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Interested in buying a condo? Be sure to ask the right questions!

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Luxury condoSo you’re looking to buy a home and you’ve come across a place you really like, but it’s a condo. Does this matter? And what should you know? A condominium, or condo, is a building (or complex of buildings) containing a number of individually owned apartments (or units). In New Jersey, condominiums are governed by the state law contained in N.J.S.A. § 46:8B-1 et seq., which is known as the “Condominium Act.” When you purchase a condo, you are purchasing that unit and also a partial ownership in common elements, or common property, of the condominium building. For example, these common elements may include sidewalks, parking lots, entrance lobbies, pools, and exercise rooms. This partial ownership of the common elements is one of the biggest differences between purchasing a traditional home versus a condominium.

When purchasing a condo, you need to pay special attention to not only the sales contract language but also the condominium’s organizational documents. Of particular importance are the Master Deed and the Bylaws.[1] Through the Master Deed, each individual unit owner becomes a member of the condominium. Attached to the Master Deed are the Bylaws, which establish a “condominium association.” One way of thinking of these two documents is that the Master Deed creates the “condominium” while the Bylaws detail the rules and governance for the “condominium association.” This association is responsible for managing the common affairs of the unit owners in the condominium and maintenance and repair of certain common elements.

When purchasing a condo, you may need to request these documents (and others) from the seller (or the condo association) and you need to review them before making your purchase to learn about the rules governing the condo. This request and review process is important because the Master Deed or Bylaws, which may contain separate rules and regulations, may contain restrictions that are not favorable to you or your intended use of the property. Say, for example, you want to rent your condo to a long-term tenant, or to a short-term tenant, like an Airbnb guest. The condominium’s Master Deed, may contain a restriction preventing these uses.   In addition, the Master Deed may have pet restrictions where a condo may permit unit owners to keep a dog or cat in their unit, but will place a “weight restriction” on such pets (e.g., no dogs over 30 pounds).  This restriction could be a deal breaker and, if you haven’t reviewed the Master Deed prior to your purchase, you may not be aware of the restriction until it’s too late.

Finally, and perhaps most important to note, the condo board is responsible for collecting association fees. These association fees are assessed monthly on the owners of condominiums to cover certain costs. These fees can be minimal or extend into thousands of dollars. You must take the monthly association fee into account when determining your purchasing power.

Summary

In summary, buying a condo is different than purchasing a traditional home and requires additional considerations and due diligence so that you can make an informed purchase decision. Before purchasing a condo, it is important to request and review the condominium’s organizational documents, including the Master Deed, Bylaws, and rules and regulations, and make certain inquiries into the condominium association’s financial health and operations by, for example, asking:

  • How much are the monthly condominium association fees?
  • What purposes are the fees used for (e.g., amenities)?
  • Does the association expect added assessments or the fees to increase for any reason?
  • What are the current reserves of the association?
  • What insurance does the condominium carry?

Matt is an associate attorney in our Montvale, New Jersey office and can be reached at 201-802-9202 or mnicodemo@mfmclaw.com regarding your condominium or community association questions.

[1] See N.J.S.A. § 46:8B-8; see also N.J.S.A. § 46:8B-3.


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Changes may be coming to non-compete clauses: Here is what you should know!

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New Jersey is what is referred to in law as a “blue pencil” state.” That is to say, New Jersey courts retain the ability to declare portions of a contract or agreement unenforceable, while finding others enforceable—albeit, sometimes, through the court’s own revision. For example, this so-called blue pencil power allowed the Court in Community Hospital Group, Inc. v. More, 183 N.J. 36 (2005) to order the New Jersey Chancery Court to revise the geographic restriction applicable to a physician from 30-miles to some radius less than 13-miles.

With that said, the legal landscape of post-employment agreements appears to be trending toward increased employee protections. In late 2017, the New Jersey legislature introduced bills before the state Senate (S3518) and General Assembly (A5261).  The legislature’s stated purpose behind the bills is to regulate the use of noncompete clauses as they have been found to “impede the development of business in the State . . .” and “discourage innovation and production.” In effect, the bills force New Jersey employers to further narrowly tailor their noncompete clauses to protect legitimate business interests.

For example, if passed, the legislation would limit certain provisions in and the enforceability of restrictive covenants. In their current state, the bills include a mandatory 30-day review period of a noncompete clause before it becomes effective, a limitation of 12 months following termination, removal of some of the discretionary “blue pencil” powers previously afforded to the courts, and an authorization to the courts to award the former employee (who is successful in voiding a former employer’s noncompete clause) liquidated damages in an amount up to $10,000, in addition to damages, other costs, and attorneys’ fees.

