Hanlon Niemann Blog | A Freehold, New Jersey Law Firm

By Fredrick P. Niemann, Esq. New Jersey Business Lawyer

What actions can be brought against a management employee and officer of a corporation who secretly forms a competing business while employed by the corporation?

ANSWER
New Jersey courts have found that if a management employee secretly forms a competing corporation, then the management employee may be liable for a breach of duty of loyalty to the employer which can also be imputed to the newly formed competing corporation.

In a recent case, a vice president/director and his wife formed two businesses while still employed at Vibra-Tech. One of these businesses was in direct competition for the same customer base. The other business sold equipment to Vibra-Tech. Vibra-Tech had no knowledge that one of their own executives was competing with the corporation. A suit was brought against the defendants for unfair competition and breach of fiduciary duty. The defendants moved for summary judgment, arguing that there were no fiduciary duties that the two companies owed Vibra-Tech.

The court discussed earlier New Jersey case law on fiduciary duty and stated that “A hallmark of a fiduciary relationship is one party’s placement of “trust and confidence in another.” This relationship is generally one of unequal terms, where one party is dependent on the advice and care of another. This is the duty that management and directors customarily owe their employees. Directors and officers of a corporation also have both a duty of care and/or a duty of loyalty to the best interests of the business entity. Competitors of a business entity contract in their own self interest and have no such fiduciary duty.

The attorney for the defendants argued that the two businesses of the defendant had no fiduciary duty since they had no direct relationship with the plaintiff.

The court agreed that there was no direct fiduciary duty between the businesses, but found that New Jersey courts had in similar cases,” imputed the individual defendants’ conduct to the corporation and held it liable for breach of the fiduciary duty of loyalty.”   Since the proof of a breach of imputed fiduciary duty of loyalty involves an intensive inquiry into the facts, and an inquiry as to whether the individual utilized the corporate veil to facilitate a breach of duties, the court denied summary judgment, since the facts before the court were either missing or disputed.

Contact me personally today to discuss your business law matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

By Fredrick P. Niemann, Esq. a New Jersey Partnership Attorney

Partnership Disputes are fairly common in the world of business. Trade secrets, embezzlement, conversion and business disparagement are some of the most common causes of partnership disputes. If you suspect that something like that has occurred in your business, you should consult with a qualified partnership dispute attorney in New Jersey.

If you suspect that one of your partners has engaged in some form of wrongdoing, it is important that you investigate immediately. If you fail to do so, this can lead to a more serious dispute. Your partner may be profiting while your business is losing money. That is why is it important for you to consider litigation so that your business is protected from further loss.

A qualified partnership dispute attorney can help your business in several ways. He or she will provide the legal representation that you need to protect your business’s investments and profits. First, the attorney will investigate the breach so that the rights and integrity of your business are protected. After the investigation is complete, he or she will file a claim on your behalf. In order to make sure that your claim will have a successful outcome, the attorney will enlist the help of private investigators, accountants and financial experts. If you decide to dissolve your partnership, he or she will be there to assist you with that. Additionally, an attorney will also be able to help your business recover its losses.

If you suspect that suspicious activity is going on within your partnership, you do not want to wait around because your business could be losing money. Call a qualified partnership dispute attorney in New Jersey so that this issue can be resolved right away.  Contact me personally today to discuss your partnership dispute matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

By Fredrick P. Niemann, Esq., a New Jersey LLC Attorney

LLCs often involve a small number of shareholders who comprise ownership of the business. Business direction and decisions are typically dictated by those who are majority members, those owning more than 50% of the certificates (commonly misidentified as “share”), since they own the biggest piece of the company. This leaves those owning less than 50% of the certificates, known as minority members, as part-owners of businesses which they sometimes have little to contribute. This can present an unfortunate situation for those minority members, an LLC who are unhappy with company decisions being made, but who are unable to sell their interests in the company. Luckily, New Jersey law offers protection to minority members of an LLC, mainly the right against “oppression”.

