Category Archives: Business Protection

Beware of New Wire Transfer Dangers in Real Estate Transactions

By Bruce Ackerman, Esq.

I attended a real estate closing recently for a cooperative development and had a shocking story told to everyone by the buyer.  The buyer had her gmail account hacked by someone overseas, and they sent emails that resembled her attorney’s account.  The email actually had a slightly different email address that included the firm name of her attorneys, and had the look and feel of the real emails she had previously received from them.  They copied her attorney’s firm logo as well.  The final act was the email to her to wire transfer her closing funds to an account in Miami, Florida.  All the details required for the wire were included, even the phone number to verify the information.

The buyer initiated the wire of funds that was required for the closing later that day.  The buyer did not realize that the trust account of her NJ attorney had to be in a NJ bank.  Only due to her bank calling the attorney’s office was the hacking revealed, saving this buyer from a mistake of more than $500,000.  She also called the number on the wire sheet, and someone answered, but obviously not from the attorney’s office.

In this transaction, the hackers did not stop, still falsifying emails to the buyer’s attorney.  The personnel at the attorney’s office eventually wired out funds intended for the sellers, but wired the money to the hackers based upon another fake email with wire instructions.

This is a new hacking method being reported in real estate related transactions.  The fraud targets wire transfers in real estate transactions, including wires of earnest money deposits and, as shown, closing proceeds.  Apparently, these criminals hack into and intercept emails by searching for wire transfer requests and the emailing of the 13 digit number that makes up the digits in bank accounts.  The hackers then start their process of “invading” the communications and intercept the lawful ones.  The fake emails have the same attributes as the real ones they are meant to resemble.  They may keep communicating with the target victim, so that there is no suspicion that a third party has hacked into the stream of emails.

The hackers may even use the same bank and just change the last numbers for the account to be credited.  If the funds get wired, the money will be gone and wired out overseas before the fraud is even noticed.

In order to ensure the safety of wire transfers, far more caution is needed.  Here are a few precautions to be taken, including one very simple one.  If you are sending a wire, you should contact the party who sent the instructions by phone to confirm the account numbers verbally prior to sending the funds.  Another precaution is to send wire instructions via encrypted email or fax only.  Beware.

If you have any questions about this topic, please contact Bruce Ackerman at or at 201.488.8200.


Unconscionable Commercial Practice

By Suzanne M. Bradley, Esq.

In an opinion analyzing what constitutes an “unconscionable commercial practice” under the New Jersey Consumer Fraud Act (“NJCFA”), the United States District Court for the District of New Jersey recently dismissed a putative class action brought under the Act and New Jersey common law regarding defendant Novartis AG’s pricing of its Excedrin Migraine product.  In Yingst v. Novartis AG, 2-13-cv-07919, District Judge Claire Cecchi determined that Novartis’ pricing of the product, while strategic, was not illegal under the NJFCA, and therefore dismissed Plaintiff’s claims.

Plaintiff Kerri Yingst alleged that Novartis sells Excedrin Migraine and a pharmacologically equivalent product, Excedrin Extra Strength, at different wholesale prices which in turn caused Yingst and other consumers to pay a premium for Excedrin Migraine, despite the fact that the two products consisted of “identical ingredients in identical quantities.”  Compl. ¶21.  Yingst alleged that at the time she purchased Excedrin Migraine, she believed that because Excedrin Migraine was sold at a higher price, it was a more effective product for migraine relief.  Novartis moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6), and the court granted the motion.

As Judge Cecchi explains, New Jersey’s strong Consumer Fraud Act provides that a plaintiff is entitled to treble damages, reasonable attorneys’ fees, and reasonable costs if she proves that the defendant engaged in an unlawful practice that caused an ascertainable loss.  In this case, Plaintiff did not argue that Novartis committed any affirmative act of deception, fraud, false pretense, false promise, or misrepresentation, and did not argue that Novartis knowingly concealed, suppressed or omitted any material fact with intent to induce reliance.  Instead, Plaintiff contended that Novartis engaged in an “unconscionable commercial practice” within the meaning of the NJFCA by using the U.S. Food & Drug Administration (“FDA”)’s requirement that Excedrin Migraine and Excedrin Extra Strength have separate packaging as a means to extract a premium from consumers while providing no extra benefits.  The New Jersey Consumer Fraud Act does not define the phrase “unconscionable commercial practice.”  However, Judge Cecchi noted that the New Jersey Supreme Court has defined the term as an act lacking good faith, honesty in fact and observance of fair dealing.  Turf Lawnmower Repair, Inc. v. Bergen Record Corp., 655 A.2d 417, 429 (N.J. 1995) (citing Meshinsky v. Nichols Yacht Sales, Inc., 541 A.2d 1063, 1066 (N.J. 1988)).  As with the broader Act, New Jersey case law provides that the phrase “unconscionable commercial practice” should be interpreted liberally to effectuate the Act’s public purpose.

