Michael J. Fekete, member of Stark & Stark's Business & Corporate group, was a featured guest on the Camden County Bar Foundation's weekly television talk show Legally Speaking on Sunday November 9, 2009. Mr. Fekete discussed the New Jersey Home Improvement Law,  the Consumer Fraud Act and the Contractor's Registration Act. You can watch the full episode online here.

Recently, the Appellate Division of the Superior Court of New Jersey was required to determine whether the holders of  tax sale certificates for unpaid real estate taxes were entitled to be paid from the proceeds of a condemnation award when the estimated environmental clean-up costs exceed the fair market value of the property.  After a thorough review of the law, the court held that the tax liens could not be paid until the amount of the environmental liability was determined, even if it meant that the tax liens may never get paid.
   

In Township of Haddon v. Morgan Brothers, et al., Haddon Township sought to acquire a parcel of real estate by the exercise of its power of eminent domain.  After the complaint was filed, Haddon Township deposited $280,000 with the court which was the Township’s estimate of the fair market value of the property “as if remediated”.  The Township also admitted into evidence an expert report alleging that the amount necessary to remediate the environmental contamination was estimated to exceed $1.3 million.
   

The holder of several tax sale certificates sought to withdraw $125,000 from the $280,000 deposit which was the amount due on the tax sale certificates.  The tax certificate holders argued that as first priority liens under New Jersey law, they were entitled to be paid before any other party in the case.  However, the estimated clean-up costs were approximately $1.3 million and greatly exceeded the value of the property.  The court was asked to determine whether the tax certificate holders were allowed to be paid from the $280,000 being held in escrow, or whether the certificate holders were required to wait to see if there was any money available after the clean-up was completed.
   

Under New Jersey law, when a condemning authority deposits the estimated value of the property into court and files a declaration of taking, title to the property transfers to the condemning authority.   Liens against the property attach to the deposit in priority order.  Parties with an interest in the funds are entitled to file a motion with the court to withdraw funds in the order of their priority.  For example, a mortgage holder is entitled to withdraw the balance due on its mortgage before the property owner receives any funds.  The same holds true for a tax certificate holder who is entitled to be paid before all mortgages, judgments liens and the owner.  This is the case when there are no environmental problems.
   

When there are environmental problems, the process for withdrawing funds is changed.  The condemning authority is entitled to introduce into evidence an environmental report disclosing the estimated clean-up cost for the property and request that the estimated clean-up costs be withheld from the amount on deposit until the clean-up is completed.  For example, if the “as remediated” value of the property is $300,000 and the estimated clean-up costs are $100,000, the property owner and lienholders are only entitled to withdraw $200,000 from the $300,000 on deposit, with the balance of $100,000 to remain in escrow pending the completion of the environmental clean-up.  The term  “as remediated” means the value of the property assuming all environmental remediation has been completed.
   

The Appellate Division ultimately held that the tax liens may only be paid from funds remaining after Haddon Township is reimbursed for the remediation costs.  Under the facts in the case, it was unlikely there will be any remaining funds remaining due to the high cost of remediation.
   

The case is based upon sound reasoning.  Looking at the Haddon Township case, if a property is worth $280,000 “as remediated”, but it costs $1.3 million to remediate it, it has negative value.  After the remediation is completed, the property is only worth $280,000.  It would be unfair to allow the property owner (or lienholders) to keep the $280,000 which is a direct result of the $1.3 million spent to clean up the property. 

Tax Appeals attorney, Timothy P. Duggan, and Green Building attorney, Vincent J. Mangini, co-authored the below post:

Imagine the situation where a conscientious property owner decides to install solar panels in an effort to reduce his or her energy costs and help the environment.  Then, imagine further, that once the work is completed, the local tax assessor increases the property’s tax assessment arguing that solar panels are an improvement to the property, which causes the property’s fair market value to appreciate.  The resulting taxes from this higher assessment could end up off-setting all or most of the energy savings generated by the solar panels, thereby discouraging property owners from making investment in green building technologies and processes.  Clearly, this is not an acceptable outcome for the property owner or the general public and, apparently, our state government agrees.  In June, 2008, the New Jersey State Legislature overwhelmingly passed a bill, which Governor Jon Corzine recently signed into law on October 1, 2008 (P.L. 2008, ch. 90; codified at N.J.S.A. 54:4-3-113a, et seq.), that provides a tax exemption for the increase in value to real property attributable to the installation of renewable energy systems - and the new law does not just benefit homeowners.
   