Oppression is defined as an act directed at a minority member that personally frustrates their reasonable expectations of the role they play in the management, operation, and other general affairs of the company. Simply put, an oppressed minority member is one who does not get along with majority members, but is stuck owning shares in the company based on the majority’s refusal to buy them out. New Jersey statutes prohibit this type of behavior by the majority members. The law states that company’s and majority members may not act in a way that is detrimental to the interests of minority members.

Proving you are an oppressed minority member and entitled to relief from New Jersey Courts involves a two-step process. First, you must show misconduct committed by the company or majority members that is considered oppression. Courts will evaluate the misconduct in each case on an individual basis. Second, you must show that as a minority member, your interests or reasonable expectations in the company were harmed by the misconduct. Without proving a connection between the oppressive acts and the harm you suffered, you will unable to win an oppression case against your company and/or its majority members. It is also important to keep in mind that the harm you suffer can be a monetary interest, but does not have to be. Non-monetary interests such as being consistently silenced in all business decisions can be considered harm in certain situations. Remember, every situation is unique and the New Jersey Courts will consider each on a case-by-case basis.

If you are a minority member in a New Jersey LLC and believe your interests are being oppressed, call Fredrick P. Niemann, Esq., an experienced NJ LLC Attorney today. He welcomes the opportunity to speak with you about your situation and answer any questions you may have. Mr. Niemann can be reached toll-free at 855-376-5291 or by email at fniemann@hnlawfirm.com. He hopes to hear from you shortly.

By Fredrick P. Niemann, Esq., a NJ Passing on Your Business Attorney

Business owners work hard to create a successful business. They often look forward to retiring and passing along their business to their children. This is a proud time, where a parent gets to sit back, relax, and let their child flourish. Unfortunately, more and more businesses today are making the mistake of not planning for this business transfer. The results have been harsh, with many parents being unable to pass their businesses on to their children due to unforeseen taxation issues that arise upon this transfer. Planning for this business transfer can significantly increase the odds of successfully passing your business along.

Most individuals misunderstand the complicated logistics in passing a business to a successor. Business owners often have the impression that since they have a child willing to take over the company, they can simply take a back seat one day and give the child the business. Unfortunately, finding a successor for the business often turns out to be the least of a business owner’s worries.

Taxation can present one of the most significant obstacles to family business owners wishing to pass their business along. Depending on how you plan on passing your business to your child, whether it be through gifting it at some point during your life, passing it through your estate upon your death, or placing the assets of the business in a trust and passing the business along via the trust, different tax implications will ultimately arise. One must consider these tax implications when determining how and when the appropriate time is to pass their business along. Businesses often collapse because their owners are not prepared for the significant taxes that they are forced to pay when transferring the business. A knowledgeable Business Succession Planning Attorney can guide you as to the best method of transfer and most appropriate time period to transfer. 

Business owners may also face other obstacles when attempting to transfer their business, making consultation with a Business Succession Planning Attorney even more important. Some of these challenges include lack of teamwork among children whom the business is being passed to, second-thoughts about letting go by the business owners themselves, and lack of planning as to the direction of the business. Business Succession Planning attorneys are aware of the significant challenges presented to business owners. They can guide you as to what you can expect when the time comes for you to finally pass your business along. Please call Fredrick P. Niemann, Esq., a NJ Business Succession Planning Attorney today. He can be reached toll-free at 855-376-5291 or by email at fniemann@hnlawfirm.com. He looks forward to discussing this important subject with you.

By Fredrick P. Niemann, Esq. a New Jersey Franchise Lawyer

Although the FTC-required disclosure documents are mandatory for first-time purchasers of a franchise, there are no required government disclosure documents that must be furnished to the buyer of an existing franchise business. The seller of the franchise is not required to provide the would-be buyer with the franchiser’s disclosure document.

