RECLAMATION
Certain suppliers have the right to reclaim goods that they have shipped a bankrupt debtor. A creditor may attempt reclamation of their goods sold in the ordinary course under Bankruptcy Code § 546 (c). However a supplier must move quickly on their right to reclaim any of these goods that are lost. The supplier must make a demand in writing for reclamation of the goods no later than 45 days after delivery. If the 45 day period has not expired as of the date of the filing of the bankruptcy petition, the supplier will be provided an additional 20 days to demand reclamation of the goods sold.

ADMINISTRATIVE EXPENSE
In addition to reclamation, suppliers also have the ability to seek a priority administrative expense under Bankruptcy Code §503 (b). This claim is for the “value of any goods” received in the ordinary course of business by a debtor within 20 days prior to the bankruptcy filing. To obtain this expense, the supplier must make a request, often by motion. A supplier who exercises their rights, can be in a better position than unsecured creditors since the Chapter 11 Plan of Reorganization cannot be confirmed unless all administrative expense claims are paid in cash on the effective date of the bankruptcy plan.

PROOF OF CLAIM
In addition to the other rights mentioned, suppliers should also file a Proof of Claim for any amounts due and owing prior to the petition date. The Bankruptcy Code allows creditors to be paid with other similar situated creditors through the Bankruptcy Plan. The Proof of Claim deadline is usually provided at the beginning of the case and will allow creditors to exercise these rights. It is important to file a Proof of Claim properly and prior to the deadline.

For my information on supplier’s rights in the Linens-N-Things bankruptcy case or any other bankruptcy matters, please feel free to contact either Tom Onder or Jeff Posta in the Bankruptcy &  Creditor’s Rights Group at (609) 219-7458 or tonder@stark-stark.com, and (609) 791-7021 or jposta@stark-stark.com.

With the recent downturn in the market, a number of commercial tenants are experiencing financial difficulties. In turn, this can lead to problems for commercial landlords, most importantly, the tenant staying current with lease payments. This may then lead to the tenant filing for bankruptcy protection. If your commercial tenant files for bankruptcy, it is wise to have a strategy in place to not only minimize the time of non-payment, but also maximize the ability to receive rents and damages allowed under the Bankruptcy Code. 

Following are four (4) questions for commercial landlords to review with an attorney  whenever a commercial tenant files for bankruptcy protection:

1.    Have You Filed a Proof of Claim(s)?  As soon as the tenant/debtor files for bankruptcy protection, commercial landlords should ensure their rights to payment(s) by filing appropriate proofs of claim.  It is advisable to review with your attorney the current account history and lease to ensure all fees are being accounted. Landlords may be able to file upto three (3) different types of claims:

    a.    Pre-petition Claim. Section 502 of the Bankruptcy Code provides that creditors are permitted to file a proof of claim for all pre-petition charges and assessments owed.  If a tenant files for bankruptcy, the landlord is permitted to file a proof of claim for all fees and charges incurred prior to the filing date;

 

    b.    Post-Petition Administrative Claim.  Section 503(b)(1) of the Bankruptcy Code provides a creditor a priority claim for all “actual, necessary costs and expenses of preserving the estate”.  If the tenant remains in the premises after the bankruptcy and does not reject the lease, the commercial landlord may be allowed payment  ahead of other creditors for amounts incurred during this period; and

 

    c.    Post-Rejection Damage Claim. Section 503(b)(7) of the Bankruptcy Code provides a commercial landlord the right to be paid for “post bankruptcy rejection” damages. If the tenant rejects the lease, certain damages incurred and the remainder of the lease may be permitted priority before payment of certain claims.

2.    Is the Debtor/Tenant Assuming or Rejecting the Lease?  Landlords should inquire whether the debtor/tenant intends to assume or reject the lease.  Bankruptcy Code Section 365 provides that tenants are permitted to assume a commercial lease, as long as they cure all post-petition defaults. If they reject the lease, then the landlord may be able to proceed with an eviction action to remove the tenant. However, landlords should know that the Bankruptcy Code permits the debtor 120 days to decide whether to assume or reject the lease, with an additional 90 day extension.  All told, this can leave the landlord sitting around for more than 7 months without payment.  If your not being paid, it may be advisable to have the Bankruptcy Court allow you to proceed with an eviction action. 

3.    Should you File a Motion for Stay Relief to Proceed with an Eviction?   The debtor/tenant may not advise their intent to assume or reject the lease.  As noted, during this time, the debtor/tenant can use the premises without paying anything.  The landlord is permitted to file a motion for “Relief from the Automatic Stay”.  This Motion, if granted,  permits the landlord to resume or commence with a state court eviction action.

4.    What to Do with Items Left by a Tenant?  If the debtor/tenant leaves equipment, inventory or equipment at the premises, can you just throw it away? Does anyone have an interest in the left over items, like the debtor/tenants’ bank?   Can you recover storage fees? When a tenant/debtor files for bankruptcy, these left over items may be part of the bankruptcy estate. Gaining proper approval from the Bankruptcy Court, before disposing of the left over “junk” is essential to limiting liability.  For instance, the left over property may be secured by a bank, financial institution or creditor. You may want to have a UCC Search conducted to ascertain whether any security interest exists.  If security interests are discovered, it is advisable to give notice to those entities, possibly through a motion with the Bankruptcy Court.

These are just a few of the questions a landlord should ask when a debtor files for bankruptcy.  By asking these questions at the start of the bankruptcy, landlords can limit the loss or liability, as well ensure their right to payment through the Bankruptcy Code.