Under the new law, a “renewable energy system” is “[a]ny equipment that is part of, or added to, a residential, commercial, industrial, or mixed use building as an accessory use, and that produces renewable energy onsite to provide all or a portion of the electrical, heating, cooling, or general energy needs of that building.”  The term “renewable energy” is defined broadly to include, among other things, “(1) electric energy produced from solar technologies, photovoltaic technologies, wind energy, fuel cells, geothermal technologies, wave or tidal action, . . .; and (2) energy produced from solar thermal or geothermal technologies.”
   

In order to obtain a renewable energy systems exemption, a property owner must make a written application for certification to the local enforcing agency (i.e. building inspector) under oath and once the application is received, the local enforcing agency must review it for compliance with all legal requirements.  If a property owner is denied the certification and wants to appeal, an appeal may be filed with the local construction board of appeals.  In the event a property owner’s work is certified, but the local tax assessor imposes an unreasonable tax assessment on the property, the aggrieved property owner may file an appeal with the county tax board or State Tax Court in accordance with the court rules.
   

It also be noted that the exemption from taxation for the renewable energy system shall not become effective until the tax year following the year in which certification has been granted.
   

In conclusion, the aforesaid enactment is a good law.  It will prevent property owners, who “go green,” from being penalized by local taxing authorities with higher real property taxes.  However, property owners seeking to take advantage of this new benefit should familiarize themselves with the entirety of the new law and all applicable forms and regulations, as may be adopted by state agencies. The procedures to obtaining the certification must be followed in order to take advantage of the exemption.

Many of you may remember the Federal Warn Act - an Act which requires 60 days notice of a company’s intent to shut down a location with 100 or more employees (with various exceptions, of course). What is not largely known is that New Jersey passed a “baby” Warn Act earlier this year. 

This Act reduces the number of required full time employees from 100 to 50.  The New Jersey WARN Act also eliminates the useful exception in the federal Act, which allows for termination of employees within a certain time period and other exceptions, which weakened the original federal Act. 

In short, the New Jersey Warn Act is a force to be reckoned with as we head deeper into the current recession.  Employers shutting down any office location should seek legal counsel prior to taking action.

The redevelopment of blighted areas is specifically and separately described in Article VIII, Section 3, paragraph 1 of the New Jersey Constitution as “a public purpose and public use, for which private property may be taken or acquired.” Any such taking, however, must satisfy all constitutional mandates and limitations on government power. For example, Article I, paragraph 20 of the New Jersey Constitution requires that a condemning authority pay just compensation when it acquires private property. A government entity desirous of taking private property must also comply with all due process requirements before it may do so.

 

On Wednesday October 1, 2008 Adam J. Siegelheim, member of Stark & Stark's Franchise group, Nathan R. Greenberg, President and COO of Siegel Financial Group LLC, and Don Johnson, President of Diamond Financial Services met at the IFA's New Jersey Franchise Business Networking meeting to discusses the latest trends impacting the franchise industry.

Mr. Siegelheim, Mr. Greenberg and Mr. Johnson discussed the recent economic climate in relation to the franchise industry, and what this will mean in the future for franchisors. You can download the full podcast here. (7.7 MB)

John Randy Sawyer, Shareholder and member of Stark & Stark's Construction Litigation group, authored the article Beware What You Say, Don’t Say and What You Print and Promise: Understanding of broad scope of potential liability under the Consumer Fraud Act for the New Jersey Law Journal's October 20, 2008 Real Estate, Title Insurance & Construction Law supplement.

Mr. Sawyer provides a history of the New Jersey Consumer Fraud Act and cautions builders, contractors and developers who decide to build and sell homes in New Jersey to, at the very least, have an understanding of the broad scope of potential liability under the Act and use that knowledge as a filter for everything they say, don’t say, print and promise to New Jersey home buyers.

