Business, family and product liability issues the focus in latest newsletters

Following are excerpts from newsletters recently published or soon to be published by various sections of the New Jersey State Bar Association. These briefs represent a small sampling of the informative articles available to NJSBA section members, who also have access to back issues of newsletters online at www.njsba.com by logging in using their member identification number.

Business Law Section Newsletter

ESOPS are an Excellent Business Succession Planning Alternative

by Mark R. Kossow

Imagine the scenario in which a business owner spends 30+ years developing and maturing a successful, privately held business. After a successful run, the owner, whose children have little interest in taking over the business, decides to cash out and sell the business. However, the owner, who is very proud of the business and the strong positive reputation associated with the company’s name and branding, desires that the company keep its name and branding in place. In addition, the owner wants to make certain the company’s loyal employees are not harmed by the sale. So before inking a deal with a private equity firm, the business owner negotiates certain protections to achieve these goals—a two-year employment agreement for the owner (the longest period of time the private equity firm would agree to) and an agreement that the company must remain in the same facility for at least three years following the sale. Finally, the business owner would like to reinvest the proceeds generated by the sale of the business in marketable securities in a tax-favorable manner.

Now fast forward to three years following the completion of the sale of the business. The private equity firm (now owning the company) has decided to consolidate the company’s operations with another one of its portfolio companies. As a result of this restructuring, the company’s products will now be marketed under a different name, and its operations will be moved to a location that is more than 300 miles away from the company’s historical operating location. Due to the consolidation of operations and the related relocation, most of the company’s employees will lose their jobs.

The former owner of the company is powerless to protect the company’s former brand name and employees because she was forced to retire more than a year earlier, at age 60, when the private equity firm elected not to extend her employment agreement. Even though the owner of the company was able to liquidate her investment in the company through the private equity sale transaction, she still had to pay capital gains tax on the sale proceeds. Moreover, two of her other primary objectives have not been achieved. Most of the company’s employees are now unemployed, and the company’s iconic brand name and identity have been gobbled up as part of a larger conglomerate.

There is an alternative sale strategy the owner could have pursued to both monetize her investment in the company in a tax favorable manner and achieve her other goals. Had this business owner sold her company stock to an employee stock ownership plan (an ESOP), the above unfavorable outcomes to both company branding/identity and employees would never have occurred. In addition, under certain circumstances the business owner could have deferred the imposition of capital gains tax on the sale proceeds.

Diversity Committee Newsletter

Taking Ownership of Diversity: A Career Development Primer for Diverse Attorneys

by Cedric Ashley

Many of the diversity and inclusion initiatives within the legal profession focus on efforts to increase representation of diverse attorneys in settings that have historically lacked diversity. These efforts tend to be directed toward change within the institutional setting or securing employment within those environments for diverse lawyers.

Diverse lawyers must take it upon themselves to proactively prepare themselves to gain entry to and succeed within these non-diverse settings and within the profession in general. There are at least two areas of growth that will greatly benefit the development of one’s career: expanding your knowledge and expanding your network.

You can never stop learning or discovering what you don’t know. Expansion of knowledge is not just limited to law. It also includes learning about the underlying industries or business of our clients. As lawyers, we should not exist in isolation. There’s no question that, first and foremost, you must be super-proficient in your legal work. But that is not enough to set you apart from your equally super-proficient colleagues.

New Jersey Family Lawyer

Common Mistakes When Referencing Trusts in Marital Settlement Agreements

by Laurie A. Hauptman and Yale S. Hauptman

An important role that attorneys perform in any legal dispute is to assist the parties in resolving their differences. A settlement agreement must address as many contingencies as possible to provide certainty to the parties and reduce the need for future litigation. A marital settlement agreement (MSA) is no different. It must resolve the issues in the dispute and must cover possible and/or expected changes in the future. Trusts are often necessary to help cover those future contingencies.

The resolution of a divorce typically involves ongoing payments by one party to the other in the form of alimony and/or child support. The court permits orders regarding the payment of alimony and child support for the care, custody, education and maintenance of the children, and may require security for the enforcement of such orders, including the creation of trusts. These payments may be intended to last for years, and an important consideration is, therefore, what happens if one or both parties die? Life insurance plays an important role in addressing that potential problem. It can provide instant cash to cover alimony or child support payments that are lost when a party dies and the supported party no longer has the income stream from which to cover those payments.3

Is it simply enough to insert language in the MSA that says, “each party shall purchase life insurance to be held in trust for the benefit of the children with the other spouse to act as trustee”? Without a clear understanding of what a ‘trust’ is, one might think so. This one sentence with nothing more, however, does not accomplish the goal.

Product Liability and Mass Tort Section

TCCWNA: An Unusual Statute with an Uncertain Future

by Zane Riester, Jean Patterson and Elizabeth Monahan

Before 2016, few New Jersey attorneys had ever encountered the Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA). Although TCCWNA has been in existence for over 30 years, there were—until recently—only a handful of reported cases applying the statute, and class action complaints alleging violations of the statute were even more rare. That all changed in 2016, when over 40 class actions alleging TCCWNA violations were filed in the state. That flood of complaints has suddenly made TCCWNA a hot topic in the class action bar and beyond, and plaintiffs are increasingly pursuing TCCNWA claims. Yet, the scope and impact of TCCWNA remains largely unclear. A number of recent decisions have helped define the parameters of TCCWNA, and several pending cases promise additional clarity. Soon, it will become clear whether the TCCWNA claim is a one-hit-wonder or a cause of action that is here to stay.

For the unacquainted, TCCWNA is a unique statute that allows plaintiffs to bring claims without alleging any apparent injury or actual harm, or seemingly establishing reliance or proving any intent on the part of the defendant. Moreover, TCCWNA claims can be based on any alleged violation of any New Jersey law or regulation, no matter how insignificant or obscure. Although some district courts have effectively curtailed the statute’s seemingly broad reach through the enforcement of standing principles, recent rulings by the Third Circuit suggest that may not be the right move.