rights.  Following are three (3) simple, but important questions to ask: 

Landlords: (1) Is the Debtor assuming or rejecting the lease; (2) When and how will “stub” rent (the rent between the petition date and the next regular monthly payment) be paid?; and (3) What other damages are owed (both pre- and post-petition)?

Trade Creditors: (1) Do I have a reclamation claim and how do I assert the same (the right of a trade creditor to demand the return of unpaid goods); (2) Does the Debtor want to continue to do business; ad (3) What other monies are owed?

Both commercial Landlords and Trade Creditors should contact bankruptcy attorneys immediately.   Failure to address these issues in a timely manner can be detrimental to protecting your rights.  Sound legal counsel can obtain your objectives of getting paid in a quick and efficient manner.

Contact Stark & Stark’s Creditor’s Rights Group to assist you in this or other bankruptcy matters.  Our bankruptcy attorneys regularly represent landlords in the District of Delaware, as well as the District of New Jersey, Southern and Eastern Districts of New York, and Eastern District of Pennsylvania on a variety of issues.

For more information about the Namco, LLC bankruptcy filing and how Stark & Stark can assist you, please contact Thomas Onder, Shareholder at Stark & Stark (609) 219-7458 or tonder@Stark-Stark.com. Mr. Onder writes regularly on residential and commercial real estate issue and is a member of ICSC and its NextGeneration Committee.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In Cisero v Rosen, ESX-LT 27084-12, Essex County Court Judge Mahlon Fast (also the author of the New Jersey “Guide to Landlord Tenant Actions in Special Civil Part”) held that a residential landlord’s sending a Fair Debt Collection Practices Act (FDCPA) notice letter, and then, filing of an eviction complaint to be heard before the 30-day expiration of the FDCPA notice was grounds to dismiss the eviction action without prejudice.  This case is important for residential landlords because it shows the pitfalls of filing eviction actions without consulting counsel.  

• Email This
• Print
• Comments
• Trackbacks
• Share Link

More and more commercial landlords in New Jersey are proceeding with eviction actions for unpaid rents with larger tenants. Case in point was the recent article in The Star-Ledger on Tuesday, June 26, 2012 entitled, IDT Landlord Threatens Eviction Over Unpaid Rent.  The article noted that IDT, one of Newark’s larger employers was recently served with an eviction action for more than $470,000 in rental arrears.

Counsel for the landlord was quoted as saying his client “...told me to throw the bums out.”  Additionally, even if IDT becomes current, the landlord wants IDT out of the building as they have already leased to a new tenant two of the floors currently occupied by IDT.

The eviction shows the recent strengthening of commercial landlord positions in the slow, yet improving economy.  Over the last four year, many commercial landlords have faced one of the worst economies since the great Depression, leading a number of landlords to hold off from filing eviction complaints.  However, the slow, but ever increasing improvements in the economy are giving commercial landlords more opportunities to exercise their legal rights to get delinquent tenants back on track or evicted from the space.

In New Jersey, the county Landlord Tenant Court holds limited jurisdiction to evict a tenant for monetary defaults via a summary dispossession action.  To obtain an order for possession and allow a warrant for removal to be issued, the landlord must prove that rent is: 1) due; 2) unpaid; and 3) owing.  See, Levine v. Seidel, 128 N.J. Super 225, 229 (App. Div. 1974).

Interestingly, although the Tenant Anti-Eviction Act forbids landlords from evicting residential tenants who bring a landlord current the day of the actual hearing, there is no application of the Act to commercial landlords. Yet, various New Jersey Court cases discuss commercial landlord rights to evict a commercial tenant for:

1. habitual late payment
2. if the lease provides a contract right for the same
3. where other defaults are at issue

Whether IDT stays or is evicted is yet to be seen.  But what is known is that more and more commercial landlords are flexing their litigation muscles and enforcing their rights to payment through the landlord tenant courts. 

If you are a commercial landlord, now may be the time to start flexing your litigation muscles on delinquent tenants.  However, before you do, a review of all issues is critical to ensure that you are proceeding with the most efficient and effective efforts.