This decision is very helpful to commercial landlords as it supports basic contract law maxims, which requires commercial tenants who wish to exercise certain options to exercise those options with particularity and pursuant to the terms of the contract.

Background
The tenant was a physician who entered into a lease agreement for commercial property in Orange, New Jersey.  The landlord was wholly owned by Ocean Mountain Healthcare Incorporated.  In addition, Cathedral Healthcare Systems (the “Affiliate”) had an affiliation agreement with the hospital.  The tenant’s lease for the commercial space was to terminate on March 19, 2005.  The lease provided the tenant with an opportunity to extend the term of the lease and the right to purchase the commercial property.  The tenant sent a letter to the Chairman of the Affiliate (not the landlord)  in February 2004 expressing a desire to exercise the option - almost a year prior to the expiration of the contract.  Although not specifically noticed by the tenant, the landlord sent back an unsigned  written contract to sell the property.  The tenant then forwarded a deposit check to the landlord with the signed contract.  After the lease term ended, the landlord forwarded to the tenant a letter advising that it was no longer in the position to sell the commercial space, later returning the tenant’s deposit check.

The tenant filed suit claiming specific performance, breach of contract, breach of implied covenant of good faith and fair dealings, fraud, consumer fraud, successor liability.  The lower court dismissed all counts of his complaint.  The Appellate Division affirmed that ruling.  

Appellate Division Upholds Landlord’s Rights
The Appellate Division, upon review of the case, noted that the tenant failed to present clear and convincing proof of the contract.  Noting in the record, that although that the landlord had forwarded a contract to the tenant to sign and the tenant had executed the contract, as well as provided the deposit, at no point had the landlord actually signed the contract.  Further, the Court noted that when the tenant exercised its option to purchase the lease term failed to request an extension of the term.  As such, when the landlord advised the tenant that it no longer wanted to sell the building, the tenant was outside his contractual period.  The Court also noted that the tenant had failed to strictly comply with the terms of exercising his option.  For instance, the contract provided that the tenant was to provide notice to the landlord via certified mail, return receipt.  Rather than sending to the landlord, the tenant sent this option to the Affiliate.

Practical Implications for Commercial Landlords
This opinion is very beneficial to commercial landlords providing a tenant the option to purchase the commercial property.  The contractual obligations of both parties will not be over ridden simply by one party’s assumption that it has complied with specific provisions of the contract.
    
Following are some issues that commercial landlords should review with their attorney before providing an option to purchase.  

1. Review the notice provisions of the option.  For an option to be exercised correctly, it should be noticed pursuant to the terms of the contract.  If the notice requires for certified mail, return receipt then the notice should be sent via that method. .
2. Be sure to correctly exercise the option.  When an option is exercised, it is important for the party exercising that option to ensure that all portions are exercised.  In this case, the tenant only attempting to exercise his option to purchase the property.  He did not exercise any option to extend the lease term.  Due to the tenants failure to exercise his option to extend the lease period, when the landlord rejected his offer to purchase the property, the tenant had no recourse.
3. Is this the final version of the lease?  In this case, the landlord’s counsel was acute to note to send a “draft” contract without any signatures.  The landlord did not agree to these terms but rather put a “draft” contract out for the tenant’s review.  As such, when the tenant signed it, the contract was still in flux at this point.

Recently, in an unpublished decision, the Superior Court of New Jersey in James Gamble v. David Connolly and Connolly Properties, Inc., DC-6838-07 held that a landlord’s lease was an adhesion contract that did not create a year tenancy, but rather only a holdover tenancy. Due to the landlord’s failure to return the full security deposit for a prior lease, the tenant was awarded double the security deposit owed, plus full costs of court and reasonable attorney fees.

This decision is extremely important for landlords and their attorneys because failure to comply with the security deposit section of the Anti Eviction Act (N.J.S.A. 46:8-21-1) can lead to the landlord having to return double the security deposit and paying the tenant’s attorneys fees. Further, this decision is extremely instructive as to pit falls that landlords can incur by NOT having a tenant sign a lease agreement. Failure to do so can lead a tenant to be considered a holdover tenant. 

BACKGROUND AND HOLDING OF CASE
The tenant had an apartment in Essex County owned by the landlord since October 2002. Although the tenant had a prior lease with the previous owner, he never had a written lease agreement with the new landlord. Although the landlord had forwarded a Notice to Quit, as well as a Lease Renewal in three consecutive years from 2004 to 2006, at no point did the landlord ever have the tenant execute a new lease. The landlord, in his Notice to Quit, clearly provided what the security was, the monthly rent as well as the term. The tenant, however, stayed in the residence and continued to pay rent, which the landlord accepted. On July 1, 2006, the tenant sent the landlord a letter advising that he was in compliance with the Notice to Quit. Further, the tenant wanted the return of his prior security deposit, which the landlord applied without consent.

The Court considered the pivotal question of whether the tenant was bound by a renewal lease of one year through the Notice of Renewal in the Landlord’s letters to him, or whether the tenant was considered a holdover tenant, which resulted in a thirty day month to lease pursuant to N.J.S.A. 46:8-10. 

In determining the case, the Court held that the landlord’s contract was an adhesion contract because it provided a “take it or leave it” position. The Court noted that the standard for determining adhesion contracts in New Jersey was four part test. (1) the subject matter of the contract, (2) the parties relative bargaining positions, (3) the degree of economic compulsion motivating the “adhering” party, and (4) the public interest affected by the contract. 