In the case at hand, Judge Cecchi noted that there was no dispute that both Excedrin Migraine and Excedrin Extra Strength were properly labeled and contained no misinformation regarding the medications.  Therefore, because Plaintiff had conceded that there was no dishonesty by Novartis, Judge Cecchi determined that its pricing of Excedrin Migraine was not an act that lacked good faith or honesty in fact.  Further, Judge Cecchi found that Plaintiff could  not establish that Novartis’ pricing of Excedrin Migraine lacked fair dealing; Plaintiff did not cite any cases, and the Court was aware of none, in which an “unconscionable commercial practice” was found under the Act based solely upon disparate pricing of substantively identical products manufactured by the same defendant.  Although the dearth of case law was not itself fatal to Plaintiff’s claim, the fact that Plaintiff paid, at most, $1.05 more for a 300-count package of Excedrin Migraine than for a 300-count package of Excedrin Extra Strength was a “minor detriment” that did not “rise to the level of unfair dealing.”  While Novartis’ creation of a pricing structure in which migraine sufferers paid a higher price for pills pharmacologically identical to Excedrin Extra Strength in order to obtain the directions and warnings mandated by the FDA was “strategic,” Judge Cecchi held that such behavior was not proscribed by the NJCFA and dismissed Plaintiff’s NJFCA claim.[1]  As Judge Cecchi’s opinion demonstrates, slight price differentials in otherwise identical products, absent any evidence of misrepresentation or misinformation, are “within the bounds of reasonableness and concomitantly outside the ambit of the NJCFA.”

[1] Judge Cecchi also dismissed Plaintiff’s unjust enrichment claim.  In New Jersey, a constructive or quasi-contract is a vehicle by which a plaintiff may enforce a public duty to prevent unjust enrichment or unconscionable benefit.  To state a claim for unjust enrichment, the plaintiff must allege (1) at plaintiff’s expense (2) the defendant received benefit (3) under circumstances that would make it unjust for the defendant to retain the benefit without paying for it.  Judge Cecchi again noted that Plaintiff did not allege any misrepresentation or misinformation by Novartis, and also did not allege that Excedrin Migraine failed to relieve her ailment or that Excedrin Extra Strength performed better than Excedrin Migraine; Plaintiff “deliberately purchased the higher-priced product and received exactly what she paid for.”  See Def.’s Reply p. 6.  Therefore, the Court found nothing “unjust” about Plaintiff’s transaction, and granted Novartis’ motion to dismiss with respect to Plaintiff’s unjust enrichment claim.



An Eye to a Company’s Future – Sale, Acquisition and Succession Planning

Bruce J. Ackerman, Esq.

As a business ages and grows, its owners face the ultimate decision:  Do we sell the business?  Do we acquire a synergistic company?  Or do we establish a succession plan to insure the company’s longevity and also provide for their financial security?  This decision involves planning.


Achieving success in the sale, acquisition, and succession planning of a business involves the same elements that make the business successful in the first instance – proper planning and implementation.  There are many choices, including selling to insiders, to employees through an employee stock ownership plan, to other owners, to a competitor or a third party.  The best planning starts long before the company goes to market and involves “putting its house in order.”

A team of professionals should be involved from the start to assist in this process.  The team should include an accountant, an attorney, a marketing professional and, perhaps, a valuation professional.  Typically, the company will choose either the accountant or the attorney to lead the team.  That choice is a personal one to the owner.  These professionals may or may not be the same professionals who provide day-to-day advice in those areas, since the sale process requires another knowledge base and experience in navigating that process successfully.

First, the company needs to work with its financial advisors to maximize its ability to present its financial picture in the best possible light.  This is a time to address cleaning up items on the company’s books that could cause doubt or even a claim or credit by an interested suitor.  For the sale of a business, this planning should begin several financial reporting cycles, if not years, prior to marketing the company for sale.  The accountant will also provide tax advice to the company as to transaction structure and for the owners.

