Posts Tagged ‘Contracts’

Violating a Consumer Fraud Act regulation can result in individual liability for employees or owners

Written by PisauroLawAdmin on August 15th, 2011 in Consumer Fraud, Home Improvement | No Comments »

Recently, the New Jersey Supreme Court issued a new opinion further defining the reach of New Jersey’s Consumer Fraud Act. In Allen v. V and A Bros., Inc., the Supreme Court ruled that an employee or owners of a company who has violated a regulatory provision can be liable under the consumer fraud act.  It is not new that owner can be liable with their own intentional misrepresentation of fact and thus liable under the consumer fraud act.  What is new is that a violation of a regulation, which may be truly a technical violation and not one that requires intent, can lead to the personal liability of an owner or employee responsible for the implementation of the regulation.

It has been the law for many years that an officer or employee could be liable for their affirmative act of misrepresentation or omission under the CFA. It was the individual’s acts that created the liability against them as well as their corporate employer.  In Allen the question became, in the absence of an affirmative act of misrepresentation, could an employee or owner of a company be personally liable under the CFA for violating a regulation.  A regulatory violation is a strict liability and does not require an affirmative act.  In this case, the plaintiffs allege that the contractor violated several regulations affecting home improvement contractors.  They alleged that the contractor did not have a written contract under NJAC 13:14A – 16.2; failed to obtain final approval for the construction before obtaining final payment as is required by NJAC 13:45A-16.2 (10), and finally that the contractor failed to obtain their consent for modifying the design as required by NJAC 13:405A -16.2 (a)(3) (IV)

Each of the regulations alleged to have been violated regulated the conduct of a “seller.”  The regulation’s definition of the “seller” means a “person engaged in the business of making or selling home improvements  . . .” and included not only the business entity but “their officers, representatives, agents and employees.”  NJAC 13:45A-16.1A.  Given the regulations’ definitions and the definition of person under the CFA, the Court had little trouble finding that an employee or officer could be liable based upon the liberal interpretation required of the CFA.

In this instance the Court had little trouble finding the owners and employees could be liable for violating the particular regulations and therefore, the Consumer Fraud Act.  The Court was also quick to point out that not all regulations may result in the liability of the individual.  Individual liability would be decided based upon the wording of the regulation.  So if a regulation only regulated the conduct of the business entity and did not extend to its agents, then only the entity could be liable for the violation.  Also the Court noted that if the business entity had a “policy” of not requiring a written contract, than its employees may not be liable for carrying out that policy because the employee had little choice in the employee’s actions.

The lesson to be learned is if you are an employer make sure you and your employees understand and follow the law.  If you are an employee it is for your own protection to understand what the law requires of you and not to violate it.  Neither the employee/owner nor the business entity wants to liable to a customer for triple the customer’s damages and to pay the customer’s attorney.  Violating a regulation, even if unknowingly, could put you and the business in that position.

PRIMER ON CONTRACTS UNDER RENEWABLE ENERGY FARMING LAW

Written by PisauroLawAdmin on August 9th, 2011 in Contracts, Leases, Sustainability | No Comments »

Just before leaving office in 2010, Governor Corzine signed into law P.L. 2009 c. 213, also known as the “Renewable Energy Farming Law”.  This law would allow farmers to use part of their farm for solar, biomass, or wind electricity generation without forfeiting their farmland assessment.  The law applies to both commercial farms and to farms that have been preserved, but each group must meet a different set of requirements in order to keep their assessment and the protections under the Right to Farm Act.

The Renewable Energy Farming Law has helped promote entrepreneurs seeking leases for solar farms.  These entrepreneurs are locking up properties with options and proposed leases and it would appear that many farmers are signing these documents without adequately reviewing them.  Developers seek to lock-in the property while they do the necessary planning and obtain the necessary approvals and permits but before signing any of such documents there are some basic contract provisions that you should consider.

solar panelsFirst an “option” is a legally binding contract that a property owner gives to another person or company which ties up the land or object of the option.  This option gives the option holder the right to tie-up the property for a period of time during which the developer conducts the engineering for the project.  The developer also uses this time to obtain the appropriate permits from local land use boards, approvals from Pennsylvania Jersey Maryland Interconnect (PJM) or local utility to connect to the grid and a power purchase agreement to sell the power.

Under basic contract law for there to be a binding contract there has to be consideration.  The asker for the option has to give something of value in exchange for the option.  Obviously, this consideration is usually money.  The developer pays a fee to the landowner so that the owner does not lease the property out to other people or sell it while the developer is doing what is necessary.

The option should also spell out how long the developer can tie up the property.  This period of time should be used by the developer to conduct their due diligence which should include identifying how big of a system can be put on the property and whether or not they can get the interconnections with a local utility and/or PJM.  During this time they should also determine whether there are any environmental issues including wetlands or c1 streams that would limit or impact the system.  Other environmental issues could include whether the property is contaminated by past activities.

