REPORT FROM COUNSEL

SPRING 2004 ISSUE

NEW AND NOTEWORTHY

* Cindy Vogelman was re-appointed to the New Jersey Supreme Court Committee on the Unauthorized Practice of Law for a 3-year term through December 31, 2006.

* Ralph Lamparello appeared on the Court TV program Both Sides on January 22, 2004, providing legal commentary in the matter of Wisconsin v. Kope, in which a son was accused of criminally causing his father's death, arising from an auto accident.

* CLBL recently revised the City of Jersey City's policy on unlawful discrimination, including sexual harassment. John Shahdanian II and Julien Neals are also conducting sensitivity training seminars for all supervisory and managerial level employees of Jersey City.

* Peter Bariso, Jr. authored four articles on education law that will appear in The Encyclopedia of New Jersey to be published by the Rutgers University Press on April 26, 2004. The articles are Robinson v. Cahill,Abbot v. Burke, Thorough and Efficient Education and Charter Schools.

* Joel Leyner was one of two New Jersey attorneys appointed to the Nominating Committee of the New Jersey State Bar Association. This committee nominates the officers and trustees of the NJ State Bar.

* At the February monthly meeting of the Hudson-Bergen Inn of Transactional Counsel, Robert Kaye co-presented a program on "Letters of Intent in Commercial Leasing."

* Robert Cappuzzo was recently appointed to the National Arbitration Forum Advisory Council for PIP Arbitrations (NAF). NAF is comprised of attorneys and insurance representatives who administer PIP arbitration cases in New Jersey. NAF members assist in the selection of arbitrators and their training statewide, as well as in the preparation of new arbitration rules.

* Mitzy Galis-Menendez was honored on February 11, 2004, with an award in recognition for 2003 service to the Hudson County Bar Association and her service as President of the Young Lawyers' Division.

* Peter Bariso, Jr. will speak at a March 2004 seminar titled "Medical Education for Lawyers: New Techniques in the Treatment of Injuries to the Spine" sponsored by the New Jersey Institute for Continuing Legal Education.

CASENOTES

* Anthony D'Elia obtained a dismissal on behalf of the Clifton Board of Education in a lawsuit in which a property owner sought to compel the Board to pay more than $4 million and take title to its property. The property owner claimed that he had entered into a contract with a third party to sell his property for $4 million and that, subsequently, the Board notified the property owner that it was considering acquiring the property (through condemnation) for school purposes. Upon learning of the Board's interest, the buyer cancelled its contract. Relying on state and federal case law, Mr. D'Elia was granted a ruling dismissing the property owner's lawsuit. Anthony D'Elia was assisted by Amy DePaul.

* In a recent trial before the Hon. Barbara Curran in Superior Court, Robert Cappuzzo represented a client insured by New Jersey Manufacturers Insurance Company. After agreeing to a Stipulation of Damages in the amount of $125,000, Mr. Cappuzzo argued that the accident was caused by the actions of the plaintiff. The jury returned a verdict against the plaintiff.

* After three days of trial, Steven Menaker obtained a settlement on behalf of a patient whose delayed treatment in the emergency room of a northern New Jersey hospital caused her death. The terms of the settlement and the identity of the hospital are confidential.

* Walter Schneider successfully argued before the Appellate Division on behalf of the defendant/respondent on an appeal of the entry of summary judgment pursuant to the pre-AICRA verbal threshold. At the trial court, Mr. Schneider showed the injuries had not caused a serious impact upon plaintiff's lifestyle activities and won the motion. Cindy Vogelman and Catherine Gingeleskie prepared the appellate brief. The Appellate Division affirmed the trial judge's ruling.

* Robert Kaye recently negotiated a 12-year lease for office space at the MGM building in New York City. Bob represented the international accounting and consulting firm of Rothstein Kass & Co.

* John Mallon successfully defended a client insured by New Jersey Manufacturers Insurance Company in an auto negligence case in Hudson County. The case involved allegations of insurance fraud. The plaintiff alleged that she was struck by the client's auto; the client testified the plaintiff tripped while running across the street. The jury found for our client.

* The Superior Court Appellate Division recently dismissed an appeal filed by a Union City teacher against the Union City Board of Education. The teacher's complaint was dismissed for lack of merit following her dismissal for chronic and excessive absenteeism. Mitzy Galis-Menendez represented the Board.

* Walter Schneider successfully defended an Allstate Insurance Company insured driver in a jury trial in Superior Court, Bergen County. The plaintiff's medical experts testified the plaintiff sustained substantial spinal and other injuries. Mr. Schneider argued that the evidence showed the alleged conditions were preexisting and degenerative. The jury agreed with Mr. Schneider by finding the accident did not cause the plaintiff's injuries.

* On March 1, 2004, Anthony D'Elia appeared before the New Jersey Office of Administrative Law, on behalf of a municipal supervisor who was terminated for disciplinary reasons after serving 18 years as a department head. Mr. D'Elia was successful in having the client reinstated to his former position along with full benefits and back pay.

BUY-SELL AGREEMENTS FOR SMALL BUSINESSES

The transfer of ownership interests in a small business should take into account all of the considerations that make each business, and especially a family-owned business, unique. The vehicle for accomplishing the transfer is usually called a buy-sell agreement. Its name barely begins to describe the buy-sell agreement's various purposes. With professional advice, the agreement can be tailored to meet the objectives of each small business, whether the business is in the form of a close corporation, partnership, limited liability company, or some other structure.

