Articles Posted by David R. Pierce

Equitable Defenses for Spill Act Liability Other Than God, War or Sabotage

Published on: October 19, 2016 | by David R. Pierce

A New Jersey Supreme Court decision in 2015 settled the uncertainty regarding whether the statute of limitations was a valid defense to liability under the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11, et seq. (the “Spill Act”). The Court in Morristown Assoc. v. Grant Oil Co., 220 N.J. 360 (2015) concluded that the statute of limitations did not act to bar such claims. This was based upon the fact that the statute of limitations was not one of three permissible enumerated defenses to Spill Act liability set forth in the Act itself. N.J.S.A. 58:10-23.11g(d). The Spill Act specifies that the only permissible defenses to liability are: 1) an act of God, 2) war, and 3) sabotage. Id.

This Supreme Court decision gave parties seeking contribution for cleanup costs under the Spill Act a powerful weapon in that they could bring their contribution claim against other responsible parties at any time, even many years later. A recent trial court decision, however, provides hope that despite the limiting and strict language of the Spill Act, various equitable defenses may still be applied to defeat a claim for contribution under the Spill Act under certain circumstances. 22 Temple Ave., Inc. v. Audino, Inc., BER-L-9337-14, 2016 N.J. Super. UnPub. LEXIS 2226 (Law Div. Oct. 5, 2016).

In 22 Temple, the trial court ruled that the plaintiff’s Spill Act contribution claim against the defendant was barred by the doctrine of laches, notwithstanding the fact that laches is not one of the three permissible defenses enumerated in the Spill Act. Id. The doctrine of laches is an equitable defense that is a creation of the common law used to bar claims when the claimant has unreasonably delayed asserting its claim and that delay has prejudiced the defendant, most commonly by making it difficult or impossible for the defendant to mount a fair defense through the loss of evidence and/or witnesses.

Restrictive Covenants Can Thwart Development In Some Cases

Published on: October 11, 2016 | by David R. Pierce

But Can Also Be Used As An Effective Tool To Enhance The Desirability And Market Value Of Other Developments

Many people believe that restrictive covenants are antiquities not to be seen in their lifetime, however, a recent unpublished Appellate Division case, Welch v. Chai Ctr. for Living Judaism, Inc., Nos. A-4088-13T1, A-4163-13T1, 2016 N.J. Super. Unpub. LEXIS 1906 (App. Div. Aug. 15, 2016), should serve as a reminder of their effects.

Restrictive covenants are restrictions contained in a deed which run with the land and either restrict the use of the land or prohibit specified uses. Thus, restrictive covenants can have critical impacts on proposed development of the land. On one hand, they can thwart proposed development, as in the Welch case, but alternatively, they can be used to enhance the desirability and market value of some developments, particularly residential developments.

Downzoning Ordinances: Limiting Development and Preserving Open Space

Published on: July 27, 2016 | by David R. Pierce

Downzoning of lands at the municipal level as a way of limiting development and preserving open space and agricultural land has been taking place in New Jersey for years. Downzoning is the practice of increasing the required lot size for the development of a single family home or, in other words, reducing the density of development permitted under the existing zoning ordinances. These zoning ordinances are typically “hot button” issues which often spawn litigation regarding their validity under the Municipal Land Use Law (N.J.S.A. 40:55D-1 et seq.). Most downzoning litigation does not involve a challenge to the validity of the ordinance as a whole (although that certainly does occur), but in most instances involve a challenge to the validity of the ordinance as applied to one or more specific parcels of property. While a zoning ordinance may be valid in general terms that does not preclude a judicial determination that the ordinance in question is not valid as applied to a specific and distinct parcel of property.

New Jersey law on this issue began to coalesce with the case of Bow & Arrow Manor v. Town of West Orange, 63 N.J. 335 (1973) in which the New Jersey Supreme Court found that although zoning ordinance changes regarding the uses permitted in various zones were valid in general, they were nevertheless invalid as applied to specific properties that were the subject of the lawsuit. Fourteen years later, in Zilinsky v. Zoning Bd. of Adj. of Verona, 105 N.J. 363 (1987), the New Jersey Supreme Court sustained the validity of an ordinance imposing off-street parking requirements in a residential zone and, more particularly, the requirement that one of the two required off street parking spaces had to be provided in a garage. While these two cases did not directly deal with downzoning issues, the legal principles developed in these cases regarding whether or not a zoning ordinance provision was sustainable formed the foundation for the later review of zoning ordinances involving downzoning.

