Last week I took part in a presentation put on by the Mercer Regional Chamber of Commerce entitled: Changes in Business Tax Law. Linda Ialacci of Horvath & Giacin, P.C. discussed the tax implications of the Patient Protection and Affordable Care Act – What it Means to Businesses and Individuals. My presentation, Important Developments Affecting Businesses, was a little broader. I discussed the legal implications to businesses of the Act as well as some recent legal developments on Social Media on Businesses and the changes to NJ’s Site Remediation Program. I want to thank Linda for inviting me to participate in the presentation. I had fun but more importantly learned a lot from her.
Archive for the ‘Courts’ Category
The other day while researching an issue I came across a case that required noting. It is not a new case but it discussed an issue I have come across several times over the last year. If you are a partnership, corporation, or limited liability company, you cannot represent the business in Court. All business entities must hire an attorney to represent the business in Court, with few exceptions. This is a requirement set out by the New Jersey Supreme Court in the Court Rules. R.1:21-1.
That means that if your partnership, LLC or corporation is owned money from a customer, you as an owner of that company cannot file a lawsuit in Court. That means if your company is sued, you as an owner of the company, cannot file an answer on the company’s behalf. If you do file a complaint or answer on behalf of the company, and for some reason the Court allows it, you could spend months if not years in litigation just to have the judgment voided by the other side because your company was not represented by an attorney.
As I noted above there are a few limited exceptions to the general rule. One of the exceptions apply in cases under worth $3,000 or less and which could have been filed in small claims. There are two exceptions that apply to municipal court. In all of these exceptions the company could be represented by an authorized officer or employee. Lastly, a partner of a general partner, not a limited partnership, can represent the business in summary actions for possessions of property.
A couple of weeks ago the Appellate Division confirmed that employees and principals of a company can be held liable for violations of the consumer fraud act. In Allen v. V and A Brothers, Inc the Plaintiffs alleged that the company, its principals and its employees violated the consumer fraud act by failing to comply with certain regulatory sections. These violations included not having a written contract; failure to obtain final approval before accepting payment and failure to obtain Plaintiffs’ approval on changes.
The Court reasoned that the Consumer Fraud Act required liberal application to protect consumers. The CFA defines person as “any natural person or his legal representative, partnership, corporation, company, trust, business entity or association, and any agent, employee, salesman, partner, officer, director, member, stockholder, associate, ….” NJSA 56:8-1d.
Prior case law has found, based upon the definition of Person under the Act, a principle of a company liable for the affirmative actions the principle took to violate the act. The Court in Allen reasoned that there was no reason to treat affirmative acts and regulatory violations different under the CFA. An owner of a company can be liable for their violations of the CFA’s regulatory requirements.
Other posts on the Consumer Fraud Act:
S1032 sponsored by Connors would allow a contractor or a homeowner to bring a lawsuit in the county where the property is located if the lawsuit is under the Contractor’s Registration Act. While I am not sure why a contractor would be suing under the act, the act changes the where a plaintiff can file a lawsuit.
Normally, lawsuits over $15,000 are filed in the Law Division of the Superior Court of NJ. In the Law Division a plaintiff can file suit where they live, where a defendant lives, or where the action occurred. That would mean a contractor could file suit in Law Division in the county where their business is located. S1032 does not change this. S1032 is meant for cases under $15,000. For cases under $15,000 a lawsuit can be filed in the Special Civil Part. In the Special Civil Part a lawsuit can only be venued where at least one of the defendants residences. S1032 is meant to cover these kinds of cases. The bill statement provides that its intent is for:
Home improvement contractors who are located in the State’s beach communities have found it difficult to pursue lawsuits against homeowners who have defaulted on payments for services rendered because these homeowners do not live in the same counties as their vacation homes.