Similarly, the company needs to work with its legal advisors to prepare for orderly due diligence of all its legal issues, such as all contracts, licenses, permits, employment issues, any environmental issues, and litigation.  Due diligence will involve a thorough review of all documentation of the company and will likely involve significant employee time.  If planned properly, the company can shore up its legal documentation, such as company manuals and policies, employment agreements, restrictive and non-circumvention covenants.  The attorney will also provide legal advice on the structure of the proposed transaction, negotiate and draft the sale/acquisition documents, and provide legal counsel during the transaction process.

The inclusion of a valuation professional can assist the selling company to validate the asking price and the acquiring entity to validate that price.  This type of support can be forceful for negotiations, both to help a selling company form its negotiating posture, but also to respond to contrary assertions on value.


Similar considerations apply when the company decides to target a strategic acquisition, rather than to sell.  The same team of professionals should be engaged to maximize success in that process.  Remember that the target company has also thought through and engaged in the above planning process prior to sale.  Therefore, careful review of its history is crucial.  Due diligence is essential and should involve company professionals and key personnel to validate the assumptions supporting the acquisition.

Succession Planning

For any closely held company that has decided on continuity, decisions on succession planning should be made.  This requires an initial plan and regular review and reconsideration.  Many companies have the option of perpetuating a business by transitioning leadership and ownership to family members and/or other insiders.  Similar to sale or acquisition, owners need to address family, tax, and estate planning issues.  Depending on the plan, different legal documentation applies, such as a standard Buy-Sell Agreement, a Cross-Purchase Agreement with Life Insurance, or a written succession plan to address continued management and control.  Greater detail is beyond the scope of this article.  However, it is most important to note that this is an interactive process that requires re-evaluation over time, rather than an event that occurs at a specific time and remains in place without change.

All businesses need to chart their future course, and planning is the key element.  Be prepared so that you can recognize the time to sell, the time to make a target acquisition, or to plan for the next generation to assume leadership and ownership.

New Act Will Apply to All Limited Liability Companies – Part Three

By Bruce Ackerman, Esq.

New Jersey’s new law affecting every limited liability company (“LLC”) is the Revised Uniform Limited Liability Company Act (“RULLCA”), which took effect September 19, 2012.  RULLCA controls all LLC’s formed on or after March 18, 2013, and all LLC’s regardless of when formed as of March 19, 2014.  This final part of three parts explaining elements of RULLCA will address the following areas which have changed in the new Act — distributions, resignation and withdrawal, and the rights of members to information.

As to distributions, the old LLC law provides that, unless the operating agreement provides otherwise, distributions are to be made based on “the agreed value … of the contributions made by each member.”  Again highlighting the importance of the operating agreement, RULLCA provides that distributions prior to dissolution or winding up are to be “in equal shares among members and dissociated members.”  That is contrary to the ordinary agreement by members, which would provide for distributions by their percentage of ownership.  The parties must have their operating agreement set forth the terms of their agreement as to distributions.

As to resignation of a member and the right to any payment or “distribution” upon such withdrawal, the old LLC law provides for six months’ notice to withdraw and the payment of any distribution provided under the operating agreement or, if not provided, then payment of fair value for the interest held, less all applicable discounts.  In contrast, under RULLCA, a member may withdraw at any time, and there is no entitlement to any distribution upon withdrawal.  Of course, the members themselves may agree otherwise and set forth that entitlement within their operating agreement.

Finally, under the old LLC law in New Jersey, each member is entitled to receive information on the business and financial condition of the company, tax returns, member addresses, the operating agreement itself, and the value of cash and other assets held by the LLC.  The manager may maintain the information in confidence for such time as reasonably believed necessary to maintain trade secrets or other information the disclosure of which is believed not in the best interests of the LLC or required by a third party to keep confidential.

In contrast, RULLCA sets forth a procedure and time in which to secure LLC documents.  In general, RULLCA provides that the LLC shall furnish to each member any information concerning the company‘s activities, financial and other wise, that is material to the member pursuant to its operating agreement and, on demand, any other information.  Each member has that duty to provide information as well.  However, in a manager managed LLC, this information shall be provided by the manager if sought by the member for a “a purpose material to the member’s interest as a member,” and the member must make a written demand “describing with reasonable particularity the information sought and the purpose for seeking the information.”  The law provides a ten day period for the LLC to respond and inform the member when and where the LLC will provide the information and, if declined, the reasons why the information will not be provided.

As shown, a careful review of your current operating agreement should be made and appropriate changes and supplements to address those areas under RULLCA that leave to the members in their operating agreement to clarify and change what RULLCA provides.  With the March deadline looming for the RULLCA to apply to all LLC’s in New Jersey, it is important to make that review and update soon.

