Monthly Archives: June 2012

New Jersey Transitions to Partial Privatization of NJDEP Oversight

By Scott Lippert, Esq.
slippert@pashmanstein.com

The supervision of the remediation of contaminated property has essentially been privatized in New Jersey.  Effective May 2012, the party responsible for any clean-up will have to hire a Licensed Site Remediation Professional (“LSRP”) who will take care of the functions formerly performed by a case manager of the New Jersey Department of Environmental Protection (“NJDEP”).  NJDEP simply no longer has the staff or the funding to do its job in this area.  Environmental clean-up cases, especially “low-priority” cases have been languishing literally for years for lack of response from NJDEP.  We have one case in our office that has been pending for about 9 years.

It remains to be seen how effective the new LSRP program will be.  From a “green” perspective, concerns have been raised that these privately-paid professionals will not have the best interests of the state in mind when deciding whether or not to approve a particular clean-up plan.  On the other hand, there is no question that the new program will get remedial projects moving again.

Will some LSRPs seek to be perceived as business friendly and perhaps allow less comprehensive, less expensive plans to be implemented than might have occurred under NJDEP supervision?  Perhaps.  Another school of thought is that they will be so concerned with maintaining their licenses that they may in fact be more difficult to deal with than the case managers at NJDEP were.  We’ll just have to see what happens.

One thing to keep in mind when dealing with LSRPs is that they are agents of the state.  If they enter a site and find or suspect contamination, they must report it.  Therefore, an LSRP should never be used to conduct due diligence.  There will still be good old-fashioned environmental scientists who will not have LSRP licenses, who should be used for such investigations.  A seller of real property should make sure that the contract of sale has a provision expressly prohibiting the buyer from using an LSRP to conduct due diligence.

Where You Incorporate Your LLC Matters

By Adam Schwartz, Esq.
aschwartz@pashmanstein.com

Popular convention is to incorporate in Delaware, even if a company conducts no business there.  Due to its business-friendly regulatory environment and large body of case law regarding corporate management issues, over 900,000 business entities have incorporated in Delaware.  However, if you are minority owner of a closely-held company with its principal place of business in New Jersey, you may not want to follow popular convention.

New Jersey has enacted a Minority Oppression Statute, N.J.S.A. 14A:12-7(c), which provides a range of remedies for minority owners in closely held corporations when the majority has acted to defeat the “reasonable expectations” of the minority owner or has otherwise acted fraudulently, illegally or oppressively toward the minority.  The potential remedies include the appointment of a custodian or provisional director to manage the company, ordering the corporation to purchase the minority shareholder’s interest, or dissolving the corporation.

Delaware, however, does not have a corollary to the Oppressed Shareholder Statute, and its courts have not recognized any common law remedy for minority shareholder oppression.  Under Delaware law, a minority stockholder must protect him or herself by bargaining for any such protection.  If there is no contractual provision for a buyout or the appointment of a custodian or director, a Delaware court will not imply one.  In short, New Jersey law is for more favorable for a minority shareholder.

This difference is important because, when a lawsuit involves the internal affairs of a corporation, New Jersey courts will apply the law of the state of incorporation.  Therefore, even if a company’s business is conducted solely within New Jersey, if it is incorporated in Delaware, Delaware law ordinarily governs shareholder and management disputes.  This results in a distinct disadvantage for the minority shareholder.

In 2008, the New Jersey Appellate Division found an exception to this general rule. Kraszteck v. Global Resource Industrial & Power, Inc., 2008 N.J. Super. Unpub Lexis 1360 (App. Div. 2008).  In that case, the Court recognized that “the location of incorporation is not always dispositive” and that New Jersey courts may apply the law of the state with the greatest interest in resolving the dispute.  Specifically, the Kraszteck Court noted that, for claims of minority oppression, when the company is headquartered in New Jersey and has no other connection to the state of incorporation, New Jersey the greater interest and its law applies.