Thomas Onder is a Shareholder in Stark & Stark's Bankruptcy & Creditor's Rights Group. For questions, or additional information, please contact Mr. Onder.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Third Circuit recently affirmed the dismissal of a RICO suit brought by a disgruntled residential tenant against a residential landlord.  See, Bolmer v. Connolly Properties, Inc., 2012 U.S. App. LEXIS 3698.  The Court held that this suit was an “everyday landlord-tenant dispute adorned as a racketeering claim complete with the obligatory treble damage request that is both the sine qua non and irresistible impulse of so many civil actions under RICO.” See, Bolmer at 31. This federal case is an example of the frivolous lawsuits commercial and residential landlords face when tenants find “creative ways” to hinder landlords by making a “federal case” of state court landlord/tenant disputes, when no true federal action exists.
 

In Bolmer, the tenant alleged that the landlord conspired to harbor illegal aliens and induce illegal aliens to reside in the United States as part of a conspiracy to deny Bolmer and other tenants the full value of their leasehold. Bolmer claimed that as a result of these actions, the apartment complex fell into “slum-like conditions” with unclean commons areas, infestation of bugs and rodents, mold and criminal activities.
 

In support of his position, Bolmer cited a number of other RICO cases where courts have granted such claims. However, the Third Circuit distinguished these other cases by illustrating that the defendants in cases cited by Bolmer were involved in employment-related disputes or smuggling undocumented individuals. The Third Circuit held that in the matter before the court, the landlord merely rented apartments and was not required to conduct background checks, disclose identities or follow-up on immigration status. Further, the landlord did not bring the tenants into the country or serve as a catalyst for aliens to reside in the U.S. 
 

In Bolmber, the court stated:

"We cannot imagine that Congress contemplated that our nation’s landlords (not to mention our hotel and motel operators, innkeepers, and others who are in the business of providing accommodations) would be tasked with making complex legal determinations about who is permitted to live in this country, much less that they would be criminalized for an error in so doing."
   

Other landlord/tenant cases also deal with issues whereby a disgruntled tenant attempts to bring a state landlord/tenant dispute before the federal courts. Often, this tactic is used in removal actions.  See 2009 U.S. Dist Lexis 62655 Millville Housing Authority v. Mary Thomas. In Millville, an angry tenant sought for removal to federal court her state court landlord-tenant dispute. The court held that a landlord-tenant dispute is a state law issue that does not concern substantial federal interest. Further, the District Court, citing the Supreme Court, emphasized that a “case may not be removed to federal court on the basis of a federal defense . . . even if the defense is anticipated in the plaintiff's complaint, and even if both parties concede that the federal defense is the only question truly at issue”.  See Id. (citing, Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 107 S. Ct. 2425, 96 L. Ed. 2d 318 [1987]).
   

Whether you are a commercial or residential landlord, it is important to address frivolous lawsuits - especially where a tenant tries to make their matter a “federal case”.  If not dealt with properly and immediately, such tactics can cause unnecessary delay and drive up expenses. If presented with such a complaint, it is imperative for a landlord to address the matter “head-on” and attempt to have the case dismissed or, in the removal context, remanded back to state court as quickly and efficiently as possible.  Having counsel that knows how to handle such issues is crucial for any residential or commercial landlord.
 

For my information on commercial/residential landlord’s rights and how to address disgruntled tenant disputes like this or other issues, please contact Thomas Onder at Stark & Stark in the Bankruptcy & Creditor’s Rights Group at (609) 219-7458 or tonder@stark-stark.com.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

If you are like most people in the Northeast, you experienced wind, rain and flooding right out of a disaster movie. Now that the storm has passed, it’s time to begin to look at the next stage of recovery and the most important document you should be reviewing is your insurance policy. Commercial landlords and tenants spend a great deal of time and money obtaining property insurance coverage for their businesses. However, not everyone knows the intricacies of insurance coverage following a natural disaster, nor do they have a full understanding of their rights to recover their losses.  