Although the Court went through a exhausted citation to prior cases discussing adhesion contracts, it failed to provide any distinguishing factors other than a cursory note that the tenant was in an unfavorable position with the “dominant” landlord. Further, the Court noted that in New Jersey that the purpose of the Anti Eviction Act is to protect residence from the effect of arbitrary or capricious actions of landlords in extending a lease unilaterally. However, the tenant readily seemed to accept the landlord’s renewals.

Practical Implications for Landlords and Counsel
This decision bodes very poorly for landlords if they allow tenants to continue on a month to month basis. In New Jersey, it is virtually impossible to remove a tenant if they continue on a month to month basis. Although the landlord can increase rent, pursuant to certain New Jersey statutes, if they accept the tenant on the month to month tenancy, they have created a holdover tenant. 

Further, the Court’s failure in this decision to expressly provide an explanation for how the contract is an adhesion contract other than the fact that the tenant was not the contract’s maker, although the tenant seemed to accept the terms, is questionable at best. In the Court’s opinion, just because the landlord is the maker of the contract, the contract is automatically an adhesion contract. The question is when would a landlord of a residential property not be in such a position to provide the form of the contract? (Answer: Never).   Further, the landlord is the one paying the real estate taxes, maintaining the property and also providing other essentials to the tenant. Why should the landlord be subject to such onerous provisions when the tenant has willingly acted to accept the tenantcy?

Questions Every Landlord Should Note Before Apply a Security Deposit
The following are some questions, that you should ask before applying a security deposit. Failure to do so could result in an action like the Gamble case and cost you 2Xs the security deposit and the tenant’s reasonable attorneys fees. 

Do You Have Written Lease? It is extremely important, if not essential, to have a written lease agreement between you and your tenant. Having a tenant review and execute the lease provides a written agreement that can be enforceable by the landlord. Failure to do so can create a month to month tenancy which is virtually impossible if the tenant continues to pay to evict the tenant.

What is the Tenant’s Status? Is your tenant a leasehold tenant or a month to month tenancy. Just because you send a confirming letter advising what he is does not mean that the tenant has accepted that.

Do You Have an Assignment From a Prior Landlord? When purchasing property from a prior landlord, you may want to “step into their shoes” for certain issues. Although that there are many liabilities that you could incur and want to avoid, there are certain specific assignments from the prior owner that could be beneficial. For example, taking an assignment for the leasehold, will put you into the shoes of the landlord with their prior lease. Failure to do this, leaves a landlord in a position such as this case whether they had no contract with the tenant but only a thirty day lease.

Have All Notice Provisions Been Complied? Before you send out a notice to the tenant, have you complied with the notice provisions of the lease? Your attorney should advise the specific notice provisions that need to be followed under the lease, as well as under the New Jersey Anti Eviction Act and other statutes if applicable.

For more information on landlord tenant issues, for residential or commercial leases, please feel free to contact Tom Onder, Stark & Stark’s Commercial Litigation and Creditor’s Rights Group at (609) 219-7458 or via email a tonder@Stark-Stark.com.

Background - Landlord Tries to Evict on 3 Non-Payment Grounds
In Cesar S. Arredondo v. Nersy Pujols, the tenant operated a bodega in Jersey City pursuant to a written lease with a 15 year term.  The landlord, who purchased the property from a prior owner, claimed not to have known of the tenant’s lease.  Subsequently, the landlord filed an eviction complaint based on three (3) non-payment defaults, failure to: 1) provide insurance; 2) obtain municipal electrical permits for the relocation of refrigeration compressors and an exhaust fan (the “Electrical Work”); and 3) get the landlord’s written approval on the Electrical Work.

At trial, testimony included the landlord, the tenant, and the tenant’s two witnesses, an electrical inspector of the City of Jersey City and a close friend of the defendant.  The inspector testified that a physical inspection did not disclose any dangerous conditions and the work appeared to be in a workman-like manner.  More importantly, the inspector advised that the permits could be obtained post-completion to correct deficiencies.

The trial court concluded the failure to obtain permits for the Electrical Work breached the lease, but denied the landlord’s judgment on the other two allegations.  Essentially, finding the landlord’s testimony inconsistent on the approvals and because the defendant provided insurance prior to the trial (no harm no foul). The tenant appealed the judge’s ruling that failure to obtain an electrical permit was a “material” breach of the lease.

Cannot Evict for “Minor” Breaches (No Permits, No Insurance, Sidewalk Sales, Etc.)
The Appellate Division agreed with the trial court on the insurance issue and the landlord’s inconsistent testimony.  However, the Appellate Division held that the breach was “not material” to warrant the tenant’s forfeiture of his leasehold interest. The Appellate Division noted that the New Jersey statute specifically provides grounds for an eviction where there is a “...violation of such covenants or agreements” of the lease. See N.J.S.A. 2A:18-53.  However, before a judgment may be entered, the landlord must establish the breach. 

Citing New Jersey case law, the Appellate Division held an eviction based on a “forfeiture” is deemed a penalty for failing to do a particular thing.  In New Jersey, the law does not favor forfeitures and requires a trial court to strictly review the provisions of the lease that a landlord seeks to forfeit the tenant’s interest, resolving any ambiguous language in favor of the tenant.

Based on the testimony and review of the lease, the Appellate Division held the breach was a minor deviation of the lease terms.  The court held that the work was undertaken under the direct order of the plaintiff and done by an independent contractor.  Further, all work was done in a workman-like fashion and that pursuant to the Jersey City inspector, the defendant could retroactively cure any of the code violations by obtaining a permit. 