In Riggs v. Long Beach Township, 109 N.J. 601 (1988) the New Jersey Supreme Court invalidated a zoning ordinance that changed the permitted density from 1 unit per five thousand square feet to 1 unit per ten thousand square feet. The court reasoned that the zoning ordinance was enacted for the purpose of depressing the value of the plaintiff’s land so that the municipality could acquire it cheaply. In doing so, the court developed a four part test for analyzing the validity of a zoning ordinance that is challenged:

EPA Proposes Changes to Accident Prevention and Risk Management Plans

Published on: March 24, 2016 | by David R. Pierce

The United States Environmental Protection Agency has proposed new changes to the requirements for the accident prevention programs and risk management plans under Section 112 of the Clean Air Act as a result of a review initiated in response to Executive Order 13650. One of the targets of Section 112 of the Clean Air Act was the reduction and prevention of industrial incidents involving hazardous chemicals.

The rules promulgated by the EPA would subject stationary sources that have more than the threshold quantity of a regulated substance in process to comply with, among others, various accident prevention, emergency response coordination, training and risk management requirements. Facilities subject to these requirements are further divided into Program 1, 2 and 3 facilities, depending upon the risk to public receptors and their history of accidents with off-site consequences, whether they are subject to OSHA’s Process Safety Management standard or their classification within any one of ten different certain North American Industrial Classification System codes specified in the regulations.

The proposed rules will impose significant new compliance obligations on any regulated facility and fall within one of three basic concepts:

Am I a Minority Shareholder?

Published on: February 26, 2016 | by David R. Pierce

New Jersey’s General Corporations law establishes an important statutory remedy for oppressed minority shareholders in a closely held corporation. It is critical to understanding your rights as a shareholder, however, to understand who is considered under the statute to be a minority shareholder. You may well think, I own 50% of the stock in my company so, I can’t possibly be a minority shareholder. Well, if that is what you think, then you are potentially shortchanging yourself.

An owner of 50% of closely held corporation’s stock can be considered a “minority shareholder” within the meaning of N.J.S.A. 14A:12-7(1)(c). Bonavita v. Corbo, 300 N.J.Super. 179, 188 (N.J.Super.Ch. 1996). Thus, even where a corporation is owned equally by two shareholders, a court may order an equitable remedy to a shareholder dispute upon proof that the “minority” shareholder has been oppressed, or the majority shareholder has acted fraudulently or illegally, mismanaged the corporation, or abused their authority. Depending upon the particular circumstances of the case, one court has even indicated that in appropriate circumstances the owner of 98% of stock in closely-held corporation could be considered a “minority” shareholder. The existence of voting agreements and other control restrictions may tilt the playing field in your favor.

In New Jersey, What is Shareholder Oppression?

Published on: February 13, 2016 | by David R. Pierce

New Jersey’s General Corporations law provides a statutory remedy for oppressed shareholders in a closely held corporation. N.J.S.A. 14A:12-7 that so long as a corporation has 25 or fewer shareholders, then any shareholder can bring an action in New Jersey Superior Court seeking dissolution of the corporation when “the directors or those in control have acted fraudulently or illegally, mismanaged the corporation or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more shareholders in their capacities as shareholders, directors, officer or employees.”

Shareholder oppression is not the only circumstance under which such a lawsuit can be commenced, but the other bases for such a lawsuit are relatively straight forward. Thus, the definition of “shareholder oppression” requires some explanation as that term is interpreted by the courts.

As defined by New Jersey’s courts, shareholder oppression means conduct which “frustrates a minority shareholder’s reasonable expectations.” Brenner v. Berkowitz, 134 N.J. at 506. In determining whether a particular course of conduct has oppressed a minority shareholder, courts will examine the understanding of the parties concerning their roles in corporate affairs. Muellenberg v. Bikon Corporation, 143 N.J. 168, 178-9 (1996). When reviewing an oppression claim, the courts will consider even non-monetary expectations of the shareholder when determining whether a shareholder’s expectations are reasonable and whether the corporation or controlling shareholders or directors unreasonably thwarted them. One of the most common expectations of a shareholder in a closely held corporation is continuing employment by the corporation and the termination of a shareholder’s position as an employee frequently leads to shareholder oppression litigation.