Following are some quick tips for dealing with insurance issues:

• Review Your Policy. Before you do anything else, make sure you have a complete, current copy of your policy(s) and review them to get an understanding of what insurance coverage you have. For example, what are the policy limits? Are their endorsements pertaining to a “hurricane” loss? What are your deductible limits?
• Review and Categorize Your Loss. The differences in loss and coverage for commercial landlords and tenants can vary greatly. For instance, you may not have suffered any flooding or damages due to the wind and rain, yet you may have had a shutdown in your business due to protracted power outages. It is important to review your policy and characterize your total loss. A restaurant’s loss could include spoiled food or perishable inventory, for example. A clothing retailer’s loss may be the number of days the store remained closed due to power loss or other localized damage.
• How Does Your Insurance Policy Characterize the Loss? The precise language of your policy will determine whether you can recover for your losses, and in what amount. In a very recent development following the hurricane, the New Jersey Commissioner of Banking and Insurance has ruled that hurricane Irene did not generate sustained hurricane – force winds of above 74 mph as it hit New Jersey, (apparently the wind was measured at a peak velocity of 71 mph) and, accordingly, losses should not be characterized by insurance adjusters as having been caused by a “hurricane.” This has tremendous significance in connection with how losses are adjusted in New Jersey since many policies have very high deductibles for losses caused by wind and other damage associated with a hurricane.

This is good news for policyholders and should result in many more claims falling within coverage, within otherwise applicable policies. You should be aware, however, that many policies may not cover losses attributable to “flood” or related water damage driven claims. 

This is all the more reason you need to examine your policy carefully, in consultation with your insurance agent or broker, and to seek legal assistance if the insurance carrier is not recognizing your claim in full, or is citing exclusions or other policy language inconsistent with your good-faith reading of the policy. These issues can be tricky, especially for most people who are unfamiliar with the nuances of insurance coverage, and examine their policies carefully only after a significant loss. 

These are just a few of the issues commercial landlords and tenants will be dealing with over the next few months due to Hurricane Irene. Regardless of what insurance or other legal issues you face, Stark & Stark’s Commercial Landlord & Tenant, and Insurance Coverage Groups are available to assist you. Feel free to contact Tom Onder, Tom Pryor or Tara Speer in our Lawrenceville, New Jersey office, regarding these issues. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In this newly invigorated economic climate, some landlords of commercial property may be reevaluating the potential long-term benefits of “greening” their space, like adding wind, solar, or  bio-mass facilities and/or renovating or building new structures pursuant to protocols like the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) Green Building Rating System. Since generous government incentives continue to abound, there is no time like the present for constructing renewable energy facilities and/or undertaking energy-efficient improvements on-site.

Issues to Consider in “Greening” Commercial Space
In undertaking “green” improvements, care should be taken to anticipate and address both business and legal issues relative to the procurement of:

1. financing;
2. tax incentives; 
3. construction agreements; and               
4. leases with commercial tenants

Financial Incentives to Green Commercial Space
The Board of Public Utilities (BPU) through its Office of Clean Energy offers a host of financial incentives through the New Jersey Clean Energy Program. Among these is the Pay for Performance Program, which is funded by the societal benefits charge authorized by the New Jersey Electric Discount and Energy Competition Act.  Under this program, a qualifying utility customer may receive for the improvement of an existing building up to 50% of a facility’s annual energy cost (subject to a maximum of $50,000) to offset the cost an energy reduction plan and up to 50% of total project costs (subject to a maximum of $1 million per gas and electric account per building) provided that the implementation of the approved energy-efficient measures will achieve an energy savings of at least 15%.  

In the realm of renewable energy, the BPU offers New Jersey utility customers, who pay the societal benefits charge, access to the renewable energy certificate market and rebates for the installation of renewable energy systems, such as wind and sustainable biomass facilities at existing buildings and in connection with new construction located in Smart Growth areas (i.e. Planning Areas 1 and 2 and designated centers).

Planning is Key to Ensuring Profitability with Tenants
It is important to have a solid “green” plan in place, before seeking tenants to fill spaces in a renovated or newly constructed facility.  For example, a landlord may need to prepare and implement interior fit-out guidelines for incoming tenants to achieve and sustain energy efficiency goals and preserve building integrity.  Guidelines, such as these, might specify that construction in tenant spaces shall conform to the LEED protocols, contain product and material specifications, or require that tenants employ a construction manager who is a LEED accredited professional.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a recent decision, our firm successfully defended an Association’s ability to collect post-petition assessments in a Chapter 7 bankruptcy case. The decision reaffirmed the 2005 amendments to the Bankruptcy Code. Following these Amendments, a debtor remains liable for post-petition assessments, so long as he or she holds “mere” legal title ownership.  
 

In In re Brown, Bankruptcy Judge Donald Steckroth held that a debtor remained liable for post-petition association assessments in a Chapter 7 proceeding. This liability remained, even after the unit was abandoned by the Trustee and the debtor did not live at the unit, so long as the debtor held legal title. 
 

