HINDSIGHT AND FORETHOUGHTS ON CONTRACTS

Written by Mike Pisauro on April 20th, 2009 in Basics, Contracts | No Comments »

There is a common misconception that most business owners seem to have regarding the collection of customer owed debts. Many times a business owner has come to me because their business is owed a couple of thousand dollars from a customer or two or more and they want to sue those customers in order to recover the money. The owner either cannot afford or is unwilling to write off the bad debt. Maybe they had to borrow money in order to meet their obligations under the contract; or perhaps, since the debtor has not paid, the business owner had to borrow money to cover expenses that would otherwise have been covered.

Sometimes there is no contract or after reviewing the contract, I have bad news for my client. Yes, the business owner has a good case. But that several thousand dollar debt will likely take several months or longer and may cost several thousand dollars in attorney fees to resolve in court – and that does not even take into account collecting on the judgment. The client is also not entitled to interest on the outstanding debt until a judgment is received. Lastly, the Court will not order the debtor pay the costs associated with the litigation.

Not surprising, we follow the American rule wherein each party pays its own costs associated with the lawsuit. Obviously, no business owner wants to hear that client is also not entitled to interest on the outstanding debt until a judgment is received. Lastly, the Court will not order the debtor pay the costs associated with the litigation.

Not surprising, we follow the American rule wherein each party pays its own costs associated with the lawsuit. Obviously, no business owner wants to hear that pursuing the debt may cost more money and that, in the end, the money collected will be reduced by attorney fees and costs. The delinquent customer may even cost the business owner more money in the form of interest they had to pay to borrow money to keep their own vendors happy and their business afloat. In essence, these interest payments reduce that judgment even more. Even if the business owner did not have to borrow money, at the very least, they would be unable get the use of the money owed until it is paid by the debtor. So while they may have won the case, at the end of the day you must really ask did they really win?

If you knew all of the above before you signed the contract, what could you have done differently? In the ideal world, you would have gotten paid up front but, as we all know, we don’t live in an ideal world, so what is the backup plan? In the real world, we must insist that all business relationships be made and conducted in writing. If you can’t afford not to get paid, make sure that the transaction is committed in writing – i.e., a contract.

Now, how can a contract be prepared that will protect you in case your customer does not fulfill their obligations? Along with the many concepts that need to be addressed in a contract, there are two that should be included to ensure that the scenario described above doesn’t happen. First, the contract should provide that, if the customer does not fulfill their obligations and you have to sue them, they must pay the costs of your attorney as part of your damages. Second, if payment is not received by you on the due date (and maybe any grace period) the outstanding debt will begin to accrue interest.

These are just two very common concepts that you should consider in any contract you enter into. There are many more concepts that should be addressed in your contracts. Which concepts and how they should be addressed are dependent upon what you are selling/buying, relative strength in negotiations between the parties, and the nature of your business. If you are unwilling or unable to write off the bad debt from a transaction, it is a transaction that is important enough to warrant consulting with an attorney so that you will be protected in the event of a disagreement or the other side’s failure to perform. To borrow from the old adage, an ounce of prevention may save you thousands of dollars later.

A little bit of forethought on constructing the appropriate contracts for your business can save you a lot of regret in hindsight.

The article above is a reprint from my first newsletter from July 2006, but a conversation over the weekend made me think it would be useful to post it in the blog.

With Consumer Fraud a person really means a person.

Written by Mike Pisauro on April 9th, 2009 in Consumer Fraud, Courts | 3 Comments »

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.

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Why it’s important to establish a computer usage/electronic communication policy ?

Written by Mike Pisauro on March 25th, 2009 in Courts, Employee/Employer, Privacy | 2 Comments »

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.

Watch out for the ice

Written by Mike Pisauro on March 6th, 2009 in Liability | No Comments »

The other day, I was walking by a downtown store when I noticed a huge sheet of ice covering several feet of the sidewalk. Every winter this part of the sidewalk is covered in ice. I see this and the lawyer in me cringes.