So under the bill when a contractor does work on a shore house where the owner does not live, they can do not have to go to the county where the owner lives, but can file suit in the county where they did work. The contractor could have always filed in law division no matter what the amount of damages, but the down side would be that a lawsuit in the law division can take several years before there is trial. In Special Civil Part the cases move much faster.
Since the bill only applies to non-commercial property, hopefully the courts will not consider purely rental properties as commercial. If so the bill would not apply and the contractor would be back to either filing in Law Division or filing the lawsuit in the county where the property owner lives. Another work around would be for the contractor’s contract to provide where a lawsuit may be filed.
The Appellate Division recently overturned the Trial Court’s decision in Stengart v. Loving Care Agency, Inc. I wrote about this case back in March in “Why it’s important to establish a computer usage/electronic communication policy.” Stengart, the Plaintiff had sent her attorney emails using her own personal web based email account, but used the employer’s computer. After the filing the lawsuit against her employer, the employer was able to forensically recover the emails to the attorney. The Ms. Stengart sought to force the employer to return the emails and disqualify the employer’s law firm based upon violating the attorney client privilege. The Trial Court held that emails sent by an employee to her attorney using her employer’s computer and network was the “property” of the employer and could be used by the employer in the litigation against it by the former employer.
The Appellate Division reversed this decision and held that an employer’s right to the content of an employee’s communications was not unfettered and would not be upheld when it had “no bearing on the employer’s legitimate interests.” The Court also discussed the competing interests between the expectation of privacy between client and attorney versus a company’s interest in monitoring its computer usage.
While not controlling the Court’s decision, the Appellate Division was not clear that the computer usage policy, relied on by the Trial Court, was in place during the time frame the Plaintiff emailed her attorney. Further the Court found the policy, assuming it was in place, was confusing. For example the company acknowledged that employees could use computers for occasional personal use, but never defined or explained the boundaries of personal usage. Then the company provided that all computer usage would be not be private and was the property of the company. Overall the Court found the policy, assuming it was in effect, to be unclear, confusing and conflicting.
In its decision the Court affirmed the right of an employer to unilaterally set the rules and regulations of employee conduct, but noted that this right was not unlimited and had to be reasonable and related to the employee’s duties. Having affirmed employer’s policies in general, the Court had trouble enforcing the alleged computer usage policies of Loving Care because the policies did not seem to have a strong enough relationship to the employer’s legitimate interests. The Court was also concerned that internet access has become so entrenched in our society that people routinely access bank records, file income tax returns, access medical records and other very confidential private activities. And Loving Care’s policy did not account for these realities. The employer had not provided a legitimate interest in ownership over these kinds of personal records.
The Court in reversing the trial court, wrote:
A policy imposed by an employer, purporting to transform all private communications into company property – merely because the company owned the computer used to make private communications or used to access such private information during work hours – furthers no legitimate business interest.
While the Court agreed that companies have an interest to make sure their employers are not engaged in illegal activity using company property, and that the company had a legitimate interest in ensuring that its employees where not distracted from the company business, companies usually did not have an interest in the content of the personal communications.
The difficult thing with this ruling is that the Court did not explain the contours of what an employer could and could not do in monitoring an employee’s computer usage. Instead the Court hinted that this area maybe worthy of legislative direction. Until the legislature acts, the questions for employers are many. Would a Court make a distinction between a company’s claimed ownership over confidential private information versus a company’s monitoring of an employees computer usage. If a company can monitor but not retain, a record of employees’ computer activity, how can a company defend a disciplinary or firing decision if it cannot retain the proof? Also would a court enforce a complete banned on an employee’s use of a company computer system for personal usage?
While the enforceability of any computer/eletronic usage policy will be open for interpretation by the Courts, it is still better to have a well crafted policy in place than not having one at all.
Back in January, I wrote about a case before the N.J. Supreme Court called Real v. Radir Wheels. As I discussed the case could have wide ranging impact on who was covered by the Consumer Fraud Act. Well that statement was correct. The New Jersey Supreme Court came out with its decision on Radir Wheels on Wednesday. In keeping with the broad reach of the Consumer Fraud Act’s causes of action and remedies, the Court found Mr. Conklin was subject to the act and that he had violated it.