NJ Appellate Division Upholds Summary Judgment in Favor of Former Employee and Employer on Alleged Trade Secret Theft

By Sean Mack, Esq.

NJ Appellate Division: Former employees can use substantial knowledge gained from their work experience to compete, where the manufacturing process is largely disclosed publicly and is susceptible to reverse engineering  (UCB Manufacturing, Inc. v. Tris Pharma, Inc., 11-2-1124 , (App. Div. August 27, 2013))

The New Jersey Appellate Division, interpreting New York law, upheld the grant of summary judgment in favor of a former employee and his new employer who were alleged to have stolen trade secrets and confidential manufacturing information to develop a competing generic cough syrup.   The court’s conclusion rested primarily on the trial court’s finding that no trade secrets had been articulated and the alleged confidential information could be gleaned from an expired patent, other public information, and the former employee’s general knowledge and negative-know-how – knowing what does not work.

Plaintiff, the manufacturer of Tussionex, a cough syrup, brought claims of breach of a confidentiality agreement and unfair competition against one of its former employees and his new employer, a competitor generic drug manufacturer.  Plaintiff alleged that defendants stole confidential information and used that information to develop a generic version of Tussionex.

The former employee was primarily responsible for formulation development and was the lead formulator for one of the cough syrups, which was based on a proprietary technology involving an extended release suspension system that utilizes a coated polymer resin to control the rate of drug release.  During a five day evidentiary hearing, experts testified about the complexity of the manufacturing process for Tussionex, which prevented generic alternatives from quickly entering the market place after the plaintiff’s patent expired.

On a summary judgment motion, the parties disputed whether defendants manufactured their generic alternative using confidential and proprietary information, or from publicly available information and general knowledge and skill defendant obtained from his work experience.

Despite those disputed facts, the trial court concluded, and the Appellate Division affirmed, that much of the alleged confidential information is disclosed on the product label and patent and is susceptible to reverse engineering, and therefore is not subject to protection as a trade secret or as confidential information.

The Appellate Division then confirmed the grant of summary judgment in favor of defendants, finding that the plaintiff had no legitimate business interest in preventing the former employee and competitor from using non-confidential information and know-how to compete with Plaintiff.  The court went on to find that the confidentiality agreement signed by defendant was overbroad in that it sought to restrain the use or disclosure of knowledge and information not protectable as a trade secret and imposed unreasonable restrictions on defendant’s employability in his specialized field.

New Jersey Adopts Significant Changes Affecting Shareholder Derivative Lawsuits and Shareholder Rights

By Sean Mack, Esq.

On April 1, 2013, Governor Christie signed into law three bills designed to impose greater restrictions on shareholder derivative suits and to make New Jersey’s corporate governance law more business-friendly.

The new legislation permits companies to opt-in or out of certain provisions.   Company’s should therefore quickly review and understand these changes, and if desirable, adopt and file an appropriate amendment to their certificate of incorporation or bylaws.

The new legislation, which amends N.J.S.A. 14A:3-6, governs derivative lawsuits brought by minority shareholder(s) against the corporation, its directors and officers.

Under the new legislation, prior to the initiation of a derivative lawsuit, the complaining shareholder must make a written demand on the corporation for action.  Absent a demonstrable “irreparable injury to the corporation,” no lawsuit can be filed until the earlier of, the shareholder receiving a written rejection of the demand, or the passing of ninety days from the date of the written demand.  If the shareholder commences litigation after demand has been rejected, the complaint must meet a heightened pleading standard showing particular facts establishing that a majority of the board of directors, or all members of a committee, who determined the matter, did not consist of independent directors at the time the decision was made.

The new legislation provides additional grounds for moving to dismiss a derivative suit.  A court must dismiss a derivative lawsuit if the court finds that independent directors or a majority of independent shareholders have determined that the suit is not in the best interests of the corporation.  Specifically, the law permits the establishment of an independent committee of 1 or more directors, and a court shall dismiss a derivative complaint if the majority of the independent committee has determined in good faith, after reasonable inquiry, that the derivative proceeding is not in the best interests of the corporation.  A corporation also may request that the Court appoint an independent panel of one or more individuals to determine whether the maintenance of the lawsuit is in the best interests of the corporation, and provides that the plaintiff shall have the burden to demonstrate to the panel that the suit is in the best interests of the corporation.

To help ensure that the plaintiff shareholder fairly and adequately represents the interests of the corporation, in addition to being a shareholder at the time of the complained of conduct or having received the shares by operation of law from someone who held them at the time, the new legislation requires that a suing shareholder continue to be a shareholder during the course of the litigation.