In discussing such minor violations, the court noted that other actions that could be deemed minor violations of a lease that would not be grounds for an eviction could include sidewalk sales, citing the prior Appellate Division case of Johnson v. City of Hackensack, 200 N.J. Super. 185 (App. Div. 1985).

Concerns When Instituting Eviction Action for Non-Payment Defaults
This unpublished decision raises a number of pitfalls for commercial landlords when deciding to institute an eviction based on non-payment issues. In this case, the landlord clearly failed to submit the proper proofs that there really was a “material” non-payment ground to evict.  Before instituting an action to evict a tenant, landlords should consider a number is issues including:

1)     What proofs do I have?  In this case, the landlord had serious inconsistent statement, whereas the tenant’s testimony was not questioned.  Further, the tenant had two additional witnesses to prove his case, one being a city electrical inspector; and

2)     Is the Breach “Material”?  Here, failure to obtain permits was not “material”.  However, would that have changed if what the landlord was cited for resulted in a fine or penalty from the municipality?

3)     Can the Breach be Remedied before Trial?  Here, the lack of insurance became a non-issue because it was remedied prior to trial. What other breaches can be remedied?

Strategic Use of Eviction Proceedings
This and other recent decisions by the Appellate Division raise pitfalls for commercial landlords in eviction proceedings. Landlords may think to strategically use the eviction process as a way in which to make the tenants become compliant with the lease.  To lessen the legal costs, landlords should take care to place in their lease that the tenant is required to pay the landlord’s attorney fees. 

In the case discussed, although an eviction did not occur, the act of taking the case to trial precipitated the tenant to obtain the proper permits and get insurance.  However, if a landlord wishes to actually evict the tenant due to a non-payment issue, it is extremely important to sit down with your attorney ascertain “minor” or technical breaches.

For more information on evictions or other commercial lease issues, please feel free to contact Tomas S. Onder or Vincent J. Mangini in Stark & Stark’s Commercial Real Estate Litigation Group.  Mr. Onder can be reached at (609) 219-7458 or via email a tonder@stark-stark.com and Mr. Mangini can be reached at (609) 219-7437 or vmangini@stark-stark.com.

What is Preference?
A potential preference is a payment received from a debtor, made within 90 days of the bankruptcy filing.  Bankruptcy Code section 547(b) allows a bankruptcy trustee or debtor-in-possession to avoid this payment, if the transfer was to or for the benefit of a creditor on account of an antecedent debt while the debtor was insolvent.  When Congress enacted the Bankruptcy Code, the policy behind preferences was to level the playing field for all creditors by not allowing a creditor to receive more than it would have within the debtor’s bankruptcy case. 

Proper Response to the Preference Demand Letter Critical
Although the Bankruptcy Code gives the power to recover these transfers, your business may have certain defenses to eliminate, or at least lessen, your exposure. These defenses include: payments made within the ordinary course of business; contemporaneous exchange for new value; payments made outside of the 90 day preference period; settlements during the bankruptcy case; and/or payments made via C.O.D.  To determine if your transaction qualifies for one of these defenses and make the proper response, it is imperative review the account information.

Information Needed to Determine Defenses
Prior to contacting your attorney, you should gather the full payment history at least a year before the bankruptcy filing.  This information includes:
1.    all correspondence, contracts, emails and the like with the debtor;
2.    a copy of all invoices, showing invoice date, terms, and amount of each invoice;
3.    a copy of the payments received (i.e. checks, wires, cash deposit slip) and date posted to your bank account;
4.    number of days elapsed between date of invoice and date payment was received; and
5.    personnel involved with the debtor’s account, so they can advise how payments were made, applied and any unique issues with the debtor. 

Once your attorney has this information, it will raise a number of questions  For instance, are some of the payments alleged as preferential outside the 90 day period?  Or, are the payments made within the ordinary course of your industry?  However, how do you determine your industry compared to a similar industry? Do you need an expert witness?  These and many more questions should be addressed with your bankruptcy attorney prior to sending any response.   

Stay tuned for future posts within the coming weeks dealing with a more detailed discussion on specific preference defenses, including ordinary course of dealings, contemporaneous exchange for new value and industry specific issues for the building and construction, REITs and commercial developers, and other service providers.

In the interim, for more information on defending a preference action, or other bankruptcy issues, please feel free to contact Tom Onder, Stark & Stark’s Bankruptcy & Creditor’s Rights Group at (609) 219-7458 or via email a tonder@Stark-Stark.com.

It is probably a good time to take a look at the lease in light of the New Jersey Appellate Division’s decision on August 20, 2007 in Boston Market Corporation f/k/a Golden Restaurant Operations, Inc.  v. Myrus Hack, docket No. A-0182-05T20182-05T2 27-2-8272 (unpublished). The Appellate Court held that a commercial tenant was not in default under a lease because it’s maintained insurance with an extremely high deductible.

The Appellate Court characterized this issue as: “The simple question posed here is whether or not the insurance arrangements made by [plaintiff] comply with the lease provisions respecting the tenant’s insurance obligation.”  The lease did not expressly prohibit insurance with a high deductible.

The Appellate Court focused on whether the insurance obtained by plaintiff, with high deductibles of up to one million dollars, constituted self-insurance or no insurance at all. The tenant always maintained insurance coverage for the property.

The Appellate Court concluded that the tenant was not in default of provisions relating to insurance requirements in the lease between the parties.

