Monthly Archives: March 2012

Don’t Forget the Basics

By Joseph Goldman, Esq.

It’s April 2012 and the clock is ticking.  The federal estate and gift tax exemption is $5,120,000, the highest amount ever, but only until December 31.  Add an environment of low interest rates and relatively low market valuations and the time is ripe for estate tax planning.  But while you’re watching the estate tax bottom line, don’t forget the basics.

You need a Will, a Power of Attorney and a Health Care Proxy and Directive.  If you don’t have these documents – get them as soon as possible.

What’s more – communication is the key!

Does your family know that you executed estate plan documents and where to find them?

Does your family know your assets?  You should keep a list of bank accounts, credit cards, stocks and bonds, investments, real estate and mortgages, IRAs, pensions and other retirement plans.

Do they know your key advisers – attorney, accountant, investment and insurance – and how to contact them?

You should provide your family information about safe deposit boxes, combinations and keys.

Especially important in the digital age, you should provide them with your user name and password(s).

If you own a business, have you made plans for business succession?  This can be especially important if some of your children are involved in the business but others aren’t.

I often recommend that clients write a letter to family explaining their wishes, financial and otherwise, to supplement their estate plan documents.  This letter can provide useful guidance and a degree of comfort.

Estate planning should not be a secret.  Let your family in on the process and they will thank you for it.

Bona Fide Offers to Sell Gas Station Premises On Franchisor’s Divestiture Under the Franchise Practices Act

By David White, Esq.

Gas station franchisees obtained rights to purchase their leased marketing premises upon a proposed sale or transfer by their franchisors under recent amendments to the Franchise Practices Act, N.J.S.A. 56:10-6.1 to 6.4. On June 10, 2011, the New Jersey legislature supplemented the Franchise Practices Act to prohibit gasoline franchisors from transferring, assigning or selling most distributor owned and franchised gas stations unless the franchisor makes a bona fide offer to convey its interests to the franchisee; or, offers the franchisee a right of first refusal for a proposed sale to a third-party buyer. Only two other jurisdictions, the District of Columbia and California, provide similar rights to gas station lessees.  As a result, there is little—and inconsistent– authority defining a “bona fide” offer in this context.  ExxonMobil’s recent divestiture of 236 company-owned stations in New Jersey marked the first real application of the bona fide offer, right of first refusal provisions of the Franchise Practices Act. The experience casts light, without definitive clarification, on the statutory language.

The Franchise Practices Act does not define “bona fide” offer.  Although the term “bona fide” is a common phrase in statutory language, its application to a broad range of topics does not necessarily provide guidance to the divestiture of franchised gas stations.  In that context the interpretations divide over whether the term refers to subjective good faith in formulating the offer or requires a more objective, quantifiable measure.

Under the D.C. statute, the bona fide offer must be based on “fair market value that is reasonably attributable” to the property. D.C.Code §36-4.12(a)(2009). California’s statute leaves the comparable bona fide offer undefined for fee interests, however in the case of leasehold interests, it provides for a “price not to exceed the fair market value of the improvements or the book value, whichever is greater.” Cal. Bus. & Prof. Code §20999.25, California courts have applied a definition derived from federal law that “approaches fair market value under an objectively reasonable analysis.” Fourty-Niner Truck Plaza v. Union Oil Co., 58 Cal. App.4th 1261, 1284-86 (Court of Appeals 1997).

The Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. (“PMPA”), generally controls termination and non-renewal of gasoline franchises but does not address sales of the premises and associated assignments of the franchise relationship.  It contains provisions requiring franchisors to give franchisees bona fide offers to buy or rights of first refusal in connection with market withdrawals or conversions of marketing premises to other than motor fuel uses. 15 U.S.C.A §§2802(b)(2)(E)(iii)(I); (b)(3)(D)(iii)(I)(II).  Federal courts examining these provisions have debated whether the term “bona fide” offer is subjective or objective.  Compare, LCA Corp. v. Shell Oil Co., 916 F. 2d 434, 437 (8th Cir. 1990); Slatky v. Amoco Oil Co., 830 F.2d  476, 480-485 (3d Cir. 1987);  Kesssler v. Amoco Oil Co., 670 F. Supp. 853, 860 (E.D.Mo. 1987);  Brownstein v. Arco Petroleum Products Co., 604 F. Supp. 312, 315 (E.D. Pa. 1985). While some courts have concluded that both approaches apply (Slatky, 830 F.2d 485; LCA Corp., 916 F.2d 437), the prevailing view gravitates toward fair market value. Ellis, 969 F.2d 787; Arnold, 872 F.Supp. 1500;  Sandlin v. Texaco Refining and Marketing, Inc. 900 F.2d 1470,1481 (10th Cir. 1990).

