Monthly Archives: June 2014

Will New Jersey Courts Enforce Rotating Credit Association Agreements?

By Sean Mack, Esq.
smack@pashmanstein.com

Rotating credit associations in immigrant communities go by a variety of names  — “kye” in Korean, “hui” in Chinese, “cundina” in Mexican, “tanomoshi” in Japanese — but all involve a group of people who pool their savings on a regular basis (often monthly) and then rotate the pool around the group until all members have received a pool distribution.  These credit associations provide an alternative to mainstream financial transactions, and often support the growth of many small to mid-size businesses in predominantly immigrant communities.  Reports suggest that more than 50% of adults in certain communities participate in Kyes or similar credit associations.

A recent decision of the New Jersey Appellate Division raises the question of whether participants in these transactions may resort to the court system to enforce their rights.  Han v. Jang, N.J. App. Div. No. 11-2-4238 (June 16, 2014).

In Han v Jang, each member of the Kye was required to deposit $3,000 per month into the Kye, and each month one member of the Kye would receive a payout of $72,000.  Litigation arose after certain members of the Kye refused to make their monthly payments.  The Kye dissolved and required all members who had received a payout to return any amounts they received above their total investment.  Defendant claimed that the obligation to reimburse the Kye could not be enforced because the Kye was illegal, violating state and federal tax and securities laws.

The Appellate Division remanded the case back to the trial court to determine “whether, as a matter of law, the contract was unenforceable because the Kye violated the law or was against public policy, or whether it is inappropriate to apply Western law to this uniquely Asian economic model in which the parties voluntarily engaged.”

The decision by the trial court on remand will be one of first impression in New Jersey as there are no reported decisions under New Jersey law discussing whether these credit pools are legal or if obligations may be enforced in courts.  Across the country, there also is scant legal authority.  The LA Times reported a 1993 decision in a Los Angeles superior court case finding that a Kye was illegal, and therefore a lawsuit to enforce rights and obligations under the Kye agreement could not be enforced in state court.  Courts in Maryland, Hawaii and Guam have enforced obligations owed to Kye participants based on contract law, but it does not appear that the defense of illegality of contract was raised in those cases.

The trial court’s decision on remand will be one to watch for, as a finding that rights and obligations undertaken in a Kye agreement are unenforceable could have significant repercussions for an unknown number of other persons involved in other rotating credit associations across New Jersey.

 

Employee Theft of Confidential Documents

By Louis Pashman, Esq.
lpashman@pashmanstein.com

In 2010, the NJ Supreme Court issued an opinion in the case of Quinlan v. Curtis-Wright.  Quinlan had filed a sex discrimination claim against Curtis-Wright after being passed over for promotion.  While an employee, Quinlan copied a large number of confidential documents to support her claim.  She gave those documents to her attorney who turned them over to defense counsel in discovery.  Quinlan, at that point, was still an employee.  She then copied a confidential performance evaluation.  During a deposition of a representative of defendant, Quinlan’s counsel used that document. At that point Quinlan’s employment was terminated and she added a retaliation claim to her complaint.  The NJ Supreme Court upheld a jury verdict in favor of Quinlan for 8.7 million dollars, holding that the taking and use of confidential documents in support of her claim was protected activity.  The court laid out a seven part test to determine whether an employer can terminate such an employee.

Along came the case of State v. Saavedra.  Saavedra was an employee of the North Bergen Board of Education who filed a claim for gender, ethnic and sex discrimination and retaliation.  During discovery, her attorney produced many confidential documents she took, including some originals, while an employee.  Many of those documents seemed to have no relevance to her claims.

Subsequently, she was indicted for Official Misconduct and Theft.  Saavedra moved to dismiss the indictment, arguing that Quinlan legalized her conduct.  Both the trial and appellate courts disagreed with that proposition and refused to dismiss the indictment.

There are several obvious differences between Quinlan and Saavedra.  Saavedra was a public employee, Quinlan was not.  Many of the documents Saavedra took were unrelated to her claims, not the case with Quinlan.  Saavedra was a criminal matter, Quinlan civil.

Because of Saavedra, employers can exhale, but just a little.  There are many unanswered questions.  The Supreme Court had agreed to hear the case so, hopefully, those questions will be answered.

“The Times They Are a-Changin’”

By Michael Zoller, Esq.
mzoller@pashmanstein.com

The system for obtaining a patent in the United States is in and of itself one giant machine.  The idea for protecting intellectual property dates all the way back to the writing of the Constitution and the first federal patent act was passed in 1790.  As time has passed and technology has evolved the need to update the “patent machine” has arisen.  Change, as one can expect, has generally been slow.  Until recently that is.  In the last three years the United States patent machine has undergone several significant changes.

The changes first started in September 2011 when President Obama signed into law the America Invents Act.  With all of the Acts provision in effect as of early 2013, President Obama continued to work on changes by sending seven proposals to Congress that intended to limit patent trolling.  At the same time, the President also announced five executive actions aimed at the same goal.  Now with its recent decisions in the companion cases of Highmark, Inc. v. Allcare Health Management Systems, Inc. and Octane Fitness, LLC v. Icon Health & Fitness, Inc., the Supreme Court has gotten in on the act as well.