Although the Appellate Court may have placed form over substance in its lease interpretation, the decision highlights the value for commercial landlords to review and understand their lease language regarding their tenant’s responsibility to obtain insurance. Specifically, commercial landlords should review their leases for the following points:

1) Type of Insurance.  Ensure that the lease describes the particular type of insurance to be maintained;

2) Maximum Deductible.  Provide a provision within the lease for a maximum deductible.  This can help eliminate a tenant obtaining insurance with a higher deductible than any potential loss that could be sustained if the property were destroyed.  For instance, if the property is worth $1 million dollars, but the deductible is $1 million dollars, the tenant is the one responsible for the $1 million dollar loss.  A tenant’s bankruptcy could wipe out their liability;

3) “First Dollar Coverage.”  Check that the lease contains a statement that the insurance policy must furnish “first dollar coverage.”  This allows the insurance carrier to pay the claim on a first dollar basis, then require the tenant reimburse the carrier up to their deductible amount.
 

Recently, the Appellate Division of the State of New Jersey in Hodges v. Feinstein, Raiss, Kelin & Booker, LLC declared that law firms that regularly file summary dispossess action (aka “evictions”) for non-payment of rent are subject to the Fair Debt Collection Practices Act (“FDCPA”). Additionally, the Appellate Division held residential evictions for failure to pay rent must now be made by verified complaint. 

This decision is very important for landlords and their attorneys since failure to comply with the FDCPA’s collection procedures could subject the landlord and the law firm to attorneys fees, costs and damages.

Hodges involved two sisters, Renita Hodges and Rochelle Hodges. The sisters resided in separate apartments in Newark’s Sotnas Garden Apartments operated by the Sasil Corporation. The rent was subsidized by the United States Department of Housing and Urban Development, (“HUD”). The HUD regulations define rental obligations as a percentage of the adjusted monthly household income. However, the landlord’s lease defined additional rent as late charges, reasonable attorneys fees and court costs.

Due to the Hodges sisters regular arrearages, the landlord directed the law firm to file an eviction action. In the complaint, the firm listed non-payment of rent, which encompassed the lease’s defined arrears for all rent, including late charges, attorneys fees and costs. 

The sisters counterclaimed for, among other things, violating the FDCPA. They claimed that the lease requirement did not circumvent the federal HUD definitions of rent. Further, the landlord did not inform the Hodges that they were required to pay “only” the statutory defined rent as provided under HUD to avoid eviction. The trial court granted the landlord’s eviction action and dismissed all counts by the Hodges. The Hodges then filed a motion for leave to appeal. 

The Appellate Division held that the law firm was a debt collector under the FDCPA, citing:

Whether the available remedy in a summary dispossess action is possession, damages, both, or some other result, is of little consequence. The nature of the threat employed to garner payment does not alter the fundamental fact–the reality–that debt collection is attempted, held that in practice eviction proceedings are a powerful debt collection mechanism.

The Appellate Division then referred the matter to the Special Civil Part Practices Committee to draft for the court’s consideration proposed rules to harmonize the FDCPA with the state’s eviction proceedings. In the interim, the Appellate Division has required that all summary dispossess complaint to be verified and expressly state that creditor’s identify and the amount of the rent that must be paid to the landlord or the clerk before 4:30 p.m. on the day of trial.

This opinion is important to both residential and commercial landlords. Before attempting to evict tenants, the landlord should confirm with their attorney the correct amounts owed. As in Hodges, a contractual obligation in a lease for additional rent will not simply override the Federal law that limits the rent.   Although this case is directed to residential landlords, commercial landlords should take heed as well in reviewing their leases and accountings. 

Following are some questions to consider before proceeding with an eviction:

1. Has a New Jersey Attorney Reviewed the Lease? It is important to have an attorney licensed to practice law in the State of New Jersey review the lease to make sure that it complies with State and Federal law ;
2. Do any Federal or State statutes preempt? Your attorney should be able to advise if any Federal or State statutes specifically define rent, which would only allow a certain portion to be collected. If so, then you may need to re-inform the tenant of the amount due and owing before commencing suit;
3. Does the lease provide for collection of attorney fees as additional rent? To collect attorney fees, generally there must be either a contractual arrangement or a statute that provides for such collection. For eviction actions, to include attorneys fees as rent, it must be specifically defined as additional rent;
4. Who will testify to the amount owed? If the matter is contested, you will need to submit proofs and testimony to show the amounts due and owing. It’s a good idea to have your attorney review the lease and accounting with whomever is to testify. Further, its important that the person testifying have actual knowledge of the books and records, as well as authority to testify; and
5. Have all notice provisions been complied with? Before your file the eviction action, make sure you’ve complied with all notice provisions. Your attorney should advise of the specific notice provisions that need to be followed under the lease, as well as the Fair Debt Collection Practices Act and New Jersey Anti- Eviction Act, if applicable.

This week's New Jersey Legal Update is presented by Thomas Onder, a member of Stark & Stark’s Franchise and Creditor's Rights Groups.

You can download the New Jersey Legal Update Podcast # 49 here. (7.8 MB)

Technorati Tags: New Jersey : Podcast : Franchise : Creditor's Rights

This week's New Jersey Legal Update is presented by Thomas Onder a member of the Firm's Bankruptcy & Creditor's Rights group.

You can download the New Jersey Legal Update Podcast # 40 here. (8 MB)

Technorati Tags: New Jersey : Podcast : Bankruptcy

On June 16, 2006, The New York Times article “The New Face of Farming,” (registration required) discussed this recent trend of niche, hobby and artisan breeders raising a variety of animals, including llamas, alpacas, heirloom chickens and belted and white Galloway cattle.