Remediation and Sale of Contaminated Industrial Site at Substantially Reduced Cost

Published on: January 21, 2016 | by David R. Pierce

Lindabury assisted an international industrial commodities supplier in all phases of the closure, cleanup and eventual sale of their environmentally contaminated Northern New Jersey industrial property. The property which was first devoted to industrial use in early 1930s, had been in heavy continual use for over 70 years until its closure in 2006.

Just prior to the plant’s closure our client was served with a Proposed Administrative Consent Order regarding its obligation to investigate and remediate environmental conditions at the property at an anticipated cost of approximately $15-20,000,000. The property’s soil and ground water were contaminated and the existence of buried containers and potential off-site contamination were determined to exist.

Due to the harsh stipulated penalties of the Proposed Administrative Consent Order our clients did not sign the Order. Instead, we partnered with our client and assisted them in working with leading environmental consultants and later an LSRP to investigate and remediate the site. The site remediation involved unique investigation and cleanup requirements which we helped manage in conjunction with an environmental consultant. We negotiated and prepared contracts with specialized remediation contractors, including a group expert in asbestos remediation and saw the cleanup to conclusion.

In Shareholder Oppression Cases, Expert Testimony on Company Valuation is Not Absolute

Published on: January 11, 2016 | by David R. Pierce

The New Jersey Appellate Division recently issued a ruling in a minority shareholder oppression case which reinforces the concept that the best way to resolve a minority shareholder oppression case is through settlement. The decision, Wisniewski v. Walsh, et al. (A-2650-13T3), is an unreported case but reaffirms that the finder of fact, whether it be jury or judge, is not bound by, or required to accept, the testimony of any expert and may, in fact, make its own determination of value, as long as it is based upon facts in the record.

Wisniewski v. Walsh is a case that has been in the courts for 20 years on a variety of legal issues. The issues in this particular ruling concerned whether a marketability or illiquidity discount had been imbedded in the valuation experts’ determination of the value of the company and, if not, what discount should be applied. On a prior appeal the Appellate Division had ruled that Norbert Walsh, the oppressing shareholder, was to be bought out and that a marketability discount should be applied to the value of his shares to reduce the purchase price and ensure that he, as the oppressing shareholder, did not receive a windfall by having the purchasing shareholders bear the full burden of the company’s illiquidity.

In this case the dueling experts had used different methods of valuation, one had used a discounted cash flow method of valuation while the other had used a market approach, and the trial court during the valuation aspect of the case had found the discounted cash flow approach more reliable and sound and adopted the first expert’s approach for valuation. The discounted cash flow approach involves estimating the company’s revenues over a period of time, normalizing its expenses and then discounting the resulting income stream to a present value at an appropriate rate. When determining the valuation, the trial judge accepted the first expert’s estimation of future revenues, but rejected his analysis of the company’s expenses, adopting instead the second expert’s approach to normalizing adjustments. The valuation trial judge then accepted the first expert’s discount rate of 12% for purposes of determining the present value of the resulting income stream.

Shift from COAH to State Courts Could be a Boon to Developers

Published on: March 11, 2015 | by David R. Pierce

On March 10, 2015 the New Jersey State Supreme Court issued a unanimous ruling allowing trial courts in the state, rather than the state Council on Affordable Housing (“COAH”), to decide if towns are providing enough low- and moderate-income housing. The Court issued its decision after finding that COAH has repeatedly failed to establish new affordable housing guidelines.

The Court has delayed the implementation of its ruling for 120 days in order to allow parties to prepare “fair share” or “higher density” arguments. Ninety days after the Court’s March 10th ruling, municipalities will have 30 days to file declaratory judgment actions seeking immunity from litigation. Municipalities will need to show the court they have either (1) achieved substantive certification from COAH under prior iterations of the Third Round Rules before they were invalidated, or (2) had achieved “participating” status before COAH. If at the conclusion of the 120 day period municipalities have not either filed for a declaratory judgment, or have not been granted immunity, “builder’s remedy” actions may be brought against the municipality.

Currently 314 of 565 municipalities in New Jersey have plans pending before COAH. Developers and their counsel should remain vigilant as to how trial courts rule on declaratory judgment motions filed by these municipalities. For developers seeking to begin real estate development projects in any of the 251 New Jersey municipalities that do not have plans pending before COAH, developers may seek the assistance of the courts after 90 days from March 10, 2015.