You will want to very carefully study the terms of the existing franchise contract between the existing franchise and the franchiser. How long is its remaining term? Is the price reasonable? Will the operator compete with you afterwards? How does it compare with new franchises the franchiser sells to others? Will you be acceptable to the franchiser? Franchisers invariably have right to approve the transfer or sale of a franchise, or even to negotiate the right to buy back the franchise, and you don’t want to be a seller’s stalking horse.

An investment in a franchise is a substantial commitment of your money, your time, and your reputation. Our advice is to retain a lawyer to assist you in the process. It usually pays for itself many times over.

If you have any questions, contact Fredrick P. Niemann, Esq. toll free at (888) 800-7442 or e-mail him at fniemann@hnlawfirm.com.  He is happy to answer your inquiries.

By Fredrick P. Niemann, Esq. a New Jersey Contract attorney

Can an e-mail (s) become a contract?  Good question.  Many business men and women think e-mails cannot bind them to a “deal”, thinking that only a written or verbal agreement can form a contract.  New Jersey’s law review begs to differ.  Today a company cannot claim a contract has been formed by the mere exchange of an e-mail(s).   In some cases, they may be correct.

In real estate contracts and leasing deals, when broker’s exchange e-mails often they assume that a formal contract or lease will be prepared and additional negotiations will take place specifying all of the important terms.  But in New Jersey, the law treats an e-mail and their exchange just as it would any other offer and acceptance.  The courts look to the content of the e-mail.  If you have an offer and acceptance, and all of the material terms of a deal are contained in the e-mail, you may have a valid enforceable contract even if you intend to “formalize” the agreement in a paper lease.  E-mail exchanges can sometimes (but not always) create a binding contract even if the parties intend to memorialize their agreement in a subsequent writing.

To help minimize the likelihood of being dragged into a contract lawsuit because of an exchange of e-mail(s), or to help you prevail if you are called into court by a dissatisfied customer who wants to claim a deal, there are several practical steps you can take.  First, you should make it clear, in your e-mail exchange, that there is no agreement, whatsoever, until a formal written document is prepared and duly signed by both parties.  Second, consider adding to your e-mail signature a statement such as this; “To the extent this e-mail discusses the terms of a proposed contract, the e-mail is not intended to bind the party sending the e-mail or its principal to a contract, which contract is expressly understood to be formed only upon the subsequent negotiation of a formal written document, duly agreed-to and signed (via handwriting) by both respective parties”.

New Jersey contract law is just beginning to address the use of e-mail(s) as part of contracts.  The law is generally many years (if not a decade) behind technological advancements.  It is anticipated that as society continues to develop new technologies, like text messaging, the law will slowly evolve as well.

Contact me personally today to discuss your contract matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

By Fredrick P. Niemann, Esq. a New Jersey franchise lawyer

In New Jersey and throughout all 50 states, the franchise agreement is the cornerstone document of the franchise relationship. It is this document that is legally binding on both parties, laying out the rights and obligations of each party. You will always find attached to the FTC disclosure statement a sample franchise agreement or presented separately. Either way, under Federal law, you are entitled to receive it as a prospective franchisee five business days before signature. You should have it reviewed by a lawyer familiar with New Jersey franchise matters–especially since most agreements are extremely one-sided in favor of the franchiser. No one should enter into a franchise and expect to have a fairly written contract.

The agreement will contain provisions covering, in considerable detail, the obligations of the franchiser (the company) and franchisee (you) regarding operating the business; the training and operational support the franchiser will provide (and at what cost); your territory and any exclusivity; the initial duration of the franchise and any renewal rights; how much you must invest; how you must deal with things such as trademarks, patents and signs; what royalties and service fees you will pay; tax issues; what happens if you should want to sell or transfer the franchise; advertising policies; franchisee termination issues; settlement of disputes; by the company, operating practices, cancellation, and attorney fees.

