Our original article detailing some of the more notable provisions of New Jersey’s state court and federal local rules received such overwhelming interest that we decided to write this follow-up segment. A backlog of cases during the 2010-2011 court term did not deter New Jersey state courts from rendering some decisions we found noteworthy. Here are ten cases that will likely impact your business in New Jersey.
Contracts – Exculpatory Agreements
Upholding the validity and enforceability of the waiver included in plaintiff’s gym membership agreement, Stelluti v. Casapenn Enterprises, LLC held that defendant-fitness center was not liable for injuries plaintiff sustained when the handlebars on her stationary bike were dislodged during a spinning class. The Court found that enforcement of the exculpatory agreement did not violate public policy and did not contradict any legal duty owed to plaintiff. Accordingly, defendant was not liable for negligence claims that had been waived under the exculpatory agreement.
Takeaway: The value of a well-drafted exculpatory agreement must not be underestimated, and businesses must ensure that they have the proper contractual safeguards in place to reduce liability.
Contracts - Indemnification Agreements
In Kieffer v. Best Buy Stores, L.P., American Industrial Cleaning (American) signed a contract with Best Buy to clean its stores. The Best Buy-American contract stated American would defend and indemnify Best Buy against “actions, suits, cause of actions, claims and demands” arising from a breach of the agreement. American executed a subcontract with All Cleaning Solutions (ACS), stating that ACS would defend and indemnify American and Best Buy “from any connection with any act of negligence, omission, or conduct arising out of the operation of [ACS’s] business.” Plaintiff sued Best Buy, alleging she fell due to a slippery substance on the floor at a Best Buy store. Best Buy joined American in the lawsuit. American joined ACS. The trial court granted summary judgment in favor of Best Buy, American and ACS, finding that they were not negligent. The Supreme Court was asked to decide who was entitled to indemnification. The Court held that American was obligated to indemnify Best Buy for its costs based on the broad language of the Best Buy-American contract, providing that American would indemnify Best Buy for suits and causes of action arising from their contract. Conversely, ACS did not have to indemnify American and Best Buy, because the American-ACS contract provided that ACS would indemnify American and Best Buy only for negligence, an omission or conduct arising out of the operation of ACS’s business. Because ACS was not negligent, the American-ACS indemnification provision was not triggered.
Takeaway: Businesses must be certain that their indemnification agreements are drafted with sufficient care to cover the instances for which they intend to be indemnified.
Consumer Fraud Act – Personal Liability
In Allen v. V and A Bros., Inc. et al., the Supreme Court reinforced the broad scope of New Jersey’s Consumer Fraud Act (CFA). The Court held that a corporation’s principals can be personally liable under the CFA if the corporation establishes corporate policies or procedures that violate applicable state regulations (e.g., adopting a course of conduct where written contracts are never used for home improvement projects contrary to applicable regulations). There is little basis to extend personal liability to employees, assuming they are merely complying with a corporate policy. However, if an employee deliberately acts to cause a regulatory violation (e.g., unilaterally deciding to use an inferior product in place of the product designated in the contract), then personal liability may result.
Takeaway: Businesses should take care to ensure that their policies are in compliance with applicable regulations and that their employees are abiding by those policies.
Arbitration – Enforceability of Arbitration Agreements
Interpreting the Federal Arbitration Act, NAACP of Camden County East v. Foulke Management Corp., the court acknowledged the U.S. Supreme Court’s recent decision in AT&T Mobility v. Concepcion, preempting state laws that invalidate class action waivers in arbitration agreements on public policy grounds. However, an arbitration provision may still be invalidated based upon other general contract principals, such as unconscionability or lack of mutual assent. Thus, in NAACP, the court found an arbitration agreement was not enforceable where its terms were confusing and inconsistent and led to a lack of mutual assent.
Takeaway: It is vital that arbitration agreements are clear, conspicuous, and precise; otherwise, they may be deemed unenforceable.
Corporations - Capacity to Sue
An often overlooked statute, section 14A:13-11(1) of New Jersey’s Business Corporation Act, may spell trouble for an unsuspecting business. It provides: “No foreign corporation transacting business in this State without a certificate of authority shall maintain any action … [in] this State, until such corporation shall have obtained a certificate of authority.” In Bonnier Corp. v. Jersey Cape Yacht Sales, Inc., a Delaware corporation with headquarters in Florida sued a New Jersey retailer for failure to pay for advertisements in plaintiff’s magazine. The complaint was dismissed because plaintiff did not have a certificate of authority. The court found that in light of the federal Commerce Clause, N.J.S.A. 14A:13-11(1) cannot require a foreign corporation to obtain a certificate of authority if it engages in interstate commerce, but no intrastate business. In order for the statute to apply, a party must engage in some intrastate business. In Bonnier, defendant could not demonstrate that plaintiff engaged in intrastate business in New Jersey. Plaintiff’s magazines were national publications, not local, and there was no evidence that its advertisements were placed only in New Jersey editions of the magazines. Thus, plaintiff’s case was reinstated. Compare Eli Lilly & Co. v. Sav-on Drugs, Inc. (plaintiff, who maintained offices and employees in New Jersey and regularly sold directly to New Jersey retailers, was held to have engaged in intrastate commerce and subject to N.J.S.A. 14A:13-11(1)).