Although this new type of animal husbandry can be a true joy, legal pitfalls can abound, including disputes on the terms of the contract of sale, arguments over whether a warranty applies, interstate transportation of the animal from an out-of-state auction site, and whether any UCC and/or state statutory liens are on the animal.

Our office has dealt with a variety of these issues from reviewing basic contract rights to full litigation.Whether you breed or purchase alpacas, llamas, horses or any of the other types of new and exotic animals, it is important to think about your legal rights before the sale. Some questions to ponder include:

1. How are disputes handled under the terms of the contract of sale? For instance, some sales contracts require that written notice be given to the seller and veterinarian of the seller before a claim is made. Further, some contracts require that the seller’s veterinarian be permitted to examine and treat the animal to remedy the physical problems. Additionally, who pays for the animal’s medical treatment and board during the period? It is important to know what your obligations are under the contract to avoid any impairment of your legal rights.
   
2. Does the contract contain any express warranties? Some contracts may provide a warranty for the animal. In some cases, the warranty may be based on age of the animal, while others may be a simple year term from the sale. Further, some warranties may allow the seller the option of replacement with a “like” animal, replacement of the money paid or a credit for the buyer. Further, even though a warranty may expire, particular actions by either the buyer or seller may permit the warranty to be extended.
   
3. Has the animal been properly examined? Whether you’re the buyer or seller, it is important to have the animal fully examined by a trained medical professional, including having a copy if the animal’s full medical history. This way you can ensure that all necessary vaccinations and examination have been given to the animal before the purchase. Additionally, for purchasers, it is important to physically examine the animal by a trained veterinary professional whom you know and respect, and who can ask the right medical questions.
   
4. Are UCC or state statutory liens on the animal? Certain state statutes will allow creditors to place stablemen’s liens on animals. Further, there may be UCC liens placed on the animal. It is important to have your attorney review whether any liens are on the animal before purchase or sale.
   
5. What state statutes need to be complied with to transport the animal across state lines? Each state has their own guidelines on transporting animals interstate. It is important to review with your attorney and veterinarian what those statutes are and the appropriate medical certifications to be obtained before the animal is transported across state lines.

These are just a few of the questions to ponder before buying or selling exotic animal. This new niche of animal husbandry can provide great satisfaction to both new and more experienced breeders. However, as everyone knows, ounce of prevention is worth a pound of cure. Knowing your legal rights and remedies ahead of time can save your both time and expense. 

This week's New Jersey Legal Update is presented by Thomas Onder a member of the Firm's Litigation group.

You can download the New Jersey Legal Update Podcast # 17 here.(7.25MB)

Technorati Tags: New Jersey : Podcast : Avian Flu

This week's New Jersey Legal Update is presented by Thomas Onder a member of the Firm's Bankruptcy & Creditor's Rights Group.

You can download the New Jersey Legal Update Podcast # 12 here.(9.2MB)

This decision reinforces the power of the channeling injunction provided by Bankruptcy Code 524(g), as well as the role of the legal representative for present and future claimants (the "Legal Representative") in non-bankruptcy related proceedings. The Court held that parties to asbestos-related bankruptcy litigation cannot bypass the channeling injunction of Bankruptcy Code 524(g) to bind future claimants because it would deny the claimants due process rights.

The Debtor, G-I Holding, Inc., and it's non-bankruptcy subsidiaries (the "Plaintiffs"), sought declaratory judgment that the subsidiaries were not successors to the liabilities of the Debtor, and that the subsidiaries were not an alter ego of the Debtor. In the initial complaint, the Plaintiffs named six individual asbestos claimants. The Plaintiff's amended the complaint to add the Bankruptcy Court appointed Legal Representative as a defendant. Subsequently, the Legal Representative filed a motion for judgment on the pleadings, pursuant to Federal Rule of Civil Procedure 12(c), alleging that Bankruptcy Code 524(g) already provided for the specific relief requested.

In it's decision, the Court granted the Legal Representative's motion, holding that the declaratory judgment sought by the Plaintiffs was an attempt to avoid the provisions of Bankruptcy Code 524(g) by hoping to bind future claimants to the declaratory judgment. If this were allowed, the Court held that claimants due process rights ensured by Bankruptcy Code 524(g) would be violated. Further, the Court held that the Plaintiffs could have solved this due process problem by pursuing a class action, via Federal Rule of Civil Procedure 23. The Court noted that although a class action was begun, the Plaintiffs withdrew the class action law suit to add the Legal Representative so that it might bind future claimants in the bankruptcy proceeding. The Court held that this approach was essentially trying to by-pass the safeguards of Federal Rule of Civil Procedure Rule 23 and Bankruptcy Code 524(g), which protects the due process rights of future claimants.

The importance of this decision is that bankruptcy asbestos claimants due process rights trump any efficiencies or savings that potential parties to a Bankruptcy Code 524(g) channeling injunction may seek. Further, the Legal Representative may not be forced to participate in ceratin non-bankruptcy actions. The Court noted that the Legal Representative may be named as a party in other bankruptcy-related actions where the Legal Representative acts for the benefit of the estate, such as in fraudulent transfer actions. However, the Court distinguished these types of actions, citing that the matter at bar was primarily a non-bankruptcy issue.

Singer v. Beach Trading Co., Inc. (N.J. App. Div. 2005)
Deas v. St. Mary Hospital, et al. (N.J. App. Div. 2005)
Dimatties , et vir. v. Incollingo's Market, Inc. (N.J. App. Div. 2005)
Dilemmo-Tammero, et vir. v. Dempsey, etc., et al. (N.J. App. Div. 2005)
Murphy v. Township of Green (N.J. App. Div. 2005)

This week's New Jersey Legal Update is presented by Thomas Onder a member of the Firm's Litigation group.