The option also sets out the proposed lease agreement.  Therefore, the time to negotiate the terms of the lease is before you sign the option not afterwards. Once you have signed the option agreement the chances are that you have bound yourself to the terms of the lease agreement – whether you like it or not.

Some of the basic terms that should be outlined in the lease include: how long the lease is for and how much “consideration” you are going to receive from the developer.  The lease should also state how payments should be made – monthly, quarterly, or yearly – and whether those payments escalate over the years or remain static, if there will be a commission or percentage earned from the generation and whether you will receive some of the energy for your own use (this is required by the law).

It is very important that both the option and the proposed lease clearly delineate what the developer plans on doing and that there is an explicit recognition that the developer must comply with the renewable energy farming requirements.  The lease should also provide that if, for any reason, the development runs afoul of this law and the property loses its farmland assessment the developer – and not the farmer – will be responsible for paying the rollback taxes.  As we all know farmland pays a reduced property tax but, if the farmland status is ever lost, the property owner is required to pay the full amount of the property tax for the current year and the two prior years – which could be a very substantial amount of money.

You should also consider whether the developer has insurance that will cover any injuries that may occur on the property due to the renewable energy systems or from any environmental damages. While the renewable energy system itself may not cause pollution, the support systems for capturing that energy might.  For example a transformer might leak and those discharges will still need to be cleaned up.

Other things that should be dealt with up front also include how big the system will need to be.    In order to comply with the solar farming law, a system on a commercial form cannot be any bigger than two megawatts.  Additional restrictions apply to farmland that has been preserved.

And there are many other issues to consider. What happens to the lease, the system and your payments if the developer is in default of the lease agreement?  What happens to these things if the developer goes bankrupt?

As you can see, the terms outlined in a proposed option agreement are very important. They can set the parameters of the relationship between the farmer and the solar company for twenty, thirty or more years.  This is a very long time and requires careful consideration before entering.

Legis Update: Contractor Registration Bill to be voted on

Written by Mike Pisauro on March 11th, 2010 in Uncategorized | No Comments »

In Legis Update:  Bill to benefit contractor, sort of  . . . I wrote about a bill that would amend the venue requirements of a complaint filed in the Special Civil Part under the Contractor’s Registration Act.  The Assembly version of the bill was reported out of the Assembly Judiciary Committee on March 8th and will be considered by the full Assembly on Monday, March 15th.  I will let you know what the outcome of the vote.

Legis Update: Bill to benefit contractors, sort of . . .

Written by Mike Pisauro on February 22nd, 2010 in Contracts, Courts, Home Improvement | No Comments »

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.

Do you know when your contracts end? It may not be when you think.

Written by Mike Pisauro on November 4th, 2009 in Basics, Contracts | No Comments »

We are rapidly reaching the end of the year.  It is probably as good of a time as any to take some time aside from running your business to take a look at your future by taking a look at your past.  What do I mean by that?  Well over the last year or so, you have probably signed many contracts for your business.  You may have signed a contract for janitorial services, a lease on your office space or office equipment.  You may have signed a contract to supply you with widgets to be incorporated in the products you sell to your customers.

You should review these contracts and look at when the contracts will end.  Are you close to the end of the contract?  Even if your contract says it will end on December 31st, that does not mean it will has to or will end on that date.   Many of these contracts will have a renewal clause in them.  These clauses allow the contract to be extended under certain circumstances.  There are at least two different kinds of renewal clause.

One type of renewal clause provides that you can extend the contract.  The clause will likely provide for the length of the additional term of the contract as well as the price increase of for the new term.  In order to be effective you must take an affirmative action to renew the contract.  You must notify the vendor in writing that you wish to extend the contract.  For these types of contracts you have to decide at some point prior to the expiration of the contract whether the price increase built into the renewal clause is more or less than what you could get a new contract with a different vendor.  Obviously if the renewal clause is less than what a new contract would cost you, you would renew the contract.   If the renewable price is greater it is either time for a new vendor or at least a discussion with your current vendor to renegotiate a contract.

The second type of renewal clause is the automatic renewal.  This type of clause provides that the contract will automatically renew if you do not take affirmative steps to inform your vendor that you do not want the contract to renew.  Again you must send a letter to your vendor and notify them that you do not want to renew the contract.

Both kinds of renewal clauses usually have a deadline by which you need to act.  This deadline can be days before the end of the contract or it can be several months before the end of the contract.  You need to know this date.  There is nothing worse to find out that your contract renewed and you are stuck paying more for something than have to because your contract automatically renewed.  Taking a few minutes today can save you lots of the money in the future.

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.