I cringe because the ice is caused by things beyond the tenant’s control but if someone where to slip the tenant would be liable for any injuries. Back in 1981 the N.J. Supreme Court decided that because commercial business owners derived a benefit from the sidewalks in front and abutting their businesses, the business owner should have a corresponding duty to maintain those very same sidewalks. If someone got hurt because the sidewalks were not maintained the business owner and the property owner would be liable for those injuries.

In situations where a business owner is renting space, the lease should spell out who is liable for maintaining, cleaning, and removing snow and ice. It will either be the landlord or the tenant. Either party will either undertake the maintenance themselves or contract out to snow removal company the upkeep of the sidewalk. If you are a tenant, make sure what your responsibilities are regarding the sidewalk by reviewing the lease.

Even if the lease says it is the landlord’s responsibility you the tenant are still liable. You may be able to get indemnification/reimbursement from the landlord if you are sued, but it is better to try to avoid that lawsuit in the first place. Also, you should also make sure you have sufficient insurance to cover you in the event there is an accident not only in amount but in coverage.

Consumer Fraud Act and Any Person

Written by Mike Pisauro on January 25th, 2009 in Consumer Fraud, Courts | 1 Comment »

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.

There is more to it then picking a name you like

Written by Mike Pisauro on January 15th, 2009 in Basics | No Comments »

There are multiple steps a business owner must make before the first time the doors of the business can open.   One of those steps is naming the company.  It used to be in the process of forming the company, the lawyer or business owner would check with the State of formation/incorporation to see if the desired name was available.  States were the business was likely to do regular business would also be checked.  If the name was available, then the lawyer or owner would form the company by certificate of incorporation or formation with the State.  Things have changed somewhat and I believe that merely checking with the state(s) to see if the name is available is not enough.

When you consider your company’s name you should also consider at the same time whether you can get the company name or a very similar name as you domain name for your company.  For example my firm is named: Frascella & Pisauro, LLC.  and our domain name is: fplegal.com.  If you want to name your company XYZ Consulting, Inc. and that name is available with the State of New Jersey but is not available to be registered as your domain name because someone already has it, then maybe you should re-think your company name.  The internet has become a huge avenue for creating awareness for your company and its ultimate success.  By taking a domain name that it is not the same as or similar enough to your company name you are making it hard or confusing for customers to find your company.  As you begin you new venture you should minimize the hurdles to success, so check domain name availability as well as State availability.

Consumer Fraud Act- The Basics

Written by Mike Pisauro on December 22nd, 2008 in Basics, Consumer Fraud | 1 Comment »

The Consumer Fraud Act (CFA), NJSA 56:8-1 et seq.  is a very powerful law and one which business owners need to be aware of. In New Jersey, the CFA applies to persons who, in general, sell products to consumers. That is a very broad definition and it applies not only to individuals but can apply to a business as well.

Generally, a “consumer” is defined as any person or business that purchases products for their own use.  This does not include persons or businesses that purchase products to incorporate into their own products, nor does the act cover businesses that buy objects for resale.   (I will discuss further who is covered by the statute in a later post).

Specifically, 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.

There are three categories of CFA violations: affirmative acts, omissions and regulatory violations.   For affirmative acts and violations of regulations, it does not matter whether the business made an honest mistake.  For example, the Courts have found that a realtor’s statement as to which section of town the property was in was a violation of the CFA – even though the Realtor honestly believed in the statement she made.  In another case, an advertising agency accidently omitted the odometer reading on vehicles in an ad and, since this is contrary to state regulations, the agency was found to be in violation of the CFA.   This is one aspect of the law that makes it so powerful and so very important to be aware of.