You can download the New Jersey Legal Update Podcast # 4 here.(9.2MB)

Section 547(b) allows the trustee to avoid transfers of a debtor's interest in property if the transfers are to or for the benefit of a creditor on account of an antecedent debt while the debtor was insolvent and made within 90 days before the bankruptcy petition was filed.

Although the bankruptcy trustee has great power to reclaim the property, there are a number of defenses to the trustee's claim, including the usual defenses of ordinary course of business, transfers outside the 90-day preference period, contemporaneous exchange and new value.

A defense that has recently gained much discussion in a number of courts is based on whether the claim had previously been allowed through either settlement or the claims allowance process. Section 502(d) of the Bankruptcy Code provides that court shall: "disallow any claim of any entity from which property is...a transferee of a transfer avoidable under...Section 547...of the title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity is liable..."

This defense was explicated in In re LaRoche Industries, Inc., 284 B.R. 406 (Bankr. D. Del. 2002). In LaRoche, a creditor filed a lease rejection damage claim, and the debtor objected to the amount of the claim. The creditor did not respond to the objection, and the court allowed the claim in a lesser amount. After confirmation of the plan, the debtor brought a preference action against the creditor.

The creditor argued the allowance of the claim under Bankruptcy Code Section 502(d) bars the debtor from seeking to recover the preference claim. The LaRoche court agreed with the creditor and held that the preference claim should have been litigated as part of the claims process. The court held that: "§ 502(d) stands for the proposition that if a claim is allowed there is no longer a voidable transfer due from that claimant. In essence, a voidable transfer, such as a preference, must be determined, as part of the claims process and not at a later time, especially after distribution under the plan has been made." Id., at 408-09.

The LaRoche court also noted that it would be inequitable to allow a creditor to object to a claim while concealing a cause of action. The court reasoned that creditors might approach the claims resolution process differently if they knew that a preference action were available even after resolution of certain claims. Id., at 410.

However, other courts have held § 502(d) should not be used to prohibit a preference action that is commenced after a claim is allowed by settlement or hearing. [e.g., In re Rhythms NetConnections, 300 B.R. 404 (Bankr. S.D.N.Y. 2003); In re TWA Inc. Post Confirmation Estate, 305 B.R. 221 (Bankr. D.Del. 2004)].

In Rhythms NetConnections, the debtor--a telecommunications broadband company--was struggling with an urgent sale of assets, termination of service and emergency petitions to the Federal Communications Commission, and generally trying to conserve what resources were being siphoned away. Only two months after the petition date, the debtor entered into a settlement agreement with a creditor in order to resolve issues related to an asset sale commenced simultaneously. The settlement also included no release of claims against the creditor. Two years later, the debtor then brought a preference action to recover property of the estate.

The Rhythms court stated that although § 502(d) was intended to coerce creditors to comply with judicial orders, it was designed to be triggered after a creditor had been afforded reasonable time to return property of the estate. The court concluded that § 502(d) is an affirmative defense to a creditor's claim against the estate. Id., at 409. The court further distinguished the cases that had allowed § 502(d) to bar claims, from its own, reasoning that in other cases, debtors had been allowed ample time to negotiate claims and perform a preference claims analysis. Id., at 409-410. Whereas in the Rhythms case, the debtor had only two months from the petition date when it settled claims as part of a process to keep the company afloat. Thus, the court allowed the preference action.

The court in TWA Inc. Post Confirmation Estate reaffirmed the RhythmsNetConnections holding that allowing a preclusive effect of barring all claims under § 502(d) would be detrimental to large Chapter 11 cases. In TWA, the debtor had made payments to the City of San Francisco for airport operation payments such as gate rentals, security and parking, 90 days before filing. Eight months into the case, the debtor filed an objection to the city's claim. The claim was resolved by a stipulation a few months later. Two months after the stipulation, the debtor filed a preference action to recover the transfer for airport operations.

The TWACourt held that, like Rhythms, its debtors were far from a point to be expected to commence an adequate preference analysis. Id., at 4. Further, in dicta, the court stated the practical side of most large Chapter 11 bankruptcies often puts preference analysis on the back burner to be handled by a claims administrator after a plan is confirmed. Id., at 4-5. Thus, the court concluded that to allow preference claims to be precluded based on § 502(d) would seriously affect case administration.

More courts have leaned toward these latter cases' position that § 502(d) is not a bar to preference claims filed after settlement or allowance. However, neither LaRoche nor TWA, both Delaware cases, have been overruled. There still is plenty of room for interpretation, depending on the particular facts of your case and the court in which your case is commenced. For example, whether the size of a Chapter 11 proceeding, the number of creditors or the complexity of the case bears any weight on whether § 502(d) would be applicable, is still open to discussion.

No matter what your facts or where your case is heard, these three cases provide insight into a rather unordinary and often overlooked course for a possible preference defense.

Before the sale in May 2002, both parties signed a contract, which included a warranty that could be exercised in writing prior to Diego's third birthday. The warranty provided that should a claim be made by the buyer, it was the seller's prerogative to exchange a replacement alpaca, provide a credit toward the purchase of another alpaca, or refund the purchase price.