The Court began its analysis of whether a person selling an item or items on eBay was subject to the CFA, by noting that the CFA was enacted in response to unlawful sales and advertising practices and was meant to be remedial legislation. The courts are required to give remedial legislation a very liberal interpretation.
The Court’s decision came down to a plain reading of the statute’s definition of “person.” The statute defines person as “any natural person, or his legal representative, partnership, corporation, company, trust, business entity, or association, and any agent, employee, salesman, partner, officer, director, member, stockholder, associate, trustee” NJSA 56:8-1(d). The Supreme Court easily found that Mr. Conklin was a person. The Court then noted that there were some exceptions to the CFA’s reach, despite a plain reading, but noted that the Defendant did not fall into those narrow exceptions. As Mr. Conklin was subject to the CFA, the Court also found that the Plaintiff pled and proved a “textbook” case of a CFA violation.
The moral of story is that whether you are a large multinational store or a single parent selling your kids used toys and clothes on the internet, you are subject to the consumer fraud act. You are subject to the CFA whether this is you one and only sale or your 10,000’s listing. As everyone would like to avoid be liability for treble damages and attorney fees, any advertisement made on the internet must be accurate. It must not only be accurate as far as you, but it must be completely accurate. It must be completely accurate because if you make a statement regarding the item, which latter turns out to be untrue that is an actionable violation of the CFA. It is actionable even if you thought the fact to be true when you made it.
For more on the CFA see my previous post on the basics of the statute.
The ability to search the Internet and communicate through email has become an integral part our daily existence – both at the office and at home. However, the line separating these two worlds is not always clearly delineated. For example, you may find yourself using the office computer to pay personal bills online during your lunch hour or, logging in to the office computer after hours to catch up on work in order to make your deadlines. Some studies suggest that at least 1/3 of the time an employee spends on the computer is for non-work related activities. While many employers understand their employees’ desire or need to do non-work related activities at work. But it should be understood that not all of this activity is innocent. For example nearly 70% of the pornographic material downloaded from the internet is done during the work day. If this is going on at your business it may open you up to a lawsuit for hostile work environment. In addition to incoming material, you also need to keep an eye on what is going out to ensure that client lists and other proprietary information is not being distributed outside of your business – either intentionally or accidentally.
The question, from both an owner’s and an employee’s perspective, should be “are those computer activities private to the individual or are they company property?” The answer to that question boils down to whether the company has a policy in place regulating employees’ computer usage.
A recent law division case reaffirmed the importance having both an established policy in place and ensuring that your employees are aware of that policy. In the case of Stengart v. Loving Care Agency, Inc., an employee used her company-issued laptop to access her personal webmail account to communicate with her attorney regarding the filing of a lawsuit against her employer. After the employee left the company and filed suit the company and its lawyers made a copy of the laptop’s hard drive and recovered the emails to and from her attorney. The former employee attempted to bar the employer from using those emails as she alleged they were protected under the attorney client privilege.
In determining whether or not the emails were protected by the privilege the Court looked to whether the employee had an expectation of privacy in the emails. The Court rejected the employee’s claim by noting that while the law provides some level of privacy to an employee’s use of the a company’s computer that expectation of privacy can be negated by the company’s computer usage policy. In this case the employer had established a policy that provided that the computers were company assets and that all emails, voice mails, internet use and communication and files maintained on those computers were part of the company’s business and client records. The policy specifically provided that the electronic communications were not considered private or personal to the employee.
In light of the employer’s policy on computer use and communication, the Court ruled:
When an employee has knowledge of the employer’s electronic communication policy which adequately warns that any and all internet use and communication conducted on the employer’s computer is not private to the employee and warns that E-mail and voice mail messages, internet use and communication and computer files are considered part of the company’s business and client records, such communications are not . . . to be considered private or personal.