The legislation also expressly mandates that the shareholder pay the corporation’s reasonable expenses if the court determines that the proceeding was brought without reasonable cause or for an improper purpose.  Also, for any shareholder holding less than 5% of the corporation’s stock, which is worth less than $250,000, the plaintiff shareholder must post a bond to cover the reasonable expenses of the corporation, including attorney’s fees.

For these new provisions to apply, existing corporations must amend their certificate of incorporation to adopt these provisions.

Another newly enacted piece of legislation amends the New Jersey Shareholder Protection Act, N.J.S.A. 14A:10A-1, et seq., which applies to all “resident domestic corporations.”  The new legislation revises the definition of “resident domestic corporations” to now include all corporations organized under New Jersey law.  However, a New Jersey corporation that does not have its principal executive offices located in New Jersey and does not have significant business operations in New Jersey as of April 1, 2013, may opt out of this new legislation by adopting an amendment to its bylaws opting out of this legislation before September 28, 2013.  Additional changes now permit a resident domestic corporation to engage in a business combination with an interested stockholder if the transaction that caused the holder to become an interested stockholder was approved by the corporation’s board of directors prior to the stock acquisition date.

The third piece of legislation also now permits shareholders to participate in shareholder meetings by means of remote communications.  What constitutes remote communications will be determined by guidelines and procedures established by the board, so long as each shareholder can participate in and have access to the same information and materials as those present for the meeting.

Will My Insurer Defend When I am Sued?

By Dennis Smith, Esq.

When you or your company is sued it is important to have someone carefully review your liability insurance coverages to determine whether the carrier is obligated to provide you with a defense.  In New Jersey, the duty to defend is broader than the duty to indemnity (the payment of money to satisfy a judgment entered against you) and defense costs could be the most significant financial exposure a company faces especially if it has meritorious defenses to the underlying lawsuit.  In determining whether an insurer has a duty to defend, New Jersey courts will review the allegations of the complaint along with the policy language and if the claim potentially falls within coverage there is a duty to defend regardless of whether the claim is baseless or fraudulent.  Even if a comparison fails to reveal whether the allegations fit within the four corners of the policy, an insured can introduce evidence outside of the complaint to support an argument that a claim is covered under the policy.  However, an insurer is not allowed to introduce evidence to support a claim that there is no duty to defend so long as the allegations of the complaint bring the claim potentially within coverage.

Sometimes, whether coverage potentially exists, may depend on the meaning of a policy term.  If the term is undefined, courts will look to dictionary definitions to ascertain the meaning of the word or term.  If it is susceptible to two meanings, one favoring coverage and one not, courts generally will adopt the meaning favoring coverage because it is the insurer as the drafter of the policy that has ability to clarify the meaning of a word or term by defining it in the policy.  For example in Auto Lenders v. Gentilini Ford, 181 N.J. 245, 270 (2004) the New Jersey Supreme court was called upon to interpret the term “manifest intent” in connection with an employee dishonesty claim under an employee dishonesty policy.  The court held:

We are mindful that when a court construes an ambiguous clause in an insurance policy, it ‘should consider whether more precise language by the insurer, had such language been included in the policy, would have put the matter beyond reasonable question. . .
. . . For further guidance, we note that had Ohio Casualty wanted to insure that coverage under this policy would be limited to circumstances where the employee acted with the specific intent to harm the employer and benefit himself or another, it could have done so by replacing the term “manifest intent” with the phrase “specific intent or desire.”  That language would have left no ambiguity that it intended to provide coverage only when it was an employee’s conscious object of desire to bring about the resulting benefit and harm.

Practically speaking, if you or your business is sued and you believe that coverage exists for the claim, you should promptly notify your broker to place the carrier on notice or do so internally.  If the insurance company refuses to defend, do not accept it at face value.  Engaging coverage counsel for an opinion on the merits of the disclaimer could potentially lead to a reversal of the carrier’s decision saving the company substantial litigation costs.  Alternatively, a lawsuit seeking a declaration that the claim is covered under the policy can be filed, immediately followed by a motion for partial summary judgment on the duty to defend which typically can be decided as a matter of law.  As a final note, if you obtain a ruling that the carrier owes you a defense, you would be entitled to recover the attorney fees you spent on the declaratory judgment action.  The policy rational for this is that an insured should not have to be out of pocket more than the premium to have the insurer do what it is obligated to under the policy.