However, in 2012, another Appellate Division matter, Hopkins v. Duckett, 2012 N.J. Unpub Lexis 93 (App. Div. 2012), arguably reached a different conclusion than the Kraszteck court.  In Hopkins, Appellate Division held that, even though the company had no connection with Delaware other than the fact that it was incorporated there, Delaware law applied the plaintiff’s minority oppression claims because “the [shareholders] freely entered into an operating agreement that they explicitly provided was to be governed by Delaware law” and the disputes at issue arose out of that agreement.  Consequently, the minority shareholder was not entitled to the protection of New Jersey’s Oppressed Shareholder Act.

In light of these seemingly divergent decisions, the question still remains — will New Jersey’s Oppressed Shareholder Act apply to business entities incorporated in Delaware with their principal offices in New Jersey?  Although subsequent cases may eventually follow Kraszteck, until there is a decision from New Jersey Supreme Court reconciling Kraszteck and Hopkins, the safer course of action for a minority shareholder concerned about majority management of a closely-held company would be to incorporate in New Jersey, instead of Delaware.

Appellate Division Clarifies Party Burdens in Employment Discrimination Cases

By Samantha Sherman, Esq.
ssherman@pashmanstein.com

The Appellate Division recently clarified the burdens of proof associated with front pay mitigation in employment discrimination cases and referred to the Model Civil Jury Charge Committee a request to develop a charge on front pay, including instructions addressing mitigation and reasonable duration.  See Quinlan v. Curtiss-Wright Corp., 41 A.3d 739, 2012 N.J. Super. LEXIS 49, at *48 (App. Div. 2012).

Quinlan v. Curtiss-Wright Corp. concerns a plaintiff who sued her former employer for gender discrimination and retaliation pursuant to New Jersey’s Law Against Discrimination, N.J.S.A. §§ 10:5-1 to 10:5-42, after the promotion of a male employee, which made him plaintiff’s supervisor despite his having less experience, and her subsequent termination. Id.  at *3-*5.  Following the Supreme Court’s resolution of certain discrete issues, the case was remanded to the intermediate appellate court to examine various open issues that were not previously resolved on appeal.  Id. at *9.

The court concluded that the trial court’s jury instructions on front pay made two errors.  First, the instructions erroneously imposed a burden on the defendant to prove that the plaintiff would not mitigate her damages in the future following the 2007 trial.  Id. at *35.  Although the appellate court agreed with plaintiff that an employer must identify positions that the employee should have diligently pursued as part of discharging its burden to prove the former employee’s failure to mitigate her damages leading up to the time of trial, it stated that “[i]t is unfair to compel the employer to forecast what lucrative jobs will, in fact, be obtainable in the future market and to further demonstrate to the jury that plaintiff will not pursue them.”  Id. at *39-*41.

Second, the instructions failed to explicitly state that “a plaintiff has not met her initial burden of proving her lost income unless she presents evidence to prove what she would have earned had she not suffered the wrong committed by the defendant, how long she would have continued to receive those earnings, and a reasonable likelihood that she will not be able to earn that amount in the future, such as through alternative employment.”  Id. at *43.  Accordingly the plaintiff must prove that “her compensable injuries are permanent or otherwise will endure into the future for a reasonably likely time.” Id. at *44-*45.

The court noted that the absence of a model jury charge on front pay burdens of proof and the dearth of New Jersey case law squarely addressing the issue were largely to blame, id. at *46-*47, and referred a request for such a charge to the Model Civil Jury Charge Committee. Id. at *48-*49.

As a result of its findings, the court vacated the front pay award and ordered a new trial on that issue with updated proofs on plaintiff’s post-2007 efforts to mitigate her damages and with proper jury instructions. Id. at *56. The court also vacated the award of punitive damages as the amount is inextricably intertwined with the front pay issue and remanded it for retrial. Id. at *62. In addition, the court noted that the awards of prejudgment interest, counsel fees, and the precise amount of negative tax consequences must abide the new trial. Id. All other aspects of the final judgment were affirmed with the understanding that the “front pay” period from the February 2007 verdict through the date of its April 5, 2012 opinion will now be included within the “back pay” period when the case is retried. Id. at *62-*63, n.15.