Takeaway: Before filing suit, it is important to determine whether your business engages in intrastate activities in New Jersey that would require a certificate of authority before initiating a lawsuit. Defendants may also use this statute to avoid the costs and burden of a premature lawsuit filed by an unregistered foreign corporation conducting intrastate business in New Jersey.
Government - Open Public Records Act
Requests for government records pursuant to New Jersey’s Open Public Records Act, N.J.S.A. 47:1A-1, et seq. (OPRA), can be a valuable tool during the course of a lawsuit. But it is not always clear whether an organization constitutes a “public agency” and is therefore subject to the public disclosure requirements of OPRA. In Fair Share Housing Center, Inc. v. New Jersey League of Municipalities, the court considered whether the New Jersey League of Municipalities (NJLOM), a nonprofit, statutorily created, unincorporated association representing the 566 municipalities in New Jersey, is a “public agency.” The court explained that the meaning of “public agency” is broad and includes instrumentalities created by a combination of political subdivisions. Reasoning that the NJLOM pooled money from its member municipalities and was controlled by officials who were elected or appointed by its members, the court held that the NJLOM was a “public agency” and had to provide access to its records under OPRA.
Takeaway: If engaged in a lawsuit with a public agency, requesting documents via OPRA may be an effective and expeditious way in which to obtain necessary documents.
Limited Partnerships – Personal Liability: Piercing the Corporate Veil
In Sanford Canter v. Lakewood of Voorhees, the court held that the doctrine of “piercing the corporate veil,” which typically had been applied to corporations and LLCs to hold principals personally liable, can be applied to limited partnerships. Prior to Canter, limited partners were not exposed to personal liability if they acted within the Uniform Limited Partnership Law’s “safe harbor” provision, which offers protections and limits liability to limited partners under certain circumstances. Now, a limited partner may be personally liable for the partnership’s debts if there is evidence that the partnership is used to perpetrate a fraud, illegality or injustice.
Takeaway: It is critical that limited partnerships observe corporate formalities, clearly define the relationship and roles of its limited and general partners, and adhere to the terms of the partnership agreement.
Procedure - Forum Selection Clauses
In Hoffman v. Supplements Togo Management, LLC, plaintiff purchased a dietary supplement from defendant’s website. Plaintiff brought a CFA action against defendant in New Jersey, claiming defendant made false representations about the supplement. Defendant countered that a forum selection clause on defendant’s website, designating Nevada as the forum for litigation, barred plaintiff’s claim in New Jersey. Forum selection clauses are generally enforceable if they are not the product of fraud, do not violate public policy, and their enforcement would not seriously inconvenience the parties. Defendant’s forum selection clause, however, was in a “submerged portion” of the website, was “unreasonably masked from the [purchaser’s] view,” and was not included on the page where the purchaser ultimately executed the purchase. Accordingly, the forum selection clause was held to be unenforceable because it did not appear in a “fair and forthright fashion.”
Takeaway: Businesses must ensure that their websites provide reasonable notice of forum selection clauses and other legal terms and that these terms are conspicuously displayed.
Procedure - Government Entities
It is well known that before filing a tort claim against a government entity, plaintiffs must first file notices of claims pursuant to the Torts Claim Act. What is not as well known, however, is that New Jersey’s Contractual Liability Act (CLA) has an identical requirement, which applies even if an action against the state is already pending. In County of Hudson v. Department of Corrections, plaintiff provided notice under the CLA, then initiated suit against the state. Thereafter, plaintiff attempted to amend its complaint to include additional claims against the state, but it did not first provide notice of its new claims. The court held that plaintiff’s motion to amend its complaint was properly denied because plaintiff failed to comply with the CLA’s notice requirement, and that the amended complaint was not a substitute for the statutory mandate that notice must be provided prior to filing a lawsuit.
Takeaway: County of Hudson provides a warning that litigants must provide notice for each and every claim before filing a contract claim against the state.
Procedure - Personal Jurisdiction
Under the federal Due Process Clause, courts may exercise jurisdiction over non-residents that have “minimum contacts” with the forum state. Where a cause of action arises from contacts with the forum state, the court’s jurisdiction is “specific.” If the cause of action is unrelated to defendant’s contacts with the forum state, jurisdiction is “general,” and the contacts must be “continuous and substantial.” In Mische v. Bracey’s Supermarket, plaintiff fell at defendant’s Pennsylvania supermarket and filed suit in New Jersey. Defendant operated supermarkets in both Pennsylvania and New Jersey and was part of a New Jersey-based cooperative supplying 85 percent of defendant’s inventory. Defendant moved to dismiss for lack of jurisdiction. The Appellate Division held that plaintiff’s claim, a slip and fall, was unrelated to defendant’s contacts (inventory purchases) in New Jersey. Therefore, there was no specific jurisdiction. The court further held that defendant’s only contact with New Jersey, its participation in the retailer cooperative, was not “continuous and substantial” for purposes of general jurisdiction. Plaintiff’s claim was dismissed.
Takeaway: If you are sued in New Jersey, but your business does not have the requisite contacts in the state, you may be able to avoid the costs and burden of a lawsuit by filing a motion to dismiss on jurisdictional grounds at the early stages of the lawsuit.
For a copy of “As Local As Local Law Gets: Navigating New Jersey's Unique Legal Landscape,” visit http://www.metrocorpcounsel.com/articles/12624/local-local-law-gets-navigating-new-jerseys-unique-legal-landscape.