Acts of omissions, on the other hand, must include proof that the business intended to mislead the consumer.  Therefore, as an example in the realtor’s case, if the realtor never told the plaintiff that the property was in a specific section of town, the plaintiff would have had to show that the realtor knew the property was not in the particular section of town requested and that the buyer based their decision to purchase the property on this incorrect information. Further, since the realtor omitted the information regarding which section of town the property was in order to encourage the buyer to buy, the realtor may have committed a violation of the act.

What are the penalties for violating the CFA?  Upon demonstration of an ascertainable loss, the person is entitled to treble those damages.  Additionally, the Court is required to award attorney fees and costs.  Even if a plaintiff cannot show an ascertainable loss, if they can prove a violation of the act, the plaintiff is entitled to attorney fees and costs.  The trebling of damages and the award of attorney fees and costs is not discretionary but is required under the statute.  It is always possible that the damages caused by the violation of the CFA could, even if trebled, quickly be overshadowed by the award of attorney fees and costs.

In short, every retail business (and many other businesses, as well) should become familiar with the Consumer Fraud Act and any regulations governing their business.   By being familiar with these laws a business can, at least, minimize the risk of finding itself trying to avoid a claim under the Act.

Identity Theft Prevention Act regulations

Written by Mike Pisauro on December 11th, 2008 in Consumer Fraud, Identity Theft, Regulations | No Comments »

In July 2006 I wrote about New Jersey’s Identity Theft Prevention Act (business-newsletter-vol-1).  I also gave a presentation to the Pennington Business & Professional Association on the Act (pbpa-presentation).  At that time the Act still required that rules be proposed.  Since then the Division of Consumer Affairs, in conjunction with the Department of Banking and Insurance, proposed rules implementing the Act in April of 2007 and partially adopted those rules one year later.  Although the DCA decided not to adopt the rules setting forth the hardware and software requirements of the law, this article seeks to examine the proposed rules regarding a company’s obligations to maintain the confidentiality of a person’s private data.  Even though it was not adopted, I think what was proposed is instructive because DCA will have to re-propose standards at a later date.

One part of the proposed regulations, which was not adopted, defined personal information as any information that combines a person’s first name or initial and last name with any of the following information: social security number, driver’s license number, or account/credit card numbers.  Another section of the regulations, which was adopted, defined “business” in a manner that included any and all businesses – no matter the size.  The rules would have applied to a sole proprietorship all the way up to the largest corporation in the State.  The adopted regulations provides that any business that maintains a client’s credit card information or social security number must have in place technology and office policies to protect the privacy of this information.  With one minor and unimportant exception the regulations do not differentiate between the size of the business – this applies whether the business is a three person operation or a 1000 person operation.

The Department did not adopt the Section 3 requirements due to the large number of negative comments.  While the department did not publish all of the comments, it did indicate the objections ranged from the cost of implementing the requirements to the ability of businesses and public entities to comply.  Other commentators from large entities noted that they already had extensive systems in place and complying with the proposed regulations would be counterproductive.

Other provisions in Section 3 that were not adopted set forth business practice requirements or policies that should be in place.  While these sections were not adopted, the business practices that were suggested should be examined as they will likely find their way, in a modified form, upon re-proposal.  First, only those who need access to the personal data should be allowed access to the data.  Former employee’s user ids and passwords should be deactivated immediately.  This is not only required for compliance with the act and proposed regulations, but is a good business practice in and of itself.  Employees should be trained on how to recognize personal information and understand how that information should be treated.  Businesses with five or more employees must have a written information security policy that details the security of computerized personal information and explains each employee’s responsibilities regarding the use and maintenance of that information.

The systems in place need to be regularly reviewed because the proposed rules require daily scans.  In other words, the business needs to ensure that the antispyware and antivirus programs are actually up-to-date and running daily scans.  The proposed rules require that the firewalls keep logs of incoming and outgoing communications and ensure that those communications are authorized and not the result of a breach in security.  Documentation must be maintained detailing the business’ security protocols and audits.