In the ExxonMobil divestiture, the company offered its franchisee-dealers what it termed a “right of first refusal and a bona fide offer to purchase” that was neither a right of first refusal nor an offer to purchase at an appraised value.  Instead, ExxonMobil derived its offering price from bids for the sites by its branded wholesalers. The company divided the State into districts and invited bids from wholesalers on all stations in each area.  It accepted the highest offers, subject to dealers’ rights, and offered the properties to franchisees at a price that eliminated the high and low bids and averaged the rest. Insiders describe the result as a reduction of as much as 25 per cent below the highest offer.  Thus, ExxonMobil’s offer appears to have satisfied the bona fide offer requirement on subjective and objective grounds with a price reflecting a good faith decision to sell and bearing an analogous relationship to market value.

Demand for Mediation Considered “First-Filed” for Purposes of Jurisdiction

By Jennifer Castranova, Esq.

When New Jersey companies have disputes with out of state vendors or customers, absent a contractual provision providing for the venue in which disputes will be resolved, there often is a question regarding where a lawsuit should be venued.  New Jersey courts have often followed a rule that the matter will be venued wherever the first lawsuit between the parties is filed.  On January 27, 2012, the Appellate Division issued an opinion expanding this rule and holding that a demand for mediation should be viewed as the first-filed action by which a court acquires jurisdiction over another court acquiring later jurisdiction.

In CTC Demolition Company, Inc. v. GMH AETC Management/Development, LLC et al., 34 A.3d 1258 (App. Div. 2012), plaintiff CTC Demolition Company, Inc. (“CTC”) served defendant with a demand for mediation to be held in New Jersey based on a mediation clause contained in a series of contracts between the parties.  Less than two weeks after the demand for mediation was served, defendant filed a suit in Pennsylvania seeking a declaratory judgment that CTC lacked standing to enforce or sue on the contracts.  After the Pennsylvania suit was filed, CTC filed an action in New Jersey seeking a declaratory judgment that its demand for mediation was proper.  The question before the Court was how did the first-filed rule apply to the above sequence of events.

The first-filed rule states that a court with jurisdiction should defer to the court that first acquired jurisdiction.  Yancoskie v. Del. River Port Auth., 78 N.J. 321, 324 (1978).  Here, Defendant argued that the Pennsylvania action is the first-filed and plaintiff argued that the demand for mediation in New Jersey was the first-filed.  The Court acknowledged that the creation of the first-filed rule related to which of two lawsuits should proceed; however, in light of the favorable view of arbitration and mediation, the Court considered plaintiff’s argument that a demand for mediation should be treated like the filing of a complaint.  The Court held that the demand for mediation should be treated like the filing of a complaint and in doing so relied on the often cited public policy in favor of arbitration.  CTC, supra, citing Nolan v. Lee Ho, 120 N.J. 465 (1990); Southland Corp. v. Keating, 465 U.S. 1, 10 (1984).

The Court went on to say that even if it were to disregard the demand for arbitration as irrelevant as to which matter was first filed, special equities required that the matter be litigated in New Jersey.  Specifically, the Court held that, “once mediation was demanded to occur in New Jersey, the later institution of the Pennsylvania action represented an untoward attempt to move the situs of this dispute, giving rise to special equity that warrants a disregarding of the Pennsylvania action.”

The Court’s ruling in CTC means that a demand for mediation or arbitration will now be considered the first-filed action for purposes of jurisdiction.