The matter was brought before the Court on the debtor’s motion to compel the Association to release monies levied in a bank account, post-petition, after the bankruptcy case was closed. As background, the Association had received a state court judgment for only post-petition amounts, and subsequently levied on the debtor’s bank account. Prior to filing the motion, the debtor requested the bankruptcy case be reopened so that she could list the Association as a creditor, since she had failed to provide initial notice to the Association. After the bankruptcy case was reopened, the debtor then filed the motion against the Association, claiming that the subsequent levy was improper.

2005 Amendments to the Bankruptcy Code
After extensive oral argument, the Court found that the 2005 Amendments to the Bankruptcy Code clearly widened the scope of non-dischargeability under § 523(a)(16). The statute provides that a chapter 7 discharge:                       

“...does not discharge an individual debtor from any debt...for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor's interest in a unit that has condominium ownership...for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot...” (Emph. added).

As such, the Court ruled that the debtor remained liable for post-petition assessments.

Know Your Collection Rights in a Bankruptcy Case
Unit owners often feel that once they file a chapter 7 bankruptcy case and vacate the unit that they are free from the duty to pay their assessments to the Association. This decision validates and supports an Association’s efforts to ensure owner payment of these assessments.

Associations should not “give up” when bankruptcy is filed. When an Association knows its rights, and has counsel experienced in representing Associations vis-à-vis bankrupt owners, it can successfully navigate an owner’s bankruptcy and recover unpaid assessments.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Collect Post-Petition Assessments from Chapter 13 Trustee in a Converted Chapter 7 Case

Bankruptcy filings around the country are up, due to among other things, the decline in the real estate market.  Previously, debtors used the equity in their home to fund a Chapter 13 bankruptcy plan and pay back condominium, homeowners, and cooperative associations (“Associations”).  Now, many debtors no longer have any equity in their homes. As such, this is leading some Chapter 13 cases to be converted to Chapter 7 liquidation cases. 
 

For Associations, such a scenario often means that the debtor stops paying their post-petition assessments.  But what happens to all the money that the debtor paid the Chapter 13 Trustee during the  bankruptcy? Does this money get distributed to creditors, the debtor or does the Chapter 13 Trustee keep it?  And importantly, can the Associations get any of those funds back?

 

Opportunity to Recoup Post-Petition Assessments
During the life of a Chapter 13 case, the Chapter 13 Trustee has a duty to hold onto all plan payments made by the debtor.  Upon conversion to a Chapter 7 case, the Chapter 13 Trustee is required to account for these funds and notice creditors that these funds will be returned to the debtor. When this occurs, Associations have one last chance to get some or all of this money back, rather than letting the debtor get a windfall.
 

Questions for Associations to Ask Bankruptcy Counsel
It is imperative that the Associations take quick action and file opposition to the Chapter 13 trustee’s notice so it can possibly recoup these funds. Sometimes there may be a few thousand dollars held by the Chapter 13 Trustee. The Associations should talk with their bankruptcy attorney immediately.  Following are some questions to ask:

1. How much is owed post-petition?  It is advisable for the Association to provide its attorney an account history for the post-petition fees due and owing.  For instance, if it will cost $500 to file an objection and make an appearance, but there is only $100 held by the Chapter 13 Trustee for a $200 post-petition claim, it may not be worth pursuing.                      
2. Is there a consent order providing for an administrative claim?  There may be a consent order with the debtor providing for an administrative claim.  Bankruptcy Code §1326(a), specifically provides that the Chapter 13 Trustee is to pay all allowed administrative claims by such a consent order. 
3.  Will an objection automatically mean allowance of the administrative claim?  The short answer is no.  The Associations still needs to prove the validity of the post-petition claim.  The debtor may assert a defense to the claim.  As such, sometimes the Associations may wish to negotiate with the debtor to avoid unnecessary litigation expenses.

These and many other issues should be addressed by your bankruptcy attorney as soon as possible.  Although the bankruptcy process is complex, thoughtful and sound legal advice throughout the bankruptcy case can help address many thorny issues that Associations regularly face as a creditor in a bankruptcy proceeding and, hopefully, not leave money on the table.

• Email This
• Print
• Comments
• Trackbacks
• Share Link