In short a Court is unlikely to enforce any rights to privacy that an employee may have in regards to their electronic communications if the employee is clearly on notice that they should not expect privacy. This means that the employer should have a written policy, signed by the employees, on computer usage. The policy should not only detail the privacy issues but also clearly identify what is considered “appropriate usage” of the computer.
By establishing clear policies in these regards you can also help protect your business against loss of vital information or the creation of an inappropriate work environment.
Finally, even with the right policies in place, keep in mind that a policy that is not enforced is almost as bad as no policy at all. Therefore, you should ensure that your employees adhere to that policy and that any exceptions are clearly dealt with.
The Consumer Fraud Act (CFA), NJSA 56:8-1 et seq. is a very powerful law which benefits all consumers both what you normally would consider a consumer as well as businesses. Generally, a consumer is defined as any person including businesses that purchase products for their own use. This would not include a person or business that purchases products to incorporate into their own products. The act also does not cover businesses that buy objects for resale. One of the things that makes this law very powerful is that if it is violated the violator is subject to triple damages plus attorney fees. While it is a very powerful act that has over thirty years of history, it may not have caught up to time and technology. The CFA prohibits:
the act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment suppression, or omission of any material fact, with intent that others rely upon such concealment, suppression or omission, a connection with a sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been mislead, deceived or damaged thereby, is declared to be an unlawful practice. NJSA 56:8-2.
I highlighted the phrase “any person” because this is where the difficulty of the act may arise. Any person means just that. It means you, it means me, it means the mom & pop store down the road; and it means the national retail chain. The act’s requirements do not differentiate between a person and a large corporation but applies equally to all.
The CFA clearly applies to the computer store that sells, as its business, hardware and software. It applies to the national retail clothing store. It applies to the new and used car dealers. The question is whether does the CFA apply to the sale of an isolated item through an advertisement to another party. Under the plain meaning of the definition of “any person” a person who makes an affirmative misstatement of fact is liable under the CFA. The currently is a case before the NJ Supreme Court, Real v. Radir Wheels, Inc., which may determine if there is a threshold number of items a person has to sell before they become liable under the CFA.
In Real v. Radir Wheels, the owner of Radir Wheels sold a 1970 Corvette on eBay. In the eBay listing the seller noted the car had a good frame and runs strong among other descriptions. None of these turned out to be true, as the frame was rusted, and the engine was in poor condition. In fact the car could not have been registered to operate on the road in the condition it was in. Testimony during the trial revealed that the seller’s hobby was to buy old vehicles and restore them. In fact the same month that he sold the corvette he sold two other vehicles. The trial court had no trouble finding that the Seller was subject to the CFA and had violated the statute in addition to common law fraud. The appellate division reversed and the appeal was taken to the NJ Supreme Court.
The Supreme Court heard oral arguments on January 21st. Oral argument showed that the Justices were concerned that a plain reading of the statute would subject everyone who ever says an item on eBay, classifieds ad or otherwise could come under the liability of the CFA. The Supreme Court will be deciding whether to hold everybody that makes a misstatement in an ad to treble damages and attorneys fee; or whether there is some threshold activity a seller must reach before the CFA protection against unconscionable commercial practices.
One of the keys to understanding the ultimate decision from the Supreme Court, the seller made affirmative statements on the condition of the product. Under the CFA if a person make statements and those statements turn out to be false there is a violation of the CFA. The Seller does not need to know the statements are false when made only that the statements are false. Therefore even if the Seller in Real did not know there was rust on the frame, his statement that it had a good frame was false and would subject him to the CFA.
The moral of the story may be that if you are going to be selling items online or in the newspaper make sure what is posted in that listing is accurate. If you are unsure or cannot verify the information even if you think it to be true, it would be better not to post the information.