In practice, New Jersey employers that wish to utilize a noncompete agreement, or already have such a clause in their employment contracts, should employ the services of a qualified attorney to determine whether such a clause is overly restrictive. For New Jersey employees, it is equally important to consult with a qualified attorney regarding a noncompete clause prior to signing an employment contract. For both employers and employees evaluating the enforceability of a noncompete clause, it is important to recognize the varying analyses that a court undertakes specific to each industry and profession. Lastly, going forward, it is vitally important to keep an eye on the proposed legislation under bills S3518 and A5261, which could significantly impact the way noncompete clauses are written and enforced.


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What are non-compete clauses and are they enforceable in New Jersey?

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Noncompete agreements, restrictive covenants, covenants-not-to-compete, and garden leave – these are just some of the ways to refer to post-employment contracts that contain a provision that limits an employer’s former employee’s ability to work. At its essence, a “noncompete” is an agreement between an employer and an employee where the employee promises not to work for a competitor of the employer until after a certain period of time. In other words, a “noncompete” is an agreement that limits an employee’s post-employment job opportunities within a certain area for a specified time.

In New Jersey, noncompete agreements are generally disfavored and a court will only enforce such an agreement if it is reasonable in scope and duration. For example, the New Jersey Supreme Court, in Community Hospital Group, Inc. v. More, 183 N.J. 36 (2005), analyzed the enforceability of a noncompete agreement. In the case, the employer was a hospital and the employee was a physician. The noncompete agreement restricted the physician from engaging in the practice of neurosurgery within a thirty-mile radius of the employer-hospital for a period of two years. The case arose because the physician began practicing neurosurgery at a hospital within the restricted thirty-mile radius. As a result, the hospital sued arguing that the physician breached his noncompete agreement.

In determining whether the hospital’s noncompete agreement was enforceable against the physician, the Court utilized a three-part test, sometimes referred to as the Solari/Whitmyer test, to analyze “whether (1) the restrictive covenant was necessary to protect the employer’s legitimate interest in enforcement, (2) whether it would cause undue hardship to the employee, and (3) whether it would be injurious to the public.”

First, the Court reasoned that the “legitimate interests” of the hospital might include protecting confidential business information (including patient lists), patient and patient referral bases, and the investment and training of the employee-physician. The Court found that the hospital made a substantial investment in the physician by “giving him the opportunity to accumulate knowledge and hone his skills as a neurosurgeon.” Additionally, the Court found that the physician removed patient and patient referral lists, and that many of the physician’s new patients were previously patients of the hospital or were referred to the physician by the hospital’s referral network. Therefore, the Court found “several legitimate protectable interests in enforcement of the restriction.”

Second, as to “undue hardship,” the Court found that the employee-physician was a “highly qualified neurosurgeon” and “his services were in demand.” Additionally, the Court took into account the fact that the physician voluntarily resigned from the hospital. In discussing this fact, the Court reasoned that if the relationship between the employer and employee had terminated in some other way, the Court might be more likely to find the imposition of an “undue hardship” upon the employee. However, given the physician’s promising employment prospects, the Court did not find that the hospital’s restriction imposed an undue hardship on the physician.

Third, the Court looked to whether the noncompete agreement’s terms caused “harm to the public.” Recall that the hospital’s noncompete agreement sought to impose a thirty-mile geographical restriction on the physician’s ability to practice. The physician presented credible evidence to the Court that the thirty-mile restriction would be injurious to the public because there was a shortage of neurosurgeons in that specific area. The Court found this argument particularly persuasive because part of the physician’s new duties required him to attend to neurological patients in an emergency room. That emergency room, however, was located approximately 13 miles from the previous employer-hospital. Despite the fact that the physician was working within the restricted area, the Court ruled that given unique necessity of the physician’s services, the noncompete clause was unenforceable. The Supreme Court ordered the lower court to rewrite the premise limits of the geographical restriction so that it would not exceed 13 miles.

The Community Hospital case illustrates the factual circumstances surrounding a noncompete agreement in hospital-physician relationship. It is worth noting, however, that the enforceability of noncompete agreements is not equal across professions. Courts must review noncompete clauses within the context of the applicable industry. For instance, barbers, cosmetologists, and chefs subject are all among those professions that have challenged the terms of their noncompete agreements before New Jersey courts. These cases are legally analyzed within the same framework as the Community Hospital case, however, the specific analyses differ based on the subject employee’s profession.