New York Department of Labor Wage Theft Prevention Act

By Samantha Sherman, Esq.

The last provision of the New York State Wage Theft Prevention Act is now applicable to all private sector employees working in the State.

The law, which mandates that workers receive yearly pay notices, proper wage statements, and be free from retaliation for complaining about possible violations of the Labor Law, became effective in April 2011, but employers had until February 1, 2012 to provide the required written wage notice to all employees. Notices are also required at the time of hire for new employees and within seven days of a change if the change is not listed on the employee’s pay stub for the following pay period.

The notice must include (a) rate or rates of pay, including overtime rate if applicable; (b) how the employee is paid (e.g. hourly, daily, weekly, by shift, by commission, salary or other); (c) the employee’s regular payday; (d) the employer’s official name and any other names used for business; (e) the telephone number and physical address of the employer’s main office or principal location, and the mailing address if different; and (f) whether the employer intends to claim allowances as part of the minimum wage, including tip, meal, or lodging allowances, and the amount of those allowances.

The notice must appear in English and the employee’s primary language if the Department of Labor provides a translation. Templates in Spanish, Chinese, Haitian Creole, Korean, Polish and Russian are available on the Department of Labor’s website, but the employer may provide its own notice if it includes all the necessary information.

Furthermore, employers must have each employee sign and date the notice and give the employee a copy.

The Act also enhances other employee protections under Labor Law 215.  For example, threats to discharge, penalize and/or discriminate against an employee who makes a complaint about an employer’s lack of compliance are now included as a prohibited form of retaliation. In addition, the bar against retaliation now applies to any person, not just the employer. Retaliation carries criminal penalties for employee complaints about any section of the labor law.

The protections apply to any employee who alleges that the employee has done something that the employee thinks breaks a Department labor law or an order of the Commissioner – even if the employee is mistaken and even if the employer incorrectly believes the employee made a complaint.

Oppression in the LLC: Will New Jersey affirmatively adopt it as a cause of action?

By Janie Byalik, Esq.

Oppression of minority owners occurs when majority owners in a company take actions that unfairly prejudice the rights of the minority, such as harming their economic interests through failing to declare dividends, squeezing out the minority members, mishandling corporate assets to the detriment of the minority, awarding the majority members excessive compensation or making other management decisions that frustrate the reasonable expectation of the minority.  Oppression commonly occurs in close corporations, since lack of a public market leaves the minority shareholders susceptible to the maltreatment of the majority and does not afford minority shareholders an exit strategy of selling their stock and leaving the corporation.

Unfortunately, oppression can occur in any business organization, not just a close corporation.  It frequently occurs in Limited Liability Companies (“LLC”), which by their nature and character, are similar to close corporations, particularly with respect to the lack of a public market for most LLC interests.  This leaves minority members of LLCs vulnerable to oppression like the minority shareholders in a closely held corporation.  While the New Jersey Business Corporations Act expressly provides a remedy for shareholder oppression, the LLC Act does not.  But the lack of express statutory remedies for LLC members in various contexts has not stopped the New Jersey courts from crafting remedies to address the problem.

New Jersey courts routinely look to corporate principles in the context of an LLC in defining a Chancery Court’s ability to create appropriate remedies. Given the law and reasoning supporting the application of principles under the Business Corporations Act to LLCs, an equity Court may, by analogy, import remedies for corporate oppression to comparable situations in LLCs.

But what may be an equitable power of a Chancery Court to grant an appropriate remedy for oppression, may soon become a statutory protection for all LLCs like it exists for corporations.  A revised version of the LLC Act was introduced in the New Jersey Senate, including sections designed to assure that remedies for oppression available to shareholders will be applicable to members in LLCs. One of the notable changes in the LLC Act is the specific inclusion of remedies for oppression modeled on those in the Business Corporations Act.  While the legislation did not pass this term, it was reintroduced as Senate Bill No. 742 for the 2012 session last month.  It is quite possible that within the coming months minority members of LLCs will have concrete remedies for oppression.  Until then, oppressed minority LLC members will have to continue to try to persuade courts of equity to use the Business Corporations Act as a guide to fill in gaps in the LLC Act.