There is no standard form of franchise agreement because the terms, conditions, and the methods of operations of various franchises vary widely depending on the type of business involved. For example, franchises for printing, employment agencies, and automotive products will differ from the franchises for fast food service, convenience stores, or clothing.

Contact me personally today to discuss your franchise matter.  I am easy to talk to, very approachable and can offer you practical, legal ways to handle your concerns.  You can reach me toll free at (855) 376-5291 or e-mail me at fniemann@hnlawfirm.com.

By Fredrick P. Niemann, Esq. a Contract attorney

Two executives held a meeting; the agenda was about forming a new business together.  The discussion later transformed into a one of an offer of employment to one of the executives.
 
For two men in the upper tiers of New Jersey businesses, they chose a decidedly low-tech way to memorialize their agreement. The end result, however, shows how substance can sometimes triumph over form in the law of New Jersey contracts formation.

At the end of their meeting, the executives simply wrote out the agreement by hand on two notebook pages, and both men
signed it. The writing included specifics as to how the newly hired executive would be compensated, the terms on which he could quit if he became unhappy, and what would happen if intellectual property involved in the deal could not be transferred to the telecommunications firm. It also included the statement that “[t]he parties will complete formal contracts as soon as possible but this is binding.” This would turn out to be pivotal language in the litigation that followed.

Unfortunately, the new arrangement quickly went downhill.  After
about six months the new employee was fired. The “formal contracts” envisioned from the beginning were never drafted and signed. When the former employee sued for breach of contract and other claims, over six years of litigation in the New Jersey Courts ensued, with two trials and two appeals.

Much of the case focused on whether the handwritten agreement that started everything was a valid, binding contract. The telecommunications company argued that it was merely an “agreement to agree.”

However, a jury eventually ruled that the agreement was valid, and that the employer had breached the terms of the contract represented by the two notebook pages.

Four factors are usually considered in determining whether a New Jersey “preliminary agreement” is binding. In this case, the first two clearly favored the fired executive:  There was no explicit reservation of a right not to be bound (in fact, the handwritten agreement said the opposite) and the executive had partially performed the contract. The third factor was about whether all of the terms of the alleged contract were agreed upon. On that point, the agreement, although it may have lacked some details, addressed all of the essentials for a binding contract.

The final factor is whether the agreement was a type of contract that is usually committed to writing in a formal manner. When millions are at stake, as was the case here, it may be unusual to seal the deal with a handwritten document, in outline form, and drafted on the spot by one of the principals without benefit of legal counsel.  The agreement was not much to look at, barely surpassing in formality the proverbial agreement scribbled on a cocktail napkin. Still, that it was unorthodox did not mean that the method was unprecedented. In the end, this factor, balanced against the other three, was not enough to discard the agreement and deprive the departed executive of the benefits of his bargain.

Written contracts, regardless of length, will be enforced in New Jersey provided sufficient detail is recited.  If you have a contract issue that needs review and analysis, contact Fredrick P. Niemann, Esq. toll-free at (888) 800-7442 or e-mail him at fniemann@hnlawfirm.com.  He has prepared, reviewed and advised clients on hundreds if not thousands of New Jersey and Interstate contracts.  For further information, go to http://www.youtube.com/user/NJBusinessLaw#p/search/0/zQRtR4wnmHA to learn more.

By Fredrick P. Niemann, Esq. a New Jersey Contract attorney

Disputes often arise within the construction process. Sometimes contractors and subcontractors provide services that the owner either deems to be insufficient or not what they agreed upon. Other times, an owner will refuse to pay a contractor because they simply do not have the money. Whatever the reason, the construction forum provides numerous disputes between parties that need to be settled.  While negotiations and settlements between the parties are often favorable, sometimes parties simply can’t agree. In these cases, the dispute is brought to the New Jersey Courts to figure out the proper course of action. The Courts offer a solution and finality to the dispute.