By creating a market for the ownership interest of a shareholder who has retired, become disabled, or died, a buy-sell agreement insures that such an interest can be converted into cash when cash is more important than having shares in the company. Since small businesses often pay out most or all of their profits in salaries, an equity interest in the business would be much less valuable if its owner was not assured of being able to sell that interest back to the business or to other shareholders.

Valuation of the Business

When a triggering event in a buy-sell agreement causes the interest of one owner of a business to be purchased by other owners, or by the business as an entity, a critical issue is placing a dollar value on that interest. It is difficult to set a market value for shares in closely held corporations, whose stock by its nature has little or no liquidity. An agreement can set the price for shares according to a predetermined formula, value as shown on the company's books, an appraisal by a third party, or some other method. In any event, it is important that the provisions on the valuation and purchase price of shares in the company be kept current.

Orderly Transition of Ownership

A buy-sell agreement also may serve as an orderly method for maintaining control over the company despite a change in the composition of its owners. In a family-owned business, this may mean a clause in the agreement effectively keeping the business in the family by allowing remaining family members to buy the interest of a departing owner. For children who decide not to carry on in the business, cash, perhaps generated by life insurance on a senior owner, might be an alternative to inheriting part of the business.

A typical buy-sell agreement for a family business provides that, on the death or departure of one shareholder, the remaining shareholders have the right to purchase his or her shares. Those participating in the buyout usually acquire those shares in an amount commensurate with their holdings. An alternative could give the corporation itself the right to purchase the shares. However, this option may bring into play laws for the protection of creditors that limit the power of corporations to purchase their own shares. A hybrid approach sometimes used in buy-sell agreements allows the business to buy its own shares, only to the extent permitted by relevant statutes, but the remaining shareholders could then purchase any shares not acquired by the corporation.

Avoid Conflicting Terms

Since one of the triggers for application of a buy-sell agreement is a shareholder's death, shareholders should avoid conflicts between the terms of the agreement and their estate plans. When the terms of an agreement and a will cannot easily be reconciled, the odds increase for litigation, rather than the smooth transition for which the agreement was designed. If a will predates the agreement, it may be necessary to draft a new will that is consistent with the agreement. A less-complicated approach is to amend the will with a codicil providing that business interests are to be disposed of according to the buy-sell agreement.

Consistency between an estate plan and a buy-sell agreement is important not only as to disposition of shares, but also as to voting or management rights in the company. A shareholder should determine whether his estate or heirs should have such rights, and then be sure that the documents accurately reflect the shareholder's wishes. Similarly, a shareholder should consider whether limits on his executor's voting rights are desirable, so as to avoid the possibility that the executor will act to frustrate the shareholder's intent.

One purpose of any contract is to avoid future disputes between the parties by establishing rights and duties for future contingencies. Aside from dealing with the substantive issues raised by transferred ownership, a buy-sell agreement also can head off conflict, or at least help solve it, by providing for a form of alternative dispute resolution or mediation.

REVIEW YOUR CREDIT REPORT

When the time comes for an important transaction for an individual, such as buying insurance, taking out a mortgage, or applying for a job, having good credit can be critical. Second only to having good credit is being able to prove it in writing, in a consumer report compiled by one of the credit reporting agencies (CRAs) that have credit information on millions of Americans. If you have ever applied for a credit card, insurance, or a personal loan, one or more of the three major CRAs has a file on you.

By law a consumer has the right to request a copy of a report from a CRA, and that right should be exercised annually to check on the accuracy of the report's contents. Such oversight has added significance if a major purchase is being considered. Rectifying any errors ahead of time, which itself can be time-consuming, can shorten the waiting period for loan approval.

A CRA must divulge everything that is in a consumer report including, in most instances, the source of the information. The consumer also has the right to know who has requested the report during the preceding year, or two years if the request is related to employment. Aside from reports prompted only by the consumer's initiative, a report can be requested when a consumer is notified that a company has turned down the consumer's application for credit. That notice, including the CRA's name, address, and phone number, is required by law.

If you detect errors in your report, the process of setting the record straight involves contacting both the CRA and the provider of the information in dispute. A consumer's rights concerning errors in a consumer report are as follows:

* If disputed information cannot be verified, the CRA must delete it;

* If there is inaccurate information, the CRA must correct it;

* If there is incomplete information, such as a record that shows that a consumer made late payments but does not show that the consumer is current, the CRA must complete it;

* The CRA, having changed or removed information after a reinvestigation, may not put it back in the file unless the information provider verifies the information and the CRA gives advance notice to the consumer;

* The CRA must delete any account not belonging to the consumer;

* If requested by the consumer, the CRA must send notices of a corrected report to anyone who received it in the preceding six months, or two years if received for employment purposes.

If the credit story told by a consumer report is sad but true, the best ally for a consumer who has changed his ways is the passage of time. As a general rule, accurate negative information in a report can stay there for only seven years. There are some exceptions, for which the "shelf life" of negative information is extended. For example, bankruptcy information may be reported for ten years, and there is no time limit for information on criminal convictions. Similarly, there is no time limit for credit information stemming from an application for a job paying more than $75,000, or an application for more than $150,000 worth of credit or life insurance.