You can read the full article here.

Thomas B. Lewis, Shareholder and Chair of Stark & Stark's Employment group, was quoted in the November 6, 2008 Bloomberg.com article Bank of America Says Merrill Brokers Can Quit Without Penalty.

Mr. Lewis commented on the recent announcement made to the roughly 15,500 brokers Bank of America acquired after buying Merrill Lynch this past September which said that they have the ability to quit without penalty, however, if they stay, they will qualify for a bonus of as much as 100% of their annual revenue. Mr. Lewis states that the memo was created in order to alleviate the concerns of senior Merrill brokers.

You can read the fill article on Bloomberg.com here. (Also available in PDF here.)

Consider this scenario: Your company has struggled with a key employee, and it is determined that the employment should be terminated. Following the advice of counsel, the parties entered into a separation agreement, severance is paid, and the employee signs a release of all claims related to employment with your company. At this point, the parties can now move on without the threat of litigation, right? Not necessarily!

The employee files for unemployment insurance. The company responds by advising that the employee consistently failed to comply with the established standards of conduct in the workplace. You are comfortable that the statement will remain confidential, as statements by the parties in an unemployment claim are not admissible in civil actions (N.J.S.A. 43:21-11(g)). However, the disgruntled ex-employee responds by asserting that the company’s reason for discharge is false and is motivated by retaliation for complaining about potentially discriminatory conduct, which took place during the course of employment.

Thereafter, the employee files a lawsuit, claiming that the company’s actions have violated N.J.L.A.D’s anti-retaliation provisions. Indeed, the alleged discriminatory conduct took place more than two years before the filing of the employee’s new complaint! The company feels satisfied that the former employee would not be allowed to pursue this claim. First, since the original conduct occurred more than two years prior to the filing of the complaint, suit would be barred by the statute of limitations. Second, the employee already executed a release, and received severance, on the assumption that he would be barred from bringing any further employment claims.

In the recent case of Roa v.LAFE, et al, 2008 WL 2627625 (App.Div. 2008) an Appellate Division Court shattered the paid-for peace of the employer, by ruling under a similar fact scenario, that N.J.L.A.D.’s anti-retaliation provisions will apply to the company’s conduct, even after termination of the employment relationship.

One can conjure up many post-employment discoveries, which could put a company in jeopardy, long after it pays for closure of the employment relationship. One example is also treated in the Roa case. An employee may allege that in retaliation for the employee’s asserting a discrimination claim, the employer falsely reported a termination date to a medical insurance carrier, resulting in the denial of benefits while the claim is being investigated. The anti-retaliation provision could be invoked if there is a post-termination denial of benefits, less than satisfactory employment reference, or any other action taken after the employee’s termination.

The Appellate Court reasoned that the retaliation claim is a separate cause of action under the L.A.D. In addition, this activity could be deemed as a “continuing violation” of the L.A.D. If so, an employee could claim that any actions during the prior two-year period could be the subject of a new discrimination claim and could revive a prior claim. In this case, even though the plaintiff filed the lawsuit more than two years after the date of termination, it was filed within two years of the date the plaintiff knew or should have known of facts supporting the retaliation claim.

A second cautionary point in this case involves failure to inform employees of their rights under the L.A.D. through either workplace posters or employee manuals. The Court discussed several cases, which held that failure to post required notices will toll (suspend) the statute of limitations for bringing L.A.D. suits. However, this Court clarified that the statute of limitations will only be tolled  until the aggrieved employee seeks out an attorney or requires actual knowledge of his rights. The adoption of “equitable” tolling requires the exercise of reasonable insight and diligence by a person seeking its protection (citations omitted).

What lessons can be learned by the conscientious employer? Certainly, a company should continue to consider entering into termination agreements, with releases of liability, for departing employees. This is particularly true where a company would otherwise offer severance benefits, legal consideration for the employee’s release of claims. This will maximize the company’s benefit for the price paid in severance benefits. The employer’s counsel should attempt to negotiate a strong provision wherein the employee acknowledges that he/she is unaware of any facts, which would support a discrimination claim. This would be stronger than the typical language, wherein the employer states that payment of severance is not an admission of liability for discrimination claims. It would be more difficult for the employee to later assert that post-termination actions on the part of the employer constituted retaliation for workplace discrimination.