One recent dispute involved construction by plaintiff, a construction company, on the hotel of the defendant to help make the hotel more adequately able to handle inclement weather. After plaintiff completed the construction, they sought payment for repairing the storm drains and weatherproofing the rooms. Defendant refused to pay, claiming that the work was improper, insufficient, and overall not what they agreed to. The trial court, citing the fact that the defendant offered no expert testimony to show that plaintiff’s methods were improper, ruled for the plaintiff and awarded them the amount agreed to in the contract. Defendant appealed, the New Jersey Appellate Division deferred to the trial court judge, stating that they found no reason to doubt the judge’s findings, stating they were supported by adequate, substantial, and credible evidence.

Construction disputes are frequent and can provide serious headaches. An experienced Construction Law attorney can help negotiate a settlement with the opposing party or defend your case when you encounter an unreasonable adversary. It is important to hire a knowledgeable attorney who is familiar with local construction laws to ensure all your rights are upheld. Please call Fredrick P. Niemann, Esq., a qualified NJ Construction Law Attorney, toll-free at 888-800-7442. He can also be emailed at fniemann@hnlawfirm.com. He would be happy to answers any questions you may have related to New Jersey construction laws.

By Fredrick P. Niemann, Esq., a NJ Shareholder Dispute Attorney

 
Shareholder’s agreements should be an essential part of every small corporation’s structure in New Jersey. These agreements outline every aspect of  corporate government and shareholder ties to the business, including ownership and voting rights, control and management of the corporation, methods of resolving disputes, and two key provisions known as the buy-sell agreement and the restrictive covenant.

Buy-sell provisions and restrictive covenants are both integral parts of a quality shareholders agreement, particularly in smaller businesses with fewer shareholders. Smaller corporations often elect to establish ownership via shares in the business. For example, a small corporation with four co-owners elects to establish that each member owns 25 shares out of 100, thus 25% of the business. The shareholders agreement is an agreement between all of the shareholders in the corporation and will serve as the main document that Courts will look to whenever a dispute arises.

Shareholders agreements can be simple or complex and everyone is unique to the corporation it is written for. While many shareholders today are knowledgeable enough to make these agreements, they often are created without the assistance of a New Jersey Shareholders Attorney, thus lacking key components that leave many of the shareholders vulnerable. The buy-sell agreement and restrictive covenant provisions are two of these key components.

A buy-sell agreement dictates what will happen to the shares of a shareholder who wishes to leave the company. Since a shareholder who wishes to leave must sell their shares, a dispute often arises as to who they are selling their shares to and what price they are being sold for. Often the departing shareholder will want to sell shares to the highest bidder. This may be someone that the remaining shareholders do not want to be in business with. Also, if the corporation itself or the remaining shareholders are “buying out” the departing shareholder, the departing shareholder often thinks the shares are worth more than the remaining shareholders do. Fortunately, a typical buy-sell provision settles these disputes beforehand, stating who will buy the shares and the price they will be bought at when a departing member leaves the corporation. If any debate arises as a shareholder is leaving, the Courts will simply enforce the shareholders agreement and the buy-sell provision.

As for restrictive covenants, these are most useful for smaller corporations that licensed professions and professions involving particularized skills, such as doctors, attorneys, scientists, etc. A restrictive covenant lays out an area around the business where a departing member is forbidden from working, whether it is with another rival corporation or in their own practice. As long as they are reasonable in space and time, Courts will uphold restrictive covenants. These are useful to prevent a shareholder from departing and stealing clients from the remaining shareholders.

Shareholder agreements are complicated and should involve many different aspects that the normal shareholder often does not think of. Always consult a shareholders attorney before signing such an agreement. Please contact Fredrick P. Niemann, Esq., a NJ Shareholders attorney, today toll-free at 888-800-7442 or by email at fniemann@hnlawfirm.com.  For further information, go to http://www.youtube.com/user/NJBusinessLaw#p/search/0/pKIalQAdprY to learn more.