Evidence and testimony presented at trial showed no claim was made in writing prior to Diego's third birthday. However, plaintiff contacted the defendant around the time that Diego turned three years and eight months and claimed Diego was sold unable to breed. The plaintiff based their claim on only a single, five-minute inspection by their veterinarian, who after measuring Diego's testicles with seamstress' tape, observed they were smaller than normal. The veterinarian concluded that Diego's testicles were hypolastic. Further, the veterinarian stated that Diego suffered from a condition known as hypoplasia, which is a genetic defect that restricts an animals testicles ability to grow to normal size or allow for the breeding quality offspring.

Although, the three-year warranty expired, the defendant attempted to work with the plaintiff to determine the cause of Diego's inability to breed. Diego was sent for testing at Ohio State University, the premier veterinary facility for alpaca reproductive issues where Diego was given a thorough examination.

Testimony and evidence presented by one of the defendant's veterinarian experts, Dr. David Anderson, Head of Food Animal Medicine and Surgery in the Department of Clinical Sciences at Ohio State University and Director of the International Camelid Institute, explained there was no data to support plaintiff's claim that Diego was entirely deficient. Rather, Dr. Anderson explained that Diego's problems were more congenital-looking in nature, caused possibly by disease, heat-stress (a common ailment among alpacas) or an insect bite. Additionally, Diego's Michigan veterinarian testified that she inspected him twice prior to the May 2002 sale, during which he appeared normal. Upon learning of the Ohio State inspection, the defendant offered the plaintiff a replacement animal. The plaintiff rejected the request.

After a two-day trial, the court found that the warranty was not barred by the lateness of the claim. However, none of the veterinarians could determine the actual cause of the animal's degenerative condition or when it occurred. Therefore, the warranty was to be enforced pursuant to its terms. As the defendant chose a like-kind exchange, offering to replace the animal with Diesel, which was refused, there was no breach of warranty. Further, the court found that there was no right to revoke acceptance of Diego under N.J.S.A. 12A:2-608, nor did plaintiff have the right to rescind the contract under the doctrine of mutual mistake ( i.e., Diego's sexual prowess). Further, the court found no evidence of any fraudulent misrepresentation on the part of the defendant.

Tips for Breeders or Livestock Owners
Of great importance to any sale of alpacas, or other breeding animals or livestock, such as horses, llamas, or cows, is a warranty. An express warranty provides particular provisions for making a claim and obligations and duties to follow to exercise such claims. An implied warranty, although not explicit, can also be construed for parties. Further, even though a warranty may expire, particular actions by either side may permit the warranty to be extended. As such, it is advisable to know your legal rights and remedies as soon as possible. For a consultation on a contract or warranty claim that you may have as a breeder or seller of breeding animals or livestock, contact either myself or Timothy P. Duggan.
In its decision, the court denied the plaintiff's claims for breach of warranty, recision of contract based on mutual mistake and fraudulent misrepresentation because there was no evidence to support a finding that Diego was incapable of breeding before his sale or proof of any fraud.

Am I going to get paid all obligations due under the lease?
If so, when am I going to get paid?
When will I be able to re-lease the space?

Answers to these questions will depend upon how well you maneuver through the minefield of the debtor/tenant's bankruptcy case.

Debtor/Tenant's Obligations Due Under the Lease
Bankruptcy law provides that a debtor/tenant is required to "timely" perform all obligations arising under any unexpired non-residential real property lease. Thus, a debtor/tenant must pay, when due, all post-petition rents, maintenance charges, insurance, and real property tax obligations that are specified in the lease - post-petition being the operative word.

Did you know that the debtor/tenant may not have to pay the current month's rent?
Whether the debtor/tenant must pay the current month's rent depends on when the bankruptcy petition was filed and when the rent is due under the terms of the lease. If the bankruptcy petition is filed before the rent is due, rent incurred from the bankruptcy petition filing until the end of the month is not due immediately. For example, if the debtor/tenant's petition is filed on the 5th of the month and the commercial lease states that rent will be paid on the 1st of the month, that monthly payment may be deferred by the debtor/tenant until a later point in the case. The first rental payment that must be made is for the following month.

Debtor/Tenant Can Extend Time to Assume or Reject a Commercial Lease
Bankruptcy law provides a debtor/tenant 60 days to decide whether to assume or reject any unexpired commercial real property lease. If the lease is not assumed within 60 days, the lease is automatically deemed rejected.

Did you know that the debtor/tenant can seek an extension of this 60-day period?
Typically, the debtor/tenant will seek an extension until the confirmation of the chapter 11 reorganization plan. Courts generally allow extensions, but condition the extension on the debtor/tenant's agreement to keep the post-petition obligations current. So, it is critical to closely monitor the reorganization process and work closely with the debtor/tenant's counsel.

All Obligations Must Be Cured to Assume the Lease
If the debtor/tenant does assume the lease, all defaults owed must be cured. This means that all post-petition obligations due under the lease, such as rent, real estate taxes, and attorney fees must be brought current before assumption.

Did you know that if the debtor/tenant rejects the lease, you can file a claim for damages incurred?
If the debtor/tenant rejects the lease, the landlord can file a claim for rejection damages. Often, debtor/tenants will file a rejection procedures order with the court that provides that all rejection damages must be filed within 30 days. It is essential for a landlord to be vigilant regarding all papers filed by the debtor/tenant during this period so rights are not lost.

The first 60 days of a debtor/tenant's bankruptcy are vital for a commercial landlord. It is imperative to ascertain your rights under the lease and Bankruptcy law. Seeking effective bankruptcy counsel as soon as the debtor/tenant files can help you steer through the bankruptcy minefield and protect your rights.