Second, a company should not be lulled into complacency, even after a separation agreement and release is executed. Its representatives must still be careful not to conduct themselves in such a way, which will create negative consequences to the former employee, after leaving the employment. This case will reinforce the practice of not providing a post-termination employment reference. In addition, special care must be taken to make sure that the ex-employee is paid all earned wages, accrued vacation and sick time, or other benefits. A company must also make sure that in response to governmental or insurance inquiries, it accurately reports data such as dates of employment, wages paid, insurance-related information, etc.

Finally, the case, again, reinforces an employer’s duty to inform employees of their rights under the L.A.D., either through workplace posters or employee manuals.

This case underscores the necessity of having clear, well-defined employment policies and procedures, which are compliant with New Jersey law. It also demonstrates the necessity to consult counsel when planning to discharge an employee to make sure that termination agreements keep pace with changes in the law.

It is hard to know when the proverbial “next shoe” will drop in the current economic crisis but recently credit lenders in my practice have experienced attempted policy rescissions for their mortgage insured accounts where suddenly and without any notice the private mortgage insurer  (the “Company”) has attempted to rescind its insurance policy on specific accounts. This is especially true for policies issued on mortgage accounts closed during 2005-2006, the peak years of residential real estate values. Their letter often contains language to the effect that the application’s underlying appraisal was “false, incorrect or incomplete” and was “material to the decision to insure” or something similar thereto. The reality is that private mortgage insurers now realize that they are likely to be hit with a rash of claims on loans they have underwritten since the real estate bubble has burst and home values in many geographic regions have declined precipitously. Rather than brave the tempest and honor their policies they have elected to get in front of the wave through this novel rescission approach.

Attempted private mortgage recessions such as these, need to be handled promptly by qualified counsel. The credit lender’s appraiser should be put on notice and invited to put his carrier on notice of the pending claim. The appraiser should also be requested to review the appraisal used for the original underwriting to make certain that the facts contained therein are accurate and to verify the comps used. There should simultaneously be a demand for the insurance company’s new appraisal. Payments should be made to the Company in the regular fashion even if they are returned initially. Counsel should review the Company’s Master Policy and any exclusions and give the Company any required notice pursuant thereto in anticipation of the pending litigation.

While this recommended course of action often puts credit lenders and their appraisers (often with mutual business interests and longstanding relationships) at odds, New Jersey’s Entire Controversy Doctrine makes a second lawsuit against the appraiser itself impossible. Counsel, experienced and sensitive to these relationships, can normally soften the prospects of the pending suit by a telephone call explaining the circumstances and promising full cooperation in the litigation prior to issuing his written demand.

If litigation is commenced it is imperative to ascertain if the financial institution has other insured loans with the Company and it is normally advisable to seek declaratory relief in the Complaint seeking to maintain coverage on all those other  loans where policies exist. Additionally, it may be time to take stock and ascertain the possible exposure of those other loans since the Company’s intentions to “rescind” its policies may signify well-founded concerns for its adequate capitalization. Prudence would suggest that a lender at least recognize the additional risks such mortgage insured loans may poise to a lender’s portfolio. Certain or all of these loans may well be singled out for “special handling”.

If the lender has any concern about the appraisal questioned or any other appraisals insured by the Company then it should hire an independent review appraiser to offer an independent view on the appraisal or appraisals. If there are any weaknesses in the case it is better to know up front. This may well affect the negotiation strategy with both the Company and the appraiser’s insurance company.

In these “recession” situations, it’s a simple “shoe-in” to seek guidance and move swiftly in order to preserve the credit lender’s rights. Normally the bank’s counsel will need a copy of the notifying letter, a copy of the appraisal used by the Company to determine that the underlying appraisal was “false”, a copy of the original appraisal and a copy of the Company’s Master Policy currently in effect with the credit lender.