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Selling your share in a closely held business? What to know, Part II.

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PART II – LITIGATION UNDER NEW JERSEY’S SHAREHOLDER STATUTE

In a public company, as discussed in Part I, a shareholder can quickly find a buyer for his or her shares at a price already set by the stock market. However, in small companies, there is no such marketplace. One result is that a partner in small companies may find him or herself in an acrimonious, or otherwise adverse, relationship with their business partners and desire to leave the company. In a public company these partners, or shareholders, can simply sell their interest at fair market value and walk away. Small business partners, however, do not have the luxury of simply selling and walking. Namely, they must reach an internal agreement with their partner(s), which requires each party to balance concerns such as, how to successfully separate, keep the business intact, and value company shares.

Where a business contract does not offer a solution to a disagreement, or other issue, litigation through New Jersey’s Shareholder Statute may be the only option available to an aggrieved shareholder. The State of New Jersey recognizes the unique obstacles faced by closely held businesses and, in part, enacted N.J.S.A. 14A:12-7 (“Shareholder Statute”) in response. The Shareholder Statute provides at least four avenues of recourse for an aggrieved shareholder in a closely held business. Specifically, the Shareholder Statute provides:

(1) The Superior Court, in an action brought under this section, [1] may appoint a custodian, [2] appoint a provisional director, [3] order a sale of the corporation’s stock as provided below, [4] or enter a judgment dissolving the corporation, upon proof that

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(c) In the case of a corporation having 25 or less shareholders, the directors or those in control have acted fraudulently or illegally, mismanaged the corporation, or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders in their capacities as shareholders, directors, officers, or employees.

N.J.S.A. 14A:12-7.

Each of the above are statutorily provided avenues to help an aggrieved shareholder in a closely held corporation. However, each provided avenue is not perfect and must be specifically tailored to each corporation and shareholder’s unique situation.

When faced with a partnership dispute likely to lead to litigation, it is important to consult with an attorney specifically trained in shareholder litigation. These attorneys can offer counsel on where to file the shareholder action, the type of legal filing, under what statute and subsection to seek relief, and the type of relief a shareholder should seek. New Jersey state law and its associated legal precedents offer strong protections to aggrieved shareholders. Meyerson, Fox, Mancinelli & Conte, P.A. offers a team of lawyers specifically trained to counsel individuals and corporations in shareholder matters.


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Selling a closely held business to your business partner? What to Know!

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PART I – THE BUYOUT

Small businesses with a limited number of shareholders – sometimes referred to as closely held businesses – face an obstacle that larger, publicly traded companies do not: liquidity. Liquidity is simply a term used to describe the degree an interest, or share, in a company can be readily bought or sold. For example, in the context of a small company, it is often that the only person(s) interested in selling (or purchasing) shares in the company are the members of the company themselves. In other words, in a company owned by two individuals, each with a 50% interest in the company, it is likely that the only market for those shares is the other 50% shareholder. Compare this relationship to a company listed on a stock exchange and you can see that small companies have a liquidity problem. That is, owners of these companies do not have the ability to easily buy or sell shares in their company without the co-operation of their partner(s).[1]

In a working business relationship, where partners co-operate with one another, the partners may reach an agreement on the purchase price of the selling partner’s shares. For example, in a 50/50 partnership where one partner wishes to retire, the partners may employ the services of an accountant to evaluate the company and determine its fair value, or price. In turn, this price can be used to determine the purchase price of the selling partner’s shares. Once the price of the shares is agreed upon, the parties should employ an attorney to draft a Buyout Agreement, which will contain the price figures as well as other essential terms.

It is vitally important to reduce the agreement of the parties to writing and include the appropriate, material provisions. Even more important is to create a contract provision at the outset of the business relationship that covers share repurchasing, sale, or buyouts so that an issue does not arise once one partner, for example, announces his or her retirement. No matter the relationship between the parties, it is not recommended that an individual attempt to author a Buyout Agreement or related provision without the assistance of trained legal counsel.

With that said, partners may not always agree with each other on material terms including price and valuation, in effect, making a Buyout Agreement difficult or impossible to reach. In that case, if a buyout provision does not exist in the company’s corporate documents to contractually bind the partners, a partner might ask what his or her legal options are to protect themselves or the corporation. Fortunately, New Jersey state law offers protections for the above issues, and others, through its Shareholder Statute (N.J.S.A. 14A:12-7).

[1] In some situations, a company may already have a buyout provision in place through its corporate documents, such as its operating agreement or bylaws.