As I noted in the last article, in the unfortunate event of a breach, the particulars of the breach must be reported to the Division of State Police of the Department of Law and Public Safety.  The proposed, but not adopted, regulations require that this report be made within six hours of discovery of the breach.  Despite the amount of press identify theft receives, it continues to occur on sometimes scary scales.  These thefts are the result not only of direct malicious attacks, but also of negligence on the part of employees and contractors or just bad luck.  There have been several instances when an employee has taken home a business laptop only to have that laptop stolen when the employee stopped along the way to pick something up.  For this reason, laptops should be encrypted – and it may also be a good practice to use a cable lock to secure the laptop within your car if you plan on making stops on the way home.  While it may be a pain to secure your laptop that “pain” is negligible when compared to the headaches of having to report the theft and explain to your customers, employee and others why their identities may be at risk.

Subsection 3.5 of the proposed regulations detailed how personal information should be destroyed.  The proposed regulations provides that the records, whether paper or electronic, must be destroyed in such a way (such as shredding, erasing or otherwise modifying the information) so that it is “unreadable, undecipherable or noreconstructable.”  The business must keep track of how the records were destroyed and when and these records must be maintained for a period of five years.  Keep in mind that hitting the delete key on your computer is not the same as placing a piece of paper through a shredder.  “Deleting” a file on a hard drive really does not delete the record.  In fact, the deleted record can be recovered fairly easily.  There are programs available at little or no cost, however, which will ensure that the record should be unrecoverable.  This is important to remember when you need to have hard drives replaced or when you are donating or discarding old computers.  This will probably be something to consider when the DCA issues a new proposal.

As if all of the possible repercussions of violating the act are not significant enough, Section Five of the regulations, that were adopted, set forth the penalties for violating the act or its regulations.  Failure to comply with the time lines for reporting a breach, failure to maintain the required records, or failure to maintain the required computer security systems is deemed to be a willfully, knowingly or recklessly violation the act.  It will also result in liability under the consumer fraud act.    A violation of the consumer fraud act will result in triple damages, possible punitive damages and attorney fees.  That can be a very hefty price to pay for not maintaining proper records and security procedures.

Taking a proactive approach to maintaining personal information has the potential to save you thousands of dollars and lots of headaches in the future.  If you have any questions regarding how to comply with the law contact your attorney and your technology consultant and ask them to walk you through the policy and hardware/software you need to ensure a headache free future.

Home Improvement Contractors bill

Written by Mike Pisauro on December 8th, 2008 in Home Improvement | No Comments »

Today in the Assembly Regulated Professions committee A2532 will be considered.  The bill would alter the normal course for cases brought in the special civil part against home improvement contracts.  Cases brought in the special civil part are case with values of $15,000 or less and provides for a quicker time between filing and trial.  Under the Rules of Court, cases in special civil part must be filed in the county where at least one defendant lives or works.  This bill changes that rule.

Under the bill the homeowner could bring the case where the homeowner lives and not where the contractor is located.  This makes life somewhat easier for the customer but could make it somewhat harder for the contractor.

Assuming the bill eventually becomes law, a contractor can alter the application of the law with the contractor’s contract.  The contract could provide that that all cases against the contractor must be brought in the contractor’s county and not that of homeowner.  The contract could also provide that the homeowner could not file in court but must seek arbitration.

Update 12-9-08:  The bill “passed” out of the Housing and Regulated Committee and sent to the Assembly Judiciary Committee. Once its is out of the committees the full assembly can vote on the bill.  A similar process has to occur on the senate side.

NJ Business Wise begins

Written by Mike Pisauro on December 8th, 2008 in Uncategorized | No Comments »

NJ Business Wise will look at laws, legislation, cases or practice topics that directly affect your business.  This blog replaces Frascella & Pisauro’s business news newsletter.  I am going to leave the blog open to comments and see how that proceeds.

If you would like a topic discussed please email me at:  mike@fplegal.com.   As a word of caution, do not send any information which may be confidential.  Nothing written in this blog or received in an email or as comments should be construed to create an attorney client relationship.

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