In the cases, the Supreme Court took aim at patent trolls, by making it easier for them to be forced to put their money where their mouth is.  Patent trolls gum up the patent machine by hoarding patents they have no intention of utilizing just so they can file law suits when any new idea might in the slightest most tangential way have a hint of infringing on one of their patents.  The trolls then usually use the high cost of defending a suit to force a settlement.  One defense to this type of action is to award attorney’s fees to a successful defendant and section 285 of the patent statute has always authorized the awarding of such fees in “exceptional cases.”  The problem has been that the Federal Circuit has applied the “exceptional cases” language so rigidly that fees were rarely shifted.

In its Octane Fitness decision, the Supreme Court aims to loosen the reins.  Instead of the rigid test previously utilized, the Supreme Court has instructed that courts should determine whether a case is exceptional “in the case-by-case exercise of their discretion, considering the totality of the circumstances.”  Moreover, in its Highmark, Inc. decision, the Court declared that the District Court’s decision to shift fees should be reviewed utilizing the abuse of discretion standard.  The idea is that the Highmark, Inc. decision will make it harder for the rigid Federal Circuit to overturn fees that are awarded by the District Courts under the new Octane Fitness approach.  Now that patent trolls know that it should be easier for defendants to be awarded attorney’s fees for defending frivolous patent infringement lawsuits, the hope is that we will see fewer such suits and the “machine” will better able to deal with serious patent infringement actions.

Even with the Octane Fitness and Highmark, Inc. decisions, the Supreme Court may not yet be done in attempting to affect change on the patent machine.  On April 28th the Court heard oral argument in the case of Nautilus, Inc. v. Biosig Instruments, Inc.  At the heart of the case is a dispute over how much detail needs to be in a patent so that it is not “indefinite” and thus invalid.  If the Court rules in such a way as to raise the bar on the specificity required in a patent it could be a major strike to patent trolls because it would potentially make it harder for them to pursue litigation on a lot of the patents they currently hold.

Only time will tell what effect the Supreme Court’s recent and future decisions will have on the US patent machine.  But as Bob Dylan once sang, “The Times They Are a-Changin’” so stay tuned to find out what comes next.

Consultant Cannot Be Sued in New Jersey

By Maxiel Gomez, Esq.
mgomez@pashmanstein.com

Background

In Baanyan Software Services v. Kunch, 433 N.J.Super. 466 (App.Div. 2013), the Appellate Division found that a computer analyst doing consulting work for a New Jersey corporation in Illinois could not be subject to suit in New Jersey.

Plaintiff Baanyan Software Services is a multi-national software consulting company with headquarters in Edison, New Jersey.   Baanyan employed defendant Hima Bindhu Kuncha as a computer systems analyst.  Kuncha’s services were retained pursuant to a written consulting agreement. At the time the agreement was signed, Kuncha lived in California and negotiated the contract through e-mail and telephone calls with representatives of Baanyan.  An executed copy of the agreement was sent by Kuncha to Baanyan at its New Jersey headquarters.  The agreement did not contain a forum selection clause.

In February 2011, as per the terms of employment, Kuncha relocated to Illinios where she provided services to two of Baayan’s clients.  Kuncha never worked in New Jersey, nor did she ever provide any services for a client in New Jersey.  In December 2011, Kuncha ceased working for Baanyan and began working for Halcyon, one of Baanyan’s competitors.

Baayan filed suit against Kuncha alleging breach of contract, tortious interference with business relationships, breach of fiduciary obligations, unjust enrichment and fraud.  Kuncha thereafter moved to dismiss for lack of personal jurisdiction.  On December 7, 2012, the trial court granted Kuncha’s motion to dismiss finding that there were insufficient contacts with the state of New Jersey to establish personal jurisdiction.

Baanyan appealed arguing that Kuncha’s contacts with New Jersey which consisted of entering into a consulting agreement with a New Jersey corporation, providing services for and accepting payments from the New Jersey Corporation, with receipts bearing the corporation’s New Jersey address and providing timesheets to the corporation, are sufficient to establish personal jurisdiction over the consultant in New Jersey.

The Court’s Decision

The Appellate Division found that Baayan lacked general jurisdiction because Kuncha never resided nor did business in New Jersey and her conduct was at all times limited to the state of Illinois.  The Court also found that there was no specific jurisdiction over Kuncha because: 1) there was no evidence in the record to establish that Kuncha sought employment with Baanyan in New Jersey; 2) Kuncha’s telephonic and electronic communications with Baanyan did not establish “minimum contacts” with New Jersey; and 3) “to allow Baanyan, an international company, to compel an individual employee to defend against a New Jersey lawsuit, where that employee was hired to work in Illinois, and never lived in, worked in or visited New Jersey, violates principles of fair play and substantial justice.”

Best Practices

This decision provides some guidance on how multi-national companies with telecommuting employees can control the location of a suit brought against former employees.   While the Court did not state whether the outcome would have been different had the employment contract between Baanyan and Kunch contained a forum selection clause, an employer is better suited for asserting jurisdiction where the parties contractually agreed to a specific forum for resolving disputes.  In addition, employers can require that telecommuting employees attend periodic training and meetings at the corporation’s headquarters and assign clients with contacts in its home state.  Indeed, a forum selection clause and more in-state contacts in this case may have brought the employee under New Jersey’s jurisdiction.