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Temporary Restraints and Irreparable Harm in State of Washington v. Donald J. Trump

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On February 10, 2017, in a per curiam decision, the Ninth Circuit denied the Federal Government’s emergency motion for a stay pending appeal of a temporary restraining order (“TRO”). Procedurally, in State of Washington, et al., v. Donald J. Trump, et al., No. C17-0141JLR (W.D. Wash. 2017) (“State of Washington v. Trump”) Judge Robart of the United States District Court in Seattle, Washington issued a TRO.  The TRO temporarily stayed (i.e., stopped) President Donald J. Trump’s Executive Order of January 27, 2017 entitled “Protecting the Nation from Foreign Terrorists Entry into the United States” (“Executive Order”). Most recently, the Federal Government asked the Ninth Circuit to undo Judge Robart’s decision, which the Court denied. Importantly, as a result of legal procedure, neither court has ruled on the constitutionality of the Executive Order. Instead, the courts have been tasked with analyzing the underlying legal elements a moving party must demonstrate when seeking a TRO.

While Judge Robart and the Ninth Circuit’s decisions were issued at the federal level, the legal underpinnings behind a TRO at the state court level are nearly identical. For example, both decisions rested on the same principals of law that apply in New Jersey Chancery Courts. New Jersey Chancery Courts are guided by the New Jersey Supreme Court’s decision in Crowe v. De Gioia, 90 N.J. 126. In Crowe v. De Gioia, the New Jersey Supreme Court found that to issue a temporary injunction (e.g., a stay as in State of Washington v. Trump), a moving party must demonstrate four criteria: (1) irreparable harm; (2) likelihood of success on the merits; (3) the law is well-settled; and (4) the balancing of the equities weighs in favor of the issuance of the injunctive relief.

Comparatively, the United States Supreme Court in Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 (2008) held that to issue a temporary restraining order a moving party must demonstrate (1) irreparable harm; (2) likelihood of success on the merits; (3) the balancing of the equities weighs in favor of the issuance of injunctive relief; and (4) the injunction is in the public interest. Let’s look just at the irreparable harm element.

At the District Court level, it was the State of Washington’s burden to demonstrate irreparable harm to the State. Under the “irreparable harm” prong of the Winter test, Judge Robart found:

The Executive Order adversely affects the States’ residents in areas of employment, education, business, family relations, and freedom to travel. These harms extend to the States by virtue of their roles as parens patriae of the residents living within their borders. In addition, the States themselves are harmed by virtue of the damage that implementation of the Executive Order has inflicted upon the operations and mission of their public universities and other institutions of higher learning, as well as injury to the States’ operations, tax bases, and public funds. These harms are significant and ongoing.

State of Washington v. Trump, No. 17-CV-00141-JLR (W.D. Wash. 2017), pp. 4-5.

Before the appeals court, it was the Federal Government’s burden to demonstrate irreparable harm. One way of looking at this burden is that the Federal Government had to show that if the Ninth Circuit did not stay Judge Robart’s TRO then there would be irreparable harm to the country. On this element the Ninth Circuit held:

We therefore conclude that the States have alleged harm to their proprietary interests traceable to the Executive Order. The necessary connection can be drawn in at most two logical steps: (1) the Executive Order prevents nationals of seven countries from entering Washington and Minnesota; (2) as a result, some of these people will not enter state universities, some will not join those universities as faculty, some will be prevented from performing research, and some will not be permitted to return if they leave.

State of Washington v. Trump, No. 17-35105 (9th Cir. 2017), p. 12.

In other words, the Ninth Circuit found that there will not be irreparable harm by failing to temporarily stay Judge Robart’s TRO.

Next, Judge Robart will hear the State of Washington’s application for a preliminary injunction. Notably, while a TRO is issued only for the time between the date of the TRO and the preliminary injunction hearing, a preliminary injunction lasts until a trial can be held which would decide the merits of the case. The eventual results of the case will determine if the injunction will be permanent. Legally, however, the criteria for a preliminary injunction and a TRO are the same. Accordingly, on the return date of State of Washington v. Trump, Judge Robart will again be tasked with ruling on the propriety of the Executive Order through the same analysis discussed above. Going forward, look for Judge Robart to expand on his findings regarding “irreparable harm.”

About the author: Matthew M. Nicodemo, Esq. is an attorney with Meyerson, Fox, Mancinelli & Conte, P.A. in Montvale, New Jersey. Matthew is a former Chancery Court law clerk and focuses his practice on commercial and estate litigation, business law, and real estate.

 


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